[House Report 114-798]
[From the U.S. Government Publishing Office]


114th Congress   }                                          {   Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                          {   114-798

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



 
        CORPORATE GOVERNANCE REFORM AND TRANSPARENCY ACT OF 2016

                                _______
                                

 September 28, 2016.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 5311]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 5311) to improve the quality of proxy advisory 
firms for the protection of investors and the U.S. economy, and 
in the public interest, by fostering accountability, 
transparency, responsiveness, and competition in the proxy 
advisory firm industry, having considered the same, reports 
favorably thereon with an amendment and recommends that the 
bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Corporate Governance Reform and 
Transparency Act of 2016''.

SEC. 2. DEFINITIONS.

  (a) Securities Exchange Act of 1934.--Section 3(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end 
the following new paragraphs:
          ``(81) Proxy advisory firm.--The term `proxy advisory firm' 
        means any person registered under section 15H who is engaged in 
        the business of providing proxy voting research, analysis, or 
        recommendations to clients, which conduct constitutes a 
        solicitation within the meaning of section 14 and the 
        Commission's rules and regulations thereunder, except to the 
        extent that the person is exempted by such rules and 
        regulations from requirements otherwise applicable to persons 
        engaged in a solicitation.
          ``(82) Person associated with a proxy advisory firm.--The 
        term `person associated with' a proxy advisory firm means any 
        partner, officer, or director of a proxy advisory firm (or any 
        person occupying a similar status or performing similar 
        functions), any person directly or indirectly controlling, 
        controlled by, or under common control with a proxy advisory 
        firm, or any employee of a proxy advisory firm, except that 
        persons associated with a proxy advisory firm whose functions 
        are clerical or ministerial shall not be included in the 
        meaning of such term. The Commission may by rules and 
        regulations classify, for purposes or any portion or portions 
        of this Act, persons, including employees controlled by a proxy 
        advisory firm.''.
  (b) Applicable Definitions.--As used in this Act--
          (1) the term ``Commission'' means the Securities and Exchange 
        Commission; and
          (2) the term ``proxy advisory firm'' has the same meaning as 
        in section 3(a)(81) of the Securities Exchange Act of 1934, as 
        added by this Act.

SEC. 3. REGISTRATION OF PROXY ADVISORY FIRMS.

  (a) Amendment.--The Securities Exchange Act of 1934 is amended by 
inserting after section 15G the following new section:

``SEC. 15H. REGISTRATION OF PROXY ADVISORY FIRMS.

  ``(a) Conduct Prohibited.--It shall be unlawful for a proxy advisory 
firm to make use of the mails or any means or instrumentality of 
interstate commerce to provide proxy voting research, analysis, or 
recommendations to any client, unless such proxy advisory firm is 
registered under this section.
  ``(b) Registration Procedures.--
          ``(1) Application for registration.--
                  ``(A) In general.--A proxy advisory firm must file 
                with the Commission an application for registration, in 
                such form as the Commission shall require, by rule or 
                regulation, and containing the information described in 
                subparagraph (B).
                  ``(B) Required information.--An application for 
                registration under this section shall contain 
                information regarding--
                          ``(i) a certification that the applicant has 
                        adequate financial and managerial resources to 
                        consistently provide proxy advice based on 
                        accurate information;
                          ``(ii) the procedures and methodologies that 
                        the applicant uses in developing proxy voting 
                        recommendations, including whether and how the 
                        applicant considers the size of a company when 
                        making proxy voting recommendations;
                          ``(iii) the organizational structure of the 
                        applicant;
                          ``(iv) whether or not the applicant has in 
                        effect a code of ethics, and if not, the 
                        reasons therefor;
                          ``(v) any potential or actual conflict of 
                        interest relating to the ownership structure of 
                        the applicant or the provision of proxy 
                        advisory services by the applicant, including 
                        whether the proxy advisory firm engages in 
                        services ancillary to the provision of proxy 
                        advisory services such as consulting services 
                        for corporate issuers, and if so the revenues 
                        derived therefrom;
                          ``(vi) the policies and procedures in place 
                        to manage conflicts of interest under 
                        subsection (f); and
                          ``(vii) any other information and documents 
                        concerning the applicant and any person 
                        associated with such applicant as the 
                        Commission, by rule, may prescribe as necessary 
                        or appropriate in the public interest or for 
                        the protection of investors.
          ``(2) Review of application.--
                  ``(A) Initial determination.--Not later than 90 days 
                after the date on which the application for 
                registration is filed with the Commission under 
                paragraph (1) (or within such longer period as to which 
                the applicant consents) the Commission shall--
                          ``(i) by order, grant registration; or
                          ``(ii) institute proceedings to determine 
                        whether registration should be denied.
                  ``(B) Conduct of proceedings.--
                          ``(i) Content.--Proceedings referred to in 
                        subparagraph (A)(ii) shall--
                                  ``(I) include notice of the grounds 
                                for denial under consideration and an 
                                opportunity for hearing; and
                                  ``(II) be concluded not later than 
                                120 days after the date on which the 
                                application for registration is filed 
                                with the Commission under paragraph 
                                (1).
                          ``(ii) Determination.--At the conclusion of 
                        such proceedings, the Commission, by order, 
                        shall grant or deny such application for 
                        registration.
                          ``(iii) Extension authorized.--The Commission 
                        may extend the time for conclusion of such 
                        proceedings for not longer than 90 days, if it 
                        finds good cause for such extension and 
                        publishes its reasons for so finding, or for 
                        such longer period as to which the applicant 
                        consents.
                  ``(C) Grounds for decision.--The Commission shall 
                grant registration under this subsection--
                          ``(i) if the Commission finds that the 
                        requirements of this section are satisfied; and
                          ``(ii) unless the Commission finds (in which 
                        case the Commission shall deny such 
                        registration) that--
                                  ``(I) the applicant has failed to 
                                certify to the Commission's 
                                satisfaction that it has adequate 
                                financial and managerial resources to 
                                consistently provide proxy advice based 
                                on accurate information and to 
                                materially comply with the procedures 
                                and methodologies disclosed under 
                                paragraph (1)(B) and with subsections 
                                (f) and (g); or
                                  ``(II) if the applicant were so 
                                registered, its registration would be 
                                subject to suspension or revocation 
                                under subsection (e).
          ``(3) Public availability of information.--Subject to section 
        24, the Commission shall make the information and documents 
        submitted to the Commission by a proxy advisory firm in its 
        completed application for registration, or in any amendment 
        submitted under paragraph (1) or (2) of subsection (c), 
        publicly available on the Commission's website, or through 
        another comparable, readily accessible means.
  ``(c) Update of Registration.--
          ``(1) Update.--Each registered proxy advisory firm shall 
        promptly amend and update its application for registration 
        under this section if any information or document provided 
        therein becomes materially inaccurate, except that a registered 
        proxy advisory firm is not required to amend the information 
        required to be filed under subsection (b)(1)(B)(i) by filing 
        information under this paragraph, but shall amend such 
        information in the annual submission of the organization under 
        paragraph (2) of this subsection.
          ``(2) Certification.--Not later than 90 calendar days after 
        the end of each calendar year, each registered proxy advisory 
        firm shall file with the Commission an amendment to its 
        registration, in such form as the Commission, by rule, may 
        prescribe as necessary or appropriate in the public interest or 
        for the protection of investors--
                  ``(A) certifying that the information and documents 
                in the application for registration of such registered 
                proxy advisory firm continue to be accurate in all 
                material respects; and
                  ``(B) listing any material change that occurred to 
                such information or documents during the previous 
                calendar year.
  ``(d) Censure, Denial, or Suspension of Registration; Notice and 
Hearing.--The Commission, by order, shall censure, place limitations on 
the activities, functions, or operations of, suspend for a period not 
exceeding 12 months, or revoke the registration of any registered proxy 
advisory firm if the Commission finds, on the record after notice and 
opportunity for hearing, that such censure, placing of limitations, 
suspension, or revocation is necessary for the protection of investors 
and in the public interest and that such registered proxy advisory 
firm, or any person associated with such an organization, whether prior 
to or subsequent to becoming so associated--
          ``(1) has committed or omitted any act, or is subject to an 
        order or finding, enumerated in subparagraph (A), (D), (E), 
        (H), or (G) of section 15(b)(4), has been convicted of any 
        offense specified in section 15(b)(4)(B), or is enjoined from 
        any action, conduct, or practice specified in subparagraph (C) 
        of section 15(b)(4), during the 10-year period preceding the 
        date of commencement of the proceedings under this subsection, 
        or at any time thereafter;
          ``(2) has been convicted during the 10-year period preceding 
        the date on which an application for registration is filed with 
        the Commission under this section, or at any time thereafter, 
        of--
                  ``(A) any crime that is punishable by imprisonment 
                for one or more years, and that is not described in 
                section 15(b)(4)(B); or
                  ``(B) a substantially equivalent crime by a foreign 
                court of competent jurisdiction;
          ``(3) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with a 
        registered proxy advisory firm;
          ``(4) fails to furnish the certifications required under 
        subsections (b)(2)(C)(ii)(I) and (c)(2);
          ``(5) has engaged in one or more prohibited acts enumerated 
        in paragraph (1); or
          ``(6) fails to maintain adequate financial and managerial 
        resources to consistently offer advisory services with 
        integrity, including by failing to comply with subsections (f) 
        or (g).
  ``(e) Termination of Registration.--
          ``(1) Voluntary withdrawal.--A registered proxy advisory firm 
        may, upon such terms and conditions as the Commission may 
        establish as necessary in the public interest or for the 
        protection of investors, which terms and conditions shall 
        include at a minimum that the registered proxy advisory firm 
        will no longer conduct such activities as to bring it within 
        the definition of proxy advisory firm in section 3(a)(81) of 
        the Securities Exchange Act of 1934, withdraw from registration 
        by filing a written notice of withdrawal to the Commission.
          ``(2) Commission authority.--In addition to any other 
        authority of the Commission under this title, if the Commission 
        finds that a registered proxy advisory firm is no longer in 
        existence or has ceased to do business as a proxy advisory 
        firm, the Commission, by order, shall cancel the registration 
        under this section of such registered proxy advisory firm.
  ``(f) Management of Conflicts of Interest.--
          ``(1) Organization policies and procedures.--Each registered 
        proxy advisory firm shall establish, maintain, and enforce 
        written policies and procedures reasonably designed, taking 
        into consideration the nature of the business of such 
        registered proxy advisory firm and associated persons, to 
        address and manage any conflicts of interest that can arise 
        from such business.
          ``(2) Commission authority.--The Commission shall issue final 
        rules to prohibit, or require the management and disclosure of, 
        any conflicts of interest relating to the offering of proxy 
        advisory services by a registered proxy advisory firm, 
        including, without limitation, conflicts of interest relating 
        to--
                  ``(A) the manner in which a registered proxy advisory 
                firm is compensated by the client, or any affiliate of 
                the client, for providing proxy advisory services;
                  ``(B) the provision of consulting, advisory, or other 
                services by a registered proxy advisory firm, or any 
                person associated with such registered proxy advisory 
                firm, to the client;
                  ``(C) business relationships, ownership interests, or 
                any other financial or personal interests between a 
                registered proxy advisory firm, or any person 
                associated with such registered proxy advisory firm, 
                and any client, or any affiliate of such client;
                  ``(D) transparency around the formulation of proxy 
                voting policies;
                  ``(E) the execution of proxy votes if such votes are 
                based upon recommendations made by the proxy advisory 
                firm in which someone other than the issuer is a 
                proponent;
                  ``(F) issuing recommendations where proxy advisory 
                firms provide advisory services to a company; and
                  ``(G) any other potential conflict of interest, as 
                the Commission deems necessary or appropriate in the 
                public interest or for the protection of investors.
  ``(g) Reliability of Proxy Advisory Firm Services.--
          ``(1) In general.--Each registered proxy advisory firm shall 
        have staff sufficient to produce proxy voting recommendations 
        that are based on accurate and current information. Each 
        registered proxy advisory firm shall detail procedures 
        sufficient to permit companies receiving proxy advisory firm 
        recommendations access in a reasonable time to the draft 
        recommendations, with an opportunity to provide meaningful 
        comment thereon, including the opportunity to present details 
        to the person responsible for developing the recommendation in 
        person or telephonically. Each registered proxy advisory firm 
        shall employ an ombudsman to receive complaints about the 
        accuracy of voting information used in making recommendations 
        from the subjects of the proxy advisory firm's voting 
        recommendations, and shall resolve those complaints in a timely 
        fashion and in any event prior to voting on the matter to which 
        the recommendation relates.
          ``(2) Draft recommendations defined.--For purposes of this 
        subsection, the term `draft recommendations'--
                  ``(A) means the overall conclusions of proxy voting 
                recommendations prepared for the clients of a proxy 
                advisory firm, including any public data cited therein, 
                any company information or substantive analysis 
                impacting the recommendation, and the specific voting 
                recommendations on individual proxy ballot issues; and
                  ``(B) does not include the entirety of the proxy 
                advisory firm's final report to its clients.
  ``(h) Designation of Compliance Officer.--Each registered proxy 
advisory firm shall designate an individual responsible for 
administering the policies and procedures that are required to be 
established pursuant to subsections (f) and (g), and for ensuring 
compliance with the securities laws and the rules and regulations 
thereunder, including those promulgated by the Commission pursuant to 
this section.
  ``(i) Prohibited Conduct.--
          ``(1) Prohibited acts and practices.--The Commission shall 
        issue final rules to prohibit any act or practice relating to 
        the offering of proxy advisory services by a registered proxy 
        advisory firm that the Commission determines to be unfair, 
        coercive, or abusive, including any act or practice relating 
        to--
                  ``(A) conditioning a voting recommendation or other 
                proxy advisory firm recommendation on the purchase by 
                an issuer or an affiliate thereof of other services or 
                products, of the registered proxy advisory firm or any 
                person associated with such registered proxy advisory 
                firm; and
                  ``(B) modifying a voting recommendation or otherwise 
                departing from its adopted systematic procedures and 
                methodologies in the provision of proxy advisory 
                services, based on whether an issuer, or affiliate 
                thereof, subscribes or will subscribe to other services 
                or product of the registered proxy advisory firm or any 
                person associated with such organization.
          ``(2) Rule of construction.--Nothing in paragraph (1), or in 
        any rules or regulations adopted thereunder, may be construed 
        to modify, impair, or supersede the operation of any of the 
        antitrust laws (as defined in the first section of the Clayton 
        Act, except that such term includes section 5 of the Federal 
        Trade Commission Act, to the extent that such section 5 applies 
        to unfair methods of competition).
  ``(j) Statements of Financial Condition.--Each registered proxy 
advisory firm shall, on a confidential basis, file with the Commission, 
at intervals determined by the Commission, such financial statements, 
certified (if required by the rules or regulations of the Commission) 
by an independent public auditor, and information concerning its 
financial condition, as the Commission, by rule, may prescribe as 
necessary or appropriate in the public interest or for the protection 
of investors.
  ``(k) Annual Report.--Each registered proxy advisory firm shall, at 
the beginning of each fiscal year of such firm, report to the 
Commission on the number of shareholder proposals its staff reviewed in 
the prior fiscal year, the number of recommendations made in the prior 
fiscal year, the number of staff who reviewed and made recommendations 
on such proposals in the prior fiscal year, and the number of 
recommendations made in the prior fiscal year where the proponent of 
such recommendation was a client of or received services from the proxy 
advisory firm.
  ``(l) Transparent Policies.--Each registered proxy advisory firm 
shall file with the Commission and make publicly available its 
methodology for the formulation of proxy voting policies and voting 
recommendations.
  ``(m) Rules of Construction.--
          ``(1) No waiver of rights, privileges, or defenses.--
        Registration under and compliance with this section does not 
        constitute a waiver of, or otherwise diminish, any right, 
        privilege, or defense that a registered proxy advisory firm may 
        otherwise have under any provision of State or Federal law, 
        including any rule, regulation, or order thereunder.
          ``(2) No private right of action.--Nothing in this section 
        may be construed as creating any private right of action, and 
        no report filed by a registered proxy advisory firm in 
        accordance with this section or section 17 shall create a 
        private right of action under section 18 or any other provision 
        of law.
  ``(n) Regulations.--
          ``(1) New provisions.--Such rules and regulations as are 
        required by this section or are otherwise necessary to carry 
        out this section, including the application form required under 
        subsection (a)--
                  ``(A) shall be issued by the Commission, not later 
                than 180 days after the date of enactment of this 
                section; and
                  ``(B) shall become effective not later than 1 year 
                after the date of enactment of this section.
          ``(2) Review of existing regulations.--Not later than 270 
        days after the date of enactment of this section, the 
        Commission shall--
                  ``(A) review its existing rules and regulations which 
                affect the operations of proxy advisory firms;
                  ``(B) amend or revise such rules and regulations in 
                accordance with the purposes of this section, and issue 
                such guidance, as the Commission may prescribe as 
                necessary or appropriate in the public interest or for 
                the protection of investors; and
                  ``(C) direct Commission staff to withdraw the Egan 
                Jones Proxy Services (May 27, 2004) and Institutional 
                Shareholder Services, Inc. (September 15, 2004) no-
                action letters.
  ``(o) Applicability.--This section, other than subsection (n), which 
shall apply on the date of enactment of this section, shall apply on 
the earlier of--
          ``(1) the date on which regulations are issued in final form 
        under subsection (n)(1); or
          ``(2) 270 days after the date of enactment of this 
        section.''.
  (b) Conforming Amendment.--Section 17(a)(1) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q(a)(1)) is amended by inserting 
``proxy advisory firm,'' after ``nationally recognized statistical 
rating organization,''.

SEC. 4. COMMISSION ANNUAL REPORT.

  The Commission shall make an annual report publicly available on the 
Commission's Internet website. Such report shall, with respect to the 
year to which the report relates--
          (1) identify applicants for registration under section 15H of 
        the Securities Exchange Act of 1934, as added by this Act;
          (2) specify the number of and actions taken on such 
        applications;
          (3) specify the views of the Commission on the state of 
        competition, transparency, policies and methodologies, and 
        conflicts of interest among proxy advisory firms;
          (4) include the determination of the Commission with regards 
        to--
                  (A) the quality of proxy advisory services issued by 
                proxy advisory firms;
                  (B) the financial markets;
                  (C) competition among proxy advisory firms;
                  (D) the incidence of undisclosed conflicts of 
                interest by proxy advisory firms;
                  (E) the process for registering as a proxy advisory 
                firm; and
                  (F) such other matters relevant to the implementation 
                of this Act and the amendments made by this Act, as the 
                Commission determines necessary to bring to the 
                attention of the Congress;
          (5) identify problems, if any, that have resulted from the 
        implementation of this Act and the amendments made by this Act; 
        and
          (6) recommend solutions, including any legislative or 
        regulatory solutions, to any problems identified under 
        paragraphs (4) and (5).

                          Purpose and Summary

    Introduced by Representatives Sean Duffy and John Carney on 
May 24, 2016, H.R. 5311, the ``Corporate Governance Reform and 
Transparency Act of 2016,'' establishes a regulatory regime for 
proxy advisory firms with the Securities and Exchange 
Commission (SEC). Specifically, H.R. 5311 requires that proxy 
advisory firms register with the SEC, disclose and address 
potential conflicts of interest, maintain and publish a code of 
ethics, and make publicly available the methodologies used to 
formulate proxy recommendations and analyses.

                  Background and Need for Legislation

    A proxy advisory firm researches and provides analysis on 
shareholder proposals. Every year, public companies hold annual 
meetings for shareholders to vote on a number of company 
related issues, including the company's directors. The SEC 
requires public companies to provide their shareholders with a 
proxy statement before each shareholder meeting. A proxy 
statement includes all important facts about the matters to be 
voted on, including, for example, information on board of 
director candidates, director compensation, executive 
compensation, related party transactions, and securities 
ownership by certain beneficial owners and management. The 
information contained in the statement must be filed with the 
SEC before soliciting a shareholder vote on the election of 
directors and the approval of other corporate actions. 
Solicitations, whether by management or shareholders, must 
disclose all important facts about the issues on which 
shareholders are asked to vote.
    H.R. 5311 will foster greater accountability, transparency, 
responsiveness and competition in the proxy advisory firm 
industry, thereby improving corporate governance and protecting 
investors. Just two proxy advisory firms control over 90% 
percent of the market and their writings, analyses, reports, 
and voting recommendations affect fundamental corporate 
transactions like mergers or acquisitions, the approval of 
corporate directors, and shareholder proposals. Requiring proxy 
advisory firms to register with the SEC will not change the 
fact that the market has created a duopoly. However, it will 
ensure that these firms are subject to SEC oversight and 
supervision. H.R. 5311 does not capture and would not subject 
any entity, which as a fiduciary exercises discretionary 
authority only to vote shares owned by its clients to register 
with the SEC as a proxy advisory firm.

