[House Report 119-169]
[From the U.S. Government Publishing Office]
119th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 119-169
======================================================================
INCREASING INVESTOR OPPORTUNITIES ACT
_______
June 25, 2025.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hill of Arkansas, from the Committee on Financial Services,
submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 3383]
The Committee on Financial Services, to whom was referred
the bill (H.R. 3383) to amend the Investment Company Act of
1940 with respect to the authority of closed-end companies to
invest in private funds, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 3
Background and Need for Legislation.............................. 3
Committee Consideration.......................................... 3
Related Hearings................................................. 4
Committee Votes.................................................. 4
Committee Oversight Findings..................................... 8
Performance Goals and Objectives................................. 8
Committee Cost Estimate.......................................... 8
New Budget Authority and CBO Cost Estimate....................... 8
Unfunded Mandates Statement...................................... 8
Earmark Statement................................................ 8
Federal Advisory Committee Act Statement......................... 8
Applicability to the Legislative Branch.......................... 9
Duplication of Federal Programs.................................. 9
Section-by-Section Analysis of the Legislation................... 9
Changes in Existing Law Made by the Bill, as Reported............ 9
Minority Views................................................... 45
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 ``Increasing Investor Opportunities
Act''.
SEC. 2. CLOSED-END COMPANY AUTHORITY TO INVEST IN PRIVATE FUNDS.
(a) In General.--Section 5 of the Investment Company Act of 1940 (15
U.S.C. 80a-5) is amended by adding at the end the following:
``(d) Closed-end Company Authority to Invest in Private Funds.--
``(1) In general.--Except as otherwise prohibited or
restricted by this Act (or any rule issued under this Act), the
Commission may not prohibit or otherwise limit a closed-end
company from investing any or all of the assets of the closed-
end company in securities issued by private funds.
``(2) Other restrictions on commission authority.--Except as
otherwise prohibited or restricted by this Act (or any rule
issued under this Act), the Commission may not impose any
condition on, restrict, or otherwise limit--
``(A) the offer to sell, or the sale of, securities
issued by a closed-end company that invests, or
proposes to invest, in securities issued by private
funds; or
``(B) the listing of the securities of a closed-end
company described in subparagraph (A) on a national
securities exchange.
``(3) Unrelated restrictions.--The Commission may impose a
condition on, restrict, or otherwise limit an activity
described in paragraph (1) or subparagraph (A) or (B) of
paragraph (2) if that condition, restriction, or limitation is
unrelated to the underlying characteristics of a private fund
or the status of a private fund as a private fund.
``(4) Rule of application.--Notwithstanding section 6(f),
this subsection shall also apply to a closed-end company that
elects to be treated as a business development company pursuant
to section 54.''.
(b) Definition of Private Fund.--Section 2(a) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by adding at the
end the following:
``(55) The term `private fund' has the meaning given in
section 202(a) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)).''.
(c) Treatment by National Securities Exchanges.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at
the end the following:
``(m)(1) Except as otherwise prohibited or restricted by rules of the
exchange that are consistent with section 5(d) of the Investment
Company Act of 1940 (15 U.S.C. 80a-5(d)), an exchange may not prohibit,
condition, restrict, or impose any other limitation on the listing or
trading of the securities of a closed-end company when the closed-end
company invests, or may invest, some or all of the assets of the
closed-end company in securities issued by private funds.
``(2) In this subsection--
``(A) the term `closed-end company'--
``(i) has the meaning given the term in section 5(a)
of the Investment Company Act of 1940 (15 U.S.C. 80a-
5(a)); and
``(ii) includes a closed-end company that elects to
be treated as a business development company pursuant
to section 54 of the Investment Company Act of 1940 (15
U.S.C. 80a-53); and
``(B) the term `private fund' has the meaning given in
section 202(a) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)).''.
(d) Investment Limitation.--Section 3(c) of the Investment Company
Act of 1940 (15 U.S.C. 80a-3(c)) is amended--
(1) in paragraph (1), in the matter preceding subparagraph
(A), in the second sentence, by striking ``subparagraphs (A)(i)
and (B)(i)'' and inserting ``subparagraphs (A)(i), (B)(i), and
(C)''; and
(2) in paragraph (7)(D), by striking ``subparagraphs (A)(i)
and (B)(i)'' and inserting ``subparagraphs (A)(i), (B)(i), and
(C)''.
(e) Rules of Construction.--
(1) Nothing in this section or the amendments made by this
section may be construed to limit or amend any fiduciary duty
owed to a closed-end company (as defined in section 5(a)(2) of
the Investment Company Act of 1940 (15 U.S.C. 80a-5(a)(2))) or
by an investment adviser (as defined under section 2(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a))) to a
closed-end company.
(2) Nothing in this section or the amendments made by this
section may be construed to limit or amend the valuation,
liquidity, or redemption requirements or obligations of a
closed-end company (as defined in section 5(a)(2) of the
Investment Company Act of 1940 (15 U.S.C. 80a-5(a)(2))) as
required by the Investment Company Act of 1940.
Purpose and Summary
H.R. 3383, the Increasing Investor Opportunities Act, was
introduced on May 14, 2025, by Representative Ann Wagner (MO-
02). H.R. 3383 amends the Investment Company Act of 1940 by
directing the SEC to allow publicly offered closed end funds to
invest all their assets in private securities, thereby
increasing retail investor exposure to private markets while
maintaining investor protection.
Background and Need for Legislation
Approximately 3.6 million retail investors rely on closed-
end funds (CEFs) as an important source of retirement savings
and investment opportunities. These funds are strictly
regulated and professionally managed investment vehicles that
are treated as sophisticated investors and can invest freely in
privately offered investments that retail investors typically
cannot access. These funds regularly invest in privately
offered assets that may be illiquid, such as repurchase
agreements, derivatives, certain municipal securities, and
institutional debt. The funds can also invest in private funds.
However, the SEC currently limits those investments to 15
percent of the fund's net assets, unless the fund only offers
its shares to accredited investors with minimum initial
purchases of at least $25,000. H.R. 3383 directs the SEC to
allow publicly offered CEFs to invest all their assets in
private securities, thereby increasing retail investor exposure
to private markets while maintaining investor protection.
Committee Consideration
119TH CONGRESS
On May 14, 2025, Representative Wagner introduced H.R.
3383, the Increasing Investor Opportunities Act, with
Representative Gregory Meeks (D-NY), Ritchie Torres (D-NY),
David Scott (D-GA), and Pete Sessions (R-TX) as original
cosponsors. The bill was referred solely to the Committee on
Financial Services. The bill was attached to the February 26,
2025, hearing titled ``The Future of American Capital:
Strengthening Public and Private Markets by Increasing Investor
Access and Facilitating Capital Formation'' and the March 25,
2025, hearing titled, ``Beyond Silicon Valley: Expanding Access
to Capital Across America.''
On May 20, 2025, the Committee met in open session to
consider, among others, H.R. 3383. The Committee favorably
reported H.R. 3383, as amended, to the House of
Representatives.
118TH CONGRESS
On April 13, 2023, Representative Wagner introduced H.R.
2627, the Increasing Investor Opportunities Act, with
Representative Meeks as an original cosponsor. Representatives
Torres, David Scott, and Wiley Nickel (D-NC) were subsequently
added as cosponsors. This bill is an earlier iteration of H.R.
3383. The bill was referred solely to the Committee on
Financial Services. The Subcommittee on Capital Markets of the
Committee on Financial Services held a hearing to examine
matters relating to H.R. 2627 on February 8, 2023. On May 24,
2023, the Committee on Financial Services ordered H.R. 2627 to
be reported favorably to the House of Representatives by a vote
of 37-11. On March 7, 2024, H.R. 2627 was added to H.R. 2799,
the Expanding Access to Capital Act of 2023. On March 8, 2024,
the House passed H.R. 2799 by a recorded vote of 212 yeas and
205 nays. It was received in the Senate and referred to the
Committee on Banking, Housing, and Urban Affairs.
117TH CONGRESS
On June 30, 2021, Representative Anthony Gonzales (R-OH)
introduced H.R. 4262, the Increasing Investor Opportunities
Act. Representative Meeks was an original cosponsor. This bill
is an earlier iteration of H.R. 3383. The bill was referred
solely to the Committee on Financial Services. Senator Steve
Daines introduced S. 3948, a companion bill to H.R. 4262, on
March 29, 2022.
116TH CONGRESS
On November 19, 2020, Representative Gonzales (R-OH)
introduced H.R. 8786, the Increasing Investor Opportunities
Act. This bill is the original iteration of H.R. 3383. The bill
was referred solely to the Committee on Financial Services.
Related Hearings
Pursuant to clause 3(c)(6) of rule XIII of the Rules of the
House of Representatives, the following hearings were used to
develop H.R. 3383:
The Capital Markets Subcommittee of the Committee on
Financial Services held a February 26, 2025, hearing titled
``The Future of American Capital: Strengthening Public and
Private Markets by Increasing Investor Access and Facilitating
Capital Formation'' and the Full Committee held a March 25,
2025, hearing titled, ``Beyond Silicon Valley: Expanding Access
to Capital Across America.'' A discussion draft version of the
bill was attached to both hearings. The following witnesses
testified at the February 26, 2025, hearing: Mr. Andrew
Barnell, CEO and Co-Founder, Geneoscopy; Mr. McKeever Conwell,
Founder and Managing Partner, RareBreed Ventures; Ms. Rebecca
Kacaba, CEO and Co-Founder, DealMaker; Ms. Anna Pinedo,
Partner, Mayer Brown; and Ms. Alexandra Thornton, Senior
Director, Financial Regulation, Center for American Progress.
The following witnesses testified at the March 25, 2025,
hearing: Mr. Steve Case, Chairman and CEO, Revolution LLC; Mr.
Bill Newell, Senior Business Advisor & Former CEO, Sutro
Biopharma; Ms. Candice Matthews Brackeen, General Partner,
Lightship Capital; Mr. Joel Trotter, Partner, Latham & Watkins
LLP; and Ms. Amanda Senn, Director of the Alabama Securities
Commission.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include for
each record vote on a motion to report the measure or matter
and on any amendments offered to the measure or matter the
total number of votes for and against and the names of the
Members voting for and against.
On May 20, 2025, the Committee ordered H.R. 3383, as
amended, to be reported favorably to the House by a recorded
vote of 41 yeas and 10 nays, a quorum being present. (Record
Vote No. FC-109).
The Committee considered the following amendments to H.R.
3383:
Representative Wagner offered an amendment
in the nature of a substitute, which made minor edits
and technical changes. This amendment was adopted by a
voice vote.
Representative Maxine Waters (D-CA) offered
an amendment (No. 1), designated AMEND_HR3383_1. This
amendment prevents any issuer from providing more
retail oriented, non-QIB accredited investors with more
favorable terms, putting them at a disadvantage. The
amendment also requires investment advisers for pooled
investment companies to adhere to Rule 2a-5 valuation
policies unless the fund is exclusively open to QIBs,
which moves private funds closer to registered
investment company requirements. This amendment failed
by a recorded vote of 23 yeas and 28 nays, a quorum
being present. (Record Vote No. FC-108).
Committee Oversight Findings
Pursuant to clause 3(c) 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 goal of H.R. 3383 is to direct
the SEC to allow publicly offered closed end funds to invest
all their assets in private securities, thereby increasing
retail investor exposure to private markets while maintaining
investor protection.
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. 3383. The
Committee has requested but not received a cost estimate from
the Director of the Congressional Budget Office. However,
pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee will adopt as its own
the cost estimate by the Director of the Congressional Budget
Office once it has been prepared.
