[House Report 106-341]
[From the U.S. Government Publishing Office]



106th Congress                                            Rept. 106-341
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
       ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT

                                _______
                                

               September 27, 1999.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 1714]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Commerce, to whom was referred the bill 
(H.R. 1714) to facilitate the use of electronic records and 
signatures in interstate or foreign commerce, 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..............................................     5
Background and Need for Legislation..............................     6
Hearings.........................................................    10
Committee Consideration..........................................    10
Committee Votes..................................................    10
Committee Oversight Findings.....................................    11
Committee on Government Reform Oversight Findings................    11
New Budget Authority, Entitlement Authority, and Tax Expenditures    11
Committee Cost Estimate..........................................    11
Congressional Budget Office Estimate.............................    11
Federal Mandates Statement.......................................    12
Advisory Committee Statement.....................................    12
Constitutional Authority Statement...............................    13
Applicability to Legislative Branch..............................    13
Section-by-Section Analysis of the Legislation...................    13
Changes in Existing Law Made by the Bill, as Reported............    19

                               Amendment

      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 ``Electronic Signatures in Global 
and National Commerce Act''.

  TITLE I--VALIDITY OF ELECTRONIC RECORDS AND SIGNATURES FOR COMMERCE

SEC. 101. GENERAL RULE OF VALIDITY.

  (a) General Rule.--With respect to any contract or agreement entered 
into in or affecting interstate or foreign commerce, notwithstanding 
any statute, regulation, or other rule of law, the legal effect, 
validity, or enforceability of such contract or agreement shall not be 
denied--
          (1) on the ground that the contract or agreement is not in 
        writing if the contract or agreement is an electronic record; 
        or
          (2) on the ground that the contract or agreement is not 
        signed or is not affirmed by a signature if the contract or 
        agreement is signed or affirmed by an electronic signature.
  (b) Autonomy of Parties in Commerce.--With respect to any contract or 
agreement entered into in or affecting interstate or foreign commerce--
          (1) the parties to such contract or agreement may establish 
        procedures or requirements regarding the use and acceptance of 
        electronic records and electronic signatures acceptable to such 
        parties; and
          (2) the legal effect, validity, or enforceability of such 
        contract or agreement shall not be denied because of the type 
        or method of electronic record or electronic signature selected 
        by the parties in establishing such procedures or requirements.

SEC. 102. AUTHORITY TO ALTER OR SUPERSEDE GENERAL RULE.

  (a) Procedure To Alter or Supersede.--Except as provided in 
subsection (b), a State statute, regulation, or other rule of law 
enacted or adopted after the date of enactment of this Act may modify, 
limit, or supersede the provisions of section 101 if such statute, 
regulation, or rule of law--
          (1)(A) constitutes an enactment or adoption of the Uniform 
        Electronic Transactions Act as reported to the State 
        legislatures by the National Conference of Commissioners on 
        Uniform State Laws; or
          (B) specifies the alternative procedures or requirements for 
        the use or acceptance of electronic records or electronic 
        signatures to establish the legal effect, validity, or 
        enforceability of contracts or agreements;
          (2) is enacted or adopted within 4 years after the date of 
        enactment of this Act; and
          (3) makes specific reference to the provisions of section 
        101.
  (b) Limitations on Alteration or Supersession.--A State statute, 
regulation, or other rule of law (including an insurance statute, 
regulation, or other rule of law), regardless of its date of enactment 
or adoption, that modifies, limits, or supersedes section 101 shall not 
be effective to the extent that such statute, regulation, or rule--
          (1) discriminates in favor of or against a specific 
        technology, method, or technique of creating, storing, 
        generating, receiving, communicating, or authenticating 
        electronic records or electronic signatures;
          (2) discriminates in favor of or against a specific type or 
        size of entity engaged in the business of facilitating the use 
        of electronic records or electronic signatures;
          (3) is based on procedures or requirements that are not 
        specific or that are not publicly available; or
          (4) is otherwise inconsistent with the provisions of section 
        101.
  (c) Actions To Enjoin.--Whenever it shall appear to the Secretary of 
Commerce that a State has enacted or adopted a statute, regulation, or 
other rule of law that is prohibited by subsection (b), the Secretary 
may bring an action to enjoin the enforcement of such statute, 
regulation, or rule, and upon a proper showing a permanent or temporary 
injunction or restraining order shall be granted without bond.

SEC. 103. SPECIFIC EXCLUSIONS.

    The provisions of section 101 shall not apply to--
          (1) a statute, regulation, or other rule of law governing the 
        creation and execution of wills, codicils, or testamentary 
        trusts; or
          (2) a statute, regulation, or other rule of law governing 
        adoption, divorce, or other matters of family law.

SEC. 104. DEFINITIONS.

  For purposes of this title:
          (1) Electronic record.--The term ``electronic record'' means 
        a writing, document, or other record created, stored, 
        generated, received, or communicated by electronic means.
          (2) Electronic signature.--The term ``electronic signature'' 
        means information or data in electronic form, attached to or 
        logically associated with an electronic record by a person or 
        an electronic agent, that is intended by a party to signify 
        agreement to a contract or agreement.
          (3) Electronic.--The term ``electronic'' means of or relating 
        to technology having electrical, digital, magnetic, optical, 
        electromagnetic, or similar capabilities regardless of medium.
          (4) Electronic agent.--The term ``electronic agent'' means a 
        computer program or an electronic or other automated means used 
        independently to initiate an action or respond to electronic 
        records in whole or in part without review by an individual at 
        the time of the action or response.

TITLE II--DEVELOPMENT AND ADOPTION OF ELECTRONIC SIGNATURE PRODUCTS AND 
                                SERVICES

SEC. 201. TREATMENT OF ELECTRONIC SIGNATURES IN INTERSTATE AND FOREIGN 
                    COMMERCE.

