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U.S. Code as of:
01/19/04
Section 78o. Registration and regulation of brokers and dealers
(a) Registration of all persons utilizing exchange facilities to
effect transactions; exemptions
(1) It shall be unlawful for any broker or dealer which is either
a person other than a natural person or a natural person not
associated with a broker or dealer which is a person other than a
natural person (other than such a broker or dealer whose business
is exclusively intrastate and who does not make use of any facility
of a national securities exchange) to make use of the mails or any
means or instrumentality of interstate commerce to effect any
transactions in, or to induce or attempt to induce the purchase or
sale of, any security (other than an exempted security or
commercial paper, bankers' acceptances, or commercial bills) unless
such broker or dealer is registered in accordance with subsection
(b) of this section.
(2) The Commission, by rule or order, as it deems consistent with
the public interest and the protection of investors, may
conditionally or unconditionally exempt from paragraph (1) of this
subsection any broker or dealer or class of brokers or dealers
specified in such rule or order.
(b) Manner of registration of brokers and dealers
(1) A broker or dealer may be registered by filing with the
Commission an application for registration in such form and
containing such information and documents concerning such broker or
dealer and any persons associated with such broker or dealer as the
Commission, by rule, may prescribe as necessary or appropriate in
the public interest or for the protection of investors. Within
forty-five days of the date of the filing of such application (or
within such longer period as to which the applicant consents), the
Commission shall -
(A) by order grant registration, or
(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within one hundred twenty days of
the date of the filing of the application for registration. At
the conclusion of such proceedings, the Commission, by order,
shall grant or deny such registration. The order granting
registration shall not be effective until such broker or dealer
has become a member of a registered securities association, or
until such broker or dealer has become a member of a national
securities exchange if such broker or dealer effects transactions
solely on that exchange, unless the Commission has exempted such
broker or dealer, by rule or order, from such membership. The
Commission may extend the time for conclusion of such proceedings
for up to ninety days if it finds good cause for such extension
and publishes its reasons for so finding or for such longer
period as to which the applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied. The
Commission shall deny such registration if it does not make such a
finding or if it finds that if the applicant were so registered,
its registration would be subject to suspension or revocation under
paragraph (4) of this subsection.
(2)(A) An application for registration of a broker or dealer to
be formed or organized may be made by a broker or dealer to which
the broker or dealer to be formed or organized is to be the
successor. Such application, in such form as the Commission, by
rule, may prescribe, shall contain such information and documents
concerning the applicant, the successor, and any persons associated
with the applicant or the successor, as the Commission, by rule,
may prescribe as necessary or appropriate in the public interest or
for the protection of investors. The grant or denial of
registration to such an applicant shall be in accordance with the
procedures set forth in paragraph (1) of this subsection. If the
Commission grants such registration, the registration shall
terminate on the forty-fifth day after the effective date thereof,
unless prior thereto the successor shall, in accordance with such
rules and regulations as the Commission may prescribe, adopt the
application for registration as its own.
(B) Any person who is a broker or dealer solely by reason of
acting as a municipal securities dealer or municipal securities
broker, who so acts through a separately identifiable department or
division, and who so acted in such a manner on June 4, 1975, may,
in accordance with such terms and conditions as the Commission, by
rule, prescribes as necessary and appropriate in the public
interest and for the protection of investors, register such
separately identifiable department or division in accordance with
this subsection. If any such department or division is so
registered, the department or division and not such person himself
shall be the broker or dealer for purposes of this chapter.
(C) Within six months of the date of the granting of registration
to a broker or dealer, the Commission, or upon the authorization
and direction of the Commission, a registered securities
association or national securities exchange of which such broker or
dealer is a member, shall conduct an inspection of the broker or
dealer to determine whether it is operating in conformity with the
provisions of this chapter and the rules and regulations
thereunder: Provided, however, That the Commission may delay such
inspection of any class of brokers or dealers for a period not to
exceed six months.
(3) Any provision of this chapter (other than section 78e of this
title and subsection (a) of this section) which prohibits any act,
practice, or course of business if the mails or any means or
instrumentality of interstate commerce is used in connection
therewith shall also prohibit any such act, practice, or course of
business by any registered broker or dealer or any person acting on
behalf of such a broker or dealer, irrespective of any use of the
mails or any means or instrumentality of interstate commerce in
connection therewith.
(4) The Commission, by order, shall censure, place limitations on
the activities, functions, or operations of, suspend for a period
not exceeding twelve months, or revoke the registration of any
broker or dealer if it finds, on the record after notice and
opportunity for hearing, that such censure, placing of limitations,
suspension, or revocation is in the public interest and that such
broker or dealer, whether prior or subsequent to becoming such, or
any person associated with such broker or dealer, whether prior or
subsequent to becoming so associated -
(A) has willfully made or caused to be made in any application
for registration or report required to be filed with the
Commission or with any other appropriate regulatory agency under
this chapter, or in any proceeding before the Commission with
respect to registration, any statement which was at the time and
in the light of the circumstances under which it was made false
or misleading with respect to any material fact, or has omitted
to state in any such application or report any material fact
which is required to be stated therein.