New Budget Authority and CBO Cost Estimate
With respect to the requirements of 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 with respect
to requirements of 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, a cost estimate was not made
available to the Committee in time for the filing of this
report. The Chairman of the Committee shall cause such estimate
to be printed in the Congressional Record upon its receipt by
the Committee.
Unfunded Mandates Statement
The Committee has requested but not received from the
Director of the Congressional Budget Office an estimate of the
Federal mandates pursuant to section 423 of the Unfunded
Mandates Reform Act. The Committee will adopt the estimate once
it has been prepared by the Director.
Earmark Statement
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 resolution 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.
Federal Advisory Committee Act Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to the Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
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 the bill establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
Federal program, including any program that was included in a
report to Congress pursuant to section 21 of the Public Law
111-139 or the most recent Catalog of Federal Domestic
Assistance.
Section-by-Section Analysis of the Legislation
Section 1. Short title
Section 1 provides the short title is the ``Increasing
Investor Opportunities Act.''
Section 2. Closed-end company authority to invest in private funds
Section 2 amends the Investment Company Act of 1940 to
provide a closed-end company the authority to invest in private
funds without limitation. Specifically, this section states
that the SEC may not limit a closed-end company from investing
any or all of the company's assets in private funds solely or
primarily because of the private fund's status as a private
fund. This section also applies to a closed-end company that
elects to be treated as a business development company. This
section also clarifies that the rules of a national securities
exchange do not prohibit the listing or trading of securities
of a closed-end company solely or primarily because of the
amount of the company's investment in private funds.
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 italics, and existing law in which no
change is proposed is shown in roman):
INVESTMENT COMPANY ACT OF 1940
* * * * * * *
TITLE I--INVESTMENT COMPANIES
* * * * * * *
general definitions
Sec. 2. (a) When used in this title, unless the context
otherwise requires--
(1) ``Advisory board'' means a board, whether elected
or appointed, which is distinct from the board of
directors or board of trustees, of an investment
company, and which is composed solely of persons who do
not serve such company in any other capacity, whether
or not the functions of such board are such as to
render its members ``directors'' within the definition
of that term, which board has advisory functions as to
investments but has no power to determine that any
security or other investment shall be purchased or sold
by such company.
(2) ``Affiliated company'' means a company which is
an affiliated person.
(3) ``Affiliated person'' of another person means (A)
any person directly or indirectly owning, controlling,
or holding with power to vote, 5 per centum or more of
the outstanding voting securities of such other person;
(B) any person 5 per centum or more of whose
outstanding voting securities are directly or
indirectly owned, controlled, or held with power to
vote, by such other person; (C) any person directly or
indirectly controlling, controlled by, or under common
control with, such other person; (D) any officer,
director, partner, copartner, or employee of such other
person; (E) if such other person is an investment
company, any investment adviser thereof or any member
of an advisory board thereof; and (F) if such other
person is an unincorporated investment company not
having a board of directors, the depositor thereof.
(4) ``Assignment'' includes any direct or indirect
transfer or hypothecation of a contract or chose in
action by the assignor, or of a controlling block of
the assignor's outstanding voting securities by a
security holder of the assignor; but does not include
an assignment of partnership interests incidental to
the death or withdrawal of a minority of the members of
the partnership having only a minority interest in the
partnership business or to the admission to the
partnership of one or more members who, after such
admission, shall be only a minority of the members and
shall have only a minority interest in the business.
(5) ``Bank'' means (A) a depository institution (as
defined in section 3 of the Federal Deposit Insurance
Act) or a branch or agency of a foreign bank (as such
terms are defined in section 1(b) of the International
Banking Act of 1978), (B) a member bank of the Federal
Reserve System, (C) any other banking institution or
trust company, whether incorporated or not, doing
business under the laws of any State or of the United
States, a substantial portion of the business of which
consists of receiving deposits or exercising fiduciary
powers similar to those permitted to national banks
under the authority of the Comptroller of the Currency,
and which is supervised and examined by State or
Federal authority having supervision over banks, and
which is not operated for the purpose of evading the
provisions of this title, and (D) a receiver,
conservator, or other liquidating agent of any
institution or firm included in clause (A), (B), or (C)
of this paragraph.
(6) The term ``broker'' has the same meaning as given
in section 3 of the Securities Exchange Act of 1934,
except that such term does not include any person
solely by reason of the fact that such person is an
underwriter for one or more investment companies.
(7) ``Commission'' means the Securities and Exchange
Commission.
(8) ``Company'' means a corporation, a partnership,
an association, a joint-stock company, a trust, a fund,
or any organized group of persons whether incorporated
or not; or any receiver, trustee in a case under title
11 of the United States Code or similar official or any
liquidating agent for any of the foregoing, in his
capacity as such.
(9) ``Control'' means the power to exercise a
controlling influence over the management or policies
of a company, unless such power is solely the result of
an official position with such company.
Any person who owns beneficially, either directly or
through one or more controlled companies, more than 25
per centum of the voting securities of a company shall
be presumed to control such company. Any person who
does not so own more than 25 per centum of the voting
securities of any company shall be presumed not to
control such company. A natural person shall be
presumed not to be a controlled person within the
meaning of this title. Any such presumption may be
rebutted by evidence, but except as hereinafter
provided, shall continue until a determination to the
contrary made by the Commission by order either on its
own motion or on application by an interested person.
If an application filed hereunder is not granted or
denied by the Commission within sixty days after filing
thereof, the determination sought by the application
shall be deemed to have been temporarily granted
pending final determination of the Commission thereon.
The Commission, upon its own motion or upon
application, may by order revoke or modify any order
issued under this paragraph whenever it shall find that
the determination embraced in such original order is no
longer consistent with the facts.
(10) ``Convicted'' includes a verdict, judgment, or
plea of guilty, or a finding of guilt on a plea of nolo
contendere, if such verdict, judgment, plea, or finding
has not been reversed, set aside, or withdrawn, whether
or not sentence has been imposed.
(11) The term ``dealer'' has the same meaning as
given in the Securities Exchange Act of 1934, but does
not include an insurance company or investment company.
(12) ``Director'' means any director of a corporation
or any person performing similar functions with respect
to any organization, whether incorporated or
unincorporated, including any natural person who is a
member of a board of trustees of a management company
created as a common-law trust.
(13) ``Employees' securities company'' means any
investment company or similar issuer all of the
outstanding securities of which (other than short-term
paper) are beneficially owned (A) by the employees or
persons on retainer of a single employer or of two or
more employers each of which is an affiliated company
of the other, (B) by former employees of such employer
or employers, (C) by members of the immediate family of
such employees, persons on retainer, or former
employees, (D) by any two or more of the foregoing
classes of persons, or (E) by such employer or
employers together with any one or more of the
foregoing classes of persons.
(14) ``Exchange'' means any organization,
association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange.
(15) ``Face-amount certificate'' means any
certificate, investment contract, or other security
which represents an obligation on the part of its
issuer to pay a stated or determinable sum or sums at a
fixed or determinable date or dates more than twenty-
four months after the date of issuance, in
consideration of the payment of periodic installments
of a stated or determinable amount (which security
shall be known as a face-amount certificate of the
``installment type''); or any security which represents
a similar obligation on the part of a face-amount
certificate company, the consideration for which is the
payment of a single lump sum (which security shall be
known as a ``fully paid'' face-amount certificate).
(16) ``Government security'' means any security
issued or guaranteed as to principal or interest by the
United States, or by a person controlled or supervised
by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by
the Congress of the United States; or any certificate
of deposit for any of the foregoing.
(17) ``Insurance company'' means a company which is
organized as an insurance company, whose primary and
predominant business activity is the writing of
insurance or the reinsuring of risks underwritten by
insurance companies, and which is subject to
supervision by the insurance commissioner or a similar
official or agency of a State; or any receiver or
similar official or any liquidating agent for such a
company, in his capacity as such.
(18) ``Interstate commerce'' means trade, commerce,
transportation, or communication among the several
States, or between any foreign country and any State,
or between any State and any place or ship outside
thereof.
(19) ``Interested person'' of another person means--
(A) when used with respect to an investment
company--
(i) any affiliated person of such
company,
(ii) any member of the immediate
family of any natural person who is an
affiliated person of such company,
(iii) any interested person of any
investment adviser of or principal
underwriter for such company,
(iv) any person or partner or
employee of any person who at any time
since the beginning of the last two
completed fiscal years of such company
has acted as legal counsel for such
company,
(v) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
executed any portfolio transactions
for, engaged in any principal
transactions with, or distributed
shares for--
(I) the investment company;
(II) any other investment
company having the same
investment adviser as such
investment company or holding
itself out to investors as a
related company for purposes of
investment or investor
services; or
(III) any account over which
the investment company's
investment adviser has
brokerage placement discretion,
(vi) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
loaned money or other property to--
(I) the investment company;
(II) any other investment
company having the same
investment adviser as such
investment company or holding
itself out to investors as a
related company for purposes of
investment or investor
services; or
(III) any account for which
the investment company's
investment adviser has
borrowing authority, and
(vii) any natural person whom the
Commission by order shall have
determined to be an interested person
by reason of having had, at any time
since the beginning of the last two
completed fiscal years of such company,
a material business or professional
relationship with such company or with
the principal executive officer of such
company or with any other investment
company having the same investment
adviser or principal underwriter or
with the principal executive officer of
such other investment company:
Provided, That no person shall be deemed to be
an interested person of an investment company
solely by reason of (aa) his being a member of
its board of directors or advisory board or an
owner of its securities, or (bb) his membership
in the immediate family of any person specified
in clause (aa) of this proviso; and
(B) when used with respect to an investment
adviser of or principal underwriter for any
investment company--
(i) any affiliated person of such
investment adviser or principal
underwriter,
(ii) any member of the immediate
family of any natural person who is an
affiliated person of such investment
advisor or principal underwiter,
(iii) any person who knowingly has
any direct or indirect beneficial
interest in, or who is designated as
trustee, executor, or guardian of any
legal interest in, any security issued
either by such investment adviser or
principal underwriter or by a
controlling person of such investment
adviser or principal underwriter,
(iv) any person or partner or
employee of any person who at any time
since the beginning of the last two
completed fiscal years of such
investment company has acted as legal
counsel for such investment adviser or
principal underwriter,
(v) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
executed any portfolio transactions
for, engaged in any principal
transactions with, or distributed
shares for--
(I) any investment company
for which the investment
adviser or principal
underwriter serves as such;
(II) any investment company
holding itself out to
investors, for purposes of
investment or investor
services, as a company related
to any investment company for
which the investment adviser or
principal underwriter serves as
such; or
(III) any account over which
the investment adviser has
brokerage placement discretion,
(vi) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
loaned money or other property to--
(I) any investment company
for which the investment
adviser or principal
underwriter serves as such;
(II) any investment company
holding itself out to
investors, for purposes of
investment or investor
services, as a company related
to any investment company for
which the investment adviser or
principal underwriter serves as
such; or
(III) any account for which
the investment adviser has
borrowing authority, and
(vii) any natural person whom the
Commission by order shall have
determined to be an interested person
by reason of having had at any time
since the beginning of the last two
completed fiscal years of such
investment company a material business
or professional relationship with such
investment adviser or principal
underwriter or with the principal
executive officer or any controlling
person of such investment adviser or
principal underwriter.
