[House Report 115-807]
[From the U.S. Government Publishing Office]


115th Congress    }                                     {      Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                     {     115-807

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



 
                         MAIN STREET GROWTH ACT

                                _______
                                

 July 10, 2018.--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

                        [To accompany H.R. 5877]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 5877) to amend the Securities Exchange Act of 
1934 to allow for the registration of venture exchanges, and 
for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend 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 ``Main Street Growth Act''.

SEC. 2. VENTURE EXCHANGES.

  (a) Securities Exchange Act of 1934.--Section 6 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at the end 
the following:
  ``(m) Venture Exchange.--
          ``(1) Registration.--
                  ``(A) In general.--A person may register themself 
                (and a national securities exchange may register a 
                listing tier of such exchange) as a national securities 
                exchange solely for the purposes of trading venture 
                securities by filing an application with the Commission 
                pursuant to subsection (a) and the rules and 
                regulations thereunder.
                  ``(B) Publication of notice.--The Commission shall, 
                upon the filing of an application under subparagraph 
                (A), publish notice of such filing and afford 
                interested persons an opportunity to submit written 
                data, views, and arguments concerning such application.
                  ``(C) Approval or denial.--
                          ``(i) In general.--Within 90 days of the date 
                        of publication of a notice under subparagraph 
                        (B) (or within such longer period as to which 
                        the applicant consents), the Commission shall--
                                  ``(I) by order grant such 
                                registration; or
                                  ``(II) institute a denial proceeding 
                                under clause (ii) to determine whether 
                                registration should be denied.
                          ``(ii) Denial proceeding.--A proceeding under 
                        clause (i)(II) shall include notice of the 
                        grounds for denial under consideration and 
                        opportunity for hearing and shall be concluded 
                        within 180 days of the date of the publication 
                        of a notice under subparagraph (B). At the 
                        conclusion of such proceeding the Commission, 
                        by order, shall grant or deny such 
                        registration. The Commission may extend the 
                        time for conclusion of such proceeding for up 
                        to 90 days if the Commission finds good cause 
                        for such extension and publishes the 
                        Commission's reasons for so finding or for such 
                        longer period as to which the applicant 
                        consents.
                          ``(iii) Criteria for approval or denial.--The 
                        Commission shall grant a registration under 
                        this paragraph if the Commission finds that the 
                        requirements of this title and the rules and 
                        regulations thereunder with respect to the 
                        applicant are satisfied. The Commission shall 
                        deny such registration if it does not make such 
                        finding.
          ``(2) Powers and restrictions.--In addition to the powers and 
        restrictions otherwise applicable to a national securities 
        exchange, a venture exchange--
                  ``(A) may only constitute, maintain, or provide a 
                market place or facilities for bringing together 
                purchasers and sellers of venture securities;
                  ``(B) may not extend unlisted trading privileges to 
                any venture security;
                  ``(C) may only, if the venture exchange is a listing 
                tier of another national securities exchange, allow 
                trading in securities that are registered under section 
                12(b) on a national securities exchange other than a 
                venture exchange; and
                  ``(D) may, subject to the rule filing process under 
                section 19(b)--
                          ``(i) determine the increment to be used for 
                        quoting and trading venture securities on the 
                        exchange; and
                          ``(ii) choose to carry out periodic auctions 
                        for the sale of a venture security instead of 
                        providing continuous trading of the venture 
                        security.
          ``(3) Treatment of certain exempted securities.--A security 
        that is exempt from registration pursuant to section 3(b) of 
        the Securities Act of 1933 shall be exempt from section 12(a) 
        of this title to the extent such securities are traded on a 
        venture exchange, if the issuer of such security is in 
        compliance with--
                  ``(A) all disclosure obligations of such section 3(b) 
                and the regulations issued under such section; and
                  ``(B) ongoing disclosure obligations of the 
                applicable venture exchange that are similar to those 
                provided by an issuer under tier 2 of Regulation A (17 
                C.F.R. 230.251 et seq).
          ``(4) Venture securities traded on venture exchanges may not 
        trade on non-venture exchanges.--A venture security may not be 
        traded on a national securities exchange that is not a venture 
        exchange during any period in which the venture security is 
        being traded on a venture exchange.
          ``(5) Rule of construction.--Nothing in this subsection may 
        be construed as requiring transactions in venture securities to 
        be effected on a national securities exchange.
          ``(6) Commission authority to limit certain trading.--The 
        Commission may limit transactions in venture securities that 
        are not effected on a national securities exchange as 
        appropriate to promote efficiency, competition, capital 
        formation, and to protect investors.
          ``(7) Disclosures to investors.--The Commission shall issue 
        regulations to ensure that persons selling or purchasing 
        venture securities on a venture exchange are provided 
        disclosures sufficient to understand--
                  ``(A) the characteristics unique to venture 
                securities; and
                  ``(B) in the case of a venture exchange that is a 
                listing tier of another national securities exchange, 
                that the venture exchange is distinct from the other 
                national securities exchange.
          ``(8) Definitions.--For purposes of this subsection:
                  ``(A) Early-stage, growth company.--
                          ``(i) In general.--The term `early-stage, 
                        growth company' means an issuer--
                                  ``(I) that has not made any 
                                registered initial public offering of 
                                any securities of the issuer; and
                                  ``(II) with a public float of less 
                                than or equal to the value of public 
                                float required to qualify as a large 
                                accelerated filer under section 
                                240.12b-2 of title 17, Code of Federal 
                                Regulations.
                          ``(ii) Treatment when public float exceeds 
                        threshold.--An issuer shall not cease to be an 
                        early-stage, growth company by reason of the 
                        public float of such issuer exceeding the 
                        threshold specified in clause (i)(II) until the 
                        later of the following:
                                  ``(I) The end of the period of 24 
                                consecutive months during which the 
                                public float of the issuer exceeds 
                                $2,000,000,000 (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).
                                  ``(II) The end of the 1-year period 
                                following the end of the 24-month 
                                period described under subclause (I), 
                                if the issuer requests such 1-year 
                                extension from a venture exchange and 
                                the venture exchange elects to provide 
                                such extension.
                  ``(B) Public float.--With respect to an issuer, the 
                term `public float' means the aggregate worldwide 
                market value of the voting and non-voting common equity 
                of the issuer held by non-affiliates.
                  ``(C) Venture security.--
                          ``(i) In general.--The term `venture 
                        security' means--
                                  ``(I) securities of an early-stage, 
                                growth company that are exempt from 
                                registration pursuant to section 3(b) 
                                of the Securities Act of 1933;
                                  ``(II) securities of an emerging 
                                growth company; or
                                  ``(III) securities registered under 
                                section 12(b) and listed on a venture 
                                exchange (or, prior to listing on a 
                                venture exchange, listed on a national 
                                securities exchange) where--
                                          ``(aa) the issuer of such 
                                        securities has a public float 
                                        less than or equal to the value 
                                        of public float required to 
                                        qualify as a large accelerated 
                                        filer under section 240.12b-2 
                                        of title 17, Code of Federal 
                                        Regulations; or
                                          ``(bb) the average daily 
                                        trade volume is 75,000 shares 
                                        or less during a continuous 60-
                                        day period.
                          ``(ii) Treatment when public float exceeds 
                        threshold.--Securities shall not cease to be 
                        venture securities by reason of the public 
                        float of the issuer of such securities 
                        exceeding the threshold specified in clause 
                        (i)(III)(aa) until the later of the following:
                                  ``(I) The end of the period of 24 
                                consecutive months beginning on the 
                                date--
                                          ``(aa) the public float of 
                                        such issuer exceeds 
                                        $2,000,000,000; and
                                          ``(bb) the average daily 
                                        trade volume of such securities 
                                        is 100,000 shares or more 
                                        during a continuous 60-day 
                                        period.
                                  ``(II) The end of the 1-year period 
                                following the end of the 24-month 
                                period described under subclause (I), 
                                if the issuer of such securities 
                                requests such 1-year extension from a 
                                venture exchange and the venture 
                                exchange elects to provide such 
                                extension.''.
  (b) Securities Act of 1933.--Section 18 of the Securities Act of 1933 
(15 U.S.C. 77r) is amended--
          (1) by redesignating subsection (d) as subsection (e); and
          (2) by inserting after subsection (c) the following:
  ``(d) Treatment of Securities Listed on a Venture Exchange.--
Notwithstanding subsection (b), a security is not a covered security 
pursuant to subsection (b)(1)(A) if the security is only listed, or 
authorized for listing, on a venture exchange (as defined under section 
6(m) of the Securities Exchange Act of 1934).''.
  (c) Sense of Congress.--It is the sense of the Congress that the 
Securities and Exchange Commission should--
          (1) when necessary or appropriate in the public interest and 
        consistent with the protection of investors, make use of the 
        Commission's general exemptive authority under section 36 of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78mm) with 
        respect to the provisions added by this section; and
          (2) if the Commission determines appropriate, create an 
        Office of Venture Exchanges within the Commission's Division of 
        Trading and Markets.
  (d) Rule of Construction.--Nothing in this section or the amendments 
made by this section shall be construed to impair or limit the 
construction of the antifraud provisions of the securities laws (as 
defined in section 3(a) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a))) or the authority of the Securities and Exchange 
Commission under those provisions.
  (e) Effective Date for Tiers of Existing National Securities 
Exchanges.--In the case of a securities exchange that is registered as 
a national securities exchange under section 6 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78f) on the date of the enactment of 
this Act, any election for a listing tier of such exchange to be 
treated as a venture exchange under subsection (m) of such section 
shall not take effect before the date that is 180 days after such date 
of enactment.

