[House Report 115-888]
[From the U.S. Government Publishing Office]


115th Congress     }                                {         Report
                        HOUSE OF REPRESENTATIVES
 2d Session        }                                {         115-888

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



 
               PUBLIC COMPANY REGISTRATION THRESHOLD ACT

                                _______
                                

 August 3, 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

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 5051]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 5051) to amend the Securities Exchange Act of 
1934 to revise the shareholder threshold for registration under 
such Act, and for other purposes, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          Purpose and Summary

    On February 18, 2018, Representative Sean Duffy introduced 
H.R. 5051, the ``Public Company Registration Threshold Act''. 
H.R. 5051 amends section 12(g) of the Securities Exchange Act 
of 1934 (Exchange Act) to raise the threshold for companies to 
register as a public reporting company with the U.S. Securities 
and Exchange Commission (SEC) from 500 to 2,000 non-accredited 
investors and indexes the current $10 million threshold for 
inflation. Additionally, the bill raises the threshold under 
section 12(g) for issuers to terminate a class of securities 
from 300 to 1,200 investors. Lastly, the bill amends section 
15(d) of the Exchange Act to raise the exemption for filing 
supplemental and periodic information with the SEC from 300 to 
1,200 investors.

                  Background and Need for Legislation

    The goal of H.R. 5051 is to allow certain issuers to raise 
capital from new shareholders and grow without worrying about 
inadvertently triggering the federal securities laws, register 
with the SEC, act like a public company and comply with the 
corresponding SEC reporting regime before they may be ready.
    Section 12(g) of the Exchange Act establishes the 
thresholds at which an issuer is required to register a class 
of securities with the SEC. Once a company registers securities 
under 12(g) they become subject to the periodic and current 
reporting requirements under Section 13(a) of the Exchange Act.
    On May 3, 2016, the SEC implemented amendments to Title V 
and Title VI of the Jumpstart Our Business Startups Act (JOBS 
Act) (P.L. 112-106) and Title LXXXV of the Fixing America's 
Surface Transportation Act (FAST Act) (P.L. 114-94). These 
amendments raised the threshold for registration and 
termination of registration for a class of equity securities 
under Section 12(g). Specifically, the JOBS Act amendments 
require an issuer to register a class of equity securities with 
the SEC if the issuer has more than $10 million in total assets 
held by either 2,000 persons or 500 persons who are not 
accredited investors. Amendments also were adopted in regards 
to banks and bank holding companies as well as savings and loan 
holding companies, with such issuers only having to register if 
they had more than $10 million in total assets held by 2,000 
persons regardless of accredited investor status.
    The JOBS Act further amended the threshold under which 
issuers can terminate a class of securities under section 12(g) 
or suspend reporting under Section 15(d)(1). For banks and bank 
holding companies, the issuer can terminate or suspend a class 
of securities if they are held by fewer than 1,200 persons. But 
for issuers that are not banks, bank holding companies or 
savings and loan holding companies--i.e., the bulk of Main 
Street issuers--the threshold for termination remained at 300.
    The purpose of the JOBS Act amendments was to help enable 
private companies to expand their ability to raise investment 
capital and to reduce the corresponding regulatory burdens. By 
increasing the asset and persons threshold, private companies 
are able attract larger capital investments from a diverse 
range of investors without having to register under the 
Exchange Act or engage in an initial public offering (IPO).
    However, while a laudable goal, the implementation of these 
provisions has actually created problems for many companies 
looking to extend their securities offerings to a greater 
number of investors, particularly through crowdfunding. As a 
result of the 500 person non-accredited investor exemption, 
companies are limited in the number of people to whom they can 
offer securities and must monitor these offerings closely. This 
is not only problematic for companies that may want to raise 
capital, but also for established companies that raised money 
based on wide ownership in their communities. Now those 
companies would trigger the 12(g) registration requirements 
that are expensive and can ultimately drive community 
businesses out of existence. It could also expose companies 
that are unaware of this limitation to SEC enforcement inquires 
and actions.
    The current thresholds can be particularly difficult to 
manage for companies that operate in capital-intensive 
industries, like rural telecommunications and broadband 
infrastructure. In such industries, the $10 million limit is 
not difficult to exceed, requiring companies who want to stay 
private to spend significant capital on avoiding the risk of 
triggering registration requirements--including on monitoring, 
consulting, and legal services, as well as efforts to buy back 
stock to manage the number of shareholders. For many of these 
small companies, this capital would be better spent on capital 
expenditures, as well as investments in jobs and growth.
    With entrepreneurship at a generational low, it makes sense 
to extend the relief already afforded to banks, bank holding 
companies and savings and loan holding companies to Main Street 
issuers who are not financial institutions. Ultimately, by 
reducing burdens to accessing capital, more capital will flow 
from investors to smaller companies, grow our capital markets 
and provide entrepreneurs with the financial resources to 
transform an idea into a business that may eventually register 
securities with the SEC, file an IPO, become a public company 
and provide new investment opportunities for U.S. investors.

                                Hearings

    The Committee on Financial Services held a hearing 
examining matters relating to H.R. 5051 on March 22, 2017, 
April 26, 2017, and April 27, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 21, 2018, and ordered H.R. 5051 to be reported favorably 
to the House without amendment by a recorded vote of 34 yeas to 
26 nays (recorded vote no. FC-172), a quorum being present.

                            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 without amendment. The 
motion was agreed to by a recorded vote of 34 yeas to 26 nays 
(Record vote no. FC-172), a quorum being present.





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                      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. 5051 
will reduce the regulatory burden on new and emerging companies 
by providing for an increase in the on-accredited investor cap 
from 500 to 2,000 investors and indexing the $10 million asset-
level so that they can focus on growing and raising capital 
without worrying about quickly running into the asset-level 
threshold and shareholder cap.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate


                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 9, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5051, the Public 
Company Registration Threshold Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                Keith Hall.
                                                          Director.
    Enclosure.

H.R. 5051--Public Company Registration Threshold Act

    Under current law, certain securities issuers with more 
than $10 million in assets whose equity securities are held 
either by 2,000 or more accredited investors or by 500 people 
who are not accredited investors must register with and 
periodically report to the Securities and Exchange Commission 
(SEC). If the number of investors falls below 300, the issuer 
is exempt from certain reporting requirements and could 
terminate its registration. H.R. 5051 would direct the SEC to 
change the registration threshold for all securities to 2,000 
people, adjust the asset size requirement at five-year 
intervals to account for inflation, and raise the exemption and 
termination thresholds for all equity securities to 1,200 
investors.
    Using information from the SEC on the costs of similar 
activities, CBO estimates that implementing H.R. 5051 would 
cost less than $500,000 for the agency to amend its rules. 
However, the SEC is authorized to collect fees sufficient to 
offset its annual appropriation; therefore, CBO estimates that 
the net effect on discretionary spending would be negligible, 
assuming appropriation actions consistent with that authority.
    Enacting H.R. 5051 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting H.R. 5051 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    H.R. 5051 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Stephen Rabent. 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                       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 no 
directed rule makings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short Title

    This section cites H.R. 5051 as the ``Public Company 
Registration Threshold Act''.

Section 2. Shareholder threshold for registration

    This section amends sections 12(g) of the Exchange Act to 
increase the non-accredited investors threshold from 500 to 
2,000 investors and to index the $10 million assets level with 
inflation. This section also amends section 15(d)(1) of the 
Exchange Act to increase the threshold for filling supplemental 
and periodic information with the SEC from 300 to 1,200 
investors.