(B) has been convicted within ten years preceding the filing of
any application for registration or at any time thereafter of any
felony or misdemeanor or of a substantially equivalent crime by a
foreign court of competent jurisdiction which the Commission
finds -
(i) involves the purchase or sale of any security, the taking
of a false oath, the making of a false report, bribery,
perjury, burglary, any substantially equivalent activity
however denominated by the laws of the relevant foreign
government, or conspiracy to commit any such offense;
(ii) arises out of the conduct of the business of a broker,
dealer, municipal securities dealer, government securities
broker, government securities dealer, investment adviser, bank,
insurance company, fiduciary, transfer agent, foreign person
performing a function substantially equivalent to any of the
above, or entity or person required to be registered under the
Commodity Exchange Act (7 U.S.C. 1 et seq.) or any
substantially equivalent foreign statute or regulation;
(iii) involves the larceny, theft, robbery, extortion,
forgery, counterfeiting, fraudulent concealment, embezzlement,
fraudulent conversion, or misappropriation of funds, or
securities, or substantially equivalent activity however
denominated by the laws of the relevant foreign government; or
(iv) involves the violation of section 152, 1341, 1342, or
1343 or chapter 25 or 47 of title 18 or a violation of a
substantially equivalent foreign statute.
(C) is permanently or temporarily enjoined by order, judgment,
or decree of any court of competent jurisdiction from acting as
an investment adviser, underwriter, broker, dealer, municipal
securities dealer, government securities broker, government
securities dealer, transfer agent, foreign person performing a
function substantially equivalent to any of the above, or entity
or person required to be registered under the Commodity Exchange
Act or any substantially equivalent foreign statute or
regulation, or as an affiliated person or employee of any
investment company, bank, insurance company, foreign entity
substantially equivalent to any of the above, or entity or person
required to be registered under the Commodity Exchange Act or any
substantially equivalent foreign statute or regulation, or from
engaging in or continuing any conduct or practice in connection
with any such activity, or in connection with the purchase or
sale of any security.
(D) has willfully violated any provision of the Securities Act
of 1933 [15 U.S.C. 77a et seq.], the Investment Advisers Act of
1940 [15 U.S.C. 80b-1 et seq.], the Investment Company Act of
1940 [15 U.S.C. 80a-1 et seq.], the Commodity Exchange Act, this
chapter, the rules or regulations under any of such statutes, or
the rules of the Municipal Securities Rulemaking Board, or is
unable to comply with any such provision.
(E) has willfully aided, abetted, counseled, commanded,
induced, or procured the violation by any other person of any
provision of the Securities Act of 1933, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, the Commodity
Exchange Act, this chapter, the rules or regulations under any of
such statutes, or the rules of the Municipal Securities
Rulemaking Board, or has failed reasonably to supervise, with a
view to preventing violations of the provisions of such statutes,
rules, and regulations, another person who commits such a
violation, if such other person is subject to his supervision.
For the purposes of this subparagraph (E) no person shall be
deemed to have failed reasonably to supervise any other person,
if -
(i) there have been established procedures, and a system for
applying such procedures, which would reasonably be expected to
prevent and detect, insofar as practicable, any such violation
by such other person, and
(ii) such person has reasonably discharged the duties and
obligations incumbent upon him by reason of such procedures and
system without reasonable cause to believe that such procedures
and system were not being complied with.
(F) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a broker
or dealer;
(G) has been found by a foreign financial regulatory authority
to have -
(i) made or caused to be made in any application for
registration or report required to be filed with a foreign
financial regulatory authority, or in any proceeding before a
foreign financial regulatory authority with respect to
registration, any statement that was at the time and in the
light of the circumstances under which it was made false or
misleading with respect to any material fact, or has omitted to
state in any application or report to the foreign financial
regulatory authority any material fact that is required to be
stated therein;
(ii) violated any foreign statute or regulation regarding
transactions in securities, or contracts of sale of a commodity
for future delivery, traded on or subject to the rules of a
contract market or any board of trade;
(iii) aided, abetted, counseled, commanded, induced, or
procured the violation by any person of any provision of any
statutory provisions enacted by a foreign government, or rules
or regulations thereunder, empowering a foreign financial
regulatory authority regarding transactions in securities, or
contracts of sale of a commodity for future delivery, traded on
or subject to the rules of a contract market or any board of
trade, or has been found, by a foreign financial regulatory
authority, to have failed reasonably to supervise, with a view
to preventing violations of such statutory provisions, rules,
and regulations, another person who commits such a violation,
if such other person is subject to his supervision; or
(H) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that -
(i) bars such person from association with an entity
regulated by such commission, authority, agency, or officer, or
from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
(ii) constitutes a final order based on violations of any
laws or regulations that prohibit fraudulent, manipulative, or
deceptive conduct.
