[House Report 116-123]
[From the U.S. Government Publishing Office]


116th Congress    }                                    {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                    {       116-123

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



 
                SEC DISCLOSURE EFFECTIVENESS TESTING ACT

                                _______
                                

 June 20, 2019.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Ms. Maxine Waters of California, from the Committee on Financial 
                   Services, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1815]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1815) to require the Securities and Exchange 
Commission, when developing rules and regulations about 
disclosures to retail investors, to conduct investor testing, 
including a survey and interviews of retail investors, and for 
other purposes, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     3
Background and Need for Legislation..............................     3
Section-by-Section Analysis......................................     5
Hearings.........................................................     5
Committee Consideration..........................................     5
Committee Votes..................................................     6
Statement of Oversight Findings and Recommendations of the 
  Committee......................................................     8
Statement of Performance Goals and Objectives....................     8
New Budget Authority and CBO Cost Estimate.......................     8
Committee Cost Estimate..........................................     8
Unfunded Mandate Statement.......................................    11
Advisory Committee...............................................    11
Application of Law to the Legislative Branch.....................
Earmark Statement................................................    11
Duplication of Federal Programs..................................    11
Changes to Existing Law..........................................    11

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``SEC Disclosure Effectiveness Testing 
Act''.

SEC. 2. DISCLOSURE TESTING.

  (a) In General.--Section 23(a) of the Securities Exchange Act of 1934 
(15 U.S.C. 78w(a)) is amended by adding at the end the following:
  ``(4) Investor Testing.--
          ``(A) In general.--The Commission shall engage in investor 
        testing prior to issuing any rule or regulation which 
        designates documents or information to be disclosed under the 
        securities laws, if such documents or information--
                  ``(i) are primarily used by retail investors, as 
                determined by the Commission; and
                  ``(ii) are intended to be used by retail investors to 
                make informed investment decisions or to understand the 
                investments held by the retail investor.
          ``(B) Contents.--Investor testing conducted pursuant to 
        subparagraph (A) shall include the following:
                  ``(i) Qualitative testing in the form of one-on-one 
                cognitive interviews of retail investors about 
                documents or information, or samples of such documents 
                or information, to be provided.
                  ``(ii) A nationwide survey of retail investors, 
                designed to complement the interviews under clause (i), 
                on--
                          ``(I) the usefulness of such documents or 
                        information, or samples of such documents or 
                        information;
                          ``(II) the proposed format of such documents 
                        or information, or samples of such documents or 
                        information; and
                          ``(III) delivery preferences of such 
                        documents or information, or samples of such 
                        documents or information.
                  ``(iii) Analysis and publication in the Federal 
                Register of the results of the survey and interviews.
                  ``(iv) An opportunity for the public to comment on 
                such results published in the Federal Register.
          ``(C) Substantive changes.--If the Commission, in the period 
        between engaging in investor testing and publishing a final 
        rule, makes substantive changes to such rule that the 
        Commission determines would have a significant impact on retail 
        investors, the Commission shall again engage in investor 
        testing.
          ``(D) Public availability of retail testing results.--The 
        Commission shall make the data and results of any investor 
        testing performed pursuant to this paragraph available to the 
        public.''.
  (b) Participation of Investor Advocate.--Section 4(g) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78d(g)) is amended--
          (1) in paragraph (4)--
                  (A) in subparagraph (D)(ii), by striking ``and'' at 
                the end;
                  (B) by redesignating subparagraph (E) as subparagraph 
                (F); and
                  (C) by inserting after subparagraph (D) the 
                following:
                  ``(E) engage in investor testing--
                          ``(i) as necessary to carry out the functions 
                        of the Office; and
                          ``(ii) under section 23(a)(4), if the 
                        Commission determines it appropriate; and''; 
                        and
          (2) by adding at the end the following:
          ``(9) Publication of data and results of investor testing.--
        With respect to any investor testing carried out by the 
        Investor Advocate pursuant to paragraph (4)(E), the Investor 
        Advocate may make the data and results of such investor testing 
        available to the public, and without further review or editing 
        by the Commission.''.
  (c) Prior Rules.--
          (1) In general.--For any final rule or regulation issued by 
        the Securities and Exchange Commission (in this subsection 
        referred to as the ``Commission'') before the date of the 
        enactment of this Act that would be subject to investor testing 
        under section 23(a)(4) of the Securities Exchange Act of 1934, 
        had such rule been issued on or after the date of enactment of 
        this Act, the Commission shall perform investor testing with 
        respect to such rule or regulation that includes the contents 
        described in such section 23(a)(4).
          (2) Schedule.--The Commission shall, not later than 6 months 
        after the date of the enactment of this Act, establish a 
        schedule for completing any investor testing required under 
        paragraph (1) that prioritizes testing of any final rules and 
        regulations that designate documents or information central to 
        retail investor decision making.
          (3) Report.--The Commission shall issue a report to Congress 
        each year containing the following:
                  (A) The status of any investor testing required under 
                paragraph (1).
                  (B) The results of any investor testing completed 
                under paragraph (1).
                  (C) Any priorities the Commission has, based on 
                results of investor testing required by paragraph (1), 
                for--
                          (i) revising or eliminating any final rule or 
                        regulation designating documents or information 
                        to be provided to retail investors; and
                          (ii) revising any other final rule or 
                        regulation to supplement revised or eliminated 
                        rules designating documents or information to 
                        be provided to retail investors.

                          Purpose and Summary

    H.R. 1815, the SEC Disclosure Effectiveness Testing Act, 
would build on efforts by the Securities and Exchange 
Commission (SEC) to engage in investor testing by requiring the 
SEC to conduct usability testing of new disclosures that are 
primarily used by retail investors and are intended to help 
them make investment decisions or understand their investments. 
It would also require the SEC to review and test the usability 
of its existing disclosures for retail investors, such as 
mutual fund disclosures. Such reviews and tests would be 
required prior to the SEC adopting a final rulemaking. The bill 
would also provide the SEC's Investor Advocate with the 
authority to conduct investor testing and allow such testing to 
meet the requirements of the bill. The Investor Advocate would 
be able to make the testing results and data public.