         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

           *       *       *       *       *       *       *



                registration requirements for securities

  Sec. 12. (a) It shall be unlawful for any member, broker, or 
dealer to effect any transaction in any security (other than an 
exempted security) on a national securities exchange unless a 
registration is effective as to such security for such exchange 
in accordance with the provisions of this title and the rules 
and regulations thereunder. The provisions of this subsection 
shall not apply in respect of a security futures product traded 
on a national securities exchange.
  (b) A security may be registered on a national securities 
exchange by the issuer filing an application with the exchange 
(and filing with the Commission such duplicate originals 
thereof as the Commission may require), which application shall 
contain--
          (1) Such information, in such detail, as to the 
        issuer and any person directly or indirectly 
        controlling or controlled by, or under direct or 
        indirect common control with, the issuer, and any 
        guarantor of the security as to principal or interest 
        or both, as the Commission may by rules and regulations 
        require, as necessary or appropriate in the public 
        interest or for the protection of investors, in respect 
        of the following:
                  (A) the organization, financial structures, 
                and nature of the business;
                  (B) the terms, position, rights, and 
                privileges of the different classes of 
                securities outstanding;
                  (C) the terms on which their securities are 
                to be, and during the preceding three years 
                have been, offered to the public or otherwise;
                  (D) the directors, officers, and 
                underwriters, and each security holder of 
                record holding more than 10 per centum of any 
                class of any equity security of the issuer 
                (other than an exempted security), their 
                remuneration and their interests in the 
                securities of, and their material contracts 
                with, the issuer and any person directly or 
                indirectly controlling or controlled by, or 
                under direct or indirect common control with, 
                the issuer;
                  (E) remuneration to others than directors and 
                officers exceeding $20,000 per annum;
                  (F) bonus and profit-sharing arrangements;
                  (G) management and service contracts;
                  (H) options existing or to be created in 
                respect of their securities;
                  (I) material contracts, not made in the 
                ordinary course of business, which are to be 
                executed in whole or in part at or after the 
                filing of the application or which were made 
                not more than two years before such filing, and 
                every material patent or contract for a 
                material patent right shall be deemed a 
                material contract;
                  (J) balance sheets for not more than the 
                three preceding fiscal years, certified if 
                required by the rules and regulations of the 
                Commission by a registered public accounting 
                firm;
                  (K) profit and loss statements for not more 
                than the three preceding fiscal years, 
                certified if required by the rules and 
                regulations of the Commission by a registered 
                public accounting firm; and
                  (L) any further financial statements which 
                the Commission may deem necessary or 
                appropriate for the protection of investors.
          (2) Such copies of articles of incorporation, bylaws, 
        trust indentures, or corresponding documents by 
        whatever name known, underwriting arrangements, and 
        other similar documents of, and voting trust agreements 
        with respect to, the issuer and any person directly or 
        indirectly controlling or controlled by, or under 
        direct or indirect common control with, the issuer as 
        the Commission may require as necessary or appropriate 
        for the proper protection of investors and to insure 
        fair dealing in the security.
          (3) Such copies of material contracts, referred to in 
        paragraph (1)(I) above, as the Commission may require 
        as necessary or appropriate for the proper protection 
        of investors and to insure fair dealing in the 
        security.
  (c) If in the judgment of the Commission any information 
required under subsection (b) of this section is inapplicable 
to any specified class or classes of issuers, the Commission 
shall require in lieu thereof the submission of such other 
information of comparable character as it may deem applicable 
to such class of issuers.
  (d) If the exchange authorities certify to the Commission 
that the security has been approved by the exchange for listing 
and registration, the registration shall become effective 
thirty days after the receipt of such certification by the 
Commission or within such shorter period of time as the 
Commission may determine. A security registered with a national 
securities exchange may be withdrawn or stricken from listing 
and registration in accordance with the rules of the exchange 
and, upon such terms as the Commission may deem necessary to 
impose for the protection of investors, upon application by the 
issuer or the exchange to the Commission; whereupon the issuer 
shall be relieved from further compliance with the provisions 
of this section and section 13 of this title and any rules or 
regulations under such sections as to the securities so 
withdrawn or stricken. An unissued security may be registered 
only in accordance with such rules and regulations as the 
Commission may prescribe as necessary or appropriate in the 
public interest or for the protection of investors.
  (e) Notwithstanding the foregoing provisions of this section, 
the Commission may by such rules and regulations as it deems 
necessary or appropriate in the public interest or for the 
protection of investors permit securities listed on any 
exchange at the time the registration of such exchange as a 
national securities exchange becomes effective, to be 
registered for a period ending not later than July 1, 1935, 
without complying with the provisions of this section.
  (f)(1)(A) Notwithstanding the preceding subsections of this 
section, any national securities exchange, in accordance with 
the requirements of this subsection and the rules hereunder, 
may extend unlisted trading privileges to--
          (i) any security that is listed and registered on a 
        national securities exchange, subject to subparagraph 
        (B); and
          (ii) any security that is otherwise registered 
        pursuant to this section, or that would be required to 
        be so registered except for the exemption from 
        registration provided in subparagraph (B) or (G) of 
        subsection (g)(2), subject to subparagraph (E) of this 
        paragraph.
  (B) A national securities exchange may not extend unlisted 
trading privileges to a security described in subparagraph 
(A)(i) during such interval, if any, after the commencement of 
an initial public offering of such security, as is or may be 
required pursuant to subparagraph (C).
  (C) Not later than 180 days after the date of enactment of 
the Unlisted Trading Privileges Act of 1994, the Commission 
shall prescribe, by rule or regulation, the duration of the 
interval referred to in subparagraph (B), if any, as the 
Commission determines to be necessary or appropriate for the 
maintenance of fair and orderly markets, the protection of 
investors and the public interest, or otherwise in furtherance 
of the purposes of this title. Until the earlier of the 
effective date of such rule or regulation or 240 days after 
such date of enactment, such interval shall begin at the 
opening of trading on the day on which such security commences 
trading on the national securities exchange with which such 
security is registered and end at the conclusion of the next 
day of trading.
  (D) The Commission may prescribe, by rule or regulation such 
additional procedures or requirements for extending unlisted 
trading privileges to any security as the Commission deems 
necessary or appropriate for the maintenance of fair and 
orderly markets, the protection of investors and the public 
interest, or otherwise in furtherance of the purposes of this 
title.
  (E) No extension of unlisted trading privileges to securities 
described in subparagraph (A)(ii) may occur except pursuant to 
a rule, regulation, or order of the Commission approving such 
extension or extensions. In promulgating such rule or 
regulation or in issuing such order, the Commission--
          (i) shall find that such extension or extensions of 
        unlisted trading privileges is consistent with the 
        maintenance of fair and orderly markets, the protection 
        of investors and the public interest, and otherwise in 
        furtherance of the purposes of this title;
          (ii) shall take account of the public trading 
        activity in such securities, the character of such 
        trading, the impact of such extension on the existing 
        markets for such securities, and the desirability of 
        removing impediments to and the progress that has been 
        made toward the development of a national market 
        system; and
          (iii) shall not permit a national securities exchange 
        to extend unlisted trading privileges to such 
        securities if any rule of such national securities 
        exchange would unreasonably impair the ability of a 
        dealer to solicit or effect transactions in such 
        securities for its own account, or would unreasonably 
        restrict competition among dealers in such securities 
        or between such dealers acting in the capacity of 
        market makers who are specialists and such dealers who 
        are not specialists.
  (F) An exchange may continue to extend unlisted trading 
privileges in accordance with this paragraph only if the 
exchange and the subject security continue to satisfy the 
requirements for eligibility under this paragraph, including 
any rules and regulations issued by the Commission pursuant to 
this paragraph, except that unlisted trading privileges may 
continue with regard to securities which had been admitted on 
such exchange prior to July 1, 1964, notwithstanding the 
failure to satisfy such requirements. If unlisted trading 
privileges in a security are discontinued pursuant to this 
subparagraph, the exchange shall cease trading in that 
security, unless the exchange and the subject security 
thereafter satisfy the requirements of this paragraph and the 
rules issued hereunder.
  (G) For purposes of this paragraph--
          (i) a security is the subject of an initial public 
        offering if--
                  (I) the offering of the subject security is 
                registered under the Securities Act of 1933; 
                and
                  (II) the issuer of the security, immediately 
                prior to filing the registration statement with 
                respect to the offering, was not subject to the 
                reporting requirements of section 13 or 15(d) 
                of this title; and
          (ii) an initial public offering of such security 
        commences at the opening of trading on the day on which 
        such security commences trading on the national 
        securities exchange with which such security is 
        registered.
  (2)(A) At any time within 60 days of commencement of trading 
on an exchange of a security pursuant to unlisted trading 
privileges, the Commission may summarily suspend such unlisted 
trading privileges on the exchange. Such suspension shall not 
be reviewable under section 25 of this title and shall not be 
deemed to be a final agency action for purposes of section 704 
of title 5, United States Code. Upon such suspension--
          (i) the exchange shall cease trading in the security 
        by the close of business on the date of such 
        suspension, or at such time as the Commission may 
        prescribe by rule or order for the maintenance of fair 
        and orderly markets, the protection of investors and 
        the public interest, or otherwise in furtherance of the 
        purposes of this title; and
          (ii) if the exchange seeks to extend unlisted trading 
        privileges to the security, the exchange shall file an 
        application to reinstate its ability to do so with the 
        Commission pursuant to such procedures as the 
        Commission may prescribe by rule or order for the 
        maintenance of fair and orderly markets, the protection 
        of investors and the public interest, or otherwise in 
        furtherance of the purposes of this title.
  (B) A suspension under subparagraph (A) shall remain in 
effect until the Commission, by order, grants approval of an 
application to reinstate, as described in subparagraph (A)(ii).
  (C) A suspension under subparagraph (A) shall not affect the 
validity or force of an extension of unlisted trading 
privileges in effect prior to such suspension.
  (D) The Commission shall not approve an application by a 
national securities exchange to reinstate its ability to extend 
unlisted trading privileges to a security unless the Commission 
finds, after notice and opportunity for hearing, that the 
extension of unlisted trading privileges pursuant to such 
application is consistent with the maintenance of fair and 
orderly markets, the protection of investors and the public 
interest, and otherwise in furtherance of the purposes of this 
title. If the application is made to reinstate unlisted trading 
privileges to a security described in paragraph (1)(A)(ii), the 
Commission--
          (i) shall take account of the public trading activity 
        in such security, the character of such trading, the 
        impact of such extension on the existing markets for 
        such a security, and the desirability of removing 
        impediments to and the progress that has been made 
        toward the development of a national market system; and
          (ii) shall not grant any such application if any rule 
        of the national securities exchange making application 
        under this subsection would unreasonably impair the 
        ability of a dealer to solicit or effect transactions 
        in such security for its own account, or would 
        unreasonably restrict competition among dealers in such 
        security or between such dealers acting in the capacity 
        of marketmakers who are specialists and such dealers 
        who are not specialists.
  (3) Notwithstanding paragraph (2), the Commission shall by 
rules and regulations suspend unlisted trading privileges in 
whole or in part for any or all classes of securities for a 
period not exceeding twelve months, if it deems such suspension 
necessary or appropriate in the public interest or for the 
protection of investors or to prevent evasion of the purposes 
of this title.
  (4) On the application of the issuer of any security for 
which unlisted trading privileges on any exchange have been 
continued or extended pursuant to this subsection, or of any 
broker or dealer who makes or creates a market for such 
security, or of any other person having a bona fide interest in 
the question of termination or suspension of such unlisted 
trading privileges, or on its own motion, the Commission shall 
by order terminate, or suspend for a period not exceeding 
twelve months, such unlisted trading privileges for such 
security if the Commission finds, after appropriate notice and 
opportunity for hearing, that such termination or suspension is 
necessary or appropriate in the public interest or for the 
protection of investors.
  (5) In any proceeding under this subsection in which 
appropriate notice and opportunity for hearing are required, 
notice of not less than ten days to the applicant in such 
proceeding, to the issuer of the security involved, to the 
exchange which is seeking to continue or extend or has 
continued or extended unlisted trading privileges for such 
security, and to the exchange, if any, on which such security 
is listed and registered, shall be deemed adequate notice, and 
any broker or dealer who makes or creates a market for such 
security, and any other person having a bona fide interest in 
such proceeding, shall upon application be entitled to be 
heard.
  (6) Any security for which unlisted trading privileges are 
continued or extended pursuant to this subsection shall be 
deemed to be registered on a national securities exchange 
within the meaning of this title. The powers and duties of the 
Commission under this title shall be applicable to the rules of 
an exchange in respect to any such security. The Commission 
may, by such rules and regulations as it deems necessary or 
appropriate in the public interest or for the protection of 
investors, either unconditionally or upon specified terms and 
conditions, or for stated periods, exempt such securities from 
the operation of any provision of section 13, 14, or 16 of this 
title.
  (g)(1) Every issuer which is engaged in interstate commerce, 
or in a business affecting interstate commerce, or whose 
securities are traded by use of the mails or any means or 
instrumentality of interstate commerce [shall--]
          [(A) within 120 days after the last day of its first 
        fiscal year ended on which the issuer has total assets 
        exceeding $10,000,000 and a class of equity security 
        (other than an exempted security) held of record by 
        either--
          [(i) 2,000 persons, or
          [(ii) 500 persons who are not accredited investors 
        (as such term is defined by the Commission), and
          [(B) in the case of an issuer that is a bank, a 
        savings and loan holding company (as defined in section 
        10 of the Home Owners' Loan Act), or a bank holding 
        company, as such term is defined in section 2 of the 
        Bank Holding Company Act of 1956 (12 U.S.C. 1841), not 
        later than 120 days after the last day of its first 
        fiscal year ended after the effective date of this 
        subsection, on which the issuer has total assets 
        exceeding $10,000,000 and a class of equity security 
        (other than an exempted security) held of record by 
        2,000 or more persons,
 register such security] shall, not later than 120 days after 
the last day of its first fiscal year ended after the effective 
date of this subsection on which the issuer has total assets 
exceeding $10,000,000 (or such greater amount of assets as the 
Commission may establish by rule) and a class of equity 
security (other than an exempted security) held of record by 
2,000 or more persons (or such greater number of persons as the 
Commission may establish by rule), register such security  by 
filing with the Commission a registration statement (and such 
copies thereof as the Commission may require) with respect to 
such security containing such information and documents as the 
Commission may specify comparable to that which is required in 
an application to register a security pursuant to subsection 
(b) of this section. Each such registration statement shall 
become effective sixty days after filing with the Commission or 
within such shorter period as the Commission may direct. Until 
such registration statement becomes effective it shall not be 
deemed filed for the purposes of section 18 of this title. Any 
issuer may register any class of equity security not required 
to be registered by filing a registration statement pursuant to 
the provisions of this paragraph. The Commission is authorized 