(5) Pending final determination whether any registration under
this subsection shall be revoked, the Commission, by order, may
suspend such registration, if such suspension appears to the
Commission, after notice and opportunity for hearing, to be
necessary or appropriate in the public interest or for the
protection of investors. Any registered broker or dealer may, upon
such terms and conditions as the Commission deems necessary or
appropriate in the public interest or for the protection of
investors, withdraw from registration by filing a written notice of
withdrawal with the Commission. If the Commission finds that any
registered broker or dealer is no longer in existence or has ceased
to do business as a broker or dealer, the Commission, by order,
shall cancel the registration of such broker or dealer.
(6)(A) With respect to any person who is associated, who is
seeking to become associated, or, at the time of the alleged
misconduct, who was associated or was seeking to become associated
with a broker or dealer, or any person participating, or, at the
time of the alleged misconduct, who was participating, in an
offering of any penny stock, the Commission, by order, shall
censure, place limitations on the activities or functions of such
person, or suspend for a period not exceeding 12 months, or bar
such person from being associated with a broker or dealer, or from
participating in an offering of penny stock, if the Commission
finds, on the record after notice and opportunity for a hearing,
that such censure, placing of limitations, suspension, or bar is in
the public interest and that such person -
(i) has committed or omitted any act, or is subject to an order
or finding, enumerated in subparagraph (A), (D), or (E) of
paragraph (4) of this subsection;
(ii) has been convicted of any offense specified in
subparagraph (B) of such paragraph (4) within 10 years of the
commencement of the proceedings under this paragraph; or
(iii) is enjoined from any action, conduct, or practice
specified in subparagraph (C) of such paragraph (4).
(B) It shall be unlawful -
(i) for any person as to whom an order under subparagraph (A)
is in effect, without the consent of the Commission, willfully to
become, or to be, associated with a broker or dealer in
contravention of such order, or to participate in an offering of
penny stock in contravention of such order;
(ii) for any broker or dealer to permit such a person, without
the consent of the Commission, to become or remain, a person
associated with the broker or dealer in contravention of such
order, if such broker or dealer knew, or in the exercise of
reasonable care should have known, of such order; or
(iii) for any broker or dealer to permit such a person, without
the consent of the Commission, to participate in an offering of
penny stock in contravention of such order, if such broker or
dealer knew, or in the exercise of reasonable care should have
known, of such order and of such participation.
(C) For purposes of this paragraph, the term "person
participating in an offering of penny stock" includes any person
acting as any promoter, finder, consultant, agent, or other person
who engages in activities with a broker, dealer, or issuer for
purposes of the issuance or trading in any penny stock, or inducing
or attempting to induce the purchase or sale of any penny stock.
The Commission may, by rule or regulation, define such term to
include other activities, and may, by rule, regulation, or order,
exempt any person or class of persons, in whole or in part,
conditionally or unconditionally, from such term.
(7) No registered broker or dealer or government securities
broker or government securities dealer registered (or required to
register) under section 78o-5(a)(1)(A) of this title shall effect
any transaction in, or induce the purchase or sale of, any security
unless such broker or dealer meets such standards of operational
capability and such broker or dealer and all natural persons
associated with such broker or dealer meet such standards of
training, experience, competence, and such other qualifications as
the Commission finds necessary or appropriate in the public
interest or for the protection of investors. The Commission shall
establish such standards by rules and regulations, which may -
(A) specify that all or any portion of such standards shall be
applicable to any class of brokers and dealers and persons
associated with brokers and dealers;
(B) require persons in any such class to pass tests prescribed
in accordance with such rules and regulations, which tests shall,
with respect to any class of partners, officers, or supervisory
employees (which latter term may be defined by the Commission's
rules and regulations and as so defined shall include branch
managers of brokers or dealers) engaged in the management of the
broker or dealer, include questions relating to bookkeeping,
accounting, internal control over cash and securities,
supervision of employees, maintenance of records, and other
appropriate matters; and
(C) provide that persons in any such class other than brokers
and dealers and partners, officers, and supervisory employees of
brokers or dealers, may be qualified solely on the basis of
compliance with such standards of training and such other
qualifications as the Commission finds appropriate.