  (a) Inquiry Regarding Impediments to Commerce.--
          (1) Inquiries required.--Within 90 days after the date of the 
        enactment of this Act, and annually thereafter, the Secretary 
        of Commerce, acting through the Assistant Secretary for 
        Communications and Information, shall complete an inquiry to--
                  (A) identify any domestic and foreign impediments to 
                commerce in electronic signature products and services 
                and the manners in which and extent to which such 
                impediments inhibit the development of interstate and 
                foreign commerce;
                  (B) identify constraints imposed by foreign nations 
                or international organizations that constitute barriers 
                to providers of electronic signature products or 
                services; and
                  (C) identify the degree to which other nations and 
                international organizations are complying with the 
                principles in subsection (b)(2).
          (2) Submission.--The Secretary shall submit a report to the 
        Congress regarding the results of each such inquiry within 90 
        days after the conclusion of such inquiry.
  (b) Promotion of Electronic Signatures.--
          (1) Required actions.--The Secretary of Commerce, acting 
        through the Assistant Secretary for Communications and 
        Information, shall promote the acceptance and use, on an 
        international basis, of electronic signatures in accordance 
        with the principles specified in paragraph (2) and in a manner 
        consistent with section 101 of this Act. The Secretary of 
        Commerce shall take all actions necessary in a manner 
        consistent with such principles to eliminate or reduce, to the 
        maximum extent possible, the impediments to commerce in 
        electronic signatures, including those identified in the 
        inquiries under subsection (a) for the purpose of facilitating 
        the development of interstate and foreign commerce.
          (2) Principles.--The principles specified in this paragraph 
        are the following:
                  (A) Free markets and self-regulation, rather than 
                government standard-setting or rules, should govern the 
                development and use of electronic records and 
                electronic signatures.
                  (B) Neutrality and nondiscrimination should be 
                observed among providers of and technologies for 
                electronic records and electronic signatures.
                  (C) Parties to a transaction should be permitted to 
                establish requirements regarding the use of electronic 
                records and electronic signatures acceptable to such 
                parties.
                  (D) Parties to a transaction--
                          (i) should be permitted to determine the 
                        appropriate authentication technologies and 
                        implementation models for their transactions, 
                        with assurance that those technologies and 
                        implementation models will be recognized and 
                        enforced; and
                          (ii) should have the opportunity to prove in 
                        court or other proceedings that their 
                        authentication approaches and their 
                        transactions are valid.
                  (E) Electronic records and electronic signatures in a 
                form acceptable to the parties should not be denied 
                legal effect, validity, or enforceability on the ground 
                that they are not in writing.
                  (F) De jure or de facto imposition of standards on 
                private industry through foreign adoption of 
                regulations or policies with respect to electronic 
                records and electronic signatures should be avoided.
                  (G) Paper-based obstacles to electronic transactions 
                should be removed.
  (c) Followup Study.--Within 5 years after the date of enactment of 
this Act, the Secretary of Commerce, acting through the Assistant 
Secretary for Communications and Information, shall conduct an inquiry 
regarding any State statutes, regulations, or other rules of law 
enacted or adopted after such date of enactment pursuant to section 
102(a), and the extent to which such statutes, regulations, and rules 
comply with section 102(b). The Secretary shall submit a report to the 
Congress regarding the results of such inquiry by the conclusion of 
such 5-year period and such report shall identify any actions taken by 
the Secretary pursuant to section 102(c) and subsection (b) of this 
section.
  (d) Consultation.--In conducting the activities required by this 
section, the Secretary shall consult with users and providers of 
electronic signature products and services and other interested 
persons.
  (e) Privacy.--Nothing in this section shall be construed to require 
the Secretary or the Assistant Secretary to take any action that would 
adversely affect the privacy of consumers.
  (f) Definitions.--As used in this section, the terms ``electronic 
record'' and ``electronic signature'' have the meanings provided in 
section 104 of the Electronic Signatures in Global and National 
Commerce Act.

   TITLE III--USE OF ELECTRONIC RECORDS AND SIGNATURES UNDER FEDERAL 
                             SECURITIES LAW

SEC. 301. GENERAL VALIDITY OF ELECTRONIC RECORDS AND SIGNATURES.

  Section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c) is 
amended by adding at the end the following new subsection:
  ``(h) References to Written Records and Signatures.--
          ``(1) General validity of electronic records and 
        signatures.--Except as otherwise provided in this subsection--
                  ``(A) if a contract, agreement, or record (as defined 
                in subsection (a)(37)) is required by the securities 
                laws or any rule or regulation thereunder (including a 
                rule or regulation of a self-regulatory organization), 
                and is required by other Federal or State statute, 
                regulation, or other rule of law to be in writing, the 
                legal effect, validity, or enforceability of such 
                contract, agreement, or record shall not be denied on 
                the ground that the contract, agreement, or record is 
                not in writing if the contract, agreement, or record is 
                an electronic record;
                  ``(B) if a contract, agreement, or record is required 
                by the securities laws or any rule or regulation 
                thereunder (including a rule or regulation of a self-
                regulatory organization), and is required by other 
                Federal or State statute, regulation, or other rule of 
                law to be signed, the legal effect, validity, or 
                enforceability of such contract, agreement, or record 
                shall not be denied on the ground that such contract, 
                agreement, or record is not signed or is not affirmed 
                by a signature if the contract, agreement, or record is 
                signed or affirmed by an electronic signature; and
                  ``(C) if a broker, dealer, transfer agent, investment 
                adviser, or investment company enters into a contract 
                or agreement with, or accepts a record from, a customer 
                or other counterparty, such broker, dealer, transfer 
                agent, investment adviser, or investment company may 
                accept and rely upon an electronic signature on such 
                contract, agreement, or record, and such electronic 
                signature shall not be denied legal effect, validity, 
                or enforceability because it is an electronic 
                signature.
          ``(2) Implementation.--
                  ``(A) Regulations.--The Commission may prescribe such 
                regulations as may be necessary to carry out this 
                subsection consistent with the public interest and the 
                protection of investors.
                  ``(B) Nondiscrimination.--The regulations prescribed 
                by the Commission under subparagraph (A) shall not--
                          ``(i) discriminate in favor of or against a 
                        specific technology, method, or technique of 
                        creating, storing, generating, receiving, 
                        communicating, or authenticating electronic 
                        records or electronic signatures; or
                          ``(ii) discriminate in favor of or against a 
                        specific type or size of entity engaged in the 
                        business of facilitating the use of electronic 
                        records or electronic signatures.
          ``(3) Exceptions.--Notwithstanding any other provision of 
        this subsection--
                  ``(A) the Commission, an appropriate regulatory 
                agency, or a self-regulatory organization may require 
                that records be filed in a specified electronic format 
                or formats if the records are required to be submitted 
                to the Commission, an appropriate regulatory agency, or 
                a self-regulatory organization, respectively; and
                  ``(B) the Commission may require that contracts, 
                agreements, or records relating to purchases and sales, 
                or establishing accounts for conducting purchases and 
                sales, of penny stocks be manually signed, and may 
                require such manual signatures with respect to 
                transactions in similar securities if the Commission 
                determines that such securities are susceptible to 
                fraud and that such fraud would be deterred or 
                prevented by requiring manual signatures.
          ``(4) Relation to other law.--The provisions of this 
        subsection apply in lieu of the provisions of title I of the 
        Electronic Signatures in Global and National Commerce Act to a 
        contract, agreement, or record (as defined in subsection 
        (a)(37)) that is required by the securities laws.
          ``(5) Definitions.--As used in this subsection:
                  ``(A) Electronic record.--The term `electronic 
                record' means a writing, document, or other record 
                created, stored, generated, received, or communicated 
                by electronic means.
                  ``(B) Electronic signature.--The term `electronic 
                signature' means information or data in electronic 
                form, attached to or logically associated with an 
                electronic record, that is intended by a party to 
                signify agreement to a contract or agreement.
                  ``(C) Electronic.--The term `electronic' means of or 
                relating to technology having electrical, digital, 
                magnetic, optical, electromagnetic, or similar 
                capabilities regardless of medium.''.

