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U.S. Code as of:
01/19/04
Section 78k. Trading by members of exchanges, brokers, and dealers
(a) Trading for own account or account of associated person;
exceptions
(1) It shall be unlawful for any member of a national securities
exchange to effect any transaction on such exchange for its own
account, the account of an associated person, or an account with
respect to which it or an associated person thereof exercises
investment discretion: Provided, however, That this paragraph shall
not make unlawful -
(A) any transaction by a dealer acting in the capacity of
market maker;
(B) any transaction for the account of an odd-lot dealer in a
security in which he is so registered;
(C) any stabilizing transaction effected in compliance with
rules under section 78j(b) of this title to facilitate a
distribution of a security in which the member effecting such
transaction is participating;
(D) any bona fide arbitrage transaction, any bona fide hedge
transaction involving a long or short position in an equity
security and a long or short position in a security entitling the
holder to acquire or sell such equity security, or any risk
arbitrage transaction in connection with a merger, acquisition,
tender offer, or similar transaction involving a
recapitalization;
(E) any transaction for the account of a natural person, the
estate of a natural person, or a trust created by a natural
person for himself or another natural person;
(F) any transaction to offset a transaction made in error;
(G) any other transaction for a member's own account provided
that (i) such member is primarily engaged in the business of
underwriting and distributing securities issued by other persons,
selling securities to customers, and acting as broker, or any one
or more of such activities, and whose gross income normally is
derived principally from such business and related activities and
(ii) such transaction is effected in compliance with rules of the
Commission which, as a minimum, assure that the transaction is
not inconsistent with the maintenance of fair and orderly markets
and yields priority, parity, and precedence in execution to
orders for the account of persons who are not members or
associated with members of the exchange;
(H) any transaction for an account with respect to which such
member or an associated person thereof exercises investment
discretion if such member -
(i) has obtained, from the person or persons authorized to
transact business for the account, express authorization for
such member or associated person to effect such transactions
prior to engaging in the practice of effecting such
transactions;
(ii) furnishes the person or persons authorized to transact
business for the account with a statement at least annually
disclosing the aggregate compensation received by the exchange
member in effecting such transactions; and
(iii) complies with any rules the Commission has prescribed
with respect to the requirements of clauses (i) and (ii); and
(I) any other transaction of a kind which the Commission, by
rule, determines is consistent with the purposes of this
paragraph, the protection of investors, and the maintenance of
fair and orderly markets.
(2) The Commission, by rule, 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 of
exchange markets and markets occurring otherwise than on an
exchange, may regulate or prohibit:
(A) transactions on a national securities exchange not unlawful
under paragraph (1) of this subsection effected by any member
thereof for its own account (unless such member is acting in the
capacity of market maker or odd-lot dealer), the account of an
associated person, or an account with respect to which such
member or an associated person thereof exercises investment
discretion;
(B) transactions otherwise than on a national securities
exchange effected by use of the mails or any means or
instrumentality of interstate commerce by any member of a
national securities exchange, broker, or dealer for the account
of such member, broker, or dealer (unless such member, broker, or
dealer is acting in the capacity of a market maker) (!1) the
account of an associated person, or an account with respect to
which such member, broker, or dealer or associated person thereof
exercises investment discretion; and
(C) transactions on a national securities exchange effected by
any broker or dealer not a member thereof for the account of such
broker or dealer (unless such broker or dealer is acting in the
capacity of market maker), the account of an associated person,
or an account with respect to which such broker or dealer or
associated person thereof exercises investment discretion.
(3) The provisions of paragraph (1) of this subsection insofar as
they apply to transactions on a national securities exchange
effected by a member thereof who was a member on February 1, 1978
shall not become effective until February 1, 1979. Nothing in this
paragraph shall be construed to impair or limit the authority of
the Commission to regulate or prohibit such transactions prior to
February 1, 1979, pursuant to paragraph (2) of this subsection.
(b) Registration of members as odd-lot dealers and specialists
When not in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public
interest and for the protection of investors, to maintain fair and
orderly markets, or to remove impediments to and perfect the
mechanism of a national market system, the rules of a national
securities exchange may permit (1) a member to be registered as an
odd-lot dealer and as such to buy and sell for his own account so
far as may be reasonably necessary to carry on such odd-lot
transactions, and (2) a member to be registered as a specialist.
Under the rules and regulations of the Commission a specialist may
be permitted to act as a broker and dealer or limited to acting as
a broker or dealer. It shall be unlawful for a specialist or an
official of the exchange to disclose information in regard to
orders placed with such specialist which is not available to all
members of the exchange, to any person other than an official of
the exchange, a representative of the Commission, or a specialist
who may be acting for such specialist: Provided, however, That the
Commission, by rule, may require disclosure to all members of the
exchange of all orders placed with specialists, under such rules
and regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of
investors. It shall also be unlawful for a specialist permitted to
act as a broker and dealer to effect on the exchange as broker any
transaction except upon a market or limited price order.
(c) Exemptions from provisions of section and rules and regulations
If because of the limited volume of transactions effected on an
exchange, it is in the opinion of the Commission impracticable and
not necessary or appropriate in the public interest or for the
protection of investors to apply any of the foregoing provisions of
this section or the rules and regulations thereunder, the
Commission shall have power, upon application of the exchange and
on a showing that the rules of such exchange are otherwise adequate
for the protection of investors, to exempt such exchange and its
members from any such provision or rules and regulations.
(d) Prohibition on extension of credit by broker-dealer
It shall be unlawful for a member of a national securities
exchange who is both a dealer and a broker, or for any person who
both as a broker and a dealer transacts a business in securities
through the medium of a member or otherwise, to effect through the
use of any facility of a national securities exchange or of the
mails or of any means or instrumentality of interstate commerce, or
otherwise in the case of a member, (1) any transaction in
connection with which, directly or indirectly, he extends or
maintains or arranges for the extension or maintenance of credit to
or for a customer on any security (other than an exempted security)
which was a part of a new issue in the distribution of which he
participated as a member of a selling syndicate or group within
thirty days prior to such transaction: Provided, That credit shall
not be deemed extended by reason of a bona fide delayed delivery of
(i) any such security against full payment of the entire purchase
price thereof upon such delivery within thirty-five days after such
purchase or (ii) any mortgage related security or any small
business related security against full payment of the entire
purchase price thereof upon such delivery within one hundred and
eighty days after such purchase, or within such shorter period as
the Commission may prescribe by rule or regulation, or (2) any
transaction with respect to any security (other than an exempted
security) unless, if the transaction is with a customer, he
discloses to such customer in writing at or before the completion
of the transaction whether he is acting as a dealer for his own
account, as a broker for such customer, or as a broker for some
other person.
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