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U.S. Code as of:
01/19/04
Section 78o-4. Municipal securities
(a) Registration of municipal securities dealers
(1) It shall be unlawful for any municipal securities dealer
(other than one registered as a broker or dealer under section 78o
of this title) to make use of the mails or any means or
instrumentality of interstate commerce to effect any transaction
in, or to induce or attempt to induce the purchase or sale of, any
municipal security unless such municipal securities dealer is
registered in accordance with this subsection.
(2) A municipal securities dealer may be registered by filing
with the Commission an application for registration in such form
and containing such information and documents concerning such
municipal securities dealer and any persons associated with such
municipal securities dealer as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or for
the protection of investors. Within forty-five days of the date of
the filing of such application (or within such longer period as to
which the applicant consents), the Commission shall -
(A) by order grant registration, or
(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within one hundred twenty days of
the date of the filing of the application for registration. At
the conclusion of such proceedings the Commission, by order,
shall grant or deny such registration. The Commission may extend
the time for the conclusion of such proceedings for up to ninety
days if it finds good cause for such extension and publishes its
reasons for so finding or for such longer period as to which the
applicant consents.
The Commission shall grant the registration of a municipal
securities dealer if the Commission finds that the requirements of
this section are satisfied. The Commission shall deny such
registration if it does not make such a finding or if it finds that
if the applicant were so registered, its registration would be
subject to suspension or revocation under subsection (c) of this
section.
(3) Any provision of this chapter (other than section 78e of this
title or paragraph (1) of this subsection) which prohibits any act,
practice, or course of business if the mails or any means or
instrumentality of interstate commerce is used in connection
therewith shall also prohibit any such act, practice, or course of
business by any registered municipal securities dealer or any
person acting on behalf of such municipal securities dealer,
irrespective of any use of the mails or any means or
instrumentality of interstate commerce in connection therewith.
(4) The Commission, by rule or order, upon its own motion or upon
application, may conditionally or unconditionally exempt any
broker, dealer, or municipal securities dealer or class of brokers,
dealers, or municipal securities dealers from any provision of this
section or the rules or regulations thereunder, if the Commission
finds that such exemption is consistent with the public interest,
the protection of investors, and the purposes of this section.
(b) Municipal Securities Rulemaking Board; rules and regulations
(1) Not later than one hundred twenty days after June 4, 1975,
the Commission shall establish a Municipal Securities Rulemaking
Board (hereinafter in this section referred to as the "Board"), to
be composed initially of fifteen members appointed by the
Commission, which shall perform the duties set forth in this
section. The initial members of the Board shall serve as members
for a term of two years, and shall consist of (A) five individuals
who are not associated with any broker, dealer, or municipal
securities dealer (other than by reason of being under common
control with, or indirectly controlling, any broker or dealer which
is not a municipal securities broker or municipal securities
dealer), at least one of whom shall be representative of investors
in municipal securities, and at least one of whom shall be
representative of issuers of municipal securities (which members
are hereinafter referred to as "public representatives"); (B) five
individuals who are associated with and representative of municipal
securities brokers and municipal securities dealers which are not
banks or subsidiaries or departments or divisions of banks (which
members are hereinafter referred to as "broker-dealer
representatives"); and (C) five individuals who are associated with
and representative of municipal securities dealers which are banks
or subsidiaries or departments or divisions of banks (which members
are hereinafter referred to as "bank representatives"). Prior to
the expiration of the terms of office of the initial members of the
Board, an election shall be held under rules adopted by the Board
(pursuant to subsection (b)(2)(B) of this section) of the members
to succeed such initial members.
(2) The Board shall propose and adopt rules to effect the
purposes of this chapter with respect to transactions in municipal
securities effected by brokers, dealers, and municipal securities
dealers. (Such rules are hereinafter collectively referred to in
this chapter as "rules of the Board".) The rules of the Board, as a
minimum, shall:
(A) provide that no municipal securities broker or municipal
securities dealer shall effect any transaction in, or induce or
attempt to induce the purchase or sale of, any municipal security
unless such municipal securities broker or municipal securities
dealer meets such standards of operational capability and such
municipal securities broker or municipal securities dealer and
every natural person associated with such municipal securities
broker or municipal securities dealer meet such standards of
training, experience, competence, and such other qualifications
as the Board finds necessary or appropriate in the public
interest or for the protection of investors. In connection with
the definition and application of such standards the Board may -
(i) appropriately classify municipal securities brokers and
municipal securities dealers (taking into account relevant
matters, including types of business done, nature of securities
other than municipal securities sold, and character of business
organization), and persons associated with municipal securities
brokers and municipal securities dealers;
(ii) specify that all or any portion of such standards shall
be applicable to any such class;
(iii) require persons in any such class to pass tests
administered in accordance with subsection (c)(7) of this
section; and
(iv) provide that persons in any such class other than
municipal securities brokers and municipal securities dealers
and partners, officers, and supervisory employees of municipal
securities brokers or municipal securities dealers, may be
qualified solely on the basis of compliance with such standards
of training and such other qualifications as the Board finds
appropriate.