                   Background and Need for Legislaton

    On April 18, 2018 the SEC proposed a three-part regulatory 
package, consisting of: (1) a ``best interest'' standard of 
conduct for brokers pursuant to Section 913(f) of Dodd-Frank 
(``Regulation Best Interest'' or ``Reg BI''); (2) guidance on 
the fiduciary standard of conduct for investment advisers; and, 
(3) a relationship disclosure document for brokers and 
investment advisers (``Form CRS'').\1\ Form CRS is a 5-page 
document designed to inform retail investors about the 
relationships and services the brokerage firm or investment 
adviser offers, the standard of conduct and costs associated 
with those services, specific conflicts of interest, and 
whether the firm and its financial professionals have 
reportable legal or disciplinary events. The SEC then engaged 
in investor testing of proposed Form CRS, which consisted of a 
nationwide online survey of 1,800 individuals and 31 
qualitative in-depth interviews in Denver and Pittsburgh.
---------------------------------------------------------------------------
    \1\SEC, Form CRS Relationship Summary; Amendments to Form ADV; 
Required Disclosures in Retail Communications and Restrictions on the 
use of Certain Names or Titles, 83 Fed. Reg. 21416 (Apr. 18, 2018) (to 
be codified at 17 C.F.R. pt. 240, available at: https://
www.federalregister.gov/documents/2018/05/09/2018-08583/form-crs-
relationship-summary-amendments-to-form-adv-required-disclosures-in-
retail-communications; SEC, Proposed Commission Interpretation 
Regarding Standard of Conduct for Investment Advisers; Request for 
Comment on Enhancing Investment Adviser Regulation, 83 Fed. Reg. 21203) 
(Apr. 18, 2018) (to be codified at 17 C.F.R. pt. 275), available at: 
https://www.federalregister.gov/documents/2018/05/09/2018-08679/
proposed-commission-interpretation-regarding-standard-of-conduct-for-
investment-advisers-request-for; SEC, Regulation Best Interest, 83 Fed. 
Reg. 21574 (Apr. 18, 2018 (to be codified at 17 C.F.R. pt. 240), 
available at: https://www.federalregister.gov/documents/2018/05/09/
2018-08582/regulation-best-interest.
---------------------------------------------------------------------------
    On November 7, 2018, the SEC's Investor Advocate issued a 
report on the testing conducted by the RAND Corporation.\2\ 
According to the report, ``[n]early 90 percent of survey 
respondents opined that the [Form CRS] would help them make 
more informed decisions about investment accounts and 
services.''\3\ However, ``interview discussions revealed that 
there were areas of confusion for participants, including 
differences between types of accounts or financial 
professionals.''\4\
---------------------------------------------------------------------------
    \2\RAND Relationship Summary, supra note 11.
    \3\RAND Relationship Summary, supra note 11, at 36.
    \4\RAND Relationship Summary, supra note 11, at 42.
---------------------------------------------------------------------------
    Also, on November 7, 2018, the SEC's Investor Advisory 
Committee (IAC) issued recommendations on the SEC proposed Reg 
BI, advisor guidance, and Form CRS. Among other things, the IAC 
recommended that the SEC conduct usability testing of the 
disclosures in Form CRS ``and, if necessary, revise them to 
ensure that they enable investors to make an informed choice 
among different types of providers and accounts.''\5\ The IAC 
also noted that the extensive feedback it had received and the 
comment letters to the SEC suggested that ``Form CRS, as 
currently proposed, is unlikely to achieve its intended purpose 
of reducing investor confusion and supporting informed 
decisions.''\6\
---------------------------------------------------------------------------
    \5\Sec. & Exch. Comm'n, Recommendation of the Investor as Purchaser 
Subcommittee Regarding Proposed Regulation Best Interest, Form CRS, and 
Investment Advisers Act Fiduciary Guidance, available at: https://
www.sec.gov/spotlight/investor-advisory-committee-2012/iac110718-
investor-as-purchaser-subcommittee-recommendation.pdf [hereinafter SEC 
Recommendation].
    \6\SEC Recommendation, supra note 20.
---------------------------------------------------------------------------
    On September 12, 2018, AARP, the Financial Planning 
Coalition, and Consumer Federation of America sent a letter to 
SEC Chairman Clayton detailing the results of their own 
independent usability testing.\7\ Their testing consisted of 
90-minute, one-on-one interviews with 16 investors from three 
geographically diverse locations. The key findings of the 
testing were that: (1) ``The overall level of comprehension was 
poor;'' (2) Participants did not understand key differences in 
the nature of services provided;'' (3) ``Most participants did 
not understand disclosures regarding legal obligations;'' (4) 
``Participants were deeply confused by the disclosure of fees 
and costs;'' and, (5) ``Participants understood the existence, 
but not the import, of conflicts of interest.''
---------------------------------------------------------------------------
    \7\Letter from the AARP et al., to the SEC, Sept. 12, 2018, 
available at: https://consumerfed.org/wp-content/uploads/2018/09/
letter-to-sec-from-aarp-cfa-fpc-regarding-crs-testing.pdf.
---------------------------------------------------------------------------
    The SEC Disclosure Effectiveness Testing Act would build on 
efforts to engage in investor testing by requiring the SEC to 
conduct usability testing of any new disclosure if they are 
primarily used by retail investors or intended to be used by 
retail investors to make informed investment decisions or 
understand their investments. It would also require the SEC to 
review and test the usability of its existing disclosures for 
retail investors, such as mutual fund disclosures. Such reviews 
and tests would be required prior to the SEC adopting a final 
rulemaking.
    During a March 14, 2019 hearing before the Subcommittee on 
Investor Protection, Entrepreneurship, and Capital Markets, 
witnesses from the Certified Financial Planning Board of 
Standards (CFP Board) and CFA expressed strong support for the 
SEC Disclosure Effectiveness Testing Act. Former SEC Chairman 
Harvey Pitt testified that the SEC had already conducted 
investor testing, making the bill ``superfluous'' and ``would 
likely be used by those with different objectives to hamstring 
almost any rulemaking effort involving investor disclosures 
that the Commission may consider.'' Mr. Lee Baker, President of 
AARP Georgia, testified that the SEC's test results suggest 
that ``there's more work to be done.''

                      Section-by-Section Analysis


Section 1. Short title

    This section states that the title of the bill is the SEC 
Disclosure Effectiveness Testing Act.

Section 2. Disclosure testing

    Subsection (a) requires the SEC to engage in investor 
testing prior to making any rule or regulation which designates 
documents or information to be disclosed if they are primarily 
used by retail investors or intended to be used by retail 
investors to make informed investment decisions or understand 
their investments. Such testing must include: qualitative 
testing in the form of one-on-one cognitive interviews of 
retail investors about documents or information, or samples of 
such documents or information, to be provided; a nationwide 
survey of retail investors, designed to complement the 
interviews; analysis and publication in the Federal Register of 
the results of the survey and interviews; and an opportunity 
for the public to comment on such results published in the 
Federal Register. Subsection (a) also requires the SEC to 
retest any substantive changes that would have a significant 
impact on investors.
    Subsection (b) provides the SEC's Investor Advocate with 
the authority to conduct investor testing and allows such 
testing to meet the requirements of the bill. The Investor 
Advocate would be able to make the testing results and data 
public.
    Subsection (c) requires the SEC to perform investor testing 
of existing rules and regulations as of the date of this Act 
which designates documents or information to be provided to a 
retail investor. The SEC must establish a schedule for 
completing this investor testing and report to Congress 
annually on its progress.

                                Hearings

    For the purposes of section 103(i) of H. Res. 6 for the 
116th Congress, the Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets of the Committee on 
Financial Services held a hearing to consider H.R. 1815 
entitled ``Putting Investors First? Examining the SEC's Best 
Interest Rule'' on Thursday, March 14, 2019. Testifying before 
the Subcommittee was Susan MacMichael John, CFP President, 
Financial Focus, Inc.; Dina Isola, Investment Advisor 
Representative, Ritholtz Wealth Management; Barbara Roper, 
Director of Investor Protection, Consumer Federation of 
America; Lee Baker, President, AARP Georgia State; and the 
Honorable Harvey L. Pitt, Chief Executive Officer, Kalorama 
Partners.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 26-28, 2019, and ordered H.R. 1815 to be reported 
favorably to the House with an amendment in the nature of a 
substitute by a vote of 33 yeas and 26 nays, a quorum being 
present.