For the purposes of this paragraph (19),
``member of the immediate family'' means any
parent, spouse of a parent, child, spouse of a
child, spouse, brother, or sister, and includes
step and adoptive relationships. The Commission
may modify or revoke any order issued under
clause (vii) of subparagaph (A) or (B) of this
paragraph whenever it finds that such order is
no longer consistent with the facts. No order
issued pursuant to clause (vii) of subparagraph
(A) or (B) of this paragraph shall become
effective until at least sixty days after the
entry thereof, and no such order shall affect
the status of any person for the purposes of
this title or for any other purpose for any
period prior to the effective date of such
order.
(20) ``Investment adviser'' of an investment company
means (A) any person (other than a bona fide officer,
director, trustee, member of an advisory board, or
employee of such company, as such) who pursuant to
contract with such company regularly furnishes advice
to such company with respect to the desirability of
investing in, purchasing or selling securities or other
property, or is empowered to determine what securities
or other property shall be purchased or sold by such
company, and (B) any other person who pursuant to
contract with a person described in clause (A)
regularly performs substantially all of the duties
undertaken by such person described in clause (A); but
does not include (i) a person whose advice is furnished
solely through uniform publications distributed to
subscribers thereto, (ii) a person who furnishes only
statistical and other factual information, advice
regarding economic factors and trends, or advice as to
occasional transactions in specific securities, but
without generally furnishing advice or making
recommendations regarding the purchase or sale of
securities, (iii) a company furnishing such services at
cost to one or more investment companies, insurance
companies, or other financial institutions, (iv) any
person the character and amount of whose compensation
for such services must be approved by a court, or (v)
such other persons as the Commission may by rules and
regulations or order determine not to be within the
intent of this definition.
(21) ``Investment banker'' means any person engaged
in the business of underwriting securities issued by
other persons, but does not include an investment
company, any person who acts as an underwriter in
isolated transactions but not as a part of a regular
business, or any person solely by reason of the fact
that such person is an underwriter for one or more
investment companies.
(22) ``Issuer'' means every person who issues or
proposes to issue any security, or has outstanding any
security which it has issued.
(23) ``Lend'' includes a purchase coupled with an
agreement by the vendor to repurchase; ``borrow''
includes a sale coupled with a similar agreement.
(24) ``Majority-owned subsidiary'' of a person means
a company 50 per centum or more of the outstanding
voting securities of which are owned by such person, or
by a company which, within the meaning of this
paragraph, is a majority-owned subsidiary of such
person.
(25) ``Means or instrumentality of interstate
commerce'' includes any facility of a national
securities exchange.
(26) ``National securities exchange'' means an
exchange registered under section 6 of the Securities
Exchange Act of 1934.
(27) ``Periodic payment plan certificate'' means (A)
any certificate, investment contract, or other security
providing for a series of periodic payments by the
holder, and representing an undivided interest in
certain specified securities or in a unit or fund of
securities purchased wholly or partly with the proceeds
of such payments, and (B) any security the issuer of
which is also issuing securities of the character
described in clause (A) and the holder of which has
substantially the same rights and privileges as those
which holders of securities of the character described
in clause (A) have upon completing the periodic
payments for which such securities provide.
(28) ``Person'' means a natural person or a company.
(29) ``Principal underwriter'' of or for any
investment company other than a closed-end company, or
of any security issued by such a company, means any
underwriter who as principal purchases from such
company, or pursuant to contract has the right (whether
absolute or conditional) from time to time to purchase
from such company, any such security for distribution,
or who as agent for such company sells or has the right
to sell any such security to a dealer or to the public
or both, but does not include a dealer who purchases
from such company through a principal underwriter
acting as agent for such company. ``Principal
underwriter'' of or for a closed-end company or any
issuer which is not an investment company, or of any
security issued by such a company or issuer, means any
underwriter who, in connection with a primary
distribution of securities, (A) is in privity of
contract with the issuer or an affiliated person of the
issuer; (B) acting alone or in concert with one or more
other persons, initiates or directs the formation of an
underwriting syndicate; or (C) is allowed a rate of
gross commission, spread, or other profit greater than
the rate allowed another underwriter participating in
the distribution.
(30) ``Promoter'' of a company or a proposed company
means a person who, acting alone or in concert with
other persons, is initiating or directing, or has
within one year initiated or directed, the organization
of such company.
(31) ``Prospectus'', as used in section 22, means a
written prospectus intended to meet the requirements of
section 10(a) of the Securities Act of 1933 and
currently in use. As used elsewhere, ``prospectus''
means a prospectus as defined in the Securities Act of
1933.
(32) ``Redeemable security'' means any security,
other than short-term paper, under the terms of which
the holder, upon its presentation to the issuer or to a
person designated by the issuer, is entitled (whether
absolutely or only out of surplus) to receive
approximately his proportionate share of the issuer's
current net assets, or the cash equivalent thereof.
(33) ``Reorganization'' means (A) a reorganization
under the supervision of a court of competent
jurisdiction; (B) a merger or consolidation; (C) a sale
of 75 per centum or more in value of the assets of a
company; (D) a restatement of the capital of a company,
or an exchange of securities issued by a company for
any of its own outstanding securities; (E) a voluntary
dissolution or liquidation of a company; (F) a
recapitalization or other procedure or transaction
which has for its purpose the alteration, modification,
or elimination of any of the rights, preferences, or
privileges of any class of securities issued by a
company, as provided in its charter or other instrument
creating or defining such rights, preferences, and
privileges; (G) an exchange of securities issued by a
company for outstanding securities issued by another
company or companies, preliminary to and for the
purpose of effecting or consummating any of the
foregoing; or (H) any exchange of securities by a
company which is not an investment company for
securities issued by a registered investment company.
(34) ``Sale'', ``sell'', ``offer to sell'', or
``offer for sale'' includes every contract of sale or
disposition of, attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest
in a security, for value. Any security given or
delivered with, or as a bonus on account of, any
purchase of securities or any other thing, shall be
conclusively presumed to constitute a part of the
subject of such purchase and to have been sold for
value.
(35) ``Sales load'' means the difference between the
price of a security to the public and that portion of
the proceeds from its sale which is received and
invested or held for investment by the issuer (or in
the case of a unit investment trust, by the depositor
or trustee), less any portion of such difference
deducted for trustee's or custodian's fee, insurance
premiums, issue taxes, or administrative expenses or
fees which are not properly chargeable to sales or
promotional activities. In the case of a periodic
payment plan certificate, ``sales load'' includes the
sales load on any investment company securities in
which the payments made on such certificate are
invested, as well as the sales load on the certificate
itself.
(36) ``Security'' means any note, stock, treasury
stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subsciption, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option,
or privilege on any security (including a certificate
of deposit) or on any group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or, in general,
any interest or instrument commonly known as a
``security'', or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
(37) ``Separate account'' means an account
established and maintained by an insurance company
pursuant to the laws of any State or territory of the
United States, or of Canada or any province thereof,
under which income, gains and losses, whether or not
realized, from assets allocated to such account, are,
in accordance with the applicable contract, credited to
or charged against such account without regard to other
income, gains, or losses of the insurance company.
(38) ``Short-term paper'' means any note, draft, bill
of exchange, or banker's acceptance payable on demand
or having a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or
any renewal thereof payable on demand or having a
maturity likewise limited; and such other classes of
securities, of a commercial rather than an investment
character, as the Commission may designate by rules and
regulations.
(39) ``State'' means any State of the United States,
the District of Columbia, Puerto Rico, the Virgin
Islands, or any other possession of the United States.
(40) ``Underwriter'' means any person who has
purchased from an issuer with a view to, or sells for
an issuer in connection with, the distribution of any
security, or participates or has a direct or indirect
participation in any such undertaking, or participates
or has a participation in the direct or indirect
underwriting of any such undertaking; but such term
shall not include a person whose interest is limited to
a commission from an underwriter or dealer not in
excess of the usual and customary distributor's or
seller's commission. As used in this paragraph the term
``issuer'' shall include, in addition to an issuer, any
person directly or indirectly controlling or controlled
by the issuer, or any person under direct or indirect
common control with the issuer. When the distribution
of the securities in respect of which any person is an
underwriter is completed such person shall cease to be
an underwriter in respect of such securities or the
issuer thereof.
(41) ``Value'', with respect to assets of registered
investment companies, except as provided in subsection
(b) of section 28 of this title, means--
(A) as used in sections 3, 5, and 12 of this
title, (i) with respect to securities owned at
the end of the last preceding fiscal quarter
for which market quotations are readily
available, the market value at the end of such
quarter; (ii) with respect to other securities
and assets owned at the end of the last
preceding fiscal quarter, fair value at the end
of such quarter, as determined in good faith by
the board of directors; and (iii) with respect
to securities and other assets acquired after
the end of the last preceding fiscal quarter,
the cost thereof; and
(B) as used elsewhere in this title, (i) with
respect to securities for which market
quotations are readily available, the market
value of such securities; and (ii) with respect
to other securities and assets, fair value as
determined in good faith by the board of
directors;
in each case as of such time or times as determined
pursuant to this title, and the rules and regulations
issued by the Commission hereunder. Notwithstanding the
fact that market quotations for securities issued by
controlled companies are available, the board of
directors may in good faith determine the value of such
securities: Provided, That the value so determined is
not in excess of the higher of market value or asset
value of such securities in the case of majority-owned
subsidiaries, and is not in excess of market value in
the case of other controlled companies.
For purposes of the valuation of those assets of a registered
diversified company which are not subject to the limitations
provided for in section 5(b)(1), the Commission may, by rules
and regulations or orders, permit any security to be carried at
cost, if it shall determine that such procedure is consistent
with the general intent and purposes of this title. For
purposes of sections 5 and 12, in lieu of values determined as
provided in clause (A) above, the Commission shall by rules and
regulations permit valuation of securities at cost or other
basis in cases where it may be more convenient for such company
to make its computations on such basis by reason of the
necessity or desirability of complying with the provisions of
any United States revenue laws or rules and regulations issued
thereunder, or the laws or the rules and regulations issued
thereunder of any State in which the securities of such company
may be qualified for sale.
The foregoing definition shall not derogate from the
authority of the Commission with respect to the reports,
information, and documents to be filed with the Commission by
any registered company, or with respect to the accounting
policies and principles to be following by any such company, as
provided in sections 8, 30, and 31.
(42) ``Voting security'' means any security presently
entitling the owner or holder thereof to vote for the
election of directors of a company. A specified
percentage of the outstanding voting securities of a
company means such amount of its outstanding voting
securities as entitles the holder or holders thereof to
cast said specified percentage of the aggregate votes
which the holders of all the outstanding voting
securities of such company are entitled to cast. The
vote of a majority of the outstanding voting securities
of a company means the vote, at the annual or a special
meeting of the security holders of such company duly
called, (A) of 67 per centum or more of the voting
securities present at such meeting, if the holders of
more than 50 per centum of the outstanding voting
securities of such company are present or represented
by proxy; or (B) of more than 50 per centum of the
outstanding voting securities of such company,
whichever is the less.
(43) ``Wholly-owned subsidiary'' of a person means a
company 95 per centum or more of the outstanding voting
securities of which are owned by such person, or by a
company which, within the meaning of this paragraph, is
a wholly-owned subsidiary of such person.
(44) ``Securities Act of 1933'', ``Securities
Exchange Act of 1934'', and ``Trust Indenture Act of
1939'' means those Acts, respectively, as heretofore or
hereafter amended.
(45) ``Savings and loan association'' means 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, and a receiver, conservator, or other
liquidating agent of any such institution.