Federal regulation of proxy solicitations

    In general, state corporate law governs shareholder voting 
rights, including the types of corporate actions that require 
shareholder approval. However, Section 14 of the Securities 
Exchange Act of 1934 authorizes the SEC to promulgate rules 
governing the solicitation of proxies for most public 
companies. SEC Regulation 14A governs proxy solicitations, and 
sets forth the categories of information that must be disclosed 
in proxy solicitations. Regulation 14A also provides for 
shareholder access to certain information in connection with 
proxy solicitations, sets forth when a company must include a 
shareholder's proposal in its proxy statement, and prohibits 
the making of materially false and misleading statements or 
omissions in connection with a proxy solicitation.

Proxy advisory firms

    Institutional investors, including investment advisers to 
mutual funds and pension funds, typically hold shares in a 
large number of public companies. Each year, the investment 
advisers to these funds vote billions of shares on behalf of 
their clients on thousands of proxy ballot items. In 2003, the 
SEC adopted a rule under the Investment Advisers Act of 1940 
requiring an investment adviser that exercises voting authority 
over its clients' proxies to adopt policies and procedures 
designed to ensure that it votes those proxies in the best 
interests of its clients. The SEC's release adopting the rule 
clarified that ``an adviser could demonstrate that the vote was 
not a product of a conflict of interest if it voted client 
securities in accordance with a pre-determined policy, based 
upon the recommendations of an independent third party.'' As a 
result, institutional investors increased their reliance on 
proxy advisory firms to help them decide how to vote their 
shares. In 2004, the SEC staff issued (without a Commission 
vote) two ``no action'' letters ``effectively blessing the 
practice of investment advisers simply voting the 
recommendations provided by a proxy adviser.''
    Largely as a result of the SEC's regulations, proxy 
advisory firms now wield outsized influence in the U.S. proxy 
system. Studies have found that the two largest proxy advisory 
firms--Institutional Shareholder Services (ISS) and Glass Lewis 
& Co. collectively make up over 90% of the proxy advisory 
industry, and can control a significant percentage of 
shareholder votes in corporate elections, sometimes as high as 
40 percent.

Potential conflicts of interest

    Regulators, market participants, and academic observers 
have highlighted potential conflicts of interest inherent in 
the business models and activities of proxy advisory firms. For 
example, as noted above, proxy advisory firms may feel 
pressured by their largest clients' many of whom are activist 
investors--to issue voting recommendations that reflect those 
clients' specific agendas. In addition, proxy advisory firms 
often provide voting recommendations to investment advisers on 
matters for which they also provide consulting services to 
public companies. According to a Mercatus Center study, ``these 
consulting services are designed precisely to facilitate 
managers' obtaining favorable recommendations.'' Some proxy 
advisory firms also rate or score public companies on their 
governance structure, policies, and practices, which provides 
another avenue for proxy advisory firms to influence corporate 
governance practices.

2014 SEC staff bulletin on proxy voting

    Given the major role proxy advisor firms now play in the 
U.S. proxy system, including their ability to influence 
corporate governance standards by supplying voting 
recommendations and other services, as well as the conflicts of 
interest described above, proxy advisory firms have become the 
subject of greater scrutiny. Regulators, market participants, 
and academics have argued that rather than using shareholder 
votes to maximize shareholder value, proxy advisory firms have 
instead aligned themselves with activist shareholders or unions 
to push social, political, and environmental goals unrelated 
and in many cases antithetical to increasing shareholder 
returns. Their critics contend that because proxy advisory 
firms generally have no financial interest in a public 
company's performance and owe no duty to its shareholders, they 
are prone to making decisions that neither promote good 
corporate governance nor increase shareholder value.
    In response to these concerns, on June 30, 2014, the SEC's 
Division of Corporate Finance and its Division of Investment 
Management jointly issued a staff legal bulletin on ``Proxy 
Voting: Proxy Voting Responsibilities of Investment Advisers 
and Availability of Exemptions from the Proxy Rules for Proxy 
Advisory Firms'' (the Bulletin). The Bulletin clarifies that an 
investment adviser and its clients ``have flexibility in 
determining the scope of the investment adviser's obligation to 
exercise proxy voting authority,'' and that SEC rules do not 
require investment advisers to vote every proxy. The Bulletin 
also states that, in considering whether to obtain the 
assistance of a proxy advisory firm, an investment adviser 
should ascertain the proxy advisory firm's ``capacity and 
competency to adequately analyze proxy issues,'' and ``identify 
and address any conflicts of interest.'' The Bulletin adds 
that, in order to comply with SEC rules, investment advisers 
should adopt policies and procedures ``reasonably designed to 
provide sufficient ongoing oversight of . . . third party 
[proxy advisers]'' in order to ensure that proxies are voted in 
the best interest of the investment adviser's clients. Finally, 
the Bulletin describes the exemptions available to proxy 
advisory firms from the filing and disclosure requirements of 
the SEC's proxy rules, and clarifies that, in order to rely on 
these exemptions, proxy advisers must make certain disclosures 
regarding significant relationships and material interests, 
including material conflicts that may arise from consulting 
services or client relationships.
    The Bulletin was a positive step forward towards improving 
the system of developing and dispensing proxy advice in the 
United States. However, nearly two years after the guidance was 
issued, many of the same issues in terms of conflict of 
interest and the adoption of ``one size fits all'' proxy 
recommendations still remain. Moreover, ISS and Glass-Lewis 
continue to maintain their dominance in this space without 
sufficient SEC oversight. The bipartisan H.R. 5311 will address 
many of the potential conflicts of interest that were not 
remedied by the Bulletin and ensure that proxy advisory firms 
engaged in these important services are subject to SEC 
registration and regulation.
    In his testimony during the Capital Markets and Government 
Sponsored Enterprises Subcommittee hearing on May 17, 2016, 
former SEC Commissioner Daniel Gallagher praised the bill for 
helping to address concerns with the proxy advisory system, 
noting that it would provide:

        A comprehensive regulatory regime to address many of 
        the fundamental concerns that still remain regarding 
        the activities of proxy advisers. . . . The 
        registration regime in the [bill] would significantly 
        improve transparency surrounding the structure and 
        operation of proxy advisers beyond the limited 
        disclosure required under existing rules and guidance.

Conclusion

    The current proxy advisory firm regulatory regime is not 
sufficient as two proxy advisory firms, Institutional 
Shareholder Services (ISS) and Glass Lewis & Co., account for 
97 percent of the market share of the proxy advisory business 
and wield enormous influence. A new and specifically tailored 
regulatory regime for the business of proxy advisory firms 
providing recommendations on proxy votes is necessary to ensure 
that they are subject to SEC oversight. The Business 
Roundtable, in a written statement submitted to the 
Subcommittee on Capital Markets for the May 17, 2016 hearing, 
noted that H.R. 5311 ``would improve the efficiency of U.S. 
capital markets and improve the quality of information 
available to shareholders and investors.''

                                Hearing

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Enterprises held a hearing 
examining matters relating to H.R. 5311 on May 17, 2016.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 16, 2016, and ordered H.R. 5311 to be reported favorably 
to the House as amended by a recorded vote of 41 yeas to 18 
nays (recorded vote no. FC-114), a quorum being present. An 
amendment offered by Rep. Foster was agreed to by voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote in Committee was a motion by Chairman 
Hensarling to report the bill favorably to the House as 
amended. That motion was agreed to by a recorded vote of 41 
yeas to 18 nays (Record vote no. FC-114), 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 findings and recommendations of 
the committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 5311 
will foster greater accountability, transparency, 
responsiveness and competition in the proxy advisory firm 
industry, thereby improving corporate governance and protecting 
investors.

   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 adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        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 Estimates

    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 30, 2016.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5311, the 
Corporate Governance Reform and Transparency Act of 2016.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 5311--Corporate Governance Reform and Transparency Act of 2016

    H.R. 5311 would require proxy advisory firms to register 
with the Securities and Exchange Commission (SEC) and would 
subject them to certain rules and reporting requirements. H.R. 
5311 would define the term proxy advisory firm and direct the 
SEC to require firms that fall within this definition to 
register with the agency in order to operate. A proxy advisory 
firm is one that provides voting recommendations to investment 
advisors who have the authority to proxy vote for their 
clients. It also would require registered proxy advisory firms 
to disclose certain information to the SEC, such as their 
financial and managerial resources and any potential or actual 
conflicts of interest in providing proxy advisory services. 
Lastly, H.R. 5311 would direct the SEC to annually report on 
its regulation of these firms.
    On the basis of information provided by the SEC, CBO 
estimates that implementing H.R. 5311 would cost $5 million 
over the 2017-2021 period to hire about 4 additional staff to 
create and maintain the registry and to prepare annual reports. 
However, the SEC is authorized to collect fees sufficient to 
offset its annual appropriation; therefore, CBO estimates that 
the net effect on discretionary spending would be negligible, 
assuming appropriation actions consistent with that authority. 
Enacting H.R. 5311 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting H.R. 5311 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year period beginning in 2027.
    H.R. 5311 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    H.R. 5311 contains private-sector mandates as defined in 
UMRA. CBO estimates that the aggregate cost of those mandates 
would fall below the annual threshold for private-sector 
mandates established in UMRA ($154 million in 2016, adjusted 
annually for inflation). The bill would impose new 
registration, disclosure, and personnel requirements on proxy 
advisory firms.
    The cost of the mandates would be the incremental costs 
incurred by firms to comply with the bill's requirements. Based 
on an analysis of information from the SEC, industry sources, 
and the academic literature about current business practices, 
CBO estimates the incremental cost to comply with the mandates 
would be small.
    In addition, CBO expects that the SEC would increase fees 
to offset the cost of implementing the bill. An increase in SEC 
fees would increase the cost of an existing mandate on private 
entities required to pay those fees. Based on information from 
the SEC, CBO estimates that the incremental cost of the 
mandate, if imposed, would total no more than $5 million over 
the 2017-2021 period.
    The CBO staff contact for this estimate is Stephen Rabent 
(for federal costs) and Logan Smith (for private-sector 
mandates). The estimate was approved by Theresa Gullo, 
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.

                  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 the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 5311 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 5311 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 5311 contains two directed 
rulemakings.

             Section-by-Section Analysis of the Legislation


Section 1: Short title

    This section cites H.R. 5311 as the ``Corporate Governance 
Reform and Transparency Act of 2016.''

Section 2: Definitions

    This section amends Section 3(a) of the Securities Act of 
1933 by defining the term ``proxy advisory firm'' to mean any 
person registered under section 15H who is engaged in the 
business of providing proxy voting research, analysis, or 
recommendations to clients, which constitutes a solicitation; 
by defining ``person associated with'' to mean any partner, 
officer, employee, director or controller or under control of a 
proxy advisory firm.

Section 3: Registration of proxy advisory firms

    This section amends The Securities Exchange Act of 1934 by 
inserting Section 15H. This new section states that a proxy 
advisory firm must file an application for registration with 
the Commission and disclose any potential conflicts of interest 
and code of ethics. Specifically, when applying for 
registration the proxy advisory firm must include the following 
information: a certification that the firm has the financial 
and managerial resources to provide proxy advice; the 
procedures and methodologies that the firm uses in developing 
proxy voting recommendations; the organizational structure of 
the firm; whether or not the firm has a code of ethics; any 
potential or actual conflict of interest; policies and 
procedures to manage conflicts of interest; and any other 
information that the Commission deems necessary. This section 
also sets forth that the Commission shall issue final rules to 
prohibit any act that they believe is unfair, coercive, or 
abusive relating to the offering of proxy advisory services as 
well as make publicly available all information that was 
provided to them by the proxy advisory firms.

Section 4: Commission annual report

    This section requires that the Commission publicly release 
an annual report that describes the methodologies that they 
used for formulating proxy recommendations and analyses.

         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 (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

                    SECURITIES EXCHANGE ACT OF 1934




           *       *       *       *       *       *       *
TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