                  Committee Votes and Roll Call Votes

    In compliance with clause 3(b) of Rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
following roll call votes occurred during the Committee's 
consideration of H.R. 1815.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 3(c)(1) of rule XIII and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee's oversight findings and recommendations are 
reflected in the descriptive portions of this report.

             Statement of Performance Goals and Objectives

    Pursuant to clause (3)(c) of rule XIII of the Rules of the 
House of Representatives, the goals of H.R. 1815 are to ensure 
that the SEC implements usability testing of new disclosures 
that are primarily used by retail investors.

               New Budget Authority and CBO Cost Estimate

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives and section 308(a) of the 
Congressional Budget Act of 1974, and pursuant to clause 
3(c)(3) of rule XIII of the Rules of the House of 
Representatives and section 402 of the Congressional Budget Act 
of 1974, the Committee has received the following estimate for 
H.R. 1815 from the Director of the Congressional Budget Office:

                        Committee Cost Estimate

    Clause 3(d)(1) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison of the 
costs that would be incurred in carrying out H.R. 1815. 
However, clause 3(d)(2)(B) of that rule provides that this 
requirement does not apply when the committee has included in 
its report a timely submitted cost estimate of the bill 
prepared by the Director of the Congressional Budget Office 
under section 402 of the Congressional Budget Act.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 19, 2019.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Madam Chairwoman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1815, the SEC 
Disclosure Effectiveness Testing Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is David Hughes.
            Sincerely,
                                         Phillip L. Swagel,
                                                          Director.
    Enclosure.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Bill summary: Financial professionals such as broker-
dealers and investment advisors are required by the Securities 
and Exchange Commission (SEC) to disclose a variety of 
documents and other information to retail investors.\1\ 
Disclosures are designed to educate retail investors about 
financial choices, standards of care, fiduciary relationships, 
and other aspects of investing.\2\ H.R. 1815 would require the 
SEC to test the usability of any disclosure that it mandates 
through a final rule to be provided to retail investors by 
broker dealers or investment advisors. Those usability tests 
would be required before the SEC adopts final rules governing 
such disclosures. If proposed disclosures undergo substantive 
changes before the final rule is promulgated, an additional 
usability test would be required. Disclosures previously 
mandated before of the bill's enactment also would require a 
usability test.
---------------------------------------------------------------------------
    \1\Retail investors are individuals without advanced investment 
knowledge who buy and sell securities, exchange traded funds, or mutual 
funds, frequently with the advice of broker-dealers and investment 
advisors.
    \2\For example, the SEC recently adopted a final rule mandating 
that broker-dealers and investment advisors disclose their financial 
services they offered, standards of conduct, fees and costs, conflicts 
of interest, and disciplinary history to retail investors. Under the 
rule, retail investors are entitled to a disclosure at the beginning of 
the relationship and an additional disclosure following a material 
change to the relationship. See Form CRS Relationship Summary; 
Amendments to Form ADV, 17 C.F.R. Sec. 200, 240, 249, 275, and 279 
(June 5, 2019).
---------------------------------------------------------------------------
    Each usability test would include the following:
           One-on-one interviews with retail investors 
        to assess their understanding of the disclosure in 
        question;
           A nationwide survey of retail investors to 
        assess the usefulness of the disclosure;
           An analysis of the interview and survey 
        results, which would be published in the Federal 
        Register; and
           An opportunity for public comment on those 
        published results.
    Estimated Federal cost: The estimated budgetary effect of 
H.R. 1815 is shown in Table 1. The costs of the legislation 
fall within budget function 370 (commerce and housing credit).
    Basis of estimate: CBO estimates that implementing H.R. 
1815 would have a gross cost to the SEC of $156 million over 
the 2019-2024 period. However, the SEC is authorized to collect 
fees each year to offset its annual appropriation. Assuming 
appropriation actions consistent with that authority, CBO 
expects that implementing H.R. 1815 would lead to a net 
decrease in spending of $8 million because the collection of 
fees would initially outpace spending on usability testing.

                TABLE 1--ESTIMATED INCREASES IN SPENDING SUBJECT TO APPROPRIATION UNDER H.R. 1815
----------------------------------------------------------------------------------------------------------------
                                                             By fiscal year, millions of dollars--
                                              ------------------------------------------------------------------
                                                 2019     2020     2021     2022     2023     2024    2019-2024
----------------------------------------------------------------------------------------------------------------
Testing of Proposed Documents
    Estimated Authorization..................        0       27       28       29       30       31          145
    Estimated Outlays........................        0       20       28       29       30       31          138
Testing of Prior Documents
    Estimated Authorization..................        0        *        4        5        5        5           19
    Estimated Outlays........................        0        *        3        5        5        5           18
Additional Fee Collections
    Estimated Authorization..................        0      -27      -32      -34      -35      -36         -164
    Estimated Outlays........................        0      -27      -32      -34      -35      -36         -165
    Total Changes
        Estimated Authorization..............        0        0        0        0        0        0            0
        Estimated Outlays....................        0       -7       -1        0        0        0           -8
----------------------------------------------------------------------------------------------------------------
*= between -$500,000 and $500,000.

    Using information from the SEC on the quantity of proposed 
rules that involve disclosures to retail investors, CBO 
estimates that the agency would test the usability of an 
average of 18 disclosures each year over the 2020-2024 period. 
Each test would require the work of three employees, at a cost 
of $250,000 per employee, and contractor support at a cost of 
$600,000. CBO estimates that some retesting would be required 
because of substantive changes to proposed disclosures before 
final promulgation. In total, CBO estimates, the SEC would 
conduct 95 investor tests over the next five years, at a gross 
cost of $138 million, including the cost of publishing data and 
results.
    Under H.R. 1815, the SEC would establish a schedule in 2020 
to test disclosures mandated by final rules in place before the 
bill's enactment. Testing on those disclosures would probably 
begin in 2021. CBO estimates that three such disclosures would 
be tested each year from 2021 to 2024, at a gross cost of $18 
million over the 2020-2024 period.
    Pay-As-You Go considerations: None.
    Increase in Long-Term deficits: None.
    Mandates: If the SEC increased fees to offset the costs of 
implementation, H.R. 1815 would raise the cost of an existing 
mandate on private entities required to pay those assessments. 
CBO estimates that, on average, the annual incremental cost of 
the mandate would be less than $35 million--well below the 
annual threshold established in the Unfunded Mandates Reform 
Act for private-sector mandates ($164 million in 2019, adjusted 
annually for inflation).
    Estimate prepared by: Federal costs: David Hughes; 
Mandates: Rachel Austin.
    Estimate reviewed by: Kim Cawley, Chief, Natural and 
Physical Resources Cost Estimates Unit; Susan Willie, Chief, 
Mandates Unit; H. Samuel Papenfuss, Deputy Assistant Director 
for Budget Analysis; Theresa Gullo, Assistant Director for 
Budget Analysis.