(46) ``Eligible portfolio company'' means any issuer
which--
(A) is organized under the laws of, and has
its principal place of business in, any State
or States;
(B) is neither an investment company as
defined in section 3 (other than a small
business investment company which is licensed
by the Small Business Administration to operate
under the Small Business Investment Act of 1958
and which is a wholly-owned subsidiary of the
business development company) nor a company
which would be an investment company except for
the exclusion from the definition of investment
company in section 3(c); and
(C) satisfies one of the following:
(i) it does not have any class of
securities with respect to which a
member of a national securities
exchange, broker, or dealer may extend
or maintain credit to or for a customer
pursuant to rules or regulations
adopted by the Board of Governors of
the Federal Reserve System under
section 7 of the Securities Exchange
Act of 1934;
(ii) it is controlled by a business
development company, either alone or as
part of a group acting together, and
such business development company in
fact exercises a controlling influence
over the management or policies of such
eligible portfolio company and, as a
result of such control, has an
affiliated person who is a director of
such eligible portfolio company;
(iii) it has total assets of not more
than $4,000,000, and capital and
surplus (shareholders' equity less
retained earnings) of not less than
$2,000,000, except that the Commission
may adjust such amounts by rule,
regulation, or order to reflect changes
in 1 or more generally accepted indices
or other indicators for small
businesses; or
(iv) it meets such other criteria as
the Commission may, by rule, establish
as consistent with the public interest,
the protection of investors, and the
purposes fairly intended by the policy
and provisions of this title.
(47) ``Making available significant managerial
assistance'' by a business development company means--
(A) any arrangement whereby a business
development company, through its directors,
officers, employees, or general partners,
offers to provide, and, if accepted, does so
provide, significant guidance and counsel
concerning the management, operations, or
business objectives and policies of a portfolio
company;
(B) the exercise by a business development
company of a controlling influence over the
management or policies of a portfolio company
by the business development company acting
individually or as part of a group acting
together which controls such portfolio company;
or
(C) with respect to a small business
investment company licensed by the Small
Business Administration to operate under the
Small Business Investment Act of 1958, the
making of loans to a portfolio company.
For purposes of subparagraph (A), the requirement that
a business development company make available
significant managerial assistance shall be deemed to be
satisfied with respect to any particular portfolio
company where the business development company
purchases securities of such portfolio company in
conjunction with one or more other persons acting
together, and at least one of the persons in the group
makes available significant managerial assistance to
such portfolio company, except that such requirement
will not be deemed to be satisfied if the business
development company, in all cases, makes available
significant managerial assistance solely in the manner
described in this sentence.
(48) ``Business development company'' means any
closed-end company which--
(A) is organized under the laws of, and has
its principal place of business in, any State
or States;
(B) is operated for the purpose of making
investments in securities described in
paragraphs (1) through (3) of section 55(a),
and makes available significant managerial
assistance with respect to the issuers of such
securities, provided that a business
development company must make available
significant managerial assistance only with
respect to the companies which are treated by
such business development company as satisfying
the 70 per centum of the value of its total
assets condition of section 55; and provided
further that a business development company
need not make available significant managerial
assistance with respect to any company
described in paragraph (46)(C)(iii), or with
respect to any other company that meets such
criteria as the Commission may by rule,
regulation, or order permit, as consistent with
the public interest, the protection of
investors, and the purposes of this title; and
(C) has elected pursuant to section 54(a) to
be subject to the provisions of sections 55
through 65.
(49) ``Foreign securities authority'' means any
foreign government or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(50) ``Foreign financial regulatory authority'' means
any (A) foreign securities authority, (B) other
governmental body or foreign equivalent of a self-
regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate the participation of
its members in activities listed above.
(51)(A) ``Qualified purchaser'' means--
(i) any natural person (including any person
who holds a joint, community property, or other
similar shared ownership interest in an issuer
that is excepted under section 3(c)(7) with
that person's qualified purchaser spouse) who
owns not less than $5,000,000 in investments,
as defined by the Commission;
(ii) any company that owns not less than
$5,000,000 in investments and that is owned
directly or indirectly by or for 2 or more
natural persons who are related as siblings or
spouse (including former spouses), or direct
lineal descendants by birth or adoption,
spouses of such persons, the estates of such
persons, or foundations, charitable
organizations, or trusts established by or for
the benefit of such persons;
(iii) any trust that is not covered by clause
(ii) and that was not formed for the specific
purpose of acquiring the securities offered, as
to which the trustee or other person authorized
to make decisions with respect to the trust,
and each settlor or other person who has
contributed assets to the trust, is a person
described in clause (i), (ii), or (iv); or
(iv) any person, acting for its own account
or the accounts of other qualified purchasers,
who in the aggregate owns and invests on a
discretionary basis, not less than $25,000,000
in investments.
(B) The Commission may adopt such rules and
regulations applicable to the persons and trusts
specified in clauses (i) through (iv) of subparagraph
(A) as it determines are necessary or appropriate in
the public interest or for the protection of investors.
(C) The term ``qualified purchaser'' does not include
a company that, but for the exceptions provided for in
paragraph (1) or (7) of section 3(c), would be an
investment company (hereafter in this paragraph
referred to as an ``excepted investment company''),
unless all beneficial owners of its outstanding
securities (other than short-term paper), determined in
accordance with section 3(c)(1)(A), that acquired such
securities on or before April 30, 1996 (hereafter in
this paragraph referred to as ``pre-amendment
beneficial owners''), and all pre-amendment beneficial
owners of the outstanding securities (other than short-
term paper) of any excepted investment company that,
directly or indirectly, owns any outstanding securities
of such excepted investment company, have consented to
its treatment as a qualified purchaser. Unanimous
consent of all trustees, directors, or general partners
of a company or trust referred to in clause (ii) or
(iii) of subparagraph (A) shall constitute consent for
purposes of this subparagraph.
(52) The terms ``security future'' and ``narrow-based
security index'' have the same meanings as provided in
section 3(a)(55) of the Securities Exchange Act of
1934.
(53) The term ``credit rating agency'' has the same
meaning as in section 3 of the Securities Exchange Act
of 1934.
(54) The terms ``commodity pool'', ``commodity pool
operator'', ``commodity trading advisor'', ``major swap
participant'', ``swap'', ``swap dealer'', and ``swap
execution facility'' have the same meanings as in
section 1a of the Commodity Exchange Act (7 U.S.C.
1a).''.
(55) The term ``private fund'' has the meaning given
in section 202(a) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-2(a)).
(b) No provision in this title shall apply to, or be deemed
to include, the United States, a State, or any political
subdivision of a State, or any agency, authority, or
instrumentality of any one or more of the foregoing, or any
corporation which is wholly owned directly or indirectly by any
one or more of the foregoing, or any officer, agent, or
employee of any of the foregoing acting as such in the course
of his official duty, unless such provision makes specific
reference thereto.
(c) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking and is required to consider
or determine whether an action is consistent with the public
interest, the Commission shall also consider, in addition to
the protection of investors, whether the action will promote
efficiency, competition, and capital formation.
definition of investment company
Sec. 3. (a)(1) When used in this title, ``investment
company'' means any issuer which--
(A) is or holds itself out as being engaged
primarily, or proposes to engage primarily, in the
business of investing, reinvesting, or trading in
securities;
(B) is engaged or proposes to engage in the business
of issuing face-amount certificates of the installment
type, or has been engaged in such business and has any
such certificate outstanding; or
(C) is engaged or proposes to engage in the business
of investing, reinvesting, owning, holding, or trading
in securities, and owns or proposes to acquire
investment securities having a value exceeding 40 per
centum of the value of such issuer's total assets
(exclusive of Government securities and cash items) on
an unconsolidated basis.
(2) As used in this section, ``investment securities''
includes all securities except (A) Government securities, (B)
securities issued by employees' securities companies, and (C)
securities issued by majority-owned subsidiaries of the owner
which (i) are not investment companies, and (ii) are not
relying on the exception from the definition of investment
company in paragraph (1) or (7) of subsection (c).
(b) Notwithstanding paragraph (1)(C) of subsection (a), none
of the following persons is an investment company within the
meaning of this title:
(1) Any issuer primarily engaged, directly or through
a wholly-owned subsidiary or subsidiaries, in a
business or businesses other than that of investing,
reinvesting, owning, holding, or trading in securities.
(2) Any issuer which the Commission, upon application
by such issuer, finds and by order declares to be
primarily engaged in a business or businesses other
than that of investing, reinvesting, owning, holding,
or trading in securities either directly or (A) through
majority-owned subsidiaries or (B) through controlled
companies conducting similar types of businesses. The
filing of an application under this paragraph in good
faith by an issuer other than a registered investment
company shall exempt the applicant for a period of
sixty days from all provisions of this title applicable
to investment companies as such. For cause shown, the
Commission by order may extend such period of exemption
for an additional period or periods. Whenever the
Commission, upon its own motion or upon application,
finds that the circumstances which gave rise to the
issuance of an order granting an application under this
paragraph no longer exist, the Commission shall by
order revoke such order.
(3) Any issuer all the outstanding securities of
which (other than short-term paper and directors'
qualifying shares) are directly or indirectly owned by
a company excepted from the definition of investment
company by paragraph (1) or (2) of this subsection.
(c) Notwithstanding subsection (a), none of the following
persons is an investment company within the meaning of this
title:
(1) Any issuer whose outstanding securities (other
than short-term paper) are beneficially owned by not
more than one hundred persons (or, in the case of a
qualifying venture capital fund, 250 persons) and which
is not making and does not presently propose to make a
public offering of its securities. Such issuer shall be
deemed to be an investment company for purposes of the
limitations set forth in [subparagraphs (A)(i) and
(B)(i)] subparagraphs (A)(i), (B)(i), and (C) of
section 12(d)(1) governing the purchase or other
acquisition by such issuer of any security issued by
any registered investment company and the sale of any
security issued by any registered open-end investment
company to any such issuer. For purposes of this
paragraph:
(A) Beneficial ownership by a company shall
be deemed to be beneficial ownership by one
person, except that, if the company owns 10 per
centum or more of the outstanding voting
securities of the issuer, and is or, but for
the exception provided for in this paragraph or
paragraph (7), would be an investment company,
the beneficial ownership shall be deemed to be
that of the holders of such company's
outstanding securities (other than short-term
paper).
(B) Beneficial ownership by any person who
acquires securities or interests in securities
of an issuer described in the first sentence of
this paragraph shall be deemed to be beneficial
ownership by the person from whom such transfer
was made, pursuant to such rules and
regulations as the Commission shall prescribe
as necessary or appropriate in the public
interest and consistent with the protection of
investors and the purposes fairly intended by
the policy and provisions of this title, where
the transfer was caused by legal separation,
divorce, death, or other involuntary event.
(C)(i) The term ``qualifying venture capital
fund'' means a venture capital fund that has
not more than $10,000,000 in aggregate capital
contributions and uncalled committed capital,
with such dollar amount to be indexed for
inflation once every 5 years by the Commission,
beginning from a measurement made by the
Commission on a date selected by the
Commission, rounded to the nearest $1,000,000.
(ii) The term ``venture capital fund'' has
the meaning given the term in section
275.203(l)-1 of title 17, Code of Federal
Regulations, or any successor regulation.
(2)(A) Any person primarily engaged in the business
of underwriting and distributing securities issued by
other persons, selling securities to customers, acting
as broker, and acting as market intermediary, or any
one or more of such activities, whose gross income
normally is derived principally from such business and
related activities.