to extend the date upon which any issuer or class of issuers is 
required to register a security pursuant to the provisions of 
this paragraph. The dollar figure in this paragraph shall be 
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, rounded 
to the nearest $100,000.
  (2) The provisions of this subsection shall not apply in 
respect of--
          (A) any security listed and registered on a national 
        securities exchange.
          (B) any security issued by an investment company 
        registered pursuant to section 8 of the Investment 
        Company Act of 1940.
          (C) any security, other than permanent stock, 
        guaranty stock, permanent reserve stock, or any similar 
        certificate evidencing nonwithdrawable capital, issued 
        by a savings and loan association, building and loan 
        association, cooperative bank, homestead association, 
        or similar institution, which is supervised and 
        examined by State or Federal authority having 
        supervision over any such institution.
          (D) any security of an issuer organized and operated 
        exclusively for religious, educational, benevolent, 
        fraternal, charitable, or reformatory purposes and not 
        for pecuniary profit, and no part of the net earnings 
        of which inures to the benefit of any private 
        shareholder or individual; or any security of a fund 
        that is excluded from the definition of an investment 
        company under section 3(c)(10)(B) of the Investment 
        Company Act of 1940.
          (E) any security of an issuer which is a 
        ``cooperative association'' as defined in the 
        Agricultural Marketing Act, approved June 15, 1929, as 
        amended, or a federation of such cooperative 
        associations, if such federation possesses no greater 
        powers or purposes than cooperative associations so 
        defined.
          (F) any security issued by a mutual or cooperative 
        organization which supplies a commodity or service 
        primarily for the benefit of its members and operates 
        not for pecuniary profit, but only if the security is 
        part of a class issuable only to persons who purchase 
        commodities or services from the issuer, the security 
        is transferable only to a successor in interest or 
        occupancy of premises serviced or to be served by the 
        issuer, and no dividends are payable to the holder of 
        the security.
          (G) any security issued by an insurance company if 
        all of the following conditions are met:
                  (i) Such insurance company is required to and 
                does file an annual statement with the 
                Commissioner of Insurance (or other officer or 
                agency performing a similar function) of its 
                domiciliary State, and such annual statement 
                conforms to that prescribed by the National 
                Association of Insurance Commissioners or in 
                the determination of such State commissioner, 
                officer or agency substantially conforms to 
                that so prescribed.
                  (ii) Such insurance company is subject to 
                regulation by its domiciliary State of proxies, 
                consents, or authorizations in respect of 
                securities issued by such company and such 
                regulation conforms to that prescribed by the 
                National Association of Insurance 
                Commissioners.
                  (iii) After July 1, 1966, the purchase and 
                sales of securities issued by such insurance 
                company by beneficial owners, directors, or 
                officers of such company are subject to 
                regulation (including reporting) by its 
                domiciliary State substantially in the manner 
                provided in section 16 of this title.
          (H) any interest or participation in any collective 
        trust funds maintained by a bank or in a separate 
        account maintained by an insurance company which 
        interest or participation is issued in connection with 
        (i) a stock-bonus, pension, or profit-sharing plan 
        which meets the requirements for qualification under 
        section 401 of the Internal Revenue Code of 1954, (ii) 
        an annuity plan which meets the requirements for 
        deduction of the employer's contribution under section 
        404(a)(2) of such Code, or (iii) a church plan, 
        company, or account that is excluded from the 
        definition of an investment company under section 
        3(c)(14) of the Investment Company Act of 1940.
  (3) The Commission may by rules or regulations or, on its own 
motion, after notice and opportunity for hearing, by order, 
exempt from this subsection any security of a foreign issuer, 
including any certificate of deposit for such a security, if 
the Commission finds that such exemption is in the public 
interest and is consistent with the protection of investors.
  (4) Registration of any class of security pursuant to this 
subsection shall be terminated ninety days, or such shorter 
period as the Commission may determine, after the issuer files 
a certification with the Commission that the number of holders 
of record of such class of security is reduced to less than 
[300 persons, or, in the case of a bank, a savings and loan 
holding company (as defined in section 10 of the Home Owners' 
Loan Act), or a bank holding company, as such term is defined 
in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841), 1,200 persons persons] 1,200 persons. The Commission 
shall after notice and opportunity for hearing deny termination 
of registration if it finds that the certification is untrue. 
Termination of registration shall be deferred pending final 
determination on the question of denial.
  (5) For the purposes of this subsection the term ``class'' 
shall include all securities of an issuer which are of 
substantially similar character and the holders of which enjoy 
substantially similar rights and privileges. The Commission may 
for the purpose of this subsection define by rules and 
regulations the terms ``total assets'' and ``held of record'' 
as it deems necessary or appropriate in the public interest or 
for the protection of investors in order to prevent 
circumvention of the provisions of this subsection. For 
purposes of this subsection, a security futures product shall 
not be considered a class of equity security of the issuer of 
the securities underlying the security futures product. For 
purposes of determining whether an issuer is required to 
register a security with the Commission pursuant to paragraph 
(1), the definition of ``held of record'' shall not include 
securities held by persons who received the securities pursuant 
to an employee compensation plan in transactions exempted from 
the registration requirements of section 5 of the Securities 
Act of 1933.
          (6) Exclusion for persons holding certain 
        securities.--The Commission shall, by rule, exempt, 
        conditionally or unconditionally, securities acquired 
        pursuant to an offering made under section 4(6) of the 
        Securities Act of 1933 from the provisions of this 
        subsection.
  (h) The Commission may by rules and regulations, or upon 
application of an interested person, by order, after notice and 
opportunity for hearing, exempt in whole or in part any issuer 
or class of issuers from the provisions of subsection (g) of 
this section or from section 13, 14, or 15(d) or may exempt 
from section 16 any officer, director, or beneficial owner of 
securities of any issuer, any security of which is required to 
be registered pursuant to subsection (g) hereof, upon such 
terms and conditions and for such period as it deems necessary 
or appropriate, if the Commission finds, by reason of the 
number of public investors, amount of trading interest in the 
securities, the nature and extent of the activities of the 
issuer, income or assets of the issuer, or otherwise, that such 
action is not inconsistent with the public interest or the 
protection of investors. The Commission may, for the purposes 
of any of the above-mentioned sections or subsections of this 
title, classify issuers and prescribe requirements appropriate 
for each such class.
  (i) In respect of any securities issued by banks and savings 
associations the deposits of which are insured in accordance 
with the Federal Deposit Insurance Act, the powers, functions, 
and duties vested in the Commission to administer and enforce 
sections 10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of 
this Act, and sections 302, 303, 304, 306, 401(b), 404, 406, 
and 407 of the Sarbanes-Oxley Act of 2002, (1) with respect to 
national banks and Federal savings associations, the accounts 
of which are insured by the Federal Deposit Insurance 
Corporation are vested in the Comptroller of the Currency, (2) 
with respect to all other member banks of the Federal Reserve 
System are vested in the Board of Governors of the Federal 
Reserve System, and (3) with respect to all other insured banks 
and State savings associations, the accounts of which are 
insured by the Federal Deposit Insurance Corporation, are 
vested in the Federal Deposit Insurance Corporation. The 
Comptroller of the Currency, the Board of Governors of the 
Federal Reserve System, and the Federal Deposit Insurance 
Corporation shall have the power to make such rules and 
regulations as may be necessary for the execution of the 
functions vested in them as provided in this subsection. In 
carrying out their responsibilities under this subsection, the 
agencies named in the first sentence of this subsection shall 
issue substantially similar regulations to regulations and 
rules issued by the Commission under sections 10A(m), 12, 13, 
14(a), 14(c), 14(d), 14(f) and 16 of this Act, and sections 
302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-
Oxley Act of 2002, unless they find that implementation of 
substantially similar regulations with respect to insured banks 
and insured institutions are not necessary or appropriate in 
the public interest or for protection of investors, and publish 
such findings, and the detailed reasons therefor, in the 
Federal Register. Such regulations of the above-named agencies, 
or the reasons for failure to publish such substantially 
similar regulations to those of the Commission, shall be 
published in the Federal Register within 120 days of the date 
of enactment of this subsection, and, thereafter, within 60 
days of any changes made by the Commission in its relevant 
regulations and rules.
  (j) The Commission is authorized, by order, as it deems 
necessary or appropriate for the protection of investors to 
deny, to suspend the effective date of, to suspend for a period 
not exceeding twelve months, or to revoke the registration of a 
security, if the Commission finds, on the record after notice 
and opportunity for hearing, that the issuer of such security 
has failed to comply with any provision of this title or the 
rules and regulations thereunder. No member of a national 
securities exchange, broker, or dealer shall make use of the 
mails or any means or instrumentality of interstate commerce to 
effect any transaction in, or to induce the purchase or sale 
of, any security the registration of which has been and is 
suspended or revoked pursuant to the preceding sentence.
  (k) Trading Suspensions; Emergency Authority.--
          (1) Trading suspensions.--If in its opinion the 
        public interest and the protection of investors so 
        require, the Commission is authorized by order--
                  (A) summarily to suspend trading in any 
                security (other than an exempted security) for 
                a period not exceeding 10 business days, and
                  (B) summarily to suspend all trading on any 
                national securities exchange or otherwise, in 
                securities other than exempted securities, for 
                a period not exceeding 90 calendar days.
        The action described in subparagraph (B) shall not take 
        effect unless the Commission notifies the President of 
        its decision and the President notifies the Commission 
        that the President does not disapprove of such 
        decision. If the actions described in subparagraph (A) 
        or (B) involve a security futures product, the 
        Commission shall consult with and consider the views of 
        the Commodity Futures Trading Commission.
          (2) Emergency orders.--
                  (A) In general.--The Commission, in an 
                emergency, may by order summarily take such 
                action to alter, supplement, suspend, or impose 
                requirements or restrictions with respect to 
                any matter or action subject to regulation by 
                the Commission or a self-regulatory 
                organization under the securities laws, as the 
                Commission determines is necessary in the 
                public interest and for the protection of 
                investors--
                          (i) to maintain or restore fair and 
                        orderly securities markets (other than 
                        markets in exempted securities);
                          (ii) to ensure prompt, accurate, and 
                        safe clearance and settlement of 
                        transactions in securities (other than 
                        exempted securities); or
                          (iii) to reduce, eliminate, or 
                        prevent the substantial disruption by 
                        the emergency of--
                                  (I) securities markets (other 
                                than markets in exempted 
                                securities), investment 
                                companies, or any other 
                                significant portion or segment 
                                of such markets; or
                                  (II) the transmission or 
                                processing of securities 
                                transactions (other than 
                                transactions in exempted 
                                securities).
                  (B) Effective period.--An order of the 
                Commission under this paragraph shall continue 
                in effect for the period specified by the 
                Commission, and may be extended. Except as 
                provided in subparagraph (C), an order of the 
                Commission under this paragraph may not 
                continue in effect for more than 10 business 
                days, including extensions.
                  (C) Extension.--An order of the Commission 
                under this paragraph may be extended to 
                continue in effect for more than 10 business 
                days if, at the time of the extension, the 
                Commission finds that the emergency still 
                exists and determines that the continuation of 
                the order beyond 10 business days is necessary 
                in the public interest and for the protection 
                of investors to attain an objective described 
                in clause (i), (ii), or (iii) of subparagraph 
                (A). In no event shall an order of the 
                Commission under this paragraph continue in 
                effect for more than 30 calendar days.
                  (D) Security futures.--If the actions 
                described in subparagraph (A) involve a 
                security futures product, the Commission shall 
                consult with and consider the views of the 
                Commodity Futures Trading Commission.
                  (E) Exemption.--In exercising its authority 
                under this paragraph, the Commission shall not 
                be required to comply with the provisions of--
                          (i) section 19(c); or
                          (ii) section 553 of title 5, United 
                        States Code.
          (3) Termination of emergency actions by president.--
        The President may direct that action taken by the 
        Commission under paragraph (1)(B) or paragraph (2) of 
        this subsection shall not continue in effect.
          (4) Compliance with orders.--No member of a national 
        securities exchange, broker, or dealer shall make use 
        of the mails or any means or instrumentality of 
        interstate commerce to effect any transaction in, or to 
        induce the purchase or sale of, any security in 
        contravention of an order of the Commission under this 
        subsection unless such order has been stayed, modified, 
        or set aside as provided in paragraph (5) of this 
        subsection or has ceased to be effective upon direction 
        of the President as provided in paragraph (3).
          (5) Limitations on review of orders.--An order of the 
        Commission pursuant to this subsection shall be subject 
        to review only as provided in section 25(a) of this 
        title. Review shall be based on an examination of all 
        the information before the Commission at the time such 
        order was issued. The reviewing court shall not enter a 
        stay, writ of mandamus, or similar relief unless the 
        court finds, after notice and hearing before a panel of 
        the court, that the Commission's action is arbitrary, 
        capricious, an abuse of discretion, or otherwise not in 
        accordance with law.
          (6) Consultation.--Prior to taking any action 
        described in paragraph (1)(B), the Commission shall 
        consult with and consider the views of the Secretary of 
        the Treasury, the Board of Governors of the Federal 
        Reserve System, and the Commodity Futures Trading 
        Commission, unless such consultation is impracticable 
        in light of the emergency.
          (7) Definition.--For purposes of this subsection, the 
        term ``emergency'' means--
                  (A) a major market disturbance characterized 
                by or constituting--
                          (i) sudden and excessive fluctuations 
                        of securities prices generally, or a 
                        substantial threat thereof, that 
                        threaten fair and orderly markets; or
                          (ii) a substantial disruption of the 
                        safe or efficient operation of the 
                        national system for clearance and 
                        settlement of transactions in 
                        securities, or a substantial threat 
                        thereof; or
                  (B) a major disturbance that substantially 
                disrupts, or threatens to substantially 
                disrupt--
                          (i) the functioning of securities 
                        markets, investment companies, or any 
                        other significant portion or segment of 
                        the securities markets; or
                          (ii) the transmission or processing 
                        of securities transactions.
  (l) It shall be unlawful for an issuer, any class of whose 
securities is registered pursuant to this section or would be 
required to be so registered except for the exemption from 
registration provided by subsection (g)(2)(B) or (g)(2)(G) of 
this section, by the use of any means or instrumentality of 
interstate commerce, or of the mails, to issue, either 
originally or upon transfer, any of such securities in a form 
or with a format which contravenes such rules and regulations 
as the Commission may prescribe as necessary or appropriate for 
the prompt and accurate clearance and settlement of 
transactions in securities. The provisions of this subsection 
shall not apply to variable annuity contracts or variable life 
policies issued by an insurance company or its separate 
accounts.