                       Unfunded Mandate Statement

    Pursuant to Section 423 of the Congressional Budget and 
Impoundment Control Act (as amended by Section 101(a)(2) of the 
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee 
adopts as its own the estimate of federal mandates regarding 
H.R. 1815, as amended, prepared by the Director of the 
Congressional Budget Office.

                           Advisory Committee

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

              Application of Law to the Legislative Branch

    Pursuant to section 102(b)(3) of the Congressional 
Accountability Act, Pub. L. No. 104-1, H.R. 1815, as amended, 
does not apply to terms and conditions of employment or to 
access to public services or accommodations within the 
legislative branch.

                           Earmark Statement

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 1815 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as described in clauses 9(e), 9(f), and 9(g) of rule 
XXI.

                    Duplication of Federal Programs

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of H.R.1815 establishes or reauthorizes a program of 
the Federal Government known to be duplicative of another 
federal program, a program that was included in any report from 
the Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or a program related to a 
program identified in the most recent Catalog of Federal 
Domestic Assistance.

                        Changes to Existing Law

    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, H.R. 1815, as reported, are shown as follows:

         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

           *       *       *       *       *       *       *



                   securities and exchange commission

  Sec. 4. (a) There is hereby established a Securities and 
Exchange Commission (hereinafter referred to as the 
``Commission'') to be composed of five commissioners to be 
appointed by the President by and with the advice and consent 
of the Senate. Not more than three of such commissioners shall 
be members of the same political party, and in making 
appointments members of different political parties shall be 
appointed alternately as nearly as may be practicable. No 
commissioner shall engage in any other business, vocation, or 
employment than that of serving as commissioner, nor shall any 
commissioner participate, directly or indirectly, in any stock-
market operations or transactions of a character subject to 
regulation by the Commission pursuant to this title. Each 
commissioner shall hold office for a term of five years and 
until his successor is appointed and has qualified, except that 
he shall not so continue to serve beyond the expiration of the 
next session of Congress subsequent to the expiration of said 
fixed term of office, and except (1) any commissioner appointed 
to fill a vacancy occurring prior to the expiration of the term 
for which his predecessor was appointed shall be appointed for 
the remainder of such term, and (2) the terms of office of the 
commissioners first taking office after the enactment of this 
title shall expire as designated by the President at the time 
of nomination, one at the end of one year, one at the end of 
two years, one at the end of three years, one at the end of 
four years, and one at the end of five years, after the date of 
the enactment of this title.
  (b) Appointment and Compensation of Staff and Leasing 
Authority.--
          (1) Appointment and compensation.--The Commission 
        shall appoint and compensate officers, attorneys, 
        economists, examiners, and other employees in 
        accordance with section 4802 of title 5, United States 
        Code.
          (2) Reporting of information.--In establishing and 
        adjusting schedules of compensation and benefits for 
        officers, attorneys, economists, examiners, and other 
        employees of the Commission under applicable provisions 
        of law, the Commission shall inform the heads of the 
        agencies referred to under section 1206 of the 
        Financial Institutions Reform, Recovery, and 
        Enforcement Act of 1989 (12 U.S.C. 1833b) and Congress 
        of such compensation and benefits and shall seek to 
        maintain comparability with such agencies regarding 
        compensation and benefits.
          (3) Leasing authority.--Nothwithstanding any other 
        provision of law, the Commission is authorized to enter 
        directly into leases for real property for office, 
        meeting, storage, and such other space as is necessary 
        to carry out its functions, and shall be exempt from 
        any General Services Administration space management 
        regulations or directives.
  (c) Notwithstanding any other provision of law, in accordance 
with regulations which the Commission shall prescribe to 
prevent conflicts of interest, the Commission may accept 
payment and reimbursement, in cash or in kind, from non-Federal 
agencies, organizations, and individuals for travel, 
subsistence, and other necessary expenses incurred by 
Commission members and employees in attending meetings and 
conferences concerning the functions or activities of the 
Commission. Any payment or reimbursement accepted shall be 
credited to the appropriated funds of the Commission. The 
amount of travel, subsistence, and other necessary expenses for 
members and employees paid or reimbursed under this subsection 
may exceed per diem amounts established in official travel 
regulations, but the Commission may include in its regulations 
under this subsection a limitation on such amounts.
  (d) Notwithstanding any other provision of law, former 
employers of participants in the Commission's professional 
fellows programs may pay such participants their actual 
expenses for relocation to Washington, District of Columbia, to 
facilitate their participation in such programs, and program 
participants may accept such payments.
  (e) Notwithstanding any other provision of law, whenever any 
fee is required to be paid to the Commission pursuant to any 
provision of the securities laws or any other law, the 
Commission may provide by rule that such fee shall be paid in a 
manner other than in cash and the Commission may also specify 
the time that such fee shall be determined and paid relative to 
the filing of any statement or document with the Commission.
  (f) Reimbursement of Expenses for Assisting Foreign 
Securities Authorities.--Notwithstanding any other provision of 
law, the Commission may accept payment and reimbursement, in 
cash or in kind, from a foreign securities authority, or made 
on behalf of such authority, for necessary expenses incurred by 
the Commission, its members, and employees in carrying out any 
investigation pursuant to section 21(a)(2) of this title or in 
providing any other assistance to a foreign securities 
authority. Any payment or reimbursement accepted shall be 
considered a reimbursement to the appropriated funds of the 
Commission.
  (g) Office of the Investor Advocate.--
          (1) Office established.--There is established within 
        the Commission the Office of the Investor Advocate (in 
        this subsection referred to as the ``Office'').
          (2) Investor advocate.--
                  (A) In general.--The head of the Office shall 
                be the Investor Advocate, who shall--
                          (i) report directly to the Chairman; 
                        and
                          (ii) be appointed by the Chairman, in 
                        consultation with the Commission, from 
                        among individuals having experience in 
                        advocating for the interests of 
                        investors in securities and investor 
                        protection issues, from the perspective 
                        of investors.
                  (B) Compensation.--The annual rate of pay for 
                the Investor Advocate shall be equal to the 
                highest rate of annual pay for other senior 
                executives who report to the Chairman of the 
                Commission.
                  (C) Limitation on service.--An individual who 
                serves as the Investor Advocate may not be 
                employed by the Commission--
                          (i) during the 2-year period ending 
                        on the date of appointment as Investor 
                        Advocate; or
                          (ii) during the 5-year period 
                        beginning on the date on which the 
                        person ceases to serve as the Investor 
                        Advocate.
          (3) Staff of office.--The Investor Advocate, after 
        consultation with the Chairman of the Commission, may 
        retain or employ independent counsel, research staff, 
        and service staff, as the Investor Advocate deems 
        necessary to carry out the functions, powers, and 
        duties of the Office.
          (4) Functions of the investor advocate.--The Investor 
        Advocate shall--
                  (A) assist retail investors in resolving 
                significant problems such investors may have 
                with the Commission or with self-regulatory 
                organizations;
                  (B) identify areas in which investors would 
                benefit from changes in the regulations of the 
                Commission or the rules of self-regulatory 
                organizations;
                  (C) identify problems that investors have 
                with financial service providers and investment 
                products;
                  (D) analyze the potential impact on investors 
                of--
                          (i) proposed regulations of the 
                        Commission; and
                          (ii) proposed rules of self-
                        regulatory organizations registered 
                        under this title; [and]
                  (E) engage in investor testing--
                          (i) as necessary to carry out the 
                        functions of the Office; and
                          (ii) under section 23(a)(4), if the 
                        Commission determines it appropriate; 
                        and
                  [(E)] (F) to the extent practicable, propose 
                to the Commission changes in the regulations or 
                orders of the Commission and to Congress any 
                legislative, administrative, or personnel 
                changes that may be appropriate to mitigate 
                problems identified under this paragraph and to 
                promote the interests of investors.
          (5) Access to documents.--The Commission shall ensure 
        that the Investor Advocate has full access to the 
        documents of the Commission and any self-regulatory 