(B) For purposes of this paragraph--
(i) the term ``market intermediary'' means
any person that regularly holds itself out as
being willing contemporaneously to engage in,
and that is regularly engaged in, the business
of entering into transactions on both sides of
the market for a financial contract or one or
more such financial contracts; and
(ii) the term ``financial contract'' means
any arrangement that--
(I) takes the form of an individually
negotiated contract, agreement, or
option to buy, sell, lend, swap, or
repurchase, or other similar
individually negotiated transaction
commonly entered into by participants
in the financial markets;
(II) is in respect of securities,
commodities, currencies, interest or
other rates, other measures of value,
or any other financial or economic
interest similar in purpose or function
to any of the foregoing; and
(III) is entered into in response to
a request from a counter party for a
quotation, or is otherwise entered into
and structured to accommodate the
objectives of the counter party to such
arrangement.
(3) Any bank or insurance company; any savings and
loan association, building and loan association,
cooperative bank, homestead association, or similar
institution, or any receiver, conservator, liquidator,
liquidating agent, or similar official or person
thereof or therefor; or any common trust fund or
similar fund maintained by a bank exclusively for the
collective investment and reinvestment of moneys
contributed thereto by the bank in its capacity as a
trustee, executor, administrator, or guardian, if--
(A) such fund is employed by the bank solely
as an aid to the administration of trusts,
estates, or other accounts created and
maintained for a fiduciary purpose;
(B) except in connection with the ordinary
advertising of the bank's fiduciary services,
interests in such fund are not--
(i) advertised; or
(ii) offered for sale to the general
public; and
(C) fees and expenses charged by such fund
are not in contravention of fiduciary
principles established under applicable Federal
or State law.
(4) Any person substantially all of whose business is
confined to making small loans, industrial banking, or
similar businesses.
(5) Any person who is not engaged in the business of
issuing redeemable securities, face-amount certificates
of the installment type or periodic payment plan
certificates, and who is primarily engaged in one or
more of the following businesses: (A) Purchasing or
otherwise acquiring notes, drafts, acceptances, open
accounts receivable, and other obligations representing
part or all of the sales price of merchandise,
insurance, and services; (B) making loans to
manufacturers, wholesalers, and retailers of, and to
prospective purchasers of, specified merchandise,
insurance, and services; and (C) purchasing or
otherwise acquiring mortgages and other liens on and
interests in real estate.
(6) Any company primarily engaged, directly or
through majority-owned subsidiaries, in one or more of
the businesses described in paragraphs (3), (4), and
(5), or in one or more of such businesses (from which
not less than 25 centum of such company's gross income
during its last fiscal year was derived) together with
an additional business or businesses other than
investing, reinvesting, owning, holding, or trading in
securities.
(7)(A) Any issuer, the outstanding securities of
which are owned exclusively by persons who, at the time
of acquisition of such securities, are qualified
purchasers, and which is not making and does not at
that time propose to make a public offering of such
securities. Securities that are owned by persons who
received the securities from a qualified purchaser as a
gift or bequest, or in a case in which the transfer was
caused by legal separation, divorce, death, or other
involuntary event, shall be deemed to be owned by a
qualified purchaser, subject to such rules,
regulations, and orders as the Commission may prescribe
as necessary or appropriate in the public interest or
for the protection of investors.
(B) Notwithstanding subparagraph (A), an issuer is
within the exception provided by this paragraph if--
(i) in addition to qualified purchasers,
outstanding securities of that issuer are
beneficially owned by not more than 100 persons
who are not qualified purchasers, if--
(I) such persons acquired any portion
of the securities of such issuer on or
before September 1, 1996; and
(II) at the time at which such
persons initially acquired the
securities of such issuer, the issuer
was excepted by paragraph (1); and
(ii) prior to availing itself of the
exception provided by this paragraph--
(I) such issuer has disclosed to each
beneficial owner, as determined under
paragraph (1), that future investors
will be limited to qualified
purchasers, and that ownership in such
issuer is no longer limited to not more
than 100 persons; and
(II) concurrently with or after such
disclosure, such issuer has provided
each beneficial owner, as determined
under paragraph (1), with a reasonable
opportunity to redeem any part or all
of their interests in the issuer,
notwithstanding any agreement to the
contrary between the issuer and such
persons, for that person's
proportionate share of the issuer's net
assets.
(C) Each person that elects to redeem under
subparagraph (B)(ii)(II) shall receive an amount in
cash equal to that person's proportionate share of the
issuer's net assets, unless the issuer elects to
provide such person with the option of receiving, and
such person agrees to receive, all or a portion of such
person's share in assets of the issuer. If the issuer
elects to provide such persons with such an
opportunity, disclosure concerning such opportunity
shall be made in the disclosure required by
subparagraph (B)(ii)(I).
(D) An issuer that is excepted under this paragraph
shall nonetheless be deemed to be an investment company
for purposes of the limitations set forth in
[subparagraphs (A)(i) and (B)(i)] subparagraphs (A)(i),
(B)(i), and (C) of section 12(d)(1) relating to the
purchase or other acquisition by such issuer of any
security issued by any registered investment company
and the sale of any security issued by any registered
open-end investment company to any such issuer.
(E) For purposes of determining compliance with this
paragraph and paragraph (1), an issuer that is
otherwise excepted under this paragraph and an issuer
that is otherwise excepted under paragraph (1) shall
not be treated by the Commission as being a single
issuer for purposes of determining whether the
outstanding securities of the issuer excepted under
paragraph (1) are beneficially owned by not more than
100 persons or whether the outstanding securities of
the issuer excepted under this paragraph are owned by
persons that are not qualified purchasers. Nothing in
this subparagraph shall be construed to establish that
a person is a bona fide qualified purchaser for
purposes of this paragraph or a bona fide beneficial
owner for purposes of paragraph (1).
(9) Any person substantially all of whose business
consists of owning or holding oil, gas, or other
mineral royalties or leases, or fractional interests
therein, or certificates of interest or participation
in or investment contracts relative to such royalties,
leases, or fractional interests.
(10)(A) Any company organized and operated
exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes--
(i) no part of the net earnings of which
inures to the benefit of any private
shareholder or individual; or
(ii) which is or maintains a fund described
in subparagraph (B).
(B) For the purposes of subparagraph (A)(ii), a fund
is described in this subparagraph if such fund is a
pooled income fund, collective trust fund, collective
investment fund, or similar fund maintained by a
charitable organization exclusively for the collective
investment and reinvestment of one or more of the
following:
(i) assets of the general endowment fund or
other funds of one or more charitable
organizations;
(ii) assets of a pooled income fund;
(iii) assets contributed to a charitable
organization in exchange for the issuance of
charitable gift annuities;
(iv) assets of a charitable remainder trust
or of any other trust, the remainder interests
of which are irrevocably dedicated to any
charitable organization;
(v) assets of a charitable lead trust;
(vi) assets of a trust, the remainder
interests of which are revocably dedicated to
or for the benefit of 1 or more charitable
organizations, if the ability to revoke the
dedication is limited to circumstances
involving--
(I) an adverse change in the
financial circumstances of a settlor or
an income beneficiary of the trust;
(II) a change in the identity of the
charitable organization or
organizations having the remainder
interest, provided that the new
beneficiary is also a charitable
organization; or
(III) both the changes described in
subclauses (I) and (II);
(vii) assets of a trust not described in
clauses (i) through (v), the remainder
interests of which are revocably dedicated to a
charitable organization, subject to
subparagraph (C); or
(viii) such assets as the Commission may
prescribe by rule, regulation, or order in
accordance with section 6(c).
(C) A fund that contains assets described in clause
(vii) of subparagraph (B) shall be excluded from the
definition of an investment company for a period of 3
years after the date of enactment of this subparagraph,
but only if--
(i) such assets were contributed before the
date which is 60 days after the date of
enactment of this subparagraph; and
(ii) such assets are commingled in the fund
with assets described in one or more of clauses
(i) through (vi) and (viii) of subparagraph
(B).
(D) For purposes of this paragraph--
(i) a trust or fund is ``maintained'' by a
charitable organization if the organization
serves as a trustee or administrator of the
trust or fund or has the power to remove the
trustees or administrators of the trust or fund
and to designate new trustees or
administrators;
(ii) the term ``pooled income fund'' has the
same meaning as in section 642(c)(5) of the
Internal Revenue Code of 1986;
(iii) the term ``charitable organization''
means an organization described in paragraphs
(1) through (5) of section 170(c) or section
501(c)(3) of the Internal Revenue Code of 1986;
(iv) the term ``charitable lead trust'' means
a trust described in section 170(f)(2)(B),
2055(e)(2)(B), or 2522(c)(2)(B) of the Internal
Revenue Code of 1986;
(v) the term ``charitable remainder trust''
means a charitable remainder annuity trust or a
charitable remainder unitrust, as those terms
are defined in section 664(d) of the Internal
Revenue Code of 1986; and
(vi) the term ``charitable gift annuity''
means an annuity issued by a charitable
organization that is described in section
501(m)(5) of the Internal Revenue Code of 1986.
(11) Any employee's stock bonus, pension, or profit-
sharing trust which meets the requirements for
qualification under section 401 of the Internal Revenue
Code of 1986; or any governmental plan described in
section 3(a)(2)(C) of the Securities Act of 1933; or
any collective trust fund maintained by a bank
consisting solely of assets of one or more of such
trusts, government plans, or church plans, companies or
accounts that are excluded from the definition of an
investment company under paragraph (14) of this
subsection; or any separate account the assets of which
are derived solely from (A) contributions under pension
or profit-sharing plans which meet the requirements of
section 401 of the Internal Revenue Code of 1986 or the
requirements for deduction of the employer's
contribution under section 404(a)(2) of such Code, (B)
contributions under governmental plans in connection
with which interests, participations, or securities are
exempted from the registration provisions of section 5
of the Securities Act of 1933 by section 3(a)(2)(C) of
such Act, and (C) advances made by an insurance company
in connection with the operation of such separate
account.
(12) Any voting trust the assets of which consist
exclusively of securities of a single issuer which is
not an investment company.
(13) Any security holders' protective committee or
similar issuer having outstanding and issuing no
securities other than certificates of deposit and
short-term paper.
(14) Any church plan described in section 414(e) of
the Internal Revenue Code of 1986, if, under any such
plan, no part of the assets may be used for, or
diverted to, purposes other than the exclusive benefit
of plan participants or beneficiaries, or any company
or account that is--
(A) established by a person that is eligible
to establish and maintain such a plan under
section 414(e) of the Internal Revenue Code of
1986; and
(B) substantially all of the activities of
which consist of--
(i) managing or holding assets
contributed to such church plans or
other assets which are permitted to be
commingled with the assets of church
plans under the Internal Revenue Code
of 1986; or
(ii) administering or providing
benefits pursuant to church plans.
* * * * * * *
subclassification of management companies
Sec. 5. (a) For the purposes of this title, management
companies are divided into open-end and closed-end companies,
defined as follows:
(1) ``Open-end company'' means a management company
which is offering for sale or has outstanding any
redeemable security of which it is the issuer.
(2) ``Closed-end company'' means any management
company other than an open-end company.
(b) Management companies are further divided into diversified
companies and non-diversified companies, defined as follows:
(1) ``Diversified company'' means a management
company which meets the following requirements: At
least 75 per centum of the value of its total assets is
represented by cash and cash items (including
receivables), Government securities, securities of
other investment companies, and other securities for
the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5
per centum of the value of the total assets of such
management company and to not more than 10 per centum
of the outstanding voting securities of such issuer.
(2) ``Non-diversified company'' means any management
company other than a diversified company.
(c) A registered diversified company which at the time of its
qualification as such meets the requirements of paragraph (1)
of subsection (b) shall not lose its status as a diversified
company because of any subsequent discrepancy between the value
of its various investments and the requirements of said
paragraph, so long as any such discrepancy existing immediately
after its acquisition of any security or other property is
neither wholly nor partly the result of such acquisition.
