Full text of Securities Acts Amendments of 1975

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 97

Public Law 94-29
94th Congress
An Act
To amend the Securities Exchange Act of 1934 to remove barriers to competition, to foster the development of a national securities market system and a
national clearance and settlement system, to make uniform the Securities
and Exchange Commission's authority over self-regulatory organizations, to
provide for the regulation of brokers, dealers and banks trading in municipal
securities, to facilitate the collection and public dissemination of information
concerning the holdings of and transactions in securities by institutional
Investment managers, and for other purposes.

Be it enacted hy the Senate and House of Representatives of the
United States of America in Congress assembled^ That this Act may
be cited as tlie "Securities Acts Amendments of 1975".
SEC. 2. Section 2 of the Securities Exchange Act of 1934 (15 U.S.C
78b) is amended by inserting immediately before the phrase "and to
impose requirements necessary to make such regulation and control
reasonably complete and effective," the following: "to remove impediments to and perfect the mechanisms of a national market system for
securities and a national system for the clearance and settlement of
securities transactions and the safeguarding of securities and funds
related thereto,".
SEC. 3. Section 3 of the Securities Exchange Act of 1934 (15
U.S.C. 78c) is amended as follows:
(1) Paragraph (3) of subsection (a) thereof is amended to read as
follows:
"(3) (A) The term 'member' when used with respect to a national
securities exchange means (i) any natural person permitted to effect
transactions on the floor of the exchange without the services of
another person acting as broker, (ii) any registered broker or dealer
with which such a natural person is associated, (iii) any registered
broker or dealer permitted to designate as a representative such a
natural person, and (iv) any other registered broker or dealer which
agrees to be I'egulated by such exchange and with I'espect to which
the exchange undertakes to enforce compliance with the provisions
of this title, the rules and regulations thereunder, and its own rules.
For purposes 6f sections (b)(1), 6(b)(4), 6(b)(6), 6(b)(7), 6(d),
17(d), 19(d), 19(e), 19(g), 19(h), and 21 of this title, the term
'member' when used with respect to a national securities exchange
also means, to the extent of the rules of the exchange specified by the
Commission, any person required by the Commission to comply with
such rules pursuant to section 6(f) of this title.
"(B) The term 'member' when used with respect to a registered
securities association means any broker or dealer who agrees to be
regulated by such association and with respect to whom the association undertakes to enforce compliance with the provisions of this
title, the rules and regulations thereunder, and its own rules.".
(2) Paragraph (9) thereof is amended to read as follows:
"(9) The term 'person' means a natural person, company, government, or political subdivision, agency, or instrumentality of a government.".
(3) Paragraph (12) of subsection (a) thereof is amended to read
as follows:
"(12) The term 'exempted security' or 'exempted securities' includes
securities which are direct obligations of, or obligations guaranteed as
to principal or interest by, the United States; such securities issued or
guaranteed by corporations in which the United States has a direct or
indirect interest as shall be designated for exemption by the Secretary
of the Treasury as necessary or appropriate in the public interest or

June 4, 1975
[S. 249]

Securities Acts
Amendments of
1975.
15 u s e 78a note.
Necessity for
regulation.

Definitions.

Post, pp. 104,
137, 146, 154.

89 STAT. 98
Post, p. 101.
Post, pp. 121,
127, 141.

26 use 401.
26 use 404.

Post, p. 121.

15 use 80a-2.

PUBLIC LAW 94-29—JUNE 4, 1975
for the protection of investors; municipal securities, as defined in section 3(a) (29) of this title: Provided, however, That municipal securities shall not be deemed to be 'exempted securities' for purposes of
sections 15, 15A (except subsections (b)(6), ( b ) ( l l ) , and (g)(2)
thereof), and 17A of this title; any interest or participation in any
common trust fund or similar fund maintained by a bank exclusively
for the collective investment and reinvestment of assets contributed
thereto by such bank in its capacity as trustee, executor, administrator,
or guardian; any interest or participation in a collective trust fund
maintained by a bank or in a separate account maintained by an insurance company which interest or participation is issued in connection
with (A) a stock bonus, pension, or profit-sharing plan which meets
the requirements for qualification under section 401 of the Internal
Revenue Code of 1954, or (B) an annuity plan which meets the
requirements for the deduction of the employer's contribution under
section 404(a)(2) of such Code, other than any plan described in
clause (A) or (B) of this paragraph which covers employees some or
all of whom are employees within the meaning of section 401 (c) (1) of
such Code, and such other securities (which may include, among
others, unregistered securities, the market in which is predominantly
intrastate) as the Commission may, by such rules and regulations as
it deems consistent with the public interest and the protection of
investors, either unconditionally or upon specified terms and conditions
or for stated periods, exempt from the operation of any one or more
provisions of this title which by their terms do not apply to an
'exempted security' or to 'exempted securities'.".
(4) Paragraphs (17), (18), and (19) of subsection (a) thereof are
amended to read as follows:
" (17) The term '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. The term also includes intrastate use of (A) any
facility of a national securities exchange or of a telephone or other
interstate means of communication, or (B) any other interstate
instrumentality.
"(18) The term 'person associated with a broker or dealer' or 'associated person of a broker or dealer' means any partner, officer, director,
or branch manager of such broker or dealer (or any person occvipying
a similar status or performing similar functions), any person directly
or indirectly controlling, controlled by, or under common control with
such broker or dealer, or any employee of such broker or dealer, except
that any person associated with a broker or dealer whose functions are
solely clerical or ministerial shall not be included in the meaning of
such term for purposes of section 15(b) of this title (other than
paragraph (6) thereof).
"(19) The terms 'investment company', 'affiliated person', 'insurance
company', 'separate account', and 'company' have the same meanings
as in the Investment Company Act of 1940.".
(5) Paragraph (21) of subsection (a) thereof is amended to read
as follows:
"(21) The term 'person associated with a member' or 'associated
person of a member' when used with respect to a member of a national
securities exchange or registered securities association means any
partner, officer, director, or branch manager of such member (or any
person occupying a similar status or performing similar functions),
any person directly or indirectly controlling, controlled by, or under
common control with such member, or any employee of such member.".
(6) Subsection (a) thereof is further amended by adding at the end
thereof the following new paragraphs:

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 99

"(22) (A) The term 'securities information processor' means any
person engaged in the business of (i) collecting, processing, or preparing for distribution or publication, or assisting, participating in,
or coordinating the distribution or publication of, information with
respect to transactions in or quotations for any security (other than
an exempted security) or (ii) distributing or publishing (whether by
means of a ticker tape, a communications network, a terminal display
device, or otherwise) on a current and continuing basis, information
with respect to such transactions or quotations. The term 'securities
information processor' does not include any bona fide newspaper,
news magazine, or business or financial publication of general and
regular circulation, any self-regulatory organization, any bank, broker,
dealer, building and loan, savings and loan, or homestead association,
or cooperative bank, if such bank, broker, dealer, association, or cooperative bank would be deemed to be a securities information processor
solely by reason of functions performed by such institutions as part
of customary banking, brokerage, dealing, association, or cooperative
bank activities, or any common carrier, as defined in section 3(h) of
the Communications Act of 1934, subject to the jurisdiction of the 47 USC 153.
Federal Communications Commission or a State commission, as defined
in section 3(t) of that Act, unless the Commission determines that
such carrier is engaged in the business of collecting, processing, or
preparing for distribution or publication, information Math respect
to transactions in or quotations for any security.
"(B) The term 'exclusive processor' means any securities information processor or self-regulatory organization which, directly or indirectly, engages on an exclusive basis on behalf of any national securities
exchange or registered securities association or any national securities
exchange or registered securities association which engages on an
exclusive basis on its own behalf in collecting, processing, or preparing
for distribution or publication any information with respect to (i)
transactions or quotations on or effected or made by means of any
facility of such exchange or (ii) quotations distributed or published
by means of any electronic system operated or controlled by such
association.
"(23) (A) The term 'clearing agency' means any person who acts
as an intermediary in making payments or deliveries or both in
connection with transactions in securities or who provides facilities for
comparison of data respecting the terms of settlement of securities
transactions, to reduce the number of settlements of securities transactions, or for the allocation of securities settlement responsibilities.
Such term also means any person, such as a securities depository, who
(i) acts as a custodian of securities in connection with a system for the
central handling of securities whereby all securities of a particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred, loaned, or pledged by bookkeeping
entry without physical delivery of securities certificates, or (ii) otherwise permits or facilitates the settlement of securities transactions or
the hypothecation or lending of securities without physical delivery
of securities certificates.
"(B) The term 'clearing agency' does not include (i) any Federal
Reserve bank. Federal home loan bank, or Federal land bank; (ii)
any national securities exchange or registered securities association
solely by reason of its providing facilities for comparison of data
respecting the terms of settlement of securities transactions effected on
such exchange or by means of any electronic system operated or controlled by such association; (iii) any bank, broker, dealer, building
and loan, savings and loan, or homestead association, or cooperative
bank if such bank, broker, dealer, association, or cooperative bank

39 STAT. 100

Post, pp. 146,
1^^Post, p. 131.

PUBLIC LAW 94-29—JUNE 4, 1975
would be deemed to be a clearing agency solely by reason of functions
performed by such institution as part of customary banking, brokerage, dealing, association, or cooperative banking activities, or solely
by reason of acting on behalf of a clearing agency or a participant
therein in connection with the furnishing by the clearing agency of
services to its participants or the use of services of the clearing agency
by its participants, unless the Commission, by rule, otherwise provides
as necessary or appropriate to assure the prompt and accurate clearance and settlement of securities transactions or to prevent evasion of
this title; (iv) any life insurance company, its registered separate
accounts, or a subsidiary of such insurance company solely by reason
of functions commonly performed by such entities in connection with
variable annuity contracts or variable life policies issued by such
insurance company or its separate accounts; (v) any registered openend investment company or unit investment trust solely by reason of
functions commonly performed by it in connection with shares in
such registered open-end investment company or unit investment trust,
or (vi) any person solely by reason of its performing functions
described in paragraph 25(E) of this subsection,
"(24) The term 'participant' when used with respect to a clearing
agency means any person who uses a clearing agency to clear or settle
securities transactions or to transfer, pledge, lend, or hypothecate
securities. Such term does not include a person whose only use of a
clearing agency is (A) through another person who is a participant or
(B) as a pledgee of securities.
"(25) The term 'transfer agent' means any person who engages on
behalf of an issuer of securities or on behalf of itself as an issuer of
securities in (A) countersigning such securities upon issuance; (B)
monitoring the issuance of such securities with a view to preventing
unauthorized issuance, a function commonly performed by a person
called a registrar; (C) registering the transfer of such securities;
(D) exchanging or converting such securities; or (E) transferring
record ownership of securities by bookkeeping entry without physical
issuance of securities certificates. The term 'transfer ajjent' does not
include any insurance company or separate account which performs
such functions solely with respect to variable annuity contracts or
variable life policies which it issues or any registered clearing agency
which performs such functions solely with respect to options contract
which it issues.
"(26) The term 'self-regulatory organization' means any national
securities exchange, registered securities association, or registered
clearing agency, or (solely for purposes of sections 19(b), 19(c), and
23(b) of this title) the Municipal Securities Rulemaking Board established by section 15B of this title.
"(27) The term 'rules of an exchange', 'rules of an association', or
'rules of a clearing agency' means the constitution, articles of incorporation, bylaws, and rules, or instruments corresponding to the foregoing, of an exchange, association of brokers and dealers, or clearing
agency, respectively, and such of the stated policies, practices, and
interpretations of such exchange, association, or clearing agency as the
Commission, by rule, may deitermine to be necessary or appropriate
in the public interest or for the protection of investors to be deemed to
be rules of such exchange, association, or clearing agency.
"(28) The term 'rules of a self-regulatory orfjanization' means the
rules of an exchange which is a national securities exchange, the rules
of an association of brokers and dealers which is a registered securities
association, the rules of a clearing agency which is a registered clearing agency, or the rules of the Municipal Securities Rulemaking
Board.

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 101

"(29) The term 'municipal securities' means securities which are
direct obligations of, or obligations guaranteed as to principal or
interest by, a State or any political subdivision thereof, or any agency
or instrumentality of a State or any political subdivision thereof, or
any municipal corporate instrumentality of one or more States, or any
security which is an industrial development bond (as defined in section
103 (c) (2) of the Internal Kevenue Code of 1954) the interest on which 26 USC 103.
is excludable from gross income under section 103(a) (1) of such Code
if, by reason of the application of paragraph (4) or (6) of section 103
(c) of such Code (determined as if paragraphs (4) (A), (5), and (7)
were not included in such section 103(c)), paragraph (1) of such section 103(c) does not apply to such security.
"(30) The term 'municipal securities dealer' means any person
(including a separately identifiable department or division of a bank)
engaged in the business of buying and selling municipal securities for
his own account, through a broker or otherwise, but does not include—
"(A) any person insofar as he buys or sells such securities for
his own account, either individually or in some fiduciary capacity,
but not as a part of a regular business; or
"(B) a bank, unless the bank is engaged in the business of buying and selling municipal securities for its own account other
than in a fiduciary capacity, through a broker or othei-wise: Provided, however, That if the bank is engaged in such business
through a separately identifiable department or division (as
defined by the Municipal Securities Rulemaking Board in accordance with section 15B(b) (2) (H) of this title), the department or Post, p. 131.
division and not the bank itself shall be deemed to be the mimicipal securities dealer.
" (31) The term 'municipal securities broker' means a broker engaged
in the business of effecting transactions in municipal securities for the
account of others.
" (32) The term 'person associated with a municipal securities dealer'
when used with respect to a municipal securities dealer which is a bank
or a division or department of a bank means any person directly
engaged in the management, direction, supervision, or performance of
any of the municipal securities dealer's activities with respect to municipal securities, and any person directly or indirectly controlling such
activities or controlled by the municipal securities dealer in connection
with such activities.
" (33) The term 'municipal securities investment portfolio' means all
municipal securities held for investment and not for sale as part of a
regular business by a municipal securities dealer or by a person,
directly or indirectly, controlling, controlled by, or under common control with a municipal securities dealer.
" (34) The term 'appropriate regulatory agency' means—
"(A) When used with respect to a municipal securities dealer:
"(i) the Comptroller of the Currency, in the case of a
national bank or a bank operating under the Code of Law for
the District of Columbia, or a subsidiary or a department or
division of any such bank;
"(ii) the Board of Governors of the Federal Reserve System, in the case of a State member bank of the Federal Reserve
System, a subsidiary or a department or division thereof, a
bank holding company, a subsidiary of a bank holding company which is a bank other than a bank specified in clause
(i) or (iii) of this subparagraph, or a subsidiary or a department or division of such subsidiary;
"(iii) the Federal Deposit Insurance Corporation, in the
case of a bank insured by the Federal Deposit Insurance Cor-

57-194 O - 77 - 11

89 STAT. 102

12 use 1811
°°*®-

PUBLIC LAW 94-29—JUNE 4, 1975
poration (other than a member of the Federal Reserve System), or a subsidiary or department or division thereof; and
"(iv) the Commission in the case of all other municipal
securities dealers.
"(B) When used with respect to a clearing agency or transfer
agent:
"(i) the Comptroller of the Currency, in the case of a
national bank or a bank operating under the Code of Law for
the District of Columbia, or a subsidiary of any such bank;
"(ii) the Board of Governors of the Federal Reserve System, in the case of a State member bank of the Federal Reserve
System, a subsidiary thereof, a bank holding company, or a
subsidiary of a bank holding company which is a bank other
than a bank specified in clause (i) or (iii) of this subparagraph;
"(iii) the Federal Deposit Insurance Corporation, in the
case of a bank insured by the Federal Deposit Insurance Corporation (other than a member of the Federal Reserve System) , or a subsidiary thereof; and
" (iv) the Commission in the case of all other clearing agencies and transfer agents.
" (C) When used with respect to a participant or applicant to
become a participant in a clearing agency or a person requesting
or having access to ser\dces offered by a clearing agency:
"(i) the Comptroller of the Currency, in the case of a
national bank or a bank operating under the Code of Law
for the District of Columbia when the appropriate regulatory
agency for such clearing agency is not the Commission;
"(ii) the Board of Governors of the Federal Reserve System in the case of a state member bank of the Federal Reserve
System, a bank holding company, or a subsidiary of a bank
holding company, or a subsidiary of a bank holding company
which is a bank other than a bank specified in clause (i) or
(iii) of this subparagraph when the appropriate regulatory
agency for such clearing agency is not the Commission;
"(iii) the Federal Deposit Insurance Corporation, in the
case of a bank insured by the Federal Deposit Insurance
Corporation (other than a member of the Federal Reserve
System) when the appropriate regulatory agency for such
clearing agency is not the Commission; and
" (iv) the O)mmission in all other cases.
"(D) When used with respect to an institutional investment
manager which is a bank the deposits of which are insured in
accordance with the Federal Deposit Insurance Act:
"(i) the Comptroller of the Currency, in the case of a
national bank or a bank operating under the Code of Law for
the District of Columbia;
"(ii) the Board of Governors of the Federal Reserve System, in the case of any other member bank of the Federal
Reserve System; and
"(iii) the Federal Deposit Insurance Corporation, in the
case oi any other insured bank,
" ( E ) When used with respect to a national securities exchange
or registered securities association, member thereof, person associated with a member thereof, applicant to become a member
thereof or to become associated with a member thereof, or person
requesting or having access to services offered by such exchange
or association or member thereof, or the Municipal Securities
Rulemaking Board, the Commission.

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 103

" (F) When used with respect to a person exercising investment
discretion with respect to an account;
"(i) the Comptroller of the Currency, in the case of a
national bank or a bank operating under the Code of Law
for the District of Columbia;
" (ii) The Board of Governors of the Federal Keserve System in the case of any other member bank of the Federal
Reserve System;
"(iii) the Federal Deposit Insurance Corporation, in the
case of any other bank the deposits of which are insured in
accordance wuth the P'ederal Deposit Insurance Act; and
"(iv) the Commission in the case of all other such persons.
As used in this paragraph, the terms 'bank holding company' and 'subsidiary of a bank holding company' have the meanings given them in
section 2 of the Bank Holding Company Act of 1956.
12 USC 1841.
"(35) A person exercises 'investment discretion' with respect to an
account if, directly or indirectly, such person (A) is authorized to
determine what securities or other property shall be purchased or sold
by or for the account, (B) makes decisions as to what securities or
other property shall be purchased or sold by or for the account even
though some other person may have responsibility for such investment
decisions, or (C) otherwise exercises such influence with respect to
the purchase and sale of securities or other property by or for the
account as the Commission, by rule, determines, in the public interest
or for the protection of investors, should be subject to the operation of
the provisions of this title and the rules and regulations thereunder.
"(36) A class of persons or markets is subject to 'equal regulation'
if no member of the class has a competitive advantage over any other
member thereof resulting from a disparity in their regulation under
this title Avhich the Commission determines is unfair and not necessary or appropriate in furtherance of the purposes of this title.
"(37) The term 'records' means accounts, correspondence, memorandums, tapes, discs, papers, books, and other documents or transcribed information of any type, whether expressed in ordinary or
machine language.
"(38) The term 'market maker' means any specialist permitted to
act as a dealer, any dealer acting in the capacity of block positioner,
and any dealer who, with respect to a security, holds himself out (by
entering quotations in an inter-dealer communications system or otherwise) as being willing to buy and sell such security for his own account
on a regular or continuous basis.
"(39) A person is subject to a 'statutory disqualification' with
respect to membership or participation in, or association with a member of, a self-regulatory organization, if such person—
"(A) has been and is expelled or suspended from membership
or participation in, or barred or suspended from being associated
with a member of, any self-regulatory organization;
"(B) is subject to an order of the Commission denying, suspending for a period not exceeding twelve months, revoking his
registration as a broker, dealer, or municipal securities dealer, or
barring his being associated with a broker, dealer, or municipal
securities dealer;
"(C) by his conduct while associated with a broker, dealer, or
municipal securities dealer, has been found to be a cause of any
effective suspension, expulsion, or order of the character described
in subparagraph (A) or (B) of this paragraph, and in entering
such a suspension, expulsion, or order, the Commission or any such
self-regulatory organization shall have jurisdiction to find
whether or not any person was a cause thereof;

89 STAT. 104

Post, p. 121.

Rules and
regulations.

PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975
" ( D ) has associated with him any person who is known, or in
the exercise of reasonable care should be known, to him to be a
person described by s u b p a r a g r a p h ( A ) , ( B ) , or (C) of this parag r a p h ; or
" ( E ) has committed or omitted any act enumerated in subp a r a g r a p h ( D ) or ( E ) of p a r a g r a p h (4) of section 15(b) of this
title, has been convicted of any offense specified in s u b p a r a g r a p h
( B ) of such p a r a g r a p h (4) within ten years of the date of the
filing of an application for membership or participation in, or to
become associated with a member of, such self-regulatory organization, is enjoined from any action, conduct, or practice specified in s u b p a r a g r a p h (C) of such p a r a g r a p h ( 4 ) , has willfully
made or caused to be made in any application for membership
or participation in, or to become associated with a member
of, a self-regulatory organization, report required to be filed with
a self-regulatory organization, or proceeding before a self-regulatory organization, any statement which was at the time, and in
t h e 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, report, or proceeding any material
fact which is required to be stated therein.".
(7) Subsection (b) thereof is amended to read as follows:
" ( b ) The Commission and the B o a r d of Governors of the Federal
Reserve System, as to matters within their respective jurisdictions,
shall have power by rules and regulations to define technical, trade,
accounting, and other terms used in this title, consistently with the
provisions and purposes of this title.".
(8) The section is further amended by adding at the end thereof the
following new subsection:
" ( d ) No issuer of municipal securities or officer or employee thereof
acting in the course of his official duties as such shall be deemed to be
a 'broker', 'dealer', or 'municipal securities dealer' solely by reason of
buying, selling, or effecting transactions in the issuer's securities.".
SEC. 4. Section 6 of the Securities Exchange Act of 1934 (15 U.S.C.
78f) is amended t o read as follows:
" N A T I O N A L SECURITIES EXCHANGES

Registration.