                          Purpose and Summary

    The purpose of H.R. 1714, the Electronic Signatures in 
Global and National Commerce Act, is to facilitate the use and 
acceptance of electronic signatures and records in interstate 
and foreign commerce. The legislation is narrowly drawn so as 
to remove barriers to the use and acceptance of electronic 
signatures and records without establishing a regulatory 
framework that would hinder the growth of electronic commerce. 
The bill adds greater legal certainty and predictability to 
electronic commerce by according the same legal effect, 
validity, and enforceability to electronic signatures and 
records as are accorded written signatures and records. Such 
certainty, in turn, will further contribute to the growth of 
electronic commerce.
    H.R. 1714 provides that with respect to any contract or 
agreement entered into in or affecting interstate commerce, the 
legal effect, validity, and enforceability of such contract or 
agreement shall not be denied on the ground that: (1) the 
contract or agreement is not in writing if the contract or 
agreement is an electronic record; and (2) the contract or 
agreement is not signed or is not affirmed by a signature if 
the contract or agreement is signed or affirmed by an 
electronic signature. H.R. 1714 provides broad authority to the 
States to modify, limit, or supersede section 101 of the bill 
within four years of enactment, provided that any modification 
complies with certain minimum standards and principles 
appropriate for interstate commerce.
    In addition, the bill directs the Secretary of Commerce to 
promote the acceptance internationally of electronic signatures 
and electronic signature products.
    The bill also separately addresses securities transactions. 
It provides an exclusive Federal regulatory scheme for the use 
of electronic signatures and records in connection with 
contracts, agreements, or records that are required the 
securities laws. It amends the Federal securities laws to 
provide that a contract, agreement, or record that is required 
by the Federal securities laws, and is required by any other 
Federal or State provision to be in writing or to be signed, 
shall not be denied legal effect, validity, or enforceability 
on the ground that it is not in writing if it is an electronic 
record or not signed if it is signed or affirmed by an 
electronic signature.