(d) Closed-end Company Authority to Invest in Private
Funds.--
(1) In general.--Except as otherwise prohibited or
restricted by this Act (or any rule issued under this
Act), the Commission may not prohibit or otherwise
limit a closed-end company from investing any or all of
the assets of the closed-end company in securities
issued by private funds.
(2) Other restrictions on commission authority.--
Except as otherwise prohibited or restricted by this
Act (or any rule issued under this Act), the Commission
may not impose any condition on, restrict, or otherwise
limit--
(A) the offer to sell, or the sale of,
securities issued by a closed-end company that
invests, or proposes to invest, in securities
issued by private funds; or
(B) the listing of the securities of a
closed-end company described in subparagraph
(A) on a national securities exchange.
(3) Unrelated restrictions.--The Commission may
impose a condition on, restrict, or otherwise limit an
activity described in paragraph (1) or subparagraph (A)
or (B) of paragraph (2) if that condition, restriction,
or limitation is unrelated to the underlying
characteristics of a private fund or the status of a
private fund as a private fund.
(4) Rule of application.--Notwithstanding section
6(f), this subsection shall also apply to a closed-end
company that elects to be treated as a business
development company pursuant to section 54.
* * * * * * *
----------
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
national securities exchanges
Sec. 6. (a) An exchange may be registered as a national
securities exchange under the terms and conditions hereinafter
provided in this section and in accordance with the provisions
of section 19(a) of this title, by filing with the Commission
an application for registration in such form as the Commission,
by rule, may prescribe containing the rules of the exchange and
such other information and documents as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
(b) An exchange shall not be registered as a national
securities exchange unless the Commission determines that--
(1) Such exchange is so organized and has the
capacity to be able to carry out the purposes of this
title and to comply, and (subject to any rule or order
of the Commission pursuant to section 17(d) or 19(g)(2)
of this title) to enforce compliance by its members and
persons associated with its members, with the
provisions of this title, the rules and regulations
thereunder, and the rules of the exchange.
(2) Subject to the provisions of subsection (c) of
this section, the rules of the exchange provide that
any registered broker or dealer or natural person
associated with a registered broker or dealer may
become a member of such exchange and any person may
become associated with a member thereof.
(3) The rules of the exchange assure a fair
representation of its members in the selection of its
directors and administration of its affairs and provide
that one or more directors shall be representative of
issuers and investors and not be associated with a
member of the exchange, broker, or dealer.
(4) The rules of the exchange provide for the
equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other
persons using its facilities.
(5) The rules of the exchange are designed to prevent
fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to
foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing
information with respect to, and facilitating
transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect
investors and the public interest; and are not designed
to permit unfair discrimination between customers,
issuers, brokers, or dealers, or to regulate by virtue
of any authority conferred by this title matters not
related to the purposes of this title or the
administration of the exchange.
(6) The rules of the exchange provide that (subject
to any rule or order of the Commission pursuant to
section 17(d) or 19(g)(2) of this title) its members
and persons associated with its members shall be
appropriately disciplined for violation of the
provisions of this title, the rules or regulations
thereunder, or the rules of the exchange, by expulsion,
suspension, limitation of activities, functions, and
operations, fine, censure, being suspended or barred
from being associated with a member, or any other
fitting sanction.
(7) The rules of the exchange are in accordance with
the provisions of subsection (d) of this section, and
in general, provide a fair procedure for the
disciplining of members and persons associated with
members, the denial of membership to any person seeking
membership therein, the barring of any person from
becoming associated with a member thereof, and the
prohibition or limitation by the exchange of any person
with respect to access to services offered by the
exchange or a member thereof.
(8) The rules of the exchange do not impose any
burden on competition not necessary or appropriate in
furtherance of the purposes of this title.
(9)(A) The rules of the exchange prohibit the listing
of any security issued in a limited partnership rollup
transaction (as such term is defined in paragraphs (4)
and (5) of section 14(h)), unless such transaction was
conducted in accordance with procedures designed to
protect the rights of limited partners, including--
(i) the right of dissenting limited partners
to one of the following:
(I) an appraisal and compensation;
(II) retention of a security under
substantially the same terms and
conditions as the original issue;
(III) approval of the limited
partnership rollup transaction by not
less than 75 percent of the outstanding
securities of each of the participating
limited partnerships;
(IV) the use of a committee of
limited partners that is independent,
as determined in accordance with rules
prescribed by the exchange, of the
general partner or sponsor, that has
been approved by a majority of the
outstanding units of each of the
participating limited partnerships, and
that has such authority as is necessary
to protect the interest of limited
partners, including the authority to
hire independent advisors, to negotiate
with the general partner or sponsor on
behalf of the limited partners, and to
make a recommendation to the limited
partners with respect to the proposed
transaction; or
(V) other comparable rights that are
prescribed by rule by the exchange and
that are designed to protect dissenting
limited partners;
(ii) the right not to have their voting power
unfairly reduced or abridged;
(iii) the right not to bear an unfair portion
of the costs of a proposed limited partnership
rollup transaction that is rejected; and
(iv) restrictions on the conversion of
contingent interests or fees into non-
contingent interests or fees and restrictions
on the receipt of a non-contingent equity
interest in exchange for fees for services
which have not yet been provided.
(B) As used in this paragraph, the term ``dissenting
limited partner'' means a person who, on the date on
which soliciting material is mailed to investors, is a
holder of a beneficial interest in a limited
partnership that is the subject of a limited
partnership rollup transaction, and who casts a vote
against the transaction and complies with procedures
established by the exchange, except that for purposes
of an exchange or tender offer, such person shall file
an objection in writing under the rules of the exchange
during the period during which the offer is
outstanding.
(10)(A) The rules of the exchange prohibit any member
that is not the beneficial owner of a security
registered under section 12 from granting a proxy to
vote the security in connection with a shareholder vote
described in subparagraph (B), unless the beneficial
owner of the security has instructed the member to vote
the proxy in accordance with the voting instructions of
the beneficial owner.
(B) A shareholder vote described in this subparagraph
is a shareholder vote with respect to the election of a
member of the board of directors of an issuer,
executive compensation, or any other significant
matter, as determined by the Commission, by rule, and
does not include a vote with respect to the uncontested
election of a member of the board of directors of any
investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80b-1 et seq.).
(C) Nothing in this paragraph shall be construed to
prohibit a national securities exchange from
prohibiting a member that is not the beneficial owner
of a security registered under section 12 from granting
a proxy to vote the security in connection with a
shareholder vote not described in subparagraph (A).
(c)(1) A national securities exchange shall deny membership
to (A) any person, other than a natural person, which is not a
registered broker or dealer or (B) any natural person who is
not, or is not associated with, a registered broker or dealer.
(2) A national securities exchange may, and in cases in which
the Commission, by order, directs as necessary or appropriate
in the public interest or for the protection of investors
shall, deny membership to any registered broker or dealer or
natural person associated with a registered broker or dealer,
and bar from becoming associated with a member any person, who
is subject to a statutory disqualification. A national
securities exchange shall file notice with the Commission not
less than thirty days prior to admitting any person to
membership or permitting any person to become associated with a
member, if the exchange knew, or in the exercise of reasonable
care should have known, that such person was subject to a
statutory disqualification. The notice shall be in such form
and contain such information as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or
for the protection of investors.
(3)(A) A national securities exchange may deny membership to,
or condition the membership of, a registered broker or dealer
if (i) such broker or dealer does not meet such standards of
financial responsibility or operational capability or such
broker or dealer or any natural person associated with such
broker or dealer does not meet such standards of training,
experience, and competence as are prescribed by the rules of
the exchange or (ii) such broker or dealer or person associated
with such broker or dealer has engaged and there is a
reasonable likelihood he may again engage in acts or practices
inconsistent with just and equitable principles of trade. A
national securities exchange may examine and verify the
qualifications of an applicant to become a member and the
natural persons associated with such an applicant in accordance
with procedures established by the rules of the exchange.
(B) A national securities exchange may bar a natural person
from becoming a member or associated with a member, or
condition the membership of a natural person or association of
a natural person with a member, if such natural person (i) does
not meet such standards of training, experience, and competence
as are prescribed by the rules of the exchange or (ii) has
engaged and there is a reasonable likelihood he may again
engage in acts or practices inconsistent with just and
equitable principles of trade. A national securities exchange
may examine and verify the qualifications of an applicant to
become a person associated with a member in accordance with
procedures established by the rules of the exchange and require
any person associated with a member, or any class of such
persons, to be registered with the exchange in accordance with
procedures so established.
(C) A national securities exchange may bar any person from
becoming associated with a member if such person does not agree
(i) to supply the exchange with such information with respect
to its relationship and dealings with the member as may be
specified in the rules of the exchange and (ii) to permit the
examination of its books and records to verify the accuracy of
any information so supplied.
(4) A national securities exchange may limit (A) the number
of members of the exchange and (B) the number of members and
designated representatives of members permitted to effect
transactions on the floor of the exchange without the services
of another person acting as broker: Provided, however, That no
national securities exchange shall have the authority to
decrease the number of memberships in such exchange, or the
number of members and designated representatives of members
permitted to effect transactions on the floor of such exchange
without the services of another person acting as broker, below
such number in effect on May 1, 1975, or the date such exchange
was registered with the Commission, whichever is later: And
provided further, That the Commission, in accordance with the
provisions of section 19(c) of this title, may amend the rules
of any national securities exchange to increase (but not to
decrease) or to remove any limitation on the number of
memberships in such exchange or the number of members or
designated representatives of members permitted to effect
transactions on the floor of the exchange without the services
of another person acting as broker, if the Commission finds
that such limitation imposes a burden on competition not
necessary or appropriate in furtherance of the purposes of this
title.
(d)(1) In any proceeding by a national securities exchange to
determine whether a member or person associated with a member
should be disciplined (other than a summary proceeding pursuant
to paragraph (3) of this subsection), the exchange shall bring
specific charges, notify such member or person of, and give him
an opportunity to defend against, such charges, and keep a
record. A determination by the exchange to impose a
disciplinary sanction shall be supported by a statement setting
forth--
(A) any act or practice in which such member or
person associated with a member has been found to have
engaged, or which such member or person has been found
to have omitted;
(B) the specific provision of this title, the rules
or regulations thereunder, or the rules of the exchange
which any such act or practice, or omission to act, is
deemed to violate; and
(C) the sanction imposed and the reasons therefor.
(2) In any proceeding by a national securities exchange to
determine whether a person shall be denied membership, barred
from becoming associated with a member, or prohibited or
limited with respect to access to services offered by the
exchange or a member thereof (other than a summary proceeding
pursuant to paragraph (3) of this subsection), the exchange
shall notify such person of, and give him an opportunity to be
heard upon, the specific grounds for denial, bar, or
prohibition or limitation under consideration and keep a
record. A determination by the exchange to deny membership, bar
a person from becoming associated with a member, or prohibit or
limit a person with respect to access to services offered by
the exchange or a member thereof shall be supported by a
statement setting forth the specific grounds on which the
denial, bar, or prohibition or limitation is based.