                  definitions and application of title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1) The term ``exchange'' means any organization, 
        association, or group of persons, whether incorporated 
        or unincorporated, which constitutes, maintains, or 
        provides a market place or facilities for bringing 
        together purchasers and sellers of securities or for 
        otherwise performing with respect to securities the 
        functions commonly performed by a stock exchange as 
        that term is generally understood, and includes the 
        market place and the market facilities maintained by 
        such exchange.
          (2) The term ``facility'' when used with respect to 
        an exchange includes its premises, tangible or 
        intangible property whether on the premises or not, any 
        right to the use of such premises or property or any 
        service thereof for the purpose of effecting or 
        reporting a transaction on an exchange (including, 
        among other things, any system of communication to or 
        from the exchange, by ticker or otherwise, maintained 
        by or with the consent of the exchange), and any right 
        of the exchange to the use of any property or service.
          (3)(A) The term ``member'' when used with respect to 
        a national securities exchange means (i) any natural 
        person permitted to effect transactions on the floor of 
        the exchange without the services of another person 
        acting as broker, (ii) any registered broker or dealer 
        with which such a natural person is associated, (iii) 
        any registered broker or dealer permitted to designate 
        as a representative such a natural person, and (iv) any 
        other registered broker or dealer which agrees to be 
        regulated by such exchange and with respect to which 
        the exchange undertakes to enforce compliance with the 
        provisions of this title, the rules and regulations 
        thereunder, and its own rules. For purposes of sections 
        6(b)(1), 6(b)(4), 6(b)(6), 6(b)(7), 6(d), 17(d), 19(d), 
        19(e), 19(g), 19(h), and 21 of this title, the term 
        ``member'' when used with respect to a national 
        securities exchange also means, to the extent of the 
        rules of the exchange specified by the Commission, any 
        person required by the Commission to comply with such 
        rules pursuant to section 6(f) of this title.
          (B) The term ``member'' when used with respect to a 
        registered securities association means any broker or 
        dealer who agrees to be regulated by such association 
        and with respect to whom the association undertakes to 
        enforce compliance with the provisions of this title, 
        the rules and regulations thereunder, and its own 
        rules.
          (4) Broker.--
                  (A) In general.-- The term ``broker'' means 
                any person engaged in the business of effecting 
                transactions in securities for the account of 
                others.
                  (B) Exception for certain bank activities.-- 
                A bank shall not be considered to be a broker 
                because the bank engages in any one or more of 
                the following activities under the conditions 
                described:
                          (i) Third party brokerage 
                        arrangements.-- The bank enters into a 
                        contractual or other written 
                        arrangement with a broker or dealer 
                        registered under this title under which 
                        the broker or dealer offers brokerage 
                        services on or off the premises of the 
                        bank if--
                                  (I) such broker or dealer is 
                                clearly identified as the 
                                person performing the brokerage 
                                services;
                                  (II) the broker or dealer 
                                performs brokerage services in 
                                an area that is clearly marked 
                                and, to the extent practicable, 
                                physically separate from the 
                                routine deposit-taking 
                                activities of the bank;
                                  (III) any materials used by 
                                the bank to advertise or 
                                promote generally the 
                                availability of brokerage 
                                services under the arrangement 
                                clearly indicate that the 
                                brokerage services are being 
                                provided by the broker or 
                                dealer and not by the bank;
                                  (IV) any materials used by 
                                the bank to advertise or 
                                promote generally the 
                                availability of brokerage 
                                services under the arrangement 
                                are in compliance with the 
                                Federal securities laws before 
                                distribution;
                                  (V) bank employees (other 
                                than associated persons of a 
                                broker or dealer who are 
                                qualified pursuant to the rules 
                                of a self-regulatory 
                                organization) perform only 
                                clerical or ministerial 
                                functions in connection with 
                                brokerage transactions 
                                including scheduling 
                                appointments with the 
                                associated persons of a broker 
                                or dealer, except that bank 
                                employees may forward customer 
                                funds or securities and may 
                                describe in general terms the 
                                types of investment vehicles 
                                available from the bank and the 
                                broker or dealer under the 
                                arrangement;
                                  (VI) bank employees do not 
                                receive incentive compensation 
                                for any brokerage transaction 
                                unless such employees are 
                                associated persons of a broker 
                                or dealer and are qualified 
                                pursuant to the rules of a 
                                self-regulatory organization, 
                                except that the bank employees 
                                may receive compensation for 
                                the referral of any customer if 
                                the compensation is a nominal 
                                one-time cash fee of a fixed 
                                dollar amount and the payment 
                                of the fee is not contingent on 
                                whether the referral results in 
                                a transaction;
                                  (VII) such services are 
                                provided by the broker or 
                                dealer on a basis in which all 
                                customers that receive any 
                                services are fully disclosed to 
                                the broker or dealer;
                                  (VIII) the bank does not 
                                carry a securities account of 
                                the customer except as 
                                permitted under clause (ii) or 
                                (viii) of this subparagraph; 
                                and
                                  (IX) the bank, broker, or 
                                dealer informs each customer 
                                that the brokerage services are 
                                provided by the broker or 
                                dealer and not by the bank and 
                                that the securities are not 
                                deposits or other obligations 
                                of the bank, are not guaranteed 
                                by the bank, and are not 
                                insured by the Federal Deposit 
                                Insurance Corporation.
                          (ii) Trust activities.-- The bank 
                        effects transactions in a trustee 
                        capacity, or effects transactions in a 
                        fiduciary capacity in its trust 
                        department or other department that is 
                        regularly examined by bank examiners 
                        for compliance with fiduciary 
                        principles and standards, and--
                                  (I) is chiefly compensated 
                                for such transactions, 
                                consistent with fiduciary 
                                principles and standards, on 
                                the basis of an administration 
                                or annual fee (payable on a 
                                monthly, quarterly, or other 
                                basis), a percentage of assets 
                                under management, or a flat or 
                                capped per order processing fee 
                                equal to not more than the cost 
                                incurred by the bank in 
                                connection with executing 
                                securities transactions for 
                                trustee and fiduciary 
                                customers, or any combination 
                                of such fees; and
                                  (II) does not publicly 
                                solicit brokerage business, 
                                other than by advertising that 
                                it effects transactions in 
                                securities in conjunction with 
                                advertising its other trust 
                                activities.
                          (iii) Permissible securities 
                        transactions.-- The bank effects 
                        transactions in--
                                  (I) commercial paper, bankers 
                                acceptances, or commercial 
                                bills;
                                  (II) exempted securities;
                                  (III) qualified Canadian 
                                government obligations as 
                                defined in section 5136 of the 
                                Revised Statutes, in conformity 
                                with section 15C of this title 
                                and the rules and regulations 
                                thereunder, or obligations of 
                                the North American Development 
                                Bank; or
                                  (IV) any standardized, credit 
                                enhanced debt security issued 
                                by a foreign government 
                                pursuant to the March 1989 plan 
                                of then Secretary of the 
                                Treasury Brady, used by such 
                                foreign government to retire 
                                outstanding commercial bank 
                                loans.
                          (iv) Certain stock purchase plans.--
                                  (I) Employee benefit plans.-- 
                                The bank effects transactions, 
                                as part of its transfer agency 
                                activities, in the securities 
                                of an issuer as part of any 
                                pension, retirement, profit-
                                sharing, bonus, thrift, 
                                savings, incentive, or other 
                                similar benefit plan for the 
                                employees of that issuer or its 
                                affiliates (as defined in 
                                section 2 of the Bank Holding 
                                Company Act of 1956), if the 
                                bank does not solicit 
                                transactions or provide 
                                investment advice with respect 
                                to the purchase or sale of 
                                securities in connection with 
                                the plan.
                                  (II) Dividend reinvestment 
                                plans.-- The bank effects 
                                transactions, as part of its 
                                transfer agency activities, in 
                                the securities of an issuer as 
                                part of that issuer's dividend 
                                reinvestment plan, if--
                                          (aa) the bank does 
                                        not solicit 
                                        transactions or provide 
                                        investment advice with 
                                        respect to the purchase 
                                        or sale of securities 
                                        in connection with the 
                                        plan; and
                                          (bb) the bank does 
                                        not net shareholders' 
                                        buy and sell orders, 
                                        other than for programs 
                                        for odd-lot holders or 
                                        plans registered with 
                                        the Commission.
                                  (III) Issuer plans.-- The 
                                bank effects transactions, as 
                                part of its transfer agency 
                                activities, in the securities 
                                of an issuer as part of a plan 
                                or program for the purchase or 
                                sale of that issuer's shares, 
                                if--
                                          (aa) the bank does 
                                        not solicit 
                                        transactions or provide 
                                        investment advice with 
                                        respect to the purchase 
                                        or sale of securities 
                                        in connection with the 
                                        plan or program; and
                                          (bb) the bank does 
                                        not net shareholders' 
                                        buy and sell orders, 
                                        other than for programs 
                                        for odd-lot holders or 
                                        plans registered with 
                                        the Commission.
                                  (IV) Permissible delivery of 
                                materials.-- The exception to 
                                being considered a broker for a 
                                bank engaged in activities 
                                described in subclauses (I), 
                                (II), and (III) will not be 
                                affected by delivery of written 
                                or electronic plan materials by 
                                a bank to employees of the 
                                issuer, shareholders of the 
                                issuer, or members of affinity 
                                groups of the issuer, so long 
                                as such materials are--
                                          (aa) comparable in 
                                        scope or nature to that 
                                        permitted by the 
                                        Commission as of the 
                                        date of the enactment 
                                        of the Gramm-Leach-
                                        Bliley Act; or
                                          (bb) otherwise 
                                        permitted by the 
                                        Commission.
                          (v) Sweep accounts.-- The bank 
                        effects transactions as part of a 
                        program for the investment or 
                        reinvestment of deposit funds into any 
                        no-load, open-end management investment 
                        company registered under the Investment 
                        Company Act of 1940 that holds itself 
                        out as a money market fund.
                          (vi) Affiliate transactions.-- The 
                        bank effects transactions for the 
                        account of any affiliate of the bank 
                        (as defined in section 2 of the Bank 
                        Holding Company Act of 1956) other 
                        than--
                                  (I) a registered broker or 
                                dealer; or
                                  (II) an affiliate that is 
                                engaged in merchant banking, as 
                                described in section 4(k)(4)(H) 
                                of the Bank Holding Company Act 
                                of 1956.
                          (vii) Private securities offerings.-- 
                        The bank--
                                  (I) effects sales as part of 
                                a primary offering of 
                                securities not involving a 
                                public offering, pursuant to 
                                section 3(b), 4(2), or 4(5) of 
                                the Securities Act of 1933 or 
                                the rules and regulations 
                                issued thereunder;
                                  (II) at any time after the 
                                date that is 1 year after the 
                                date of the enactment of the 
                                Gramm-Leach-Bliley Act, is not 
                                affiliated with a broker or 
                                dealer that has been registered 
                                for more than 1 year in 
                                accordance with this Act, and 
                                engages in dealing, market 
                                making, or underwriting 
                                activities, other than with 
                                respect to exempted securities; 
                                and
                                  (III) if the bank is not 
                                affiliated with a broker or 
                                dealer, does not effect any 
                                primary offering described in 
                                subclause (I) the aggregate 
                                amount of which exceeds 25 
                                percent of the capital of the 
                                bank, except that the 
                                limitation of this subclause 
                                shall not apply with respect to 
                                any sale of government 
                                securities or municipal 
                                securities.
                          (viii) Safekeeping and custody 
                        activities.--
                                  (I) In general.-- The bank, 
                                as part of customary banking 
                                activities--
                                          (aa) provides 
                                        safekeeping or custody 
                                        services with respect 
                                        to securities, 
                                        including the exercise 
                                        of warrants and other 
                                        rights on behalf of 
                                        customers;
                                          (bb) facilitates the 
                                        transfer of funds or 
                                        securities, as a 
                                        custodian or a clearing 
                                        agency, in connection 
                                        with the clearance and 
                                        settlement of its 
                                        customers' transactions 
                                        in securities;
                                          (cc) effects 
                                        securities lending or 
                                        borrowing transactions 
                                        with or on behalf of 
                                        customers as part of 
                                        services provided to 
                                        customers pursuant to 
                                        division (aa) or (bb) 
                                        or invests cash 
                                        collateral pledged in 
                                        connection with such 
                                        transactions;
                                          (dd) holds securities 
                                        pledged by a customer 
                                        to another person or 
                                        securities subject to 
                                        purchase or resale 
                                        agreements involving a 
                                        customer, or 
                                        facilitates the 
                                        pledging or transfer of 
                                        such securities by book 
                                        entry or as otherwise 
                                        provided under 
                                        applicable law, if the 
                                        bank maintains records 
                                        separately identifying 
                                        the securities and the 
                                        customer; or
                                          (ee) serves as a 
                                        custodian or provider 
                                        of other related 
                                        administrative services 
                                        to any individual 
                                        retirement account, 
                                        pension, retirement, 
                                        profit sharing, bonus, 
                                        thrift savings, 
                                        incentive, or other 
                                        similar benefit plan.
                                  (II) Exception for carrying 
                                broker activities.-- The 
                                exception to being considered a 
                                broker for a bank engaged in 
                                activities described in 
                                subclause (I) shall not apply 
                                if the bank, in connection with 
                                such activities, acts in the 
                                United States as a carrying 
                                broker (as such term, and 
                                different formulations thereof, 
                                are used in section 15(c)(3) of 
                                this title and the rules and 
                                regulations thereunder) for any 
                                broker or dealer, unless such 
                                carrying broker activities are 
                                engaged in with respect to 
                                government securities (as 
                                defined in paragraph (42) of 
                                this subsection).
                          (ix) Identified banking products.-- 
                        The bank effects transactions in 
                        identified banking products as defined 
                        in section 206 of the Gramm-Leach-
                        Bliley Act.
                          (x) Municipal securities.-- The bank 
                        effects transactions in municipal 
                        securities.
                          (xi) De minimis exception.-- The bank 
                        effects, other than in transactions 
                        referred to in clauses (i) through (x), 
                        not more than 500 transactions in 
                        securities in any calendar year, and 
                        such transactions are not effected by 
                        an employee of the bank who is also an 
                        employee of a broker or dealer.
                  (C) Execution by broker or dealer.-- The 
                exception to being considered a broker for a 
                bank engaged in activities described in clauses 
                (ii), (iv), and (viii) of subparagraph (B) 
                shall not apply if the activities described in 
                such provisions result in the trade in the 
                United States of any security that is a 
                publicly traded security in the United States, 
                unless--
                          (i) the bank directs such trade to a 
                        registered broker or dealer for 
                        execution;
                          (ii) the trade is a cross trade or 
                        other substantially similar trade of a 
                        security that--
                                  (I) is made by the bank or 
                                between the bank and an 
                                affiliated fiduciary; and
                                  (II) is not in contravention 
                                of fiduciary principles 
                                established under applicable 
                                Federal or State law; or
                          (iii) the trade is conducted in some 
                        other manner permitted under rules, 
                        regulations, or orders as the 
                        Commission may prescribe or issue.
                  (D) Fiduciary capacity.-- For purposes of 
                subparagraph (B)(ii), the term ``fiduciary 
                capacity'' means--
                          (i) in the capacity as trustee, 
                        executor, administrator, registrar of 
                        stocks and bonds, transfer agent, 
                        guardian, assignee, receiver, or 
                        custodian under a uniform gift to minor 
                        act, or as an investment adviser if the 
                        bank receives a fee for its investment 
                        advice;
                          (ii) in any capacity in which the 
                        bank possesses investment discretion on 
                        behalf of another; or
                          (iii) in any other similar capacity.
                  (E) Exception for entities subject to section 
                15(e).-- The term ``broker'' does not include a 
                bank that--
                          (i) was, on the day before the date 
                        of enactment of the Gramm-Leach-Bliley 
                        Act, subject to section 15(e); and
                          (ii) is subject to such restrictions 
                        and requirements as the Commission 
                        considers appropriate.
                  (F) Joint rulemaking required.-- The 
                Commission and the Board of Governors of the 
                Federal Reserve System shall jointly adopt a 
                single set of rules or regulations to implement 
                the exceptions in subparagraph (B).
          (5) Dealer.--
                  (A) In general.-- The term ``dealer'' means 
                any person engaged in the business of buying 
                and selling securities (not including security-
                based swaps, other than security-based swaps 
                with or for persons that are not eligible 
                contract participants) for such person's own 
                account through a broker or otherwise.
                  (B) Exception for person not engaged in the 
                business of dealing.-- The term ``dealer'' does 
                not include a person that buys or sells 
                securities (not including security-based swaps, 
                other than security-based swaps with or for 
                persons that are not eligible contract 
                participants) for such person's own account, 
                either individually or in a fiduciary capacity, 
                but not as a part of a regular business.
                  (C) Exception for certain bank activities.-- 
                A bank shall not be considered to be a dealer 
                because the bank engages in any of the 
                following activities under the conditions 
                described:
                          (i) Permissible securities 
                        transactions.-- The bank buys or 
                        sells--
                                  (I) commercial paper, bankers 
                                acceptances, or commercial 
                                bills;
                                  (II) exempted securities;
                                  (III) qualified Canadian 
                                government obligations as 
                                defined in section 5136 of the 
                                Revised Statutes of the United 
                                States, in conformity with 
                                section 15C of this title and 
                                the rules and regulations 
                                thereunder, or obligations of 
                                the North American Development 
                                Bank; or
                                  (IV) any standardized, credit 
                                enhanced debt security issued 
                                by a foreign government 
                                pursuant to the March 1989 plan 
                                of then Secretary of the 
                                Treasury Brady, used by such 
                                foreign government to retire 
                                outstanding commercial bank 
                                loans.
                          (ii) Investment, trustee, and 
                        fiduciary transactions.-- The bank buys 
                        or sells securities for investment 
                        purposes--
                                  (I) for the bank; or
                                  (II) for accounts for which 
                                the bank acts as a trustee or 
                                fiduciary.
                          (iii) Asset-backed transactions.-- 
                        The bank engages in the issuance or 
                        sale to qualified investors, through a 
                        grantor trust or other separate entity, 
                        of securities backed by or representing 
                        an interest in notes, drafts, 
                        acceptances, loans, leases, 
                        receivables, other obligations (other 
                        than securities of which the bank is 
                        not the issuer), or pools of any such 
                        obligations predominantly originated 
                        by--
                                  (I) the bank;
                                  (II) an affiliate of any such 
                                bank other than a broker or 
                                dealer; or
                                  (III) a syndicate of banks of 
                                which the bank is a member, if 
                                the obligations or pool of 
                                obligations consists of 
                                mortgage obligations or 
                                consumer-related receivables.
                          (iv) Identified banking products.-- 
                        The bank buys or sells identified 
                        banking products, as defined in section 
                        206 of the Gramm-Leach-Bliley Act.
          (6) The term ``bank'' means (A) a banking institution 
        organized under the laws of the United States or a 
        Federal savings association, as defined in section 2(5) 
        of the Home Owners' Loan Act, (B) a member bank of the 
        Federal Reserve System, (C) any other banking 
        institution or savings association, as defined in 
        section 2(4) of the Home Owners' Loan Act, whether 
        incorporated or not, doing business under the laws of 
        any State or of the United States, a substantial 
        portion of the business of which consists of receiving 
        deposits or exercising fiduciary powers similar to 
        those permitted to national banks under the authority 
        of the Comptroller of the Currency pursuant to the 
        first section of Public Law 87-722 (12 U.S.C. 92a), and 
        which is supervised and examined by State or Federal 
        authority having supervision over banks or savings 