                  Background and Need for Legislation

    The creation and growth of the Internet has been one of the 
most important developments of the second half of the 20th 
century. The Internet has evolved from its origins as an 
academic research tool in the late 1960s to a global 
communications, information, entertainment, and commercial 
medium. The widespread availability of inexpensive yet powerful 
personal computers has made the Internet accessible to hundreds 
of millions of people around the world.
    Increasingly, the Internet is being used to conduct 
commercial activities, not only among businesses, but between 
businesses and consumers. The use of the Internet to conduct 
commercial activities is often referred to as ``electronic 
commerce.'' A wide range of telecommunications networks can be 
used to conduct electronic commerce. However, the Internet is 
the most commonly cited network used to conduct electronic 
commerce. The growth of electronic commerce has been stunning. 
In 1996, consumers spent just $2.6 billion in online 
transactions, while in 1998, consumers spent over $32 billion 
in online transactions, with over $3 billion in consumer sales 
occurring during the December holiday shopping season alone. In 
its infancy, electronic commerce was mostly limited to small 
purchase items, such as books, music CDs, and airplane tickets. 
Recently, however, online transactions are growing larger and 
more complex. Individuals can now manage their retirement 
portfolios, purchase an automobile or life insurance, or search 
for a home mortgage online among other major transactions.
    Electronic commerce transactions raise a number of new 
issues. First, how does one authenticate the parties to a 
transaction and then ensure that the transaction takes place in 
a secure environment? Second, what is the legal status of an 
online transaction?
    The first issue involves determining the identity of the 
parties to a transaction so that the parties are certain that 
they are dealing with the correct individuals. Today, a large 
percentage of electronic commerce retail transactions are 
between parties that do not have a pre-existing business 
relationship and do not meet face-to-face. Thus, traditional 
methods of identifying a party and conducting a legally binding 
transaction can be completely absent. Once the identity of the 
parties has been established, it is important that the online 
transaction take place in a secure environment to ensure the 
authenticity and integrity of the transmission and that a 
record of the transmission is retained should any dispute arise 
in the future. Technology, such aselectronic signatures, is 
providing a solution and resolving many of the complex issues involved 
in online commercial transactions.
    In discussing the greater security that electronic 
signatures provides to online transactions, the General Counsel 
of Charles Schwab & Co., Inc., testified that ``[o]ur belief is 
that electronic signature technology is actually more secure 
against forgery than pen and ink signatures.'' (Testimony of W. 
Hardy Callcott, Senior Vice President and General Counsel, 
Charles Schwab & Co., Inc., at the June 24, 1999, hearing 
before the Subcommittee on Finance and Hazardous Materials, 
Serial No. 106-33, p. 33.)
    An electronic signature is the digital equivalent of a 
handwritten signature. It is a generic term that describes a 
variety of methods by which an individual can sign an 
electronic record. Electronic signatures can range from simply 
typing a name at the end of an e-mail message, to a digital 
signature to a unique biometric identifier such as a 
fingerprint or iris scan.1 An electronic signature, 
like a written signature, is a symbol that signifies intent--
intent that varies depending on context, such as a signature on 
a contract shows intent that the parties agree to be bound by 
the terms of that contract. At present, no technology or model 
for electronic signatures has established itself as the market 
leader. Accordingly, the Committee believes it is important 
that the legislation, and any State legislation as well, not 
favor one technology or model over another.
---------------------------------------------------------------------------
    \1\ The term digital signature, while often used interchangeably 
with electronic signature, technically refers to a specific type of 
electronic signature that involves the use of public-key/private-key 
encryption technology.
---------------------------------------------------------------------------
    The issues the bill primarily addresses are whether an 
electronic signature has the same legal effect as a written 
signature and whether an electronic record satisfies the legal 
requirement that communications be in writing. Today, the legal 
effect of an electronic record or an electronic signature is 
uncertain due to the lack of specific affirmative statutes 
recognizing the equivalency of electronic signatures and 
records to written signatures and records. Moreover, some 
courts have not recognized this equivalency. See Georgia 
Department of Transportation v. Norris, 222 Ga.App. 361, 474 
S.E.2d (1996) and Roos v. Aloi, 127 Misc. 2d 864, 487 N.Y.S.2d 
637 (Sup. Ct. 1985).
    To address the legal uncertainty of an electronic signature 
and an electronic record, over the past four years, States have 
enacted statutes that provide for the use and acceptance of 
electronic signatures in certain transactions. To date, forty-
four States have enacted some sort of electronic signature 
legislation. No two States have enacted identical legislation, 
however, leading to a patchwork of inconsistent and conflicting 
State laws governing electronic signatures and records.
    These State laws vary in a number of ways. Some State 
statutes, such as those in Utah and Washington, provide legal 
validity only to electronic documents that were signed using 
digital signature technology, while other State statutes, such 
as that in Virginia, provide legal validity to an electronic 
document that was signed using any type of electronic signature 
technology. Other States, such as Maryland and Indiana, only 
permit the use and acceptance of electronic signatures and 
records between government agencies or between an individual 
and a government agency.
    In an attempt to bring uniformity to the legal status of 
electronic signatures and records, in late July 1999, the 
National Conference of Commissioners on Uniform State Laws 
(NCCUSL) adopted the Uniform Electronic Transactions Act 
(UETA). The purpose of this model legislation is to provide for 
a uniform, nationwide standard for the use and acceptance of 
electronic records and electronic signatures. Efforts will now 
be made to have State legislatures adopt UETA.
    Past efforts to enact uniform laws have yielded uneven 
results. The Uniform Partnership Act, adopted in 1996, has been 
enacted by just nineteen States. Only four States have enacted 
the Uniform Limited Liability Company Act, adopted in 1995. In 
contrast, the Uniform Limited Partnership Act, adopted in 1976, 
has been enacted by all but one State.
    The Committee commends NCCUSL's work on the UETA. Both UETA 
and H.R. 1714 share many of the same basic principles. The 
Committee remains concerned, however, about the prospects for 
adoption of UETA by the States. Failure to adopt UETA by a 
substantial majority of the States in a short time period will 
perpetuate the patchwork of inconsistent and conflicting State 
laws. Further, some States will inevitably choose not to follow 
the work of NCCUSL on electronic signatures and will develop 
their own standards, which may or may not be compatible with 
UETA or may even be harmful to the development of electronic 
signatures if designed or implemented incorrectly.
    There is, therefore, a clear need for a uniform, nationwide 
legal standard to be in place until States have the opportunity 
to enact their own laws or to ensure that there is a nationwide 
legal standard in case States fail to or refuse to enact their 
own electronic signature legislation. H.R. 1714 fills this 
need. By removing the uncertainty over the legal effect, 
validity, or enforceability of electronic signatures and 
records, electronic commerce will have the opportunity to reach 
its full potential. By adding greater legal certainty and 
predictability to electronic transactions, consumers' 
understanding and confidence in and use of those transactions 
will grow. Further, companies now developing electronic 
signatures and structures for their use will have the necessary 
legal framework in place to focus their attention on proving 
their technology in the marketplace.
    In stressing the importance of uniformity, the General 
Counsel of Charles Schwab & Co., Inc., testified that 
``[t]oday's securities markets are national in scope and 
involve transactions that are entirely interstate in nature. * 
* * For that reason consistent uniform Federal standards are 
really imperative if brokers and others in the securities 
industry are going to be able to engage in electronic commerce 
with certainty or liability.'' (Testimony of W. Hardy 
Callcott,Senior Vice President and General Counsel, Charles Schwab & 
Co., Inc., at the June 24, 1999, hearing before the Subcommittee on 
Finance and Hazardous Materials, Serial No. 106-33, p. 9.)
    The legal uncertainty regarding electronic records and 
signatures is significant in the securities industry today as 
investors turn increasingly to the Internet to conduct their 
financial transactions. As online securities transactions are 
almost exclusively interstate in nature, the need for 
uniformity in electronic signature laws becomes clear. Title 
III of the bill addresses these issues. Recent statistics have 
shown that online trading now accounts for nearly one of every 
seven equity trades (about 14 percent) and is growing rapidly, 
with an increase of over 34 percent in online activity in the 
last quarter over the previous quarter. Market participants 
such as brokers and investors would like to eliminate the need 
for any paper documents to complete their electronic 
transactions in order to improve the efficiency and convenience 
of online securities investing. Under current law, the Federal 
Arbitration Act generally requires that arbitration agreements 
need to be in writing to be enforceable. This requirement means 
that, when trying to set up an account at an electronic broker, 
the online broker has to mail or fax the account agreement 
(which usually contains an arbitration agreement) to the 
customer for physical signature. H.R. 1714 eliminates the need 
for such a physical signature by making it possible to execute 
a valid account agreement electronically. Customers who wish to 
do business electronically would also like certainty that State 
law will recognize the validity of electronic contracts, 
agreements, or records (and signatures thereon) in connection 
with securities activities such as opening a brokerage account. 
H.R. 1714 provides that legal certainty in the context of 
securities transactions by providing a uniform Federal law 
governing the use of electronic contracts, agreements, and 
records, and signatures thereon, preempting contrary State law.
    Increasingly, online transactions are not just interstate 
but international in nature. The Committee recognizes the need 
for international recognition of electronic signatures and 
records that will not create barriers to international trade. 
Unfortunately, international developments on recognizing 
electronic signatures are troubling. The German Digital 
Signature Law of July 1997 runs counter to many of the widely 
accepted principles of electronic signature law in the United 
States. For example, the German law provides legal recognition 
only to signatures generated using digital signature 
technology, establishes licensing for certificate authorities, 
and sets a substantial role for the government in establishing 
technical standards. Further, a position paper on international 
recognition of electronic signatures released by the German 
government (International Legal Recognition of Digital 
Signatures, August 28, 1998) seeks to apply these principles 
internationally. This policy statement reemphasizes the 
principle that uniform security standards are necessary for all 
uses of digital signatures regardless of their use, supports 
mutual recognition of digital signatures only to those nations 
which have a similar regulatory structure for certification 
authority, and fails to provide legal effect to electronic 
signatures generated by other technologies. In addition, the 
Committee is concerned that the European Union's draft 
Electronic Signature Directive, while not as narrowly drawn as 
the German legislation, still favors digital signature 
technology and provides a regulatory framework for the 
licensing of certification authorities.