           *       *       *       *       *       *       *


           registration and regulation of brokers and dealers

  Sec. 15. (a)(1) It shall be unlawful for any broker or dealer 
which is either a person other than a natural person or a 
natural person not associated with a broker or dealer which is 
a person other than a natural person (other than such a broker 
or dealer whose business is exclusively intrastate and who does 
not make use of any facility of a national securities exchange) 
to make use of the mails or any means or instrumentality of 
interstate commerce to effect any transactions in, or to induce 
or attempt to induce the purchase or sale of, any security 
(other than an exempted security or commercial paper, bankers' 
acceptances, or commercial bills) unless such broker or dealer 
is registered in accordance with subsection (b) of this 
section.
  (2) The Commission, by rule or order, as it deems consistent 
with the public interest and the protection of investors, may 
conditionally or unconditionally exempt from paragraph (1) of 
this subsection any broker or dealer or class of brokers or 
dealers specified in such rule or order.
  (b)(1) A broker or dealer may be registered by filing with 
the Commission an application for registration in such form and 
containing such information and documents concerning such 
broker or dealer and any persons associated with such broker or 
dealer as the Commission, by rule, may prescribe as necessary 
or appropriate in the public interest or for the protection of 
investors. Within forty-five days of the date of the filing of 
such application (or within such longer period as to which the 
applicant consents), the Commission shall--
          (A) by order grant registration, or
          (B) institute proceedings to determine whether 
        registration should be denied. Such proceedings shall 
        include notice of the grounds for denial under 
        consideration and opportunity for hearing and shall be 
        concluded within one hundred twenty days of the date of 
        the filing of the application for registration. At the 
        conclusion of such proceedings, the Commission, by 
        order, shall grant or deny such registration. The 
        Commission may extend the time for conclusion of such 
        proceedings for up to ninety days if it finds good 
        cause for such extension and publishes its reasons for 
        so finding or for such longer period as to which the 
        applicant consents.
The Commission shall grant such registration if the Commission 
finds that the requirements of this section are satisfied. The 
order granting registration shall not be effective until such 
broker or dealer has become a member of a registered securities 
association, or until such broker or dealer has become a member 
of a national securities exchange, if such broker or dealer 
effects transactions solely on that exchange, unless the 
Commission has exempted such broker or dealer, by rule or 
order, from such membership. The Commission shall deny such 
registration if it does not make such a finding or if it finds 
that if the applicant were so registered, its registration 
would be subject to suspension or revocation under paragraph 
(4) of this subsection.
  (2)(A) An application for registration of a broker or dealer 
to be formed or organized may be made by a broker or dealer to 
which the broker or dealer to be formed or organized is to be 
the successor. Such application, in such form as the 
Commission, by rule, may prescribe, shall contain such 
information and documents concerning the applicant, the 
successor, and any persons associated with the applicant or the 
successor, as the Commission, by rule, may prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors. The grant or denial of registration to 
such an applicant shall be in accordance with the procedures 
set forth in paragraph (1) of this subsection. If the 
Commission grants such registration, the registration shall 
terminate on the forty-fifth day after the effective date 
thereof, unless prior thereto the successor shall, in 
accordance with such rules and regulations as the Commission 
may prescribe, adopt the application for registration as its 
own.
  (B) Any person who is a broker or dealer solely by reason of 
acting as a municipal securities dealer or municipal securities 
broker, who so acts through a separately identifiable 
department or division, and who so acted in such a manner on 
the date of enactment of the Securities Acts Amendments of 
1975, may, in accordance with such terms and conditions as the 
Commission, by rule, prescribes as necessary and appropriate in 
the public interest and for the protection of investors, 
register such separately identifiable department or division in 
accordance with this subsection. If any such department or 
division is so registered, the department or division and not 
such person himself shall be the broker or dealer for purposes 
of this title.
  (C) Within six months of the date of the granting of 
registration to a broker or dealer, the Commission, or upon the 
authorization and direction of the Commission, a registered 
securities association or national securities exchange of which 
such broker or dealer is a member, shall conduct an inspection 
of the broker or dealer to determine whether it is operating in 
conformity with the provisions of this title and the rules and 
regulations thereunder: Provided, however, That the Commission 
may delay such inspection of any class of brokers or dealers 
for a period not to exceed six months.
  (3) Any provision of this title (other than section 5 and 
subsection (a) of this section) which prohibits any act, 
practice, or course of business if the mails or any means or 
instrumentality of interstate commerce is used in connection 
therewith shall also prohibit any such act, practice, or course 
of business by any registered broker or dealer or any person 
acting on behalf of such a broker or dealer, irrespective of 
any use of the mails or any means or instrumentality of 
interstate commerce in connection therewith.
  (4) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any broker or dealer if it finds, on the record 
after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is in the 
public interest and that such broker or dealer, whether prior 
or subsequent to becoming such, or any person associated with 
such broker or dealer, whether prior or subsequent to becoming 
so associated--
          (A) has willfully made or caused to be made in any 
        application for registration or report required to be 
        filed with the Commission or with any other appropriate 
        regulatory agency under this title, or in any 
        proceeding before the Commission with respect to 
        registration, any statement which was at the time and 
        in the light of the circumstances under which it was 
        made false or misleading with respect to any material 
        fact, or has omitted to state in any such application 
        or report any material fact which is required to be 
        stated therein.
          (B) has been convicted within ten years preceding the 
        filing of any application for registration or at any 
        time thereafter of any felony or misdemeanor or of a 
        substantially equivalent crime by a foreign court of 
        competent jurisdiction which the Commission finds--
                  (i) involves the purchase or sale of any 
                security, the taking of a false oath, the 
                making of a false report, bribery, perjury, 
                burglary, any substantially equivalent activity 
                however denominated by the laws of the relevant 
                foreign government, or conspiracy to commit any 
                such offense;
                  (ii) arises out of the conduct of the 
                business of a broker, dealer, municipal 
                securities dealer municipal advisor,, 
                government securities broker, government 
                securities dealer, investment adviser, bank, 
                insurance company, fiduciary, transfer agent, 
                nationally recognized statistical rating 
                organization, foreign person performing a 
                function substantially equivalent to any of the 
                above, or entity or person required to be 
                registered under the Commodity Exchange Act (7 
                U.S.C. 1 et seq.) or any substantially 
                equivalent foreign statute or regulation;
                  (iii) involves the larceny, theft, robbery, 
                extortion, forgery, counterfeiting, fraudulent 
                concealment, embezzlement, fraudulent 
                conversion, or misappropriation of funds, or 
                securities, or substantially equivalent 
                activity however denominated by the laws of the 
                relevant foreign government; or
                  (iv) involves the violation of section 152, 
                1341, 1342, or 1343 or chapter 25 or 47 of 
                title 18, United States Code, or a violation of 
                a substantially equivalent foreign statute.
          (C) is permanently or temporarily enjoined by order, 
        judgment, or decree of any court of competent 
        jurisdiction from acting as an investment adviser, 
        underwriter, broker, dealer, municipal securities 
        dealer municipal advisor,, government securities 
        broker, government securities dealer, security-based 
        swap dealer, major security-based swap participant, 
        transfer agent, nationally recognized statistical 
        rating organization, foreign person performing a 
        function substantially equivalent to any of the above, 
        or entity or person required to be registered under the 
        Commodity Exchange Act or any substantially equivalent 
        foreign statute or regulation, or as an affiliated 
        person or employee of any investment company, bank, 
        insurance company, foreign entity substantially 
        equivalent to any of the above, or entity or person 
        required to be registered under the Commodity Exchange 
        Act or any substantially equivalent foreign statute or 
        regulation, or from engaging in or continuing any 
        conduct or practice in connection with any such 
        activity, or in connection with the purchase or sale of 
        any security.
          (D) has willfully violated any provision of the 
        Securities Act of 1933, the Investment Advisers Act of 
        1940, the Investment Company Act of 1940, the Commodity 
        Exchange Act, this title, the rules or regulations 
        under any of such statutes, or the rules of the 
        Municipal Securities Rulemaking Board, or is unable to 
        comply with any such provision.
          (E) has willfully aided, abetted, counseled, 
        commanded, induced, or procured the violation by any 
        other person of any provision of the Securities Act of 
        1933, the Investment Advisers Act of 1940, the 
        Investment Company Act of 1940, the Commodity Exchange 
        Act, this title, the rules or regulations under any of 
        such statutes, or the rules of the Municipal Securities 
        Rulemaking Board, or has failed reasonably to 
        supervise, with a view to preventing violations of the 
        provisions of such statutes, rules, and regulations, 
        another person who commits such a violation, if such 
        other person is subject to his supervision. For the 
        purposes of this subparagraph (E) no person shall be 
        deemed to have failed reasonably to supervise any other 
        person, if--
                  (i) there have been established procedures, 
                and a system for applying such procedures, 
                which would reasonably be expected to prevent 
                and detect, insofar as practicable, any such 
                violation by such other person, and
                  (ii) such person has reasonably discharged 
                the duties and obligations incumbent upon him 
                by reason of such procedures and system without 
                reasonable cause to believe that such 
                procedures and system were not being complied 
                with.
          (F) is subject to any order of the Commission barring 
        or suspending the right of the person to be associated 
        with a broker, dealer, security-based swap dealer, or a 
        major security-based swap participant;
          (G) has been found by a foreign financial regulatory 
        authority to have--
                  (i) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign financial regulatory 
                authority, or in any proceeding before a 
                foreign financial regulatory authority with 
                respect to registration, any statement that was 
                at the time and in the light of the 
                circumstances under which it was made false or 
                misleading with respect to any material fact, 
                or has omitted to state in any application or 
                report to the foreign financial regulatory 
                authority any material fact that is required to 
                be stated therein;
                  (ii) violated any foreign statute or 
                regulation regarding transactions in 
                securities, or contracts of sale of a commodity 
                for future delivery, traded on or subject to 
                the rules of a contract market or any board of 
                trade;
                  (iii) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any 
                person of any provision of any statutory 
                provisions enacted by a foreign government, or 
                rules or regulations thereunder, empowering a 
                foreign financial regulatory authority 
                regarding transactions in securities, or 
                contracts of sale of a commodity for future 
                delivery, traded on or subject to the rules of 
                a contract market or any board of trade, or has 
                been found, by a foreign financial regulatory 
                authority, to have failed reasonably to 
                supervise, with a view to preventing violations 
                of such statutory provisions, rules, and 
                regulations, another person who commits such a 
                violation, if such other person is subject to 
                his supervision; or
          (H) is subject to any final order of a State 
        securities commission (or any agency or officer 
        performing like functions), State authority that 
        supervises or examines banks, savings associations, or 
        credit unions, State insurance commission (or any 