The Commission, by rule, may prescribe reasonable fees and charges
to defray its costs in carrying out this paragraph, including, but
not limited to, fees for any test administered by it or under its
direction. The Commission may cooperate with registered securities
associations and national securities exchanges in devising and
administering tests and may require registered brokers and dealers
and persons associated with such brokers and dealers to pass tests
administered by or on behalf of any such association or exchange
and to pay such association or exchange reasonable fees or charges
to defray the costs incurred by such association or exchange in
administering such tests.
(8) It shall be unlawful for any registered broker or dealer to
effect any transaction in, or induce or attempt to induce the
purchase or sale of, any security (other than or (!1) commercial
paper, bankers' acceptances, or commercial bills), unless such
broker or dealer is a member of a securities association registered
pursuant to section 78o-3 of this title or effects transactions in
securities solely on a national securities exchange of which it is
a member.
(9) The Commission by rule or order, as it deems consistent with
the public interest and the protection of investors, may
conditionally or unconditionally exempt from paragraph (8) of this
subsection any broker or dealer or class of brokers or dealers
specified in such rule or order.
(10) For the purposes of determining whether a person is subject
to a statutory disqualification under section 78f(c)(2),
78o-3(g)(2), or 78q-1(b)(4)(A) of this title, the term "Commission"
in paragraph (4)(B) of this subsection shall mean "exchange",
"association", or "clearing agency", respectively.
(11) Broker/dealer registration with respect to transactions in
security futures products. -
(A) Notice registration. -
(i) Contents of notice. - Notwithstanding paragraphs (1) and
(2), a broker or dealer required to register only because it
effects transactions in security futures products on an
exchange registered pursuant to section 78f(g) of this title
may register for purposes of this section by filing with the
Commission a written notice in such form and containing such
information concerning such broker or dealer and any persons
associated with such broker or dealer as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors. A broker or dealer
may not register under this paragraph unless that broker or
dealer is a member of a national securities association
registered under section 78o-3(k) of this title.
(ii) Immediate effectiveness. - Such registration shall be
effective contemporaneously with the submission of notice, in
written or electronic form, to the Commission, except that such
registration shall not be effective if the registration would
be subject to suspension or revocation under paragraph (4).
(iii) Suspension. - Such registration shall be suspended
immediately if a national securities association registered
pursuant to section 78o-3(k) of this title suspends the
membership of that broker or dealer.
(iv) Termination. - Such registration shall be terminated
immediately if any of the above stated conditions for
registration set forth in this paragraph are no longer
satisfied.
(B) Exemptions for registered brokers and dealers. - A broker
or dealer registered pursuant to the requirements of subparagraph
(A) shall be exempt from the following provisions of this chapter
and the rules thereunder with respect to transactions in security
futures products:
(i) Section 78h of this title.
(ii) Section 78k of this title.
(iii) Subsections (c)(3) and (c)(5) of this section.
(iv) Section 78o-4 of this title.
(v) Section 78o-5 of this title.
(vi) Subsections (d), (e), (f), (g), (h), and (i) of section
78q of this title.
(12) Exemption for security futures product exchange members. -
(A) Registration exemption. - A natural person shall be exempt
from the registration requirements of this section if such person
-
(i) is a member of a designated contract market registered
with the Commission as an exchange pursuant to section 78f(g)
of this title;
(ii) effects transactions only in securities on the exchange
of which such person is a member; and
(iii) does not directly accept or solicit orders from public
customers or provide advice to public customers in connection
with the trading of security futures products.
(B) Other exemptions. - A natural person exempt from
registration pursuant to subparagraph (A) shall also be exempt
from the following provisions of this chapter and the rules
thereunder:
(i) Section 78h of this title.
(ii) Section 78k of this title.
(iii) Subsections (c)(3), (c)(5), and (e) of this section.
(iv) Section 78o-4 of this title.
(v) Section 78o-5 of this title.
(vi) Subsections (d), (e), (f), (g), (h), and (i) of section
78q of this title.
(c) Use of manipulative or deceptive devices; contravention of
rules and regulations
(1)(A) No broker or dealer shall make use of the mails or any
means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any security (other than commercial paper, bankers'
acceptances, or commercial bills) otherwise than on a national
securities exchange of which it is a member, or any security-based
swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act), by means of any manipulative, deceptive,
or other fraudulent device or contrivance.
(B) No municipal securities dealer shall make use of the mails or
any means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any municipal security or any security-based swap
agreement (as defined in section 206B of the Gramm-Leach-Bliley
Act) involving a municipal security by means of any manipulative,
deceptive, or other fraudulent device or contrivance.
(C) No government securities broker or government securities
dealer shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or to induce
or to attempt to induce the purchase or sale of, any government
security or any security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) involving a government
security by means of any manipulative, deceptive, or other
fraudulent device or contrivance.