                                Hearings

    The Subcommittee on Telecommunications, Trade and Consumer 
Protection held a hearing on H.R. 1714 on June 9, 1999. The 
Subcommittee received testimony from the following witnesses: 
Mr. Andrew J. Pincus, General Counsel, United States Department 
of Commerce; The Honorable Donald W. Upson, Secretary of 
Technology, Commonwealth of Virginia; Mr. Jeffery Skogen, 
Internet Market Manager, Ford Motor Credit Company; Mr. Daniel 
J. Greenwood, Esq., Deputy General Counsel, Information 
Technology Division, Commonwealth of Massachusetts; Mr. Ari 
Engelberg, Vice President, Stamps.com, Inc.; Mr. John E. 
Siedlarz, President and CEO, IriScan, Inc., testifying on 
behalf of the International Biometric Industry Association; and 
Mr. Christopher T. Curtis, Associate General Counsel, Capital 
One Financial Corporation.
    The Subcommittee on Finance and Hazardous Materials held a 
hearing on H.R. 1714 on June 24, 1999. The Subcommittee 
received testimony from the following witnesses: Mr. W. Hardy 
Callcott, Senior Vice President and General Counsel, Charles 
Schwab & Co., Inc.; Mr. Michael J. Hogan, Senior Vice President 
and General Counsel, DLJdirect Inc.; and Mr. Thomas C. Quick, 
President and Chief Operating Officer, Quick & Reilly/Fleet 
Securities, Inc..

                        Committee Consideration

    On July 21, 1999, the Subcommittee on Finance and Hazardous 
Materials met in open markup session and approved H.R. 1714, 
the Electronic Signatures in Global and National Commerce Act, 
for Full Committee consideration, amended, by a voice vote. On 
July 29, 1999, the Subcommittee on Telecommunications, Trade, 
and Consumer Protection met in open markup session and approved 
H.R. 1714, the Electronic Signatures in Global and National 
Commerce Act, for Full Committee consideration, amended, by a 
voice vote.
    On August 5, 1999, the Full Committee met in open markup 
session and ordered H.R. 1714 reported to the House, amended, 
by a voice vote, a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House requires 
the Committee to list the record votes on the motion to report 
legislation and amendments thereto. There were no record votes 
taken in connection with ordering H.R. 1714 reported. An 
Amendment in the Nature of a Substitute offered by Mr. Bliley, 
No. 1, to: (1) clarify the party autonomy provision so that a 
contract or agreement by parties is provided legal effect, 
validity and enforceability; (2) further clarify the definition 
of an electronic signature; (3) include the concept of 
electronic agents in the definition of electronic signature; 
and (4) expand the principles for international negotiations 
contained in Title II to include (a) removal of paper-based 
obstacles to electronic transactions and (b) a provision that 
parties should have the opportunity to prove in court that 
their authentication methods and transactions are valid, was 
agreed to by a voice vote. A motion byMr. Bliley to order H.R. 
1714 reported to the House, amended, was agreed to by a voice vote, a 
quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held two legislative 
hearings and made findings that are reflected in this report.

           Committee on Government Reform Oversight Findings

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
1714, the Electronic Signatures in Global and National Commerce 
Act, 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 3(c)(3) of rule XIII 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, August 20, 1999.
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. 1714, the 
Electronic Signatures of Global and National Commerce Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Shelley 
Finlayson (for the state and local impact), and Mark Hadley 
(for federal costs).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 1714--Electronic Signatures in Global and National Commerce Act

    H.R. 1714 would preempt state laws that regulate interstate 
commercial transactions conducted via electronic means (such as 
contracts with electronic signatures), unless states enact 
uniform standards equivalent to those specified in the bill. 
Such a preemption constitutes an intergovernmental mandate as 
defined in the Unfunded Mandates Reform Act (UMRA), but CBO 
estimates that the costs would not be significant and would not 
exceed the threshold established by the act ($50 million in 
1996, adjusted annually for inflation). The bill contains no 
new private-sector mandates as defined in UMRA.
    The bill also would require the Department of Commerce to 
submit an annual report detailing foreign and domestic 
impediments to commerce in products using electronic 
signatures. The bill would direct the department to promote the 
international acceptance and use of electronic signatures, and 
to submit a report within three years regarding actions by 
states to allow electronic signatures in commerce. Finally, 
H.R. 1714 would amend the Securities and Exchange Act of 1934 
to address the use of electronic signatures under federal 
securities law.
    Based on information from the Department of Commerce and 
the Securities and Exchange Commission, CBO estimates 
implementing the bill would cost about $1 million a year, 
subject to the availability of appropriated funds. H.R. 1714 
would not affect direct spending or receipts; therefore, pay-
as-you-go procedures would not apply.
    On June 30, 1999, CBO transmitted a cost estimate for S. 
761, the Third Millennium Digital Commerce Act, as ordered 
reported by the Senate Committee on Commerce, Science, and 
Transportation on June 23, 1999. CBO estimated that 
implementing S. 761 would cost about $500,000 a year. The lower 
cost is largely a result of the difference in the scope and 
length of the study that the Department of Commerce would be 
required to prepare and submit to the Congress.
    The CBO staff contacts are Shelley Finlayson (for the state 
and local impact), and Mark Hadley (for federal costs). This 
estimate was 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 3(d)(1) of rule XIII 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 establishes the short title of the bill as the 
``Electronic Signatures in Global and National Commerce Act.''

  TITLE I--VALIDITY OF ELECTRONIC RECORDS AND SIGNATURES FOR COMMERCE


Section 101. General rule of validity

    Section 101(a) establishes a general rule that, with 
respect to any contract or agreement affecting interstate 
commerce, notwithstanding any statute, regulation or other rule 
of law, the legal effect, validity, and enforceability of such 
contract or agreement shall not be denied on the ground that: 
(1) the contract or agreement is not in writing if the contract 
or agreement is an electronic record; and (2) the contract or 
agreement is not signed or affirmed by a written signature if 
the contract or agreement is signed or affirmed by an 
electronic signature.
    Section 101(b) provides that with respect to contracts or 
agreements affecting interstate commerce, the parties to such 
contracts or agreements may establish procedures or 
requirements regarding the use and acceptance of electronic 
records and electronic signatures acceptable to such parties. 
Further, the legal effect, validity, or enforceability of such 
contracts or agreements shall not be denied because of the type 
or method of electronic record or electronic signature selected 
by the parties.
    The Committee intends that section 101(b) cover a broad 
range of interstate commercial transactions and that Federal 
agencies cooperate in that effort. It is the Committee's intent 
that, under section 101(b), a Federal agency not enforce or 
adopt a regulation that denies legal effect to a contract or 
agreement between private parties in a regulated industry or an 
industry that benefits from Federal support on the ground that 
the contract or agreement is an electronic record or is signed 
by an electronic signature. Similarly, a Federal agency should 
not require the use of a particular technology or provider for 
electronic records or electronic signatures on documents 
between private parties in a regulated industry or an industry 
that benefits from Federal support. In general, however, the 
Committee does intend for section 101(b) to have an impact on 
legitimate regulatory recordkeeping requirements of Federal 
agencies, such as ensuring the accuracy of, and access to, 
electronic records.
    One example of a transaction that is covered under section 
101(b) is the use of the Internet by individuals to change 
their pre-subscribed telecommunications carrier. The Federal 
Communications Commission should consider allowing the use of 
electronic signatures as an additional method of verifying a 
Primary Interexchange Carrier (PIC) change. Use of electronic 
signatures to presubscribe voluntarily to basic 
telecommunications services can benefit both consumers and 
telecommunications providers.
    In addition, the Committee intends that the parties may 
enter into a contract or agreement to receive any records 
related to such contract or agreement, including but not 
limited to notices, disclosures, booklets, or other information 
required under applicable Federal or State law.
    Nothing in section 101(b) requires a party to enter into 
any contract or agreement utilizing electronic signatures or 
electronic records. Rather, it gives the parties the option to 
enter freely into online contracts and agreements. Many 
individuals do not have Internet access or do not understand or 
choose to use electronic authentication technologies with which 
they are unfamiliar. Nothing in H.R. 1714 should be interpreted 
as requiring parties to consent to or use electronic signatures 
or electronic records if they choose not to.