        organization, as necessary to carry out the functions 
        of the Office.
          (6) Annual reports.--
                  (A) Report on objectives.--
                          (i) In general.--Not later than June 
                        30 of each year after 2010, the 
                        Investor Advocate shall submit to the 
                        Committee on Banking, Housing, and 
                        Urban Affairs of the Senate and the 
                        Committee on Financial Services of the 
                        House of Representatives a report on 
                        the objectives of the Investor Advocate 
                        for the following fiscal year.
                          (ii) Contents.--Each report required 
                        under clause (i) shall contain full and 
                        substantive analysis and explanation.
                  (B) Report on activities.--
                          (i) In general.--Not later than 
                        December 31 of each year after 2010, 
                        the Investor Advocate shall submit to 
                        the Committee on Banking, Housing, and 
                        Urban Affairs of the Senate and the 
                        Committee on Financial Services of the 
                        House of Representatives a report on 
                        the activities of the Investor Advocate 
                        during the immediately preceding fiscal 
                        year.
                          (ii) Contents.--Each report required 
                        under clause (i) shall include--
                                  (I) appropriate statistical 
                                information and full and 
                                substantive analysis;
                                  (II) information on steps 
                                that the Investor Advocate has 
                                taken during the reporting 
                                period to improve investor 
                                services and the responsiveness 
                                of the Commission and self-
                                regulatory organizations to 
                                investor concerns;
                                  (III) a summary of the most 
                                serious problems encountered by 
                                investors during the reporting 
                                period;
                                  (IV) an inventory of the 
                                items described in subclause 
                                (III) that includes--
                                          (aa) identification 
                                        of any action taken by 
                                        the Commission or the 
                                        self-regulatory 
                                        organization and the 
                                        result of such action;
                                          (bb) the length of 
                                        time that each item has 
                                        remained on such 
                                        inventory; and
                                          (cc) for items on 
                                        which no action has 
                                        been taken, the reasons 
                                        for inaction, and an 
                                        identification of any 
                                        official who is 
                                        responsible for such 
                                        action;
                                  (V) recommendations for such 
                                administrative and legislative 
                                actions as may be appropriate 
                                to resolve problems encountered 
                                by investors; and
                                  (VI) any other information, 
                                as determined appropriate by 
                                the Investor Advocate.
                          (iii) Independence.--Each report 
                        required under this paragraph shall be 
                        provided directly to the Committees 
                        listed in clause (i) without any prior 
                        review or comment from the Commission, 
                        any commissioner, any other officer or 
                        employee of the Commission, or the 
                        Office of Management and Budget.
                          (iv) Confidentiality.--No report 
                        required under clause (i) may contain 
                        confidential information.
          (7) Regulations.--The Commission shall, by 
        regulation, establish procedures requiring a formal 
        response to all recommendations submitted to the 
        Commission by the Investor Advocate, not later than 3 
        months after the date of such submission.
          (8) Ombudsman.--
                  (A) Appointment.--Not later than 180 days 
                after the date on which the first Investor 
                Advocate is appointed under paragraph 
                (2)(A)(i), the Investor Advocate shall appoint 
                an Ombudsman, who shall report directly to the 
                Investor Advocate.
                  (B) Duties.--The Ombudsman appointed under 
                subparagraph (A) shall--
                          (i) act as a liaison between the 
                        Commission and any retail investor in 
                        resolving problems that retail 
                        investors may have with the Commission 
                        or with self-regulatory organizations;
                          (ii) review and make recommendations 
                        regarding policies and procedures to 
                        encourage persons to present questions 
                        to the Investor Advocate regarding 
                        compliance with the securities laws; 
                        and
                          (iii) establish safeguards to 
                        maintain the confidentiality of 
                        communications between the persons 
                        described in clause (ii) and the 
                        Ombudsman.
                  (C) Limitation.--In carrying out the duties 
                of the Ombudsman under subparagraph (B), the 
                Ombudsman shall utilize personnel of the 
                Commission to the extent practicable. Nothing 
                in this paragraph shall be construed as 
                replacing, altering, or diminishing the 
                activities of any ombudsman or similar office 
                of any other agency.
                  (D) Report.--The Ombudsman shall submit a 
                semiannual report to the Investor Advocate that 
                describes the activities and evaluates the 
                effectiveness of the Ombudsman during the 
                preceding year. The Investor Advocate shall 
                include the reports required under this section 
                in the reports required to be submitted by the 
                Inspector Advocate under paragraph (6).
          (9) Publication of data and results of investor 
        testing.--With respect to any investor testing carried 
        out by the Investor Advocate pursuant to paragraph 
        (4)(E), the Investor Advocate may make the data and 
        results of such investor testing available to the 
        public, and without further review or editing by the 
        Commission.
  (h) Examiners.--
          (1) Division of trading and markets.--The Division of 
        Trading and Markets of the Commission, or any successor 
        organizational unit, shall have a staff of examiners 
        who shall--
                  (A) perform compliance inspections and 
                examinations of entities under the jurisdiction 
                of that Division; and
                  (B) report to the Director of that Division.
          (2) Division of investment management.--The Division 
        of Investment Management of the Commission, or any 
        successor organizational unit, shall have a staff of 
        examiners who shall--
                  (A) perform compliance inspections and 
                examinations of entities under the jurisdiction 
                of that Division; and
                  (B) report to the Director of that Division.
  (i) Securities and Exchange Commission Reserve Fund.--
          (1) Reserve fund established.--There is established 
        in the Treasury of the United States a separate fund, 
        to be known as the ``Securities and Exchange Commission 
        Reserve Fund'' (referred to in this subsection as the 
        ``Reserve Fund'').
          (2) Reserve fund amounts.--
                  (A) In general.--Except as provided in 
                subparagraph (B), any registration fees 
                collected by the Commission under section 6(b) 
                of the Securities Act of 1933 (15 U.S.C. 
                77f(b)) or section 24(f) of the Investment 
                Company Act of 1940 (15 U.S.C. 80a-24(f)) shall 
                be deposited into the Reserve Fund.
                  (B) Limitations.--For any 1 fiscal year--
                          (i) the amount deposited in the Fund 
                        may not exceed $50,000,000; and
                          (ii) the balance in the Fund may not 
                        exceed $100,000,000.
                  (C) Excess fees.--Any amounts in excess of 
                the limitations described in subparagraph (B) 
                that the Commission collects from registration 
                fees under section 6(b) of the Securities Act 
                of 1933 (15 U.S.C. 77f(b)) or section 24(f) of 
                the Investment Company Act of 1940 (15 U.S.C. 
                80a-24(f)) shall be deposited in the General 
                Fund of the Treasury of the United States and 
                shall not be available for obligation by the 
                Commission.
          (3) Use of amounts in reserve fund.--The Commission 
        may obligate amounts in the Reserve Fund, not to exceed 
        a total of $100,000,000 in any 1 fiscal year, as the 
        Commission determines is necessary to carry out the 
        functions of the Commission. Any amounts in the reserve 
        fund shall remain available until expended. Not later 
        than 10 days after the date on which the Commission 
        obligates amounts under this paragraph, the Commission 