(2)(A) No broker or dealer shall make use of the mails or any
means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any security (other than an exempted security or
commercial paper, bankers' acceptances, or commercial bills)
otherwise than on a national securities exchange of which it is a
member, in connection with which such broker or dealer engages in
any fraudulent, deceptive, or manipulative act or practice, or
makes any fictitious quotation.
(B) No municipal securities dealer shall make use of the mails or
any means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any municipal security in connection with which such
municipal securities dealer engages in any fraudulent, deceptive,
or manipulative act or practice, or makes any fictitious quotation.
(C) No government securities broker or government securities
dealer shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or induce or
attempt to induce the purchase or sale of, any government security
in connection with which such government securities broker or
government securities dealer engages in any fraudulent, deceptive,
or manipulative act or practice, or makes any fictitious quotation.
(D) The Commission shall, for the purposes of this paragraph, by
rules and regulations define, and prescribe means reasonably
designed to prevent, such acts and practices as are fraudulent,
deceptive, or manipulative and such quotations as are fictitious.
(E) The Commission shall, prior to adopting any rule or
regulation under subparagraph (C), consult with and consider the
views of the Secretary of the Treasury and each appropriate
regulatory agency. If the Secretary of the Treasury or any
appropriate regulatory agency comments in writing on a proposed
rule or regulation of the Commission under such subparagraph (C)
that has been published for comment, the Commission shall respond
in writing to such written comment before adopting the proposed
rule. If the Secretary of the Treasury determines, and notifies the
Commission, that such rule or regulation, if implemented, would, or
as applied does (i) adversely affect the liquidity or efficiency of
the market for government securities; or (ii) impose any burden on
competition not necessary or appropriate in furtherance of the
purposes of this section, the Commission shall, prior to adopting
the proposed rule or regulation, find that such rule or regulation
is necessary and appropriate in furtherance of the purposes of this
section notwithstanding the Secretary's determination.
(3)(A) No broker or dealer (other than a government securities
broker or government securities dealer, except a registered broker
or dealer) shall make use of the mails or any means or
instrumentality of interstate commerce to effect any transaction
in, or to induce or attempt to induce the purchase or sale of, any
security (other than an exempted security (except a government
security) or commercial paper, bankers' acceptances, or commercial
bills) in contravention of such rules and regulations as the
Commission shall prescribe as necessary or appropriate in the
public interest or for the protection of investors to provide
safeguards with respect to the financial responsibility and related
practices of brokers and dealers including, but not limited to, the
acceptance of custody and use of customers' securities and the
carrying and use of customers' deposits or credit balances. Such
rules and regulations shall (A) require the maintenance of reserves
with respect to customers' deposits or credit balances, and (B) no
later than September 1, 1975, establish minimum financial
responsibility requirements for all brokers and dealers.
(B) Consistent with this chapter, the Commission, in consultation
with the Commodity Futures Trading Commission, shall issue such
rules, regulations, or orders as are necessary to avoid duplicative
or conflicting regulations applicable to any broker or dealer
registered with the Commission pursuant to subsection (b) of this
section (except paragraph (11) thereof), that is also registered
with the Commodity Futures Trading Commission pursuant to section
4f(a) of the Commodity Exchange Act [7 U.S.C. 6f(a)] (except
paragraph (2) thereof), with respect to the application of: (i) the
provisions of section 78h of this title, subsection (c)(3) of this
section, and section 78q of this title and the rules and
regulations thereunder related to the treatment of customer funds,
securities, or property, maintenance of books and records,
financial reporting, or other financial responsibility rules,
involving security futures products; and (ii) similar provisions of
the Commodity Exchange Act [7 U.S.C. 1 et seq.] and rules and
regulations thereunder involving security futures products.
(4) If the Commission finds, after notice and opportunity for a
hearing, that any person subject to the provisions of section 78l,
78m, 78n of this title or subsection (d) of this section or any
rule or regulation thereunder has failed to comply with any such
provision, rule, or regulation in any material respect, the
Commission may publish its findings and issue an order requiring
such person, and any person who was a cause of the failure to
comply due to an act or omission the person knew or should have
known would contribute to the failure to comply, to comply, or to
take steps to effect compliance, with such provision or such rule
or regulation thereunder upon such terms and conditions and within
such time as the Commission may specify in such order.
(5) No dealer (other than a specialist registered on a national
securities exchange) acting in the capacity of market maker or
otherwise shall make use of the mails or any means or
instrumentality of interstate commerce to effect any transaction
in, or to induce or attempt to induce the purchase or sale of, any
security (other than an exempted security or a municipal security)
in contravention of such specified and appropriate standards with
respect to dealing as the Commission, by rule, shall prescribe as
necessary or appropriate in the public interest and for the
protection of investors, to maintain fair and orderly markets, or
to remove impediments to and perfect the mechanism of a national
market system. Under the rules of the Commission a dealer in a
security may be prohibited from acting as a broker in that
security.