                          Purpose and Summary

    On June 19, 2018, Representative Tom Emmer introduced H.R. 
5877, the ``Main Street Growth Act''. As modified by an 
amendment in the nature of a substitute, the Main Street Growth 
Act allows for the creation and registration of venture 
exchanges with the U.S. Securities and Exchange Commission 
(SEC). Under the bill, securities eligible to trade on a 
venture exchange are ``venture securities,'' which must be an 
exempted transaction under Section 3(b) of the Securities Act 
of 1933 from an ``early-stage, growth company,'' a security 
offered by an emerging growth company (EGC) as defined by the 
Jumpstart our Business Startups (JOBS) Act (P.L. 112-106), or a 
security whose issuer's public float is less than that which 
would qualify it as a large accelerated filer or whose 
securities have an Average Daily Trade Volume (ADTV) of less 
than 75,000 shares over a 60-day period. To concentrate and 
enhance liquidity, the legislation prohibits venture exchanges 
from extending Unlisted Trading Privileges (UTP) to any venture 
security, which ensures venture securities only are traded on 
the exchange on which it is listed. Venture exchanges also 
would be exempt from decimalization.

                  Background and Need for Legislation

    Currently, the trading environment for many small and 
midsize issuers is less liquid and fragmented as compared to 
the overall equity market. This market structure inhibits the 
secondary trading of such issuers, and it hinders the ability 
of other small and midsize companies from ever accessing the 
capital markets. The goal of H.R. 5877 is to help smaller 
issuers have greater access to investment and equity capital by 
creating venture exchanges that can help concentrate liquidity. 
As Edward Knight from NASDAQ noted in his May 23, 2018 
testimony before the Subcommittee on Capital Markets, 
Securities, and Investment, ``This liquidity dilemma stems from 
a long-term trend towards fragmentation, where liquidity has 
spread across an increasing number of trading venues. As 
recently as 15 years ago, more than 90% of liquidity was often 
concentrated in a single market with the small remainder spread 
over an additional eight to ten other exchanges and electronic 
communications networks. Today, liquidity is spread thinly 
across fifty or more venues.''
    Under H.R. 5877, the securities eligible to trade on 
venture exchanges qualify as ``venture securities.'' To qualify 
as a ``venture security,'' a security must either be an 
exempted transaction under Section 3(b) of the Securities Act 
of 1933 from an ``early-stage, growth company,'' a security 
offered by an EGC, or a security whose issuer's public float is 
less than that which would qualify it as a large accelerated 
filer or whose securities have an ADTV of less than 75,000 
shares over a 60 day period.
    The bill also expresses the sense of Congress that the SEC 
should use its general exemptive authority (15 U.S.Code 
Sec. 78mm) to respond to unforeseen circumstances and that the 
SEC should create an Office of Venture Exchanges, if 
appropriate. The Main Street Growth Act includes a rule of 
construction providing that the Act does not itself impair or 
limit the application of the antifraud provisions of the 
Federal securities laws or the SEC's authority under such 
antifraud provisions.
    A recent whitepaper by SEC staff discussed trading in the 
shares of small public companies. The whitepaper found that 
during 2013 U.S.-listed, U.S.-domiciled small cap stocks with 
market capitalizations below $1 billion were much less liquid 
than stocks with capitalizations between $1 billion and $5 
billion. Small cap stocks had larger quoted and effective 
spreads and traded much lower volumes than mid-cap stocks. 
According to the whitepaper, liquidity improved with market 
capitalization: for example, the smallest stocks with 
capitalizations below $100 million exhibited the least 
liquidity, whereas mid-cap stocks with capitalizations between 
$2 billion and $5 billion exhibited the greatest liquidity.
    Further, according to an April 20, 2018 SEC Staff report by 
the Office of Analytics and Research at the Division of Trading 
and Markets, approximately half of the more than 8,500 stocks 
in the National Market System have an Average Daily Volume of 
less than 100,000 shares, but collectively these stocks make up 
just under 2% of all daily share volume.
    This data suggests that a one-size-fits all regulatory 
model for equity market structure needs to be retailored, and 
in fulfilling its capital formation mandate, the SEC needs to 
account for the varying nature and size of companies to ensure 
all equities have the ability to be liquid. In a speech at the 
Equity Market Structure Symposium, SEC Chairman Jay Clayton 
remarked, ``Today, we have a single equity market structure for 
all companies, large and small, liquid and illiquid. I believe 
we should examine whether the current market structure meets 
the needs of all types of companies that have the potential to 
be public companies. For example, should a stock with only 
30,000 shares of daily volume be regulated and traded in the 
same way as a company with 9.6 million shares of daily 
volume?''
    Venture exchanges offer one possible solution to the 
liquidity and capital access challenges faced by smaller 
issuers. A venture exchange construct could expand access to 
capital for entrepreneurs, enable earlier public participation 
in the company's life-cycle, and attract post-issuance support 
to include research, sales and capital commitments by market 
makers. The legislation provides options to smaller companies 
to find a market that suits its needs and the needs of its 
investors. Further, the creation of a venture exchange, a 
company's decision to list on a venture exchange, or an 
investor's decision to invest in venture securities all are 
completely optional.

                                Hearings

    The Committee on Financial Services and the Subcommittee on 
Capital Markets, Securities, and Investment held hearings 
examining matters relating to H.R. 5877 on April 26, 2017, 
April 27, 2017, and May 23, 2018.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 7, 2018, and ordered H.R. 5877 to be reported favorably to 
the House as amended by a recorded vote of 56 yeas to 0 nays 
(recorded vote no. FC-181), a quorum being present. Before the 
motion to report was offered, the Committee adopted an 
amendment in the nature of a substitute offered by Mr. Emmer 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 was on a motion by Chairman Hensarling to 
report the bill favorably to the House as amended by a recorded 
vote of 56 yeas to 0 nays (recorded vote no. FC-181), a quorum 
being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      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. 5877 
will help to expand access to capital for entrepreneurs, enable 
earlier public participation in the company's life-cycle, and 
attract post-issuance support to include research, sales and 
capital commitments by market-makers by allowing for the 
creation and registration of venture exchanges.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    The Committee has not received an estimate of new budget 
authority contained in the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to Sec. 
402 of the Congressional Budget Act of 1974. In compliance with 
clause 3(c)(2) of rule XIII of the Rules of the House, the 
Committee opines that H.R. 5877 will not establish any new 
budget or entitlement authority or create any tax expenditures.

                 Congressional Budget Office Estimates

    The cost estimate prepared by the Director of the 
Congressional Budget Office pursuant to Sec. 402 of the 
Congressional Budget Act of 1974 was not submitted timely to 
the Committee.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires 1 
directed rulemaking within the meaning of such section. The 
Commission is directed to issue regulations to ensure that 
persons selling or purchasing venture securities on a venture 
exchange are provided disclosures sufficient to understand the 
characteristics unique to venture securities and in the case of 
a venture exchange that is a listing tier, that the venture 
exchange is distinct from the other national securities 
exchange.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 5877 as the ``Main Street Growth 
Act''.