Section 102. Authority to alter or supersede general rule

    Section 102(a) provides that a State statute, regulation or 
other rule of law enacted or adopted after the date of 
enactment of H.R. 1714 may modify, limit, or supersede the 
provisions of section 101 (except as provided in section 
102(b)) if that State action: (1) is an adoption or enactment 
of the UETA as reported by the NCCUSL or specifies alternative 
procedures or requirements recognizing the legal effect, 
validity and enforceability of electronic signatures; and(2) is 
enacted by a State within four years after the date of enactment of 
H.R. 1714; and (3) makes specific reference to the provisions of 
section 101.
    The Committee believes that the four year time frame will 
provide States with the opportunity and the incentive to adopt 
UETA or another legal framework in a timely manner for the 
acceptance of electronic signatures. The forty-three State 
legislatures that meet annually will have four sessions to 
enact UETA while the remaining seven State legislatures that 
meet biennially will have two sessions to enact UETA.
    Section 102(b) provides that no State statute, regulation, 
or rule of law (including those pertaining to insurance), 
regardless of date of enactment, that modifies, limits, or 
supersedes section 101 shall be effective to the extent that 
such statute, regulation, or rule of law: (1) discriminates in 
favor of or against a specific technology, method, or 
technique; (2) discriminates in favor of or against a specific 
type or size of entity engaged in the business of facilitating 
the use of electronic signatures and electronic records; (3) is 
based on procedures or requirements that are not specific and 
that are not publicly available; and (4) is otherwise 
inconsistent with the provisions of section 101. Subsection 
(b)(3) requires States to provide specific, unambiguous, and 
transparent requirements for the use and acceptance of 
electronic signatures. Further, the Committee intends that 
subsection (b)(4) be read with a degree of reason. This 
provision is intended to prevent a State from enacting a 
statute that violates section 101, such as denying legal 
validity for electronic signatures, but does not limit the 
ability of States to modify or supersede section 101.
    Section 102(c) provides the Secretary of Commerce (the 
Secretary) the authority to bring an action to enjoin the 
enforcement of a State statute, regulation, or rule that was 
enacted in violation of section 102(b). The Committee expects 
the Secretary to use this authority as necessary, especially in 
instances where smaller companies are unable to legally 
challenge a poorly tailored or potentially harmful State law. 
The Secretary's failure to use such authority in a particular 
instance should not be construed as validating a State statute, 
regulation, or rule of law being challenged on the grounds that 
it violates section 102. The Secretary's lack of action may be 
due to many reasons that should not prejudice a case for or 
against the validity of a particular State statute, regulation, 
or other rule of law.
    The Committee wishes to emphasize that nothing in section 
102 preempts any State consumer protection law or in any way 
inhibits or prevents a State from taking action to protect 
consumers against fraud, forgery, or any unfair or deceptive 
practices.

Section 103. Specific exclusions

    Section 103 excludes from the application of section 101 
any statute, regulation, or other rule of law governing: (1) 
the creation and execution of wills, codicils, or testamentary 
trusts; or (2) adoption, divorce, or other matters of family 
law.

Section 104. Definitions

    Section 104 defines the following terms: ``electronic 
record'', ``electronic signature'', ``electronic'' and 
``electronic agent''. The Committee intends that the definition 
of electronic signature cover a broad range of electronic 
signature technologies that can be used to sign an electronic 
record. This includes, but is not limited to, digital signature 
technology, a personal identification number (PIN), biometric 
technologies (such as fingerprints, iris scans, or signature 
dynamics), and any new electronic signature technologies that 
may be developed or used in the future.
    The definition of electronic signature clarifies that a 
contract or agreement signed or affirmed by an electronic 
signature will be afforded the same legal recognition whether 
signed by a person or electronic agent. A contract or agreement 
electronically signed by an electronic agent may not be denied 
legal effect because it was formed by the interaction of 
electronic agents of the parties, or by the interaction of an 
electronic agent of a party and an individual acting on the 
individual's own behalf, or on behalf of another person who is 
party to the transaction. The Committee believes that by 
ensuring that contracts and agreements formed through the use 
of electronic agents are not denied legal effect, section 
104(2) seeks to facilitate the growth and development of 
electronic commerce.

TITLE II--DEVELOPMENT AND ADOPTION OF ELECTRONIC SIGNATURE PRODUCTS AND 
                                SERVICES


Section 201. Treatment of electronic signatures in interstate and 
        foreign commerce