        shall notify Congress of the date, amount, and purpose 
        of the obligation.
          (4) Rule of construction.--Amounts collected and 
        deposited in the Reserve Fund shall not be construed to 
        be Government funds or appropriated monies and shall 
        not be subject to apportionment for the purpose of 
        chapter 15 of title 31, United States Code, or under 
        any other authority.
  (j) Office of the Advocate for Small Business Capital 
Formation.--
          (1) Office established.--There is established within 
        the Commission the Office of the Advocate for Small 
        Business Capital Formation (hereafter in this 
        subsection referred to as the ``Office'').
          (2) Advocate for small business capital formation.--
                  (A) In general.--The head of the Office shall 
                be the Advocate for Small Business Capital 
                Formation, who shall--
                          (i) report directly to the 
                        Commission; and
                          (ii) be appointed by the Commission, 
                        from among individuals having 
                        experience in advocating for the 
                        interests of small businesses and 
                        encouraging small business capital 
                        formation.
                  (B) Compensation.--The annual rate of pay for 
                the Advocate for Small Business Capital 
                Formation shall be equal to the highest rate of 
                annual pay for other senior executives who 
                report directly to the Commission.
                  (C) No current employee of the commission.--
                An individual may not be appointed as the 
                Advocate for Small Business Capital Formation 
                if the individual is currently employed by the 
                Commission.
          (3) Staff of office.--The Advocate for Small Business 
        Capital Formation, after consultation with the 
        Commission, may retain or employ independent counsel, 
        research staff, and service staff, as the Advocate for 
        Small Business Capital Formation determines to be 
        necessary to carry out the functions of the Office.
          (4) Functions of the advocate for small business 
        capital formation.--The Advocate for Small Business 
        Capital Formation shall--
                  (A) assist small businesses and small 
                business investors in resolving significant 
                problems such businesses and investors may have 
                with the Commission or with self-regulatory 
                organizations;
                  (B) identify areas in which small businesses 
                and small business investors would benefit from 
                changes in the regulations of the Commission or 
                the rules of self-regulatory organizations;
                  (C) identify problems that small businesses 
                have with securing access to capital, including 
                any unique challenges to minority-owned small 
                businesses, women-owned small businesses, and 
                small businesses affected by hurricanes or 
                other natural disasters;
                  (D) analyze the potential impact on small 
                businesses and small business investors of--
                          (i) proposed regulations of the 
                        Commission that are likely to have a 
                        significant economic impact on small 
                        businesses and small business capital 
                        formation; and
                          (ii) proposed rules that are likely 
                        to have a significant economic impact 
                        on small businesses and small business 
                        capital formation of self-regulatory 
                        organizations registered under this 
                        title;
                  (E) conduct outreach to small businesses and 
                small business investors, including through 
                regional roundtables, in order to solicit views 
                on relevant capital formation issues;
                  (F) to the extent practicable, propose to the 
                Commission changes in the regulations or orders 
                of the Commission and to Congress any 
                legislative, administrative, or personnel 
                changes that may be appropriate to mitigate 
                problems identified under this paragraph and to 
                promote the interests of small businesses and 
                small business investors;
                  (G) consult with the Investor Advocate on 
                proposed recommendations made under 
                subparagraph (F); and
                  (H) advise the Investor Advocate on issues 
                related to small businesses and small business 
                investors.
          (5) Access to documents.--The Commission shall ensure 
        that the Advocate for Small Business Capital Formation 
        has full access to the documents and information of the 
        Commission and any self-regulatory organization, as 
        necessary to carry out the functions of the Office.
          (6) Annual report on activities.--
                  (A) In general.--Not later than December 31 
                of each year after 2015, the Advocate for Small 
                Business Capital Formation shall submit to the 
                Committee on Banking, Housing, and Urban 
                Affairs of the Senate and the Committee on 
                Financial Services of the House of 
                Representatives a report on the activities of 
                the Advocate for Small Business Capital 
                Formation during the immediately preceding 
                fiscal year.
                  (B) Contents.--Each report required under 
                subparagraph (A) shall include--
                          (i) appropriate statistical 
                        information and full and substantive 
                        analysis;
                          (ii) information on steps that the 
                        Advocate for Small Business Capital 
                        Formation has taken during the 
                        reporting period to improve small 
                        business services and the 
                        responsiveness of the Commission and 
                        self-regulatory organizations to small 
                        business and small business investor 
                        concerns;
                          (iii) a summary of the most serious 
                        issues encountered by small businesses 
                        and small business investors, including 
                        any unique issues encountered by 
                        minority-owned small businesses, women-
                        owned small businesses, and small 
                        businesses affected by hurricanes or 
                        other natural disasters and their 
                        investors, during the reporting period;
                          (iv) an inventory of the items 
                        summarized under clause (iii) 
                        (including items summarized under such 
                        clause for any prior reporting period 
                        on which no action has been taken or 
                        that have not been resolved to the 
                        satisfaction of the Advocate for Small 
                        Business Capital Formation as of the 
                        beginning of the reporting period 
                        covered by the report) that includes--
                                  (I) identification of any 
                                action taken by the Commission 
                                or the self-regulatory 
                                organization and the result of 
                                such action;
                                  (II) the length of time that 
                                each item has remained on such 
                                inventory; and
                                  (III) for items on which no 
                                action has been taken, the 
                                reasons for inaction, and an 
                                identification of any official 
                                who is responsible for such 
                                action;
                          (v) recommendations for such changes 
                        to the regulations, guidance and orders 
                        of the Commission and such legislative 
                        actions as may be appropriate to 
                        resolve problems with the Commission 
                        and self-regulatory organizations 
                        encountered by small businesses and 
                        small business investors and to 
                        encourage small business capital 
                        formation; and
                          (vi) any other information, as 
                        determined appropriate by the Advocate 
                        for Small Business Capital Formation.
                  (C) Confidentiality.--No report required by 
                subparagraph (A) may contain confidential 
                information.
                  (D) Independence.--Each report required under 
                subparagraph (A) shall be provided directly to 
                the committees of Congress listed in such 
                subparagraph without any prior review or 
                comment from the Commission, any commissioner, 
                any other officer or employee of the 
                Commission, or the Office of Management and 
                Budget.
          (7) Regulations.--The Commission shall establish 
        procedures requiring a formal response to all 
        recommendations submitted to the Commission by the 
        Advocate for Small Business Capital Formation, not 
        later than 3 months after the date of such submission.
          (8) Government-business forum on small business 
        capital formation.--The Advocate for Small Business 
        Capital Formation shall be responsible for planning, 
        organizing, and executing the annual Government-
        Business Forum on Small Business Capital Formation 
        described in section 503 of the Small Business 
        Investment Incentive Act of 1980 (15 U.S.C. 80c-1).
          (9) Rule of construction.--Nothing in this subsection 
        may be construed as replacing or reducing the 
        responsibilities of the Investor Advocate with respect 
        to small business investors.