(B) establish fair procedures for the nomination and election
of members of the Board and assure fair representation in such
nominations and elections of municipal securities brokers and
municipal securities dealers. Such rules shall provide that the
membership of the Board shall at all times be equally divided
among public representatives, broker-dealer representatives, and
bank representatives, and that the public representatives shall
be subject to approval by the Commission to assure that no one of
them is associated with any broker, dealer, or municipal
securities dealer (other than by reason of being under common
control with, or indirectly controlling, any broker or dealer
which is not a municipal securities broker or municipal
securities dealer) and that at least one is representative of
investors in municipal securities and at least one is
representative of issuers of municipal securities. Such rules
shall also specify the term members shall serve and may increase
the number of members which shall constitute the whole Board
provided that such number is an odd number.
(C) be 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 municipal
securities, to remove impediments to and perfect the mechanism of
a free and open market in municipal securities, and, in general,
to protect investors and the public interest; and not be designed
to permit unfair discrimination between customers, issuers,
municipal securities brokers, or municipal securities dealers, to
fix minimum profits, to impose any schedule or fix rates of
commissions, allowances, discounts, or other fees to be charged
by municipal securities brokers or municipal securities dealers,
to regulate by virtue of any authority conferred by this chapter
matters not related to the purposes of this chapter or the
administration of the Board, or to impose any burden on
competition not necessary or appropriate in furtherance of the
purposes of this chapter.
(D) if the Board deems appropriate, provide for the arbitration
of claims, disputes, and controversies relating to transactions
in municipal securities: Provided, however, That no person other
than a municipal securities broker, municipal securities dealer,
or person associated with such a municipal securities broker or
municipal securities dealer may be compelled to submit to such
arbitration except at his instance and in accordance with section
78cc of this title.
(E) provide for the periodic examination in accordance with
subsection (c)(7) of this section of municipal securities brokers
and municipal securities dealers to determine compliance with
applicable provisions of this chapter, the rules and regulations
thereunder, and the rules of the Board. Such rules shall specify
the minimum scope and frequency of such examinations and shall be
designed to avoid unnecessary regulatory duplication or undue
regulatory burdens for any such municipal securities broker or
municipal securities dealer.
(F) include provisions governing the form and content of
quotations relating to municipal securities which may be
distributed or published by any municipal securities broker,
municipal securities dealer, or person associated with such a
municipal securities broker or municipal securities dealer, and
the persons to whom such quotations may be supplied. Such rules
relating to quotations shall be designed to produce fair and
informative quotations, to prevent fictitious or misleading
quotations, and to promote orderly procedures for collecting,
distributing, and publishing quotations.
(G) prescribe records to be made and kept by municipal
securities brokers and municipal securities dealers and the
periods for which such records shall be preserved.
(H) define the term "separately identifiable department or
division", as that term is used in section 78c(a)(30) of this
title, in accordance with specified and appropriate standards to
assure that a bank is not deemed to be engaged in the business of
buying and selling municipal securities through a separately
identifiable department or division unless such department or
division is organized and administered so as to permit
independent examination and enforcement of applicable provisions
of this chapter, the rules and regulations thereunder, and the
rules of the Board. A separately identifiable department or
division of a bank may be engaged in activities other than those
relating to municipal securities.
(I) provide for the operation and administration of the Board,
including the selection of a Chairman from among the members of
the Board, the compensation of the members of the Board, and the
appointment and compensation of such employees, attorneys, and
consultants as may be necessary or appropriate to carry out the
Board's functions under this section.
(J) provide that each municipal securities broker and each
municipal securities dealer shall pay to the Board such
reasonable fees and charges as may be necessary or appropriate to
defray the costs and expenses of operating and administering the
Board. Such rules shall specify the amount of such fees and
charges.