        associations, and which is not operated for the purpose 
        of evading the provisions of this title, and (D) a 
        receiver, conservator, or other liquidating agent of 
        any institution or firm included in clauses (A), (B), 
        or (C) of this paragraph.
          (7) The term ``director'' means any director of a 
        corporation or any person performing similar functions 
        with respect to any organization, whether incorporated 
        or unincorporated.
          (8) The term ``issuer'' means any person who issues 
        or proposes to issue any security; except that with 
        respect to certificates of deposit for securities, 
        voting-trust certificates, or collateral-trust 
        certificates, or with respect to certificates of 
        interest or shares in an unincorporated investment 
        trust not having a board of directors or of the fixed, 
        restricted management, or unit type, the term 
        ``issuer'' means the person or persons performing the 
        acts and assuming the duties of depositor or manager 
        pursuant to the provisions of the trust or other 
        agreement or instrument under which such securities are 
        issued; and except that with respect to equipment-trust 
        certificates or like securities, the term ``issuer'' 
        means the person by whom the equipment or property is, 
        or is to be, used.
          (9) The term ``person'' means a natural person, 
        company, government, or political subdivision, agency, 
        or instrumentality of a government.
          (10) The term ``security'' means any note, stock, 
        treasury stock, security future, security-based 
        swap,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.
          (11) The term ``equity security'' means any stock or 
        similar security; or any security future on any such 
        security; or any security convertible, with or without 
        consideration, into such a security, or carrying any 
        warrant or right to subscribe to or purchase such a 
        security; or any such warrant or right; or any other 
        security which the Commission shall deem to be of 
        similar nature and consider necessary or appropriate, 
        by such rules and regulations as it may prescribe in 
        the public interest or for the protection of investors, 
        to treat as an equity security.
          (12)(A) The term ``exempted security'' or ``exempted 
        securities'' includes--
                  (i) government securities, as defined in 
                paragraph (42) of this subsection;
                  (ii) municipal securities, as defined in 
                paragraph (29) of this subsection;
                  (iii) any interest or participation in any 
                common trust fund or similar fund that is 
                excluded from the definition of the term 
                ``investment company'' under section 3(c)(3) of 
                the Investment Company Act of 1940;
                  (iv) any interest or participation in a 
                single trust fund, or a collective trust fund 
                maintained by a bank, or any security arising 
                out of a contract issued by an insurance 
                company, which interest, participation, or 
                security is issued in connection with a 
                qualified plan as defined in subparagraph (C) 
                of this paragraph;
                  (v) any security issued by or any interest or 
                participation in any pooled income fund, 
                collective trust fund, collective investment 
                fund, or similar fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940;
                  (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
                  (vii) such other securities (which may 
                include, among others, unregistered securities, 
                the market in which is predominantly 
                intrastate) as the Commission may, by such 
                rules and regulations as it deems consistent 
                with the public interest and the protection of 
                investors, either unconditionally or upon 
                specified terms and conditions or for stated 
                periods, exempt from the operation of any one 
                or more provisions of this title which by their 
                terms do not apply to an ``exempted security'' 
                or to ``exempted securities''.
          (B)(i) Notwithstanding subparagraph (A)(i) of this 
        paragraph, government securities shall not be deemed to 
        be ``exempted securities'' for the purposes of section 
        17A of this title.
          (ii) Notwithstanding subparagraph (A)(ii) of this 
        paragraph, municipal securities shall not be deemed to 
        be ``exempted securities'' for the purposes of sections 
        15 and 17A of this title.
          (C) For purposes of subparagraph (A)(iv) of this 
        paragraph, the term ``qualified plan'' means (i) a 
        stock bonus, pension, or profit-sharing plan which 
        meets the requirements for qualification under section 
        401 of the Internal Revenue Code of 1954, (ii) an 
        annuity plan which meets the requirements for the 
        deduction of the employer's contribution under section 
        404(a)(2) of such Code, (iii) a governmental plan as 
        defined in section 414(d) of such Code which has been 
        established by an employer for the exclusive benefit of 
        its employees or their beneficiaries for the purpose of 
        distributing to such employees or their beneficiaries 
        the corpus and income of the funds accumulated under 
        such plan, if under such plan it is impossible, prior 
        to the satisfaction of all liabilities with respect to 
        such employees and their beneficiaries, for any part of 
        the corpus or income to be used for, or diverted to, 
        purposes other than the exclusive benefit of such 
        employees or their beneficiaries, or (iv) a 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, other 
        than any plan described in clause (i), (ii), or (iii) 
        of this subparagraph which (I) covers employees some or 
        all of whom are employees within the meaning of section 
        401(c) of such Code, or (II) is a plan funded by an 
        annuity contract described in section 403(b) of such 
        Code.
          (13) The terms ``buy'' and ``purchase'' each include 
        any contract to buy, purchase, or otherwise acquire. 
        For security futures products, such term includes any 
        contract, agreement, or transaction for future 
        delivery. For security-based swaps, such terms include 
        the execution, termination (prior to its scheduled 
        maturity date), assignment, exchange, or similar 
        transfer or conveyance of, or extinguishing of rights 
        or obligations under, a security-based swap, as the 
        context may require.
          (14) The terms ``sale'' and ``sell'' each include any 
        contract to sell or otherwise dispose of. For security 
        futures products, such term includes any contract, 
        agreement, or transaction for future delivery. For 
        security-based swaps, such terms include the execution, 
        termination (prior to its scheduled maturity date), 
        assignment, exchange, or similar transfer or conveyance 
        of, or extinguishing of rights or obligations under, a 
        security-based swap, as the context may require.
          (15) The term ``Commission'' means the Securities and 
        Exchange Commission established by section 4 of this 
        title.
          (16) The term ``State'' means any State of the United 
        States, the District of Columbia, Puerto Rico, the 
        Virgin Islands, or any other possession of the United 
        States.
          (17) The term ``interstate commerce'' means trade, 
        commerce, transportation, or communication among the 
        several States, or between any foreign country and any 
        State, or between any State and any place or ship 
        outside thereof. The term also includes intrastate use 
        of (A) any facility of a national securities exchange 
        or of a telephone or other interstate means of 
        communication, or (B) any other interstate 
        instrumentality.
          (18) The term ``person associated with a broker or 
        dealer'' or ``associated person of a broker or dealer'' 
        means any partner, officer, director, or branch manager 
        of such broker or dealer (or any person occupying a 
        similar status or performing similar functions), any 
        person directly or indirectly controlling, controlled 
        by, or under common control with such broker or dealer, 
        or any employee of such broker or dealer, except that 
        any person associated with a broker or dealer whose 
        functions are solely clerical or ministerial shall not 
        be included in the meaning of such term for purposes of 
        section 15(b) of this title (other than paragraph (6) 
        thereof).
          (19) The terms ``investment company,'' ``affiliated 
        person,'' ``insurance company,'' ``separate account,'' 
        and ``company'' have the same meanings as in the 
        Investment Company Act of 1940.
          (20) The terms ``investment adviser'' and 
        ``underwriter'' have the same meanings as in the 
        Investment Advisers Act of 1940.
          (21) The term ``persons associated with a member'' or 
        ``associated person of a member'' when used with 
        respect to a member of a national securities exchange 
        or registered securities association means any partner, 
        officer, director, or branch manager of such member (or 
        any person occupying a similar status or performing 
        similar functions), any person directly or indirectly 
        controlling, controlled by, or under common control 
        with such member, or any employee of such member.
          (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 of the 
        Communications Act of 1934, subject to the jurisdiction 
        of the Federal Communications Commission or a State 
        commission, as defined in 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.
          (B) The term ``exclusive processor'' means any 
        securities information processor or self-regulatory 
        organization which, directly or indirectly, engages on 
        an exclusive basis on behalf of any national securities 
        exchange or registered securities association, or any 
        national securities exchange or registered securities 
        association which engages on an exclusive basis on its 
        own behalf, in collecting, processing, or preparing for 
        distribution or publication any information with 
        respect to (i) transactions or quotations on or 
        effected or made by means of any facility of such 
        exchange or (ii) quotations distributed or published by 
        means of any electronic system operated or controlled 
        by such association.
          (23)(A) The term ``clearing agency'' means any person 
        who acts as an intermediary in making payments or 
        deliveries or both in connection with transactions in 
        securities or who provides facilities for comparison of 
        data respecting the terms of settlement of securities 
        transactions, to reduce the number of settlements of 
        securities transactions, or for the allocation of 
        securities settlement responsibilities. Such term also 
        means any person, such as a securities depository, who 
        (i) acts as a custodian of securities in connection 
        with a system for the central handling of securities 
        whereby all securities of a particular class or series 
        of any issuer deposited within the system are treated 
        as fungible and may be transferred, loaned, or pledged 
        by bookkeeping entry without physical delivery of 
        securities certificates, or (ii) otherwise permits or 
        facilitates the settlement of securities transactions 
        or the hypothecation or lending of securities without 
        physical delivery of securities certificates.
          (B) The term ``clearing agency'' does not include (i) 
        any Federal Reserve bank, Federal home loan bank, or 
        Federal land bank; (ii) any national securities 
        exchange or registered securities association solely by 
        reason of its providing facilities for comparison of 
        data respecting the terms of settlement of securities 
        transactions effected on such exchange or by means of 
        any electronic system operated or controlled by such 
        association; (iii) 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 clearing agency solely by reason of functions 
        performed by such institution as part of customary 
        banking, brokerage, dealing, association, or 
        cooperative banking activities, or solely by reason of 
        acting on behalf of a clearing agency or a participant 
        therein in connection with the furnishing by the 
        clearing agency of services to its participants or the 
        use of services of the clearing agency by its 
        participants, unless the Commission, by rule, otherwise 
        provides as necessary or appropriate to assure the 
        prompt and accurate clearance and settlement of 
        securities transactions or to prevent evasion of this 
        title; (iv) any life insurance company, its registered 
        separate accounts, or a subsidiary of such insurance 
        company solely by reason of functions commonly 
        performed by such entities in connection with variable 
        annuity contracts or variable life policies issued by 
        such insurance company or its separate accounts; (v) 
        any registered open-end investment company or unit 
        investment trust solely by reason of functions commonly 
        performed by it in connection with shares in such 
        registered open-end investment company or unit 
        investment trust, or (vi) any person solely by reason 
        of its performing functions described in paragraph 
        25(E) of this subsection.
          (24) The term ``participant'' when used with respect 
        to a clearing agency means any person who uses a 
        clearing agency to clear or settle securities 
        transactions or to transfer, pledge, lend, or 
        hypothecate securities. Such term does not include a 
        person whose only use of a clearing agency is (A) 
        through another person who is a participant or (B) as a 
        pledgee of securities.
          (25) The term ``transfer agent'' means any person who 
        engages on behalf of an issuer of securities or on 
        behalf of itself as an issuer of securities in (A) 
        countersigning such securities upon issuance; (B) 
        monitoring the issuance of such securities with a view 
        to preventing unauthorized issuance, a function 
        commonly performed by a person called a registrar; (C) 
        registering the transfer of such securities; (D) 
        exchanging or converting such securities; or (E) 
        transferring record ownership of securities by 
        bookkeeping entry without physical issuance of 
        securities certificates. The term ``transfer agent'' 
        does not include any insurance company or separate 
        account which performs such functions solely with 
        respect to variable annuity contracts or variable life 
        policies which it issues or any registered clearing 
        agency which performs such functions solely with 
        respect to options contracts which it issues.
          (26) The term ``self-regulatory organization'' means 
        any national securities exchange, registered securities 
        association, or registered clearing agency, or (solely 
        for purposes of sections 19(b), 19(c), and 23(b) of 
        this title) the Municipal Securities Rulemaking Board 
        established by section 15B of this title.
          (27) The term ``rules of an exchange'', ``rules of an 
        association'', or ``rules of a clearing agency'' means 
        the constitution, articles of incorporation, bylaws, 
        and rules, or instruments corresponding to the 
        foregoing, of an exchange, association of brokers and 
        dealers, or clearing agency, respectively, and such of 
        the stated policies, practices, and interpretations of 
        such exchange, association, or clearing agency as the 
        Commission, by rule, may determine to be necessary or 
        appropriate in the public interest or for the 
        protection of investors to be deemed to be rules of 
        such exchange, association, or clearing agency.
          (28) The term ``rules of a self-regulatory 
        organization'' means the rules of an exchange which is 
        a national securities exchange, the rules of an 
        association of brokers and dealers which is a 
        registered securities association, the rules of a 
        clearing agency which is a registered clearing agency, 
        or the rules of the Municipal Securities Rulemaking 
        Board.
          (29) The term ``municipal securities'' means 
        securities which are direct obligations of, or 
        obligations guaranteed as to principal or interest by, 
        a State or any political subdivision thereof, or any 
        agency or instrumentality of a State or any political 
        subdivision thereof, or any municipal corporate 
        instrumentality of one or more States, or any security 
        which is an industrial development bond (as defined in 
        section 103(c)(2) of the Internal Revenue Code of 1954) 
        the interest on which is excludable from gross income 
        under section 103(a)(1) of such Code if, by reason of 
        the application of paragraph (4) or (6) of section 
        103(c) of such Code (determined as if paragraphs 
        (4)(A), (5), and (7) were not included in such section 
        103(c)), paragraph (1) of such section 103(c) does not 
        apply to such security.
          (30) The term ``municipal securities dealer'' means 
        any person (including a separately identifiable 
        department or division of a bank) engaged in the 
        business of buying and selling municipal securities for 
        his own account, through a broker or otherwise, but 
        does not include--
                  (A) any person insofar as he buys or sells 
                such securities for his own account, either 
                individually or in some fiduciary capacity, but 
                not as a part of a regular business; or
                  (B) a bank, unless the bank is engaged in the 
                business of buying and selling municipal 
                securities for its own account other than in a 
                fiduciary capacity, through a broker or 
                otherwise; Provided, however, That if the bank 
                is engaged in such business through a 
                separately identifiable department or division 
                (as defined by the Municipal Securities 
                Rulemaking Board in accordance with section 
                15B(b)(2)(H) of this title), the department or 
                division and not the bank itself shall be 
                deemed to be the municipal securities dealer.
          (31) The term ``municipal securities broker'' means a 
        broker engaged in the business of effecting 
        transactions in municipal securities for the account of 
        others.
          (32) The term ``person associated with a municipal 
        securities dealer'' when used with respect to a 
        municipal securities dealer which is a bank or a 
        division or department of a bank means any person 
        directly engaged in the management, direction, 
        supervision, or performance of any of the municipal 
        securities dealer's activities with respect to 
        municipal securities, and any person directly or 
        indirectly controlling such activities or controlled by 
        the municipal securities dealer in connection with such 
        activities.
          (33) The term ``municipal securities investment 
        portfolio'' means all municipal securities held for 
        investment and not for sale as part of a regular 
        business by a municipal securities dealer or by a 
        person, directly or indirectly, controlling, controlled 
        by, or under common control with a municipal securities 
        dealer.
          (34) The term ``appropriate regulatory agency'' 
        means--
                  (A) When used with respect to a municipal 
                securities dealer:
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank, a 
                        subsidiary or a department or division 
                        of any such bank, a Federal savings 
                        association (as defined in section 
                        3(b)(2) of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813(b)(2))), 
                        the deposits of which are insured by 
                        the Federal Deposit Insurance 
                        Corporation, or a subsidiary or 
                        department or division of any such 
                        Federal savings association;
                          (ii) the Board of Governors of the 
                        Federal Reserve System, in the case of 
                        a State member bank of the Federal 
                        Reserve System, a subsidiary or a 
                        department or division thereof, a bank 
                        holding company, a subsidiary of a bank 
                        holding company which is a bank other 
                        than a bank specified in clause (i), 
                        (iii), or (iv) of this subparagraph, a 
                        subsidiary or a department or division 
                        of such subsidiary, or a savings and 
                        loan holding company;
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of a bank 
                        insured by the Federal Deposit 
                        Insurance Corporation (other than a 
                        member of the Federal Reserve System), 
                        a subsidiary or department or division 
                        of any such bank, a State savings 
                        association (as defined in section 
                        3(b)(3) of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813(b)(3))), 
                        the deposits of which are insured by 
                        the Federal Deposit Insurance 
                        Corporation, or a subsidiary or a 
                        department or division of any such 
                        State savings association; and
                          (iv) the Commission in the case of 
                        all other municipal securities dealers.
                  (B) When used with respect to a clearing 
                agency or transfer agent:
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank, a 
                        subsidiary of any such bank, a Federal 
                        savings association (as defined in 
                        section 3(b)(2) of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813(b)(2))), 
                        the deposits of which are insured by 
                        the Federal Deposit Insurance 
                        Corporation, or a subsidiary of any 
                        such Federal savings association;
                          (ii) the Board of Governors of the 
                        Federal Reserve System, in the case of 
                        a State member bank of the Federal 
                        Reserve System, a subsidiary thereof, a 
                        bank holding company, a subsidiary of a 
                        bank holding company that is a bank 
                        other than a bank specified in clause 
                        (i) or (iii) of this subparagraph, or a 
                        savings and loan holding company;
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of a bank 
                        insured by the Federal Deposit 
                        Insurance Corporation (other than a 
                        member of the Federal Reserve System), 
                        a subsidiary of any such bank, a State 
                        savings association (as defined in 
                        section 3(b)(3) of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813(b)(3))), 
                        the deposits of which are insured by 
                        the Federal Deposit Insurance 
                        Corporation, or a subsidiary of any 
                        such State savings association; and
                          (iv) the Commission in the case of 
                        all other clearing agencies and 
                        transfer agents.
                  (C) When used with respect to a participant 
                or applicant to become a participant in a 
                clearing agency or a person requesting or 
                having access to services offered by a clearing 
                agency:
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank or a 
                        Federal savings association (as defined 
                        in section 3(b)(2) of the Federal 
                        Deposit Insurance Act (12 U.S.C. 
                        1813(b)(2))), the deposits of which are 
                        insured by the Federal Deposit 
                        Insurance Corporation when the 
                        appropriate regulatory agency for such 
                        clearing agency is not the Commission;
                          (ii) the Board of Governors of the 
                        Federal Reserve System in the case of a 
                        State member bank of the Federal 
                        Reserve System, a bank holding company, 
                        or a subsidiary of a bank holding 
                        company, a subsidiary of a bank holding 
                        company that is a bank other than a 
                        bank specified in clause (i) or (iii) 
                        of this subparagraph, or a savings and 
                        loan holding company when the 
                        appropriate regulatory agency for such 
                        clearing agency is not the Commission;
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of a bank 
                        insured by the Federal Deposit 
                        Insurance Corporation (other than a 
                        member of the Federal Reserve System) 
                        or a State savings association (as 
                        defined in section 3(b)(3) of the 
                        Federal Deposit Insurance Act (12 
                        U.S.C. 1813(b)(3))), the deposits of 
                        which are insured by the Federal 
                        Deposit Insurance Corporation; and when 
                        the appropriate regulatory agency for 
                        such clearing agency is not the 
                        Commission;
                          (iv) the Commission in all other 
                        cases.
                  (D) When used with respect to an 
                institutional investment manager which is a 
                bank the deposits of which are insured in 
                accordance with the Federal Deposit Insurance 
                Act:
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank or a 
                        Federal savings association (as defined 
                        in section 3(b)(2) of the Federal 
                        Deposit Insurance Act (12 U.S.C. 
                        1813(b)(2))), the deposits of which are 
                        insured by the Federal Deposit 
                        Insurance Corporation;
                          (ii) the Board of Governors of the 
                        Federal Reserve System, in the case of 
                        any other member bank of the Federal 
                        Reserve System; and
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of any other 
                        insured bank or a State savings 
                        association (as defined in section 
                        3(b)(3) of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813(b)(3))), 
                        the deposits of which are insured by 
                        the Federal Deposit Insurance 
                        Corporation.
                  (E) When used with respect to a national 
                securities exchange or registered securities 
                association, member thereof, person associated 
                with a member thereof, applicant to become a 
                member thereof or to become associated with a 
                member thereof, or person requesting or having 
                access to services offered by such exchange or 
                association or member thereof, or the Municipal 
                Securities Rulemaking Board, the Commission.
                  (F) When used with respect to a person 
                exercising investment discretion with respect 
                to an account:
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank or a 
                        Federal savings association (as defined 
                        in section 3(b)(2) of the Federal 
                        Deposit Insurance Act (12 U.S.C. 
                        1813(b)(2))), the deposits of which are 
                        insured by the Federal Deposit 
                        Insurance Corporation;
                          (ii) the Board of Governors of the 
                        Federal Reserve System in the case of 
                        any other member bank of the Federal 
                        Reserve System;
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of any other 
                        bank the deposits of which are insured 
                        in accordance with the Federal Deposit 
                        Insurance Act or a State savings 
                        association (as defined in section 
                        3(b)(3) of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813(b)(3))), 
                        the deposits of which are insured by 
                        the Federal Deposit Insurance 
                        Corporation; and
                          (iv) the Commission in the case of 
                        all other such persons.
                  (G) When used with respect to a government 
                securities broker or government securities 
                dealer, or person associated with a government 
                securities broker or government securities 
                dealer:
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank, a 
                        Federal savings association (as defined 
                        in section 3(b)(2) of the Federal 
                        Deposit Insurance Act), the deposits of 
                        which are insured by the Federal 
                        Deposit Insurance Corporation, or a 
                        Federal branch or Federal agency of a 
                        foreign bank (as such terms are used in 
                        the International Banking Act of 1978);
                          (ii) the Board of Governors of the 
                        Federal Reserve System, in the case of 
                        a State member bank of the Federal 
                        Reserve System, a foreign bank, an 
                        uninsured State branch or State agency 
                        of a foreign bank, a commercial lending 
                        company owned or controlled by a 
                        foreign bank (as such terms are used in 
                        the International Banking Act of 1978), 
                        or a corporation organized or having an 
                        agreement with the Board of Governors 
                        of the Federal Reserve System pursuant 
                        to section 25 or section 25A of the 
                        Federal Reserve Act;
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of a bank 
                        insured by the Federal Deposit 
                        Insurance Corporation (other than a 
                        member of the Federal Reserve System or 
                        a Federal savings bank), a State 
                        savings association (as defined in 
                        section 3(b)(3) of the Federal Deposit 
                        Insurance Act), the deposits of which 
                        are insured by the Federal Deposit 
                        Insurance Corporation, or an insured 
                        State branch of a foreign bank (as such 
                        terms are used in the International 
                        Banking Act of 1978); and
                          (iv) the Commission, in the case of 
                        all other government securities brokers 
                        and government securities dealers.
                  (H) When used with respect to an institution 
                described in subparagraph (D), (F), or (G) of 
                section 2(c)(2), or held under section 4(f), of 
                the Bank Holding Company Act of 1956--
                          (i) the Comptroller of the Currency, 
                        in the case of a national bank;
                          (ii) the Board of Governors of the 
                        Federal Reserve System, in the case of 
                        a State member bank of the Federal 
                        Reserve System or any corporation 
                        chartered under section 25A of the 
                        Federal Reserve Act;
                          (iii) the Federal Deposit Insurance 
                        Corporation, in the case of any other 
                        bank the deposits of which are insured 
                        in accordance with the Federal Deposit 
                        Insurance Act; or
                          (iv) the Commission in the case of 
                        all other such institutions.
        As used in this paragraph, the terms ``bank holding 
        company'' and ``subsidiary of a bank holding company'' 
        have the meanings given them in section 2 of the Bank 
        Holding Company Act of 1956. As used in this paragraph, 
        the term ``savings and loan holding company'' has the 
        same meaning as in section 10(a) of the Home Owners' 
        Loan Act (12 U.S.C. 1467a(a)).
          (35) A person exercises ``investment discretion'' 
        with respect to an account if, directly or indirectly, 
        such person (A) is authorized to determine what 
        securities or other property shall be purchased or sold 
        by or for the account, (B) makes decisions as to what 
        securities or other property shall be purchased or sold 