Post, p. 146.

Post, pp. 137,
146.

" S E C . 6. (a) A n 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 a p p r o p r i a t e in the
public interest or for the protection of investors.
" ( b ) A n 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 p u r s u a n t 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 t h a t any registered broker or
dealer or natural person associated with a registered broker or
dealer may become a Inember of such exchange and any person
may become associated with a member thereof.

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 105

" ( 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 t h a t 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 chai'ges 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 t h a t (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 Post, pp. 137,
members shall be appropriately disciplined for violation of the 146.
provisions of this title, the rules or regulations thereunder, or the
rules of t h e 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 ai-e 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 b a r r i n g of any person from
becoming associated w4th 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.
" ( c ) ( 1 ) A national securities exchange shall deny membership to Membership,
( A ) any person, other t h a n a n a t u r a l person, which is not a registered denial.
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 shall, deny membership t o 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, w^ho is subject to a statutory disqualification. A national Notice.
securities exchange shall file notice with the Commission not less t h a n
t h i r t y 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. T h e notice shall be
in such form and contain such information as the Commission, by rule,
m a y prescribe as necessary or appropriate in the public interest or for
the protection of investors.

89 STAT. 106

Membership,
limitation.

Post, p. 146.

Disciplinary
actions.

PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975
" ( 3 ) ( A ) A national securities exchange may deny membership to,
or condition t h e membership of, a registered broker or dealer if (i)
snch broker or dealer does not meet such standards of financial responsibility or operational capability or such broker or dealer or any natural
person association 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 n a t u r a l 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 n a t u r a l 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 n a t u r a l 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 wnth 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 wnth 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 (A) limit t h e 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 t h e services of another person acting
as broker: Provided, hotvever, T h a t 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 t h e date such exchange w^as registered with the Commission, whichever is l a t e r : And provided
further,
T h a t 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 t h e Commission finds t h a t such limitation
imposes a burden on competition not necessary or a p p r o p r i a t e in furtherance of the purposes of this title.
" ( d ) ( 1 ) I n any proceeding by a national securities exchange to
determine whether a member or person associated with a member
should be disciplined (other t h a n a summary proceeding p u r s u a n t to
p a r a g r a p h (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

PUBLIC LAW 94-29—JUNE 4, 1975
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 excl.ange 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 wnth
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 deteiinines 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 w'ith 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 (4) of this section, may—
"(A) permit a national securities exchange, by rule, to impose
a reasonable schedule or fix reasonable rates of commissions.

89 STAT. 107

Notice and
hearing,

Summary
suspension,

Hearing,
Stay of action,

Rates and fees.

Post, p. 146.

8 9 STAT. 108

Post, p. 146.

Information,
filing with
Speaker of the
House and
President of the
Senate.
Oral
presentations.

Rules and
rulings.

Class
representative.

PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975
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 t h a t 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
t h a t 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, discotmts,
or other fees, if the Commission determines t h a t such schedule or fixed
rates are no longer reasonable, in the public interest, or necessary to
accomplish the purposes of this title.
" ( 3 ) Until December 31, 1976, the Commission, on a regular basis,
shall file with the Speaker of the House and the President of the
Senate information concerning the effect on the public interest, protection of investors, and maintenance of fair and orderly markets of
the absence of any schedule or fixed rates of commissions, allowances,
discounts, or other fees to be charged by members of any national
securities exchange for effecting transactions on such exchange.
" ( 4 ) (A) Before approving or disapproving any proposed rule
change submitted by a national securities exchange wliich 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 s u b p a r a g r a p h ( B ) of this parag r a p h ) 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 s u b p a r a g r a p h (A) of this
p a r a g r a p h 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 s u b p a r a g r a p h ( A ) of this parag r a p h 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) I f any class of persons, t h e members of which are entitled
t o conduct (or have conducted) cross-examination under subparag r a p h s ( A ) and ( B ) of this p a r a g r a p h and which have, in t h e view
of the Commission, the same or similar interests in the proceeding,

PUBLIC LAW 94-29—JUNE 4, 1975
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 fixes
lates of commissions, allowances, discounts, or other fees, if the Court
finds—
"(1) a Commission determination under paragraph (4) (A)
that an interested person is not entitled to conduct cross-examination or make rebuttal submissions, or
"(2) a Commission rule or ruling under paragraph (4) (B)
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.".
SEC. 5. Section 8 of the Securities Exchange Act of 1934 (15 U.S.C.
78h) is amended as follows:
(1) The first sentence thereof is amended by striking out the phrase
"any member of a national securities exchange, or any broker or dealer
who transacts a business in securities through the medium of any such
member" and by inserting in lieu thereof the phrase "any registered
broker or dealer, member of a national securities exchange, or broker
or dealer who transacts a business in securities through the medium
of any member of a national securities exchange".
(2) The section is further amended by striking out subsection (b),
redesignating subsections (c) and (d) thereof as subsections (b) and
(c) respectively, and amending redesignated subsection (c) to read
as follows:
"(c) To lend or arrange for the lending of any securities carried for
the account of any customer without the written consent of such customer or in contravention of such rules and regulations as the Commission shall prescribe for the protection of investors."

89 STAT. 109

Transcript.
Post, p. 158.
Post, p. 146.

Borrowing by
members,
brokers, and
dealers,
restrictions.

89 STAT. 110
Trading by
members of
exchanges,
brokers, and
dealers.

15 use 78j.

PUBLIC LAW 94-29—JUNE 4, 1975
SEC. 6. Section 11 of the Securities Exchange Act of 1934 (15 U.S.C.
78k) is amended as follows :
(1) The title thereof is amended to r e a d : "TRADING BY MEMBERS OF
EXCHANGES, BROKERS, AND DEALERS".

(2) Subsections (a) and (b) thereof are amended to read as follows:
" (a) (1) I t 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 pereon, or an account with respect
to which it or an associated person thereof exercises investment
discretion: Provided^ however^ T h a t this p a r a g r a p h shall not make
unlawful—
" ( A ) any transaction by a dealer acting in the capacity of
market m a k e r ;
" ( 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 10(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 n a t u r a l person, or a trust (other t h a n an investment
company) created by a natural person for himself or another
natural person;
" ( F ) any transaction to offset a transaction made in e r r o r ;
" ( G ) any other transaction for a member's own account provided t h a t (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; and
" ( H ) any other transaction of a kind which the Commission,
by rule, determines is consistent with the purposes of this parag r a p h , the protection of investors, and the maintenance of fair
and orderly markets.
" ( 2 ) T h e 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 p r o h i b i t :
" ( A ) transactions on a national securities exchange not unlawful under p a r a g r a p h (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 :

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. I l l

"(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) the account of an associated
person, or an account with respect to Avhich 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.
"(8) The provisions of paragraph (1) of this subsection insofar as Effective date.
they apply to transactions on a national securities exchange effected
by a member thereof who was a member on May 1, 1975 shall not
become effective until May 1, 1978. Nothing in this paragraph shall
be construed to impair or limit the authority of the Commission to
regulate or prohibit such transactions prior to May 1, 1978, pursuant
to paragraph (2) of this subsection.
"(b) When not in contravention of such rules and regulations as Odd-lot dealers
tlie Commission may prescribe as necessary or appropriate in the pub- and specialists.
lic intei'est and for the protection of investors, to maintain fair and
oi-derly 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
reguhitions of the Commission a specialist may be permitted to act as
a bi'olver and dealer or limited to acting as a broker or dealer. I t shall
be unlawful for a specialist or an official of the exchange to disclose
infoT-mation 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 Avho may be acting for such specialist: Provided^ however^
That the Commission, by rule, may require disclosure to all members
of tlie exchange of all orders placed with specialists, under such rules
and T'egulations as the Commission may prescribe as necessary or
appiopriate 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.".
(8) Subsection (e) thereof is repealed.
Repeal.
SEC. 7. The Securities Exchange Act of 1934 is amended by inserting 15 use 78k.
after section 11 (15 U.S.C. 78k) the following new section:
NATIONAL MARKET SYSTEM FOR SECURITIES; SECURITIES INFORMATION
PROCESSORS

"SEC. IIA. (a) (1) The Congress finds that—
15 use 78k-l.
"(A) The securities markets are an important national asset
which must be preserved and strengthened.
"(B) New data processing and communications techniques
create the opportunity for more efficient and effective market
operations.

89 STAT. 112

National market
system for
securities,
establishment.

Advisory
committees,
establishment.
5 u s e app. I.

Studies and
recommendations
to Congress.
Securities
information
processors.
Exemption.

PUBLIC LAW 94-29—JUNE 4, 1975
" ( C ) I t is in the public interest and appropriate for the protection of investors and t h e maintenance of fair and orderly markets
to assure—
" ( i ) economically efficient execution of securities transactions ;
" ( i i ) fair competition among brokers and dealers, among
exchange markets, and between exchange markets and markets other t h a n exchange m a r k e t s ;
" ( i i i ) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities;
" ( i v ) the practicability of brokers executing investors'
orders in the best m a r k e t ; and
" ( v ) an opportunity, consistent with the provisions of
clauses (i) and (iv) of this subparagraph, for investors'
orders to be executed without t h e participation of a dealer.
" ( D ) The linking of all markets for qualified securities through
communication and data processing facilities w^ill foster efficiency,
enhance competition, increase the information available to brokers,
dealers, and investors, facilitate the offsetting of investors' orders,
and contribute to best execution of such orders.
" ( 2 ) The Commission is directed, therefore, having due regard for
the public interest, the protection of investors, and the maintenance
of fair and orderly markets, to use its authority under this title to
facilitate the establishment of a national market system for securities
(which may include subsystems for particular types of securities with
unique t r a d i n g characteristics) in accordance with the findings and to
carry out the objectives set forth in p a r a g r a p h (1) of this subsection.
The Commission, by rule, shall designate the securities or classes of
securities qualified for t r a d i n g in the national market system from
among securities other than exempted securities. (Securities or classes
of securities so designated hereinafter in this section referred to as
'qualified securities'.)
" ( 3 ) The Commission is authorized in furtherance of the directive
m p a r a g r a p h (2) of this subsection—
" ( A ) to create one or more advisory committees pursuant to
the Federal Advisory Committee Act (which shall be in addition to the National Market Advisory Board established pursuant
to subsection (d) of this section) and to employ one or more outside experts;
" ( B ) by rule or order, to authorize or require self-regulatory
organizations to act jointly with respect to matters as to which
they share authority under this title in planning, developing,
operating, or regulating a national market system (or a subsystem thereof) or one or more facilities thereof; and
" ( C ) to conduct studies and make recommendations to the
Congress from time to time as to the possible need for modifications of the scheme of self-regulation provided for in this title
so as to a d a p t it to a national market system.
" ( b ) ( 1 ) Except as otherwise provided in this section, it shall be
unlawful for any securities information processor unless registered
in accordance with this subsection, directly or indirectly, to make use
of the mails or any means or instrumentality of interstate commerce
to perform the functions of a securities information processor. T h e
Commission, by rule or order, upon its own motion or upon application,
m a y conditionally or unconditionally exempt any securities information processor or class of securities information processors or security
or class of securities from any provision of this section or the rules or
regulations thereunder, if the Commission finds that such exemption

PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975

89 STAT. 113

is consistent with the public interest, the protection of investors, and
the purposes of this section, including the maintenance of fair and
orderly markets in securities and the removal of impediments to and
perfection of the mechanism of a national market system: Provided,
however, T h a t a securities information processor not acting as the
exclusive processor of any information with respect to quotations for
or transactions in securities is exempt from the requirement to register
in accordance with this subsection unless the Commission, by rule or
order, finds that the registration of such securities information processor is necessary or appropriate in the public interest, for the protection
of investors, or for the achievement of the purposes of this section.
" (2) A securities information processor may be registered by filing Registration,
with the Commission an application for registration in such form as
the Commission, by rule, may prescribe containing the address of its
principal office, or offices, the names of the securities and markets for
w^hich it is then acting and for which it proposes to act as a securities
information processor, and such other information and documents as
the Commission, by rule, may prescribe with regard to performance
capability, standards and procedures for the collection, processing,
distribution, and publication of information with respect to quotations
for and transaction in securities, personnel qualifications, financial condition, and such other matters as the Commission determines to be
germane to the provisions of this title and the rules and regulations
thereunder, or necessary or appropriate in furtherance of the purposes
of this section.
" ( 3 ) The Commission shall, upon the filing of an application for Application,
registration pursuant to p a r a g r a p h (2) of this subsection, publish notice of filing,
notice of the filing and afford interested persons an opportunity to submit written data, views, and arguments concerning such application.
W i t h i n ninety days of the date of the publication of such notice (or
within such longer period as to which the applicant consents) the Commission shall—
" (A) by order g r a n t such registration, or
" ( B ) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the Hearing,
grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred eighty days of the
date of publication of notice of the filing of the application for
registration. A t the conclusion of such proceedings the Commission, by order, shall g r a n t or deny such registration. T h e Commission may extend the time for the conclusion of such proceedings
for u p to sixty days if it finds good cause for such extension and
publishes its reasons for so finding or for such longer periods as
to which the applicant consents.
The Commission shall grant the registration of a securities information processor if t h e Commission finds that such securities information
processor is so organized, and has the capacity, to be able to assure the
p r o m p t , accurate, a n d reliable performance of its functions as a securities information processor, comply with the provisions of this title and
the rules and regulations thereunder, carry out its functions in a
manner consistent w^ith the purposes of this section, and. insofar as it is
acting as an exclusive processor, operate fairly and efficientlv. T h e
Commission shall deny the registration of a securities information
processor if the Commission does not make any such finding.
" (4) A registered securities information processor may, upon such
terms and conditions as the Commission deems necessary or aporopi'iate in the public interest or for t h e protection of investors. withdraAV
from registration by filing a written notice of withdrawal with the
Commission. I f the Commission finds t h a t any registered securities

Withdrawal from
registration.

89 STAT. 114

Access to
services, notice of
prohibition or
limitation..

Review.

Limitation,
suspension, or
revocation of
registration.
Notice and
hearing.

PUBLIC LAW 94-29—JUNE 4, 1975
information processor is no longer in existence or has ceased to do business in t h e capacity specified in its application for registration, the
Commission, by order, shall cancel the registration.
" ( 5 ) ( A ) I f any registered securities information processor prohibits or limits any person in respect of access to services offered,
directly or indirectly, by such securities information processor, the registered securities information processor shall promptly file notice
thereof with the Commission. 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. A n y prohibition or limitation on access to services with
respect to which a registered securities information processor is
required by this p a r a g r a p h to file notice shall be subject to review by the
Commission on its own motion, or upon application by any person
aggrieved thereby filed within thirty days after such notice has been
filed with the Commission and received by such aggrieved person, or
within such longer period as the Commission may determine. Application to the Commission for review, or t h e institution of review by the
Commission on its own motion, shall not operate as a stay of such prohibition or limitation, unless the Commission otherwise orders, summarily or after notice and oppoitunity for hearing on the question of
a stay (which hearing may consist solely of t h e submission of affidavits
or presentation of oral a r g u m e n t s ) . The Commission shall establish for
appropriate cases an expedited procedure for consideration and determination of the question of a stay.
" ( B ) I n any proceeding to review the prohibition or limitation of
any person in respect of access to services offered by a registered securities information processor, if the Commission finds, after notice and
opportunity for hearing, t h a t such prohibition or limitation is consistent with the provisions of this title and the rules and regulations
thereunder and t h a t such person has not been discriminated against
unfairly, the Commission, by order, shall dismiss the proceeding. I f
the Commission does not make any such finding or if it finds t h a t such
prohibition or limitation imposes any burden on competition not necessary or appropriate in furtherance of the purposes of this title, the
Commission, by order, shall set aside the prohibition or limitation
and require the registered securities information processor to permit
such person access to services offered by the registered securities information processor.
" ( 6 ) The Commission, by order, may censure or place limitations
upon the activities, functions, or operations of any registered securities
information processor or suspend for a period not exceeding twelve
months or revoke the registration of any such processor, if the Commission finds, on the record after notice and opportunity for hearing,
t h a t such censure, placing of limitations, suspension, or revocation is in
the public interest, necessary or appropriate for the protection of
investors or to assure the prompt, accurate, or reliable performance of
the functions of such securities information processor, and t h a t such
securities information processor has violated or is unable to comply
with any provision of this title or the rules or regulations thereunder.
" ( c ) (1) No self-regulatory organization, member thereof, securities
information processor, broker, or dealer shall make use of the mails or
any means or instrumentality of interstate commerce to collect, process,
distribute, publish, or prepare for distribution or publication any
information with respect to quotations for or transactions in any security other than an exempted security, to assist, participate in, or coordinate the distribution or publication of such information, or to effect any
transaction in, or to induce or attempt to induce the purchase or sale
of, any such security in contravention of siich rules and regulations as

PUBLIC LAW 9 4 - 2 9 — J U N E 4, 1975

89 STAT. 115

t h e Commission shall prescribe as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title to—
" (A) prevent the use, distribution, or publication of fraudulent,
deceptive, or manipulative information with respect to quotations
for and transactions in such securities;
" ( B ) assure the prompt, accurate, reliable, and fair collection,
processing, distribution, and publication of information with
respect to quotations for and transactions in such securities and
the fairness and usefulness of the form and content of such
information;
" ( C ) assure t h a t all securities information processors may, for
purposes of distribution and publication, obtain on fair and reasonable terms such information with respect to quotations for and
transactions in such securities as is collected, processed, or prepared for distribution or publication by any exclusive processor
of such information acting in such capacity;
" ( D ) assure t h a t all exchange members, brokers, dealers, securities information processors, and, subject to such limitations as the
Commission, by rule, may impose as necessary or appropriate for
t h e protection of investors or maintenance of fair and orderly
markets, all other persons may obtain on terms which are not
unreasonably discriminatory such information with respect to
quotations for and transactions in such securities as is published
or distributed by any self-regulatory organization or securities
information processor;
" ( E ) assure t h a t all exchange members, brokers, and dealers
transmit and direct orders for the purchase or sale of qualified
securities in a manner consistent with the establishment and
operation of a national market system; and
" ( F ) assure equal regulation of all markets for qualified securities and all exchange members, brokers, and dealers effecting
transactions in such securities.
" (2) T h e Commission, by rule, as it deems necessary or appropriate
in the public interest or for the protection of investors, may require
any person who has effected the purchase or sale of any qualified
security by use of the mails or any means or instrumentality of interstate commerce to report such purchase or sale to a registered securities information processor, national securities exchange, or registered
securities association and require such processor, exchange, or association to make appropriate distribution and publication of
information with respect to such purchase or sale.
" (3) ( A ) T h e Commission, by rule, is authorized to prohibit brokers Notice and
and dealers from effecting transactions in securities registered pursu- hearing,
ant to section 12(b) otherwise t h a n on a national securities exchange, 15 USC 78Z.
if the Commission finds, on the record after notice and opportunity
for hearing, t h a t —
" ( i ) as a result of transactions in such securities effected otherwise t h a n on a national securities exchange the fairness or orderliness of the markets for such securities has been affected in a
manner contrary to the public interest or the protection of
investors;
" ( i i ) no rule of any national securities exchange unreasonably
impairs the ability of any dealer to solicit or effect transactions in
such securities for his own account or unreasonably restricts competition among dealers in such securities or between dealers
acting in the capacity of market makers who are specialists in
such securities and such dealers who are not specialists in such
securities, and

89 STAT. 116

Review.

Report to
Congress.

Post, p. 146.

Post, p. 158.

National Market
Advisory Board.
Establishment;
membership.

Study and
recommendations
to the
Commission.