        agency or office performing like functions), an 
        appropriate Federal banking agency (as defined in 
        section 3 of the Federal Deposit Insurance Act (12 
        U.S.C. 1813(q))), or the National Credit Union 
        Administration, that--
                  (i) bars such person from association with an 
                entity regulated by such commission, authority, 
                agency, or officer, or from engaging in the 
                business of securities, insurance, banking, 
                savings association activities, or credit union 
                activities; or
                  (ii) constitutes a final order based on 
                violations of any laws or regulations that 
                prohibit fraudulent, manipulative, or deceptive 
                conduct.
  (5) Pending final determination whether any registration 
under this subsection shall be revoked, the Commission, by 
order, may suspend such registration, if such suspension 
appears to the Commission, after notice and opportunity for 
hearing, to be necessary or appropriate in the public interest 
or for the protection of investors. Any registered broker or 
dealer may, upon such terms and conditions as the Commission 
deems necessary or appropriate in the public interest or for 
the protection of investors, withdraw from registration by 
filing a written notice of withdrawal with the Commission. If 
the Commission finds that any registered broker or dealer is no 
longer in existence or has ceased to do business as a broker or 
dealer, the Commission, by order, shall cancel the registration 
of such broker or dealer.
  (6)(A) With respect to any person who is associated, who is 
seeking to become associated, or, at the time of the alleged 
misconduct, who was associated or was seeking to become 
associated with a broker or dealer, or any person 
participating, or, at the time of the alleged misconduct, who 
was participating, in an offering of any penny stock, the 
Commission, by order, shall censure, place limitations on the 
activities or functions of such person, or suspend for a period 
not exceeding 12 months, or bar any such person from being 
associated with a broker, dealer, investment adviser, municipal 
securities dealer, municipal advisor, transfer agent, or 
nationally recognized statistical rating organization, or from 
participating in an offering of penny stock, if the Commission 
finds, on the record after notice and opportunity for a 
hearing, that such censure, placing of limitations, suspension, 
or bar is in the public interest and that such person--
          (i) has committed or omitted any act, or is subject 
        to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (H), or (G) of paragraph (4) of this 
        subsection;
          (ii) has been convicted of any offense specified in 
        subparagraph (B) of such paragraph (4) within 10 years 
        of the commencement of the proceedings under this 
        paragraph; or
          (iii) is enjoined from any action, conduct, or 
        practice specified in subparagraph (C) of such 
        paragraph (4).
  (B) It shall be unlawful--
          (i) for any person as to whom an order under 
        subparagraph (A) is in effect, without the consent of 
        the Commission, willfully to become, or to be, 
        associated with a broker or dealer in contravention of 
        such order, or to participate in an offering of penny 
        stock in contravention of such order;
          (ii) for any broker or dealer to permit such a 
        person, without the consent of the Commission, to 
        become or remain, a person associated with the broker 
        or dealer in contravention of such order, if such 
        broker or dealer knew, or in the exercise of reasonable 
        care should have known, of such order; or
          (iii) for any broker or dealer to permit such a 
        person, without the consent of the Commission, to 
        participate in an offering of penny stock in 
        contravention of such order, if such broker or dealer 
        knew, or in the exercise of reasonable care should have 
        known, of such order and of such participation.
  (C) For purposes of this paragraph, the term ``person 
participating in an offering of penny stock'' includes any 
person acting as any promoter, finder, consultant, agent, or 
other person who engages in activities with a broker, dealer, 
or issuer for purposes of the issuance or trading in any penny 
stock, or inducing or attempting to induce the purchase or sale 
of any penny stock. The Commission may, by rule or regulation, 
define such term to include other activities, and may, by rule, 
regulation, or order, exempt any person or class of persons, in 
whole or in part, conditionally or unconditionally, from such 
term.
  (7) No registered broker or dealer or government securities 
broker or government securities dealer registered (or required 
to register) under section 15C(a)(1)(A) shall effect any 
transaction in, or induce the purchase or sale of, any security 
unless such broker or dealer meets such standards of 
operational capability and such broker or dealer and all 
natural persons associated with such broker or dealer meet such 
standards of training, experience, competence, and such other 
qualifications as the Commission finds necessary or appropriate 
in the public interest or for the protection of investors. The 
Commission shall establish such standards by rules and 
regulations, which may--
          (A) specify that all or any portion of such standards 
        shall be applicable to any class of brokers and dealers 
        and persons associated with brokers and dealers;
          (B) require persons in any such class to pass tests 
        prescribed in accordance with such rules and 
        regulations, which tests shall, with respect to any 
        class of partners, officers, or supervisory employees 
        (which latter term may be defined by the Commission's 
        rules and regulations and as so defined shall include 
        branch managers of brokers or dealers) engaged in the 
        management of the broker or dealer, include questions 
        relating to bookkeeping, accounting, internal control 
        over cash and securities, supervision of employees, 
        maintenance of records, and other appropriate matters; 
        and
          (C) provide that persons in any such class other than 
        brokers and dealers and partners, officers, and 
        supervisory employees of brokers or dealers, may be 
        qualified solely on the basis of compliance with such 
        standards of training and such other qualifications as 
        the Commission finds appropriate.
The Commission, by rule, may prescribe reasonable fees and 
charges to defray its costs in carrying out this paragraph, 
including, but not limited to, fees for any test administered 
by it or under its direction. The Commission may cooperate with 
registered securities associations and national securities 
exchanges in devising and administering tests and may require 
registered brokers and dealers and persons associated with such 
brokers and dealers to pass tests administered by or on behalf 
of any such association or exchange and to pay such association 
or exchange reasonable fees or charges to defray the costs 
incurred by such association or exchange in administering such 
tests.
  (8) It shall be unlawful for any registered broker or dealer 
to effect any transaction in, or induce or attempt to induce 
the purchase or sale of, any security (other than or commercial 
paper, bankers' acceptances, or commercial bills), unless such 
broker or dealer is a member of a securities association 
registered pursuant to section 15A of this title or effects 
transactions in securities solely on a national securities 
exchange of which it is a member.
  (9) The Commission by rule or order, as it deems consistent 
with the public interest and the protection of investors, may 
conditionally or unconditionally exempt from paragraph (8) of 
this subsection any broker or dealer or class of brokers or 
dealers specified in such rule or order.
  (10) For the purposes of determining whether a person is 
subject to a statutory disqualification under section 6(c)(2), 
15A(g)(2), or 17A(b)(4)(A) of this title, the term 
``Commission'' in paragraph (4)(B) of this subsection shall 
mean ``exchange'', ``association'', or ``clearing agency'', 
respectively.
          (11) Broker/dealer registration with respect to 
        transactions in security futures products.--
                  (A) Notice registration.--
                          (i) Contents of notice.--
                        Notwithstanding paragraphs (1) and (2), 
                        a broker or dealer required to register 
                        only because it effects transactions in 
                        security futures products on an 
                        exchange registered pursuant to section 
                        6(g) may register for purposes of this 
                        section by filing with the Commission a 
                        written notice in such form and 
                        containing such information concerning 
                        such broker or dealer and any persons 
                        associated with such broker or dealer 
                        as the Commission, by rule, may 
                        prescribe as necessary or appropriate 
                        in the public interest or for the 
                        protection of investors. A broker or 
                        dealer may not register under this 
                        paragraph unless that broker or dealer 
                        is a member of a national securities 
                        association registered under section 
                        15A(k).
                          (ii) 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 the registration would be 
                        subject to suspension or revocation 
                        under paragraph (4).
                          (iii) Suspension.--Such registration 
                        shall be suspended immediately if a 
                        national securities association 
                        registered pursuant to section 15A(k) 
                        of this title suspends the membership 
                        of that broker or dealer.
                          (iv) Termination.--Such registration 
                        shall be terminated immediately if any 
                        of the above stated conditions for 
                        registration set forth in this 
                        paragraph are no longer satisfied.
                  (B) Exemptions for registered brokers and 
                dealers.--A broker or dealer registered 
                pursuant to the requirements of subparagraph 
                (A) shall be exempt from the following 
                provisions of this title and the rules 
                thereunder with respect to transactions in 
                security futures products:
                          (i) Section 8.
                          (ii) Section 11.
                          (iii) Subsections (c)(3) and (c)(5) 
                        of this section.
                          (iv) Section 15B.
                          (v) Section 15C.
                          (vi) Subsections (d), (e), (f), (g), 
                        (h), and (i) of section 17.
          (12) Exemption for security futures product exchange 
        members.--
                  (A) Registration exemption.--A natural person 
                shall be exempt from the registration 
                requirements of this section if such person--
                          (i) is a member of a designated 
                        contract market registered with the 
                        Commission as an exchange pursuant to 
                        section 6(g);
                          (ii) effects transactions only in 
                        securities on the exchange of which 
                        such person is a member; and
                          (iii) does not directly accept or 
                        solicit orders from public customers or 
                        provide advice to public customers in 
                        connection with the trading of security 
                        futures products.
                  (B) Other exemptions.--A natural person 
                exempt from registration pursuant to 
                subparagraph (A) shall also be exempt from the 
                following provisions of this title and the 
                rules thereunder:
                          (i) Section 8.
                          (ii) Section 11.
                          (iii) Subsections (c)(3), (c)(5), and 
                        (e) of this section.
                          (iv) Section 15B.
                          (v) Section 15C.
                          (vi) Subsections (d), (e), (f), (g), 
                        (h), and (i) of section 17.
  (c)(1)(A) No broker or dealer shall make use of the mails or 
any means or instrumentality of interstate commerce to effect 
any transaction in, or to induce or attempt to induce the 
purchase or sale of, any security (other than commercial paper, 
bankers' acceptances, or commercial bills), or any security-
based swap agreement by means of any manipulative, deceptive, 
or other fraudulent device or contrivance.
  (B) No broker, dealer, or municipal securities dealer shall 
make use of the mails or any means or instrumentality of 
interstate commerce to effect any transaction in, or to induce 
or attempt to induce the purchase or sale of, any municipal 
security or any security-based swap agreement involving a 
municipal security by means of any manipulative, deceptive, or 
other fraudulent device or contrivance.
  (C) No government securities broker or government securities 
dealer shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any 
transaction in, or to induce or to attempt to induce the 
purchase or sale of, any government security or any security-
based swap agreement involving a government security by means 
of any manipulative, deceptive, or other fraudulent device or 
contrivance.
  (2)(A) No broker or dealer shall make use of the mails or any 
means or instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security or 
commercial paper, bankers' acceptances, or commercial bills) 
otherwise than on a national securities exchange of which it is 
a member, in connection with which such broker or dealer 
engages in any fraudulent, deceptive, or manipulative act or 
practice, or makes any fictitious quotation.
  (B) No broker, dealer, or municipal securities dealer shall 
make use of the mails or any means or instrumentality of 
interstate commerce to effect any transaction in, or to induce 
or attempt to induce the purchase or sale of, any municipal 