(K) establish the terms and conditions under which any
municipal securities dealer may sell, or prohibit any municipal
securities dealer from selling, any part of a new issue of
municipal securities to a municipal securities investment
portfolio during the underwriting period.
(3) Nothing in this section shall be construed to impair or limit
the power of the Commission under this chapter.
(c) Discipline of municipal securities dealers; censure; suspension
or revocation of registration; other sanctions; investigations
(1) No broker, dealer, or municipal securities dealer shall make
use of the mails or any means or instrumentality of interstate
commerce to effect any transaction in, or to induce or attempt to
induce the purchase or sale of, any municipal security in
contravention of any rule of the Board.
(2) The Commission, by order, shall censure, place limitations on
the activities, functions, or operations, suspend for a period not
exceeding twelve months, or revoke the registration of any
municipal securities dealer, if it finds, on the record after
notice and opportunity for hearing, that such censure, placing of
limitations, denial, suspension, or revocation, is in the public
interest and that such municipal securities dealer has committed or
omitted any act, or is subject to an order or finding, enumerated
in subparagraph (A), (D), (E), (H), or (G) of paragraph (4) of
section 78o(b) of this title, has been convicted of any offense
specified in subparagraph (B) of such paragraph (4) within ten
years of the commencement of the proceedings under this paragraph,
or is enjoined from any action, conduct, or practice specified in
subparagraph (C) of such paragraph (4).
(3) Pending final determination whether any registration under
this section shall be revoked, the Commission, by order, may
suspend such registration, if such suspension appears to the
Commission, after notice and opportunity for hearing, to be
necessary or appropriate in the public interest or for the
protection of investors. Any registered municipal securities dealer
may, upon such terms and conditions as the Commission may deem
necessary in the public interest or for the protection of
investors, withdraw from registration by filing a written notice of
withdrawal with the Commission. If the Commission finds that any
registered municipal securities dealer is no longer in existence or
has ceased to do business as a municipal securities dealer, the
Commission, by order, shall cancel the registration of such
municipal securities dealer.
(4) The Commission, by order, shall censure or place limitations
on the activities or functions of any person associated, seeking to
become associated, or, at the time of the alleged misconduct,
associated or seeking to become associated with a municipal
securities dealer, or suspend for a period not exceeding twelve
months or bar any such person from being associated with a
municipal securities dealer, if the Commission finds, on the record
after notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or bar is in the public
interest and that such person has committed any act, or is subject
to an order or finding, enumerated in subparagraph (A), (D), (E),
(H), or (G) of paragraph (4) of section 78o(b) of this title, has
been convicted of any offense specified in subparagraph (B) of such
paragraph (4) within 10 years of the commencement of the
proceedings under this paragraph, or is enjoined from any action,
conduct, or practice specified in subparagraph (C) of such
paragraph (4). It shall be unlawful for any person as to whom an
order entered pursuant to this paragraph or paragraph (5) of this
subsection suspending or barring him from being associated with a
municipal securities dealer is in effect willfully to become, or to
be, associated with a municipal securities dealer without the
consent of the Commission, and it shall be unlawful for any
municipal securities dealer to permit such a person to become, or
remain, a person associated with him without the consent of the
Commission, if such municipal securities dealer knew, or, in the
exercise of reasonable care should have known, of such order.
(5) With respect to any municipal securities dealer for which the
Commission is not the appropriate regulatory agency, the
appropriate regulatory agency for such municipal securities dealer
may sanction any such municipal securities dealer in the manner and
for the reasons specified in paragraph (2) of this subsection and
any person associated with such municipal securities dealer in the
manner and for the reasons specified in paragraph (4) of this
subsection. In addition, such appropriate regulatory agency may, in
accordance with section 1818 of title 12, enforce compliance by
such municipal securities dealer or any person associated with such
municipal securities dealer with the provisions of this section,
section 78q of this title, the rules of the Board, and the rules of
the Commission pertaining to municipal securities dealers, persons
associated with municipal securities dealers, and transactions in
municipal securities. For purposes of the preceding sentence, any
violation of any such provision shall constitute adequate basis for
the issuance of any order under section 1818(b) or 1818(c) of title
12, and the customers of any such municipal securities dealer shall
be deemed to be "depositors" as that term is used in section
1818(c) of title 12. Nothing in this paragraph shall be construed
to affect in any way the powers of such appropriate regulatory
agency to proceed against such municipal securities dealer under
any other provision of law.