        by or for the account even though some other person may 
        have responsibility for such investment decisions, or 
        (C) otherwise exercises such influence with respect to 
        the purchase and sale of securities or other property 
        by or for the account as the Commission, by rule, 
        determines, in the public interest or for the 
        protection of investors, should be subject to the 
        operation of the provisions of this title and rules and 
        regulations thereunder.
          (36) A class of persons or markets is subject to 
        ``equal regulation'' if no member of the class has a 
        competitive advantage over any other member thereof 
        resulting from a disparity in their regulation under 
        this title which the Commission determines is unfair 
        and not necessary or appropriate in furtherance of the 
        purposes of this title.
          (37) The term ``records'' means accounts, 
        correspondence, memorandums, tapes, discs, papers, 
        books, and other documents or transcribed information 
        of any type, whether expressed in ordinary or machine 
        language.
          (38) The term ``market maker'' means any specialist 
        permitted to act as a dealer, any dealer acting in the 
        capacity of block positioner, and any dealer who, with 
        respect to a security, holds himself out (by entering 
        quotations in an inter-dealer communications system or 
        otherwise) as being willing to buy and sell such 
        security for his own account on a regular or continuous 
        basis.
          (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) has been and is expelled or suspended 
                from membership or participation in, or barred 
                or suspended from being associated with a 
                member of, any self-regulatory organization, 
                foreign equivalent of a self-regulatory 
                organization, foreign or international 
                securities exchange, contract market designated 
                pursuant to section 5 of the Commodity Exchange 
                Act (7 U.S.C. 7), or any substantially 
                equivalent foreign statute or regulation, or 
                futures association registered under section 17 
                of such Act (7 U.S.C. 21), or any substantially 
                equivalent foreign statute or regulation, or 
                has been and is denied trading privileges on 
                any such contract market or foreign equivalent;
          (B) is subject to--
                  (i) an order of the Commission, other 
                appropriate regulatory agency, or foreign 
                financial regulatory authority--
                          (I) denying, suspending for a period 
                        not exceeding 12 months, or revoking 
                        his registration as a broker, dealer, 
                        municipal securities dealer, government 
                        securities broker, government 
                        securities dealer, security-based swap 
                        dealer, or major security-based swap 
                        participant or limiting his activities 
                        as a foreign person performing a 
                        function substantially equivalent to 
                        any of the above; or
                          (II) barring or suspending for a 
                        period not exceeding 12 months his 
                        being associated with a broker, dealer, 
                        municipal securities dealer, government 
                        securities broker, government 
                        securities dealer, security-based swap 
                        dealer, major security-based swap 
                        participant, or foreign person 
                        performing a function substantially 
                        equivalent to any of the above;
                  (ii) an order of the Commodity Futures 
                Trading Commission denying, suspending, or 
                revoking his registration under the Commodity 
                Exchange Act (7 U.S.C. 1 et seq.); or
                  (iii) an order by a foreign financial 
                regulatory authority denying, suspending, or 
                revoking the person's authority to engage in 
                transactions in contracts of sale of a 
                commodity for future delivery or other 
                instruments traded on or subject to the rules 
                of a contract market, board of trade, or 
                foreign equivalent thereof;
                  (C) by his conduct while associated with a 
                broker, dealer, municipal securities dealer, 
                government securities broker, government 
                securities dealer, security-based swap dealer, 
                or major security-based swap participant, or 
                while associated with an entity or person 
                required to be registered under the Commodity 
                Exchange Act, has been found to be a cause of 
                any effective suspension, expulsion, or order 
                of the character described in subparagraph (A) 
                or (B) of this paragraph, and in entering such 
                a suspension, expulsion, or order, the 
                Commission, an appropriate regulatory agency, 
                or any such self-regulatory organization shall 
                have jurisdiction to find whether or not any 
                person was a cause thereof;
                  (D) by his conduct while associated with any 
                broker, dealer, municipal securities dealer, 
                government securities broker, government 
                securities dealer, security-based swap dealer, 
                major security-based swap participant, or any 
                other entity engaged in transactions in 
                securities, or while associated with an entity 
                engaged in transactions in contracts of sale of 
                a commodity for future delivery or other 
                instruments traded on or subject to the rules 
                of a contract market, board of trade, or 
                foreign equivalent thereof, has been found to 
                be a cause of any effective suspension, 
                expulsion, or order by a foreign or 
                international securities exchange or foreign 
                financial regulatory authority empowered by a 
                foreign government to administer or enforce its 
                laws relating to financial transactions as 
                described in subparagraph (A) or (B) of this 
                paragraph;
                  (E) has associated with him any person who is 
                known, or in the exercise of reasonable care 
                should be known, to him to be a person 
                described by subparagraph (A), (B), (C), or (D) 
                of this paragraph; or
                  (F) has committed or omitted any act, or is 
                subject to an order or finding, enumerated in 
                subparagraph (D), (E), (H), or (G) of paragraph 
                (4) of section 15(b) of this title, has been 
                convicted of any offense specified in 
                subparagraph (B) of such paragraph (4) or any 
                other felony within ten years of the date of 
                the filing of an application for membership or 
                participation in, or to become associated with 
                a member of, such self-regulatory organization, 
                is enjoined from any action, conduct, or 
                practice specified in subparagraph (C) of such 
                paragraph (4), has willfully made or caused to 
                be made in any application for membership or 
                participation in, or to become associated with 
                a member of, a self-regulatory organization, 
                report required to be filed with a self-
                regulatory organization, or proceeding before a 
                self-regulatory organization, any statement 
                which was at the time, and in the light of the 
                circumstances under which it was made, false or 
                misleading with respect to any material fact, 
                or has omitted to state in any such 
                application, report, or proceeding any material 
                fact which is required to be stated therein.
          (40) The term ``financial responsibility rules'' 
        means the rules and regulations of the Commission or 
        the rules and regulations prescribed by any self-
        regulatory organization relating to financial 
        responsibility and related practices which are 
        designated by the Commission, by rule or regulation, to 
        be financial responsibility rules.
          (41) The term ``mortgage related security'' means a 
        security that meets standards of credit-worthiness as 
        established by the Commission, and either:
                  (A) represents ownership of one or more 
                promissory notes or certificates of interest or 
                participation in such notes (including any 
                rights designed to assure servicing of, or the 
                receipt or timeliness of receipt by the holders 
                of such notes, certificates, or participations 
                of amounts payable under, such notes, 
                certificates, or participations), which notes:
                          (i) are directly secured by a first 
                        lien on a single parcel of real estate, 
                        including stock allocated to a dwelling 
                        unit in a residential cooperative 
                        housing corporation, upon which is 
                        located a dwelling or mixed residential 
                        and commercial structure, on a 
                        residential manufactured home as 
                        defined in section 603(6) of the 
                        National Manufactured Housing 
                        Construction and Safety Standards Act 
                        of 1974, whether such manufactured home 
                        is considered real or personal property 
                        under the laws of the State in which it 
                        is to be located, or on one or more 
                        parcels of real estate upon which is 
                        located one or more commercial 
                        structures; and
                          (ii) were originated by a savings and 
                        loan association, savings bank, 
                        commercial bank, credit union, 
                        insurance company, or similar 
                        institution which is supervised and 
                        examined by a Federal or State 
                        authority, or by a mortgage approved by 
                        the Secretary of Housing and Urban 
                        Development pursuant to sections 203 
                        and 211 of the National Housing Act, 
                        or, where such notes involve a lien on 
                        the manufactured home, by any such 
                        institution or by any financial 
                        institution approved for insurance by 
                        the Secretary of Housing and Urban 
                        Development pursuant to section 2 of 
                        the National Housing Act; or
                  (B) is secured by one or more promissory 
                notes or certificates of interest or 
                participations in such notes (with or without 
                recourse to the issuer thereof) and, by its 
                terms, provides for payments of principal in 
                relation to payments, or reasonable projections 
                of payments, on notes meeting the requirements 
                of subparagraphs (A) (i) and (ii) or 
                certificates of interest or participations in 
                promissory notes meeting such requirements.
        For the purpose of this paragraph, the term 
        ``promissory note'', when used in connection with a 
        manufactured home, shall also include a loan, advance, 
        or credit sale as evidence by a retail installment 
        sales contract or other instrument.
          (42) The term ``government securities'' means--
                  (A) securities which are direct obligations 
                of, or obligations guaranteed as to principal 
                or interest by, the United States;
                  (B) securities which are issued or guaranteed 
                by the Tennessee Valley Authority or by 
                corporations in which the United States has a 
                direct or indirect interest and which are 
                designated by the Secretary of the Treasury for 
                exemption as necessary or appropriate in the 
                public interest or for the protection of 
                investors;
                  (C) securities issued or guaranteed as to 
                principal or interest by any corporation the 
                securities of which are designated, by statute 
                specifically naming such corporation, to 
                constitute exempt securities within the meaning 
                of the laws administered by the Commission;
                  (D) for purposes of sections 15C and 17A, any 
                put, call, straddle, option, or privilege on a 
                security described in subparagraph (A), (B), or 
                (C) other than a put, call, straddle, option, 
                or privilege--
                          (i) that is traded on one or more 
                        national securities exchanges; or
                          (ii) for which quotations are 
                        disseminated through an automated 
                        quotation system operated by a 
                        registered securities association; or
                  (E) for purposes of sections 15, 15C, and 17A 
                as applied to a bank, a qualified Canadian 
                government obligation as defined in section 
                5136 of the Revised Statutes of the United 
                States.
          (43) The term ``government securities broker'' means 
        any person regularly engaged in the business of 
        effecting transactions in government securities for the 
        account of others, but does not include--
                  (A) any corporation the securities of which 
                are government securities under subparagraph 
                (B) or (C) of paragraph (42) of this 
                subsection; or
                  (B) any person registered with the Commodity 
                Futures Trading Commission, any contract market 
                designated by the Commodity Futures Trading 
                Commission, such contract market's affiliated 
                clearing organization, or any floor trader on 
                such contract market, solely because such 
                person effects transactions in government 
                securities that the Commission, after 
                consultation with the Commodity Futures Trading 
                Commission, has determined by rule or order to 
                be incidental to such person's futures-related 
                business.
          (44) The term ``government securities dealer'' means 
        any person engaged in the business of buying and 
        selling government securities for his own account, 
        through a broker or otherwise, but does not include--
                  (A) any person insofar as he buys or sells 
                such securities for his own account, either 
                individually or in some fiduciary capacity, but 
                not as a part of a regular business;
                  (B) any corporation the securities of which 
                are government securities under subparagraph 
                (B) or (C) of paragraph (42) of this 
                subsection;
                  (C) any bank, unless the bank is engaged in 
                the business of buying and selling government 
                securities for its own account other than in a 
                fiduciary capacity, through a broker or 
                otherwise; or
                  (D) any person registered with the Commodity 
                Futures Trading Commission, any contract market 
                designated by the Commodity Futures Trading 
                Commission, such contract market's affiliated 
                clearing organization, or any floor trader on 
                such contract market, solely because such 
                person effects transactions in government 
                securities that the Commission, after 
                consultation with the Commodity Futures Trading 
                Commission, has determined by rule or order to 
                be incidental to such person's futures-related 
                business.
          (45) The term ``person associated with a government 
        securities broker or government securities dealer'' 
        means any partner, officer, director, or branch manager 
        of such government securities broker or government 
        securities dealer (or any person occupying a similar 
        status or performing similar functions), and any other 
        employee of such government securities broker or 
        government securities dealer who is engaged in the 
        management, direction, supervision, or performance of 
        any activities relating to government securities, and 
        any person directly or indirectly controlling, 
        controlled by, or under common control with such 
        government securities broker or government securities 
        dealer.
          (46) The term ``financial institution'' means--
                  (A) a bank (as defined in paragraph (6) of 
                this subsection);
                  (B) a foreign bank (as such term is used in 
                the International Banking Act of 1978); and
                  (C) a savings association (as defined in 
                section 3(b) of the Federal Deposit Insurance 
                Act) the deposits of which are insured by the 
                Federal Deposit Insurance Corporation.
          (47) The term ``securities laws'' means the 
        Securities Act of 1933 (15 U.S.C. 78a et seq.), the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et 
        seq.), the Sarbanes-Oxley Act of 2002, the Trust 
        Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
        Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
        seq.), the Investment Advisers Act of 1940 (15 U.S.C. 
        80b et seq.), and the Securities Investor Protection 
        Act of 1970 (15 U.S.C. 78aaa et seq.).
          (48) The term ``registered broker or dealer'' means a 
        broker or dealer registered or required to register 
        pursuant to section 15 or 15B of this title, except 
        that in paragraph (3) of this subsection and sections 6 
        and 15A the term means such a broker or dealer and a 
        government securities broker or government securities 
        dealer registered or required to register pursuant to 
        section 15C(a)(1)(A) of this title.
          (49) The terms ``person associated with a transfer 
        agent'' and ``associated person of a transfer agent'' 
        mean any person (except an employee whose functions are 
        solely clerical or ministerial) directly engaged in the 
        management, direction, supervision, or performance of 
        any of the transfer agent's activities with respect to 
        transfer agent functions, and any person directly or 
        indirectly controlling such activities or controlled by 
        the transfer agent in connection with such activities.
          (50) The term ``foreign securities authority'' means 
        any foreign government, or any governmental body or 
        regulatory organization empowered by a foreign 
        government to administer or enforce its laws as they 
        relate to securities matters.
          (51)(A) The term ``penny stock'' means any equity 
        security other than a security that is--
                  (i) registered or approved for registration 
                and traded on a national securities exchange 
                that meets such criteria as the Commission 
                shall prescribe by rule or regulation for 
                purposes of this paragraph;
                  (ii) authorized for quotation on an automated 
                quotation system sponsored by a registered 
                securities association, if such system (I) was 
                established and in operation before January 1, 
                1990, and (II) meets such criteria as the 
                Commission shall prescribe by rule or 
                regulation for purposes of this paragraph;
                  (iii) issued by an investment company 
                registered under the Investment Company Act of 
                1940;
                  (iv) excluded, on the basis of exceeding a 
                minimum price, net tangible assets of the 
                issuer, or other relevant criteria, from the 
                definition of such term by rule or regulation 
                which the Commission shall prescribe for 
                purposes of this paragraph; or
                  (v) exempted, in whole or in part, 
                conditionally or unconditionally, from the 
                definition of such term by rule, regulation, or 
                order prescribed by the Commission.
          (B) The Commission may, by rule, regulation, or 
        order, designate any equity security or class of equity 
        securities described in clause (i) or (ii) of 
        subparagraph (A) as within the meaning of the term 
        ``penny stock'' if such security or class of securities 
        is traded other than on a national securities exchange 
        or through an automated quotation system described in 
        clause (ii) of subparagraph (A).
          (C) In exercising its authority under this paragraph 
        to prescribe rules, regulations, and orders, the 
        Commission shall determine that such rule, regulation, 
        or order is consistent with the public interest and the 
        protection of investors.
          (52) The term ``foreign financial regulatory 
        authority'' means any (A) foreign securities authority, 
        (B) other governmental body or foreign equivalent of a 
        self-regulatory organization empowered by a foreign 
        government to administer or enforce its laws relating 
        to the regulation of fiduciaries, trusts, commercial 
        lending, insurance, trading in contracts of sale of a 
        commodity for future delivery, or other instruments 
        traded on or subject to the rules of a contract market, 
        board of trade, or foreign equivalent, or other 
        financial activities, or (C) membership organization a 
        function of which is to regulate participation of its 
        members in activities listed above.
          (53)(A) The term ``small business related security'' 
        means a security that meets standards of credit-
        worthiness as established by the Commission, and 
        either--
                  (i) represents an interest in 1 or more 
                promissory notes or leases of personal property 
                evidencing the obligation of a small business 
                concern and originated by an insured depository 
                institution, insured credit union, insurance 
                company, or similar institution which is 
                supervised and examined by a Federal or State 
                authority, or a finance company or leasing 
                company; or
                  (ii) is secured by an interest in 1 or more 
                promissory notes or leases of personal property 
                (with or without recourse to the issuer or 
                lessee) and provides for payments of principal 
                in relation to payments, or reasonable 
                projections of payments, on notes or leases 
                described in clause (i).
          (B) For purposes of this paragraph--
                  (i) an ``interest in a promissory note or a 
                lease of personal property'' includes ownership 
                rights, certificates of interest or 
                participation in such notes or leases, and 
                rights designed to assure servicing of such 
                notes or leases, or the receipt or timely 
                receipt of amounts payable under such notes or 
                leases;
                  (ii) the term ``small business concern'' 
                means a business that meets the criteria for a 
                small business concern established by the Small 
                Business Administration under section 3(a) of 
                the Small Business Act;
                  (iii) the term ``insured depository 
                institution'' has the same meaning as in 
                section 3 of the Federal Deposit Insurance Act; 
                and
                  (iv) the term ``insured credit union'' has 
                the same meaning as in section 101 of the 
                Federal Credit Union Act.
          (54) Qualified investor.--
                  (A) Definition.-- Except as provided in 
                subparagraph (B), for purposes of this title, 
                the term ``qualified investor'' means--
                          (i) any investment company registered 
                        with the Commission under section 8 of 
                        the Investment Company Act of 1940;
                          (ii) any issuer eligible for an 
                        exclusion from the definition of 
                        investment company pursuant to section 
                        3(c)(7) of the Investment Company Act 
                        of 1940;
                          (iii) any bank (as defined in 
                        paragraph (6) of this subsection), 
                        savings association (as defined in 
                        section 3(b) of the Federal Deposit 
                        Insurance Act), broker, dealer, 
                        insurance company (as defined in 
                        section 2(a)(13) of the Securities Act 
                        of 1933), or business development 
                        company (as defined in section 2(a)(48) 
                        of the Investment Company Act of 1940);
                          (iv) any small business investment 
                        company licensed by the United States 
                        Small Business Administration under 
                        section 301 (c) or (d) of the Small 
                        Business Investment Act of 1958;
                          (v) any State sponsored employee 
                        benefit plan, or any other employee 
                        benefit plan, within the meaning of the 
                        Employee Retirement Income Security Act 
                        of 1974, other than an individual 
                        retirement account, if the investment 
                        decisions are made by a plan fiduciary, 
                        as defined in section 3(21) of that 
                        Act, which is either a bank, savings 
                        and loan association, insurance 
                        company, or registered investment 
                        adviser;
                          (vi) any trust whose purchases of 
                        securities are directed by a person 
                        described in clauses (i) through (v) of 
                        this subparagraph;
                          (vii) any market intermediary exempt 
                        under section 3(c)(2) of the Investment 
                        Company Act of 1940;
                          (viii) any associated person of a 
                        broker or dealer other than a natural 
                        person;
                          (ix) any foreign bank (as defined in 
                        section 1(b)(7) of the International 
                        Banking Act of 1978);
                          (x) the government of any foreign 
                        country;
                          (xi) any corporation, company, or 
                        partnership that owns and invests on a 
                        discretionary basis, not less than 
                        $25,000,000 in investments;
                          (xii) any natural person who owns and 
                        invests on a discretionary basis, not 
                        less than $25,000,000 in investments;
                          (xiii) any government or political 
                        subdivision, agency, or instrumentality 
                        of a government who owns and invests on 
                        a discretionary basis not less than 
                        $50,000,000 in investments; or
                          (xiv) any multinational or 
                        supranational entity or any agency or 
                        instrumentality thereof.
                  (B) Altered thresholds for asset-backed 
                securities and loan participations.-- For 
                purposes of section 3(a)(5)(C)(iii) of this 
                title and section 206(a)(5) of the Gramm-Leach-
                Bliley Act, the term ``qualified investor'' has 
                the meaning given such term by subparagraph (A) 
                of this paragraph except that clauses (xi) and 
                (xii) shall be applied by substituting 
                ``$10,000,000'' for ``$25,000,000''.
                  (C) Additional authority.-- The Commission 
                may, by rule or order, define a ``qualified 
                investor'' as any other person, taking into 
                consideration such factors as the financial 
                sophistication of the person, net worth, and 
                knowledge and experience in financial matters.
          (55)(A) The term ``security future'' means a contract 
        of sale for future delivery of a single security or of 
        a narrow-based security index, including any interest 
        therein or based on the value thereof, except an 
        exempted security under section 3(a)(12) of this title 
        as in effect on the date of the enactment of the 
        Futures Trading Act of 1982 (other than any municipal 
        security as defined in section 3(a)(29) as in effect on 
        the date of the enactment of the Futures Trading Act of 
        1982). The term ``security future'' does not include 
        any agreement, contract, or transaction excluded from 
        the Commodity Exchange Act under section 2(c), 2(d), 
        2(f), or 2(g) of the Commodity Exchange Act (as in 
        effect on the date of the enactment of the Commodity 
        Futures Modernization Act of 2000) or title IV of the 
        Commodity Futures Modernization Act of 2000.
          (B) The term ``narrow-based security index'' means an 
        index--
                  (i) that has 9 or fewer component securities;
                  (ii) in which a component security comprises 
                more than 30 percent of the index's weighting;
                  (iii) in which the five highest weighted 
                component securities in the aggregate comprise 
                more than 60 percent of the index's weighting; 
                or
                  (iv) in which the lowest weighted component 
                securities comprising, in the aggregate, 25 
                percent of the index's weighting have an 
                aggregate dollar value of average daily trading 
                volume of less than $50,000,000 (or in the case 
                of an index with 15 or more component 
                securities, $30,000,000), except that if there 
                are two or more securities with equal weighting 
                that could be included in the calculation of 
                the lowest weighted component securities 
                comprising, in the aggregate, 25 percent of the 
                index's weighting, such securities shall be 
                ranked from lowest to highest dollar value of 
                average daily trading volume and shall be 
                included in the calculation based on their 
                ranking starting with the lowest ranked 
                security.
          (C) Notwithstanding subparagraph (B), an index is not 
        a narrow-based security index if--
                  (i)(I) it has at least nine component 
                securities;
                  (II) no component security comprises more 
                than 30 percent of the index's weighting; and
                  (III) each component security is--
                          (aa) registered pursuant to section 
                        12 of the Securities Exchange Act of 
                        1934;
                          (bb) one of 750 securities with the 
                        largest market capitalization; and
                          (cc) one of 675 securities with the 
                        largest dollar value of average daily 
                        trading volume;
                  (ii) a board of trade was designated as a 
                contract market by the Commodity Futures 
                Trading Commission with respect to a contract 
                of sale for future delivery on the index, 
                before the date of the enactment of the 
                Commodity Futures Modernization Act of 2000;
                  (iii)(I) a contract of sale for future 
                delivery on the index traded on a designated 
                contract market or registered derivatives 
                transaction execution facility for at least 30 
                days as a contract of sale for future delivery 
                on an index that was not a narrow-based 
                security index; and
                  (II) it has been a narrow-based security 
                index for no more than 45 business days over 3 
                consecutive calendar months;
                  (iv) a contract of sale for future delivery 
                on the index is traded on or subject to the 
                rules of a foreign board of trade and meets 
                such requirements as are jointly established by 
                rule or regulation by the Commission and the 
                Commodity Futures Trading Commission;
                  (v) no more than 18 months have passed since 
                the date of the enactment of the Commodity 
                Futures Modernization Act of 2000 and--
                          (I) it is traded on or subject to the 
                        rules of a foreign board of trade;
                          (II) the offer and sale in the United 