security in connection with which such broker, dealer, or 
municipal securities dealer engages in any fraudulent, 
deceptive, or manipulative act or practice, or makes any 
fictitious quotation.
  (C) No government securities broker or government securities 
dealer shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any 
transaction in, or induce or attempt to induce the purchase or 
sale of, any government security in connection with which such 
government securities broker or government securities dealer 
engages in any fraudulent, deceptive, or manipulative act or 
practice, or makes any fictitious quotation.
  (D) The Commission shall, for the purposes of this paragraph, 
by rules and regulations define, and prescribe means reasonably 
designed to prevent, such acts and practices as are fraudulent, 
deceptive, or manipulative and such quotations as are 
fictitious.
  (E) The Commission shall, prior to adopting any rule or 
regulation under subparagraph (C), consult with and consider 
the views of the Secretary of the Treasury and each appropriate 
regulatory agency. If the Secretary of the Treasury or any 
appropriate regulatory agency comments in writing on a proposed 
rule or regulation of the Commission under such subparagraph 
(C) that has been published for comment, the Commission shall 
respond in writing to such written comment before adopting the 
proposed rule. If the Secretary of the Treasury determines, and 
notifies the Commission, that such rule or regulation, if 
implemented, would, or as applied does (i) adversely affect the 
liquidity or efficiency of the market for government 
securities; or (ii) impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of this 
section, the Commission shall, prior to adopting the proposed 
rule or regulation, find that such rule or regulation is 
necessary and appropriate in furtherance of the purposes of 
this section notwithstanding the Secretary's determination.
  (3)(A) No broker or dealer (other than a government 
securities broker or government securities dealer, except a 
registered broker or dealer) shall make use of the mails or any 
means or instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security 
(except a government security) or commercial paper, bankers' 
acceptances, or commercial bills) in contravention of such 
rules and regulations as the Commission shall prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors to provide safeguards with respect to 
the financial responsibility and related practices of brokers 
and dealers including, but not limited to, the acceptance of 
custody and use of customers' securities and the carrying and 
use of customers' deposits or credit balances. Such rules and 
regulations shall (A) require the maintenance of reserves with 
respect to customers' deposits or credit balances, and (B) no 
later than September 1, 1975, establish minimum financial 
responsibility requirements for all brokers and dealers.
  (B) Consistent with this title, the Commission, in 
consultation with the Commodity Futures Trading Commission, 
shall issue such rules, regulations, or orders as are necessary 
to avoid duplicative or conflicting regulations 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: (i) 
the provisions of section 8, section 15(c)(3), and section 17 
of this title and the rules and regulations thereunder related 
to the treatment of customer funds, securities, or property, 
maintenance of books and records, financial reporting, or other 
financial responsibility rules, involving security futures 
products; and (ii) similar provisions of the Commodity Exchange 
Act and rules and regulations thereunder involving security 
futures products.
          (C) Notwithstanding any provision of sections 
        2(a)(1)(C)(i) or 4d(a)(2) of the Commodity Exchange Act 
        and the rules and regulations thereunder, and pursuant 
        to an exemption granted by the Commission under section 
        36 of this title or pursuant to a rule or regulation, 
        cash and securities may be held by a broker or dealer 
        registered pursuant to subsection (b)(1) and also 
        registered as a futures commission merchant pursuant to 
        section 4f(a)(1) of the Commodity Exchange Act, in a 
        portfolio margining account carried as a futures 
        account subject to section 4d of the Commodity Exchange 
        Act and the rules and regulations thereunder, pursuant 
        to a portfolio margining program approved by the 
        Commodity Futures Trading Commission, and subject to 
        subchapter IV of chapter 7 of title 11 of the United 
        States Code and the rules and regulations thereunder. 
        The Commission shall consult with the Commodity Futures 
        Trading Commission to adopt rules to ensure that such 
        transactions and accounts are subject to comparable 
        requirements to the extent practicable for similar 
        products.
  (4) If the Commission finds, after notice and opportunity for 
a hearing, that any person subject to the provisions of section 
12, 13, 14, or subsection (d) of section 15 of this title or 
any rule or regulation thereunder has failed to comply with any 
such provision, rule, or regulation in any material respect, 
the Commission may publish its findings and issue an order 
requiring such person, and any person who was a cause of the 
failure to comply due to an act or omission the person knew or 
should have known would contribute to the failure to comply, to 
comply, or to take steps to effect compliance, with such 
provision or such rule or regulation thereunder upon such terms 
and conditions and within such time as the Commission may 
specify in such order.
  (5) No dealer (other than a specialist registered on a 
national securities exchange) acting in the capacity of market 
maker or otherwise shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security or a 
municipal security) in contravention of such specified and 
appropriate standards with respect to dealing as the 
Commission, by rule, shall prescribe as necessary or 
appropriate in the public interest and for the protection of 
investors, to maintain fair and orderly markets, or to remove 
impediments to and perfect the mechanism of a national market 
system. Under the rules of the Commission a dealer in a 
security may be prohibited from acting as broker in that 
security.
  (6) No broker or dealer shall make use of the mails or any 
means or instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security, 
municipal security, commercial paper, bankers' acceptances, or 
commercial bills) in contravention of such rules and 
regulations as the Commission shall prescribe as necessary or 
appropriate in the public interest and for the protection of 
investors or to perfect or remove impediments to a national 
system for the prompt and accurate clearance and settlement of 
securities transactions, with respect to the time and method 
of, and the form and format of documents used in connection 
with, making settlements of and payments for transactions in 
securities, making transfers and deliveries of securities, and 
closing accounts. Nothing in this paragraph shall be construed 
(A) to affect the authority of the Board of Governors of the 
Federal Reserve System, pursuant to section 7 of this title, to 
prescribe rules and regulations for the purpose of preventing 
the excessive use of credit for the purchase or carrying of 
securities, or (B) to authorize the Commission to prescribe 
rules or regulations for such purpose.
  (7) In connection with any bid for or purchase of a 
government security related to an offering of government 
securities by or on behalf of an issuer, no government 
securities broker, government securities dealer, or bidder for 
or purchaser of securities in such offering shall knowingly or 
willfully make any false or misleading written statement or 
omit any fact necessary to make any written statement made not 
misleading.
  (8) Prohibition of referral fees.--No broker or dealer, or 
person associated with a broker or dealer, may solicit or 
accept, directly or indirectly, remuneration for assisting an 
attorney in obtaining the representation of any person in any 
private action arising under this title or under the Securities 
Act of 1933.
  (d) Supplementary and Periodic Information.--
          (1) In general.--Each issuer which has filed a 
        registration statement containing an undertaking which 
        is or becomes operative under this subsection as in 
        effect prior to the date of enactment of the Securities 
        Acts Amendments of 1964, and each issuer which shall 
        after such date file a registration statement which has 
        become effective pursuant to the Securities Act of 
        1933, as amended, shall file with the Commission, in 
        accordance with such rules and regulations as the 
        Commission may prescribe as necessary or appropriate in 
        the public interest or for the protection of investors, 
        such supplementary and periodic information, documents, 
        and reports as may be required pursuant to section 13 
        of this title in respect of a security registered 
        pursuant to section 12 of this title. The duty to file 
        under this subsection shall be automatically suspended 
        if and so long as any issue of securities of such 
        issuer is registered pursuant to section 12 of this 
        title. The duty to file under this subsection shall 
        also be automatically suspended as to any fiscal year, 
        other than the fiscal year within which such 
        registration statement became effective, if, at the 
        beginning of such fiscal year, the securities of each 
        class, other than any class of asset-backed securities, 
        to which the registration statement relates are held of 
        record by less than [300 persons, or, in the case of a 
        bank, a savings and loan holding company (as defined in 
        section 10 of the Home Owners' Loan Act), or a bank 
        holding company, as such term is defined in section 2 
        of the Bank Holding Company Act of 1956 (12 U.S.C. 
        1841), 1,200 persons persons] 1,200 persons. For the 
        purposes of this subsection, the term ``class'' shall 
        be construed to include all securities of an issuer 
        which are of substantially similar character and the 
        holders of which enjoy substantially similar rights and 
        privileges. The Commission may, for the purpose of this 
        subsection, define by rules and regulations the term 
        ``held of record'' as it deems necessary or appropriate 
        in the public interest or for the protection of 
        investors in order to prevent circumvention of the 
        provisions of this subsection. Nothing in this 
        subsection shall apply to securities issued by a 
        foreign government or political subdivision thereof.
          (2) Asset-backed securities.--
                  (A) Suspension of duty to file.--The 
                Commission may, by rule or regulation, provide 
                for the suspension or termination of the duty 
                to file under this subsection for any class of 
                asset-backed security, on such terms and 
                conditions and for such period or periods as 
                the Commission deems necessary or appropriate 
                in the public interest or for the protection of 
                investors.
                  (B) Classification of issuers.--The 
                Commission may, for purposes of this 
                subsection, classify issuers and prescribe 
                requirements appropriate for each class of 
                issuers of asset-backed securities.
  (e) Notices to Customers Regarding Securities Lending.--Every 
registered broker or dealer shall provide notice to its 
customers that they may elect not to allow their fully paid 
securities to be used in connection with short sales. If a 
broker or dealer uses a customer's securities in connection 
with short sales, the broker or dealer shall provide notice to 
its customer that the broker or dealer may receive compensation 
in connection with lending the customer's securities. The 
Commission, by rule, as it deems necessary or appropriate in 
the public interest and for the protection of investors, may 
prescribe the form, content, time, and manner of delivery of 
any notice required under this paragraph.
  (f) The Commission, by rule, as it deems necessary or 
appropriate in the public interest and for the protection of 
investors or to assure equal regulation, may require any member 
of a national securities exchange not required to register 
under section 15 of this title and any person associated with 
any such member to comply with any provision of this title 
(other than section 15(a)) or the rules or regulations 
thereunder which by its terms regulates or prohibits any act, 
practice, or course of business by a ``broker or dealer'' or 
``registered broker or dealer'' or a ``person associated with a 
broker or dealer,'' respectively.
  (g) Every registered broker or dealer shall establish, 
maintain, and enforce written policies and procedures 
reasonably designed, taking into consideration the nature of 
such broker's or dealer's business, to prevent the misuse in 
violation of this title, or the rules or regulations 
thereunder, of material, nonpublic information by such broker 
or dealer or any person associated with such broker or dealer. 
The Commission, as it deems necessary or appropriate in the 
public interest or for the protection of investors, shall adopt 
rules or regulations to require specific policies or procedures 
reasonably designed to prevent misuse in violation of this 
title (or the rules or regulations thereunder) of material, 
nonpublic information.
  (h) Requirements for Transactions in Penny Stocks.--
          (1) In general.--No broker or dealer shall make use 
        of the mails or any means or instrumentality of 
        interstate commerce to effect any transaction in, or to 
        induce or attempt to induce the purchase or sale of, 
        any penny stock by any customer except in accordance 
        with the requirements of this subsection and the rules 
        and regulations prescribed under this subsection.
          (2) Risk disclosure with respect to penny stocks.--
        Prior to effecting any transaction in any penny stock, 
        a broker or dealer shall give the customer a risk 
        disclosure document that--
                  (A) contains a description of the nature and 
                level of risk in the market for penny stocks in 
                both public offerings and secondary trading;
                  (B) contains a description of the broker's or 
                dealer's duties to the customer and of the 
                rights and remedies available to the customer 