           *       *       *       *       *       *       *


             rules, regulations, and orders; annual reports

  Sec. 23. (a)(1) The Commission, the Board of Governors of the 
Federal Reserve System, and the other agencies enumerated in 
section 3(a)(34) of this title shall each have power to make 
such rules and regulations as may be necessary or appropriate 
to implement the provisions of this title for which they are 
responsible or for the execution of the functions vested in 
them by this title, and may for such purposes classify persons, 
securities, transactions, statements, applications, reports, 
and other matters within their respective jurisdictions, and 
prescribe greater, lesser, or different requirements for 
different classes thereof. No provision of this title imposing 
any liability shall apply to any act done or omitted in good 
faith in conformity with a rule, regulation, or order of the 
Commission, the Board of Governors of the Federal Reserve 
System, other agency enumerated in section 3(a)(34) of this 
title, or any self-regulatory organization, notwithstanding 
that such rule, regulation, or order may thereafter be amended 
or rescinded or determined by judicial or other authority to be 
invalid for any reason.
  (2) The Commission and the Secretary of the Treasury, in 
making rules and regulations pursuant to any provisions of this 
title, shall consider among other matters the impact any such 
rule or regulation would have on competition. The Commission 
and the Secretary of the Treasury shall not adopt any such rule 
or regulation which would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of this 
title. The Commission and the Secretary of the Treasury shall 
include in the statement of basis and purpose incorporated in 
any rule or regulation adopted under this title, the reasons 
for the Commission's or the Secretary's determination that any 
burden on competition imposed by such rule or regulation is 
necessary or appropriate in furtherance of the purposes of this 
title.
  (3) The Commission and the Secretary, in making rules and 
regulations pursuant to any provision of this title, 
considering any application for registration in accordance with 
section 19(a) of this title, or reviewing any proposed rule 
change of a self-regulatory organization in accordance with 
section 19(b) of this title, shall keep in a public file and 
make available for copying all written statements filed with 
the Commission and the Secretary and all written communications 
between the Commission or the Secretary and any person relating 
to the proposed rule, regulation, application, or proposed rule 
change: Provided, however, That the Commission and the 
Secretary shall not be required to keep in a public file or 
make available for copying any such statement or communication 
which it may withhold from the public in accordance with the 
provisions of section 552 of title 5, United States Code.
  (4) Investor testing.--
          (A) In general.--The Commission shall engage in 
        investor testing prior to issuing any rule or 
        regulation which designates documents or information to 
        be disclosed under the securities laws, if such 
        documents or information--
                  (i) are primarily used by retail investors, 
                as determined by the Commission; and
                  (ii) are intended to be used by retail 
                investors to make informed investment decisions 
                or to understand the investments held by the 
                retail investor.
          (B) Contents.--Investor testing conducted pursuant to 
        subparagraph (A) shall include the following:
                  (i) Qualitative testing in the form of one-
                on-one cognitive interviews of retail investors 
                about documents or information, or samples of 
                such documents or information, to be provided.
                  (ii) A nationwide survey of retail investors, 
                designed to complement the interviews under 
                clause (i), on--
                          (I) the usefulness of such documents 
                        or information, or samples of such 
                        documents or information;
                          (II) the proposed format of such 
                        documents or information, or samples of 
                        such documents or information; and
                          (III) delivery preferences of such 
                        documents or information, or samples of 
                        such documents or information.
                  (iii) Analysis and publication in the Federal 
                Register of the results of the survey and 
                interviews.
                  (iv) An opportunity for the public to comment 
                on such results published in the Federal 
                Register.
          (C) Substantive changes.--If the Commission, in the 
        period between engaging in investor testing and 
        publishing a final rule, makes substantive changes to 
        such rule that the Commission determines would have a 
        significant impact on retail investors, the Commission 
        shall again engage in investor testing.
          (D) Public availability of retail testing results.--
        The Commission shall make the data and results of any 
        investor testing performed pursuant to this paragraph 
        available to the public.
  (b)(1) The Commission, the Board of Governors of the Federal 
Reserve System, and the other agencies enumerated in section 
3(a)(34) of this title shall each make an annual report to the 
Congress on its work for the preceding year, and shall include 
in each such report whatever information, data, and 
recommendations for further legislation it considers advisable 
with regard to matters within its respective jurisdiction under 
this title.
  (2) The appropriate regulatory agency for a self-regulatory 
organization shall include in its annual report to the Congress 
for each fiscal year, a summary of its oversight activities 
under this title with respect to such self-regulatory 
organization, including a description of any examination 
conducted as part of such activities of any organization, any 
material recommendation presented as part of such activities to 
such organization for changes in its organization or rules, and 
any such action by such organization in response to any such 
recommendation.
  (3) The appropriate regulatory agency for any class of 
municipal securities dealers shall include in its annual report 
to the Congress for each fiscal year a summary of its 
regulatory activities pursuant to this title with respect to 
such municipal securities dealers, including the nature of and 
reason for any sanction imposed pursuant to this title against 
any such municipal securities dealer.
  (4) The Commission shall also include in its annual report to 
the Congress for each fiscal year--
          (A) a summary of the Commission's oversight 
        activities with respect to self-regulatory 
        organizations for which it is not the appropriate 
        regulatory agency, including a description of any 
        examination of any such organization, any material 
        recommendation presented to any such organization for 
        changes in its organization or rules, and any action by 
        any such organization in response to any such 
        recommendations;
          (B) a statement and analysis of the expenses and 
        operations of each self-regulatory organization in 
        connection with the performance of its responsibilities 
        under this title, for which purpose data pertaining to 
        such expenses and operations shall be made available by 
        such organization to the Commission at its request;
          (C) the steps the Commission has taken and the 
        progress it has made toward ending the physical 
        movement of the securities certificate in connection 
        with the settlement of securities transactions, and its 
        recommendations, if any, for legislation to eliminate 
        the securities certificate;
          (D) the number of requests for exemptions from 
        provisions of this title received, the number granted, 
        and the basis upon which any such exemption was 
        granted;
          (E) a summary of the Commission's regulatory 
        activities with respect to municipal securities dealers 
        for which it is not the appropriate regulatory agency, 
        including the nature of, and reason for, any sanction 
        imposed in proceedings against such municipal 
        securities dealers;
          (F) a statement of the time elapsed between the 
        filing of reports pursuant to section 13(f) of this 
        title and the public availability of the information 
        contained therein, the costs involved in the 
        Commission's processing of such reports and tabulating 
        such information, the manner in which the Commission 