PUBLIC LAW 94-29—JUNE 4, 1975
(iii) the maintenance or restoration of fair and orderly markets in such, securities may not be assured t h r o u g h other lawful
means under this title.
The Commission may conditionally or unconditionally exempt any
security or transaction or any class of securities or transactions from
any such prohibition if the Commission deems such exemption consistent with the public interest, the protection of investors, and the
maintenance of fair and orderly markets.
" ( B ) F o r the purposes of s u b p a r a g r a p h ( A ) of this p a r a g r a p h , the
ability of a dealer to solicit or effect transactions in securities for his
own account shall not be deemed to be unreasonably impaired by any
rule of an exchange fairly and reasonably prescribing the sequence
in which orders brought to the exchange must be executed or which has
been adopted to effect compliance with a rule of the Commission
promulgated under this title.
" ( 4 ) ( A ) T h e Commission is directed to review any and all rules of
national securities exchanges which limit or condition the ability of
members to effect transactions in securities otherwise t h a n on such
exchanges. On or before the ninetieth day following the day of
enactment of the Securities Acts Amendments of 1975, the Commission
shall (i) report to the Congress the results of its review, including the
effects on competition of such rules, and (ii) commence a proceeding
in accordance with the provisions of section 19(c) of this title to
amend any such rule imposing a burden on competition which does not
appear to the Commission to be necessary or appropriate in furtherance of the purposes of this title. The Commission shall conclude any
such proceeding within ninety days of the date of publication of
notice of its commencement.
" ( B ) Review p u r s u a n t to section 25(b) of this title of any rule
promulgated by the Commission in accordance with any proceeding
commenced p u r s u a n t to s u b p a r a g r a p h ( A ) of this p a r a g r a p h shall,
except as to causes the court considers of greater importance, take
precedence on the docket over all other causes and shall be assigned for
consideration at the earliest practicable date and expedited in every
way.
" ( 5 ) No national securities exchange or registered securities association may limit or condition the participation of any member in any
registered clearing agency.
" ( d ) ( 1 ) N^ot later than one hundred eighty days after the date
of enactment of the Securities Acts Amendments of 1975, the Commission shall establish a National Market Advisory Board (hereinafter in this section referred to as the "Advisory B o a r d " ) to be
composed of fifteen members, not all of whom shall be from the same
geographical area of the United States, appointed bv the Commission
for a term specified by the Commission of not less t h a n two years or
more t h a n five years. The Advisory Board shall consist of persons
associated with brokers and dealers (who shall be a majority) and
persons not so associated who are representative of t h e public and,
to the extent feasible, have knowledge of the securities markets of
the U n i t e d States.
" ( 2 ) I t shall be the responsibility of the Advisory Board to formulate and furnish to the Commission its views on significant regulatory
proposals made by the Commission or any self-regtdatory organization
concerning the establishment, operation, and regulation of the markets
for securities in the United States.
" ( 8 ) ( A ) The Advisory Board shall study and make recommendations to the Commission as to the steps it finds appropriate to facilitate
the establishment of a national market system. Tn so doing, the
Advisory B o a r d shall assume the responsibilities of any advisory

PUBLIC LAW 94-29—JUNE 4, 1975
committee appointed to advise the Commission with respect to the
national market system which is in existence at the time of the establishment of the Advisory Board.
"(B) The Advisory Board shall study the possible need for modifications of the scheme of self-regulation provided for in this title so
as to adapt it to a national market system, including the need for the
establishment of a new self-regulatory organization (hereinafter in
this section referred to as a 'National Market Regulatory Board' or
'Regulatory Board') to administer the national market system. In the
event the Advisory Board determines a National Market Regulatory
Board should be established, it shall make recommendations as to:
"(i) the point in time at which a Regulatory Board should be
established;
" (ii) the composition of a Regulatory Board;
" (iii) the scope of the authority of a Regulatory Board;
"(iv) the relationship of a Regulatory Board to the Commission and to existing self-regulatory organizations; and
" (v) the manner in Avhich a Regulatory Board should be funded.
The Advisory Board shall report to the Congress, on or before December 31,1976, the results of such study and its recommendations, including such recommendations for legislation as it deems appropriate.
"(C) In carrying out its responsibilities under this paragraph, the
Advisory Board shall consult with self-regulatory organizations,
brokers, dealers, securities information processors, issuers, investors,
representatives of Government agencies, and other persons interested
or likely to participate in the establishment, operation, or regulation
of the national market system.
"(e) The Commission is authorized and directed to make a study
of the extent to which persons excluded from the definitions of
'broker' and 'dealer' maintain accounts on behalf of public customers
for buying and selling securities registered u^ider section 12 of this
title and whether such exclusions are consistent with the protection of
investors and the other purposes of this title. The Commission shall
report to the Congress, on or before December 31, 1976, the results of
its study together with such recommendations for legislation as it
deems advisable.".
SEC. 8. Section 12(f) of the Securities Exchange Act of 1934 (15
U.S.C. 781 (f)) is amended as follows:
(1) Paragraphs (1) and (2) thereof are amended to read as follows:
"(f) (1) Notwithstanding the foregoing provisions of this section,
any national securities exchange, subject to the terms and conditions
hereinafter set forth—
"(A) may continue unlisted trading privileges to which a
security had been admitted on such exchange prior to July 1,1964;
"(B) upon application to and approval of such application by
the Commission, may extend unlisted trading privileges to any
security listed and registered on any other national securities
exchange; and
"(C) upon application to and approval of such application by
the Commission, may extend unlisted trading privileges to any
security registered pursuant to section 12 of this title or which
would be required to be so registered except for the exemption
from registration provided in subsection (g) (2) (B) or (g) (2)
(G) of that section.
If an extension of unlisted trading privileges to a security is based
upon its listing and registration on another national securities exchange, such privileges shall continue in effect only so long as such
security remains listed and registered on a national securities exchange.

RI-IOA

r> _ 77 _ 19

89 STAT. 117

Report to
Congress.
Legislative
recommendations.
Consultation.

Study.

15 u s e 78/.
Report to
Congress.
Legislative
recommendations.
Registration
requirements for
securities.
15 u s e 78/.

89 STAT. 118
Notice and
hearing.

Registration,
denial,
suspension, or
revocation.
Notice and
hearing.

Summary
suspension.

PUBLIC LAW 94-29—JUNE 4, 1975
" ( 2 ) No application pursuant to this subsection shall be approved
unless t h e Commission finds, after notice and opportunity for hearing,
t h a t the extension of unlisted t r a d i n g privileges pursuant to such
application is consistent with the maintenance of fair and orderly
markets and the protection of investors. I n considering an application
for the extension of unlisted t r a d i n g privileges to a security not listed
and registered on a national securities exchange, the Commission shall,
among other matters, take account of the public t r a d i n g activity in
such security, the character of such trading, the impact of such extension on the existing markets for such securities, and the desirability
of removing impediments to and t h e progress t h a t has been made
toward the development of a national market system and shall not
g r a n t any such application if any rule of the national securities
exchange making application under this subsection would unreasonably impair the ability of any dealer to solicit or effect transactions
in such security for his own account, or would unreasonably restrict
competition among dealers in such security or between such dealers
acting in the capacity of market makers who are specialists and such
dealei-s who are not specialists.".
(2) P a r a g r a p h (6) thereof is amended by striking out "section
19(b) of".
SEC. 9. Section 12 of the Securities pjxchange Act of 1934 (15
U.S.C. 781) is amended by adding at the end thereof the follov/ing new
subsections:
" ( j ) T h e Commission is authorized, by order, as it deems necessary
or appropriate for the protection of investors to deny, t o suspend the
effective date of, to suspend for a period not exceeding twelve months,
or to revoke the registration of a security, if the Commission finds,
on the record after notice and opportunity for hearing, t h a t t h e issuer
of such security has failed to comply with any provision of this title or
the rules and regulations thereunder. No member of a national securities exchange, 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 the purchase or sale of, any security t h e registration of which has been and is suspended or revoked pursuant to the
preceding sentence.
" ( k ) If in its opinion the public interest and the protection of
investors so require, t h e Commission is authorized summarily to suspend t r a d i n g in any security (other than an exempted security) for a
period not exceeding ten days, or with the approval of the President,
summarily to suspend all t r a d i n g on any national securities exchange
or otherwise, in securities other t h a n exempted securities, for a period
not exceeding ninety days. No member of a national securities
exchange, broker, or dealer shall make use of t h e mails or any means
or instrumentality of interstate commerce to effect any transaction
in, or to induce the purchase or sale of, any security in which t r a d i n g
is so suspended.
"(1) I t shall be unlawful for an issuer, any class of whose securities
is registered pursuant to this section or would be required to be so
registered except for the exemption from registration provided by
subsection ( g ) ( 2 ) ( B ) or ( g ) ( 2 ) ( G ) of this section, by the use of any
means or instrumentality of interstate commerce, or of the mails,
to issue, either originaHy or upon transfer, any of such securities
in a form or with a format which contravenes such rules and regulations as the Commission may prescribe as necessary or appropriate
for the p r o m p t and accurate clearance and settlement of transactions
in securities. The provisions of this subsection shall not apply to
variable annuity contracts or variable life policies issued by an insurance company or its separate accounts.

PUBLIC LAW 94-29—JUNE 4, 1975
" ( m ) The Commission is authorized and directed to make a study
a n d investigation of the practice of recording the ownership of securities in the records of the issuer in other than the name of the beneficial owner of such securities to determine (1) whether such practice
is consistent with the purposes of this title, with particular reference
t o subsection (g) of this section and sections 13, 14, 1 5 ( d ) , 16, and
17A, and (2) whether steps can be taken to facilitate communications between issuers and the beneficial owners of their securities while
at the same time retaining the benefits of such practice. The Commission shall report to the Congress its preliminary findings within six
months after the date of enactment of the Securities Acts Amendments
of 1975, and its final conclusions and recommendations within one year
of such date.".
SEC. 10. Section 13 of the Securities Exchange Act of 1934 (16
U.S.C. 78m) is amended by adding at the end thereof the following
new subsection:
" ( f ) ( 1 ) Every institutional investment manager which uses the
mails, or any means or instrumentality of interstate commerce in the
course of its business as an institutional investment manager and
which exercises investment discretion with respect to accounts holding
equity securities of a class described in section 13(d) (1) of this title
having an aggregate fair market value on the last t r a d i n g day in any
of the preceding twelve months of at least $100,000,000 or such lesser
amount (but in no case less than $10,000,000) as the Commission, by
rule, may determine, shall file reports with the Commission in such
form, for such periods, and at such times after the end of such periods
as the Commission, by rule, may presci'ibe, but in no event shall such
reports be filed for periods longer than one year or shorter t h a n one
quarter. Such reports shall include for each such equity security held
on the last day of the reporting period by accounts (in aggregate or by
type as the Commission, by rule, may prescribe) with respect to which
the institutional investment manager exercises investment discretion
(other t h a n securities held in amounts w^hich the Commission, by rule,
determines to be insignificant for purposes of this subsection), the
name of the issuer and the title, class, C U S I P number, number of
shares or principal amount, and aggregate fair market value of each
such security. Such reports may also include for accounts (in aggregate or by type) with respect to which the institutional investment
manager exercises investment discretion such of the following information as the Commission, by rule, prescribes—
" ( A ) the name of the issuer and the title, class, C U S I P number, number of shares or principal amount, and aggregate fair
market value or cost or amortized cost of each other security
(other than an exempted security) held on the last day of the
reporting period by such accounts;
" ( B ) the aggregate fair market value or cost or amortized
cost of exempted securities (in aggregate or by class) held on
t h e last day of the reporting period by such accounts;
" ( C ) the number of shares of each equity security of a class
described in section 13(d) (1) of this title held on the last day of
the reporting period by such accounts with respect to which the
institutional investment manager possesses sole or shared authority to exercise the voting rights evidenced by such securities;
" ( D ) the aggregate purchases and aggregate sales d u r i n g the
reporting period of each security (other t h a n an exempted
security) effected by or for such accounts; and
" ( E ) w i t h respect to any transaction or series of transactions
having a market value of at least $500,000 or such other amount
as the Commission, by rule, may determine, effected d u r i n g t h e

89 STAT. 119
Study.

15 u s e 78m,
78n, 78o, 78p;
Post, p. 141.
Reports to
Congress.
Recommendations to Congress.
Periodic reports.

Contents.

89 STAT. 120
15 use 78m.

Exemption.

Information,
availability to
public.

Consultation.

PUBLIC LAW 94-29—JUNE 4, 1975
reporting period by or for such accounts in any equity security of
a class described in section 13(d)(1) of this title—
"(i) the name of the issuer and the title, class, and CUSIP
number of the security;
" (ii) the number of shares or principal amount of the security involved in the transaction;
"(iii) whether the transaction was a purchase or sale;
" (iv) the per share price or prices at which the transaction
was effected;
"(v) the date or dates of the transaction;
" (vi) the date or dates of the settlement of the transaction;
"(vii) the broker or dealer through whom the transaction
was eft'ected;
"(viii) the market or markets in which the transaction was
effected; and
" (ix) such other related information as the Commission, by
rule, may prescribe.
"(2) The Commission, by rule or order, may exempt, conditionally
or unconditionally, any institutional investment manager or security
or any class of institutional investment managers or securities from
any or all of the provisions of this subsection or the rules thereunder.
" (3) The Commission shall make available to the public for a reasonable fee a list of all equity securities of a class described in section
13(d)(1) of this title, updated no less frequently than reports are
required to be filed pursuant to paragraph (1) of this subsection. The
Commission shall tabulate the information contained in any report
filed pursuant to this subsection in a manner which will, in the view of
the Commission, maximize the usefulness of the information to other
Federal and State authorities and the public. Promptly after the filing
of any such report, the Commission shall make the information contained therein conveniently available to the public for a reasonable fee
in such form as the Commission, by rule, may prescribe, except that the
Commission, as it determines to be necessary or appropriate in the public interest or for the protection of investors, may delay or prevent
public disclosure of any such information in accordance with section
552 of title 5, United States Code. Notwithstanding the preceding
sentence, any such information identifying the securities held by the
account of a natural person or an estate or trust (other than a business
trust or investment company) shall not be disclosed to the public.
"(4) In exercising its authority under this subsection, the Commission shall determine (and so state) that its action is necessary or appropriate in the public interest and for the protection of investors or to
maintain fair and orderly markets or, in granting an exemption,
that its action is consistent with the protection of investors and the
jjurposes of this subsection. In exercising such authority the Commission shall take such steps as are within its power, including consulting
with the Comptroller General of the United States, the Director of the
Office of Management and Budget, the appropriate regulatory agencies. Federal and State authorities which, directly or indirectly,
require reports from institutional investment managers of information
substantially similar to that called for by this subsection, national
securities exchanges, and registered securities associations, (A) to
achieve uniform, centralized reporting of information concerning the
securities holdings of and transactions by or for accounts with
respect to which institutional investment managers exercise investment
discretion, and (B) consistently with the objective set forth in the
preceding subparagraph, to avoid unnecessarily duplicative reporting
by, and minimize the compliance burden on, institutional investment
managers. Federal authorities which, directly or indirectly, require
reports from institutional investment managers of information sub-

PUBLIC LAW 94-29—JUNE 4, 1975
stantially similar to t h a t called for by this subsection shall cooperate
with t h e Commission in t h e performance of its responsibilities under
t h e preceding sentence. A n institutional investment manager which is
a bank, t h e deposits of which a r e insured in accordance with t h e
Federal Deposit Insurance Act, shall file with t h e appropriate regulatory agency a copy of every report filed with the Commission pursuant
to this subsection.
" ( 5 ) ( A ) F o r purposes of this subsection t h e term 'institutional
investment manager' includes any person, other than a natural person,
investing in or buying and selling securities for its own account, and
any person exercising investment discretion with respect to the account
of any other person.
" ( B ) T h e Commission shall adopt such rules as it deems necessary
or appropriate to prevent duplicative reporting pursuant to this subsection by two or more institutional investment managers exercising
investment discretion with respect to the same amoimt.".
SEC. 11. Section 15 of the Securities Exchange A c t of 1934 (15
U.S.C. 78o) is amended as follows:
(1) T h e title thereof is amended to r e a d : "REGISTRATION AND REGULATION OF BROKERS AND DEALERS".

89 STAT. 121

Copies of reports,
filing.

12 u s e 1811
note.
"Institution
investment
manager."

Rules.

Registration and
regulation of
brokers and
dealers.

(2) Subsections ( a ) a n d (b) thereof are amended to read as follows:
" (a) (1) I t shall be unlawful for any broker or dealer which is either
a person other than a natural person or a natural person n o t 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) t o make use of the mails or any means or ins*:rumentality of
interstate commerce to effect any transactions in, or to induce or
attempt to induce t h e purchase or sale of, any security (other t h a n an
exempted security or commercial paper, bankers' acceptances, or commercial bills) unless such broker o r dealer is registered in accordance
with subsection (b) of this section.
" ( 2 ) T h e Commission, by rule or order, as it deems consistent with Exemption.
the public interest and t h e protection of investors, may conditionally
or unconditionally exempt from p a r a g r a p h (1) of this subsection a n y
broker or dealer or class of brokers or dealers specified in such rule
or order.
" ( b ) ( 1 ) A broker or dealer may be registered by filing with t h e
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 t h e Commission, b y rule, m a y prescribe as necessary o r appropriate i n t h e
public interest or for t h e protection of investors. W i t h i n forty-five
days of the date of t h e filing of such application (or within such longer
period as to which t h e applicant consents), t h e Commission shall—
" ( A ) by order g r a n t registration, o r
" ( B ) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of t h e
grounds for denial under consideration and opportunity for
hearing a n d shall be concluded within one hundred twenty davs
of t h e date of t h e filing of t h e application for registration. A t the
conclusion of such proceedings, t h e Commission, by order, shall
g r a n t or deny such registration. T h e Commission m a y extend
t h e time for conclusion of such proceedings for u p 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.
T h e Commission shall g r a n t such registration if t h e Commission
finds t h a t the requirements of this section are satisfied. T h e Commis-

89 STAT. 122

15 u s e 78e.

Suspension or
revocation of
registration.
Notice and
hearing.

PUBLIC LAW 94-29—JUNE 4, 1975
sion shall deny such registration if it does not make such a finding or
if it finds t h a t if t h e applicant were so registered, its registration
would be subject to suspension or revocation under p a r a g r a p h (4)
of this subsection.
" ( 2 ) ( A ) A n application for registration of a broker or dealer to
be formed or organized may be made by a broker or dealer to which
t h e broker or dealer to be formed or organized is to be t h e 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. T h e g r a n t or denial of registration to such an applicant
shall be in accordance with t h e procedures set forth in p a r a g r a p h
(1) of this subsection. I f the Commission g r a n t s such regisitration,
t h e registration shall terminate on t h e forty-fifth day after t h e 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 ) A n y person who is a broker or dealer solely by reason of acting as a municipal securities dealer or municipal securities broker,
who so acts t h r o u g h a separately identifiable department or division,
and who so acted in such a manner on the date of enactment of the
Securities Acts Amendments of 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 t h e 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 t h e broker or dealer for purposes of this title.
" ( C ) W i t h i n six months of the date of the g r a n t i n g of registration
to a broker or dealer, the Commission, or upon the authorization and
direction of t h e 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 t o determine
whether it is operating in conformity with t h e provisions of this title
and the rules and regulations t h e r e u n d e r : Provided, however. T h a t
the Commission may delay such inspection of any class of brokers or
dealer-s for a period not to exceed six months.
" (3) A n y provision of this title (other than section 5 and subsection
(a) of this section) which prohibits any act, practice, or course of
business if t h e 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, t h a t 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 under this title, or in any proceeding before the Com-

PUBLIC LAW 94-29—JUNE 4, 1975
mission 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 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, or conspiracy to commit any such offense;
"(ii) arises out of the conduct of the business of a broker,
dealer, municipal securities dealer, investment adviser, bank,
insurance company, or fiduciary;
"(iii) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement,
fraudulent conversion, or misappropriation of funds, or securities ; or
"(iv) involves the violation of section 152, 1341, 1342, or
1343 or chapter 25 or 47 of title 18, United States Code.
"(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, or municipal securities dealer, or as an affiliated person or employee of any
investment company, bank, or insurance company, 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, the Investment Advisers Act of 1940, the Investment
Company Act of 1940, this title, 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, this title, 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 an order of the Commission entered pursuant to paragraph (6) of this subsection ^b) barring or suspending the right of such person to be associated with a broker
or dealer.
"(5) Pending final determination whether any registration under
this subsection shall be revoked, the Commission, by order, may

89 STAT. 123

18 u s e 471 et
seq., 1001 et seq.

15 u s e 77a.
15 u s e 80b-20.
15 u s e 80a-51.

Suspension.
Notice and
hearing.

89 STAT. 124

Notice and
hearing.

Standards of
operational
capability.

Rules and
regulations.

PUBLIC LAW 94-29—JUNE 4, 1975
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) The Commission, by order, shall censure or place limitations
on the activities or functions of any person associated, or seeking to
become associated, with a broker or dealer, or suspend for a period
not exceeding twelve months or bar any such person from being
associated with a broker or 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 or omitted any act or omission
enumerated in subparagraph (A), (D), or (E) of paragraph (4) of
this subsection, has been convicted of any offense specified in subparagraph (B) of said 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 said paragraph (4). It shall be unlawful for any person as to
whom such an order suspending or barring him from being associated with a broker or dealer is in effect willfully to become, or to
be, associated with a broker or dealer without the consent of the
Commission, and it shall be unlawful for any broker or dealer to
permit such a person to become, or remain, a person associated with
him Avithout the consent of the Commission, if such broker or dealer
knew, or in the exercise of reasonable care should have known, of
such order.
"(7) No registered broker or dealer 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 pereons 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 compli-

PUBLIC LAW 94-29—JUNE 4, 1975
ance 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 p a r a g r a p h , 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 ) I n addition to the fees and charges authorized by p a r a g r a p h
(7) of this subsection, each registered broker or dealer not a member
of a registered securities association shall pay to the Commission such
reasonable fees and charges as may be necessary to defray the costs of
the additional regulatory duties required to be performed by the Commission because such brokei- or dealer eifects transactions in securities
otherwise than on a national securities exchange of which it is a member and is not a member of a registered securities association. The
Commission, by rule, shall establish such fees and charges.
" (9) No broker or dealer subject to p a r a g r a p h (8) of this subsection
shall effect any transaction in, oi; induce the purchase or sale of, any
security (otherwise than on a national securities exchange of which it
is a member) in contravention of such rules and regulations as the
Commission may prescribe designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism of a free and open mai'ket and a national market system, and,
in gener-al, to protect investors and the public interest.
"(10) F o r the purposes of determining whether a person is subject
to a statutory disqualification under section 6(c) ( 2 ) , 15A(g) ( 2 ) , or
l 7 A ( b ) (4) ( B ) of this title, the term 'Commission' in p a r a g r a p h (4)
( B ) of this subsection shall mean 'exchange', 'association', or 'clearing
agency', respectively.".
(3) P a r a g r a p h s ( 1 ) , ( 2 ) , and (3) of subsection (c) thereof are
amended to read as follows:
" ( c ) ( 1 ) 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 t h a n commercial paper, bankers' acceptances, or
commercial bills) otherwise t h a n on a national securities exchange
of which it is a member by means of any manipulative, deceptive, or
other fraudulent device or contrivance, and no municipal securities
dealer shall make use of t h e 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 by means of
any manipulative, deceptive, or other fraudulent device or contrivance.
T h e Commission shall, for t h e purposes of t h i s p a r a g r a p h , by rules
and regulations define such devices or contrivances as are manipulative, deceptive, or otherwise fraudulent.
" (2) No broker or dealer shall make use of t h e 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 t h a n 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, and no
municipal securities dealer shall make use of the mails or any means

89 STAT. 125

Fees and charges.