Section 2. Venture exchanges

    This section allows for national securities exchanges to 
elect to be treated as a venture exchange. This section would 
define the securities eligible to trade on venture exchanges as 
``venture securities.'' To qualify as a ``venture security,'' a 
security must either be an exempted transaction under Section 
3(b) of the Securities Act of 1933 from an ``early-stage, 
growth company,'' a security offered by an emerging growth 
company as defined by the JOBS Act, or a security whose 
issuer's public float is less than that which would qualify it 
as a large accelerated filer or whose securities have an ADTV 
of less than 75,000 shares over a 60 day period.
    Venture exchanges would be prohibited from extending 
Unlisted Trading Privileges (UTP) to any venture security, 
which would prevent venture securities from trading on other 
exchanges other than the one that it is listed on in order to 
concentrate liquidity onto the venture exchange. In addition, 
venture exchanges would also be exempt from decimalization.

         Changes in Existing Law Made by the Bill, as Reported

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

         Changes in Existing Law Made by the Bill, as Reported

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

                    SECURITIES EXCHANGE ACT OF 1934


TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



                     national securities exchanges

  Sec. 6. (a) An exchange may be registered as a national 
securities exchange under the terms and conditions hereinafter 
provided in this section and in accordance with the provisions 
of section 19(a) of this title, by filing with the Commission 
an application for registration in such form as the Commission, 
by rule, may prescribe containing the rules of the exchange and 
such other information and documents as the Commission, by 
rule, may prescribe as necessary or appropriate in the public 
interest or for the protection of investors.
  (b) An exchange shall not be registered as a national 
securities exchange unless the Commission determines that--
          (1) Such exchange is so organized and has the 
        capacity to be able to carry out the purposes of this 
        title and to comply, and (subject to any rule or order 
        of the Commission pursuant to section 17(d) or 19(g)(2) 
        of this title) to enforce compliance by its members and 
        persons associated with its members, with the 
        provisions of this title, the rules and regulations 
        thereunder, and the rules of the exchange.
          (2) Subject to the provisions of subsection (c) of 
        this section, the rules of the exchange provide that 
        any registered broker or dealer or natural person 
        associated with a registered broker or dealer may 
        become a member of such exchange and any person may 
        become associated with a member thereof.
          (3) The rules of the exchange assure a fair 
        representation of its members in the selection of its 
        directors and administration of its affairs and provide 
        that one or more directors shall be representative of 
        issuers and investors and not be associated with a 
        member of the exchange, broker, or dealer.
          (4) The rules of the exchange provide for the 
        equitable allocation of reasonable dues, fees, and 
        other charges among its members and issuers and other 
        persons using its facilities.
          (5) The rules of the exchange are designed to prevent 
        fraudulent and manipulative acts and practices, to 
        promote just and equitable principles of trade, to 
        foster cooperation and coordination with persons 
        engaged in regulating, clearing, settling, processing 
        information with respect to, and facilitating 
        transactions in securities, to remove impediments to 
        and perfect the mechanism of a free and open market and 
        a national market system, and, in general, to protect 
        investors and the public interest; and are not designed 
        to permit unfair discrimination between customers, 
        issuers, brokers, or dealers, or to regulate by virtue 
        of any authority conferred by this title matters not 
        related to the purposes of this title or the 
        administration of the exchange.
          (6) The rules of the exchange provide that (subject 
        to any rule or order of the Commission pursuant to 
        section 17(d) or 19(g)(2) of this title) its members 
        and persons associated with its members shall be 
        appropriately disciplined for violation of the 
        provisions of this title, the rules or regulations 
        thereunder, or the rules of the exchange, by expulsion, 
        suspension, limitation of activities, functions, and 
        operations, fine, censure, being suspended or barred 
        from being associated with a member, or any other 
        fitting sanction.
          (7) The rules of the exchange are in accordance with 
        the provisions of subsection (d) of this section, and 
        in general, provide a fair procedure for the 
        disciplining of members and persons associated with 
        members, the denial of membership to any person seeking 
        membership therein, the barring of any person from 
        becoming associated with a member thereof, and the 
        prohibition or limitation by the exchange of any person 
        with respect to access to services offered by the 
        exchange or a member thereof.
          (8) The rules of the exchange do not impose any 
        burden on competition not necessary or appropriate in 
        furtherance of the purposes of this title.
          (9)(A) The rules of the exchange prohibit the listing 
        of any security issued in a limited partnership rollup 
        transaction (as such term is defined in paragraphs (4) 
        and (5) of section 14(h)), unless such transaction was 
        conducted in accordance with procedures designed to 
        protect the rights of limited partners, including--
                  (i) the right of dissenting limited partners 
                to one of the following:
                          (I) an appraisal and compensation;
                          (II) retention of a security under 
                        substantially the same terms and 
                        conditions as the original issue;
                          (III) approval of the limited 
                        partnership rollup transaction by not 
                        less than 75 percent of the outstanding 
                        securities of each of the participating 
                        limited partnerships;
                          (IV) the use of a committee of 
                        limited partners that is independent, 
                        as determined in accordance with rules 
                        prescribed by the exchange, of the 
                        general partner or sponsor, that has 
                        been approved by a majority of the 
                        outstanding units of each of the 
                        participating limited partnerships, and 
                        that has such authority as is necessary 
                        to protect the interest of limited 
                        partners, including the authority to 
                        hire independent advisors, to negotiate 
                        with the general partner or sponsor on 
                        behalf of the limited partners, and to 
                        make a recommendation to the limited 
                        partners with respect to the proposed 
                        transaction; or
                          (V) other comparable rights that are 
                        prescribed by rule by the exchange and 
                        that are designed to protect dissenting 
                        limited partners;
                  (ii) the right not to have their voting power 
                unfairly reduced or abridged;
                  (iii) the right not to bear an unfair portion 
                of the costs of a proposed limited partnership 
                rollup transaction that is rejected; and
                  (iv) restrictions on the conversion of 
                contingent interests or fees into non-
                contingent interests or fees and restrictions 
                on the receipt of a non-contingent equity 
                interest in exchange for fees for services 
                which have not yet been provided.
          (B) As used in this paragraph, the term ``dissenting 
        limited partner'' means a person who, on the date on 
        which soliciting material is mailed to investors, is a 
        holder of a beneficial interest in a limited 
        partnership that is the subject of a limited 
        partnership rollup transaction, and who casts a vote 
        against the transaction and complies with procedures 
        established by the exchange, except that for purposes 
        of an exchange or tender offer, such person shall file 
        an objection in writing under the rules of the exchange 
        during the period during which the offer is 
        outstanding.
          (10)(A) The rules of the exchange prohibit any member 
        that is not the beneficial owner of a security 
        registered under section 12 from granting a proxy to 
        vote the security in connection with a shareholder vote 
        described in subparagraph (B), unless the beneficial 
        owner of the security has instructed the member to vote 
        the proxy in accordance with the voting instructions of 
        the beneficial owner.
          (B) A shareholder vote described in this subparagraph 
        is a shareholder vote with respect to the election of a 
        member of the board of directors of an issuer, 
        executive compensation, or any other significant 
        matter, as determined by the Commission, by rule, and 
        does not include a vote with respect to the uncontested 
        election of a member of the board of directors of any 
        investment company registered under the Investment 
        Company Act of 1940 (15 U.S.C. 80b-1 et seq.).
          (C) Nothing in this paragraph shall be construed to 
        prohibit a national securities exchange from 
        prohibiting a member that is not the beneficial owner 
        of a security registered under section 12 from granting 
        a proxy to vote the security in connection with a 
        shareholder vote not described in subparagraph (A).
  (c)(1) A national securities exchange shall deny membership 
to (A) any person, other than a natural person, which is not a 
registered broker or dealer or (B) any natural person who is 
not, or is not associated with, a registered broker or dealer.
  (2) A national securities exchange may, and in cases in which 
the Commission, by order, directs as necessary or appropriate 
in the public interest or for the protection of investors 
shall, deny membership to any registered broker or dealer or 
natural person associated with a registered broker or dealer, 
and bar from becoming associated with a member any person, who 
is subject to a statutory disqualification. A national 
securities exchange shall file notice with the Commission not 
less than thirty days prior to admitting any person to 
membership or permitting any person to become associated with a 
member, if the exchange knew, or in the exercise of reasonable 
care should have known, that such person was subject to a 
statutory disqualification. The notice shall be in such form 
and contain such information as the Commission, by rule, may 
prescribe as necessary or appropriate in the public interest or 
for the protection of investors.
  (3)(A) A national securities exchange may deny membership to, 
or condition the membership of, a registered broker or dealer 
if (i) such broker or dealer does not meet such standards of 
financial responsibility or operational capability or such 
broker or dealer or any natural person associated with such 
broker or dealer does not meet such standards of training, 
experience, and competence as are prescribed by the rules of 