                with respect to violations of such duties or 
                other requirements of Federal securities laws;
                  (C) contains a brief, clear, narrative 
                description of a dealer market, including 
                ``bid'' and ``ask'' prices for penny stocks and 
                the significance of the spread between the bid 
                and ask prices;
                  (D) contains the toll free telephone number 
                for inquiries on disciplinary actions 
                established pursuant to section 15A(i) of this 
                title;
                  (E) defines significant terms used in the 
                disclosure document or in the conduct of 
                trading in penny stocks; and
                  (F) contains such other information, and is 
                in such form (including language, type size, 
                and format), as the Commission shall require by 
                rule or regulation.
          (3) Commission rules relating to disclosure.--The 
        Commission shall adopt rules setting forth additional 
        standards for the disclosure by brokers and dealers to 
        customers of information concerning transactions in 
        penny stocks. Such rules--
                  (A) shall require brokers and dealers to 
                disclose to each customer, prior to effecting 
                any transaction in, and at the time of 
                confirming any transaction with respect to any 
                penny stock, in accordance with such procedures 
                and methods as the Commission may require 
                consistent with the public interest and the 
                protection of investors--
                          (i) the bid and ask prices for penny 
                        stock, or such other information as the 
                        Commission may, by rule, require to 
                        provide customers with more useful and 
                        reliable information relating to the 
                        price of such stock;
                          (ii) the number of shares to which 
                        such bid and ask prices apply, or other 
                        comparable information relating to the 
                        depth and liquidity of the market for 
                        such stock; and
                          (iii) the amount and a description of 
                        any compensation that the broker or 
                        dealer and the associated person 
                        thereof will receive or has received in 
                        connection with such transaction;
                  (B) shall require brokers and dealers to 
                provide, to each customer whose account with 
                the broker or dealer contains penny stocks, a 
                monthly statement indicating the market value 
                of the penny stocks in that account or 
                indicating that the market value of such stock 
                cannot be determined because of the 
                unavailability of firm quotes; and
                  (C) may, as the Commission finds necessary or 
                appropriate in the public interest or for the 
                protection of investors, require brokers and 
                dealers to disclose to customers additional 
                information concerning transactions in penny 
                stocks.
          (4) Exemptions.--The Commission, as it determines 
        consistent with the public interest and the protection 
        of investors, may by rule, regulation, or order exempt 
        in whole or in part, conditionally or unconditionally, 
        any person or class of persons, or any transaction or 
        class of transactions, from the requirements of this 
        subsection. Such exemptions shall include an exemption 
        for brokers and dealers based on the minimal percentage 
        of the broker's or dealer's commissions, commission-
        equivalents, and markups received from transactions in 
        penny stocks.
          (5) Regulations.--It shall be unlawful for any person 
        to violate such rules and regulations as the Commission 
        shall prescribe in the public interest or for the 
        protection of investors or to maintain fair and orderly 
        markets--
                  (A) as necessary or appropriate to carry out 
                this subsection; or
                  (B) as reasonably designed to prevent 
                fraudulent, deceptive, or manipulative acts and 
                practices with respect to penny stocks.
  (i) Limitations on State Law.--
          (1) Capital, margin, books and records, bonding, and 
        reports.--No law, rule, regulation, or order, or other 
        administrative action of any State or political 
        subdivision thereof shall establish capital, custody, 
        margin, financial responsibility, making and keeping 
        records, bonding, or financial or operational reporting 
        requirements for brokers, dealers, municipal securities 
        dealers, government securities brokers, or government 
        securities dealers that differ from, or are in addition 
        to, the requirements in those areas established under 
        this title. The Commission shall consult periodically 
        the securities commissions (or any agency or office 
        performing like functions) of the States concerning the 
        adequacy of such requirements as established under this 
        title.
          (2) Funding portals.--
                  (A) Limitation on state laws.--Except as 
                provided in subparagraph (B), no State or 
                political subdivision thereof may enforce any 
                law, rule, regulation, or other administrative 
                action against a registered funding portal with 
                respect to its business as such.
                  (B) Examination and enforcement authority.--
                Subparagraph (A) does not apply with respect to 
                the examination and enforcement of any law, 
                rule, regulation, or administrative action of a 
                State or political subdivision thereof in which 
                the principal place of business of a registered 
                funding portal is located, provided that such 
                law, rule, regulation, or administrative action 
                is not in addition to or different from the 
                requirements for registered funding portals 
                established by the Commission.
                  (C) Definition.--For purposes of this 
                paragraph, the term ``State'' includes the 
                District of Columbia and the territories of the 
                United States.
          (3) De minimis transactions by associated persons.--
        No law, rule, regulation, or order, or other 
        administrative action of any State or political 
        subdivision thereof may prohibit an associated person 
        of a broker or dealer from effecting a transaction 
        described in paragraph (3) for a customer in such State 
        if--
                  (A) such associated person is not ineligible 
                to register with such State for any reason 
                other than such a transaction;
                  (B) such associated person is registered with 
                a registered securities association and at 
                least one State; and
                  (C) the broker or dealer with which such 
                person is associated is registered with such 
                State.
          (4) Described transactions.--
                  (A) In general.--A transaction is described 
                in this paragraph if--
                          (i) such transaction is effected--
                                  (I) on behalf of a customer 
                                that, for 30 days prior to the 
                                day of the transaction, 
                                maintained an account with the 
                                broker or dealer; and
                                  (II) by an associated person 
                                of the broker or dealer--
                                          (aa) to which the 
                                        customer was assigned 
                                        for 14 days prior to 
                                        the day of the 
                                        transaction; and
                                          (bb) who is 
                                        registered with a State 
                                        in which the customer 
                                        was a resident or was 
                                        present for at least 30 
                                        consecutive days during 
                                        the 1-year period prior 
                                        to the day of the 
                                        transaction; or
                          (ii) the transaction is effected--
                                  (I) on behalf of a customer 
                                that, for 30 days prior to the 
                                day of the transaction, 
                                maintained an account with the 
                                broker or dealer; and
                                  (II) during the period 
                                beginning on the date on which 
                                such associated person files an 
                                application for registration 
                                with the State in which the 
                                transaction is effected and 
                                ending on the earlier of--
                                          (aa) 60 days after 
                                        the date on which the 
                                        application is filed; 
                                        or
                                          (bb) the date on 
                                        which such State 
                                        notifies the associated 
                                        person that it has 
                                        denied the application 
                                        for registration or has 
                                        stayed the pendency of 
                                        the application for 
                                        cause.
                  (B) Rules of construction.--For purposes of 
                subparagraph (A)(i)(II)--
                          (i) each of up to 3 associated 
                        persons of a broker or dealer who are 
                        designated to effect transactions 
                        during the absence or unavailability of 
                        the principal associated person for a 
                        customer may be treated as an 
                        associated person to which such 
                        customer is assigned; and
                          (ii) if the customer is present in 
                        another State for 30 or more 
                        consecutive days or has permanently 
                        changed his or her residence to another 
                        State, a transaction is not described 
                        in this paragraph, unless the 
                        associated person of the broker or 
                        dealer files an application for 
                        registration with such State not later 
                        than 10 business days after the later 
                        of the date of the transaction, or the 
                        date of the discovery of the presence 
                        of the customer in the other State for 
                        30 or more consecutive days or the 
                        change in the customer's residence.
  (j) Rulemaking To Extend Requirements to New Hybrid 
Products.--
          (1) Consultation.--Prior to commencing a rulemaking 
        under this subsection, the Commission shall consult 
        with and seek the concurrence of the Board concerning 
        the imposition of broker or dealer registration 
        requirements with respect to any new hybrid product. In 
        developing and promulgating rules under this 
        subsection, the Commission shall consider the views of 
        the Board, including views with respect to the nature 
        of the new hybrid product; the history, purpose, 
        extent, and appropriateness of the regulation of the 
        new product under the Federal banking laws; and the 
        impact of the proposed rule on the banking industry.
          (2) Limitation.--The Commission shall not--
                  (A) require a bank to register as a broker or 
                dealer under this section because the bank 
                engages in any transaction in, or buys or 
                sells, a new hybrid product; or
                  (B) bring an action against a bank for a 
                failure to comply with a requirement described 
                in subparagraph (A),
        unless the Commission has imposed such requirement by 
        rule or regulation issued in accordance with this 
        section.
          (3) Criteria for rulemaking.--The Commission shall 
        not impose a requirement under paragraph (2) of this 
        subsection with respect to any new hybrid product 
        unless the Commission determines that--
                  (A) the new hybrid product is a security; and
                  (B) imposing such requirement is necessary 
                and appropriate in the public interest and for 
                the protection of investors.
          (4) Considerations.--In making a determination under 
        paragraph (3), the Commission shall consider--
                  (A) the nature of the new hybrid product; and
                  (B) the history, purpose, extent, and 
                appropriateness of the regulation of the new 
                hybrid product under the Federal securities 
                laws and under the Federal banking laws.
          (5) Objection to commission regulation.--
                  (A) Filing of petition for review.--The Board 
                may obtain review of any final regulation 
                described in paragraph (2) in the United States 
                Court of Appeals for the District of Columbia 
                Circuit by filing in such court, not later than 
                60 days after the date of publication of the 
                final regulation, a written petition requesting 
                that the regulation be set aside. Any 