                        States of a contract of sale for future 
                        delivery on the index was authorized 
                        before the date of the enactment of the 
                        Commodity Futures Modernization Act of 
                        2000; and
                          (III) the conditions of such 
                        authorization continue to be met; or
                  (vi) a contract of sale for future delivery 
                on the index is traded on or subject to the 
                rules of a board of trade and meets such 
                requirements as are jointly established by 
                rule, regulation, or order by the Commission 
                and the Commodity Futures Trading Commission.
          (D) Within 1 year after the enactment of the 
        Commodity Futures Modernization Act of 2000, the 
        Commission and the Commodity Futures Trading Commission 
        jointly shall adopt rules or regulations that set forth 
        the requirements under clause (iv) of subparagraph (C).
          (E) An index that is a narrow-based security index 
        solely because it was a narrow-based security index for 
        more than 45 business days over 3 consecutive calendar 
        months pursuant to clause (iii) of subparagraph (C) 
        shall not be a narrow-based security index for the 3 
        following calendar months.
          (F) For purposes of subparagraphs (B) and (C) of this 
        paragraph--
                  (i) the dollar value of average daily trading 
                volume and the market capitalization shall be 
                calculated as of the preceding 6 full calendar 
                months; and
                  (ii) the Commission and the Commodity Futures 
                Trading Commission shall, by rule or 
                regulation, jointly specify the method to be 
                used to determine market capitalization and 
                dollar value of average daily trading volume.
          (56) The term ``security futures product'' means a 
        security future or any put, call, straddle, option, or 
        privilege on any security future.
          (57)(A) The term ``margin'', when used with respect 
        to a security futures product, means the amount, type, 
        and form of collateral required to secure any extension 
        or maintenance of credit, or the amount, type, and form 
        of collateral required as a performance bond related to 
        the purchase, sale, or carrying of a security futures 
        product.
          (B) The terms ``margin level'' and ``level of 
        margin'', when used with respect to a security futures 
        product, mean the amount of margin required to secure 
        any extension or maintenance of credit, or the amount 
        of margin required as a performance bond related to the 
        purchase, sale, or carrying of a security futures 
        product.
          (C) The terms ``higher margin level'' and ``higher 
        level of margin'', when used with respect to a security 
        futures product, mean a margin level established by a 
        national securities exchange registered pursuant to 
        section 6(g) that is higher than the minimum amount 
        established and in effect pursuant to section 
        7(c)(2)(B).
          (58) Audit committee.-- The term ``audit committee'' 
        means--
                  (A) a committee (or equivalent body) 
                established by and amongst the board of 
                directors of an issuer for the purpose of 
                overseeing the accounting and financial 
                reporting processes of the issuer and audits of 
                the financial statements of the issuer; and
                  (B) if no such committee exists with respect 
                to an issuer, the entire board of directors of 
                the issuer.
          (59) Registered public accounting firm.-- The term 
        ``registered public accounting firm'' has the same 
        meaning as in section 2 of the Sarbanes-Oxley Act of 
        2002.
          (60) Credit rating.-- The term ``credit rating'' 
        means an assessment of the creditworthiness of an 
        obligor as an entity or with respect to specific 
        securities or money market instruments.
          (61) Credit rating agency.-- The term ``credit rating 
        agency'' means any person--
                  (A) engaged in the business of issuing credit 
                ratings on the Internet or through another 
                readily accessible means, for free or for a 
                reasonable fee, but does not include a 
                commercial credit reporting company;
                  (B) employing either a quantitative or 
                qualitative model, or both, to determine credit 
                ratings; and
                  (C) receiving fees from either issuers, 
                investors, or other market participants, or a 
                combination thereof.
          (62) Nationally recognized statistical rating 
        organization.-- The term ``nationally recognized 
        statistical rating organization'' means a credit rating 
        agency that--
                  (A) issues credit ratings certified by 
                qualified institutional buyers, in accordance 
                with section 15E(a)(1)(B)(ix), with respect 
                to--
                          (i) financial institutions, brokers, 
                        or dealers;
                          (ii) insurance companies;
                          (iii) corporate issuers;
                          (iv) issuers of asset-backed 
                        securities (as that term is defined in 
                        section 1101(c) of part 229 of title 
                        17, Code of Federal Regulations, as in 
                        effect on the date of enactment of this 
                        paragraph);
                          (v) issuers of government securities, 
                        municipal securities, or securities 
                        issued by a foreign government; or
                          (vi) a combination of one or more 
                        categories of obligors described in any 
                        of clauses (i) through (v); and
                  (B) is registered under section 15E.
          (63) Person associated with a nationally recognized 
        statistical rating organization.-- The term ``person 
        associated with'' a nationally recognized statistical 
        rating organization means any partner, officer, 
        director, or branch manager of a nationally recognized 
        statistical rating organization (or any person 
        occupying a similar status or performing similar 
        functions), any person directly or indirectly 
        controlling, controlled by, or under common control 
        with a nationally recognized statistical rating 
        organization, or any employee of a nationally 
        recognized statistical rating organization.
          (64) Qualified institutional buyer.-- The term 
        ``qualified institutional buyer'' has the meaning given 
        such term in section 230.144A(a) of title 17, Code of 
        Federal Regulations, or any successor thereto.
           (79) Asset-backed security.-- The term ``asset-
        backed security''--
                  (A) means a fixed-income or other security 
                collateralized by any type of self-liquidating 
                financial asset (including a loan, a lease, a 
                mortgage, or a secured or unsecured receivable) 
                that allows the holder of the security to 
                receive payments that depend primarily on cash 
                flow from the asset, including--
                          (i) a collateralized mortgage 
                        obligation;
                          (ii) a collateralized debt 
                        obligation;
                          (iii) a collateralized bond 
                        obligation;
                          (iv) a collateralized debt obligation 
                        of asset-backed securities;
                          (v) a collateralized debt obligation 
                        of collateralized debt obligations; and
                          (vi) a security that the Commission, 
                        by rule, determines to be an asset-
                        backed security for purposes of this 
                        section; and
                  (B) does not include a security issued by a 
                finance subsidiary held by the parent company 
                or a company controlled by the parent company, 
                if none of the securities issued by the finance 
                subsidiary are held by an entity that is not 
                controlled by the parent company.
          (65) Eligible contract participant.-- The term 
        ``eligible contract participant'' has the same meaning 
        as in section 1a of the Commodity Exchange Act (7 
        U.S.C. 1a).
          (66) Major swap participant.-- The term ``major swap 
        participant'' has the same meaning as in section 1a of 
        the Commodity Exchange Act (7 U.S.C. 1a).
          (67) Major security-based swap participant.--
                  (A) In general.-- The term ``major security-
                based swap participant'' means any person--
                          (i) who is not a security-based swap 
                        dealer; and
                          (ii)(I) who maintains a substantial 
                        position in security-based swaps for 
                        any of the major security-based swap 
                        categories, as such categories are 
                        determined by the Commission, excluding 
                        both positions held for hedging or 
                        mitigating commercial risk and 
                        positions maintained by any employee 
                        benefit plan (or any contract held by 
                        such a plan) as defined in paragraphs 
                        (3) and (32) of section 3 of the 
                        Employee Retirement Income Security Act 
                        of 1974 (29 U.S.C. 1002) for the 
                        primary purpose of hedging or 
                        mitigating any risk directly associated 
                        with the operation of the plan;
                          (II) whose outstanding security-based 
                        swaps create substantial counterparty 
                        exposure that could have serious 
                        adverse effects on the financial 
                        stability of the United States banking 
                        system or financial markets; or
                          (III) that is a financial entity 
                        that--
                                  (aa) is highly leveraged 
                                relative to the amount of 
                                capital such entity holds and 
                                that is not subject to capital 
                                requirements established by an 
                                appropriate Federal banking 
                                agency; and
                                  (bb) maintains a substantial 
                                position in outstanding 
                                security-based swaps in any 
                                major security-based swap 
                                category, as such categories 
                                are determined by the 
                                Commission.
                  (B) Definition of substantial position.-- For 
                purposes of subparagraph (A), the Commission 
                shall define, by rule or regulation, the term 
                ``substantial position'' at the threshold that 
                the Commission determines to be prudent for the 
                effective monitoring, management, and oversight 
                of entities that are systemically important or 
                can significantly impact the financial system 
                of the United States. In setting the definition 
                under this subparagraph, the Commission shall 
                consider the person's relative position in 
                uncleared as opposed to cleared security-based 
                swaps and may take into consideration the value 
                and quality of collateral held against 
                counterparty exposures.
                  (C) Scope of designation.-- For purposes of 
                subparagraph (A), a person may be designated as 
                a major security-based swap participant for 1 
                or more categories of security-based swaps 
                without being classified as a major security-
                based swap participant for all classes of 
                security-based swaps.
          (68) Security-based swap.--
                  (A) In general.-- Except as provided in 
                subparagraph (B), the term ``security-based 
                swap'' means any agreement, contract, or 
                transaction that--
                          (i) is a swap, as that term is 
                        defined under section 1a of the 
                        Commodity Exchange Act (without regard 
                        to paragraph (47)(B)(x) of such 
                        section); and
                          (ii) is based on--
                                  (I) an index that is a 
                                narrow-based security index, 
                                including any interest therein 
                                or on the value thereof;
                                  (II) a single security or 
                                loan, including any interest 
                                therein or on the value 
                                thereof; or
                                  (III) the occurrence, 
                                nonoccurrence, or extent of the 
                                occurrence of an event relating 
                                to a single issuer of a 
                                security or the issuers of 
                                securities in a narrow-based 
                                security index, provided that 
                                such event directly affects the 
                                financial statements, financial 
                                condition, or financial 
                                obligations of the issuer.
                  (B) Rule of construction regarding master 
                agreements.-- The term ``security-based swap'' 
                shall be construed to include a master 
                agreement that provides for an agreement, 
                contract, or transaction that is a security-
                based swap pursuant to subparagraph (A), 
                together with all supplements to any such 
                master agreement, without regard to whether the 
                master agreement contains an agreement, 
                contract, or transaction that is not a 
                security-based swap pursuant to subparagraph 
                (A), except that the master agreement shall be 
                considered to be a security-based swap only 
                with respect to each agreement, contract, or 
                transaction under the master agreement that is 
                a security-based swap pursuant to subparagraph 
                (A).
                  (C) Exclusions.-- The term ``security-based 
                swap'' does not include any agreement, 
                contract, or transaction that meets the 
                definition of a security-based swap only 
                because such agreement, contract, or 
                transaction references, is based upon, or 
                settles through the transfer, delivery, or 
                receipt of an exempted security under paragraph 
                (12), as in effect on the date of enactment of 
                the Futures Trading Act of 1982 (other than any 
                municipal security as defined in paragraph (29) 
                as in effect on the date of enactment of the 
                Futures Trading Act of 1982), unless such 
                agreement, contract, or transaction is of the 
                character of, or is commonly known in the trade 
                as, a put, call, or other option.
                  (D) Mixed swap.-- The term ``security-based 
                swap'' includes any agreement, contract, or 
                transaction that is as described in 
                subparagraph (A) and also is based on the value 
                of 1 or more interest or other rates, 
                currencies, commodities, instruments of 
                indebtedness, indices, quantitative measures, 
                other financial or economic interest or 
                property of any kind (other than a single 
                security or a narrow-based security index), or 
                the occurrence, non-occurrence, or the extent 
                of the occurrence of an event or contingency 
                associated with a potential financial, 
                economic, or commercial consequence (other than 
                an event described in subparagraph 
                (A)(ii)(III)).
                  (E) Rule of construction regarding use of the 
                term index.-- The term ``index'' means an index 
                or group of securities, including any interest 
                therein or based on the value thereof.
          (69) Swap.-- The term ``swap'' has the same meaning 
        as in section 1a of the Commodity Exchange Act (7 
        U.S.C. 1a).
          (70) Person associated with a security-based swap 
        dealer or major security-based swap participant.--
                  (A) In general.-- The term ``person 
                associated with a security-based swap dealer or 
                major security-based swap participant'' or 
                ``associated person of a security-based swap 
                dealer or major security-based swap 
                participant'' means--
                          (i) any partner, officer, director, 
                        or branch manager of such security-
                        based swap dealer or major security-
                        based swap participant (or any person 
                        occupying a similar status or 
                        performing similar functions);
                          (ii) any person directly or 
                        indirectly controlling, controlled by, 
                        or under common control with such 
                        security-based swap dealer or major 
                        security-based swap participant; or
                          (iii) any employee of such security-
                        based swap dealer or major security-
                        based swap participant.
                  (B) Exclusion.-- Other than for purposes of 
                section 15F(l)(2), the term ``person associated 
                with a security-based swap dealer or major 
                security-based swap participant'' or 
                ``associated person of a security-based swap 
                dealer or major security-based swap 
                participant'' does not include any person 
                associated with a security-based swap dealer or 
                major security-based swap participant whose 
                functions are solely clerical or ministerial.
          (71) Security-based swap dealer.--
                  (A) In general.-- The term ``security-based 
                swap dealer'' means any person who--
                          (i) holds themself out as a dealer in 
                        security-based swaps;
                          (ii) makes a market in security-based 
                        swaps;
                          (iii) regularly enters into security-
                        based swaps with counterparties as an 
                        ordinary course of business for its own 
                        account; or
                          (iv) engages in any activity causing 
                        it to be commonly known in the trade as 
                        a dealer or market maker in security-
                        based swaps.
                  (B) Designation by type or class.-- A person 
                may be designated as a security-based swap 
                dealer for a single type or single class or 
                category of security-based swap or activities 
                and considered not to be a security-based swap 
                dealer for other types, classes, or categories 
                of security-based swaps or activities.
                  (C) Exception.-- The term ``security-based 
                swap dealer'' does not include a person that 
                enters into security-based swaps for such 
                person's own account, either individually or in 
                a fiduciary capacity, but not as a part of 
                regular business.
                  (D) De minimis exception.-- The Commission 
                shall exempt from designation as a security-
                based swap dealer an entity that engages in a 
                de minimis quantity of security-based swap 
                dealing in connection with transactions with or 
                on behalf of its customers. The Commission 
                shall promulgate regulations to establish 
                factors with respect to the making of any 
                determination to exempt.
          (72) Appropriate federal banking agency.-- The term 
        ``appropriate Federal banking agency'' has the same 
        meaning as in section 3(q) of the Federal Deposit 
        Insurance Act (12 U.S.C. 1813(q)).
          (73) Board.-- The term ``Board'' means the Board of 
        Governors of the Federal Reserve System.
          (74) Prudential regulator.-- The term ``prudential 
        regulator'' has the same meaning as in section 1a of 
        the Commodity Exchange Act (7 U.S.C. 1a).
          (75) Security-based swap data repository.-- The term 
        ``security-based swap data repository'' means any 
        person that collects and maintains information or 
        records with respect to transactions or positions in, 
        or the terms and conditions of, security-based swaps 
        entered into by third parties for the purpose of 
        providing a centralized recordkeeping facility for 
        security-based swaps.
          (76) Swap dealer.-- The term ``swap dealer'' has the 
        same meaning as in section 1a of the Commodity Exchange 
        Act (7 U.S.C. 1a).
          (77) Security-based swap execution facility.-- The 
        term ``security-based swap execution facility'' means a 
        trading system or platform in which multiple 
        participants have the ability to execute or trade 
        security-based swaps by accepting bids and offers made 
        by multiple participants in the facility or system, 
        through any means of interstate commerce, including any 
        trading facility, that--
                  (A) facilitates the execution of security-
                based swaps between persons; and
                  (B) is not a national securities exchange.
          (78) Security-based swap agreement.--
                  (A) In general.-- For purposes of sections 9, 
                10, 16, 20, and 21A of this Act, and section 17 
                of the Securities Act of 1933 (15 U.S.C. 77q), 
                the term ``security-based swap agreement'' 
                means a swap agreement as defined in section 
                206A of the Gramm-Leach-Bliley Act (15 U.S.C. 
                78c note) of which a material term is based on 
                the price, yield, value, or volatility of any 
                security or any group or index of securities, 
                or any interest therein.
                  (B) Exclusions.-- The term ``security-based 
                swap agreement'' does not include any security-
                based swap.
          (80) Emerging growth company.-- The term ``emerging 
        growth company'' means an issuer that had total annual 
        gross revenues of less than $1,000,000,000 (as such 
        amount is indexed for inflation every 5 years by the 
        Commission to reflect the change in the Consumer Price 
        Index for All Urban Consumers published by the Bureau 
        of Labor Statistics, setting the threshold to the 
        nearest 1,000,000) during its most recently completed 
        fiscal year. An issuer that is an emerging growth 
        company as of the first day of that fiscal year shall 
        continue to be deemed an emerging growth company until 
        the earliest of--
                  (A) the last day of the fiscal year of the 
                issuer during which it had total annual gross 
                revenues of $1,000,000,000 (as such amount is 
                indexed for inflation every 5 years by the 
                Commission to reflect the change in the 
                Consumer Price Index for All Urban Consumers 
                published by the Bureau of Labor Statistics, 
                setting the threshold to the nearest 1,000,000) 
                or more;
                  (B) the last day of the fiscal year of the 
                issuer following the fifth anniversary of the 
                date of the first sale of common equity 
                securities of the issuer pursuant to an 
                effective registration statement under the 
                Securities Act of 1933;
                  (C) the date on which such issuer has, during 
                the previous 3-year period, issued more than 
                $1,000,000,000 in non-convertible debt; or
                  (D) the date on which such issuer is deemed 
                to be a ``large accelerated filer'', as defined 
                in section 240.12b-2 of title 17, Code of 
                Federal Regulations, or any successor thereto.
          (80) Funding portal.-- The term ``funding portal'' 
        means any person acting as an intermediary in a 
        transaction involving the offer or sale of securities 
        for the account of others, solely pursuant to section 
        4(6) of the Securities Act of 1933 (15 U.S.C. 77d(6)), 
        that does not--
                  (A) offer investment advice or 
                recommendations;
                  (B) solicit purchases, sales, or offers to 
                buy the securities offered or displayed on its 
                website or portal;
                  (C) compensate employees, agents, or other 
                persons for such solicitation or based on the 
                sale of securities displayed or referenced on 
                its website or portal;
                  (D) hold, manage, possess, or otherwise 
                handle investor funds or securities; or
                  (E) engage in such other activities as the 
                Commission, by rule, determines appropriate.
          (81) Proxy advisory firm.-- The term ``proxy advisory 
        firm'' means any person registered under section 15H 
        who is engaged in the business of providing proxy 
        voting research, analysis, or recommendations to 
        clients, which conduct constitutes a solicitation 
        within the meaning of section 14 and the Commission's 
        rules and regulations thereunder, except to the extent 
        that the person is exempted by such rules and 
        regulations from requirements otherwise applicable to 
        persons engaged in a solicitation.
          (82) Person associated with a proxy advisory firm.-- 
        The term ``person associated with'' a proxy advisory 
        firm means any partner, officer, or director of a proxy 
        advisory firm (or any person occupying a similar status 
        or performing similar functions), any person directly 
        or indirectly controlling, controlled by, or under 
        common control with a proxy advisory firm, or any 
        employee of a proxy advisory firm, except that persons 
        associated with a proxy advisory firm whose functions 
        are clerical or ministerial shall not be included in 
        the meaning of such term. The Commission may by rules 
        and regulations classify, for purposes or any portion 
        or portions of this Act, persons, including employees 
        controlled by a proxy advisory firm.
  (b) The Commission and the Board of Governors of the Federal 
Reserve System, as to matters within their respective 
jurisdictions, shall have power by rules and regulations to 
define technical, trade, accounting, and other terms used in 
this title, consistently with the provisions and purposes of 
this title.
  (c) No provision of this title shall apply to, or be deemed 
to include, any executive department or independent 
establishment of the United States, or any lending agency which 
is wholly owned, directly or indirectly, by the United States, 
or any officer, agent, or employee of any such department, 
establishment, or agency, acting in the course of his official 
duty as such, unless such provision makes specific reference to 
such department, establishment, or agency.
  (d) No issuer of municipal securities or officer or employee 
thereof acting in the course of his official duties as such 
shall be deemed to be a ``broker'', ``dealer'', or ``municipal 
securities dealer'' solely by reason of buying, selling, or 
effecting transactions in the issuer's securities.
  (e) Charitable Organizations.--
          (1) Exemption.-- Notwithstanding any other provision 
        of this title, but subject to paragraph (2) of this 
        subsection, a charitable organization, as defined in 
        section 3(c)(10)(D) of the Investment Company Act of 
        1940, or any trustee, director, officer, employee, or 
        volunteer of such a charitable organization acting 
        within the scope of such person's employment or duties 
        with such organization, shall not be deemed to be a 
        ``broker'', ``dealer'', ``municipal securities 
        broker'', ``municipal securities dealer'', ``government 
        securities broker'', or ``government securities 
        dealer'' for purposes of this title solely because such 
        organization or person buys, holds, sells, or trades in 
        securities for its own account in its capacity as 
        trustee or administrator of, or otherwise on behalf of 
        or for the account of--
                  (A) such a charitable organization;
                  (B) a fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940; or
                  (C) a trust or other donative instrument 
                described in section 3(c)(10)(B) of the 
                Investment Company Act of 1940, or the settlors 
                (or potential settlors) or beneficiaries of any 
                such trust or other instrument.
          (2) Limitation on compensation.-- The exemption 
        provided under paragraph (1) shall not be available to 
        any charitable organization, or any trustee, director, 
        officer, employee, or volunteer of such a charitable 
        organization, unless each person who, on or after 90 
        days after the date of enactment of this subsection, 
        solicits donations on behalf of such charitable 
        organization from any donor to a fund that is excluded 
        from the definition of an investment company under 
        section 3(c)(10)(B) of the Investment Company Act of 
        1940, is either a volunteer or is engaged in the 
        overall fund raising activities of a charitable 
        organization and receives no commission or other 
        special compensation based on the number or the value 
        of donations collected for the fund.
  (f) Consideration of Promotion of Efficiency, Competition, 
and Capital Formation.--Whenever pursuant to this title the 
Commission is engaged in rulemaking, or in the review of a rule 
of a self-regulatory organization, and is required to consider 
or determine whether an action is necessary or appropriate in 
the public interest, the Commission shall also consider, in 
addition to the protection of investors, whether the action 
will promote efficiency, competition, and capital formation.
  (g) Church Plans.--No church plan described in section 414(e) 
of the Internal Revenue Code of 1986, no person or entity 
eligible to establish and maintain such a plan under the 
Internal Revenue Code of 1986, no 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 no 
trustee, director, officer or employee of or volunteer for such 
plan, company, account, person, or entity, acting within the 
scope of that person's employment or activities with respect to 
such plan, shall be deemed to be a ``broker'', ``dealer'', 
``municipal securities broker'', ``municipal securities 
dealer'', ``government securities broker'', ``government 
securities dealer'', ``clearing agency'', or ``transfer agent'' 
for purposes of this title--
          (1) solely because such plan, company, person, or 
        entity buys, holds, sells, trades in, or transfers 
        securities or acts as an intermediary in making 
        payments in connection with transactions in securities 
        for its own account in its capacity as trustee or 
        administrator of, or otherwise on behalf of, or for the 
        account of, 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
          (2) if no such person or entity receives a commission 
        or other transaction-related sales compensation in 
        connection with any activities conducted in reliance on 
        the exemption provided by this subsection.
  (h) Limited Exemption for Funding Portals.--
          (1) In general.-- The Commission shall, by rule, 
        exempt, conditionally or unconditionally, a registered 
        funding portal from the requirement to register as a 
        broker or dealer under section 15(a)(1), provided that 
        such funding portal--
                  (A) remains subject to the examination, 
                enforcement, and other rulemaking authority of 
                the Commission;
                  (B) is a member of a national securities 
                association registered under section 15A; and
                  (C) is subject to such other requirements 
                under this title as the Commission determines 
                appropriate under such rule.
          (2) National securities association membership.-- For 
        purposes of sections 15(b)(8) and 15A, the term 
        ``broker or dealer'' includes a funding portal and the 
        term ``registered broker or dealer'' includes a 
        registered funding portal, except to the extent that 
        the Commission, by rule, determines otherwise, provided 
        that a national securities association shall only 
        examine for and enforce against a registered funding 
        portal rules of such national securities association 
        written specifically for registered funding portals.