the exchange or (ii) such broker or dealer or person associated 
with such broker or dealer has engaged and there is a 
reasonable likelihood he may again engage in acts or practices 
inconsistent with just and equitable principles of trade. A 
national securities exchange may examine and verify the 
qualifications of an applicant to become a member and the 
natural persons associated with such an applicant in accordance 
with procedures established by the rules of the exchange.
  (B) A national securities exchange may bar a natural person 
from becoming a member or associated with a member, or 
condition the membership of a natural person or association of 
a natural person with a member, if such natural person (i) does 
not meet such standards of training, experience, and competence 
as are prescribed by the rules of the exchange or (ii) has 
engaged and there is a reasonable likelihood he may again 
engage in acts or practices inconsistent with just and 
equitable principles of trade. A national securities exchange 
may examine and verify the qualifications of an applicant to 
become a person associated with a member in accordance with 
procedures established by the rules of the exchange and require 
any person associated with a member, or any class of such 
persons, to be registered with the exchange in accordance with 
procedures so established.
  (C) A national securities exchange may bar any person from 
becoming associated with a member if such person does not agree 
(i) to supply the exchange with such information with respect 
to its relationship and dealings with the member as may be 
specified in the rules of the exchange and (ii) to permit the 
examination of its books and records to verify the accuracy of 
any information so supplied.
  (4) A national securities exchange may limit (A) the number 
of members of the exchange and (B) the number of members and 
designated representatives of members permitted to effect 
transactions on the floor of the exchange without the services 
of another person acting as broker: Provided, however, That no 
national securities exchange shall have the authority to 
decrease the number of memberships in such exchange, or the 
number of members and designated representatives of members 
permitted to effect transactions on the floor of such exchange 
without the services of another person acting as broker, below 
such number in effect on May 1, 1975, or the date such exchange 
was registered with the Commission, whichever is later: And 
provided further, That the Commission, in accordance with the 
provisions of section 19(c) of this title, may amend the rules 
of any national securities exchange to increase (but not to 
decrease) or to remove any limitation on the number of 
memberships in such exchange or the number of members or 
designated representatives of members permitted to effect 
transactions on the floor of the exchange without the services 
of another person acting as broker, if the Commission finds 
that such limitation imposes a burden on competition not 
necessary or appropriate in furtherance of the purposes of this 
title.
  (d)(1) In any proceeding by a national securities exchange to 
determine whether a member or person associated with a member 
should be disciplined (other than a summary proceeding pursuant 
to paragraph (3) of this subsection), the exchange shall bring 
specific charges, notify such member or person of, and give him 
an opportunity to defend against, such charges, and keep a 
record. A determination by the exchange to impose a 
disciplinary sanction shall be supported by a statement setting 
forth--
          (A) any act or practice in which such member or 
        person associated with a member has been found to have 
        engaged, or which such member or person has been found 
        to have omitted;
          (B) the specific provision of this title, the rules 
        or regulations thereunder, or the rules of the exchange 
        which any such act or practice, or omission to act, is 
        deemed to violate; and
          (C) the sanction imposed and the reasons therefor.
  (2) In any proceeding by a national securities exchange to 
determine whether a person shall be denied membership, barred 
from becoming associated with a member, or prohibited or 
limited with respect to access to services offered by the 
exchange or a member thereof (other than a summary proceeding 
pursuant to paragraph (3) of this subsection), the exchange 
shall notify such person of, and give him an opportunity to be 
heard upon, the specific grounds for denial, bar, or 
prohibition or limitation under consideration and keep a 
record. A determination by the exchange to deny membership, bar 
a person from becoming associated with a member, or prohibit or 
limit a person with respect to access to services offered by 
the exchange or a member thereof shall be supported by a 
statement setting forth the specific grounds on which the 
denial, bar, or prohibition or limitation is based.
  (3) A national securities exchange may summarily (A) suspend 
a member or person associated with a member who has been and is 
expelled or suspended from any self-regulatory organization or 
barred or suspended from being associated with a member of any 
self-regulatory organization, (B) suspend a member who is in 
such financial or operating difficulty that the exchange 
determines and so notifies the Commission that the member 
cannot be permitted to continue to do business as a member with 
safety to investors, creditors, other members, or the exchange, 
or (C) limit or prohibit any person with respect to access to 
services offered by the exchange if subparagraph (A) or (B) of 
this paragraph is applicable to such person or, in the case of 
a person who is not a member, if the exchange determines that 
such person does not meet the qualification requirements or 
other prerequisites for such access and such person cannot be 
permitted to continue to have such access with safety to 
investors, creditors, members, or the exchange. Any person 
aggrieved by any such summary action shall be promptly afforded 
an opportunity for a hearing by the exchange in accordance with 
the provisions of paragraph (1) or (2) of this subsection. The 
Commission, by order, may stay any such summary action on its 
own motion or upon application by any person aggrieved thereby, 
if the Commission determines summarily or after notice and 
opportunity for hearing (which hearing may consist solely of 
the submission of affidavits or presentation of oral arguments) 
that such stay is consistent with the public interest and the 
protection of investors.
  (e)(1) On and after the date of enactment of the Securities 
Acts Amendments of 1975, no national securities exchange may 
impose any schedule or fix rates of commissions, allowances, 
discounts, or other fees to be charged by its members: 
Provided, however, That until May 1, 1976, the preceding 
provisions of this paragraph shall not prohibit any such 
exchange from imposing or fixing any schedule of commissions, 
allowances, discounts, or other fees to be charged by its 
members for acting as broker on the floor of the exchange or as 
odd-lot dealer: And provided further, That the Commission, in 
accordance with the provisions of section 19(b) of this title 
as modified by the provisions of paragraph (3) of this 
subsection, may--
          (A) permit a national securities exchange, by rule, 
        to impose a reasonable schedule or fix reasonable rates 
        of commissions, allowances, discounts, or other fees to 
        be charged by its members for effecting transactions on 
        such exchange prior to November 1, 1976, if the 
        Commission finds that such schedule or fixed rates of 
        commissions, allowances, discounts, or other fees are 
        in the public interest; and
          (B) permit a national securities exchange, by rule, 
        to impose a schedule or fix rates of commissions, 
        allowances, discounts, or other fees to be charged by 
        its members for effecting transactions on such exchange 
        after November 1, 1976, if the Commission finds that 
        such schedule or fixed rates of commissions, 
        allowances, discounts, or other fees (i) are reasonable 
        in relation to the costs of providing the service for 
        which such fees are charged (and the Commission 
        publishes the standards employed in adjudging 
        reasonableness) and (ii) do not impose any burden on 
        competition not necessary or appropriate in furtherance 
        of the purposes of this title, taking into 
        consideration the competitive effects of permitting 
        such schedule or fixed rates weighed against the 
        competitive effects of other lawful actions which the 
        Commission is authorized to take under this title.
  (2) Notwithstanding the provisions of section 19(c) of this 
title, the Commission, by rule, may abrogate any exchange rule 
which imposes a schedule or fixes rates of commissions, 
allowances, discounts, or other fees, if the Commission 
determines that such schedule or fixed rates are no longer 
reasonable, in the public interest, or necessary to accomplish 
the purposes of this title.
  (3)(A) Before approving or disapproving any proposed rule 
change submitted by a national securities exchange which would 
impose a schedule or fix rates of commissions, allowances, 
discounts, or other fees to be charged by its members for 
effecting transactions on such exchange, the Commission shall 
afford interested persons (i) an opportunity for oral 
presentation of data, views, and arguments and (ii) with 
respect to any such rule concerning transactions effected after 
November 1, 1976, if the Commission determines there are 
disputed issues of material fact, to present such rebuttal 
submissions and to conduct (or have conducted under 
subparagraph (B) of this paragraph) such cross-examination as 
the Commission determines to be appropriate and required for 
full disclosure and proper resolution of such disputed issues 
of material fact.
  (B) The Commission shall prescribe rules and make rulings 
concerning any proceeding in accordance with subparagraph (A) 
of this paragraph designed to avoid unnecessary costs or delay. 
Such rules or rulings may (i) impose reasonable time limits on 
each interested person's oral presentations, and (ii) require 
any cross-examination to which a person may be entitled under 
subparagraph (A) of this paragraph to be conducted by the 
Commission on behalf of that person in such manner as the 
Commission determines to be appropriate and required for full 
disclosure and proper resolution of disputed issues of material 
fact.
  (C)(i) If any class of persons, the members of which are 
entitled to conduct (or have conducted) cross-examination under 
subparagraphs (A) and (B) of this paragraph and which have, in 
the view of the Commission, the same or similar interests in 
the proceeding, cannot agree upon a single representative of 
such interests for purposes of cross-examination, the 
Commission may make rules and rulings specifying the manner in 
which such interests shall be represented and such cross-
examination conducted.
  (ii) No member of any class of persons with respect to which 
the Commission has specified the manner in which its interests 
shall be represented pursuant to clause (i) of this 
subparagraph shall be denied, pursuant to such clause (i), the 
opportunity to conduct (or have conducted) cross-examination as 
to issues affecting his particular interests if he satisfies 
the Commission that he has made a reasonable and good faith 
effort to reach agreement upon group representation and there 
are substantial and relevant issues which would not be 
presented adequately by group representation.
  (D) A transcript shall be kept of any oral presentation and 
cross-examination.
  (E) In addition to the bases specified in subsection 25(a), a 
reviewing Court may set aside an order of the Commission under 
section 19(b) approving an exchange rule imposing a schedule or 
fixing rates of commissions, allowances, discounts, or other 
fees, if the Court finds--
          (1) a Commission determination under subparagraph (A) 
        of this paragraph that an interested person is not 