    Section 201(a) directs the Secretary of Commerce, acting 
through the Assistant Secretary for Communications and 
Information, to conduct an annual inquiry identifying: (1) any 
domestic or foreign impediments to commerce in electronic 
signature products and services and the manner and extent to 
which such impediments inhibit the development of interstate 
and foreign commerce; (2) constraints imposed by foreign 
nations or international organizations that constitute barriers 
to providers of electronic signature products and services; and 
(3) the degree to which other nations and international 
organizations are complying with the principles in section 
201(b)(2). Under subsection (a)(2), the Secretary is required 
to report to Congress the findings of each inquiry 90 days 
after completion of such inquiry.
    Section 201(b) directs the Secretary of Commerce, acting 
through the Assistant Secretary for Communications and 
Information, to promote the acceptance and use of electronic 
signatures on an international basis in accordance with section 
101 of the bill and with the principles listed below. In 
addition, the Secretary of Commerce is directed to take all 
actions to eliminate or reduce impediments to commerce in 
electronic signatures, including those resulting from the 
inquiries required pursuant to subsection (a).
    The principles are as follows:
    1. Free-markets and self-regulation, rather than government 
standard-setting or rules, should govern the development and 
use of electronic signatures and electronic records.
    2. Neutrality and nondiscrimination should be observed 
among providers of and technologies for electronic records and 
electronic signatures.
    3. Parties to a transaction should be allowed to establish 
requirements regarding the use of electronic records and 
electronic signatures acceptable to the parties.
    4. Parties to a transaction should be permitted to 
determine the appropriate authentication technologies and 
implementation for their transactions with the assurance that 
the technology and implementation will be recognized and 
enforced. Further, the parties should have the opportunity to 
prove in court that their authentication approaches and 
transactions are valid.
    5. Electronic records and signatures in a form acceptable 
to the parties should not be denied legal effect, validity, or 
enforceability because they are not in writing.
    6. De jure or de facto imposition of electronic signature 
and electronic record standards on the private sector through 
foreign adoption of regulations or policies should be avoided.
    7. Paper-based obstacles to electronic transactions should 
be removed.
    In light of the consideration and adoption by foreign 
governments of electronic signature legislation which runs 
contrary to the principles of electronic signatures widely 
accepted in the United States, the Committee believes that it 
is critically important for the United States to promote 
American principles on electronic signatures internationally. A 
highly regulatory structure for electronic signatures, or the 
refusal to provide mutual recognition of alternate electronic 
signature regimes, will hinder the development of global 
electronic commerce. The Committee is also concerned that such 
laws will create barriers to American companies providing 
electronic signature technologies or services in foreign 
countries.
    Section 201(c) directs the Secretary of Commerce, acting 
through the Assistant Secretary for Communications and 
Information, to submit a report to Congress, within five years 
after the date of enactment of the bill, regarding any State 
statute, regulation, or rule of law enacted or adopted after 
enactment on the extent to which such statute, regulation, or 
rule of law complies with section 102(b). Subsection (c) also 
requires the Secretary to include in the report the actions 
taken pursuant to section 102(c) and subsection (b).
    Section 201(d) requires the Secretary of Commerce to 
consult with users and providers of electronic signatures and 
products and other interested parties in carrying out actions 
under this section.
    Section 201(e) clarifies that nothing requires the 
Secretary or Assistant Secretary to take any action that would 
adversely affect the privacy of consumers.
    Section 201(f) provides that the definitions in section 104 
apply to this title.

   TITLE III--USE OF ELECTRONIC RECORDS AND SIGNATURES UNDER FEDERAL 
                             SECURITIES LAW


Section 301. General validity of electronic records and signatures

    Title III of the bill amends section 3 of the Securities 
Exchange Act of 1934 (the Exchange Act) to add a new subsection 
(h), ``References to Written Records and Signatures.'' In 
general, subsection (h) provides that a contract, agreement, or 
record that is required by the Federal securities laws, and is 
required by any other Federal or State provision to be in 
writing or to be signed, shall not be denied legal effect, 
validity, or enforceability on the ground that it is not in 
writing if it is an electronic record or on the ground that it 
is not signed or affirmed by a signature if it is signed or 
affirmed by an electronic signature. The Committee intends that 
this subsection preempt State law to the contrary. The 
Committee notes that the purpose of this bill is to facilitate 
commerce in the ``information age,'' and not to interfere with 
legitimate regulatory requirements. Title III is not intended 
to affect the Securities and Exchange Commission's (the 
Commission's) regulatory recordkeeping requirements, such as 
ensuring the accuracy of, and access to, electronic records of 
securities firms. This legislation does not change any existing 
Federal or State statute or rule requiring the production of 
records to regulators.
    Paragraph (1) provides for general rules of validity for 
electronic records and signatures in the securities context. 
Subparagraphs (A) and (B) apply to documents required under the 
Federal securities laws. Specifically, if a contract, 
agreement, or record (as defined by section 3(a)(37) of the 
Exchange Act) that is required by the securities laws is also 
required by other Federal or State statute, regulation, or 
other rule of law to be in writing or to be signed, the legal 
effect, validity, or enforceability of such contract, 
agreement, or record shall not be denied on the ground that the 
contract, agreement, or record is an electronic record or is 
signed or affirmed by an electronic signature.
    Subparagraph (C) relates to other documents that may be 
used in securities transactions but arise out of commercial 
practice or custom rather than a Federal securities law 
requirement. Specifically, if a broker, dealer, transfer agent, 
investment adviser, or investment company enters into a 
contract or agreement with, or accepts a record from, a 
customer or other counterparty, such broker, dealer, transfer 
agent, investment adviser, or investment company may accept and 
rely upon an electronic signature on such contract, agreement, 
or record, andsuch electronic signature shall not be denied 
legal effect, validity, or enforceability because it is an electronic 
signature.
    Paragraph (2) provides for the implementation of the law. 
The paragraph gives the Commission authority to prescribe 
rules, if necessary, to effect this subsection, consistent with 
the public interest and the protection of investors. The 
Committee notes that this paragraph authorizes, but does not 
require, the Commission to prescribe regulations in this area. 
Paragraph (2) further defines the parameters for any rulemaking 
the Commission should undertake pursuant to this subsection. It 
requires that such rules must not discriminate in favor of or 
against (1) a specific technology, method, or technique of 
creating, storing, generating, receiving, communicating, or 
authenticating electronic records or electronic signatures; or 
(2) a specific type or size of entity engaged in the business 
of facilitating the use of electronic records or electronic 
signatures. These parameters are subject, however, to the 
exceptions of paragraph (3).
    Paragraph (3) provides for certain exceptions. The first 
exception, in subparagraph (A), permits the Commission, 
appropriate regulatory agencies, and self-regulatory 
organizations (SROs) to require that records that are to be 
submitted to the Commission, a regulatory agency, or an SRO be 
filed in a specified electronic format. The exception provided 
in subparagraph (A) is designed to preserve the existing 
ability of these entities to ``discriminate,'' notwithstanding 
the prohibition of paragraph (2) against discrimination, by 
requiring particular software or other electronic formats for 
documents that are submitted to them for filing. The term 
``electronic format'' is not defined in the statute; the 
Committee intends this term to be interpreted flexibly to 
maximize the ability of the Commission and SROs to specify the 
technical formatting and similar requirements for materials 
that are filed with them. The Committee expects that the SEC 
will use this exception consistent with the legislation's 
general goal to promote and facilitate the use of electronic, 
rather than written, mechanisms of commerce.
    For example, under this provision, the Commission or SROs 
could: (1) continue to maintain filing requirements that 
specify particular software formats, such as the formats 
required under the EDGAR system or the central registration 
depository for broker-dealers, without change; (2) specify 
certain types of security features (such as access codes, 
passwords, back-up paper copies or digital signatures) that 
must be incorporated into filings; (3) include ``tagging'' 
requirements to facilitate automated processing of filings; (4) 
limit the permitted types of formats acceptable for filing, in 
order to facilitate making information available to the public; 
or (5) require or prohibit the use of other technological 
filing means, such as electronic transmission, magnetic tape, 
diskettes, CD-ROMs, video cassette, streamed video, and 
graphics. This list is meant to be illustrative, rather than 
exhaustive; the Committee provides this list of examples of the 
discretion retained by the Commission and SROs under the 
legislation only to illustrate the broad range of authority the 
provision is designed to preserve for the Commission and SROs 
for materials that are submitted to them for filing.
    Subparagraph (B) of paragraph (3) preserves the authority 
of the Commission to require manual signatures for contracts, 
agreements, or records relating to purchases and sales, or 
establishing accounts for conducting purchases and sales, of 
penny stocks or similar securities, if the Commission 
determines that those securities are susceptible to fraud and 
that such fraud would be deterred or prevented by requiring 
manual signatures. Thus, the Commission's existing rules 
requiring manual signatures in connection with certain of its 
penny stock rules continue unchanged after enactment of this 
bill. See SEC Release No. 33-7288, n.50 (May 9, 1996).
    Paragraph (4) establishes the relationship between title I 
and title III of the bill. To avoid overlap, the bill provides 
that contracts, agreements, or records required by the 
securities laws are governed exclusively by the provisions of 
title III. This paragraph ensures that any State statute, 
regulation, or other rule of law enacted or adopted after the 
date of enactment of this bill (including the UETA) will not 
modify, limit, or supersede the provisions of title III for 
contracts, agreements, or records required by the securities 
laws.
    Paragraph (5) provides the definitions for certain terms 
that are not otherwise defined in the Exchange Act. These 
definitions are for purposes of section 3(h) only and are not 
generally applicable to the Exchange Act or other Federal 
securities laws or the rules promulgated thereunder.
    The term ``electronic record'' is defined to mean a 
writing, document, or other record created, stored, generated, 
received, or communicated by electronic means.
    The term ``electronic signature'' is defined to mean 
information or data in electronic form, attached to or 
logically associated with an electronic record, that is 
intended by a party to signify agreement to a contract or 
agreement.
    Finally, the term ``electronic'' is defined to mean of or 
relating to technology having electrical, digital, magnetic, 
optical, electromagnetic, or similar capabilities regardless of 
medium.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) 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):