           *       *       *       *       *       *       *


SEC. 15H. REGISTRATION OF PROXY ADVISORY FIRMS.

  (a) Conduct Prohibited.--It shall be unlawful for a proxy 
advisory firm to make use of the mails or any means or 
instrumentality of interstate commerce to provide proxy voting 
research, analysis, or recommendations to any client, unless 
such proxy advisory firm is registered under this section.
  (b) Registration Procedures.--
          (1) Application for registration.--
                  (A) In general.-- A proxy advisory firm must 
                file with the Commission an application for 
                registration, in such form as the Commission 
                shall require, by rule or regulation, and 
                containing the information described in 
                subparagraph (B).
                  (B) Required information.-- An application 
                for registration under this section shall 
                contain information regarding--
                          (i) a certification that the 
                        applicant has adequate financial and 
                        managerial resources to consistently 
                        provide proxy advice based on accurate 
                        information;
                          (ii) the procedures and methodologies 
                        that the applicant uses in developing 
                        proxy voting recommendations, including 
                        whether and how the applicant considers 
                        the size of a company when making proxy 
                        voting recommendations;
                          (iii) the organizational structure of 
                        the applicant;
                          (iv) whether or not the applicant has 
                        in effect a code of ethics, and if not, 
                        the reasons therefor;
                          (v) any potential or actual conflict 
                        of interest relating to the ownership 
                        structure of the applicant or the 
                        provision of proxy advisory services by 
                        the applicant, including whether the 
                        proxy advisory firm engages in services 
                        ancillary to the provision of proxy 
                        advisory services such as consulting 
                        services for corporate issuers, and if 
                        so the revenues derived therefrom;
                          (vi) the policies and procedures in 
                        place to manage conflicts of interest 
                        under subsection (f); and
                          (vii) any other information and 
                        documents concerning the applicant and 
                        any person associated with such 
                        applicant as the Commission, by rule, 
                        may prescribe as necessary or 
                        appropriate in the public interest or 
                        for the protection of investors.
          (2) Review of application.--
                  (A) Initial determination.-- Not later than 
                90 days after the date on which the application 
                for registration is filed with the Commission 
                under paragraph (1) (or within such longer 
                period as to which the applicant consents) the 
                Commission shall--
                          (i) by order, grant registration; or
                          (ii) institute proceedings to 
                        determine whether registration should 
                        be denied.
                  (B) Conduct of proceedings.--
                          (i) Content.-- Proceedings referred 
                        to in subparagraph (A)(ii) shall--
                                  (I) include notice of the 
                                grounds for denial under 
                                consideration and an 
                                opportunity for hearing; and
                                  (II) be concluded not later 
                                than 120 days after the date on 
                                which the application for 
                                registration is filed with the 
                                Commission under paragraph (1).
                          (ii) Determination.-- At the 
                        conclusion of such proceedings, the 
                        Commission, by order, shall grant or 
                        deny such application for registration.
                          (iii) Extension authorized.-- The 
                        Commission may extend the time for 
                        conclusion of such proceedings for not 
                        longer than 90 days, if it finds good 
                        cause for such extension and publishes 
                        its reasons for so finding, or for such 
                        longer period as to which the applicant 
                        consents.
                  (C) Grounds for decision.-- The Commission 
                shall grant registration under this 
                subsection--
                          (i) if the Commission finds that the 
                        requirements of this section are 
                        satisfied; and
                          (ii) unless the Commission finds (in 
                        which case the Commission shall deny 
                        such registration) that--
                                  (I) the applicant has failed 
                                to certify to the Commission's 
                                satisfaction that it has 
                                adequate financial and 
                                managerial resources to 
                                consistently provide proxy 
                                advice based on accurate 
                                information and to materially 
                                comply with the procedures and 
                                methodologies disclosed under 
                                paragraph (1)(B) and with 
                                subsections (f) and (g); or
                                  (II) if the applicant were so 
                                registered, its registration 
                                would be subject to suspension 
                                or revocation under subsection 
                                (e).
          (3) Public availability of information.-- Subject to 
        section 24, the Commission shall make the information 
        and documents submitted to the Commission by a proxy 
        advisory firm in its completed application for 
        registration, or in any amendment submitted under 
        paragraph (1) or (2) of subsection (c), publicly 
        available on the Commission's website, or through 
        another comparable, readily accessible means.
  (c) Update of Registration.--
          (1) Update.-- Each registered proxy advisory firm 
        shall promptly amend and update its application for 
        registration under this section if any information or 
        document provided therein becomes materially 
        inaccurate, except that a registered proxy advisory 
        firm is not required to amend the information required 
        to be filed under subsection (b)(1)(B)(i) by filing 
        information under this paragraph, but shall amend such 
        information in the annual submission of the 
        organization under paragraph (2) of this subsection.
          (2) Certification.-- Not later than 90 calendar days 
        after the end of each calendar year, each registered 
        proxy advisory firm shall file with the Commission an 
        amendment to its registration, in such form as the 
        Commission, by rule, may prescribe as necessary or 
        appropriate in the public interest or for the 
        protection of investors--
                  (A) certifying that the information and 
                documents in the application for registration 
                of such registered proxy advisory firm continue 
                to be accurate in all material respects; and
                  (B) listing any material change that occurred 
                to such information or documents during the 
                previous calendar year.
  (d) Censure, Denial, or Suspension of Registration; Notice 
and Hearing.--The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding 12 months, or revoke the 
registration of any registered proxy advisory firm if the 
Commission finds, on the record after notice and opportunity 
for hearing, that such censure, placing of limitations, 
suspension, or revocation is necessary for the protection of 
investors and in the public interest and that such registered 
proxy advisory firm, or any person associated with such an 
organization, whether prior to or subsequent to becoming so 
associated--
          (1) has committed or omitted any act, or is subject 
        to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (H), or (G) of section 15(b)(4), has been 
        convicted of any offense specified in section 
        15(b)(4)(B), or is enjoined from any action, conduct, 
        or practice specified in subparagraph (C) of section 
        15(b)(4), during the 10-year period preceding the date 
        of commencement of the proceedings under this 
        subsection, or at any time thereafter;
          (2) has been convicted during the 10-year period 
        preceding the date on which an application for 
        registration is filed with the Commission under this 
        section, or at any time thereafter, of--
                  (A) any crime that is punishable by 
                imprisonment for one or more years, and that is 
                not described in section 15(b)(4)(B); or
                  (B) a substantially equivalent crime by a 
                foreign court of competent jurisdiction;
          (3) is subject to any order of the Commission barring 
        or suspending the right of the person to be associated 
        with a registered proxy advisory firm;
          (4) fails to furnish the certifications required 
        under subsections (b)(2)(C)(ii)(I) and (c)(2);
          (5) has engaged in one or more prohibited acts 
        enumerated in paragraph (1); or
          (6) fails to maintain adequate financial and 
        managerial resources to consistently offer advisory 
        services with integrity, including by failing to comply 
        with subsections (f) or (g).
  (e) Termination of Registration.--
          (1) Voluntary withdrawal.-- A registered proxy 
        advisory firm may, upon such terms and conditions as 
        the Commission may establish as necessary in the public 
        interest or for the protection of investors, which 
        terms and conditions shall include at a minimum that 
        the registered proxy advisory firm will no longer 
        conduct such activities as to bring it within the 
        definition of proxy advisory firm in section 3(a)(81) 
        of the Securities Exchange Act of 1934, withdraw from 
        registration by filing a written notice of withdrawal 
        to the Commission.
          (2) Commission authority.-- In addition to any other 
        authority of the Commission under this title, if the 
        Commission finds that a registered proxy advisory firm 
        is no longer in existence or has ceased to do business 
        as a proxy advisory firm, the Commission, by order, 
        shall cancel the registration under this section of 
        such registered proxy advisory firm.
  (f) Management of Conflicts of Interest.--
          (1) Organization policies and procedures.-- Each 
        registered proxy advisory firm shall establish, 
        maintain, and enforce written policies and procedures 
        reasonably designed, taking into consideration the 
        nature of the business of such registered proxy 
        advisory firm and associated persons, to address and 
        manage any conflicts of interest that can arise from 
        such business.
          (2) Commission authority.-- The Commission shall 
        issue final rules to prohibit, or require the 
        management and disclosure of, any conflicts of interest 
        relating to the offering of proxy advisory services by 
        a registered proxy advisory firm, including, without 
        limitation, conflicts of interest relating to--
                  (A) the manner in which a registered proxy 
                advisory firm is compensated by the client, or 
                any affiliate of the client, for providing 
                proxy advisory services;
                  (B) the provision of consulting, advisory, or 
                other services by a registered proxy advisory 
                firm, or any person associated with such 
                registered proxy advisory firm, to the client;
                  (C) business relationships, ownership 
                interests, or any other financial or personal 
                interests between a registered proxy advisory 
                firm, or any person associated with such 
                registered proxy advisory firm, and any client, 
                or any affiliate of such client;
                  (D) transparency around the formulation of 
                proxy voting policies;
                  (E) the execution of proxy votes if such 
                votes are based upon recommendations made by 
                the proxy advisory firm in which someone other 
                than the issuer is a proponent;
                  (F) issuing recommendations where proxy 
                advisory firms provide advisory services to a 
                company; and
                  (G) any other potential conflict of interest, 
                as the Commission deems necessary or 
                appropriate in the public interest or for the 
                protection of investors.
  (g) Reliability of Proxy Advisory Firm Services.--
          (1) In general.-- Each registered proxy advisory firm 
        shall have staff sufficient to produce proxy voting 
        recommendations that are based on accurate and current 
        information. Each registered proxy advisory firm shall 
        detail procedures sufficient to permit companies 
        receiving proxy advisory firm recommendations access in 
        a reasonable time to the draft recommendations, with an 
        opportunity to provide meaningful comment thereon, 
        including the opportunity to present details to the 
        person responsible for developing the recommendation in 
        person or telephonically. Each registered proxy 
        advisory firm shall employ an ombudsman to receive 
        complaints about the accuracy of voting information 
        used in making recommendations from the subjects of the 
        proxy advisory firm's voting recommendations, and shall 
        resolve those complaints in a timely fashion and in any 
        event prior to voting on the matter to which the 
        recommendation relates.
          (2) Draft recommendations defined.-- For purposes of 
        this subsection, the term ``draft recommendations''--
                  (A) means the overall conclusions of proxy 
                voting recommendations prepared for the clients 
                of a proxy advisory firm, including any public 
                data cited therein, any company information or 
                substantive analysis impacting the 
                recommendation, and the specific voting 
                recommendations on individual proxy ballot 
                issues; and
                  (B) does not include the entirety of the 
                proxy advisory firm's final report to its 
                clients.
  (h) Designation of Compliance Officer.--Each registered proxy 
advisory firm shall designate an individual responsible for 
administering the policies and procedures that are required to 
be established pursuant to subsections (f) and (g), and for 
ensuring compliance with the securities laws and the rules and 
regulations thereunder, including those promulgated by the 
Commission pursuant to this section.
  (i) Prohibited Conduct.--
          (1) Prohibited acts and practices.-- The Commission 
        shall issue final rules to prohibit any act or practice 
        relating to the offering of proxy advisory services by 
        a registered proxy advisory firm that the Commission 
        determines to be unfair, coercive, or abusive, 
        including any act or practice relating to--
                  (A) conditioning a voting recommendation or 
                other proxy advisory firm recommendation on the 
                purchase by an issuer or an affiliate thereof 
                of other services or products, of the 
                registered proxy advisory firm or any person 
                associated with such registered proxy advisory 
                firm; and
                  (B) modifying a voting recommendation or 
                otherwise departing from its adopted systematic 
                procedures and methodologies in the provision 
                of proxy advisory services, based on whether an 
                issuer, or affiliate thereof, subscribes or 
                will subscribe to other services or product of 
                the registered proxy advisory firm or any 
                person associated with such organization.
          (2) Rule of construction.-- Nothing in paragraph (1), 
        or in any rules or regulations adopted thereunder, may 
        be construed to modify, impair, or supersede the 
        operation of any of the antitrust laws (as defined in 
        the first section of the Clayton Act, except that such 
        term includes section 5 of the Federal Trade Commission 
        Act, to the extent that such section 5 applies to 
        unfair methods of competition).
  (j) Statements of Financial Condition.--Each registered proxy 
advisory firm shall, on a confidential basis, file with the 
Commission, at intervals determined by the Commission, such 
financial statements, certified (if required by the rules or 
regulations of the Commission) by an independent public 
auditor, and information concerning its financial condition, as 
the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of 
investors.
  (k) Annual Report.--Each registered proxy advisory firm 
shall, at the beginning of each fiscal year of such firm, 
report to the Commission on the number of shareholder proposals 
its staff reviewed in the prior fiscal year, the number of 
recommendations made in the prior fiscal year, the number of 
staff who reviewed and made recommendations on such proposals 
in the prior fiscal year, and the number of recommendations 
made in the prior fiscal year where the proponent of such 
recommendation was a client of or received services from the 
proxy advisory firm.
  (l) Transparent Policies.--Each registered proxy advisory 
firm shall file with the Commission and make publicly available 
its methodology for the formulation of proxy voting policies 
and voting recommendations.
  (m) Rules of Construction.--
          (1) No waiver of rights, privileges, or defenses.-- 
        Registration under and compliance with this section 
        does not constitute a waiver of, or otherwise diminish, 
        any right, privilege, or defense that a registered 
        proxy advisory firm may otherwise have under any 
        provision of State or Federal law, including any rule, 
        regulation, or order thereunder.
          (2) No private right of action.-- Nothing in this 
        section may be construed as creating any private right 
        of action, and no report filed by a registered proxy 
        advisory firm in accordance with this section or 
        section 17 shall create a private right of action under 
        section 18 or any other provision of law.
  (n) Regulations.--
          (1) New provisions.-- Such rules and regulations as 
        are required by this section or are otherwise necessary 
        to carry out this section, including the application 
        form required under subsection (a)--
                  (A) shall be issued by the Commission, not 
                later than 180 days after the date of enactment 
                of this section; and
                  (B) shall become effective not later than 1 
                year after the date of enactment of this 
                section.
          (2) Review of existing regulations.-- Not later than 
        270 days after the date of enactment of this section, 
        the Commission shall--
                  (A) review its existing rules and regulations 
                which affect the operations of proxy advisory 
                firms;
                  (B) amend or revise such rules and 
                regulations in accordance with the purposes of 
                this section, and issue such guidance, as the 
                Commission may prescribe as necessary or 
                appropriate in the public interest or for the 
                protection of investors; and
                  (C) direct Commission staff to withdraw the 
                Egan Jones Proxy Services (May 27, 2004) and 
                Institutional Shareholder Services, Inc. 
                (September 15, 2004) no-action letters.
  (o) Applicability.--This section, other than subsection (n), 
which shall apply on the date of enactment of this section, 
shall apply on the earlier of--
          (1) the date on which regulations are issued in final 
        form under subsection (n)(1); or
          (2) 270 days after the date of enactment of this 
        section.