        entitled to conduct cross-examination or make rebuttal 
        submissions, or
          (2) a Commission rule or ruling under subparagraph 
        (B) of this paragraph limiting the petitioner's cross-
        examination or rebuttal submissions,
                                has precluded full disclosure 
                                and proper resolution of 
                                disputed issues of material 
                                fact which were necessary for 
                                fair determination by the 
                                Commission.
  (f) The Commission, by rule or order, as it deems necessary 
or appropriate in the public interest and for the protection of 
investors, to maintain fair and orderly markets, or to assure 
equal regulation, may require--
          (1) any person not a member or a designated 
        representative of a member of a national securities 
        exchange effecting transactions on such exchange 
        without the services of another person acting as a 
        broker, or
          (2) any broker or dealer not a member of a national 
        securities exchange effecting transactions on such 
        exchange on a regular basis,
to comply with such rules of such exchange as the Commission 
may specify.
  (g) Notice Registration of Security Futures Product 
Exchanges.--
          (1) Registration required.--An exchange that lists or 
        trades security futures products may register as a 
        national securities exchange solely for the purposes of 
        trading security futures products if--
                  (A) the exchange is a board of trade, as that 
                term is defined by the Commodity Exchange Act 
                (7 U.S.C. 1a(2)), that has been designated a 
                contract market by the Commodity Futures 
                Trading Commission and such designation is not 
                suspended by order of the Commodity Futures 
                Trading Commission; and
                  (B) such exchange does not serve as a market 
                place for transactions in securities other 
                than--
                          (i) security futures products; or
                          (ii) futures on exempted securities 
                        or groups or indexes of securities or 
                        options thereon that have been 
                        authorized under section 2(a)(1)(C) of 
                        the Commodity Exchange Act.
          (2) Registration by notice filing.--
                  (A) Form and content.--An exchange required 
                to register only because such exchange lists or 
                trades security futures products may register 
                for purposes of this section by filing with the 
                Commission a written notice in such form as the 
                Commission, by rule, may prescribe containing 
                the rules of the exchange and such other 
                information and documents concerning such 
                exchange, comparable to the information and 
                documents required for national securities 
                exchanges under section 6(a), as the 
                Commission, by rule, may prescribe as necessary 
                or appropriate in the public interest or for 
                the protection of investors. If such exchange 
                has filed documents with the Commodity Futures 
                Trading Commission, to the extent that such 
                documents contain information satisfying the 
                Commission's informational requirements, copies 
                of such documents may be filed with the 
                Commission in lieu of the required written 
                notice.
                  (B) Immediate effectiveness.--Such 
                registration shall be effective 
                contemporaneously with the submission of 
                notice, in written or electronic form, to the 
                Commission, except that such registration shall 
                not be effective if such registration would be 
                subject to suspension or revocation.
                  (C) Termination.--Such registration shall be 
                terminated immediately if any of the conditions 
                for registration set forth in this subsection 
                are no longer satisfied.
          (3) Public availability.--The Commission shall 
        promptly publish in the Federal Register an 
        acknowledgment of receipt of all notices the Commission 
        receives under this subsection and shall make all such 
        notices available to the public.
          (4) Exemption of exchanges from specified 
        provisions.--
                  (A) Transaction exemptions.--An exchange that 
                is registered under paragraph (1) of this 
                subsection shall be exempt from, and shall not 
                be required to enforce compliance by its 
                members with, and its members shall not, solely 
                with respect to those transactions effected on 
                such exchange in security futures products, be 
                required to comply with, the following 
                provisions of this title and the rules 
                thereunder:
                          (i) Subsections (b)(2), (b)(3), 
                        (b)(4), (b)(7), (b)(9), (c), (d), and 
                        (e) of this section.
                          (ii) Section 8.
                          (iii) Section 11.
                          (iv) Subsections (d), (f), and (k) of 
                        section 17.
                          (v) Subsections (a), (f), and (h) of 
                        section 19.
                  (B) Rule change exemptions.--An exchange that 
                registered under paragraph (1) of this 
                subsection shall also be exempt from submitting 
                proposed rule changes pursuant to section 19(b) 
                of this title, except that--
                          (i) such exchange shall file proposed 
                        rule changes related to higher margin 
                        levels, fraud or manipulation, 
                        recordkeeping, reporting, listing 
                        standards, or decimal pricing for 
                        security futures products, sales 
                        practices for security futures products 
                        for persons who effect transactions in 
                        security futures products, or rules 
                        effectuating such exchange's obligation 
                        to enforce the securities laws pursuant 
                        to section 19(b)(7);
                          (ii) such exchange shall file 
                        pursuant to sections 19(b)(1) and 
                        19(b)(2) proposed rule changes related 
                        to margin, except for changes resulting 
                        in higher margin levels; and
                          (iii) such exchange shall file 
                        pursuant to section 19(b)(1) proposed 
                        rule changes that have been abrogated 
                        by the Commission pursuant to section 
                        19(b)(7)(C).
          (5) Trading in security futures products.--
                  (A) In general.--Subject to subparagraph (B), 
                it shall be unlawful for any person to execute 
                or trade a security futures product until the 
                later of--
                          (i) 1 year after the date of the 
                        enactment of the Commodity Futures 
                        Modernization Act of 2000; or
                          (ii) such date that a futures 
                        association registered under section 17 
                        of the Commodity Exchange Act has met 
                        the requirements set forth in section 
                        15A(k)(2) of this title.
                  (B) Principal-to-principal transactions.--
                Notwithstanding subparagraph (A), a person may 
                execute or trade a security futures product 
                transaction if--
                          (i) the transaction is entered into--
                                  (I) on a principal-to-
                                principal basis between parties 
                                trading for their own accounts 
                                or as described in section 
                                1a(18)(B)(ii) of the Commodity 
                                Exchange Act; and
                                  (II) only between eligible 
                                contract participants (as 
                                defined in subparagraphs (A), 
                                (B)(ii), and (C) of such 
                                section 1a(18)) at the time at 
                                which the persons enter into 
                                the agreement, contract, or 
                                transaction; and
                          (ii) the transaction is entered into 
                        on or after the later of--
                                  (I) 8 months after the date 
                                of the enactment of the 
                                Commodity Futures Modernization 
                                Act of 2000; or
                                  (II) such date that a futures 
                                association registered under 
                                section 17 of the Commodity 
                                Exchange Act has met the 
                                requirements set forth in 
                                section 15A(k)(2) of this 
                                title.
  (h) Trading in Security Futures Products.--
          (1) Trading on exchange or association required.--It 
        shall be unlawful for any person to effect transactions 
        in security futures products that are not listed on a 
        national securities exchange or a national securities 
        association registered pursuant to section 15A(a).
          (2) Listing standards required.--Except as otherwise 
        provided in paragraph (7), a national securities 
        exchange or a national securities association 
        registered pursuant to section 15A(a) may trade only 
        security futures products that (A) conform with listing 
        standards that such exchange or association files with 
        the Commission under section 19(b) and (B) meet the 
        criteria specified in section 2(a)(1)(D)(i) of the 
        Commodity Exchange Act.
          (3) Requirements for listing standards and conditions 
        for trading.--Such listing standards shall--
                  (A) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to 
                paragraph (4), require that any security 
                underlying the security future, including each 
                component security of a narrow-based security 
                index, be registered pursuant to section 12 of 
                this title;
                  (B) require that if the security futures 
                product is not cash settled, the market on 
                which the security futures product is traded 
                have arrangements in place with a registered 
                clearing agency for the payment and delivery of 
                the securities underlying the security futures 
                product;
                  (C) be no less restrictive than comparable 
                listing standards for options traded on a 
                national securities exchange or national 
                securities association registered pursuant to 
                section 15A(a) of this title;
                  (D) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to 
                paragraph (4), require that the security future 
                be based upon common stock and such other 
                equity securities as the Commission and the 
                Commodity Futures Trading Commission jointly 
