Securities Reform Act

(Measure passed House, amended, roll call #153 (376-13))

Securities Reform Act - =Title I: Regulation of Exchanges and Associations= - Includes within the term "member," for purposes of this Act with respect to a national securities exchange or national securities association, any person who agrees to be regulated by an exchange or association and with respect to whom the exchange or association undertakes to enforce the Federal securities laws and the exchange rules.

Makes registered national securities exchanges and associations subject to such regulatory provisions.

States that any registered broker or dealer meeting applicable capital or competency requirements must be allowed to join any registered national securities exchange.

Prohibits registered national securities exchanges from imposing any schedule of prices or fixing rates of commissions, allowances, discounts, or other charges subject to a statutory timetable for the elimination of the current fixed minimum commission rate system.

Gives persons denied membership on an exchange the right to seek review of such denial by the Securities and Exchange Commission.

Permits members disciplined by an exchange to appeal such action to the SEC.

Provides that any proposed change in exchange rules must be filed with the SEC, which must publish such proposed change and allow interested persons a reasonable opportunity for comment thereon. States that the proposed change shall take effect sixty days after publication by the SEC unless the SEC disapproves it.

Revises the procedures to be followed by the Commission in compelling exchanges and registered associations to change their rules.

Gives the SEC the authority to suspend or expel exchange members who have violated exchange rules.

Provides that the Commission shall set forth such rules and regulations as it determines to be necessary or appropriate in the public interest to assure fair dealing in securities.

States that the Commission shall prescribe such rules and regulations applicable to transactions for specified accounts in order to prevent any member of a national securities exchange from effecting transactions for such accounts otherwise than on an exchange.

Gives the SEC authority to investigate and bring injunctive actions for violations of National Association of Securities Distributors rules and exchange rules, and to bring injunctive actions to compel a registered national securities exchange or association to enforce compliance with the rules of such exchange or association.

=Title II: Financial Responsibility; Regulation of Brokers Dealers; Reports and Examinations= - Broadens existing prohibitions on improper hypothecation of securities by brokers, dealers and members to embrace improper lending of such securities.

Requires all members of a registered national securities exchange to register with the SEC.

Requires persons registering as broker-dealers to file certified financial statements with their application (rather than verified statements).

Requires that, within six months of the granting of an application for registration, the Commission, or an exchange, or the NASD as designated by the Commission, shall examine the new broker-dealer to determine whether it is operating in conformity with the Federal securities laws.

Adds armed robbery and grand larceny to the list of statutory offenses which bar a person from becoming a broker-dealer.

Requires the Commission, in cooperation with the exchanges and the NASD, to devise and administer a uniform examination which, with respect to partners, officers, and supervisory employees, shall include questions relating to enumerated matters.

Directs the SEC, by no later than July 1, 1975, to establish minimum capital requirements, providing for ample, liquid and permanent capital for brokers, dealers and members.

Authorizes the Commission to classify brokers, dealers and members for purposes of establishing such requirements.

Requires registered national securities exchanges to furnish copies of documents to the SEC upon request.

Requires registered brokers, dealers and members to supply their customers with certified comparative balance sheets and income statements.

Authorizes the Commission to adopt rules regulating the reporting of transactions and to prescribe uniformity in accounting procedures and systems of brokers and dealers and members.

=Title III: Development of a National Clearance and Settlement System= - Authorizes the Commission to make rules applicable to brokers or dealers regulating the time and method of making settlements, payments and deliveries and closing of accounts. Provides that, in the exercise of this rulemaking authority, the Commission shall not affect the authority of the Board of Governors of the Federal Reserve System to regulate securities credit.

Requires clearing agencies, securities depositories and transfer agents to register with the SEC, and establishes appropriate procedures.

Sets forth procedures under which the Commission must grant or deny application for registration of clearing agencies and securities depositories.

Authorizes the Commission to establish terms and conditions under which a clearing agency, securities depository or transfer agent may withdraw from registration.

Gives the SEC direct rulemaking power over clearing agencies, securities depositories and transfer agents.

Empowers the SEC to review clearing agency or securities depository action in the areas of disciplinary action or denial of admission to a participant.

Grants the Commission disciplinary powers with respect to clearing agencies, securities depositories and transfer agents.

Directs the SEC, on or before December 31, 1976, to take appropriate steps to eliminate the use of the stock certificate as a means of settlement of securities transactions between brokers and dealers.

Authorizes the Commission to grant confidential treatment to material filed with it limited conditions, including a finding that disclosure is not in the public interest.

Provides that every issuer whose securities are registered on a national securities exchange shall consolidate into a single person the functions of transfer agent and registrar if the Commission promulgates a rule so providing.

Directs the Securities and Exchange Commission to conduct a study to consider the public policy implications of the growing practice of registering securities in "street name" and to determine whether steps can be taken to facilitate communications between corporations and their shareholders while, at the same time, retaining benefits of such registration.

Prohibits the imposition of State or local taxes on securities, or on the transfer of securities, solely because the facilities of a registered clearing agency or securities depository are physically located in the taxing jurisdiction.

Requires registered national securities exchanges, associations, brokers, dealers, clearing agencies and securities depositories to: (1) report information about missing, lost or stolen securities to the SEC or such person as the SEC designates; and (2) require the fingerprinting of partners, directors, officers, and employees and the submittal of such fingerprints to the Attorney General of the United States for identification and appropriate processing.

=Title IV: Miscellaneous= - Requires the SEC to include in its annual report to Congress designated information concerning the Commission's administration of the Freedom of Information Act.

Raises the amount of the registration fee every national securities exchange must pay to the SEC from 1/500th of one percent to 1/100th of one percent of the dollar amount of sales of securities (other than certain governmental obligations) transacted on that exchange.

Requires the SEC to order the registration of an investment adviser (presently, such registration to take effect by the passage of time).

Authorizes appropriations for the Commission through the fiscal year ending September 30, 1978.

States that an 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, an investment adviser or a corporate trustee performing the functions of an investment adviser which results in an assignment of an investment advisory contract with such company or the change in control of or identity of a corporate trustee which performs the functions of an investment adviser under specified conditions.

Makes 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 designated transaction.

Requires that any vacancy on the board of directors of a registered investment company which occurs in connection with compliance with this Act and which must be filled by a person who is not an interested person of either party to a transaction subject to this Act 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.

Requires every institutional investment manager which uses the mails, or any means or instrumentality of interstate commerce, or any facility of a national securities exchange, directly or indirectly, in the course of its business as an institutional investment manager and which exercises investment discretion with respect to accounts holding equity securities having an aggregate fair market value on the last trading day in any of the preceding twelve months of at least $100,000,000 or such lesser amount as the Commission may determine, to file reports with the Commission in such form and at such times as the Commission prescribes. Sets forth requisite contents of such reports. Lists additional items which such reports may be required to disclose.

Directs the Commission to make such reported information conveniently available to the public for a reasonable fee.

=Title V: Development of a National Securities Market System= - Directs the Commission to establish a national market system for transactions in securities. Directs the Commission to appoint a National Market Board to study and advise the Commission of the steps it finds should be taken to facilitate the development of the system. Directs the Commission to make a study of the need for the establishment of a national regulatory body to administer the national market system, and to report its results to the Congress by December 31, 1976. Authorizes to be appropriated $300,000 for each study.

Provides that after September 1, 1975, no national securities exchange or national securities association may, by rule or otherwise, limit or condition a member's ability to transact business on any other exchange or otherwise than on an exchange, except under specified conditions.

States that 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 manner, as the appropriate regulatory agency, by rule, may prescribe.