Additional fees.

"Commission."
Ante, p. 104;
Post, pp. 127,
141.
15 u s e 78o.
Manipulative or
fraudulent
devices.

Manipulative or
fraudulent acts.

89 STAT. 126

15 u s e 78o.

15 u s e 78g.

PUBLIC LAW 94-29—JUNE 4, 1975
or instrumentality of interstate commerce to effect any transaction in,
or to induce or attempt to induce t h e 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. T h e Commission shall, for t h e purposes of this p a r a g r a p h , 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.
" ( 3 ) 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) in contravention of such rules and
regulations as t h e 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 customer's' deposits or credit balances, and ( B ) no later t h a n September 1,1975, establish minimum financial responsibility requirements
for all brokers and dealers.".
(4) P a r a g r a p h (5) of subsection (c) thereof is amended to read
as follows:
" ( 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. U n d e r the rules of the
Commission a dealer in a security may be prohibited from acting
as a broker in t h a t security.".
(5) Subsection (c) thereof is further amended by adding at the
end thereof the following new p a r a g r a p h :
" ( 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 t h e 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 p a r a g r a p h shall be
construed ( A ) to affect the authority of the Board of Governors of the
Federal Reserve System, pursuant to section 7 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.".

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 127

(6] The section is further amended by adding at the end thereof 15 USC 78o.
the following new subsection:
"(e) 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 section 15 of this title and any Ante, p. 121.
person associated with any such member to comply with any provision
of this title (other than section 15 (a)) 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.".
SEC. 12. Section 15A of the Securities Exchange Act of 1934 (15 Registered
securities
U.S.C. 78o-3) is amended as follows:
(1) The title thereof is amended to read: "REGISTERED SECURITIES associations.
ASSOCIATIONS".

(2) Subsections (a) and (b) thereof are amended to read as
follows:
"(a) An association of brokers and dealers may be registered as a
national securities association pursuant to subsection (b), or as an affiliated securities association pursuant to subsection (d), 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 Post, p. 146.
Commission an application for registration in such form as the Commission, by rule, may prescribe containing the rules of the association
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 association of brokers and dealers shall not be registered
as a national securities association unless the Commission determines
*
that—
•
"(1) By reason of the number and geographical distribution
of its members and the scope of their transactions, such association
will be able to carry out the purposes of this section.
"(2) Such association 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 Post, p. 137.
its members and persons associated with its members, with the
provisions of this title, the rules and regulations thereunder, the
rules of the Municipal Securities Rulemaking Board, and the
rules of the association.
"(3) Subject to the provisions of subsection (g) of this section,
the rules of the association provide that any registered broker or
dealer may become a member of such association and any person
may become associated with a member thereof.
"(4) The rules of the association 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 association, broker, or dealer.
"(5) The rules of the association provide for the equitable
allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system
which the association operates or controls.
" (6) The rules of the association 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

89 STAT. 128

Post, pp. 137,
146.

15 u s e 78o-3.

"Nonmember
professional."

PUBLIC LAW 94-29—JUNE 4, 1975
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, to fix minimum profits, to
impose any schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by its members, 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
association.
" ( 7 ) The rules of the association 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 any
provision of this title, the rules or regulations thereunder, the
rules of the Municipal Securities Rulemaking Board, or the rules
of the association, 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.
" ( 8 ) The rules of the association are in accordance with the
provisions of subsection (h) 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 b a r r i n g of any person from
becoming associated with a member thereof, and the prohibition
or limitation by the association of any person with respect to
access to services offered by the association or a member thereof.
" ( 9 ) The rules of the association do not impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of this title.
" (10) The requirements of subsection ( c ) , insofar as these may
be applicable, are satisfied.
" (11) T h e rules of the association include provisions governing
the form and content of quotations relating to securities sold
otherwise t h a n on a national securities exchange which may be
distributed or published by any member or person associated with
a member, 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.".
(3) T h e section is amended by striking out subsections ( e ) , ( f ) ,
( g ) , ( h ) , ( j ) , ( k ) , (1), and (n) thereof, redesignating subsections
(i) and (m) thereof as subsections (e) and ( f ) , respectively, and
amending redesignated subsection (e) to read as follows:
" ( e ) (1) The rules of a registered securities association may provide
t h a t no member thereof shall deal with any nonmember professional
(as defined in p a r a g r a p h (2) of this subsection) except at the same
prices, for the same commissions or fees, and on the same terms and
conditions as are by such member accorded to the general public.
" (2) F o r the purposes of this subsection, the term 'nonmember professional' shall include ( A ) with respect to transactions in securities
other than municipal securities, any registered broker or dealer who is
not a member of any registered securities association, except such a
broker or dealer who deals exclusively in commercial paper, bankers'
acceptances, and commercial bills, and ( B ) with respect to transactions in municipal securities, any municipal securities dealer (other
t h a n a bank or division or department of a laank) who is not a member

PUBLIC LAW 94-29—JUNE 4, 1975
of any registered securities association and any municipal securities
broker who is not a member of any such association,
" ( 3 ) Nothing in this subsection shall be so construed or applied
as to prevent ( A ) any member of a registered securities association
from g r a n t i n g to any other member of any registered securities association any dealer's discount, allowance, commission, or special terms,
in connection with the purchase or sale of securities, or ( B ) any member of a registered securities association or any municipal securities
dealer which is a bank or a division or department of a bank from
g r a n t i n g to any member of any registered securities association or any
such municipal securities dealer any dealer's discount, allowance, commission, or special terms in connection with the purchase or sale of
municipal securities: Provided, however, T h a t the g r a n t i n g of any
such discount, allowance, commission, or special terms in connection
with the purchase or sale of municipal securities shall be subject to
rules of the Municipal Securities Rulemaking Board adopted pursuant
to section 15B (b) (2) ( K ) of this title.".
(4) The section is further amended by adding at the end thereof the
following new subsections:
" ( g ) (1) A registered securities association shall deny membershij)
to any person who is not a registered broker or dealer.
" ( 2 ) A registered securities association 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, and bar from becoming associated with a member any person, who is subject to a statutory
disqualification. A registered securities association shall file notice
with the Commission not less t h a n t h i r t y days p r i o r to admitting any
registered broker or dealer to membership or permitting any person
to become associated with a member, if the association knew, or in the
exercise of reasonable care should have known, t h a t such broker or
dealer or person was subject to a statutory disqualification. T h e 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 registered securities association m a y 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 association or (ii) such broker or dealer
or person associated with such broker or dealer has engaged and there
is a reasonable likelihood he will again engage in acts or practices
inconsistent wnth just and equitable principles of trade. A registered
securities association m a y examine and verify the qualifications of
an applicant to become a member and the n a t u r a l persons associated
with such an applicant in accordance with procedures established by
the rules of the association.
" ( B ) A registered securities association may b a r a natural person
from becoming associated with a member or condition the 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 association or (ii) has engaged and there
is a reasonable likelihood he will again engage in acts or practices
inconsistent with just and equitable principles of trade. A registered
securities association may examine and verify the qualifications of an
applicant to become a person associated w^ith a member in accordance
with procedures established by the rules of the association and require

89 STAT. 129

Post, p. 131.
Membership
denial
15 u s e 78o-3.

Notice,

89 STAT. 130

Disciplinary
proceedings,
notice.

Statement.

Notice and
hearing.

Summary
suspension.

PUBLIC LAW 94-29—JUNE 4, 1975
a n a t u r a l person associated with a member, or any class of such natu r a l persons, to be registered with the association in accordance with
procedures so established.
" ( C ) A registered securities association may b a r any person from
becoming associated with a member if such person does not agree
(i) to supply the association with such information with respect to
its relationship and dealings with the member as may be specified in
the rules of the association and (ii) to permit examination of its books
and records to verify the accuracy of any information so supplied.
" ( 4 ) A registered securities association may deny membership to a
registered broker or dealer not engaged in a type of business in which
the rules of the association require members to be engaged: Provided^
however^ T h a t no registered securities association may deny membership to a registered broker or dealer by reason of the amount of such
type of business done by such broker or dealer or the other types of
business in which he is engaged.
" ( h ) (1) I n any proceeding by a registered securities association to
determine whether a member or person associated with a member
should be disciplined (other t h a n a summary proceeding pursuant to
p a r a g r a p h (3) of this subsection) the association shall b r i n g 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 association 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, t h e rules of the Municipal Securities Rulemaking
Board, or the rules of the association which any such act or practice, or omission to act, is deemed to violate; and
" ( C ) the sanction imposed and the reason therefor.
" ( 2 ) I n any proceeding by a registered securities association 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 association or a member
thereof (other t h a n a summary proceeding p u r s u a n t to p a r a g r a p h
(3) of this subsection), the association 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 association 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 association 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 registered securities association 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 t h a t the association determines and
so notifies the Commission t h a t the member cannot be permitted to
continue to do business as a member with safety to investors, creditors, other members, or the association, or (C) limit or prohibit any
person with respect to access to services offered by the association if
subparagraph ( A ) or ( B ) of this p a r a g r a p h is applicable to such
person or, in the case of a person who is not a member, if the associa-

PUBLIC LAW 94-29—JUNE 4, 1975
tion 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 association. Any person aggrieved
by any such summary action shall be promptly afforded an opportunity for a hearing by the association 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.".
SEC. 13. The Securities Exchange Act of 1934 is amended by inserting after section 15A (15 IJ.S.C. 78o-3) the following new section:
"MUNICIPAL

89 STAT. 131

Notice and
hearing.

SECURITIES

"SEC. 15B. (a) (1) It shall be unlawful for any municipal securities
dealer (other than one registered as a broker or dealer under section
15 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 title (other than section 5 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

Dealer
registration.
15 u s e 78o-4.
Ante, p. 121.

Application
filing.

15 u s e 78e.

89 STAT. 132

Exemption.

Municipal
Securities
Rulemaking
Board.
Establishment;
membership.
Term.

Rules.

PUBLIC LAW 94-29—JUNE 4, 1975
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)(1) Not later than one hundred twenty days after the date
of enactment of the Securities Acts Amendments of 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, at least one of Avhom
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 wdio 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 'brokerdealer 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 iiiitial 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 title with respect to transactions in municipal securities effected
by brokers, dealers, and municipal securities dealers. (Such rules are
hereinafter collectively referred to in this title 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 indiice 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 mimicipal 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;

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 133

"(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
membei-ship 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 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 member's 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
broker's or municipal security dealers, to regulate by virtue of any
authority conferred by this title matters not related to the purposes of this title or the securities or the administration of the
Board, or to impose any burden or competition not necessary or
appropriate in furtherance of the purposes of this title.
"(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 sectic
29 of this title.
15USC78CC.
" ( 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 title, 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

R7.1IU n . 77 . IS

89 STAT. 134

Recordkeeping.

Ante, p. 97.

Fees.

Use of mail or
instrumentality of
interstate
commerce,
prohibition.
Notice and
hearing.

PUBLIC LAW 94-29—JUNE 4, 1975
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 3(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 title, 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 title.
" (c) (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 omission

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 135

enumerated in subparagraph (A), (D), or (E) of paragraph (4) of
section 15 (b) of this title, has been convicted of any offense specified ^nte, p. 121
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 Registration,
this section shall be revoked, the Commission, by order, may suspend suspension.
such registration, if such suspension appears to the Commission, after Notice and
notice and opportunity for hearing, to be necessary or appropriate in hearing.
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, sihall censure any person associ- Censure.
ated, 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 Notice and
hearing, that such censure, suspension, or bar is in the public interest hearing.
and that such person has committed or omitted any act or omission
enumerated in subparagraph (A), (D), or (E) of paragraph (4) of
section 15(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). 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 8
of the Federal Deposit Insurance Act (12 U.S.C. 1818), enforce compliance by such municipal securities dealer or any person associated
with such municipal securities dealer with the provisions of this section, section 17 of this title, the rules of the Board, and the rules of the Post, p. 137.
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 8(b) or 8 (c) of the Federal Deposit Insurance

89 STAT. 136
12 use 1818.

Notice.

Ante, p. 121.

Tests.

Reports to
Commission.
Copies.

PUBLIC LAW 94-29—JUNE 4, 1975
Act, and the customers of any such municipal securities dealer shall
be deemed to be 'depositors' as that term is used in section 8(c) of
that Act. 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 15(c) (1)
or 15(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 and the nature of and basis for such proposed
action and (iij consult with such appropriate regulatory agency concerning the enect 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 title 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

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 137

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 17(c) (3) of this title.
Infra.
"(8) The Commission is authorized, by order, if in its opinion such Board members
action is necessary or appropriate in the public interest, for the pro- or employees,
tection of investors, or otherwise, in furtherance of the purposes of this removal or
title, to remove from office or censure any member or employee of the censure.
Notice and
Board, who, the Commission finds, on the record after notice and hearing.
opportunity for hearing, has willfully (A) violated any provision of
this title, the rules and regulations thereunder, or the rules of the
Board or (B) abused his authority.
"(d) (1) Neither the Commission nor the Board is authorized under
this title, 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 title 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 title."
S E C 14. Section 17 of the Securities Exchange Act of 1934 (15 Recordkeeping
U.S.C. 78q) is amended by striking subsection (a), redesignating
subsection (b) as subsection (g), and inserting the following as subsections (a), (b), (c), (d), (e), and (f) :
"(a) (1) Every national securities exchange, member thereof, broker
or dealer who transacts a business in securities through the medium
of any such member, registered securities association, registered
broker or dealer, registered municipal securities dealer, registered
securities information processor, registered transfer agent, and registered clearing agency and the Municipal Securities Rulemaking Board
shall make and keep for prescribed periods such records, furnish such
copies thereof, and make and disseminate such reports as the Commission, by rule, prescribes as necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of this title.
"(2) Every registered clearing agency shall also make and keep
for prescribed periods such records, furnish such copies thereof, and
make and disseminate such reports, as the appropriate regulatory
agency for such clearing agency, by rule, prescribes as necessary or
appropriate for the safeguarding of securities and funds in the custody or control of such clearing agency or for which it is responsible.
"(3) Every registered transfer agent shall also make and keep for Copies.
prescribed periods such records, furnish such copies thereof, and make

89 STAT. 138

Post, p. 141.
Records, periodic
examination.

Notice.

Ante, p. 97.
Post, p. 146.

Report of
examination.

PUBLIC LAW 94-29—JUNE 4, 1975
such reports as the appropriate regulatory agency for such transfer
agent, by rule, prescribes as necessary or appropriate in furtherance
of the purposes of section 17A of this title.
"(b) All records of persons described in subsection (a) of this section are subject at any time, or from time to time, to such reasonable
periodic, special, or other examinations by representatives of the Commission and the appropriate regulatory agency for such persons as
the Commission or the appropriate regulatory agency for such persons
deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this
title: Pro'vided^ JKnoever^ That the Commission shall, prior to conducting any such examination of a registered clearing agency, registered transfer agent, or registered municipal securities dealer for
which it is not the appropriate regulatory agency, give notice to the
appropriate regulatory agency for such clearing agency, transfer
agent, or municipal securities dealer of such proposed examination
and consult with such appropriate regulatory agency concerning
the feasibility and desirability of coordinating such examination with
examinations conducted by such appropriate regulatory agency with
a view to avoiding unnecessary regulatory duplication or imdue regulatory burdens for such clearing agency, transfer agent, or municipal
securities dealer. Nothing in the proviso to the preceding sentence
shall be construed to impair or limit (other than by the requirement
of prior consultation) the power of the Commission under this subsection to examine any clearing agency, transfer agent, or municipal
securities dealer or to affect in any way the power of the Commission
under any other provision of this title or otherwise to inspect, examine,
or investigate any such clearing agency, transfer agent, or municipal
securities dealer.
"(c) (1) Every clearing agency, transfer agent, and municipal securities dealer for which the Commission is not the appropriate regulatory agency shall (A) file with the appropriate regulatory agency for
such clearing agency, transfer agent, or municipal securities dealer a
copy of any application, notice, proposal, report, or document filed
with the Commission by reason of its being a clearing agency, transfer
agent, or municipal securities dealer and (B) file wnth the Commission
a copy of any application, notice, proposal, report, or document filed
with such appropriate regulatory agency by reason of its being a
clearing agency, transfer agent, or municipal securities dealer. The
Municipal Securities Rulemaking Board shall file with each agency
enumerated in section 3(a) (34) (A) of this title copies of every proposed rule change filed with the Commission pursuant to section 19(b)
of this title.
"(2) The appropriate regulatory agency for a clearing agency,
transfer agent, or municipal securities dealer for which the Commission is not the appropriate regulatory agency shall file with the Commission notice of the commencement of any proceeding and a copy of
any order entered by such appropriate regulatory agency against such
clearing agency, transfer agent, or municipal securities dealer, and
the Commission shall file with such appropriate regulatory agency
notice of the commencement of any proceeding and a copy of any
order entered by the Commission against such clearing agency, transfer agent, or municipal securities dealer.
"(3) The Commission and the appropriate regulatory agency for a
clearing agency, transfer agent, or municipal securities dealer for
which the Commission is not the appropriate regulatory agency shall
each notify the other and make a report of any examination conducted
by it of such clearing agency, transfer agent, or municipal securities

PUBLIC LAW 94^29—JUNE 4, 1975
dealer, and, upon request, furnish to the other a copy of such report
and any data supplied to it in connection with such examination.
"(d) (1) The Commission, by rule or order, as it deems necessary
or appropriate in the public interest and for the protection of investors, to foster cooperation and coordination among self-regulatory
organizations, or to remove impediments to and foster the development of a national market system and national system for the clearance and settlement of securities transactions, may—
" (A) with respect to any person who is a member of or participant in more than one self-regulatory organization, relieve any
such self-regulatory organization of any responsibility under this
title (i) to receive regulatory reports from such person, (ii) to
examine such person for compliance, or to enforce compliance by
such person, with specified provisions of this title, the rules and
regulations thereunder, and its own rules, or (iii) to carry out
other specified regulatory functions with respect to such person,
and
"(B) allocate among self-regulatory organizations the authority to adopt rules with respect to mattere as to which, in the
absence of such allocation, such self-regulatory organizations
share authority under this title.
In making any such rule or entering any such order, the Commission
shall take into consideration the regulatory capabilities and procedures
of the self-regulatory organizations, availability of staff, convenience
of location, unnecessary regulatory duplication, and such other factors
as the Commission may consider germane to the protection of investors,
cooperation and coordination among self-regulatory organizations,
and the development of a national market system and a national
system for the clearance and settlement of securities transactions.
The Commission, by rule or order, as it deems necessary or appropriate
in the public interest and for the protection of investors, may require
any self-regulatory organization relieved of any responsibility pursuant to this paragraph, and any person with respect to whom such
responsibility relates, to take such steps as are specified in any such
rule or order to notify customers of, and persons doing business with,
such pereon of the limited nature of such self-regulatory organization's responsibility for such person's acts, practices, and course of
business.
"(2) A self-regulatory organization shall furnish copies of any
report of examination of any person who is a member of or a participant in such self-regulatory organization to any other self-regulatory organization of which such person is a member or in which such
person is a participant upon the request of such person, such other
self-regulatory organization, or the Commission.
"(e) (1) (A) Every registered broker or dealer shall annually file
with the Commission a balance sheet and income statement certified
by an independent public accountant, prepared on a calendar or fiscal
year basis, and such other financial statements (which shall, as the
Commission specifies, be certified) and information concerning its
financial condition as the Commission, by rule may prescribe as necessary or appropriate in the public interest or for the protection of
investors.
"(B) Every registered broker and dealer shall annually send to its
customers its certified balance sheet and such other financial statements and information concerning its financial condition as the Commission, by rule, may prescribe pursuant to subsection (a) of this
section.

89 STAT. 139

Self-regulatoiy
organizations.

Filing of balance
sheet and income
statement.

Financial
statements to
customers.

89 STAT. 140
Exem]>tion.

Missing, lost,
counterfeit, or
stolen securities,
reporting.

Fingerprints,
submittal to
Attorney
General.
Exemption.

National Crime
Information
Center facilities.

Delegation of
authority.