(6) No broker or dealer shall make use of the mails or any means
or instrumentality of interstate commerce to effect any transaction
in, or to induce or attempt to induce the purchase or sale of, any
security (other than an exempted security, municipal security,
commercial paper, bankers' acceptances, or commercial bills) in
contravention of such rules and regulations as the Commission shall
prescribe as necessary or appropriate in the public interest and
for the protection of investors or to perfect or remove impediments
to a national system for the prompt and accurate clearance and
settlement of securities transactions, with respect to the time and
method of, and the form and format of documents used in connection
with, making settlements of and payments for transactions in
securities, making transfers and deliveries of securities, and
closing accounts. Nothing in this paragraph shall be construed (A)
to affect the authority of the Board of Governors of the Federal
Reserve System, pursuant to section 78g of this title, to prescribe
rules and regulations for the purpose of preventing the excessive
use of credit for the purchase or carrying of securities, or (B) to
authorize the Commission to prescribe rules or regulations for such
purpose.
(7) In connection with any bid for or purchase of a government
security related to an offering of government securities by or on
behalf of an issuer, no government securities broker, government
securities dealer, or bidder for or purchaser of securities in such
offering shall knowingly or willfully make any false or misleading
written statement or omit any fact necessary to make any written
statement made not misleading.
(8) Prohibition of referral fees. - No broker or dealer, or
person associated with a broker or dealer, may solicit or accept,
directly or indirectly, remuneration for assisting an attorney in
obtaining the representation of any person in any private action
arising under this chapter or under the Securities Act of 1933 [15
U.S.C. 77a et seq.].
(d) Filing of supplementary and periodic information
Each issuer which has filed a registration statement containing
an undertaking which is or becomes operative under this subsection
as in effect prior to August 20, 1964, and each issuer which shall
after such date file a registration statement which has become
effective pursuant to the Securities Act of 1933, as amended [15
U.S.C. 77a et seq.], shall file with the Commission, in accordance
with such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the
protection of investors, such supplementary and periodic
information, documents, and reports as may be required pursuant to
section 78m of this title in respect of a security registered
pursuant to section 78l of this title. The duty to file under this
subsection shall be automatically suspended if and so long as any
issue of securities of such issuer is registered pursuant to
section 78l of this title. The duty to file under this subsection
shall also be automatically suspended as to any fiscal year, other
than the fiscal year within which such registration statement
became effective, if, at the beginning of such fiscal year, the
securities of each class to which the registration statement
relates are held of record by less than three hundred persons. For
the purposes of this subsection, the term "class" shall be
construed to include all securities of an issuer which are of
substantially similar character and the holders of which enjoy
substantially similar rights and privileges. The Commission may,
for the purpose of this subsection, define by rules and regulations
the term "held of record" as it deems necessary or appropriate in
the public interest or for the protection of investors in order to
prevent circumvention of the provisions of this subsection. Nothing
in this subsection shall apply to securities issued by a foreign
government or political subdivision thereof.
(e) Compliance with this chapter by members not required to be
registered
The Commission, by rule, as it deems necessary or appropriate in
the public interest and for the protection of investors or to
assure equal regulation, may require any member of a national
securities exchange not required to register under this section and
any person associated with any such member to comply with any
provision of this chapter (other than subsection (a) of this
section) or the rules or regulations thereunder which by its terms
regulates or prohibits any act, practice, or course of business by
a "broker or dealer" or "registered broker or dealer" or a "person
associated with a broker or dealer," respectively.
(f) Prevention of misuse of material, nonpublic information
Every registered broker or dealer shall establish, maintain, and
enforce written policies and procedures reasonably designed, taking
into consideration the nature of such broker's or dealer's
business, to prevent the misuse in violation of this chapter, or
the rules or regulations thereunder, of material, nonpublic
information by such broker or dealer or any person associated with
such broker or dealer. The Commission, as it deems necessary or
appropriate in the public interest or for the protection of
investors, shall adopt rules or regulations to require specific
policies or procedures reasonably designed to prevent misuse in
violation of this chapter (or the rules or regulations thereunder)
of material, nonpublic information.
(g) Requirements for transactions in penny stocks
(1) In general
No broker or dealer shall make use of the mails or any means or
instrumentality of interstate commerce to effect any transaction
in, or to induce or attempt to induce the purchase or sale of,
any penny stock by any customer except in accordance with the
requirements of this subsection and the rules and regulations
prescribed under this subsection.