(6)(A) The Commission, prior to the entry of an order of
investigation, or commencement of any proceedings, against any
municipal securities dealer, or person associated with any
municipal securities dealer, for which the Commission is not the
appropriate regulatory agency, for violation of any provision of
this section, section 78o(c)(1) or 78o(c)(2) of this title, any
rule or regulation under any such section, or any rule of the
Board, shall (i) give notice to the appropriate regulatory agency
for such municipal securities dealer of the identity of such
municipal securities dealer or person associated with such
municipal securities dealer, the nature of and basis for such
proposed action, and whether the Commission is seeking a monetary
penalty against such municipal securities dealer or such associated
person pursuant to section 78u-2 of this title; and (ii) consult
with such appropriate regulatory agency concerning the effect of
such proposed action on sound banking practices and the feasibility
and desirability of coordinating such action with any proceeding or
proposed proceeding by such appropriate regulatory agency against
such municipal securities dealer or associated person.
(B) The appropriate regulatory agency for a municipal securities
dealer (if other than the Commission), prior to the entry of an
order of investigation, or commencement of any proceedings, against
such municipal securities dealer or person associated with such
municipal securities dealer, for violation of any provision of this
section, the rules of the Board, or the rules or regulations of the
Commission pertaining to municipal securities dealers, persons
associated with municipal securities dealers, or transactions in
municipal securities shall (i) give notice to the Commission of the
identity of such municipal securities dealer or person associated
with such municipal securities dealer and the nature of and basis
for such proposed action and (ii) consult with the Commission
concerning the effect of such proposed action on the protection of
investors and the feasibility and desirability of coordinating such
action with any proceeding or proposed proceeding by the Commission
against such municipal securities dealer or associated person.
(C) Nothing in this paragraph shall be construed to impair or
limit (other than by the requirement of prior consultation) the
power of the Commission or the appropriate regulatory agency for a
municipal securities dealer to initiate any action of a class
described in this paragraph or to affect in any way the power of
the Commission or such appropriate regulatory agency to initiate
any other action pursuant to this chapter or any other provision of
law.
(7)(A) Tests required pursuant to subsection (b)(2)(A)(iii) of
this section shall be administered by or on behalf of and periodic
examinations pursuant to subsection (b)(2)(E) of this section shall
be conducted by -
(i) a registered securities association, in the case of
municipal securities brokers and municipal securities dealers who
are members of such association; and
(ii) the appropriate regulatory agency for any municipal
securities broker or municipal securities dealer, in the case of
all other municipal securities brokers and municipal securities
dealers.
(B) A registered securities association shall make a report of
any examination conducted pursuant to subsection (b)(2)(E) of this
section and promptly furnish the Commission a copy thereof and any
data supplied to it in connection with such examination. Subject to
such limitations as the Commission, by rule, determines to be
necessary or appropriate in the public interest or for the
protection of investors, the Commission shall, on request, make
available to the Board a copy of any report of an examination of a
municipal securities broker or municipal securities dealer made by
or furnished to the Commission pursuant to this paragraph or
section 78q(c)(3) of this title.
(8) The Commission is authorized, by order, if in its opinion
such action is necessary or appropriate in the public interest, for
the protection of investors, or otherwise, in furtherance of the
purposes of this chapter, to remove from office or censure any
member or employee of the Board, who, the Commission finds, on the
record after notice and opportunity for hearing, has willfully (A)
violated any provision of this chapter, the rules and regulations
thereunder, or the rules of the Board or (B) abused his authority.
(d) Issuance of municipal securities
(1) Neither the Commission nor the Board is authorized under this
chapter, by rule or regulation, to require any issuer of municipal
securities, directly or indirectly through a purchaser or
prospective purchaser of securities from the issuer, to file with
the Commission or the Board prior to the sale of such securities by
the issuer any application, report, or document in connection with
the issuance, sale, or distribution of such securities.
(2) The Board is not authorized under this chapter to require any
issuer of municipal securities, directly or indirectly through a
municipal securities broker or municipal securities dealer or
otherwise, to furnish to the Board or to a purchaser or a
prospective purchaser of such securities any application, report,
document, or information with respect to such issuer: Provided,
however, That the Board may require municipal securities brokers
and municipal securities dealers to furnish to the Board or
purchasers or prospective purchasers of municipal securities
applications, reports, documents, and information with respect to
the issuer thereof which is generally available from a source other
than such issuer. Nothing in this paragraph shall be construed to
impair or limit the power of the Commission under any provision of
this chapter.
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