                determine appropriate;
                  (E) require that the security futures product 
                is cleared by a clearing agency that has in 
                place provisions for linked and coordinated 
                clearing with other clearing agencies that 
                clear security futures products, which permits 
                the security futures product to be purchased on 
                one market and offset on another market that 
                trades such product;
                  (F) require that only a broker or dealer 
                subject to suitability rules comparable to 
                those of a national securities association 
                registered pursuant to section 15A(a) effect 
                transactions in the security futures product;
                  (G) require that the security futures product 
                be subject to the prohibition against dual 
                trading in section 4j of the Commodity Exchange 
                Act (7 U.S.C. 6j) and the rules and regulations 
                thereunder or the provisions of section 11(a) 
                of this title and the rules and regulations 
                thereunder, except to the extent otherwise 
                permitted under this title and the rules and 
                regulations thereunder;
                  (H) require that trading in the security 
                futures product not be readily susceptible to 
                manipulation of the price of such security 
                futures product, nor to causing or being used 
                in the manipulation of the price of any 
                underlying security, option on such security, 
                or option on a group or index including such 
                securities;
                  (I) require that procedures be in place for 
                coordinated surveillance among the market on 
                which the security futures product is traded, 
                any market on which any security underlying the 
                security futures product is traded, and other 
                markets on which any related security is traded 
                to detect manipulation and insider trading;
                  (J) require that the market on which the 
                security futures product is traded has in place 
                audit trails necessary or appropriate to 
                facilitate the coordinated surveillance 
                required in subparagraph (I);
                  (K) require that the market on which the 
                security futures product is traded has in place 
                procedures to coordinate trading halts between 
                such market and any market on which any 
                security underlying the security futures 
                product is traded and other markets on which 
                any related security is traded; and
                  (L) require that the margin requirements for 
                a security futures product comply with the 
                regulations prescribed pursuant to section 
                7(c)(2)(B), except that nothing in this 
                subparagraph shall be construed to prevent a 
                national securities exchange or national 
                securities association from requiring higher 
                margin levels for a security futures product 
                when it deems such action to be necessary or 
                appropriate.
          (4) Authority to modify certain listing standard 
        requirements.--
                  (A) Authority to modify.--The Commission and 
                the Commodity Futures Trading Commission, by 
                rule, regulation, or order, may jointly modify 
                the listing standard requirements specified in 
                subparagraph (A) or (D) of paragraph (3) to the 
                extent such modification fosters the 
                development of fair and orderly markets in 
                security futures products, is necessary or 
                appropriate in the public interest, and is 
                consistent with the protection of investors.
                  (B) Authority to grant exemptions.--The 
                Commission and the Commodity Futures Trading 
                Commission, by order, may jointly exempt any 
                person from compliance with the listing 
                standard requirement specified in subparagraph 
                (E) of paragraph (3) to the extent such 
                exemption fosters the development of fair and 
                orderly markets in security futures products, 
                is necessary or appropriate in the public 
                interest, and is consistent with the protection 
                of investors.
          (5) Requirements for other persons trading security 
        future products.--It shall be unlawful for any person 
        (other than a national securities exchange or a 
        national securities association registered pursuant to 
        section 15A(a)) to constitute, maintain, or provide a 
        marketplace or facilities for bringing together 
        purchasers and sellers of security future products or 
        to otherwise perform with respect to security future 
        products the functions commonly performed by a stock 
        exchange as that term is generally understood, unless a 
        national securities association registered pursuant to 
        section 15A(a) or a national securities exchange of 
        which such person is a member--
                  (A) has in place procedures for coordinated 
                surveillance among such person, the market 
                trading the securities underlying the security 
                future products, and other markets trading 
                related securities to detect manipulation and 
                insider trading;
                  (B) has rules to require audit trails 
                necessary or appropriate to facilitate the 
                coordinated surveillance required in 
                subparagraph (A); and
                  (C) has rules to require such person to 
                coordinate trading halts with markets trading 
                the securities underlying the security future 
                products and other markets trading related 
                securities.
          (6) Deferral of options on security futures 
        trading.--No person shall offer to enter into, enter 
        into, or confirm the execution of any put, call, 
        straddle, option, or privilege on a security future, 
        except that, after 3 years after the date of the 
        enactment of this subsection, the Commission and the 
        Commodity Futures Trading Commission may by order 
        jointly determine to permit trading of puts, calls, 
        straddles, options, or privileges on any security 
        future authorized to be traded under the provisions of 
        this Act and the Commodity Exchange Act.
          (7) Deferral of linked and coordinated clearing.--
                  (A) Notwithstanding paragraph (2), until the 
                compliance date, a national securities exchange 
                or national securities association registered 
                pursuant to section 15A(a) may trade a security 
                futures product that does not--
                          (i) conform with any listing standard 
                        promulgated to meet the requirement 
                        specified in subparagraph (E) of 
                        paragraph (3); or
                          (ii) meet the criterion specified in 
                        section 2(a)(1)(D)(i)(IV) of the 
                        Commodity Exchange Act.
                  (B) The Commission and the Commodity Futures 
                Trading Commission shall jointly publish in the 
                Federal Register a notice of the compliance 
                date no later than 165 days before the 
                compliance date.
                  (C) For purposes of this paragraph, the term 
                ``compliance date'' means the later of--
                          (i) 180 days after the end of the 
                        first full calendar month period in 
                        which the average aggregate comparable 
                        share volume for all security futures 
                        products based on single equity 
                        securities traded on all national 
                        securities exchanges, any national 
                        securities associations registered 
                        pursuant to section 15A(a), and all 
                        other persons equals or exceeds 10 
                        percent of the average aggregate 
                        comparable share volume of options on 
                        single equity securities traded on all 
                        national securities exchanges and any 
                        national securities associations 
                        registered pursuant to section 15A(a); 
                        or
                          (ii) 2 years after the date on which 
                        trading in any security futures product 
                        commences under this title.
  (i) Consistent with this title, each national securities 
exchange registered pursuant to subsection (a) of this section 
shall issue such rules as are necessary to avoid duplicative or 
conflicting rules applicable to any broker or dealer registered 
with the Commission pursuant to section 15(b) (except paragraph 
(11) thereof), that is also registered with the Commodity 
Futures Trading Commission pursuant to section 4f(a) of the 
Commodity Exchange Act (except paragraph (2) thereof), with 
respect to the application of--
          (1) rules of such national securities exchange of the 
        type specified in section 15(c)(3)(B) involving 
        security futures products; and
          (2) similar rules of national securities exchanges 
        registered pursuant to section 6(g) and national 
        securities associations registered pursuant to section 
        15A(k) involving security futures products.
  (j) Procedures and Rules for Security Future Products.--A 
national securities exchange registered pursuant to subsection 
(a) shall implement the procedures specified in section 
6(h)(5)(A) of this title and adopt the rules specified in 
subparagraphs (B) and (C) of section 6(h)(5) of this title not 
later than 8 months after the date of receipt of a request from 
an alternative trading system for such implementation and 
rules.
  (k)(1) To the extent necessary or appropriate in the public 
interest, to promote fair competition, and consistent with the 
promotion of market efficiency, innovation, and expansion of 
investment opportunities, the protection of investors, and the 
maintenance of fair and orderly markets, the Commission and the 
Commodity Futures Trading Commission shall jointly issue such 
rules, regulations, or orders as are necessary and appropriate 
to permit the offer and sale of a security futures product 
traded on or subject to the rules of a foreign board of trade 
to United States persons.
  (2) The rules, regulations, or orders adopted under paragraph 
(1) shall take into account, as appropriate, the nature and 
size of the markets that the securities underlying the security 
futures product reflect.
  (l) Security-based Swaps.--It shall be unlawful for any 
person to effect a transaction in a security-based swap with or 
for a person that is not an eligible contract participant, 
unless such transaction is effected on a national securities 
exchange registered pursuant to subsection (b).
  (m) Venture Exchange.--
          (1) Registration.--
                  (A) In general.--A person may register 
                themself (and a national securities exchange 
                may register a listing tier of such exchange) 
                as a national securities exchange solely for 
                the purposes of trading venture securities by 
                filing an application with the Commission 
                pursuant to subsection (a) and the rules and 