(2) Risk disclosure with respect to penny stocks
Prior to effecting any transaction in any penny stock, a broker
or dealer shall give the customer a risk disclosure document that
-
(A) contains a description of the nature and level of risk in
the market for penny stocks in both public offerings and
secondary trading;
(B) contains a description of the broker's or dealer's duties
to the customer and of the rights and remedies available to the
customer with respect to violations of such duties or other
requirements of Federal securities laws;
(C) contains a brief, clear, narrative description of a
dealer market, including "bid" and "ask" prices for penny
stocks and the significance of the spread between the bid and
ask prices;
(D) contains the toll free telephone number for inquiries on
disciplinary actions established pursuant to section 78o-3(i)
of this title;
(E) defines significant terms used in the disclosure document
or in the conduct of trading in penny stocks; and
(F) contains such other information, and is in such form
(including language, type size, and format), as the Commission
shall require by rule or regulation.
(3) Commission rules relating to disclosure
The Commission shall adopt rules setting forth additional
standards for the disclosure by brokers and dealers to customers
of information concerning transactions in penny stocks. Such
rules -
(A) shall require brokers and dealers to disclose to each
customer, prior to effecting any transaction in, and at the
time of confirming any transaction with respect to any penny
stock, in accordance with such procedures and methods as the
Commission may require consistent with the public interest and
the protection of investors -
(i) the bid and ask prices for penny stock, or such other
information as the Commission may, by rule, require to
provide customers with more useful and reliable information
relating to the price of such stock;
(ii) the number of shares to which such bid and ask prices
apply, or other comparable information relating to the depth
and liquidity of the market for such stock; and
(iii) the amount and a description of any compensation that
the broker or dealer and the associated person thereof will
receive or has received in connection with such transaction;
(B) shall require brokers and dealers to provide, to each
customer whose account with the broker or dealer contains penny
stocks, a monthly statement indicating the market value of the
penny stocks in that account or indicating that the market
value of such stock cannot be determined because of the
unavailability of firm quotes; and
(C) may, as the Commission finds necessary or appropriate in
the public interest or for the protection of investors, require
brokers and dealers to disclose to customers additional
information concerning transactions in penny stocks.
(4) Exemptions
The Commission, as it determines consistent with the public
interest and the protection of investors, may by rule,
regulation, or order exempt in whole or in part, conditionally or
unconditionally, any person or class of persons, or any
transaction or class of transactions, from the requirements of
this subsection. Such exemptions shall include an exemption for
brokers and dealers based on the minimal percentage of the
broker's or dealer's commissions, commission-equivalents, and
markups received from transactions in penny stocks.
(5) Regulations
It shall be unlawful for any person to violate such rules and
regulations as the Commission shall prescribe in the public
interest or for the protection of investors or to maintain fair
and orderly markets -
(A) as necessary or appropriate to carry out this subsection;
or
(B) as reasonably designed to prevent fraudulent, deceptive,
or manipulative acts and practices with respect to penny
stocks.
(h) Limitations on State law
(1) Capital, margin, books and records, bonding, and reports
No law, rule, regulation, or order, or other administrative
action of any State or political subdivision thereof shall
establish capital, custody, margin, financial responsibility,
making and keeping records, bonding, or financial or operational
reporting requirements for brokers, dealers, municipal securities
dealers, government securities brokers, or government securities
dealers that differ from, or are in addition to, the requirements
in those areas established under this chapter. The Commission
shall consult periodically the securities commissions (or any
agency or office performing like functions) of the States
concerning the adequacy of such requirements as established under
this chapter.
(2) De minimis transactions by associated persons
No law, rule, regulation, or order, or other administrative
action of any State or political subdivision thereof may prohibit
an associated person of a broker or dealer from effecting a
transaction described in paragraph (3) for a customer in such
State if -
(A) such associated person is not ineligible to register with
such State for any reason other than such a transaction;
(B) such associated person is registered with a registered
securities association and at least one State; and
(C) the broker or dealer with which such person is associated
is registered with such State.
(3) Described transactions
(A) In general
A transaction is described in this paragraph if -
(i) such transaction is effected -
(I) on behalf of a customer that, for 30 days prior to
the day of the transaction, maintained an account with the
broker or dealer; and
(II) by an associated person of the broker or dealer -
(aa) to which the customer was assigned for 14 days
prior to the day of the transaction; and
(bb) who is registered with a State in which the
customer was a resident or was present for at least 30
consecutive days during the 1-year period prior to the
day of the transaction; or
(ii) the transaction is effected -
(I) on behalf of a customer that, for 30 days prior to
the day of the transaction, maintained an account with the
broker or dealer; and
(II) during the period beginning on the date on which
such associated person files an application for
registration with the State in which the transaction is
effected and ending on the earlier of -
(aa) 60 days after the date on which the application is
filed; or
(bb) the date on which such State notifies the
associated person that it has denied the application for
registration or has stayed the pendency of the
application for cause.