        uses such information, and the steps the Commission has 
        taken and the progress it has made toward requiring 
        such reports to be filed and such information to be 
        made available to the public in machine language;
          (G) information concerning (i) the effects its rules 
        and regulations are having on the viability of small 
        brokers and dealers; (ii) its attempts to reduce any 
        unnecessary reporting burden on such brokers and 
        dealers; and (iii) its efforts to help to assure the 
        continued participation of small brokers and dealers in 
        the United States securities markets;
          (H) a statement detailing its administration of the 
        Freedom of Information Act, section 552 of title 5, 
        United States Code, including a copy of the report 
        filed pursuant to subsection (d) of such section; and
          (I) the steps that have been taken and the progress 
        that has been made in promoting the timely public 
        dissemination and availability for analytical purposes 
        (on a fair, reasonable, and nondiscriminatory basis) of 
        information concerning government securities 
        transactions and quotations, and its recommendations, 
        if any, for legislation to assure timely dissemination 
        of (i) information on transactions in regularly traded 
        government securities sufficient to permit the 
        determination of the prevailing market price for such 
        securities, and (ii) reports of the highest published 
        bids and lowest published offers for government 
        securities (including the size at which persons are 
        willing to trade with respect to such bids and offers).
  (c) The Commission, by rule, shall prescribe the procedure 
applicable to every case pursuant to this title of adjudication 
(as defined in section 551 of title 5, United States Code) not 
required to be determined on the record after notice and 
opportunity for hearing. Such rules shall, as a minimum, 
provide that prompt notice shall be given of any adverse action 
or final disposition and that such notice and the entry of any 
order shall be accompanied by a statement of written reasons.
  (d) Cease-and-Desist Procedures.--Within 1 year after the 
date of enactment of this subsection, the Commission shall 
establish regulations providing for the expeditious conduct of 
hearings and rendering of decisions under section 21C of this 
title, section 8A of the Securities Act of 1933, section 9(f) 
of the Investment Company Act of 1940, and section 203(k) of 
the Investment Advisers Act of 1940.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 1815, the SEC Disclosure Effectiveness Testing Act, is 
a deliberate effort to delay the Securities and Exchange 
Commission's (SEC) proposed rulemaking package that includes 
Regulation Best Interest (``Reg BI'') and a new short-form 
client relationship summary disclosure (``Form CRS''), despite 
the SEC having already conducted investor testing on the 
proposed Form CRS. Instead of explicitly targeting Reg BI and 
Form CRS through narrowly tailored language, H.R. 1815 would 
apply to all rules and regulations that ``designate documents 
or information to be provided to a retail investor.'' In the 
absence of a definition of ``documents or information'' for 
retail investors, H.R. 1815 would apply to virtually any 
investor disclosure, report, or form under the SEC's 
jurisdiction. In a March 2019 letter written by former SEC 
Chairman Harvey Pitt and former SEC Commissioners Paul Atkins 
and Dan Gallagher, the signatories noted that ``all of the 
SEC's corporate disclosure rules'' and many rules issued by 
self-regulatory organizations (SROs) overseen by the SEC would 
be subject to investor testing under this ``overly broad'' 
bill. As such, these former SEC officials warn that the bill 
``underestimates the sheer number of rules'' relating to 
disclosures for retail investors.
    Moreover, H.R. 1815 includes a look-back provision 
applicable to existing disclosure rules which requires the SEC 
to conduct investor testing on similar disclosure rulemakings 
finalized before enactment of the bill. Requiring investor 
testing on all existing disclosure rulemakings ``would truly be 
a monumental undertaking that would distract the SEC from its 
core mission,'' as stated in the letter from the former SEC 
commissioners and chairman.
    Additionally, under H.R. 1815, if substantive changes are 
made to a rule following investor testing, the SEC must then 
perform additional investor testing on those changes. Such a 
requirement is extremely problematic and unreasonable, as it 
would entangle the SEC in a virtually infinite loop of changes 
to proposed rulemakings followed by subsequent investor 
testing. By creating a never-ending bureaucratic loop on such a 
wide array of rulemakings, H.R. 1815 has the real possibility 
of harming investors by preventing the SEC from finalizing 
investor protection rulemakings as well as diverting the SEC's 
resources from enforcement actions.
    The investor testing required under H.R. 1815 would consist 
of one-on-one cognitive interviews with retail investors about 
the disclosures or information to be provided under the 
rulemaking, a nationwide survey of retail investors on the 
usefulness of such documents and the proposed format, and 
analysis and publication of the results of the survey and 
interviews. While establishing the exact methods to be employed 
for the SEC's investor testing efforts may seem useful, it only 
serves to underscore the uselessness of H.R. 1815, as the 
investor testing the SEC already conducted for Form CRS 
utilized the same processes and methods outlined in this bill. 
Following the release of the proposed rulemaking package and in 
connection with the SEC's efforts to help address investor 
confusion about the nature of their relationships with 
investment advisers and broker-dealers, in November of 2018 the 
SEC published a report on investor testing conducted in 
conjunction with the RAND Corporation. The investor testing 
collected feedback on a sample Form CRS as would be used under 
the proposed rulemaking package. The investor testing consisted 
of a nationwide online survey of over 1,800 retail investors 
and qualitative in-depth interviews of 31 retail investors in 
Denver and Pittsburgh. Nearly 90% of survey respondents found 
that the Relationship Summary would help them make more 
informed decisions about investment accounts and services 
according the report. Thankfully, the SEC did not need to wait 
on Congress to advise the Commission on how to conduct 
effective and sound investor testing. To the contrary, by 
prescribing the same methods that the SEC applied to their 
investor testing of Form CRS, H.R. 1815 demonstrates implicit 
approval of the SEC's investor testing for Form CRS.
    Committee Republicans believe investor testing is an 
effective tool for designing smart and workable regulatory 
frameworks. The SEC was forward thinking in conducting investor 
testing for Form CRS. Committee Republicans are confident the 
SEC will devote the necessary attention and consideration to 
the findings of their investor testing, the input from the 
seven retail investor roundtables, and the feedback from the 
6,000 comment letters as they work to finalize Reg BI and Form 
CRS. Thus, H.R. 1815 is completely unnecessary.
    Reg BI and Form CRS are significant improvements on the 
status quo for Mom and Pop investors. Any delay to this 
important rulemaking package--an all but certain result under 
H.R. 1815--is problematic, as it would only hurt retail 
investors by not providing them with a heightened standard of 
care for broker-dealers as well as not providing them with an 
informative Form CRS.

                                   Barry Loudermilk.
                                   Ted Budd.
                                   Bryan Steil.
                                   John W. Rose.
                                   Denver Riggleman.
                                   Andy Barr.
                                   Lee M. Zeldin.
                                   Ann Wagner.
                                   Bill Huizenga.
                                   Bill Posey.
                                   Tom Emmer.
                                   Scott R. Tipton.
                                   Sean P. Duffy.
                                   Roger Williams.
                                   French J. Hill.
                                   Warren Davidson.
                                   Anthony Gonzalez.
                                   Alexander X. Mooney.
                                   Frank D. Lucas.
                                   Steve Stivers.
                                   Blaine Luetkemeyer.
                                   Patrick T. McHenry.
                                   David Kustoff.
                                   Pete T. King.
                                   Lance Gooden.

                                  [all]