PUBLIC LAW 94-29—JUNE 4, 1975
"(C) The Commission, by rule or order, may conditionally or
unconditionally exempt any registered broker or dealer, or class of
such brokers or dealers, from any provision of this paragraph if the
Commission determines that such exemption is consistent with the
public interest and the protection of investors.
"(2) The Commission, by rule, as it deems necessary or appropriate
in the public interest or for the protection of investors, may prescribe
the form and content of financial statements filed pursuant to this title
and the accounting principles and accounting standards used in their
preparation.
"(f) (1) Every national securities exchange, member thereof, registered securities association, broker, dealer, municipal securities dealer,
registered transfer agent, registered clearing agency, participant
tlierein, member of the Federal Reserve System, and bank whose
deposits are insured by the Federal Deposit Insurance Corporation
shall—
"(A) report to the Commission or other person designated by
the Commission such information about missing, lost, counterfeit,
or stolen securities, in such form and within such time as the Commission, by rule, determines is necessary or appropriate in the public interest or for the protection of investors; such information
shall be available on request for a reasonable fee, to any such
exchange, member, association, broker, dealer, municipal securities
deader, transfer agent, clearing agency, participant, member of
the Federal Reserve System, or insured bank, and such other persons as the Commission, by rule, designates; and
"(B) make such inquiry with respect to information reported
pursuant to this subsection as the Commission, by rule, prescribes
as necessary or appropriate in the public interest or for the protection of investors, to determine whether securities in their custody or control, for which they are responsible, or in which
they are effecting, clearing, or settling a transaction have been
reported as missing, lost, counterfeit, or stolen.
" (2) Every member of a national securities exchange, broker, dealer,
registered transfer agent, and registered clearing agency, shall require
that each of its partners, directors, officers, and employees be fingerprinted and shall submit such fingerprints, or cause the same to be
submitted, to the Attorney General of the United States for identification and appropriate processing. The Commission, by rule, may
exempt from the provisions of this paragraph upon specified terms,
conditions, and periods, any class of partners, directors, officers, or
employees of any such member, broker, dealer, transfer agent, or
clearing agency, if the Commission finds that such action is not inconsistent with the public interest or the protection of investors.
"(3) In order to carry out the authority under paragraphs (1) and
(2) above, the Commission or its designee may enter into agreement
with the Attorney General to use the facilities of the National Crime
Information Center ("NCIC") to receive, store, and disseminate information in regard to missing, lost, counterfeit, or stolen securities and
to permit direct inquiry access to NCIC's file on such securities for
the financial community.
"(4) In regard to paragraphs (1), (2), and (3), above insofar
as such paragraphs apply to any bank or member of the Federal
Reserve System, the Commission may delegate its authority to:
"(A) the Comptroller of the Currency as to national banks
and banks operating under the Code of Law for the District of
Columbia;
"(B) the Federal Reserve Board in regard to any member of
the Federal Reserve System which is not a national bank or a

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 141

bank operating under the Code of Law for the District of Cokimbia; and
"(C) the Federal Deposit Insurance Corporation for any State
bank which is insured by the Federal Deposit Insurance Corporation but which is not a member of the Federal Reserve
System.
"(5) The Commission shall encourage the insurance industry to
require their insured to report expeditiously instances of missing, lost,
counterfeit, or stolen securities to the Commission or to such other
person as the Commission may, by ru^.e, designate to receive such
information.".
SEC. 15. The Securities Exchange Act of 1934 is amended by inserting after section 17 (15 U.S.C. 78q) the following new section:
" N A T I O N A L S Y S T E M FOR C L E A R A N C E A N D S E T T L E M E N T o r SECURITIES

TRANSACTIONS

"SEC. 17A. (a)(1) The Congress finds that—
15 USC 78q.l.
"(A) The prompt and accurate clearance and settlement of
securities transactions, including the transfer of record ownership
and the safeguarding of securities and funds related thereto, are
necessary for the protection of investors and persons facilitating
transactions by and acting on behalf of investors.
"(B) Inefficient procedures for clearance and settlement impose
unnecessary costs on investors and persons facilitating transactions by and acting on behalf of mvesitors.
" ( C j New data processing and communications techniques
create the opportunity for more efficient, effective, and safe procedures for clearance and settlement.
"(D) The linking of all clearance and settlement facilities and
the development of uniform standards and procedures for clearance and settlement will reduce unnecessary costs and increase
the protection of investors and persons facilitating transactions
by and acting on behalf of investors.
"(2) The Commission is directed, therefore, having due regard for
the public interest, the protection of investors, the safeguarding of
securities and funds, and maintenance of fair competition among
brokers and dealers, clearing agencies, and transfer agents, to use its
authority under this title to facilitate the establishment of a national
system for the prompt and accurate clearance and settlement of transactions in securities (other than exempted securities) in accordance
with the findings and to carry out the objectives set forth in paragraph (1) of this subsection. The Commission shall use its authority
under this title to assure equal regulation under this title of registered
clearing agencies and registered transfer agents.
"(b)(1) Except as otherwise provided in this section, it shall be Mails or
unlawful for any clearing agency, unless registered in accordance instrumentality of
with this subsection, directly or indirectly, to make use of the mails interstate
or any means or instrumentality of interstate commerce to perform commerce,
the functions of a clearing agency with respect to any security (other prohibition, use.
than an exempted security). The Commission, by rule or order, upon Exemption
its own motion or upon application, may conditionally or unconditionally exempt any clearing agency or security or any class of clearing agencies or securities from any provisions 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, including the prompt and
accurate clearance and settlement of securities transactions and the
safeguarding of securities and funds. A clearing agency or transfer

89 STAT. 142

Post, p. 146.

Registration
requirements.

Ante, p. 137.
Post, p. 146.

PUBLIC LAW 94-29—JUNE 4, 1975
agent shall not perform the functions of both a clearing agency and a
transfer agent unless such clearing agency or transfer agent is registered in accordance with this subsection and subsection (c) of this
section.
" (2) A clearing agency may be registered under the terms and conditions hereinafter provided in this subsection 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 clearing agency and
such other information and documents as the Commission, by rule,
may prescribe as necessary or appropriate in the public interest or for
the prompt and accurate clearance and settlement of securities transactions.
"(3) A clearing agency shall not be registered unless the Commission determines that—
"(A) Such clearing agency is so organized and has the capacity to be able to facilitate the prompt and accurate clearance and
settlement of securities transactions for which it is responsible, to
safeguard securities and funds in its custody or control or for
which it is responsible, to comply with the provisions of this title
and the rules and regulations thereunder, to enforce (subject to
any rule or order of the Commission pursuant to section 17(d) or
19(g)(2) of this title) compliance by its participants with the
rules of the clearing agency, and to carry out the purposes of this
section.
"(B) Subject to the provisions of paragraph (4) of this subsection, the rules of the clearing agency provide that any (i) registered broker or dealer, (ii) other registered clearing agency, (iii)
registered investment company, (iv) bank, (v) insurance company, or (vi) other person or class of persons as the Commission, by rule, may from time to time designate as appropriate
to the development of a national system for the prompt and
accurate clearance and settlement of securities transactions may
become a participant in such clearing agency.
"(C) The rules of the clearing agency assure a fair representation of its shareholders (or members) and participants in the selection of its directors and administration of its affairs. (The
Commission may determine that the representation of participants is fair if they are afforded a reasonable opportunity to
acquire voting stock of the clearing agency, directly or indirectly,
in reasonable proportion to their use of such clearing agency.)
"(D) The rules of the clearing agency provide for the equitable
allocation of reasonable dues, fees, and other charges among its
participants.
" ( E ) The rules of the clearing agency do not impose any schedule of prices, or fix rates or other fees, for services rendered by its
participants.
" ( F ) The rules of the clearing agency are designed to promote
the prompt and accurate clearance and settlement of securities
transactions, to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for
which it is responsible, to foster cooperation and coordination with
persons engaged in the clearance and settlement of securities transactions, to remove impediments to and perfect the mechanism of
a national system for the prompt and accurate clearance and settlement of securities transactions, and, in general, to protect
investors and the f)ublic interest; and are not designed to permit
unfair discrimination in the admission of participants or among

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 143

participants in the use of the clearing agency, or to regulate by
virtue of any authority conferred by this title matters not related
to the purposes of this section or the administration of the clearing agency.
"(G) The rules of the clearing agency provide that (subject
to any rule or order of the Commission pursuant to section 17(d) •^"•^^' P- 137.
or 19(g) (2) of this title) its participants shall be appropriately Post, p. 146.
disciplined for violation of any provision of the rules of the clearing agency by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, or any other fitting sanction.
" ( H ) The rules of the clearing agency are in accordance with
the provis'ons of paragraph (5) of this subsection, and, in general,
provide a fair procedure with respect to the disciplining of participants, the denial of participation to any person seeking participation therein, and the prohibition or limitation by the
clearing agency of any person with respect to access to services
offered by the clearing agency.
" ( I ) The rules of the clearing agency do not impose any burden on competition not necessary or appropriate in furtherance
of the purposes of this title.
"(4) (A) A registered clearing agency may, and in cases in which Denial of
the Commission, by order, directs as appropriate in the public interest participation.
shall, deny participation to any person subject to a statutory disqualification. A registered clearing agency shall file notice with the Notice.
Commission not less than thirty days prior to admitting any person
to participation, if the clearing agency 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.
"(B) A registered clearing agency may deny participation to, or
condition the participation of, any person if such person does not
meet such standards of financial responsibility, operational capability, experience, and competence as are prescribed by the rules of
the clearing agency. A registered clearing agency may examine and Examination and
verify the qualifications of an applicant to be a participant in accord- verification.
ance with procedures established by the rules of the clearing agency.
"(5) (A) In any proceeding by a registered clearing agency to Notice.
determine whether a participant should be disciplined (other than
a summary proceeding pursuant to subparagraph (C) of this paragraph), the clearing agency shall bring specific charges, notify such
participant of, and give him an opportunity to defend against such
charges, and keep a record. A determination by the clearing agency
to impose a disciplinary sanction shall be supported by a statement
setting forth—
"(i) any act or practice in which such participant has been
found to have engaged, or which such participant has been found
to have omitted;
"(ii) the specific provisions of the rules of the clearing agency
which any such act or practice, or omission to act, is deemed to
violate; and
"(iii) the sanction imposed and the reasons therefor.
"(B) In any proceeding by a registered clearing agency to deter- Notice and
mine whether a person shall be denied participation or prohibited or hearing,
limited with respect to access to services offered by the clearing
agency, the clearing agency shall notify such person of, and give him
an opportunity to be heard upon, the specific grounds for denial or

89 STAT. 144

Summary
suspension.

Hearing.

Stay of
suspension.

Use of mails or
instrumentality of
interstate
commerce,
prohibition.

15 use 78/.

Transfer agents
registration.

Denial.
Notice and
hearing.

PUBLIC LAW 94-29—JUNE 4, 1975
prohibition or limitation under consideration and keep a record. A
determination by the clearing agency to deny participation or prohibit or limit a person with respect to access to services offered by
the clearing agency shall be supported by a statement setting forth
the specific grounds on which the denial or prohibition or limitation
is based.
"(C) A registered clearing agency may summarily suspend and
close the accounts of a participant who (i) has been and is expelled
or suspended from any self-regulatory organization, (ii) is in default
of any delivery of funds or securities to the clearing agency, or (iii)
is in such financial or operating difficulty that the clearing agency
determines and so notifies the appropriate regulatory agency for sucn
participant that such suspension and closing of accounts are necessary for the protection of the clearing agency, its participants,
creditors, or investors. A participant so summarily suspended shall
be promptly afforded an opportunity for a hearing by the clearing
agency in accordance with the provisions of subparagraph (A) of
this paragraph. The appropriate regulatory agency for such participant, by order, may stay any such summary suspension on its own
motion or upon application by any person aggrieved thereby, if such
appropriate regulatory agency 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 protection of
investors.
" (6) No registered clearing agency shall prohibit or limit access by
any person to services offered by any participant therein.
"(c)(1) Except as otherwise provided in this section, it shall be
unlawful for any transfer agent, unless registered in accordance with
this section, directly or indirectly, to make use of the mails or any
means or instrumentality of interstate commerce to perform the function of a transfer agent with respect to any security registered under
section 12 of this title or which would be required to be registered
except for the exemption from registration provided by subsection
(g) (2) (B) or (g) (2) (G) of that section. The appropriate regulatory
agency, by rule or order, upon its own motion or upon application,
may conditionally or unconditionally exempt any person or security
or class of persons or securities from any provision of this section or
any rule or regulation prescribed under this section, if the appropriate
regulatory agency finds (A) that such exemption is in the public
interest and consistent with the protection of investors and the purposes of this section, including the prompt and accurate clearance and
settlement of securities transactions and the safeguarding of securities
and funds, and (B) the Commission does not object to such exemption.
"(2) A transfer agent may be registered by filing with the appropriate regulatory agency for such transfer agent an application for
registration in such form and containing such information and documents concerning such transfer agent as such appropriate regulatory
agency may prescribe as necessary or appropriate in furtherance of the
purposes of this section. Except as hereinafter provided, such registration shall become effective thirty days after receipt of such application
by such appropriate regulatory agency or within such shorter period
of time as such appropriate regulatory agency may determine.
"(3) (A) The appropriate regulatory agency for a transfer agent,
by order, shall deny registration to, censure, place limitations on the
activities, functions, or operations of, suspend for a period not exceeding twelve months, or revoke the registration of such transfer agent,
if such appropriate regulatory agency finds, on the record after notice

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 145

and opportunity for hearing, that such denial, censure, placing of
limitations, suspension, or revocation is in the public interest and that
such transfer agent has willfully violated or is unable to comply with
any provision of this section or section 17 of this title or the rules or Ante, p. 137.
regulations thereunder.
"(B) Pending final determination whether any registration by a Notice and
transfer agent under this subsection shall be denied, the appropriate hearing.
regulatory agency for such transfer agent, by order, may postpone
the effective date of such registi-ation for a period not to exceed fifteen
days, but if, after notice and opportunity for hearing (which may
consist solely of affidavits and oral arguments), it shall appear to such
appropriate regulatory agency to be necessary or appropriate in the
public interest or for the protection of in\ ostors to postpone the effective date of such registration until final determination, such appropriate regulatory agency shall so order. Pending final determination Notice and
whether any registration under this subsection shall be revoked, such hearing.
appropriate regulatory agency, by order, may suspend such registration, if such suspension appears to such appropriate regulatory agency,
after notice and opportunity for hearing, to be necessary or appropriate in the public interest or for the protection of investors.
"(C) A registered transfer agent may, upon such terms and con- Notice of
ditions as the appropriate regulatory agency for such transfer agent withdrawal.
deems necessary or appropriate in the public interest, for the protection of investors, or in furtherance of the purposes of this section,
withdraw from registration by filing a written notice of withdrawal
with such appropriate regulatory agency. If such appropriate regulatory agency finds that any transfer agent for which it is the appropriate regulatory agency, is no longer in existence or has ceased to do
business as a transfer agent, such appropriate regulatory agency, by
order, shall cancel or deny the registration.
"(d) (1) No registered clearing agency or registered transfer agent
shall, directly or indirectly, engage in any activity as clearing agency
or transfer a^ent in contravention of such rules and regulations (A)
as the Commission may prescribe as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, or (B) as the appropriate regulatory
agency for such clearing agency or transfer agent may prescribe as
necessary or appropriate for the safeguarding of securities and funds.
" (2) With respect to any clearing agency or transfer agent for which
the Commission is not the appropriate regulatory agency, the appropriate regulatory agency for such clearing agency or transfer agent
may, in accordance with section 8 of the Federal Deposit Insurance Act
(12 U.S.C. 1818), enforce compliance by such clearing agency or transfer agent with the provisions of this section, sections 17 and 19 of this Post, p. 146.
title, and the rules and regulations thereunder. For purposes of the
preceding sentence, any violation of any such provision shall constitute adequate basis for the issuance of an order under section 8(b) or
8(c) of the Federal Deposit Insurance Act, and the participants in
any such clearing agency and the persons doing business with any
such transfer agent shall be deemed to be 'depositors' as that term is
used in section 8 (c) of that Act.
"(3) (A) With respect to any clearing agency or transfer agent for Consultation,
which the Commission is not the appropriate regulatory agency, the
Commission and the appropriate regulatory agency for such clearing
agency or transfer agent shall consult and cooperate with each other,
and, as may be appropriate, with State banking authorities having
supervision over such clearing agency or transfer agent toward the end
that, to the maximum extent practicable, theiir respective regulatory

89 STAT. 146

Ante, p. 137.
^'ifra.

PUBLIC LAW 94-29—JUNE 4, 1975
responsibilities may be fulfilled and the rules and regulations applicable to such clearing agency or transfer agent may be in accord
with both sound banking practices and a national system for the
prompt and accurate clearance and settlement of securities transactions. I n accordance with this objective—
"(i) the Commission and such appropriate regulatory agency
shall, at least fifteen days prior to the issuance for public comment of any proposed rule or regulation or adoption of any rule
or regulation concerning such clearing agency or transfer agent,
consult and request the views of the other; and
"(ii) such appropriate regulatory agency shall assume primary
responsibility to examine and enforce compliance by such clearing
agency or transfer agent with the provisions of this section and sections 17 and 19 of this title.
" ( B ) Nothing in the preceding subparagraph or elsewhere in this
title shall be construed to impair or limit (other than by the requirement of notification) the Commission's authority to make rules under
any provision of this title or to enforce compliance pursuant to any
provision of this title by any clearing agency or transfer agent with the
provisions of this title and the rules and regulations thereunder.
" (4) Nothing in this section shall be construed to impair the authority of any State banking authority or other State or Federal regulatory authority having jurisdiction over a person registered as a clearing agency or transfer agent to make and enforce rules governing such
person which are not inconsistent with this title and the rules and
regulations thereunder.
"(e) The Commission shall use its authority under this title to end
the physical movement of securities certificates in connection with the
settlement among brokers and dealers of transactions in securities consummated by means of the mails or any means or instrumentalities
of interstate commerce.".
SEC. 16. Section 19 of the Securities Exchange Act of 1934 (15
U.S.C. 78s) is amended to read as follows:
'REGISTRATION, RESPONSIBILITIES, AND OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS

Notice of filing.

Ante, pp. 104,
127, 141.

Notice and
hearing.

Extension.

"SEC. 19. (a) (1) The Commission shall, upon the filing of an application for registration as a national securities exchange, registered
securities association, or registered clearing agency, pursuant to section 6, 15A, or 17A of this title, respectively, publish notice of such
filing and afford interested persons an opportunity to submit written
data, views, and arguments concerning such application. Within ninety
days of the date of publication of such notice (or within such longer
period as to which the applicant consents), the Commission shall—
" (A) by order grant such 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 eighty days of the
date of a publication of notice 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 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 it finds that the
requirements of this title and the rules and regulations thereunder

PUBLIC LAW 94-29—JUNE 4, 1975
with respect to the applicant are satisfied. The Commission shall deny
•such registration if it does not make such finding.
"(2) With respect to an application for registration filed by a
clearing agency for which the Commission is not the appropriate
regulatory agency—
"(A) The Commission shall not grant registration prior to
the sixtieth day after the date of publication of notice of the filing
of such application unless the appropriate regulatory agency for
such clearing agency has notified the Commission of such appropriate regulatory agency's determination that such clearing
agency is so organized and has the capacity to be able to safeguard securities and funds in its custody or control or for which
it is responsible and that the rules of such clearing agency are
designed to assure the safeguarding of such securities and funds.
"(B) The Commission shall institute proceedings in accordance with paragraph (1) (B) of this subsection to determine
whether registration should be denied if the appropriate regulatory agency for such clearing agency notifies the Commisison
within sixty days of the date of publication of notice of the filing
of such application of such appropriate regulatory agency's (i)
determination that such clearing agency may not be so organized
or have the capacity to be able to safeguard securities or funds
in its custody or control or for which it is responsible or that
the rules of such clearing agency may not be designed to assure
the safeguarding of such securities and funds and (ii) reasons
for such determination.
"(C) The Commission shall deny registration if the appropriate
regulatory agency for such clearing agency notifies the Commission prior to the conclusion of proceedings instituted in
accordance with paragraph (1) (B) of this subsection of such
appropriate regulatory agency's (i) determination that such clearing agency is not so organized or does not have the capacity to be
able to safeguard securities or funds in its custody or control or
for which it is responsible or that the rules of such clearing
agency are not designed to assure the safeguarding of such
securities or funds and (ii) reasons for such determination.
"(3) A self-regulatory organization may, upon such terms and
conditions as the Commission, by rule, 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 self-regulatory organization is no longer in existence or has ceased to do business in the capacity
specified in its application for registration, the Commission, by
order, shall cancel its registration. Upon the withdrawal of a national
securities association from registration or the cancellation, suspension, or revocation of the registration of a national securities association, the registration of any association affiliated therewith shall
automatically terminate,
"(b) (1) Each self-regulatory organization shall file with the Commission, in accordance with such rules as the Commission may prescribe, copies of any proposed rule or any proposed change in, addition
to, or deletion from the rules of such self-regulatory organization
(hereinafter in this subsection collectively referred to as a 'proposed
rule change') accompanied by a concise general statement of the basis
and purpose of such proposed rule change. The Commission shall,
upon the filing of any proposed rule change, publish notice thereof
together with the terms of substance of the proposed rule change or
a description of the subjects and issues involved. The Commission

89 STAT. 147

Withdrawal from
registration.