           *       *       *       *       *       *       *


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

  Sec. 17. (a)(1) Every national securities exchange, member 
thereof, broker or dealer who transacts a business in 
securities through the medium of any such member, registered 
securities association, registered broker or dealer, registered 
municipal securities dealer municipal advisor,, registered 
securities information processor, registered transfer agent, 
nationally recognized statistical rating organization, proxy 
advisory firm, and registered clearing agency and the Municipal 
Securities Rulemaking Board shall make and keep for prescribed 
periods such records, furnish such copies thereof, and make and 
disseminate such reports as the Commission, by rule, prescribes 
as necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the 
purposes of this title. Any report that a nationally recognized 
statistical rating organization is required by Commission rules 
under this paragraph to make and disseminate to the Commission 
shall be deemed furnished to the Commission.
  (2) Every registered clearing agency shall also make and keep 
for prescribed periods such records, furnish such copies 
thereof, and make and disseminate such reports, as the 
appropriate regulatory agency for such clearing agency, by 
rule, prescribes as necessary or appropriate for the 
safeguarding of securities and funds in the custody or control 
of such clearing agency or for which it is responsible.
  (3) Every registered transfer agent shall also make and keep 
for prescribed periods such records, furnish such copies 
thereof, and make such reports as the appropriate regulatory 
agency for such transfer agent, by rule, prescribes as 
necessary or appropriate in furtherance of the purposes of 
section 17A of this title.
  (b) Records Subject to Examination.--
          (1) Procedures for cooperation with other agencies.-- 
        All records of persons described in subsection (a) of 
        this section are subject at any time, or from time to 
        time, to such reasonable periodic, special, or other 
        examinations by representatives of the Commission and 
        the appropriate regulatory agency for such persons as 
        the Commission or the appropriate regulatory agency for 
        such persons deems necessary or appropriate in the 
        public interest, for the protection of investors, or 
        otherwise in furtherance of the purposes of this title: 
        Provided, however, That the Commission shall, prior to 
        conducting any such examination of a--
                  (A) registered clearing agency, registered 
                transfer agent, or registered municipal 
                securities dealer for which it is not the 
                appropriate regulatory agency, give notice to 
                the appropriate regulatory agency for such 
                clearing agency, transfer agent, or municipal 
                securities dealer of such proposed examination 
                and consult with such appropriate regulatory 
                agency concerning the feasibility and 
                desirability of coordinating such examination 
                with examinations conducted by such appropriate 
                regulatory agency with a view to avoiding 
                unnecessary regulatory duplication or undue 
                regulatory burdens for such clearing agency, 
                transfer agent, or municipal securities dealer; 
                or
                  (B) broker or dealer registered pursuant to 
                section 15(b)(11), exchange registered pursuant 
                to section 6(g), or national securities 
                association registered pursuant to section 
                15A(k), give notice to the Commodity Futures 
                Trading Commission of such proposed examination 
                and consults with the Commodity Futures Trading 
                Commission concerning the feasibility and 
                desirability of coordinating such examination 
                with examinations conducted by the Commodity 
                Futures Trading Commission in order to avoid 
                unnecessary regulatory duplication or undue 
                regulatory burdens for such broker or dealer or 
                exchange.
          (2) Furnishing data and reports to cftc.-- The 
        Commission shall notify the Commodity Futures Trading 
        Commission of any examination conducted of any broker 
        or dealer registered pursuant to section 15(b)(11), 
        exchange registered pursuant to section 6(g), or 
        national securities association registered pursuant to 
        section 15A(k) and, upon request, furnish to the 
        Commodity Futures Trading Commission any examination 
        report and data supplied to, or prepared by, the 
        Commission in connection with such examination.
          (3) Use of cftc reports.-- Prior to conducting an 
        examination under paragraph (1), the Commission shall 
        use the reports of examinations, if the information 
        available therein is sufficient for the purposes of the 
        examination, of--
                  (A) any broker or dealer registered pursuant 
                to section 15(b)(11);
                  (B) exchange registered pursuant to section 
                6(g); or
                  (C) national securities association 
                registered pursuant to section 15A(k);
        that is made by the Commodity Futures Trading 
        Commission, a national securities association 
        registered pursuant to section 15A(k), or an exchange 
        registered pursuant to section 6(g).
          (4) Rules of construction.--
                  (A) Notwithstanding any other provision of 
                this subsection, the records of a broker or 
                dealer registered pursuant to section 
                15(b)(11), an exchange registered pursuant to 
                section 6(g), or a national securities 
                association registered pursuant to section 
                15A(k) described in this subparagraph shall not 
                be subject to routine periodic examinations by 
                the Commission.
                  (B) Any recordkeeping rules adopted under 
                this subsection for a broker or dealer 
                registered pursuant to section 15(b)(11), an 
                exchange registered pursuant to section 6(g), 
                or a national securities association registered 
                pursuant to section 15A(k) shall be limited to 
                records with respect to persons, accounts, 
                agreements, contracts, and transactions 
                involving security futures products.
                  (C) Nothing in the proviso in paragraph (1) 
                shall be construed to impair or limit (other 
                than by the requirement of prior consultation) 
                the power of the Commission under this 
                subsection to examine any clearing agency, 
                transfer agent, or municipal securities dealer 
                or to affect in any way the power of the 
                Commission under any other provision of this 
                title or otherwise to inspect, examine, or 
                investigate any such clearing agency, transfer 
                agent, or municipal securities dealer.
  (c)(1) Every clearing agency, transfer agent, and municipal 
securities dealer for which the Commission is not the 
appropriate regulatory agency shall (A) file with the 
appropriate regulatory agency for such clearing agency, 
transfer agent, or municipal securities dealer a copy of any 
application, notice, proposal, report, or document filed with 
the Commission by reason of its being a clearing agency, 
transfer agent, or municipal securities dealer and (B) file 
with the Commission a copy of any application, notice, 
proposal, report, or document filed with such appropriate 
regulatory agency by reason of its being a clearing agency, 
transfer agent, or municipal securities dealer. The Municipal 
Securities Rulemaking Board shall file with each agency 
enumerated in section 3(a)(34)(A) of this title copies of every 
proposed rule change filed with the Commission pursuant to 
section 19(b) of this title.
  (2) The appropriate regulatory agency for a clearing agency, 
transfer agent, or municipal securities dealer for which the 
Commission is not the appropriate regulatory agency shall file 
with the Commission notice of the commencement of any 
proceeding and a copy of any order entered by such appropriate 
regulatory agency against any clearing agency, transfer agent, 
municipal securities dealer, or person associated with a 
transfer agent or municipal securities dealer, and the 
Commission shall file with such appropriate regulatory agency, 
if any, notice of the commencement of any proceeding and a copy 
of any order entered by the Commission against the clearing 
agency, transfer agent, or municipal securities dealer, or 
against any person associated with a transfer agent or 
municipal securities dealer for which the agency is the 
appropriate regulatory agency.
  (3) The Commission and the appropriate regulatory agency for 
a clearing agency, transfer agent, or municipal securities 
dealer for which the Commission is not the appropriate 
regulatory agency shall each notify the other and make a report 
of any examination conducted by it of such clearing agency, 
transfer agent, or municipal securities dealer, and, upon 
request, furnish to the other a copy of such report and any 
data supplied to it in connection with such examination.
  (4) The Commission or the appropriate regulatory agency may 
specify that documents required to be filed pursuant to this 
subsection with the Commission or such agency, respectively, 
may be retained by the originating clearing agency, transfer 
agent, or municipal securities dealer, or filed with another 
appropriate regulatory agency. The Commission or the 
appropriate regulatory agency (as the case may be) making such 
a specification shall continue to have access to the document 
on request.
  (d)(1) The Commission, by rule or order, as it deems 
necessary or appropriate in the public interest and for the 
protection of investors, to foster cooperation and coordination 
among self-regulatory organizations, or to remove impediments 
to and foster the development of a national market system and 
national system for the clearance and settlement of securities 
transactions, may--
          (A) with respect to any person who is a member of or 
        participant in more than one self-regulatory 
        organization, relieve any such self-regulatory 
        organization of any responsibility under this title (i) 
        to receive regulatory reports from such person, (ii) to 
        examine such person for compliance, or to enforce 
        compliance by such person, with specified provisions of 
        this title, the rules and regulations thereunder, and 
        its own rules, or (iii) to carry out other specified 
        regulatory functions with respect to such person, and
          (B) allocate among self-regulatory organizations the 
        authority to adopt rules with respect to matters as to 
        which, in the absence of such allocation, such self-
        regulatory organizations share authority under this 
        title.
In making any such rule or entering any such order, the 
Commission shall take into consideration the regulatory 
capabilities and procedures of the self-regulatory 
organizations, availability of staff, convenience of location, 
unnecessary regulatory duplication, and such other factors as 
the Commission may consider germane to the protection of 
investors, cooperation and coordination among self-regulatory 
organizations, and the development of a national market system 
and a national system for the clearance and settlement of 
securities transactions. The Commission, by rule or order, as 
it deems necessary or appropriate in the public interest and 
for the protection of investors, may require any self-
regulatory organization relieved of any responsibility pursuant 
to this paragraph, and any person with respect to whom such 
responsibility relates, to take such steps as are specified in 
any such rule or order to notify customers of, and persons 
doing business with, such person of the limited nature of such 
self-regulatory organization's responsibility for such person's 
acts, practices, and course of business.
  (2) A self-regulatory organization shall furnish copies of 
any report of examination of any person who is a member of or a 
participant in such self-regulatory organization to any other 
self-regulatory organization of which such person is a member 
or in which such person is a participant upon the request of 
such person, such other self-regulatory organization, or the 
Commission.
  (e)(1)(A) Every registered broker or dealer shall annually 
file with the Commission a balance sheet and income statement 
certified by a independent public accounting firm, or by a 
registered public accounting firm if the firm is required to be 
registered under the Sarbanes-Oxley Act of 2002,, prepared on a 
calendar or fiscal year basis, and such other financial 
statements (which shall, as the Commission specifies, be 
certified) and information concerning its financial condition 
as the Commission, by rule may prescribe as necessary or 
appropriate in the public interest or for the protection of 
investors.
  (B) Every registered broker and dealer shall annually send to 
its customers its certified balance sheet and such other 
financial statements and information concerning its financial 
condition as the Commission, by rule, may prescribe pursuant to 
subsection (a) of this section.
  (C) The Commission, by rule or order, may conditionally or 
unconditionally exempt any registered broker or dealer, or 
class of such brokers or dealers, from any provision of this 
paragraph if the Commission determines that such exemption is 
consistent with the public interest and the protection of 
investors.
  (2) The Commission, by rule, as it deems necessary or 
appropriate in the public interest or for the protection of 
investors, may prescribe the form and content of financial 
statements filed pursuant to this title and the accounting 
principles and accounting standards used in their preparation.
  (f)(1) Every national securities exchange, member thereof, 
registered securities association, broker, dealer, municipal 
securities dealer, government securities broker, government 
securities dealer, registered transfer agent, registered 
clearing agency, participant therein, member of the Federal 
Reserve System, and bank whose deposits are insured by the 
Federal Deposit Insurance Corporation shall--
          (A) report to the Commission or other person 
        designated by the Commission and, in the case of 
        securities issued pursuant to chapter 31 of title 31, 
        United States Code, to the Secretary of the Treasury 
        such information about securities that are missing, 
        lost, counterfeit, stolen, or cancelled, in such form 
        and within such time as the Commission, by rule, 
        determines is necessary or appropriate in the public 
        interest or for the protection of investors; such 
        information shall be available on request for a 
        reasonable fee, to any such exchange, member, 
        association, broker, dealer, municipal securities 
        dealer, transfer agent, clearing agency, participant, 
        member of the Federal Reserve System, or insured bank, 
        and such other persons as the Commission, by rule, 
        designates; and
          (B) make such inquiry with respect to information 
        reported pursuant to this subsection as the Commission, 
        by rule, prescribes as necessary or appropriate in the 
        public interest or for the protection of investors, to 
        determine whether securities in their custody or 
        control, for which they are responsible, or in which 
        they are effecting, clearing, or settling a transaction 
        have been reported as missing, lost, counterfeit, 
        stolen, cancelled, or reported in such other manner as 
        the Commission, by rule, may prescribe.
  (2) Every member of a national securities exchange, broker, 
dealer, registered transfer agent, registered clearing agency, 
registered securities information processor, national 
securities exchange, and national securities association shall 
require that each of its partners, directors, officers, and 
employees be fingerprinted and shall submit such fingerprints, 
or cause the same to be submitted, to the Attorney General of 
the United States for identification and appropriate 
processing. The Commission, by rule, may exempt from the 
provisions of this paragraph upon specified terms, conditions, 
and periods, any class of partners, directors, officers, or 
employees of any such member, broker, dealer, transfer agent, 
clearing agency, securities information processor, national 
securities exchange, or national securities association, if the 
Commission finds that such action is not inconsistent with the 
public interest or the protection of investors. Notwithstanding 
any other provision of law, in providing identification and 
processing functions, the Attorney General shall provide the 
Commission and self-regulatory organizations designated by the 
Commission with access to all criminal history record 
information.
  (3)(A) In order to carry out the authority under paragraph 
(1) above, the Commission or its designee may enter into 
agreement with the Attorney General to use the facilities of 
the National Crime Information Center (``NCIC'') to receive, 
store, and disseminate information in regard to missing, lost, 
counterfeit, or stolen securities and to permit direct inquiry 
access to NCIC's file on such securities for the financial 
community.
  (B) In order to carry out the authority under paragraph (1) 
of this subsection, the Commission or its designee and the 
Secretary of the Treasury shall enter into an agreement whereby 
the Commission or its designee will receive, store, and 
disseminate information in the possession, and which comes into 
the possession, of the Department of the Treasury in regard to 
missing, lost, counterfeit, or stolen securities.
  (4) In regard to paragraphs (1), (2), and (3), above insofar 
as such paragraphs apply to any bank or member of the Federal 
Reserve System, the Commission may delegate its authority to:
          (A) the Comptroller of the Currency as to national 
        banks;
          (B) the Federal Reserve Board in regard to any member 
        of the Federal Reserve System which is not a national 
        bank; and
          (C) the Federal Deposit Insurance Corporation for any 
        State bank which is insured by the Federal Deposit 
        Insurance Corporation but which is not a member of the 
        Federal Reserve System.
  (5) The Commission shall encourage the insurance industry to 
require their insured to report expeditiously instances of 
missing, lost, counterfeit, or stolen securities to the 
Commission or to such other person as the Commission may, by 
rule, designate to receive such information.
  (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 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.
  (h) Risk Assessment for Holding Company Systems.--
          (1) Obligations to obtain, maintain, and report 
        information.-- Every person who is (A) a registered 
        broker or dealer, or (B) a registered municipal 
        securities dealer for which the Commission is the 
        appropriate regulatory agency, shall obtain such 
        information and make and keep such records as the 
        Commission by rule prescribes concerning the registered 
        person's policies, procedures, or systems for 
        monitoring and controlling financial and operational 
        risks to it resulting from the activities of any of its 
        associated persons, other than a natural person. Such 
        records shall describe, in the aggregate, each of the 
        financial and securities activities conducted by, and 
        the customary sources of capital and funding of, those 
        of its associated persons whose business activities are 
        reasonably likely to have a material impact on the 
        financial or operational condition of such registered 
        person, including its net capital, its liquidity, or 
        its ability to conduct or finance its operations. The 
        Commission, by rule, may require summary reports of 
        such information to be filed with the Commission no 
        more frequently than quarterly.
          (2) Authority to require additional information.-- 
        If, as a result of adverse market conditions or based 
        on reports provided to the Commission pursuant to 
        paragraph (1) of this subsection or other available 
        information, the Commission reasonably concludes that 
        it has concerns regarding the financial or operational 
        condition of (A) any registered broker or dealer, or 
        (B) any registered municipal securities dealer, 
        government securities broker, or government securities 
        dealer for which the Commission is the appropriate 
        regulatory agency, the Commission may require the 
        registered person to make reports concerning the 
        financial and securities activities of any of such 
        person's associated persons, other than a natural 
        person, whose business activities are reasonably likely 
        to have a material impact on the financial or 
        operational condition of such registered person. The 
        Commission, in requiring reports pursuant to this 
        paragraph, shall specify the information required, the 
        period for which it is required, the time and date on 
        which the information must be furnished, and whether 
        the information is to be furnished directly to the 
        Commission or to a self-regulatory organization with 
        primary responsibility for examining the registered 
        person's financial and operational condition.
          (3) Special provisions with respect to associated 
        persons subject to federal banking agency regulation.--
                  (A) Cooperation in implementation.-- In 
                developing and implementing reporting 
                requirements pursuant to paragraph (1) of this 
                subsection with respect to associated persons 
                subject to examination by or reporting 
                requirements of a Federal banking agency, the 
                Commission shall consult with and consider the 
                views of each such Federal banking agency. If a 
                Federal banking agency comments in writing on a 
                proposed rule of the Commission under this 
                subsection that has been published for comment, 
                the Commission shall respond in writing to such 
                written comment before adopting the proposed 
                rule. The Commission shall, at the request of 
                the Federal banking agency, publish such 
                comment and response in the Federal Register at 
                the time of publishing the adopted rule.
                  (B) Use of banking agency reports.-- A 
                registered broker, dealer, or municipal 
                securities dealer shall be in compliance with 
                any recordkeeping or reporting requirement 
                adopted pursuant to paragraph (1) of this 
                subsection concerning an associated person that 
                is subject to examination by or reporting 
                requirements of a Federal banking agency if 
                such broker, dealer, or municipal securities 
                dealer utilizes for such recordkeeping or 
                reporting requirement copies of reports filed 
                by the associated person with the Federal 
                banking agency pursuant to section 5211 of the 
                Revised Statutes, section 9 of the Federal 
                Reserve Act, section 7(a) of the Federal 
                Deposit Insurance Act, section 10(b) of the 
                Home Owners' Loan Act, or section 8 of the Bank 
                Holding Company Act of 1956. The Commission 
                may, however, by rule adopted pursuant to 
                paragraph (1), require any broker, dealer, or 
                municipal securities dealer filing such reports 
                with the Commission to obtain, maintain, or 
                report supplemental information if the 
                Commission makes an explicit finding that such 
                supplemental information is necessary to inform 
                the Commission regarding potential risks to 
                such broker, dealer, or municipal securities 
                dealer. Prior to requiring any such 
                supplemental information, the Commission shall 
                first request the Federal banking agency to 
                expand its reporting requirements to include 
                such information.
                  (C) Procedure for requiring additional 
                information.-- Prior to making a request 
                pursuant to paragraph (2) of this subsection 
                for information with respect to an associated 
                person that is subject to examination by or 
                reporting requirements of a Federal banking 
                agency, the Commission shall--
                          (i) notify such agency of the 
                        information required with respect to 
                        such associated person; and
                          (ii) consult with such agency to 
                        determine whether the information 
                        required is available from such agency 
                        and for other purposes, unless the 
                        Commission determines that any delay 
                        resulting from such consultation would 
                        be inconsistent with ensuring the 
                        financial and operational condition of 
                        the broker, dealer, municipal 
                        securities dealer, government 
                        securities broker, or government 
                        securities dealer or the stability or 
                        integrity of the securities markets.
                  (D) Exclusion for examination reports.-- 
                Nothing in this subsection shall be construed 
                to permit the Commission to require any 
                registered broker or dealer, or any registered 
                municipal securities dealer, government 
                securities broker, or government securities 
                dealer for which the Commission is the 
                appropriate regulatory agency, to obtain, 
                maintain, or furnish any examination report of 
                any Federal banking agency or any supervisory 
                recommendations or analysis contained therein.
                  (E) Confidentiality of information 
                provided.-- No information provided to or 
                obtained by the Commission from any Federal 
                banking agency pursuant to a request by the 
                Commission under subparagraph (C) of this 
                paragraph regarding any associated person which 
                is subject to examination by or reporting 
                requirements of a Federal banking agency may be 
                disclosed to any other person (other than a 
                self-regulatory organization), without the 
                prior written approval of the Federal banking 
                agency. Nothing in this subsection shall 
                authorize the Commission to withhold 
                information from Congress, or prevent the 
                Commission from complying with a request for 
                information from any other Federal department 
                or agency requesting the information for 
                purposes within the scope of its jurisdiction, 
                or complying with an order of a court of the 
                United States in an action brought by the 
                United States or the Commission.
                  (F) Notice to banking agencies concerning 
                financial and operational condition concerns.-- 
                The Commission shall notify the Federal banking 
                agency of any concerns of the Commission 
                regarding significant financial or operational 
                risks resulting from the activities of any 
                registered broker or dealer, or any registered 
                municipal securities dealer, government 
                securities broker, or government securities 
                dealer for which the Commission is the 
                appropriate regulatory agency, to any 
                associated person thereof which is subject to 
                examination by or reporting requirements of the 
                Federal banking agency.
                  (G) Definition.-- For purposes of this 
                paragraph, the term ``Federal banking agency'' 
                shall have the same meaning as the term 
                ``appropriate Federal bank agency'' in section 
                3(q) of the Federal Deposit Insurance Act (12 
                U.S.C. 1813(q)).
          (4) Exemptions.-- The Commission by rule or order may 
        exempt any person or class of persons, under such terms 
        and conditions and for such periods as the Commission 
        shall provide in such rule or order, from the 
        provisions of this subsection, and the rules 
        thereunder. In granting such exemptions, the Commission 
        shall consider, among other factors--
                  (A) whether information of the type required 
                under this subsection is available from a 
                supervisory agency (as defined in section 
                1101(6) of the Right to Financial Privacy Act 
                of 1978 (12 U.S.C. 3401(6))), a State insurance 
                commission or similar State agency, the 
                Commodity Futures Trading Commission, or a 
                similar foreign regulator;
                  (B) the primary business of any associated 
                person;
                  (C) the nature and extent of domestic or 
                foreign regulation of the associated person's 
                activities;
                  (D) the nature and extent of the registered 
                person's securities activities; and
                  (E) with respect to the registered person and 
                its associated persons, on a consolidated 
                basis, the amount and proportion of assets 
                devoted to, and revenues derived from, 
                activities in the United States securities 
                markets.
          (5) Authority to limit disclosure of information.-- 
        Notwithstanding any other provision of law, the 
        Commission shall not be compelled to disclose any 
        information required to be reported under this 
        subsection, or any information supplied to the 
        Commission by any domestic or foreign regulatory agency 
        that relates to the financial or operational condition 
        of any associated person of a registered broker, 
        dealer, government securities broker, government 
        securities dealer, or municipal securities dealer. 
        Nothing in this subsection shall authorize the 
        Commission to withhold information from Congress, or 
        prevent the Commission from complying with a request 
        for information from any other Federal department or 
        agency requesting the information for purposes within 
        the scope of its jurisdiction, or complying with an 
        order of a court of the United States in an action 
        brought by the United States or the Commission. For 
        purposes of section 552 of title 5, United States Code, 
        this subsection shall be considered a statute described 
        in subsection (b)(3)(B) of such section 552. In 
        prescribing regulations to carry out the requirements 
        of this subsection, the Commission shall designate 
        information described in or obtained pursuant to 
        subparagraph (B) or (C) of paragraph (3) of this 
        subsection as confidential information for purposes of 
        section 24(b)(2) of this title.
  (i) Authority To Limit Disclosure of Information.--
Notwithstanding any other provision of law, the Commission 
shall not be compelled to disclose any information required to 
be reported under subsection (h) or (i) or any information 
supplied to the Commission by any domestic or foreign 
regulatory agency that relates to the financial or operational 
condition of any associated person of a broker or dealer, 
investment bank holding company, or any affiliate of an 
investment bank holding company. Nothing in this subsection 
shall authorize the Commission to withhold information from 
Congress, or prevent the Commission from complying with a 
request for information from any other Federal department or 
agency or any self-regulatory organization requesting the 
information for purposes within the scope of its jurisdiction, 
or complying with an order of a court of the United States in 
an action brought by the United States or the Commission. For 
purposes of section 552 of title 5, United States Code, this 
subsection shall be considered a statute described in 
subsection (b)(3)(B) of such section 552. In prescribing 
regulations to carry out the requirements of this subsection, 
the Commission shall designate information described in or 
obtained pursuant to subparagraphs (A), (B), and (C) of 
subsection (i)(5) as confidential information for purposes of 
section 24(b)(2) of this title.
  (j) Coordination of Examining Authorities.--
          (1) Elimination of duplication.-- The Commission and 
        the examining authorities, through cooperation and 
        coordination of examination and oversight activities, 
        shall eliminate any unnecessary and burdensome 
        duplication in the examination process.
          (2) Coordination of examinations.-- The Commission 
        and the examining authorities shall share such 
        information, including reports of examinations, 
        customer complaint information, and other nonpublic 
        regulatory information, as appropriate to foster a 
        coordinated approach to regulatory oversight of brokers 
        and dealers that are subject to examination by more 
        than one examining authority.
          (3) Examinations for cause.-- At any time, any 
        examining authority may conduct an examination for 
        cause of any broker or dealer subject to its 
        jurisdiction.
          (4) Confidentiality.--
                  (A) In general.-- Section 24 shall apply to 
                the sharing of information in accordance with 
                this subsection. The Commission shall take 
                appropriate action under section 24(c) to 
                ensure that such information is not 
                inappropriately disclosed.
                  (B) Appropriate disclosure not prohibited.-- 
                Nothing in this paragraph authorizes the 
                Commission or any examining authority to 
                withhold information from the Congress, or 
                prevent the Commission or any examining 
                authority from complying with a request for 
                information from any other Federal department 
                or agency requesting the information for 
                purposes within the scope of its jurisdiction, 
                or complying with an order of a court of the 
                United States in an action brought by the 
                United States or the Commission.
          (5) Definition.-- For purposes of this subsection, 
        the term ``examining authority'' means a self-
        regulatory organization registered with the Commission 
        under this title (other than a registered clearing 
        agency) with the authority to examine, inspect, and 
        otherwise oversee the activities of a registered broker 
        or dealer.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 5311, the ``Corporate Governance Reform and 
Transparency Act of 2016,'' would create an untested, 
inappropriate and costly regulatory framework for proxy 
advisory firms--or firms that provide research and voting 
recommendations to shareholders--under the guise of limiting 
conflicts of interest and improving transparency. However, 
rather than improve public company corporate governance, the 
legislation would create numerous problems that would make it 
more difficult for shareholders to hold company management 
accountable. Indeed, H.R. 5311 would only serve to limit the 
impartial information available to shareholders when making 
proxy voting decisions, make it more difficult for 
institutional investors to fulfill their fiduciary duty to 
their clients, and create barriers to entry that would stifle 
competition in the proxy advisory firm industry.
    Many stakeholders wrote to the Committee to say as much 
when H.R. 5311 was being considered. This includes investors 
like TIAA, and their trade association representatives, 
including the Investment Company Institute and the Council of 
Institutional Investors; union pension funds representing 
carpenters, automobile workers and Teamsters; as well as public 
pension funds from the states of California, New York, Florida, 
Colorado, Washington, Ohio, Vermont and Oregon. Advocates 
representing the interests of investors likewise opposed H.R. 
5311, including the Consumer Federation of America, Americans 
for Financial Reform, and Public Citizen.
    The correspondence and testimony received by the Committee 
on H.R. 5311 noted numerous problems with the legislation.
    First, H.R. 5311 would require that proxy advisory firms 
provide an opportunity for companies to comment on the 
editorial decisions reflected in the firms' research before 
that research could be disseminated to paying clients. This 
mandatory pre-publication consultation with companies would 
essentially open up the independent research process to 
lobbying from special interests. This provision would be made 
more unworkable by the fact that the U.S. proxy season is 
compressed, occurring over just a few months in the spring. 
Further, the Minority notes that H.R. 5311 does not provide 
shareholders with proposals on the proxy the same opportunity 
for pre-review and lobbying as company management.
    Second, H.R. 5311 would make it more difficult for 
institutional investors to fulfill their fiduciary duty to 
their clients. Staff Legal Bulletin No. 20 (SLB-20) from the 
Securities and Exchange Commission (SEC) has already provided 
needed clarity to investment advisors, outlining the due 
diligence and oversight that advisors must undertake in order 
to ensure that research providers and third-party voting agents 
are serving their clients' best interests. H.R. 5311 would 
replace this clear guidance with an untested regulatory 
framework, which may be inconsistent with the Department of 
Labor's recently finalized conflict of interest rule, Financial 
Industry Regulatory Authority (FINRA) rules prohibiting pre-
review of research reports, as well as best practice principles 
adopted by the European Securities and Markets Authority and 
the Canadian Securities Administrators.
    Finally, H.R. 5311 would create barriers to entry that 
would only serve to further concentrate the proxy advisory firm 
industry. Investors writing to the Committee have noted that 
the legislation would likely reduce the number of firms in the 
marketplace offering independent proxy advisory services, and, 
as a result, the remaining firm(s) in the industry may drive up 
the costs of their research. Alternatively, investors expressed 
concern that they may be left without independent research 
providers at all, and may instead have to spend significant 
amounts to develop extensive in-house research divisions.
    In summary, the Minority believes that corporate governance 
works best when shareholders are empowered with independent, 
impartial information when making voting decisions on key 
ballot issues--from director elections to corporate boards, to 
Dodd-Frank's ``say on pay'' votes, to countless other measures. 
H.R. 5311 represents a step in the wrong direction, which would 
leave shareholders reliant on biased information tilted towards 
the interests of company management.
    For these reasons, the Minority opposes H.R. 5311.
                                   Maxine Waters.
                                   Keith Ellison.
                                   Gwen Moore.
                                   Al Green.
                                   Ruben Hinojosa.
                                   Denny Heck.
                                   Emanuel Cleaver.
                                   Stephen F. Lynch.
                                   Joyce Beatty.
                                   Wm. Lacy Clay.