            SECTION 3 OF THE SECURITIES EXCHANGE ACT OF 1934


                  definitions and application of title

  Sec. 3. (a) * * *

           *       *       *       *       *       *       *

  (h) References to Written Records and Signatures.--
          (1) General validity of electronic records and 
        signatures.--Except as otherwise provided in this 
        subsection--
                  (A) if a contract, agreement, or record (as 
                defined in subsection (a)(37)) is required by 
                the securities laws or any rule or regulation 
                thereunder (including a rule or regulation of a 
                self-regulatory organization), and is required 
                by other Federal or State statute, regulation, 
                or other rule of law to be in writing, the 
                legal effect, validity, or enforceability of 
                such contract, agreement, or record shall not 
                be denied on the ground that the contract, 
                agreement, or record is not in writing if the 
                contract, agreement, or record is an electronic 
                record;
                  (B) if a contract, agreement, or record is 
                required by the securities laws or any rule or 
                regulation thereunder (including a rule or 
                regulation of a self-regulatory organization), 
                and is required by other Federal or State 
                statute, regulation, or other rule of law to be 
                signed, the legal effect, validity, or 
                enforceability of such contract, agreement, or 
                record shall not be denied on the ground that 
                such contract, agreement, or record is not 
                signed or is not affirmed by a signature if the 
                contract, agreement, or record is signed or 
                affirmed by an electronic signature; and
                  (C) if a broker, dealer, transfer agent, 
                investment adviser, or investment company 
                enters into a contract or agreement with, or 
                accepts a record from, a customer or other 
                counterparty, such broker, dealer, transfer 
                agent, investment adviser, or investment 
                company may accept and rely upon an electronic 
                signature on such contract, agreement, or 
                record, and such electronic signature shall not 
                be denied legal effect, validity, or 
                enforceability because it is an electronic 
                signature.
          (2) Implementation.--
                  (A) Regulations.--The Commission may 
                prescribe such regulations as may be necessary 
                to carry out this subsection consistent with 
                the public interest and the protection of 
                investors.
                  (B) Nondiscrimination.--The regulations 
                prescribed by the Commission under subparagraph 
                (A) shall not--
                          (i) discriminate in favor of or 
                        against a specific technology, method, 
                        or technique of creating, storing, 
                        generating, receiving, communicating, 
                        or authenticating electronic records or 
                        electronic signatures; or
                          (ii) discriminate in favor of or 
                        against a specific type or size of 
                        entity engaged in the business of 
                        facilitating the use of electronic 
                        records or electronic signatures.
          (3) Exceptions.--Notwithstanding any other provision 
        of this subsection--
                  (A) the Commission, an appropriate regulatory 
                agency, or a self-regulatory organization may 
                require that records be filed in a specified 
                electronic format or formats if the records are 
                required to be submitted to the Commission, an 
                appropriate regulatory agency, or a self-
                regulatory organization, respectively; and
                  (B) the Commission may require that 
                contracts, agreements, or records relating to 
                purchases and sales, or establishing accounts 
                for conducting purchases and sales, of penny 
                stocks be manually signed, and may require such 
                manual signatures with respect to transactions 
                in similar securities if the Commission 
                determines that such securities are susceptible 
                to fraud and that such fraud would be deterred 
                or prevented by requiring manual signatures.
          (4) Relation to other law.--The provisions of this 
        subsection apply in lieu of the provisions of title I 
        of the Electronic Signatures in Global and National 
        Commerce Act to a contract, agreement, or record (as 
        defined in subsection (a)(37)) that is required by the 
        securities laws.
          (5) Definitions.--As used in this subsection:
                  (A) Electronic record.--The term ``electronic 
                record'' means a writing, document, or other 
                record created, stored, generated, received, or 
                communicated by electronic means.
                  (B) Electronic signature.--The term 
                ``electronic signature'' means information or 
                data in electronic form, attached to or 
                logically associated with an electronic record, 
                that is intended by a party to signify 
                agreement to a contract or agreement.
                  (C) Electronic.--The term ``electronic'' 
                means of or relating to technology having 
                electrical, digital, magnetic, optical, 
                electromagnetic, or similar capabilities 
                regardless of medium.

                                  
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