                regulations thereunder.
                  (B) Publication of notice.--The Commission 
                shall, upon the filing of an application under 
                subparagraph (A), publish notice of such filing 
                and afford interested persons an opportunity to 
                submit written data, views, and arguments 
                concerning such application.
                  (C) Approval or denial.--
                          (i) In general.--Within 90 days of 
                        the date of publication of a notice 
                        under subparagraph (B) (or within such 
                        longer period as to which the applicant 
                        consents), the Commission shall--
                                  (I) by order grant such 
                                registration; or
                                  (II) institute a denial 
                                proceeding under clause (ii) to 
                                determine whether registration 
                                should be denied.
                          (ii) Denial proceeding.--A proceeding 
                        under clause (i)(II) shall include 
                        notice of the grounds for denial under 
                        consideration and opportunity for 
                        hearing and shall be concluded within 
                        180 days of the date of the publication 
                        of a notice under subparagraph (B). At 
                        the conclusion of such proceeding the 
                        Commission, by order, shall grant or 
                        deny such registration. The Commission 
                        may extend the time for conclusion of 
                        such proceeding for up to 90 days if 
                        the Commission finds good cause for 
                        such extension and publishes the 
                        Commission's reasons for so finding or 
                        for such longer period as to which the 
                        applicant consents.
                          (iii) Criteria for approval or 
                        denial.--The Commission shall grant a 
                        registration under this paragraph if 
                        the Commission finds that the 
                        requirements of this title and the 
                        rules and regulations thereunder with 
                        respect to the applicant are satisfied. 
                        The Commission shall deny such 
                        registration if it does not make such 
                        finding.
          (2) Powers and restrictions.--In addition to the 
        powers and restrictions otherwise applicable to a 
        national securities exchange, a venture exchange--
                  (A) may only constitute, maintain, or provide 
                a market place or facilities for bringing 
                together purchasers and sellers of venture 
                securities;
                  (B) may not extend unlisted trading 
                privileges to any venture security;
                  (C) may only, if the venture exchange is a 
                listing tier of another national securities 
                exchange, allow trading in securities that are 
                registered under section 12(b) on a national 
                securities exchange other than a venture 
                exchange; and
                  (D) may, subject to the rule filing process 
                under section 19(b)--
                          (i) determine the increment to be 
                        used for quoting and trading venture 
                        securities on the exchange; and
                          (ii) choose to carry out periodic 
                        auctions for the sale of a venture 
                        security instead of providing 
                        continuous trading of the venture 
                        security.
          (3) Treatment of certain exempted securities.--A 
        security that is exempt from registration pursuant to 
        section 3(b) of the Securities Act of 1933 shall be 
        exempt from section 12(a) of this title to the extent 
        such securities are traded on a venture exchange, if 
        the issuer of such security is in compliance with--
                  (A) all disclosure obligations of such 
                section 3(b) and the regulations issued under 
                such section; and
                  (B) ongoing disclosure obligations of the 
                applicable venture exchange that are similar to 
                those provided by an issuer under tier 2 of 
                Regulation A (17 C.F.R. 230.251 et seq).
          (4) Venture securities traded on venture exchanges 
        may not trade on non-venture exchanges.--A venture 
        security may not be traded on a national securities 
        exchange that is not a venture exchange during any 
        period in which the venture security is being traded on 
        a venture exchange.
          (5) Rule of construction.--Nothing in this subsection 
        may be construed as requiring transactions in venture 
        securities to be effected on a national securities 
        exchange.
          (6) Commission authority to limit certain trading.--
        The Commission may limit transactions in venture 
        securities that are not effected on a national 
        securities exchange as appropriate to promote 
        efficiency, competition, capital formation, and to 
        protect investors.
          (7) Disclosures to investors.--The Commission shall 
        issue regulations to ensure that persons selling or 
        purchasing venture securities on a venture exchange are 
        provided disclosures sufficient to understand--
                  (A) the characteristics unique to venture 
                securities; and
                  (B) in the case of a venture exchange that is 
                a listing tier of another national securities 
                exchange, that the venture exchange is distinct 
                from the other national securities exchange.
          (8) Definitions.--For purposes of this subsection:
                  (A) Early-stage, growth company.--
                          (i) In general.--The term ``early-
                        stage, growth company'' means an 
                        issuer--
                                  (I) that has not made any 
                                registered initial public 
                                offering of any securities of 
                                the issuer; and
                                  (II) with a public float of 
                                less than or equal to the value 
                                of public float required to 
                                qualify as a large accelerated 
                                filer under section 240.12b-2 
                                of title 17, Code of Federal 
                                Regulations.
                          (ii) Treatment when public float 
                        exceeds threshold.--An issuer shall not 
                        cease to be an early-stage, growth 
                        company by reason of the public float 
                        of such issuer exceeding the threshold 
                        specified in clause (i)(II) until the 
                        later of the following:
                                  (I) The end of the period of 
                                24 consecutive months during 
                                which the public float of the 
                                issuer exceeds $2,000,000,000 
                                (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).
                                  (II) The end of the 1-year 
                                period following the end of the 
                                24-month period described under 
                                subclause (I), if the issuer 
                                requests such 1-year extension 
                                from a venture exchange and the 
                                venture exchange elects to 
                                provide such extension.
                  (B) Public float.--With respect to an issuer, 
                the term ``public float'' means the aggregate 
                worldwide market value of the voting and non-
                voting common equity of the issuer held by non-
                affiliates.
                  (C) Venture security.--
                          (i) In general.--The term ``venture 
                        security'' means--
                                  (I) securities of an early-
                                stage, growth company that are 
                                exempt from registration 
                                pursuant to section 3(b) of the 
                                Securities Act of 1933;
                                  (II) securities of an 
                                emerging growth company; or
                                  (III) securities registered 
                                under section 12(b) and listed 
                                on a venture exchange (or, 
                                prior to listing on a venture 
                                exchange, listed on a national 
                                securities exchange) where--
                                          (aa) the issuer of 
                                        such securities has a 
                                        public float less than 
                                        or equal to the value 
                                        of public float 
                                        required to qualify as 
                                        a large accelerated 
                                        filer under section 
                                        240.12b-2 of title 17, 
                                        Code of Federal 
                                        Regulations; or
                                          (bb) the average 
                                        daily trade volume is 
                                        75,000 shares or less 
                                        during a continuous 60-
                                        day period.
                          (ii) Treatment when public float 
                        exceeds threshold.--Securities shall 
                        not cease to be venture securities by 
                        reason of the public float of the 
                        issuer of such securities exceeding the 
                        threshold specified in clause 
                        (i)(III)(aa) until the later of the 
                        following:
                                  (I) The end of the period of 
                                24 consecutive months beginning 
                                on the date--
                                          (aa) the public float 
                                        of such issuer exceeds 
                                        $2,000,000,000; and
                                          (bb) the average 
                                        daily trade volume of 
                                        such securities is 
                                        100,000 shares or more 
                                        during a continuous 60-
                                        day period.
                                  (II) The end of the 1-year 
                                period following the end of the 
                                24-month period described under 
                                subclause (I), if the issuer of 
                                such securities requests such 
                                1-year extension from a venture 
                                exchange and the venture 
                                exchange elects to provide such 
                                extension.