Affiliate
registration,
termination.

Proposed rule
change, filing.

Notice.

89 STAT. 148

Notice and
hearing.

Approval.
Disapproval.

PUBLIC LAW 94-29—JUNE 4, 1975
shall give interested persons an opportunity to submit written data,
views, and arguments concerning such proposed rule change. No proposed rule change shall take effect unless approved by the Commission
or otherwise permitted in accordance with the provisions of this
subsection.
"(2) Within thirty-five days of the date of publication of notice of
the filing of a proposed rule change in accordance with paragraph
(1) of this subsection, or within such longer period as the Commission
may designate up to ninety days of such date if it finds such longer
period to be appropriate and publishes its reasons for so finding or as
to which the self-regulatory organization consents, the Commission
shall—
" (A) by order approve such proposed rule change, or
"(B) institute proceedings to determine whether the proposed
rule change should be disapproved. Such proceedings shall include
notice of the grounds for disapproval under consideration and
opportunity for hearing and be concluded within one hundred
eighty days of the date of publication of notice of the filing of the
proposed rule change. At the conclusion of such proceedings the
Commission, by order, shall approve or disapprove such proposed rule change. The Commission may extend the time for conclusion of such proceedings for up to sixty 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 self-regulatory organization consents.
The Commission shall approve a proposed rule change of a selfregulatory organization if it finds that such proposed rule change is
consistent witli the requirements of this title and the rules and regulations thereunder applicable to such organization. The Commission
shall disapprove a proposed rule change of a self-regulatory organization if it does not make such finding. The Commission shall not
approve any proposed rule change prior to the thirtieth day after the
date of publication of notice of the filing thereof, unless the Commission finds good cause for so doing and publishes its reasons for so
finding.
"(3) (A) Notwithstanding the provisions of paragraph (2) of this
subsection, a proposed rule change may take effect upon filing with
the Commission if designated by the self-regulatory organization as
(i) constituting a stated policy, practice, or interpretation with respect
to the meaning, administration, or enforcement of an existing rule of
the self-regulatory organization, (ii) establishing or changing a due,
fee, or other charge imposed by the self-regulatory organization, or
(iii) concerned solely with the administration of the self-regulatory
organization or other matters which the Commission, by rule, consistent with the public interest and the purposes of this subsection, may
specify as without the provisions of such paragraph (2).
"(B) Notwithstanding any other provision of this subsection, a
proposed rule change may be put into effect summarily if it appears to
the Commission that such action is necessary for the protection of
investors, the maintenance of fair and orderly markets, or the safeguarding of securities or funds. Any proposed rule change so put into
effect shall be filed promptly thereafter in accordance with the provisions of paragraph (1) of this subsection.
"(C) Any proposed rule change of a self-regulatory organization
which has taken effect pursuant to subparagraph (A) or (B) of this
paragraph may be enforced by such organization to the extent it is not
inconsistent with the provisions of this title, the rules and regulations
thereunder, and applicable Federal and State law. At any time within
sixty days of the date of filing of such a proposed rule change in

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 149

accordance with the provisions of paragraph (1) of this subsection,
the Commission summarily may abrogate the change in the rules of the
self-regulatory organization made thereby and require that the proposed rule change be refiled in accordance with the provisions of
paragraph (1) of this subsection and reviewed in accordance with the
provisions of paragraph (2) of this subsection, if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of this title. Commission action pursuant to the preceding sentence shall not affect the validity or force of the rule change
during the period it was in effect and shall not be reviewable under
section 25 of this title nor deemed to be 'final agency action' for pur- Post, p. 158.
poses of section 704 of title 5, United States Code.
"(4) With respect to a proposed rule change filed by a registered
clearing agency for w^hich the Commission is not the appropriate
regulatory agency—•
"(A) The Commission shall not approve any such proposed
rule change prior to the thirtieth day after the date of publication
of notice of the filing thereof unless the appropriate regulatory
agency for such clearing agency has notified the Commission of
such appropriate regulatory agency's determination that the proposed rule change is consistent with the safeguarding of securities
and funds in the custody or control of such clearing agency or for
which it is responsible.
"(B) The Commission shall institute proceedings in accordance
with paragraph (2) (B) of this subsection to determine whether
any such proposed rule change should be disapproved, if the
appropriate regulatory agency for such clearing agency notifies
the Commission within thirty days of the date of publication of
notice of the filing of the proposed rule change of such appropriate regulatory agency's (i) determination that the proposed
rule change may be inconsistent with the safeguarding of securities or funds in the custody or control of such clearing agencv
or for which it is responsible and (ii) reasons for such
determination.
"(C) The Commission shall disapprove any such proposed rule
change if the appropriate regulatory agency for such clearing
agency notifies the Commission prior to the conclusion of proceedings instituted in accordance with paragraph (2) (B) of this
subsection of such appropiiate i-egulatory agency's (i) determination that the proposed rule change is inconsistent wnth the
safeguarding of securities or funds in the custodv or control of
such clearing agency or for which it is responsible and (ii) reasons for such determination.
"(D) The Commission shall abrogate any change in the rules
of such a clearing agency made by a proposed rule change which
has taken effect pursuant to paragraph (3) of this subsection,
require that the proposed rule change be refiled in 'accordance
with the provisions of paragraph (1) of this subsection, and
reviewed in accordance 'with the provisions of paragraph (2) of
this subsection, if the appropriate regulatory agency for such
clearing agency notifies the Commission within thirty days of the
date of filing of such proposed rule change of such appropriate
regulatory agency's (i) determination that the rules of such clearing agency as so changed may be inconsistent with the safeguarding of securities or funds in the custody or control of such clearing
agency or for which it is responsible and (ii) reasons for such
determination.

S7.104 n - 77 - 14

89 STAT. 150

Publication in
Federal Register.

Self-regulatory
organizations,
final disciplinary
sanction, notice.

PUBLIC LAW 94-29—JUNE 4, 1975
"(c) The Commission, by rule, may abrogate, add to, and delete
from (hereinafter in this subsection collectively referred to as 'amend')
the rules of a self-regulatoiy organization (oither than a registered
clearing agency) as the Commission deems necessary or appropriate
to insure the fair administration of the self-regulatory organization,
to conform its rules to requirements of this title and the rules and
regulations thereunder applicable to such organization, or otherwise
in furtherance of the purposes of this title, in the following manner:
"(1) The Commission shall notify the self-regulatory organization and publish notice of the proposed rulemaking in the Federal Register. The notice shall include the text of the proposed
amendment to the rules of the self-regulatory organization and a
statement of the Commission's reasons, including any pertinent
facts, for commencing such proposed rulemaking.
"(2) The Commission shall give interested persons an opportunity for the oral presentation of data, views, and arguments, in
addition to an opportunity to make written submissions. A transcript shall be kept of any oral presentation.
"(3) A rule adopted pui'suant to this subsection shall incorporate the text of the amendment to the rules of the self-regulatory
organization and a statement of the Commission's basis for and
purpose in so amending such I'ules. This statement shall include
an identification of any facts on which the Commission considers
its determination so to amend the i"ules of the self-regulatory
agency to be based, including the reasons for the Commission s
conclusions as to any of such facts which were disputed in the rulemaking.
"(4) (A) Except as provided in paragraphs (1) through (3)
of this subsection, rulemaking under this subsection shall be in
accordance with the procedures specified in section 553 of title 5,
United States Code, for rulemaking not on the record.
"(B) Nothing in this subsection shall be construed to impair
or limit the Commission's power to make, or to modify or alter
the procedures the Commission may follow in making, rules and
regulations pursuant to any other authority under this title.
"(C) Any amendment to the rules of a self-regulatory organization made by the Commission pursuant to this subsection shall
be considered for all purposes of this title to be part of the rules
of such self-regulatory organization and shall not be considered
to be a rule of the Commission.
"(d) (1) If any self-regulatory organization imposes any final disciplinary sanction on any member thereof or participant therein, denies
membership or participation to any applicant, or prohibits or limits
any person in respect to access to services offered by such organization
or member thereof or if any self-regulatory organization (other than
a registered clearing agency) imposes any final disciplinary sanction
on any person associated with a member or bars any person from
becoming associated with a member, the self-regulatory organization
shall promptly file notice thereof with the appropriate regulatory
agency for the self-regulatory organization and (if other than the
appropriate regulatory agency for the self-regulatory organization)
the appropriate regulatory agency for such member, participant, applicant, or other person. The notice shall be in such form and contain
such information as the appropriate regulatory agency for the selfregulatory organization, by rule, may prescribe as necessary or
appropriate in furtherance of the purposes of this title.
"(2) Any action with respect to which a self-regulatory organization is required by paragraph (1) of this subsection to file notice shall

PUBLIC LAW 94-29—JUNE 4, 1975
be subject to review by the appropriate regulatory agency for such
member, participant, applicant, or other person, on its own motion,
or upon application by any person aggrieved thereby filed within
thirty days after the date such notice was filed with such appropriate
regulatory agency and received by such aggrieved person, or within
such longer period as such appropriate regulatory agency may determine. Application to such appropriate regulatory agency for review,
or the institution of review by such appropriate regulatory agency on
its own motion, shall not operate as a stay of such action unless such
appropriate regulatory agency otherwise orders, summarily or after
notice and opportunity for hearing on the question of a stay (which
hearing may consist solely of the submission of affidavits or presentation of oral arguments). Each appropriate regulatory agency shall
establish for appropriate cases an expedited procedure for consideration and determination of the question of a stay.
"(e) (1) In any proceeding to review a final disciplinary sanction
imposed by a self-regulatory organization on a member thereof or participant therein or a person associated with such a member, after
notice and opportunity for hearing (which hearing may consist solely
of consideration of the record before the self-regulatory organization and opportunity for the presentation of supporting reasons to
affirm, modify, or set aside the sanction) —
"(A) if the appropriate regulatory agency for such member,
participant, or person associated with a member finds that such
member, participant, or person associated with a member has
engaged in such acts or practices, or has omitted such acts, as the
self-regulatory organization has found him to have engaged in or
omitted, that such acts or practices, or omissions to act, are in
violation of such provisions of this title, the rules or regulations
thereunder, the rules of the self-regulatory organization, or, in
the case of a registered securities association, the rules of the
Municipal Securities Rulemaking Board as have been specified in
the determination of the self-regulatory organization, and that
such provisions are, and were applied in a manner, consistent with
the purposes of this title, such apropriate regulatory agency, by
order, shall so declare and, as appropriate, affirm the sanction
imposed by the self-regulatory organization, modify the sanction
in accordance with paragraph (2) of this subsection, or remand
to the self-regulatory organization for further proceedings; or
"(B) if such appropriate regulatory agency does not make any
such finding it shall, by order, set aside the sanction imposed by
the self-regulatory organization and, if appropriate, remand to
the self-regulatory organization for further proceedings.
"(2) If the appropriate regulatory agency for a member, participant, or person associated with a member, having due regard for the
public interest and the protection of investors, finds after a proceeding
in accordance with paragraph (1) of this subsection that a sanction
imposed by a self-regulatory organization upon such member, participant, or person associated with a member imposes any burden on competition not necessary or appropriate in furtherance of the purposes of
this title or is excessive or oppressive, the appropriate regulatory
agency may cancel, reduce, or require the remission of such sanction.
"(f) In any proceeding to review the denial of membership or participation in a self-regulatory organization to any applicant, the barring of any person from becoming associated with a member of a
self-regulatory organization, or the prohibition or limitation by a selfregulatory organization of any person with respect to access to services
offered by the self-regulatory organization or any member thereof, if

89 STAT. 151

Review.
Notice and
hearing.

Dismissal of
proceedings.
Notice and
hearing.

89 STAT. 152

Ante, p. 137.

Registration,
suspension or
revocation.

Notice and
hearing.

PUBLIC LAW 94-29—JUNE 4, 1975
the appropriate regulatory agency for such applicant or person, after
notice and opportunity for hearing (which hearing may consist solely
of consideration of the record before the self-regulatory organization
and opportunity for the presentation of supporting reasons to dismiss
the proceeding or set aside the action of the self-regulatory organization) finds t h a t the specific grounds on which such denial, bar, or prohibition or limitation is based exist in fact, t h a t such denial, bar, or
prohibition or limitation is in accordance with the rules of the selfregulatory organization, and t h a t such rules are, and w'ere applied in
a manner, consistent with the purposes of this title, such appropriate
regulatory agency, by order, shall dismiss the proceeding. I f such
appropriate regulatory agency does not make any such finding or
if it finds t h a t such denial, bar, or prohibition or limitation imposes
any burden on competition not necessary or a p p r o p r i a t e in furtherance
of the purposes of this title, such appropriate regulatory agency, by
order, shall set aside the action of the self-regulatory organization
and require it to admit such applicant to membership or participation,
permit such person to become associated with a member, or g r a n t such
person access to services offered by the self-regulatory organization or
member thereof.
" ( g ) (1) Every self-regulatory organization shall comply with the
provisions of t h i s title, the rules and regulations thereunder, and its
own rules, and (subject to the provisions of section 17(d) of this title,
p a r a g r a p h (2) of this subsection, and the rules thereunder) absent
reasonable justification or excuse enforce compliance—
" ( A ) in the case of a national securities exchange, with such
provisions by its members and persons associated with its
members;
" ( B ) in the case of a registered securities association, wnth such
provisions and t h e provisions of the rules of the Municipal Securities Kulemaking Board by its members and persons associated
with its members; and
" ( C ) in the case of a registered clearing agency, with its own
rules by its participants,
" ( 2 ) T h e Commission, by rule, consistent with t h e public interest,
the protection of investors, and the other purposes of this title, may
relieve any self-regulatory organization of any responsibility under
this title to enforce compliance with any specified provision of this
title or the rules or regulations thereunder by any member of such
organization or person associated with such a member, or any class of
such members or persons associated with a member.
" ( h ) ( 1 ) T h e a p p r o p r i a t e regulatory agency for a eelf-regulatory
organization 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 title, to
suspend for a period not exceeding twelve months or revoke the registration of such self-regulatory organization, or to censure or impose
limitations upon the activities, functions, and operations of such selfregulatory organization, if such appropriate regulatory agency finds.
on the record after notice and opportunity for hearing, t h a t such selfregulatory organization has violated or is unable to comply with any
provision of this title, the rules or regulations thereunder, or its owm
rules or without reasonable justification or excuse has failed to enforce
compliance—
" ( A ) in the case of a national securities exchange, with any
such provision by a member thereof or a person associated w i t h a
member thereof;
" ( B ) in the case of a registered securities association, with any
such provision or any provision of the rules of t h e Municipal

PUBLIC LAW 94-29—JUNE 4, 1975
Securities Rulemaking B o a r d by a member thereof or a person
associated with a member thereof; or
" ( C ) in the case of a registered clearing agency, with any provision of its own rules by a participant therein.
" ( 2 ) T h e a p p r o p r i a t e regulatory agency for a self-regulatory organization 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 t h e purposes of this title, to suspend
for a period not exceeding twelve months or expel from such selfregulatory organization any member thereof or participant therein, if
such member or participant is subject to an order of the Commission
pursuant to section 15 (b) (4) of this title or if such appropriate regulatory agency finds, on t h e record after notice and opportunity for
hearing, t h a t such member or participant has willfully violated or has
effected any transaction for any other person who, such member or
participant h a d reason to believe, was violating with respect to such
transaction—
" (A) in the case of a national securities exchange, any provision
of the Securities Act of 1933, the Investment Advisers Act of 1940,
the Investment Company Act of 1940, this title, or the rules or
regulations under any of such statutes;
" ( B ) in t h e case of a registered securities association, any provision of the Securities Act of 1933, the Investment Advisers Act
of 1940, the Investment Company Act of 1940, this title, the rules
or regulations under any of such statutes, or the rules of the
Municipal Securities Rulemaking B o a r d ; or
" ( C ) in the case of a registered clearing agency, any provision
of the rules of the clearing agency.
" ( 3 ) The appropriate regulatory agency for a national securities
exchange or registered securities association 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 title, to suspend for a period not exceeding twelve
months or to bar any person from being associated with a member of
such national securities exchange or registered securities association, if
such person is subject to an order of the Commission pursuant to section
15(b) (6) or if such appropriate regulatory agency finds, on the record
after notice and opportunity for hearing, t h a t such person has willfully
violated or has effected any transaction for any other person who, such
person associated with a member had reason to believe, was violating
with respect to such transaction—
" (A) in the case of a national securities exchange, any provision
of the Securities Act of 1933, the Investment Advisers Act of 1940,
the Investment Company Act of 1940, this title, or t h e rules or
regulations under any of such statutes; or
" ( B ) in the case of a registered securities association, any provision of t h e Securities Act of 1933, the Investment Advisers A c t
of 1940, the Investment Company Act of 1940, this title, the rules
or regulations under any of the statutes, or the rules of the Municipal Securities Rulemaking Board.
" ( 4 ) T h e appropriate regulatory agency for a self-regulatory organization 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 title, to
remove from office or censure any officer or director of such selfregulatory organization, if such appropriate regulatory agency finds,
on the record after notice and opportunity for hearing, t h a t such officer
or director has willfully violated any provision of this title, the rules

89 STAT. 153

Notice and
hearing,

Ante, p. 121.

15 u s e 77a,
80b-20.
15 u s e 80a-51.

Notice and
hearing.

Notice and
hearing,

89 STAT. 154

Infra.
15 u s e 78aa.

Investigations.

Civil actions.

PUBLIC LAW 94-29—JUNE 4, 1975
or regulations thereunder, or the rules of such self-regulatory organization, willfully abused his authority, or without reasonable justification or excuse has failed to enforce compliance—
"(A) in the case of a national securities exchange, with any
such provision by any member or person associated with a
member;
"(B) in the case of a registered securities association, with any
such provision or any provision of the rules of the Municipal
Securities Rulemaking Board by any member or person associated
with a member; or
"(C) in the case of a registered clearing agency, with any provision of the rules of the clearing agency by any participant.
"(i) If a proceeding under subsection (h) (1) of this section results
in the suspension or revocation of the registration of a clearing agency,
the appropriate regulatory agency for such clearing agency may, upon
notice to such clearing agency, apply to any court of competent jurisdiction specified in section 21(d) or 27 of this title for the appointment of a trustee. In the event of such an application, the court may,
to the extent it deems necessary or appropriate, take exclusive jurisdiction of such clearing agency and the records and assets thereof,
wherever located; and the court shall appoint the appropriate regulatory agency for such clearing agency or a person designated by such
appropriate regulatory agency as trustee with power to take possession
and continue to operate or terminate the operations of such clearing
agency in an orderly manner for the protection of participants and
investors, subject to such terms and conditions as the court may
prescribe.".
SEO. 17. Section 21 of the Securities Exchange Act of 1934 (15
U.S.C. 78u) is amended as follows:
(1) Subsection (a) thereof is amended to read as follows:
"(a) The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated, is violating, or is about to violate any provision of this title, the
rules or regulations thereunder, the rules of a national securities
exchange or registered securities association of which such person is a
member or a person associated with a member, the rules of a registered
clearing agency in which such person is a participant, or the rules of
the Municipal Securities Rulemaking Board, and may require or permit any person to file with it a statement in writing, under oath or
otherwise as the Commission shall determine, as to all the facts and
circumstances concerning the matter to be investigated. The Commission is authorized in its discretion, to publish information concerning any such violations, and to investigate any facts, conditions,
practices, or matters which it may deem necessary or proper to aid in
the enforcement of such provisions, in the prescribing of rules and
regulations under this title, or in securing information to serve as a
basis for recommending further legislation concerning the matters to
which this title relates.".
(2) Subsections (e) and (f) thereof are redesignated (d) and (e),
respectively, and amended to read as follows:
' ( d ) Wherever it shall appear to the Commission that any person
is engaged or is about to engage in acts or practices constituting a
violation of any provision of this title, the rules or regulations thereunder, the rules of a national securities exchange or registered securities association of which such person is a member or a person associated
with a member, the rules of a registered clearing agency in which such
person is a participant, or the rules of the Municipal Securities Rule-

PUBLIC LAW 94-29—JUNE 4, 1975
making Board, it may in its discretion bring an action in the proper
district court of the United States, the United States District Court
for the District of Columbia, or the United States courts of any territory or other place subject to the jurisdiction of the United States, to
enjoin such acts or practices, and upon a proper showing a permanent
or temporary injunction or restraining order shall be granted without
bond. The Commission may transmit such evidence as may be available concerning such acts or practices as may constitute a violation of
any provision of this title or the rules or regulations thereunder to
the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this title.
"(e) Upon application of the Commission the district courts of the
United States, the United States District Court for the District of
Columbia, and the United States courts of any territory or other
place subject to the jurisdiction of the United States shall have jurisdiction to issue writs of mandamus, injunctions, and orders commanding (1) any person to comply with the provisions of this title, the
rules, regulations, and orders thereunder, the rules of a national securities exchange or registered securities association of which such person
is a member or person associated with a member, the rules of a
registered clearing agency in which such person is a participant, the
rules of the Municipal Securities Rulemaking Board, or any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title, (2) any national securities exchange
or registered securities association to enforce compliance by its
members and persons associated with its members with the provisions
of this title, the rules, regulations, and orders thereunder, and the rules
of such exchange or association, or (3) any registered clearing agency
to enforce compliance by its participants with the provisions of the
rules of such clearing agency.".
(3) The section is further amended by adding at the end thereof
the following new subsections:
"(f) Notwithstanding any other provision of this title, the Commission shall not bring any action pursuant to subsection (d) or (e)
of this section against any person for violation of, or to command
compliance with, the rules of a self-regulatory organization unless it
appears to the Commission that (1) such self-regulaitory organization
is unable or unwilling to take appropriate action against such person
in the public interest and for the protection of investors, or (2) such
action is otherwise necessary or appropriate in the public interest or
for the protection of investors.
"(g) Notwithstanding the provisions of section 1407(a) of title 28,
United States Code, or any other provision of law, no action for equitable relief instituted by the Commission pursuant to the securities
laws shall be consolidated or coordinated with other actions not
brought by the Commission, even though such other actions may
involve common questions of fact, unless such consolidation is consented to by the Commission. The term 'securities laws' as used herein
includes the Securities Act of 1933 (15 U.S.C. 77 et seq.), the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.), the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.), the Trust Indenture
Act of 1939 (15 U.S.C. 77aaa et seq.), the Investment Company Act of
1940 (15 U.S.C. 80a-l et seq.), the Investment Advisers Act of 1940
(15 U.S.C. 80b-l et seq.), and the Securities Investor Protection
Act of 1970 (15 U.S.C. 78aaa et seq.).".
SEC. 18. Section 23 of the Securities Exchange Act of 1934 (15
U.S.C. 78w) is amended to read as follows:

89 STAT. 155

Ante, p. 121.