(3) A national securities exchange may summarily (A) suspend
a member or person associated with a member who has been and is
expelled or suspended from any self-regulatory organization or
barred or suspended from being associated with a member of any
self-regulatory organization, (B) suspend a member who is in
such financial or operating difficulty that the exchange
determines and so notifies the Commission that the member
cannot be permitted to continue to do business as a member with
safety to investors, creditors, other members, or the exchange,
or (C) limit or prohibit any person with respect to access to
services offered by the exchange if subparagraph (A) or (B) of
this paragraph is applicable to such person or, in the case of
a person who is not a member, if the exchange determines that
such person does not meet the qualification requirements or
other prerequisites for such access and such person cannot be
permitted to continue to have such access with safety to
investors, creditors, members, or the exchange. Any person
aggrieved by any such summary action shall be promptly afforded
an opportunity for a hearing by the exchange in accordance with
the provisions of paragraph (1) or (2) of this subsection. The
Commission, by order, may stay any such summary action on its
own motion or upon application by any person aggrieved thereby,
if the Commission determines summarily or after notice and
opportunity for hearing (which hearing may consist solely of
the submission of affidavits or presentation of oral arguments)
that such stay is consistent with the public interest and the
protection of investors.
(e)(1) On and after the date of enactment of the Securities
Acts Amendments of 1975, no national securities exchange may
impose any schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged by its members:
Provided, however, That until May 1, 1976, the preceding
provisions of this paragraph shall not prohibit any such
exchange from imposing or fixing any schedule of commissions,
allowances, discounts, or other fees to be charged by its
members for acting as broker on the floor of the exchange or as
odd-lot dealer: And provided further, That the Commission, in
accordance with the provisions of section 19(b) of this title
as modified by the provisions of paragraph (3) of this
subsection, may--
(A) permit a national securities exchange, by rule,
to impose a reasonable schedule or fix reasonable rates
of commissions, allowances, discounts, or other fees to
be charged by its members for effecting transactions on
such exchange prior to November 1, 1976, if the
Commission finds that such schedule or fixed rates of
commissions, allowances, discounts, or other fees are
in the public interest; and
(B) permit a national securities exchange, by rule,
to impose a schedule or fix rates of commissions,
allowances, discounts, or other fees to be charged by
its members for effecting transactions on such exchange
after November 1, 1976, if the Commission finds that
such schedule or fixed rates of commissions,
allowances, discounts, or other fees (i) are reasonable
in relation to the costs of providing the service for
which such fees are charged (and the Commission
publishes the standards employed in adjudging
reasonableness) and (ii) do not impose any burden on
competition not necessary or appropriate in furtherance
of the purposes of this title, taking into
consideration the competitive effects of permitting
such schedule or fixed rates weighed against the
competitive effects of other lawful actions which the
Commission is authorized to take under this title.
(2) Notwithstanding the provisions of section 19(c) of this
title, the Commission, by rule, may abrogate any exchange rule
which imposes a schedule or fixes rates of commissions,
allowances, discounts, or other fees, if the Commission
determines that such schedule or fixed rates are no longer
reasonable, in the public interest, or necessary to accomplish
the purposes of this title.
(3)(A) Before approving or disapproving any proposed rule
change submitted by a national securities exchange which would
impose a schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged by its members for
effecting transactions on such exchange, the Commission shall
afford interested persons (i) an opportunity for oral
presentation of data, views, and arguments and (ii) with
respect to any such rule concerning transactions effected after
November 1, 1976, if the Commission determines there are
disputed issues of material fact, to present such rebuttal
submissions and to conduct (or have conducted under
subparagraph (B) of this paragraph) such cross-examination as
the Commission determines to be appropriate and required for
full disclosure and proper resolution of such disputed issues
of material fact.
(B) The Commission shall prescribe rules and make rulings
concerning any proceeding in accordance with subparagraph (A)
of this paragraph designed to avoid unnecessary costs or delay.
Such rules or rulings may (i) impose reasonable time limits on
each interested person's oral presentations, and (ii) require
any cross-examination to which a person may be entitled under
subparagraph (A) of this paragraph to be conducted by the
Commission on behalf of that person in such manner as the
Commission determines to be appropriate and required for full
disclosure and proper resolution of disputed issues of material
fact.
(C)(i) If any class of persons, the members of which are
entitled to conduct (or have conducted) cross-examination under
subparagraphs (A) and (B) of this paragraph and which have, in
the view of the Commission, the same or similar interests in
the proceeding, cannot agree upon a single representative of
such interests for purposes of cross-examination, the
Commission may make rules and rulings specifying the manner in
which such interests shall be represented and such cross-
examination conducted.
(ii) No member of any class of persons with respect to which
the Commission has specified the manner in which its interests
shall be represented pursuant to clause (i) of this
subparagraph shall be denied, pursuant to such clause (i), the
opportunity to conduct (or have conducted) cross-examination as
to issues affecting his particular interests if he satisfies
the Commission that he has made a reasonable and good faith
effort to reach agreement upon group representation and there
are substantial and relevant issues which would not be
presented adequately by group representation.
(D) A transcript shall be kept of any oral presentation and
cross-examination.
(E) In addition to the bases specified in subsection 25(a), a
reviewing Court may set aside an order of the Commission under
section 19(b) approving an exchange rule imposing a schedule or
fixing rates of commissions, allowances, discounts, or other
fees, if the Court finds--
(1) a Commission determination under subparagraph (A)
of this paragraph that an interested person is not
entitled to conduct cross-examination or make rebuttal
submissions, or
(2) a Commission rule or ruling under subparagraph
(B) of this paragraph limiting the petitioner's cross-
examination or rebuttal submissions,
has precluded full disclosure
and proper resolution of
disputed issues of material
fact which were necessary for
fair determination by the
Commission.
(f) The Commission, by rule or order, as it deems necessary
or appropriate in the public interest and for the protection of
investors, to maintain fair and orderly markets, or to assure
equal regulation, may require--
(1) any person not a member or a designated
representative of a member of a national securities
exchange effecting transactions on such exchange
without the services of another person acting as a
broker, or
(2) any broker or dealer not a member of a national
securities exchange effecting transactions on such
exchange on a regular basis,
to comply with such rules of such exchange as the Commission
may specify.
(g) Notice Registration of Security Futures Product
Exchanges.--
(1) Registration required.--An exchange that lists or
trades security futures products may register as a
national securities exchange solely for the purposes of
trading security futures products if--
(A) the exchange is a board of trade, as that
term is defined by the Commodity Exchange Act
(7 U.S.C. 1a(2)), that has been designated a
contract market by the Commodity Futures
Trading Commission and such designation is not
suspended by order of the Commodity Futures
Trading Commission; and
(B) such exchange does not serve as a market
place for transactions in securities other
than--
(i) security futures products; or
(ii) futures on exempted securities
or groups or indexes of securities or
options thereon that have been
authorized under section 2(a)(1)(C) of
the Commodity Exchange Act.
(2) Registration by notice filing.--
(A) Form and content.--An exchange required
to register only because such exchange lists or
trades security futures products may register
for purposes of this section by filing with the
Commission a written notice in such form as the
Commission, by rule, may prescribe containing
the rules of the exchange and such other
information and documents concerning such
exchange, comparable to the information and
documents required for national securities
exchanges under section 6(a), as the
Commission, by rule, may prescribe as necessary
or appropriate in the public interest or for
the protection of investors. If such exchange
has filed documents with the Commodity Futures
Trading Commission, to the extent that such
documents contain information satisfying the
Commission's informational requirements, copies
of such documents may be filed with the
Commission in lieu of the required written
notice.
(B) Immediate effectiveness.--Such
registration shall be effective
contemporaneously with the submission of
notice, in written or electronic form, to the
Commission, except that such registration shall
not be effective if such registration would be
subject to suspension or revocation.
(C) Termination.--Such registration shall be
terminated immediately if any of the conditions
for registration set forth in this subsection
are no longer satisfied.
(3) Public availability.--The Commission shall
promptly publish in the Federal Register an
acknowledgment of receipt of all notices the Commission
receives under this subsection and shall make all such
notices available to the public.
(4) Exemption of exchanges from specified
provisions.--
(A) Transaction exemptions.--An exchange that
is registered under paragraph (1) of this
subsection shall be exempt from, and shall not
be required to enforce compliance by its
members with, and its members shall not, solely
with respect to those transactions effected on
such exchange in security futures products, be
required to comply with, the following
provisions of this title and the rules
thereunder:
(i) Subsections (b)(2), (b)(3),
(b)(4), (b)(7), (b)(9), (c), (d), and
(e) of this section.
(ii) Section 8.
(iii) Section 11.
(iv) Subsections (d), (f), and (k) of
section 17.
(v) Subsections (a), (f), and (h) of
section 19.
(B) Rule change exemptions.--An exchange that
registered under paragraph (1) of this
subsection shall also be exempt from submitting
proposed rule changes pursuant to section 19(b)
of this title, except that--
(i) such exchange shall file proposed
rule changes related to higher margin
levels, fraud or manipulation,
recordkeeping, reporting, listing
standards, or decimal pricing for
security futures products, sales
practices for security futures products
for persons who effect transactions in
security futures products, or rules
effectuating such exchange's obligation
to enforce the securities laws pursuant
to section 19(b)(7);
(ii) such exchange shall file
pursuant to sections 19(b)(1) and
19(b)(2) proposed rule changes related
to margin, except for changes resulting
in higher margin levels; and
(iii) such exchange shall file
pursuant to section 19(b)(1) proposed
rule changes that have been abrogated
by the Commission pursuant to section
19(b)(7)(C).
(5) Trading in security futures products.--
(A) In general.--Subject to subparagraph (B),
it shall be unlawful for any person to execute
or trade a security futures product until the
later of--
(i) 1 year after the date of the
enactment of the Commodity Futures
Modernization Act of 2000; or
(ii) such date that a futures
association registered under section 17
of the Commodity Exchange Act has met
the requirements set forth in section
15A(k)(2) of this title.
(B) Principal-to-principal transactions.--
Notwithstanding subparagraph (A), a person may
execute or trade a security futures product
transaction if--
(i) the transaction is entered into--
(I) on a principal-to-
principal basis between parties
trading for their own accounts
or as described in section
1a(18)(B)(ii) of the Commodity
Exchange Act; and
(II) only between eligible
contract participants (as
defined in subparagraphs (A),
(B)(ii), and (C) of such
section 1a(18)) at the time at
which the persons enter into
the agreement, contract, or
transaction; and
(ii) the transaction is entered into
on or after the later of--
(I) 8 months after the date
of the enactment of the
Commodity Futures Modernization
Act of 2000; or
(II) such date that a futures
association registered under
section 17 of the Commodity
Exchange Act has met the
requirements set forth in
section 15A(k)(2) of this
title.
(h) Trading in Security Futures Products.--
(1) Trading on exchange or association required.--It
shall be unlawful for any person to effect transactions
in security futures products that are not listed on a
national securities exchange or a national securities
association registered pursuant to section 15A(a).
(2) Listing standards required.--Except as otherwise
provided in paragraph (7), a national securities
exchange or a national securities association
registered pursuant to section 15A(a) may trade only
security futures products that (A) conform with listing
standards that such exchange or association files with
the Commission under section 19(b) and (B) meet the
criteria specified in section 2(a)(1)(D)(i) of the
Commodity Exchange Act.