                proceeding to challenge any such rule shall be 
                expedited by the Court of Appeals.
                  (B) Transmittal of petition and record.--A 
                copy of a petition described in subparagraph 
                (A) shall be transmitted as soon as possible by 
                the Clerk of the Court to an officer or 
                employee of the Commission designated for that 
                purpose. Upon receipt of the petition, the 
                Commission shall file with the court the 
                regulation under review and any documents 
                referred to therein, and any other relevant 
                materials prescribed by the court.
                  (C) Exclusive jurisdiction.--On the date of 
                the filing of the petition under subparagraph 
                (A), the court has jurisdiction, which becomes 
                exclusive on the filing of the materials set 
                forth in subparagraph (B), to affirm and 
                enforce or to set aside the regulation at 
                issue.
                  (D) Standard of review.--The court shall 
                determine to affirm and enforce or set aside a 
                regulation of the Commission under this 
                subsection, based on the determination of the 
                court as to whether--
                          (i) the subject product is a new 
                        hybrid product, as defined in this 
                        subsection;
                          (ii) the subject product is a 
                        security; and
                          (iii) imposing a requirement to 
                        register as a broker or dealer for 
                        banks engaging in transactions in such 
                        product is appropriate in light of the 
                        history, purpose, and extent of 
                        regulation under the Federal securities 
                        laws and under the Federal banking 
                        laws, giving deference neither to the 
                        views of the Commission nor the Board.
                  (E) Judicial stay.--The filing of a petition 
                by the Board pursuant to subparagraph (A) shall 
                operate as a judicial stay, until the date on 
                which the determination of the court is final 
                (including any appeal of such determination).
                  (F) Other authority to challenge.--Any 
                aggrieved party may seek judicial review of the 
                Commission's rulemaking under this subsection 
                pursuant to section 25 of this title.
          (6) Definitions.--For purposes of this subsection:
                  (A) New hybrid product.--The term ``new 
                hybrid product'' means a product that--
                          (i) was not subjected to regulation 
                        by the Commission as a security prior 
                        to the date of the enactment of the 
                        Gramm-Leach-Bliley Act;
                          (ii) is not an identified banking 
                        product as such term is defined in 
                        section 206 of such Act; and
                          (iii) is not an equity swap within 
                        the meaning of section 206(a)(6) of 
                        such Act.
                  (B) Board.--The term ``Board'' means the 
                Board of Governors of the Federal Reserve 
                System.
  (j) The authority of the Commission under this section with 
respect to security-based swap agreements shall be subject to 
the restrictions and limitations of section 3A(b) of this 
title.
  (k) Registration or Succession to a United States Broker or 
Dealer.--In determining whether to permit a foreign person or 
an affiliate of a foreign person to register as a United States 
broker or dealer, or succeed to the registration of a United 
States broker or dealer, the Commission may consider whether, 
for a foreign person, or an affiliate of a foreign person that 
presents a risk to the stability of the United States financial 
system, the home country of the foreign person has adopted, or 
made demonstrable progress toward adopting, an appropriate 
system of financial regulation to mitigate such risk.
  (l) Termination of a United States Broker or Dealer.--For a 
foreign person or an affiliate of a foreign person that 
presents such a risk to the stability of the United States 
financial system, the Commission may determine to terminate the 
registration of such foreign person or an affiliate of such 
foreign person as a broker or dealer in the United States, if 
the Commission determines that the home country of the foreign 
person has not adopted, or made demonstrable progress toward 
adopting, an appropriate system of financial regulation to 
mitigate such risk.
  (k) Standard of Conduct.--
          (1) In general.--Notwithstanding any other provision 
        of this Act or the Investment Advisers Act of 1940, the 
        Commission may promulgate rules to provide that, with 
        respect to a broker or dealer, when providing 
        personalized investment advice about securities to a 
        retail customer (and such other customers as the 
        Commission may by rule provide), the standard of 
        conduct for such broker or dealer with respect to such 
        customer shall be the same as the standard of conduct 
        applicable to an investment adviser under section 211 
        of the Investment Advisers Act of 1940. The receipt of 
        compensation based on commission or other standard 
        compensation for the sale of securities shall not, in 
        and of itself, be considered a violation of such 
        standard applied to a broker or dealer. Nothing in this 
        section shall require a broker or dealer or registered 
        representative to have a continuing duty of care or 
        loyalty to the customer after providing personalized 
        investment advice about securities.
          (2) Disclosure of range of products offered.--Where a 
        broker or dealer sells only proprietary or other 
        limited range of products, as determined by the 
        Commission, the Commission may by rule require that 
        such broker or dealer provide notice to each retail 
        customer and obtain the consent or acknowledgment of 
        the customer. The sale of only proprietary or other 
        limited range of products by a broker or dealer shall 
        not, in and of itself, be considered a violation of the 
        standard set forth in paragraph (1).
  (l) Other Matters.--The Commission shall--
          (1) facilitate the provision of simple and clear 
        disclosures to investors regarding the terms of their 
        relationships with brokers, dealers, and investment 
        advisers, including any material conflicts of interest; 
        and
          (2) examine and, where appropriate, promulgate rules 
        prohibiting or restricting certain sales practices, 
        conflicts of interest, and compensation schemes for 
        brokers, dealers, and investment advisers that the 
        Commission deems contrary to the public interest and 
        the protection of investors.
  (m) Harmonization of Enforcement.--The enforcement authority 
of the Commission with respect to violations of the standard of 
conduct applicable to a broker or dealer providing personalized 
investment advice about securities to a retail customer shall 
include--
          (1) the enforcement authority of the Commission with 
        respect to such violations provided under this Act; and
          (2) the enforcement authority of the Commission with 
        respect to violations of the standard of conduct 
        applicable to an investment adviser under the 
        Investment Advisers Act of 1940, including the 
        authority to impose sanctions for such violations, and
the Commission shall seek to prosecute and sanction violators 
of the standard of conduct applicable to a broker or dealer 
providing personalized investment advice about securities to a 
retail customer under this Act to same extent as the Commission 
prosecutes and sanctions violators of the standard of conduct 
applicable to an investment advisor under the Investment 
Advisers Act of 1940.
  (n) Disclosures to Retail Investors.--
          (1) In general.--Notwithstanding any other provision 
        of the securities laws, the Commission may issue rules 
        designating documents or information that shall be 
        provided by a broker or dealer to a retail investor 
        before the purchase of an investment product or service 
        by the retail investor.
          (2) Considerations.--In developing any rules under 
        paragraph (1), the Commission shall consider whether 
        the rules will promote investor protection, efficiency, 
        competition, and capital formation.
          (3) Form and contents of documents and information.--
        Any documents or information designated under a rule 
        promulgated under paragraph (1) shall--
                  (A) be in a summary format; and
                  (B) contain clear and concise information 
                about--
                          (i) investment objectives, 
                        strategies, costs, and risks; and
                          (ii) any compensation or other 
                        financial incentive received by a 
                        broker, dealer, or other intermediary 
                        in connection with the purchase of 
                        retail investment products.
  (o) Authority to Restrict Mandatory Pre-dispute 
Arbitration.--The Commission, by rule, may prohibit, or impose 
conditions or limitations on the use of, agreements that 
require customers or clients of any broker, dealer, or 
municipal securities dealer to arbitrate any future dispute 
between them arising under the Federal securities laws, the 
rules and regulations thereunder, or the rules of a self-
regulatory organization if it finds that such prohibition, 
imposition of conditions, or limitations are in the public 
interest and for the protection of investors.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 5051 would increase retail investor exposure to risky 
private offerings by eliminating the cap on the number of non-
accredited investors that can hold a company's unregistered 
stock without triggering the full protections of federal 
securities laws. The bill would also allow public companies 
with more than a thousand shareholders to ``go dark'' by 
delisting and suspending public reporting of their financials. 
Finally, by prolonging the time a company can remain private 
and increasing opportunities for delisting, the bill would 
ultimately lead to fewer public companies.
    Pursuant to Section 12(g) of the Exchange Act of 1934, as 
amended by the Jumpstart Our Business Startups Act (``JOBS 
Act''), a private business that is not a bank, bank holding 
company, or savings and loan holding company, can issue shares 
to up to 2,000 investors without registering with the 
Securities Exchange Commission (SEC), provided that fewer than 
500 of the investors are unaccredited. Accredited investors are 
persons and entities with the financial sophistication and 
resources to face the increased risks associated with 
unregistered securities offerings, which include significantly 
fewer or no disclosures of the company's financial condition 
and the significant obstacles to selling the security.
    The Exchange Act also allows nonbank public companies to 
voluntarily deregister (under Section 12(g)(4)) and suspend 
their obligations to publically file periodic financial reports 
(under Section 15(d)(1)) if they have fewer than 300 
shareholders.
    Although proponents of H.R. 5051 note that the JOBS Act 
established higher registration and deregistration thresholds 
for banks and bank-holding companies, Congress did so 
recognizing that investors in these specific financial 
institutions would continue to receive key financial 
information even without registration, because all banks are 
required to provide public call reports to their bank 
regulators, which investors can easily access online.
    H.R. 5051 would, without justification, extend the 
registration and deregistration thresholds that exist for banks 
to all companies, even those that do not provide public 
financial information like call reports. Specifically, it would 
raise the registration trigger for private, nonbank companies 
to 2,000 persons, without regard to accredited investor status. 
The bill would thus undo a provision in the JOBS Act that 
purposefully limits the number of unsophisticated investors 
that issuers can pursue in higher-risk private offerings. H.R. 
5051 would also allow public companies to deregister and 
suspend public financial reporting if they have less than 1,200 
shareholders, four times the current threshold of 300.
    The most of immediate effect of the bill would be that 
investors who were previously receiving information about a 
public company would be left in the dark. It would also provide 
a disincentive for companies to go and remain public.
    Investor advocacy groups like Americans for Financial 
Refoini (``AFR'') and Public Citizen oppose H.R. 5051 because 
it would increase risks for investors and deter public company 
registration. In a letter to the Committee, AFR wrote, 
``[p]ublic company registration is a crucial element of 
investor protection and the health of the broader financial 
markets, and has been since the 1930s. H.R. 5051 is one of many 
bills that is discouraging public company registration and 
expanding the scope of purely private companies in U.S. 
markets. This is the wrong direction to go.'' Public Citizen 
also wrote to the Committee opposing H.R. 5051 because it, 
``would expose more investors who lack financial sophistication 
to higher risk securities.'' Public Citizen noted that, 
``[f]irms with many investors that file public reports can be 
policed not only by the Securities and Exchange Commission, but 
by investors themselves who collectively analyze the company 
and score the company's performance in the public market. 
Smaller companies who do not report lack either of these 
safeguards.''
    For these reasons, we oppose H.R. 5051.

                                   Maxine Waters.
                                   Stephen F. Lynch.
                                   Gregory W. Meeks.
                                   Ed Perlmutter.
                                   Joyce Beatty.
                                   Carolyn B. Maloney.
                                   Keith Ellison.
                                   Wm. Lacy Clay.
                                   Michael E. Capuano.
                                   Al Green.

                                  [all]