15 u s e 78u.

"Securities
laws."

89 STAT. 156

PUBLIC LAW 94-29—JUNE 4, 1975
RULES, REGULATIONS, AND ORDERS; A N N U A L REPORTS

Ante, p. 97.

Ante, p. 146.

Annual report to
Congress.

"SEC. 23. (a) (1) The Commission, the Board of Governors of the
Federal Eeserve System, and the other agencies enumerated in section
3(a) (34) of this title shall each have power to make such rules and
regulations as may be necessary or appropriate to implement the provisions of this title for which they are responsible or for the execution
of the functions vested in them by this title, and may for such purposes classify persons, securities, transactions, statements, applications,
reports, and other matters within their respective jurisdictions, and
prescribe greater, lesser, or different requirements for different classes
thereof. No provision of this title imposing any liability shall apply to
any act done or omitted in good faith in conformity with a rule, regulation, or order of the Commission, the Board of Governors of the
Federal Reserve System, other agency enumerated in section 3(a) (34)
of this title, any self-regulatory organization, notwithstanding that
such rule, regulation, or order may thereafter be amended or rescinded
or determined by judicial or other authority to be invalid for any
reason.
"(2) The Commission, in making rules and regulations pursuant
to any provisions of this title, shall consider among other matters the
impact any such rule or regulation would have on competition. The
Commission shall not adopt any such rule or regulation which would
impose a burden on competition not necessary or appropriate in furtherance of the purposes of this title. The Commission shall include
in the statement of basis and purpose incorporated in any rule or
regulation adopted under this title, the reasons for the Commission's
determination that any burden on competition imposed by such rule
or regulation is necessary or appropriate in furtherance of the purposes
of this title.
"(3) The Commission, in making rules and regulations pursuant
to any provision of this title, considering any application for registration in accordance with section 19(a) of this title, or reviewing any
proposed rule change of a self-regulatory organization in accordance
with section 19 (b) of this title, keep in a public file and make available
for copying all written statements filed with the Commission and all
written communications between the Commission and any person
relating to the proposed rule, regulation, application, or proposed rule
change; Provided, however, That the Commission shall not be required
to keep in a public file or make available for copying any such
statement or communication which it may withhold from the public in
accordance with the provisions of section 552 of title 5, United States
Code.
"(b) (1) The Commission, the Board of Governors of the Federal
Reserve System, and the other agencies enumerated in section 3 (a) (34)
of this title, shall each make an annual report to the Congress on its
work for the preceding year, and shall include in each such report
whatever information, data, and recommendations for further
legislation it considers advisable with regard to matters within its
respective jurisdiction under this title.
" (2) The appropriate regulatory agency for a self-regulatory organization shall include in its annual report to the Congress for each
fiscal year, a summary of its oversight activities under this title with
respect to such self-regulatory organization, including a description
of any examination condiicted as part of such activities of any such
organization, any material recommendation presented as part of such
activities to such organization for changes in its organization or rules,
and any action by such organization in response to any such
recommendation.

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 157

" (3) The appropriate regulatory agency for any class of municipal
securities dealers shall include in its annual report to the Congress
for each fiscal year a summary of its regulatory activities pursuant to
this title with respect to such municipal securities dealers, including
the nature of and reason for any sanction imposed pursuant to this
title against any such municipal securities dealer.
"(4) The Commission shall also include in its annual report to the
Congress for each fiscal year—
"(A) a summary of the Commission's oversight activities with
respect to self-regulatory organizations for which it is not the
appropriate regulatory agency, including a description of any
examination of any such organization, any material recommendation presented to any such organization for changes in its organization or rules, and any action by any such organization in
response to any such recommendations;
"(B) a statement and analysis of the expenses and operations
of each self-regulatory organization in connection with the performance of its responsibilities under this title, for which
purpose data pertaining to such expenses and operations shall
be made available by such organization to the Commission at its
request;
"(C) beginning in 1975 and ending in 1980, information, data,
and recommendations with respect to the development of a
national system for the prompt and accurate clearance and settlement of securities transactions, including a summary of the regulatory activities, operational capabilities, financial resources, and
plans of self-regulatory organizations and registered transfer
agents with respect thereto;
"(D) beginning in 1975 and ending in 1980, a description of
the steps taken, and an evaluation of the progress made, toward
the establishment of a national market system, and recommendations for further legislation it considers advisable with respect
to such system;
" ( E ) the steps the Commission has taken and the progress it
has made toward ending the physical movement of the securities
certificate in connection with the settlement of securities transactions, and its recommendations, if any, for legislation to eliminate the securities certificate;
" ( F ) The number of requests for exemptions from provisions
of this title received, the number granted, and the basis upon
which any such exemption was granted:
"(G) a summary of the Commission s regulatory activities with
respect to municipal securities dealers for which it is not the
appropriate regulatory agency, including the nature of, and reason
for, any sanction imposed in proceedings against such municipal
securities dealers;
" ( H ) beginning in 1975 and ending in 1980, a description of the
effect the absence of any schedule or fixed rates of commissions,
allowances, discounts, or other fees to be charged by members for
effecting transactions on a national securities exchange is having
on the maintenance of fair and orderly markets and the development of a national market system for securities;
" ( I ) a statement of the time elapsed between the filing of
reports pursuant to section 13 (f) of this title and the public avail- ^"^e, p. 119.
ability of the information contained therein, the costs involved
in the Commission's processing of such reports and tabulating
such information, the manner in which the Commission uses such
information, and the steps the Commission has taken and the

89 STAT. 158

PUBLIC LAW 94-29—JUNE 4, 1975
progress it has made toward requiring such reports to be filed and
such information to be made available to the public in machine
language;
" ( J ) information concerning (i) the effects its rules and regulations are having on the viability of small brokers and dealers;
(ii) its attempts to reduce any imnecessary reporting burden on
such brokers and dealers; and (iii) its efforts to help to assure the
continued participation of small brokers and dealers in t h e United
States securities m a r k e t s ; and
" ( K ) a statement detailing its administration of the Freedom
of Information Act, section 552 of title 5, United States Code,
including a copy of the report filed p u r s u a n t to subsection (d)
of such section.
•'(c) T h e Connnission, by rule, shall prescribe the procedure applicable to every case p u r s u a n t to this title of adjudication (as defined
in section 551 of title 5, United States Code) not required to be determined on the record after notice and opportunity for hearing. Such
rules shall, as a minimum, provide t h a t p r o m p t notice shall be given
of any adverse action or final disposition and t h a t such notice and
the entry of any order shall be accompanied by a statement of written reasons.".
SEC. 19. Section 24 of the Securities Exchange Act of 1934 (15
U.S.C. 78x) is amended to read as follows:
"PUBLIC AVAILABILITY or

"Records."

INFORMATION

" S E C . 24. (a) F o r purposes of section 552 of title 5, United States
Code, the term 'records' includes all applications, statements, reports,
contracts, correspondence, notices, and other documents filed with or
otherwise obtained by the Commission p u r s u a n t to this title or otherwise.
" ( b ) I t shall be unlawful for any member, officer, or employee of
the Commission to disclose to any person other t h a n a member, officer,
or employee of the Commission, or to use for personal benefit, any
information contained in any application, statement, report, contract,
correspondence, notice, or other document filed with or otherwise
obtained by the Commission (1) in contravention of the rules and regulations of the Commission under section 552 of Title 5, United States
Code, or (2) in circumstances where the Commission has determined
pursuant to such rules to accord confidential treatment to such information. Nothing in this subsection shall authorize the Commission to
Avithhold information from the Congress.".
SEC. 20. Section 25 of the Securities Exchange Act of 1934 (15
U.S.C. 78y) is amended to read as follows:
COURT REVIEW OF ORDERS AND RULES

Petition, copy.

" S E C . 25. (a) (1) A person aggrieved by a final order of t h e Commission entered p u r s u a n t to this title may obtain review of the order
in the United States Court of Appeals for the circuit in which he
I'esides or has his principal place of business, or for t h e District of
Columbia Circuit, by filing in such court, within sixty days after the
entry of the order, a written petition requesting t h a t the order be
modified or set aside in whole or in part.
" ( 2 ) A copy of t h e petition shall be transmitted forthwith by the
clerk of the court to a member of the Commission or an officer designated by the Commission for t h a t purpose. Thereupon t h e Commission
shall file in t h e court the record on which the order complained of

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 159

is entered, as provided in section 2112 of title 28, United States Code,
and the Federal Rules of Appellate Procedure.
28 USC app.
"(3) On the filing of the petition, the court has jurisdiction, which Jurisdiction,
becomes exclusive on the filing of the record, to affirm or modify and
enforce or to set aside the order in whole or in part.
" (4) The findings of the Commission as to the facts, if supported by
substantial evidence, are conclusive.
"(5) If either party applies to the court for leave to adduce additional evidence and shows to the satisfaction of the court that the additional evidence is material and that there was reasonable ground for
failure to adduce it before the Commission, the court may remand the
case to the Commission for further proceedings, in whatever manner
and on whatever conditions the court considers appropriate. If the case
is remanded to the Commission, it shall file in the court a supplemental
record containing any new evidence, any further or modified findings,
and any new order.
"(b) (1) A person adversely affected by a rule of the Commission
promulgated pursuant to section 6,11, l l A , 15(c) (5) or (6), 15A, 17,
17A, or 19 of this title may obtain review of this rule in the United Ante, pp. 104,
States Court of Appeals for the circuit in which he resides or has his 110, 111, 121,
principal place of business or for the District of Columbia Circuit, by 127, 137, 141,
filing in such court, within sixty days after the promulgation of the 146.
rule, a written petition requesting that the rule be set aside.
"(2) A copy of the petition shall be transmitted forthwith by the
clerk of the court to a member of the Commission or an officer designated for that purpose. Thereupon, the Commission shall file in the
court the rule under review and any documents referred to therein,
the Commission's notice of proposed rulemaking and any documents
referred to therein, all written submissions and the transcript of any
oral presentations in the rulemaking, factual information not included
in the foregoing that was considered by the Commission in the promulgation of the rule or proffered by the Commission as pertinent to the
rule, the report of any advisory committee received or considered by
the Commission in the rulemaking, and any other materials prescribed
by the court.
"(3) On the filing of the petition, the court has jurisdiction, which Jurisdiction,
becomes exclusive on the filing of the materials set forth in paragraph
(2) of this subsection, to affirm and enforce or to set aside the rule.
"(4) The findings of the Commission as to the facts identified by
the Commission as the basis, in whole or in part, of the rule, if supported by substantial evidence, are conclusive. The court shall affirm
and enforce the rule unless the Commission's action in promulgating
the rule is found to be arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law; contrary to constitutional right,
power, privilege, or immunity; in excess of statutory jurisdiction,
authority, or limitations, or short of statutory right; or without observance of procedure required by law.
"(5) If proceedings have been instituted under this subsection in
two or more courts of appeals with respect to the same rule, the Commission shall file the materials set forth in paragraph (2) of this subsection in that court in which a proceeding was first instituted. The
other courts shall thereupon transfer all such proceedings to the court
in which the materials have been filed. For the convenience of the
parties in the interest of justice that court may thereafter transfer all
the proceedings to any other court of appeals.
"(c) (1) No objection to an order or rule of the Commission, for
which review is sought under this section, may be considered by the
court unless it was urged before the Commission or there was reasonable ground for failure to do so.

89 STAT. 160

Ante, p. 154.

Ante, p. 97.

Ante, p. 146.

PUBLIC LAW 94-29—JUNE 4, 1975
"(2) The filing of a petition under this section does not operate as a
stay of the Commission's order or rule. Until the court's jurisdiction
becomes exclusive, the Commission may stay its order or rule pending
judicial review if it finds that justice so requires. After the filing of a
petition under this section, the court, on whatever conditions may be
required and to the extent necessary to prevent irreparable injury,
may issue all necessary and appropriate process to stay the order or
rule or to preserve status or rights pending its review; but (notwith-standing section 705 of title 5, United States Code) no such process
may be issued by the court before the filing of the record or the materials set forth in subsection (b)(2) of this section unless: (A) the
Commission has denied a stay or failed to grant requested relief, (B)
a reasonable period has expired since the filing of an application for a
stay without a decision by the Commission, or (C) there was reasonable ground for failure to apply to the Commission.
" (3) When the same order or rule is the subject of one or more petitions for review filed under this section and an action for enforcement
filed in a district court of the United States under section 21 (d) or (e)
of this title, that court in w^hich the petition or the action is first filed
has jurisdiction w'ith respect to the order or rule to the exclusion of
any other court, and thereupon all such proceedings shall be transferred to that court; but, for the convenience of the parties in the
interest of justice, that court may thereafter transfer all the proceedings to any other court of appeals or district court of the United
States, w^hether or not a petition for review or an action for enforcement was originally filed in the transferee court. The scope of review
by a district court under section 21 (d) or (e) of this title is in all cases
the same as by a court of appeals under this section.
"(d) (1) For purposes of the preceding subsections of this section,
the term 'Commission' includes the agencies enumerated in section
3(a) (34) of this title insofar as such agencies are acting pursuant to
this title.
"(2) For purposes of subsection (a) (4) of this section and section
706 of title 5, United States Code, an order of the Commission pursuant to section 19(a) of this title denying registration to a clearing
agency for which the Commission is not the appropriate regulatory
agency or pursuant to section 19(b) of this title disapproving a proposed rule change by such a clearing agency shall be deemed to be an
order of the appropriate regulatory agency for such clearing agency
insofar as such order was entered by reason of a determination by such
appropriate regulatory agency pursuant to section 19(a)(2)(C) or
19(b)(4)(C) of this title that such registration or proposed rule
change would be inconsistent with the safeguarding of securities or
funds.".
SEC. 21. Section 28 of the Securities Exchange Act of 1934 (15
U.S.C. 78bb) is amended as follows:
(1) Subsection (b) thereof is amended to read as follows:
"(b) Nothing in this title shall be construed to modify existing law
with regard to the binding effect (1) on any member of or participant
in any self-regulatory organization of any action taken by the authorities of such organization to settle disputes between its members or
participants, (2) on any municipal securities dealer or municipal
securities broker of any action taken pursuant to a procedure established by the Municipal Securities Rulemaking Board to settle disputes between municipal securities dealers and municipal securities
brokers, or (3) of any action described in paragraph (1) or (2) on
any person who has agreed to be bound thereby.".
(2) The section is further amended by adding at the end thereof
the following new subsections:

PUBLIC LAW 94-29—JUNE 4, 1975
"(c) The stay, setting aside, or modification pursuant to section
19(e) of this title of any disciplinary sanction imposed by a self-regulatory organization or a member thereof, person associated with a
member, or participant therein, shall not affect the validity or force
of any action taken as a result of such sanction by the self-regulatory
organization prior to such stay, setting aside, or modification: Provided^ That such action is not inconsistent with the provisions of this
title or the rules or regulations thereunder. The rights of any person
acting in good faith which arise out of any such action shall not be
affected in any way by such stay, setting aside, or modification.
"(d) N"o State or political subdivision thereof shall impose any tax
on any change in beneficial or record ownership of securities effected
through the facilities of a registered clearing agency or registered
transfer agent or any nominee thereof or custodian therefor or upon
the delivery or transfer of securities to or through or receipt from
such agency or agent or any nominee thereof or custodian therefor,
unless such change is beneficial or record ownership or such transfer
or delivery or receipt would otherwise be taxable by such State or
political subdivision if the facilities of such registered clearing agency,
registered transfer agent, or any nominee thereof or custodian therefor
were not physically located in the taxing State or political subdivision.
No State or political subdivision thereof shall impose any tax on
securities which are deposited in or retained by a registered clearing
agency, registered transfer agent, or any nominee thereof or custodian
therefor, unless such securities would otherwise be taxable by such
State or political subdivision if the facilities of such registered clearing agency, registered transfer agent, or any nominee thereof or custodian therefor were not physically located in the taxing State or
political subdivision.
"(e)(1) No person using the mails, or any means or instrumentality
of interstate commerce, in the exercise of investment discretion with
respect to an account shall be deemed to have acted unlawfully or to
have breached a fiduciary duty under State or Federal law unless
expressly provided to the contrary by a law enacted by the Congress
or any State subsequent to the date of enactment of the Securities Acts
Amendments in 1975 solely by reason of his having caused the account
to pay a member of an exchange, broker, or dealer an amount of
commission for effecting a securities transaction in excess of the amount
of commission another member of an exchange, broker, or dealer would
have charged for effecting that transaction, if such person determined in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such member, broker, or dealer, viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion. This subsection
is exclusive and plenary insofar as conduct is covered by the foregoing,
unless otherwise expressly provided by contract: Provided^ however,
That nothing in this subsection shall be construed to impair or limit
the power of the Commission under any other provision of this title
or otherwise.
"(2) A person exercising investment discretion with respect to
an account shall make such disclosure of his policies and practices
with respect to commissions that will be paid for effecting securities
transactions, at such times and in such mannei-, as the appropriate
regulatory agency, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
"(3) For purposes of this subsection a person provides brokerage
and research services insofar as he—

89 STAT. 161
^'^^C' P- 146.

Taxation,
prohibition,

Disclosure,

89 STAT. 162

PUBLIC LAW 94-29—JUNE 4, 1975
" ( A ) furnishes advice, either directly or t h r o u g h publications
or writings, as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities;
" ( B ) furnishes analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts; or
" ( C ) effects securities transactions and performs functions
incidental thereto (such as clearance, settlement, and custody) or
required in connection therewith by rules of the Commission or a
self-regulatory organization of which such person is a member
or person associated with a member or in which such person is a
participant.".
SEC. 22. Section 31 of the Securities Exchange Act of 1934 (15
U.S.C. 78ee) is amended to read as follows:
"TRAXSACTIOK FEES

" S E C . 31. E v e r y national securities exchange shall pay to the Commission on or before March 15 of each calendar year a fee in an amount
equal to one three-hundredths of 1 per centum of the aggregate dollar
amount of t h e sales of securities (other t h a n bonds, debentures, and
other evidences of indebtedness) transacted on such national securities
(exchange during each preceding calendar year to which this section
applies. Every registered broker and dealer shall pay to the Commission on or before March 15 of each calendar year a fee in an amount
equal to one three-hundredths of 1 per centum of the aggregate dollar
amount of the sales of securities registered on a national securities
exchange (other than bonds, debentures, and other evidences of
indebtedness) transacted by such broker or dealer otherwise t h a n on
such an exchange during each preceding calendar y e a r : Provided^
however^ T h a t no payment shall be required for any calendar year in
which such payment would be less t h a n one hundred dollars. The Commission, by rule, may exempt any sale of securities or any class of sales
of securities from any fee imposed by this section, if the Commission
finds that such exemption is consistent with the public interest, the
equal regulation of markets and brokers and dealers, and t h e development of a national market system.".
SEC. 23. Section 32 of the Securities Exchange Act of 1934 (15
U.S.C. 78ff) is amended as follows:
(1) Subsection (a) thereof is amended by inserting after the phrase
"section 15 of this t i t l e " the following: "or by any self-regulatory
organization in connection with an application for membership or
participation therein or to become associated with a member
thereof,".
(2) Subsection (c) thereof is deleted.
SEC. 24. T h e Securities Exchange Act of 1934 (15 U.S.C. 78a ot seq.),
is amended by adding at t h e end thereof the following new section:
"AUTHORIZATION or

15 u s e 78kk.

APPROPRIATIONS

" S E C . 35. There are hereby authorized to be appropriated to carry
out the functions, powers, and duties of the Commission not to exceed
$51,000,000 for the fiscal year ending J u n e 30, 1976 and not to exceed
$55,000,000 for the fiscal year ending September 30, 1977. F o r fiscal
years succeeding the 1977 fiscal year, there may be appropriated such
sums as the Congress may hereafter authorize by law.".