(B) Rules of construction
For purposes of subparagraph (A)(i)(II) -
(i) each of up to 3 associated persons of a broker or
dealer who are designated to effect transactions during the
absence or unavailability of the principal associated person
for a customer may be treated as an associated person to
which such customer is assigned; and
(ii) if the customer is present in another State for 30 or
more consecutive days or has permanently changed his or her
residence to another State, a transaction is not described in
this paragraph, unless the associated person of the broker or
dealer files an application for registration with such State
not later than 10 business days after the later of the date
of the transaction, or the date of the discovery of the
presence of the customer in the other State for 30 or more
consecutive days or the change in the customer's residence.
(i) (!2) Rulemaking to extend requirements to new hybrid products
(1) Consultation
Prior to commencing a rulemaking under this subsection, the
Commission shall consult with and seek the concurrence of the
Board concerning the imposition of broker or dealer registration
requirements with respect to any new hybrid product. In
developing and promulgating rules under this subsection, the
Commission shall consider the views of the Board, including views
with respect to the nature of the new hybrid product; the
history, purpose, extent, and appropriateness of the regulation
of the new product under the Federal banking laws; and the impact
of the proposed rule on the banking industry.
(2) Limitation
The Commission shall not -
(A) require a bank to register as a broker or dealer under
this section because the bank engages in any transaction in, or
buys or sells, a new hybrid product; or
(B) bring an action against a bank for a failure to comply
with a requirement described in subparagraph (A),
unless the Commission has imposed such requirement by rule or
regulation issued in accordance with this section.
(3) Criteria for rulemaking
The Commission shall not impose a requirement under paragraph
(2) of this subsection with respect to any new hybrid product
unless the Commission determines that -
(A) the new hybrid product is a security; and
(B) imposing such requirement is necessary and appropriate in
the public interest and for the protection of investors.
(4) Considerations
In making a determination under paragraph (3), the Commission
shall consider -
(A) the nature of the new hybrid product; and
(B) the history, purpose, extent, and appropriateness of the
regulation of the new hybrid product under the Federal
securities laws and under the Federal banking laws.
(5) Objection to Commission regulation
(A) Filing of petition for review
The Board may obtain review of any final regulation described
in paragraph (2) in the United States Court of Appeals for the
District of Columbia Circuit by filing in such court, not later
than 60 days after the date of publication of the final
regulation, a written petition requesting that the regulation
be set aside. Any proceeding to challenge any such rule shall
be expedited by the Court of Appeals.
(B) Transmittal of petition and record
A copy of a petition described in subparagraph (A) shall be
transmitted as soon as possible by the Clerk of the Court to an
officer or employee of the Commission designated for that
purpose. Upon receipt of the petition, the Commission shall
file with the court the regulation under review and any
documents referred to therein, and any other relevant materials
prescribed by the court.
(C) Exclusive jurisdiction
On the date of the filing of the petition under subparagraph
(A), the court has jurisdiction, which becomes exclusive on the
filing of the materials set forth in subparagraph (B), to
affirm and enforce or to set aside the regulation at issue.
(D) Standard of review
The court shall determine to affirm and enforce or set aside
a regulation of the Commission under this subsection, based on
the determination of the court as to whether -
(i) the subject product is a new hybrid product, as defined
in this subsection;
(ii) the subject product is a security; and
(iii) imposing a requirement to register as a broker or
dealer for banks engaging in transactions in such product is
appropriate in light of the history, purpose, and extent of
regulation under the Federal securities laws and under the
Federal banking laws, giving deference neither to the views
of the Commission nor the Board.
(E) Judicial stay
The filing of a petition by the Board pursuant to
subparagraph (A) shall operate as a judicial stay, until the
date on which the determination of the court is final
(including any appeal of such determination).
(F) Other authority to challenge
Any aggrieved party may seek judicial review of the
Commission's rulemaking under this subsection pursuant to
section 78y of this title.
(6) Definitions
For purposes of this subsection:
(A) New hybrid product
The term "new hybrid product" means a product that -
(i) was not subjected to regulation by the Commission as a
security prior to the date of the enactment of the
Gramm-Leach-Bliley Act [Nov. 12, 1999];
(ii) is not an identified banking product as such term is
defined in section 206 of such Act; and
(iii) is not an equity swap within the meaning of section
206(a)(6) of such Act.
(B) Board
The term "Board" means the Board of Governors of the Federal
Reserve System.
(i) (!2) Limitation on Commission authority
The authority of the Commission under this section with respect
to security-based swap agreements (as defined in section 206B of
the Gramm-Leach-Bliley Act) shall be subject to the restrictions
and limitations of section 78c-1(b) of this title.
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