           *       *       *       *       *       *       *

                              ----------                              


                         SECURITIES ACT OF 1933

TITLE I--

           *       *       *       *       *       *       *


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

  (a) Scope of Exemption.--Except as otherwise provided in this 
section, no law, rule, regulation, or order, or other 
administrative action of any State or any political subdivision 
thereof--
          (1) requiring, or with respect to, registration or 
        qualification of securities, or registration or 
        qualification of securities transactions, shall 
        directly or indirectly apply to a security that--
                  (A) is a covered security; or
                  (B) will be a covered security upon 
                completion of the transaction;
          (2) shall directly or indirectly prohibit, limit, or 
        impose any conditions upon the use of--
                  (A) with respect to a covered security 
                described in subsection (b), any offering 
                document that is prepared by or on behalf of 
                the issuer; or
                  (B) any proxy statement, report to 
                shareholders, or other disclosure document 
                relating to a covered security or the issuer 
                thereof that is required to be and is filed 
                with the Commission or any national securities 
                organization registered under section 15A of 
                the Securities Exchange Act of 1934, except 
                that this subparagraph does not apply to the 
                laws, rules, regulations, or orders, or other 
                administrative actions of the State of 
                incorporation of the issuer; or
          (3) shall directly or indirectly prohibit, limit, or 
        impose conditions, based on the merits of such offering 
        or issuer, upon the offer or sale of any security 
        described in paragraph (1).
  (b) Covered Securities.--For purposes of this section, the 
following are covered securities:
          (1) Exclusive federal registration of nationally 
        traded securities.--A security is a covered security if 
        such security is--
                  (A) a security designated as qualified for 
                trading in the national market system pursuant 
                to section 11A(a)(2) of the Securities Exchange 
                Act of 1934 (15 U.S.C. 78k-1(a)(2)) that is 
                listed, or authorized for listing, on a 
                national securities exchange (or tier or 
                segment thereof) basis of a petition) are 
                substantially similar to the listing standards 
                applicable to securities described in 
                subparagraph (A); or
                  (B) a security of the same issuer that is 
                equal in seniority or that is a senior security 
                to a security described in subparagraph (A).
          (2) Exclusive federal registration of investment 
        companies.--A security is a covered security if such 
        security is a security issued by an investment company 
        that is registered, or that has filed a registration 
        statement, under the Investment Company Act of 1940.
          (3) Sales to qualified purchasers.--A security is a 
        covered security with respect to the offer or sale of 
        the security to qualified purchasers, as defined by the 
        Commission by rule. In prescribing such rule, the 
        Commission may define the term ``qualified purchaser'' 
        differently with respect to different categories of 
        securities, consistent with the public interest and the 
        protection of investors.
           (4) Exemption in connection with certain exempt 
        offerings.--A security is a covered security with 
        respect to a transaction that is exempt from 
        registration under this title pursuant to--
                  (A) paragraph (1) or (3) of section 4, and 
                the issuer of such security files reports with 
                the Commission pursuant to section 13 or 15(d) 
                of the Securities Exchange Act of 1934;
                  (B) section 4(4);
                  (C) section 4(6);
                  (D) a rule or regulation adopted pursuant to 
                section 3(b)(2) and such security is--
                          (i) offered or sold on a national 
                        securities exchange; or
                          (ii) offered or sold to a qualified 
                        purchaser, as defined by the Commission 
                        pursuant to paragraph (3) with respect 
                        to that purchase or sale;
                  (E) section 3(a), other than the offer or 
                sale of a security that is exempt from such 
                registration pursuant to paragraph (4), (10), 
                or (11) of such section, except that a 
                municipal security that is exempt from such 
                registration pursuant to paragraph (2) of such 
                section is not a covered security with respect 
                to the offer or sale of such security in the 
                State in which the issuer of such security is 
                located;
                  (F) Commission rules or regulations issued 
                under section 4(2), except that this 
                subparagraph does not prohibit a State from 
                imposing notice filing requirements that are 
                substantially similar to those required by rule 
                or regulation under section 4(2) that are in 
                effect on September 1, 1996; or
                  (G) section 4(a)(7).
  (c) Preservation of Authority.--
          (1) Fraud authority.--Consistent with this section, 
        the securities commission (or any agency or office 
        performing like functions) of any State shall retain 
        jurisdiction under the laws of such State to 
        investigate and bring enforcement actions, in 
        connection with securities or securities transactions
                  (A) with respect to--
                          (i) fraud or deceit; or
                          (ii) unlawful conduct by a broker or 
                        dealer; and
                  (B) in connection to a transaction described 
                under section 4(6), with respect to--
                          (i) fraud or deceit; or
                          (ii) unlawful conduct by a broker, 
                        dealer, funding portal, or issuer.
          (2) Preservation of filing requirements.--
                  (A) Notice filings permitted.--Nothing in 
                this 
                section prohibits the securities commission (or 
                any agency or office performing like functions) 
                of any State from requiring the filing of any 
                document filed with the Commission pursuant to 
                this title, together with annual or periodic 
                reports of the value of securities sold or 
                offered to be sold to persons located in the 
                State (if such sales data is not included in 
                documents filed with the Commission), solely 
                for notice purposes and the assessment of any 
                fee, together with a consent to service of 
                process and any required fee.
                  (B) Preservation of fees.--
                          (i) In general.--Until otherwise 
                        provided by law, rule, regulation, or 
                        order, or other administrative action 
                        of any State or any political 
                        subdivision thereof, adopted after the 
                        date of enactment of the National 
                        Securities Markets Improvement Act of 
                        1996, filing or registration fees with 
                        respect to securities or securities 
                        transactions shall continue to be 
                        collected in amounts determined 
                        pursuant to State law as in effect on 
                        the day before such date.
                          (ii) Schedule.--The fees required by 
                        this subparagraph shall be paid, and 
                        all necessary supporting data on sales 
                        or offers for sales required under 
                        subparagraph (A), shall be reported on 
                        the same 
                        schedule as would have been applicable 
                        had the issuer not relied on the 
                        exemption provided in subsection (a).
                  (C) Availability of preemption contingent on 
                payment of fees.--
                          (i) In general.--During the period 
                        beginning on the date of enactment of 
                        the National Securities 
                        Markets Improvement Act of 1996 and 
                        ending 3 years after that date of 
                        enactment, the securities commission 
                        (or any agency or office performing 
                        like functions) of any State may 
                        require the registration of securities 
                        issued by any issuer who refuses to pay 
                        the fees required by subparagraph (B).
                          (ii) Delays.--For purposes of this 
                        subparagraph, delays in payment of fees 
                        or underpayments of fees that are 
                        promptly remedied shall not constitute 
                        a refusal to pay fees.
                  (D) Fees not permitted on listed 
                securities.--Notwithstanding subparagraphs (A), 
                (B), and (C), no filing or fee may be required 
                with respect to any security that is a covered 
                security pursuant to subsection (b)(1), or will 
                be such a covered security upon completion of 
                the transaction, or is a security of the same 
                issuer that is equal in seniority or that is a 
                senior security to a security that is a covered 
                security pursuant to subsection (b)(1).
                  (F) Fees not permitted on crowdfunded 
                securities.--Notwithstanding subparagraphs (A), 
                (B), and (C), no filing or fee may be required 
                with respect to any security that is a covered 
                security pursuant to subsection (b)(4)(B), or 
                will be such a covered security upon completion 
                of the transaction, except for the securities 
                commission (or any agency or office performing 
                like functions) of the State of the principal 
                place of business of the issuer, or any State 
                in which purchasers of 50 percent or greater of 
                the aggregate amount of the issue are 
                residents, provided that for purposes of this 
                subparagraph, the term ``State'' includes the 
                District of Columbia and the territories of the 
                United States.
          (3) Enforcement of requirements.--Nothing in this 
        section shall prohibit the securities commission (or 
        any agency or office performing like functions) of any 
        State from suspending the offer or sale of securities 
        within such State as a result of the failure to submit 
        any filing or fee required under law and permitted 
        under this section.
  (d) Treatment of Securities Listed on a Venture Exchange.--
Notwithstanding subsection (b), a security is not a covered 
security pursuant to subsection (b)(1)(A) if the security is 
only listed, or authorized for listing, on a venture exchange 
(as defined under section 6(m) of the Securities Exchange Act 
of 1934).
  [(d)] (e) Definitions.--For purposes of this section, the 
following definitions shall apply:
          (1) Offering document.--The term ``offering 
        document''--
                  (A) has the meaning given the term 
                ``prospectus'' in section 2(a)(10), but without 
                regard to the provisions of subparagraphs (a) 
                and (b) of that section; and
                  (B) includes a communication that is not 
                deemed to offer a security pursuant to a rule 
                of the Commission.
          (2) Prepared by or on behalf of the issuer.--Not 
        later than 6 months after the date of enactment of the 
        National Securities Markets Improvement Act of 1996, 
        the Commission shall, by rule, define the term 
        ``prepared by or on behalf of the issuer'' for purposes 
        of this section.
          (3) State.--The term ``State'' has the same meaning 
        as in section 3 of the Securities Exchange Act of 1934.
          (4) Senior security.--The term ``senior security'' 
        means any bond, debenture, note, or similar obligation 
        or instrument constituting a security and evidencing 
        indebtedness, and any stock of a class having priority 
        over any other class as to distribution of assets or 
        payment of dividends.

           *       *       *       *       *       *       *


                                  [all]