PUBLIC LAW 94-29—JUNE 4, 1975
SEC. 25. The Act entitled "An Act to authorize the Securities and
Exchange Commission to delegate certain functions", approved
August 20, 1962 (15 U.S.C. 78d-l(b)), is amended as follows:
(1) The last sentence of subsection (a) of the first section thereof
is amended by striking the phrase "any rule, regulation, or order
pursuant to section 19(b)" and inserting in lieu thereof "any rule
pursuant to section 19 (c)".
(2) Subsection (b) of the first section thereof is amended to read as
follows:
"(b) With respect to the delegation of any of its functions, as
provided in subsection (a) of this section, the Commission shall retain
a discretionary right to review the action of any such division of the
Commission, individual Commissioner, hearing examiner, employee,
or employee board, upon its own initiative or upon petition of a party
to or intervenor in such action, within such time and in such manner
as the Commission, by rule, shall prescribe: Provided, however, That
the vote of one member of the Commission shall be sufficient to bring
any such action before the Commission for review: And provided
further, That a person or party shall be entitled to review by the Commission if he or it is adversely affected by action at a delegated level
which (1) denies any request for action pursuant to section 8(a) or
section 8(c) of the Securities Act of 1933 or the first sentence of section
12(d) of the Securities Exchange Act of 1934; (2) suspends trading
in a security pursuant to section 12 (k) of the Securities Exchange Act
of 1934; or (3) is pursuant to any provision of the Securities Exchange
Act of 1934 in a case of adjudication, as defined in section 551 of title
5, United States Code, not required Ijy that Act to be determined on
the record after notice and opportunity for hearing (except to the
extent there is involved a matter described in section 554(a) (1)
through (6) of title 5, United States Code).".
SEC. 26. Section 9(c) of the Securities Investor Protection Act of
1970 (15 U.S.C. 78iii(c)) is amended to read as follows:
"(c) INSPECTIONS.—The self-regulatory organization of which a
member of SIPC is a member shall inspect or examine such member
for compliance with applicable financial responsibility rules, except
that if a member of SIPC is a member of more than one self-regulatory organization, the Commission, pursuant to section 17(d) of the
1934 Act, shall designate one of such self-regulatory organizations
as responsible for the examination of such member for compliance
with applicable financial responsibility rules.".
SEC. 27. (a) Section 24 of the Securities Act of 1933 (15 U.S.C.
77x) is amended by changing the figure "5,000" to "10,000".
(b) Section 32(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78ff(a)) is amended by changing the phrase "or imprisoned
not more than two years" to read "or imprisoned not more than five
years".
(c) Section 29 of the Public Utility Holding Company Act of 1935
(15 U.S.C. 79z-3) is amended by changing the phrase "or imprisoned
not more than two years" to read "or imprisoned not more than five
years".
(d) Section 325 of the Trust Indenture Act of 1939 (15 U.S.C.
77yyy) is amended by changing the figure "$5,000" to "$10,000".
(e) Section 49 of the Investment Company Act of 1940 (15 U.S.C.
80a-48) is amended by changing the phrase "or imprisoned not more
than two years" to read "or imprisoned not more than five years".
(f) Section 217 of the Investment Advisers Act of 1940 (15 U.S.C.
80b-17) is amended by changing the phrase "imprisoned for not more
than two years" to read "imprisoned for not more than five years".

89 STAT. 163

Review

15 use 77h.
15 use 781.
Ante, p. 118.

Ante, p. 137.

Penalties.

89 STAT. 164

PUBLIC LAW 94-29—JUNE 4, 1975

15 u s e 80a-51.

SKC. 28. The Investment Company Aci of UHO (15 U.S.C. 80a-15)
is amended as follows:
(1) Section 15 thereof is amended by adding at the end thereof the
following new subsection:
" ( f ) (1) A n investment adviser, or a corporate trustee performing
the functions of an investment adviser, of a registered investment
company or an affiliated person of such investment adviser or corporate trustee may receive any amount or benefit in connection with a
sale of securities of, or a sale of any other interest in, such investment
adviser or corporate trustee which results in an assignment of an
investment advisory contract with such company or the change in
control of or identity of such corporate trustee, if—
" ( A ) for a period of three years after the time of such action,
at least 75 per centum of the members of the board of directors of
such registered company or such corporate trustee (or successor
thereto, by reorganization or otherwise) are not (i) interested
persons of the investment adviser of such company or such corporate trustee, or (ii) interested persons of the predecessor investment adviser or such corporate trustee; and
" ( B ) there is not imposed an unfair burden on such company
as a result of such transaction or any express or implied terms,
conditions, or understandings applicable thereto.
" ( 2 ) (A) F o r the purpose of p a r a g r a p h (1) ( A ) of this subsection,
interested persons of a corporate trustee shall be determined in accordance with section 2 ( a ) ( 1 9 ) ( B ) : Provided^ T h a t no person shall be
deemed to be an interested person of a corporate trustee solely by
reason of (i) his being a member of its board of directors or advisory
board or (ii) his membership in t h e immediate family of any person
specified in clause (i) of this subparagraph.
" ( B ) F o r the purpose of p a r a g r a p h (1) ( B ) of this subsection, an
unfair burden on a registered investment company includes any
arrangement, d u r i n g the two-year period after the date on which any
such transaction occurs, whereby the investment adviser or corporate
trustee or predecessor or successor investment advisers or corporate
trustee or any interested person of any such adviser or any such corporate trustee receives or is entitled t o receive any compensation
directly or indirectly (i) from any person in connection with the purchase or sale of securities or other property to, from, or on behalf of
such company, other t h a n bona fide ordinary compensation as principal underwriter for such company, or (ii) from such company or its
security holders for other t h a n bona fide investment advisory or other
services.
" ( 3 ) If—
" ( A ) an assignment of an investment advisory contract with a
registered investment company results in a successor investment
adviser to such company, or if there is a change in control of or
identity of a corporate trustee of a registered investment company, and such adviser or trustee is then an investment adviser or
corporate trustee with respect to other assets substantially greater
in amount than the amount of assets of such company, or
" ( B ) as a result of a merger of, or a sale of substantially all
the assets by, a registered investment company with or to another
registered investment company with assets substantially greater
in amount, a transaction occurs which would be subject to parag r a p h (1) ( A ) of this subsection,
such discrepancy in size of assets shall be considered by the Commission in determining whether or t o w h a t extent an application under
section 6(c) for exemption from t h e provisions of p a r a g r a p h (1) ( A )
should be granted.

15 u s e 80a-15.,

15 u s e 80a-2.

PUBLIC LAW 94-29—JUNE 4, 1975
"(4) Paragraph (1)(A) of this subsection shall not apply to a
transaction in which a controlling block of outstanding voting securities of an investment adviser to a registered investment company or of
a corporate trustee performing the functions of an investment adviser
to a registered investment company is—
"(A) distributed to the public and in which there is, in fact,
no change in the identity of the persons who control such investment adviser or corporate trustee, or
"(B) transferred to the investment adviser or the corporate
trustee, or an affiliated person or persons of such investment
adviser or corporate trustee, or is transferred from the investment
adviser or corporate trustee to an affiliated person or persons of
the investment adviser or corporate trustee: Provided^ That (i)
each transferee (other than such adviser or trustee) is a natural
person and (ii) the transferees (other than such adviser or trustee)
owned in the aggregate more than 25 per centum of such voting securities for a period of at least six months prior to such
transfer.",
(2) Section 15(c) thereof is amended by adding at the end thereof
a new sentence as follows: "It shall be unlawful for the directors of a
registered investment company, in connection with their evaluation
of the terms of any contract whereby a person undertakes regularly to
serve or act as investment adviser of such company, to take into account
the purchase price or other consideration any person may have paid
in connection with a transaction of the type referred to in paragraph
(1), (3), or (4) of subsection (f).".
(3) Section 16 thereof is amended as follows:
(A) in the first sentence of subsection (b) by striking out "The
provisions of subsection (a) of this section" and inserting in lieu
thereof "The foregoing provisions of this section";
(B) by redesignating subsection (b) as subsection (c), striking
out "this subsection (b)" therein, and inserting in lieu thereof
"this subsection (c)"; and
(C) by adding after subsection (a) thereof the following new
subsection:
"(b) Any vacancy on the board of directors of a registered investment company which occurs in connection with compliance with section 15(f) (1) (A) and which must be filled by a person who is not an
interested person of either party to a transaction subject to section
15(f) (1) (A) shall be filled only by a person (1) who has been selected
and proposed for election by a majority of the directors of such company who are not such interested persons, and (2) who has been elected
by the holders of the outstanding voting securities of such company,
except that in the case of the death, disqualification, or bona fide resignation of a director selected and elected pursuant to clauses (1)
and (2) of this subsection (b), the vacancy created thereby may be
filled as provided in subsection (a).".
(4) Section 13(b), 15(d), 18(i), and 32(a) thereof are amended
by striking out the phrases "subsection (b) of section 16" and "section
16(b)" wherever they occur and inserting in lieu thereof "section
16(c)".
(5) Section 10(e) thereof is amended to read as follows:
"(e) If by reason of the death, disqualification, or bona fide resignation of any director or directors, the requirements of the foregoing
provisions of this section or of section 15(f) (1) in respect of directors
shall not be met by a registered investment company, the operation of
such provision shall be suspended as to such registered company—

KW-i tkA. r« _ 77 - 15

89 STAT. 165

15 u s e 80a-15.

15 u s e 80a-16.

Registered
investment
company, board
of directors,
vacancies.
Ante, p. 164.

15 u s e 80a-13,
80a-15, 80a-18,
80a-31.
15 u s e 80a-10.

89 STAT. 166

"Investment
adviser."
15 u s e 80a-9.

15 u s e 80a-35.

15 u s e 80b-20.

Investment
adviser,
registration.
15 u s e 80b-3.

PUBLIC LAW 94-29—JUNE 4, 1975
" (1) for a period of thirty days if the vacancy or vacancies may
be filled by action of the board of directors;
"(2) for a period of sixty days if a vote of stockholders is
required to fill the vacancj^ or vacancies; or
"(3) for such longer period as the Commission may prescribe,
by rules and regulations upon its own motion or by order upon
application, as not inconsistent with the protection of investors.",
(6) Section 9 thereof is amended by adding at the end thereof the
following new subsection:
"(d) For the purposes of subsection (a) through (c) of this section, the term 'investment adviser' includes a corporate or other trustee
performing the functions of an investment adviser.".
(7) Section 36 thereof is further amended by adding at the end
thereof the following new subsection:
"(d) For the purposes of subsections (a) through (c) of this section, the term 'investment adviser' includes a corporate or other trustee performing the functions of an investment adviser.".
SEC. 29. The Investment Advisers Act of 1940 (15 U.S.C. 80b) is
amended as follows:
(1) Subsection (c) of section 203 thereof is amended to read as
follows:
"(c) (1) An investment adviser, or any person who presently contemplates becoming an investment adviser, may be registered by filing with the Commission an application for registration in such form
and containing such of the following information and documents as
the Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors:
"(A) the name and form of organization under which the
investment adviser engages or intends to engage in business; the
name of the State or other sovereign power under which such
investment adviser is organized; the location of his or its principal business office and branch offices, if any; the names and
addresses of his or its partners, officers, directors, and persons
performing similar functions or, if such an investment adviser
be an individual, of such individual; and the number of his or
its employees;
"(B) the education, the business affiliations for the past ten
years, and the present business affiliations of such investment
adviser and of his or its partners, officers, directors, and persons
performing similar functions and of any controlling person
thereof;
"(C) the nature of the business of such investment adviser,
including the manner of giving advice and rendering analyses
or reports;
"(D) a balance sheet certified by an independent public
accountant and other financial statements (which shall, as the
Commission specifies, be certified);
" ( E ) the nature and scope of the authority of such investment
adviser with respect to clients' funds and accounts;
" ( F ) the basis or bases upon which such investment adviser is
compensated;
"(G) whether such investment adviser, or any person associated with such investment adviser, is subject to any disqualification which would be a basis for denial, suspension, or revocation
of registration of such investment adviser under the provisions of
subsection (e) of this section; and
" ( H ) a statement as to whether the principal business of such
investment adviser consists or is to consist of acting as invest-

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 167

ment adviser and a statement as to Avhether a substantial part
of the business of such investment adviser, consists or is to consist
of rendering investment supervisory services.
"(2) 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 such registration; or
"(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the Notice and
grounds for denial under consideration and opportunity for hear- hearing.
ing 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 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 Censure or
be subject to suspension or revocation under subsection (e) of this revocation of
registration.
section.".
(2) Subsection (e) of section 203 thereof, is amended to read as 15 use 80b-3.
follows:
"(e) 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 investment
adviser if it finds, on the record after notice and opportunity for hear- Notice and
ing, that such censure, placing of limitations, suspension, or revoca- hearing.
tion is in the public interest and that such investment adviser, or any
person associated with such investment adviser, whether prior to or
subsequent to becoming so associated—
" (1) has willfully made or caused to be made in any application
for registration or report required to be filed with the Commission under this title, 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.
"(2) has been convicted within ten years preceding the filing
of any application for registration or at any time thereafter of
any felony or misdemeanor which the Commission finds—
"(A) involves the purchase or sale of any security, the
taking of a false oath, the making of a false report, bribery,
perjury, burglary, or conspiracy to commit any such offense;
"(B) arises out of the conduct of the business of a broker,
dealer, municipal securities dealer, investment adviser, bank,
insurance company, or fiduciary;
"(C) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement,
fraudulent conversion, or misappropriation of funds or securities; or
"(D) involves the violation of section 152, 1341, 1342, or
18 u s e 471 et
1343 or chapter 25 or 47 of title 18, United States Code.
"(3) is permanently or temporarily enjoined by order, judg- seq., 1001 et seq.
ment, or decree of any court of competent jurisdiction from acting

89 STAT. 168

PUBLIC LAW 94-29—JUNE 4, 1975

as an investment adviser, underwriter, broker, dealer, or municipal
securities dealer, or as an affiliated person or employee of any
investment company, bank, or insurance company, 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.
"(4) has willfully violated any provision of the Securities Act
15 u s e 77a, 78a,
of 1933, the Securities Exchange Act of 1934, the Investment
8ba-51.
Company Act of 1940, this title, or the rules or regulations under
any such statutes or any rule of the Municipal Securities Rulemaking Board, or is unable to comply with any such provision.
"(5) 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 Securities Exchange Act
of 1934, the Investment Company Act of 1940, this title, 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 paragraph (5) no person shall
be deemed to have failed reasonably to supervise any person, if—
"(A) 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
"(B) 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.
"(6) is subject to an order of the Commission entered pursuant to subsection (f) of this section barring or suspending the
right of such person to be associated with an investment adviser
which order is in effect with respect to such person.".
Censure or
(3) Subsection (f) of section 203 thereof is amended to read as
limitation.
follows:
15 u s e 80b-3.
"(f) The Commission, by order, shall censure or place limitations
Notice and
on the activities of any person associated or seeking to become associhearing.
ated with an investment adviser, or suspend for a period not exceeding
twelve months or bar any such person from being associated with an
investment adviser, 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 or omitted any act or omission enumerated in paragraph
(1), (4), or (5) of subsection (e) of this section or has been convicted
of any offense specified in paragraph (2) of said subsection (e) within
ten years of the commencement of the proceedings under this subsection, or is enjoined from any action, conduct, or practice specified in
paragraph (3) of said subsection (e). It shall be unlawful for any
person as to whom such an order suspending or barring him from
being associated with an investment adviser is in effect willfully to
become, or to be, associated with an investment adviser without the
consent of the Commission, and it shall be unlawful for any investment
adviser to permit such a person to become, or remain, a person associated with him without the consent of the Commission, if such investment adviser knew, or in the exercise of reasonable care, should have
known, of such order.".

PUBLIC LAW 94-29—JUNE 4, 1975

89 STAT. 169

(4) Section 203 thereof is further amended by striking out subsec- 15 use 80b-3.
tion (g) thereof and redesignating subsections (h) and (i) thereof as
subsections (g) and (h), respectively.
Use of mails oir
(5) Section 204 thereof is amended to read as follows:
"SEC. 204. Every investment adviser who makes use of the mails or instrumentality of
of any means or instrumentality of interstate commerce in connection interstate
with his or its business as an investment adviser (other than one commerce,
recordkeeping
specifically exempted from registration pursuant to section 203(b) requirements.
of this title), shall make and keep for prescribed periods such records 15 u s e 80b-4.
(as defined in section 3(a) (37) of the Securities Exchange Act of Ante, p. 97.
1934), furnish such copies thereof, and make and disseminate such
reports as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
All records (as so defined) of such investment advisers are subject
at any time, or from time to time, to such reasonable periodic, special,
or other examinations by representatives of the Commission as the
Commission deems necessary or appropriate in the public interest
or for the protection of investors.".
SEC. 30. Section 4 of the Securities Act of 1933 (15 U.S.C. 77(d)) Domestic security
is amended by adding at the end thereof the following new paragraph: transactions,
"(5) (A) Transactions involving offers or sales of one or more exemptions.
promissory notes directly secured by a first lien on a single parcel of
real estate upon which is located a dwelling or other residential or
commercial structure, and participation interests in such notes—
"(i) where such securities are originated by a savings and loan
association, savings bank, commercial bank, or similar banking
institution which is supervised and examined by a Federal or
State authority, and are offered and sold subject to the following
conditions:
" (a) the minimum aggregate sales price per purchaser shall
not be less than $250,000;
"(b) the purchaser shall pay cash either at the time of the
sale or within sixty days thereof; and
"(c) each purchaser shall buy for his own account only; or
"(ii) where such securities are originated by a mortgagee
approved by the Secretary of Plousing and Urban Development
pursuant to sections 203 and 211 of the National Housing Act 12 u s e 1709,
and are offered or sold subject to the three conditions specified in 1715b.
subparagraph (A) (i) to any institution described in such subparagraph or to any insurance company subject to the supervision
of the insurance commissioner, or any agency or officer performing
like function, of any State or territory of the United States or the
District of Columbia, or the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the
Government National Mortgage Association.
"(B) Transactions between any of the entities described in subparagraph (A)(i) or (A)(ii) hereof involving non-assignable contracts to buy or sell the foregoing securities which are to be completed
within two years, where the seller of the foregoing securities pursuant
to any such contract is one of the parties described in subparagraph
(A)(i) or (A)(ii) who may originate such securities and the purchaser of such securities pursuant to any such contract is any institution described in subparagraph (A) (i) or any insurance company
described in subparagraph (A) (ii), the Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, or the Government National Mortgage Association and where the foregoing
securities are subject to the three conditions for sale set forth in subparagraphs (A) (i) (a) through (c).

89 STAT. 170

PUBLIC LAW 94-29—JUNE 4, 1975

"(C) The exemption provided by subparagraphs (A) and (B)
hereof shall not apply to resales of the securities acquired pursuant
thereto, unless each of the conditions for sale contained in subparagraphs (A) (1) (a) through (c) are satisfied.".
Effective date.
SEC. 31. (a) This Act shall become effective on the date of its enact15 use 78b note, ment except as hereinafter provided. The amendments made by this
Act to sections 3(a) (12), 6(a) through (d), l l A ( b ) , 15(a), 15A,
v4rete, pp.97,104, 15B(a), 17A(b) and (c), and 19(g) of the Securities Exchange Act
111, 121, 127,
of 1934 shall become effective one hundred eighty days after the date
131, 141, 146.
of enactment of this Act, and the amendments made by this Act to
Ante, p. 162.
section 31 of the Securities Exchange Act of 1934 shall become effective on January 1, 1976. Neither the provisions of section 3(a)(3),
6(b)(2), or 6(c)(1) of the Securities Exchange Act of 1934 (as
amended by this Act) nor any rule or regulation thereunder shall
apply so as to deprive any person of membership in any national
securities exchange (or its successor) of which such person was, on the
date of enactment of this Act, a member or a member firm as defined
in the constitution of such exchange, or so as to deny membership in
any such exchange (or its successor) to any natural person who is or
becomes associated with such member or member firm,
15 use 78f note.
(b) If it appears to the Commission at any time within one year of
the effective date of any amendment made by this Act to the Securities
Exchange Act of 1934 that the organization or rules of any national
securities exchange or registered securities association registered with
the Commission on the date of enactment of this Act do not comply
with such Act as amended, the Commission shall so notify such
exchange or association in writing, specifying the respects in which
the exchange or association is not in compliance with such Act. On
and after the one hundred eightieth day following the date of receipt
of such notice by a national securities exchange or registered securities
association, the Commission, without regard to the provisions of secAnte, p. 146.
tion 19(h) of the Securities Exchange Act of 1934, as amended by
this Act, is authorized by order, to suspend the registration of any
such exchange or association or impose limitations on the activities,
functions, and operations of any such exchange or association, if the
Commission finds, after notice and opportunity for hearing, that the
organization or rules of such exchange or association do not comply
with such Act. Any such suspension or limitation shall continue in
effect until the Commission, by order, declares that such exchange
or association is in compliance with such requirements.
Approved June 4, 1975.

LEGISLATIVE HISTORY:
HOUSE REPORTS No. 94-123 accompanying H.R. 4111 (Comm. on Interstate and
Foreign Commerce) and No. 94-229 (Comm. of Conference).
SENATE REPORT No. 94-75 (Comm. on Banking, Housing and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 121 (1975):
Apr. 17, considered and passed Senate.
Apr. 24, considered and passed House, amended, in lieu of H.R. 4111.
May 20, Senate agreed to conference report.
May 22, House agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 11, No. 23:
June 5, Presidential statement.