(3) Requirements for listing standards and conditions
for trading.--Such listing standards shall--
(A) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that any security
underlying the security future, including each
component security of a narrow-based security
index, be registered pursuant to section 12 of
this title;
(B) require that if the security futures
product is not cash settled, the market on
which the security futures product is traded
have arrangements in place with a registered
clearing agency for the payment and delivery of
the securities underlying the security futures
product;
(C) be no less restrictive than comparable
listing standards for options traded on a
national securities exchange or national
securities association registered pursuant to
section 15A(a) of this title;
(D) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that the security future
be based upon common stock and such other
equity securities as the Commission and the
Commodity Futures Trading Commission jointly
determine appropriate;
(E) require that the security futures product
is cleared by a clearing agency that has in
place provisions for linked and coordinated
clearing with other clearing agencies that
clear security futures products, which permits
the security futures product to be purchased on
one market and offset on another market that
trades such product;
(F) require that only a broker or dealer
subject to suitability rules comparable to
those of a national securities association
registered pursuant to section 15A(a) effect
transactions in the security futures product;
(G) require that the security futures product
be subject to the prohibition against dual
trading in section 4j of the Commodity Exchange
Act (7 U.S.C. 6j) and the rules and regulations
thereunder or the provisions of section 11(a)
of this title and the rules and regulations
thereunder, except to the extent otherwise
permitted under this title and the rules and
regulations thereunder;
(H) require that trading in the security
futures product not be readily susceptible to
manipulation of the price of such security
futures product, nor to causing or being used
in the manipulation of the price of any
underlying security, option on such security,
or option on a group or index including such
securities;
(I) require that procedures be in place for
coordinated surveillance among the market on
which the security futures product is traded,
any market on which any security underlying the
security futures product is traded, and other
markets on which any related security is traded
to detect manipulation and insider trading;
(J) require that the market on which the
security futures product is traded has in place
audit trails necessary or appropriate to
facilitate the coordinated surveillance
required in subparagraph (I);
(K) require that the market on which the
security futures product is traded has in place
procedures to coordinate trading halts between
such market and any market on which any
security underlying the security futures
product is traded and other markets on which
any related security is traded; and
(L) require that the margin requirements for
a security futures product comply with the
regulations prescribed pursuant to section
7(c)(2)(B), except that nothing in this
subparagraph shall be construed to prevent a
national securities exchange or national
securities association from requiring higher
margin levels for a security futures product
when it deems such action to be necessary or
appropriate.
(4) Authority to modify certain listing standard
requirements.--
(A) Authority to modify.--The Commission and
the Commodity Futures Trading Commission, by
rule, regulation, or order, may jointly modify
the listing standard requirements specified in
subparagraph (A) or (D) of paragraph (3) to the
extent such modification fosters the
development of fair and orderly markets in
security futures products, is necessary or
appropriate in the public interest, and is
consistent with the protection of investors.
(B) Authority to grant exemptions.--The
Commission and the Commodity Futures Trading
Commission, by order, may jointly exempt any
person from compliance with the listing
standard requirement specified in subparagraph
(E) of paragraph (3) to the extent such
exemption fosters the development of fair and
orderly markets in security futures products,
is necessary or appropriate in the public
interest, and is consistent with the protection
of investors.
(5) Requirements for other persons trading security
future products.--It shall be unlawful for any person
(other than a national securities exchange or a
national securities association registered pursuant to
section 15A(a)) to constitute, maintain, or provide a
marketplace or facilities for bringing together
purchasers and sellers of security future products or
to otherwise perform with respect to security future
products the functions commonly performed by a stock
exchange as that term is generally understood, unless a
national securities association registered pursuant to
section 15A(a) or a national securities exchange of
which such person is a member--
(A) has in place procedures for coordinated
surveillance among such person, the market
trading the securities underlying the security
future products, and other markets trading
related securities to detect manipulation and
insider trading;
(B) has rules to require audit trails
necessary or appropriate to facilitate the
coordinated surveillance required in
subparagraph (A); and
(C) has rules to require such person to
coordinate trading halts with markets trading
the securities underlying the security future
products and other markets trading related
securities.
(6) Deferral of options on security futures
trading.--No person shall offer to enter into, enter
into, or confirm the execution of any put, call,
straddle, option, or privilege on a security future,
except that, after 3 years after the date of the
enactment of this subsection, the Commission and the
Commodity Futures Trading Commission may by order
jointly determine to permit trading of puts, calls,
straddles, options, or privileges on any security
future authorized to be traded under the provisions of
this Act and the Commodity Exchange Act.
(7) Deferral of linked and coordinated clearing.--
(A) Notwithstanding paragraph (2), until the
compliance date, a national securities exchange
or national securities association registered
pursuant to section 15A(a) may trade a security
futures product that does not--
(i) conform with any listing standard
promulgated to meet the requirement
specified in subparagraph (E) of
paragraph (3); or
(ii) meet the criterion specified in
section 2(a)(1)(D)(i)(IV) of the
Commodity Exchange Act.
(B) The Commission and the Commodity Futures
Trading Commission shall jointly publish in the
Federal Register a notice of the compliance
date no later than 165 days before the
compliance date.
(C) For purposes of this paragraph, the term
``compliance date'' means the later of--
(i) 180 days after the end of the
first full calendar month period in
which the average aggregate comparable
share volume for all security futures
products based on single equity
securities traded on all national
securities exchanges, any national
securities associations registered
pursuant to section 15A(a), and all
other persons equals or exceeds 10
percent of the average aggregate
comparable share volume of options on
single equity securities traded on all
national securities exchanges and any
national securities associations
registered pursuant to section 15A(a);
or
(ii) 2 years after the date on which
trading in any security futures product
commences under this title.
(i) Consistent with this title, each national securities
exchange registered pursuant to subsection (a) of this section
shall issue such rules as are necessary to avoid duplicative or
conflicting rules applicable to any broker or dealer registered
with the Commission pursuant to section 15(b) (except paragraph
(11) thereof), that is also registered with the Commodity
Futures Trading Commission pursuant to section 4f(a) of the
Commodity Exchange Act (except paragraph (2) thereof), with
respect to the application of--
(1) rules of such national securities exchange of the
type specified in section 15(c)(3)(B) involving
security futures products; and
(2) similar rules of national securities exchanges
registered pursuant to section 6(g) and national
securities associations registered pursuant to section
15A(k) involving security futures products.
(j) Procedures and Rules for Security Future Products.--A
national securities exchange registered pursuant to subsection
(a) shall implement the procedures specified in section
6(h)(5)(A) of this title and adopt the rules specified in
subparagraphs (B) and (C) of section 6(h)(5) of this title not
later than 8 months after the date of receipt of a request from
an alternative trading system for such implementation and
rules.
(k)(1) To the extent necessary or appropriate in the public
interest, to promote fair competition, and consistent with the
promotion of market efficiency, innovation, and expansion of
investment opportunities, the protection of investors, and the
maintenance of fair and orderly markets, the Commission and the
Commodity Futures Trading Commission shall jointly issue such
rules, regulations, or orders as are necessary and appropriate
to permit the offer and sale of a security futures product
traded on or subject to the rules of a foreign board of trade
to United States persons.
(2) The rules, regulations, or orders adopted under paragraph
(1) shall take into account, as appropriate, the nature and
size of the markets that the securities underlying the security
futures product reflect.
(l) Security-based Swaps.--It shall be unlawful for any
person to effect a transaction in a security-based swap with or
for a person that is not an eligible contract participant,
unless such transaction is effected on a national securities
exchange registered pursuant to subsection (b).
(m)(1) Except as otherwise prohibited or restricted by rules
of the exchange that are consistent with section 5(d) of the
Investment Company Act of 1940 (15 U.S.C. 80a-5(d)), an
exchange may not prohibit, condition, restrict, or impose any
other limitation on the listing or trading of the securities of
a closed-end company when the closed-end company invests, or
may invest, some or all of the assets of the closed-end company
in securities issued by private funds.
(2) In this subsection--
(A) the term ``closed-end company''--
(i) has the meaning given the term in section
5(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-5(a)); and
(ii) includes a closed-end company that
elects to be treated as a business development
company pursuant to section 54 of the
Investment Company Act of 1940 (15 U.S.C. 80a-
53); and
(B) the term ``private fund'' has the meaning given
in section 202(a) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-2(a)).
* * * * * * *
MINORITY VIEWS
This bill would amend the Investment Act of 1940 to allow a
closed-end fund to invest up to all its assets in private
funds, which would effectively create a private equity-type
fund sold directly to retail investors. A closed-end fund is a
type of mutual fund that issues a fixed number of shares
through a single initial public offering (IPO) to raise capital
for its initial investments. Its shares can then be bought and
sold on a stock exchange by ordinary retail investors, but no
new shares will be created and no new money will flow into the
fund. In contrast, an open-ended fund, such as most mutual
funds and exchange-traded funds (ETFs), accepts a constant flow
of new investment capital and issues new shares over time.
Private funds--consisting primarily of private equity and
venture capital--invest their capital in private businesses,
which issue securities that are not registered with the SEC.
This bill poses risks to retail investors by exposing them
to high-risk private funds that lack important investor
protections and regulatory guardrails and are not required to
disclose critical information. The assets that private funds
invest in--fledgling startups or distressed companies in need
of a turnaround--are significantly more risky than public
securities, and most of their investments fail (9 out of
10).\1\ Permitting a closed-end fund to invest up to all of its
money in private funds--with no particular safeguards provided
by the securities laws for retail investors, such as liquidity
requirements and redemptions rights, will enable these funds to
gain easy access to retail investor money, while at the same
time subjecting retail investors to the higher risks of losses
(not to mention the general lack of disclosure) inherent in the
average private fund portfolio company. According to analysis
by the Consumer Federation of America:
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\1\Startup Genome, The State of the Global Startup Economy
(accessed May 28, 2025) (``While about 90% of startups completely fail,
Startup Genome research demonstrates that only 1.5% of startups--or
about 15% of those that survive--produce a successful exit of $50
million or more across the top eight U.S. startup ecosystems.'').
``[t]his bill would allow closed-end funds to invest
100% of their net assets in private funds and still be
sold to non-accredited investors, which would
effectively create a private fund for retail investors
without these investors having to meet the accredited
investor definition. This would increase the amount of
risky, illiquid, and opaque private funds that are sold
to retail investors, who may not be able to appreciate
the risks or sustain the risk of loss of these
investments. It would also allow for the layering of
multiple levels of fund fees, which could make such
investments exorbitantly expensive.''\2\
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\2\Consumer Federation of America, CFA Opposes Anti-Consumer/Anti-
Investor House Financial Services Committee Bills (Apr. 25, 2023).
Similarly, Public Citizen, in response to the May 24, 2023,
House Financial Services Committee markup, in a letter to
Chairman McHenry and Ranking Member Waters opposing the bill,
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wrote, in part:
``This misleadingly titled bill would expose
investors to greater risk by increasing the limit that
a closed-end fund can invest in a private fund, which
are subject to less regulation and disclosure.
Currently, the SEC caps the amount that closed-end
funds can invest in private funds at 15% of net assets,
if the closed-end fund is sold to non-accredited
investors, who are investors with lower income and
total wealth. If a closed-end fund has more than 15% of
net assets in private funds, it must sell that fund
only to accredited investors. This bill would allow
closed-end funds to invest 100% of their net assets in
private funds and still be sold to non-accredited
investors. Many private funds are simply bad products
that sophisticated investors have avoided. This bill
would allow them to be sloughed off on those with less
investment experience and less income and savings to
lose.''\3\
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\3\Public Citizen, Letter to then Chairman Patrick McHenry and
Ranking Member Maxine Waters (May 22, 2023).
The following groups are opposed to this bill: Public
Citizen; Consumer Federation of America; Center for American
Progress; Americans for Financial Reform; North American
Securities Administrators Association (NASAA).
For these reasons, we oppose H.R. 3383.
Sincerely,
Maxine Waters,
Ranking Member.
Nydia M. Velazquez,
Stephen F. Lynch,
Al Green,
Joyce Beatty,
Rashida Tlaib,
Sylvia R. Garcia,
Nikema Williams,
Members of Congress.
[all]