June 16, 1970
Page 19974
BILL DRAFTED BY SECURITIES INDUSTRY TASK FORCE
Mr. MUSKIE. Mr. President, I ask unanimous consent to have printed at this point in the RECORD a bill, drafted by a securities industry task force, to provide greater financial protection for customers of registered brokers and dealers and members of national securities exchanges.
Following earlier hearings on this vital matter, the industry has responded with a proposal which it finds acceptable for the achievement of greater customer protection in the securities field. I shall be studying this proposal with great care to determine whether the areas of agreement with my own bill are sufficiently broad to provide a common basis for forward looking legislation.
There being no objection, the draft of the bill was ordered to be printed in the RECORD, as follows:
S. -
A bill to provide greater financial protection for customers of registered brokers and dealers and members of national securities exchanges
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION. 1. This Act may be cited as the "Securities Investor Protection Act of 1970."
SEC. 2. Section 15(b) of the Securities Exchange Act of 1934 is amended by adding three new paragraphs numbered (11) through (13), respectively, to read as follows:
"(11) No broker or dealer shall become, or (except as hereinafter provided in this subsection) remain, registered pursuant to this subsection unless such broker or dealer is a member of an approved investor protection organization. As used in this title, the term 'approved investor protection organization' shall include the Corporation established by section 35 of this title and any other organization which the Commission shall approve as being in the public interest and satisfying the purposes for which sections 35 and 36 of this title were enacted, including the providing of financial protection for customers of brokers or dealers not less favorable than that provided to customers of the members of such Corporation.
"(12) In the event that any broker or dealer registered pursuant to this subsection shall cease to be a member of an approved investor protection organization, the Commission, shall, after appropriate notice and opportunity for hearing, by order suspend or revoke the registration of such broker or dealer unless it finds that such suspension or revocation is not in the public interest.
"(13) The Commission may by such rules and regulations or orders as it deems necessary or appropriate in the public interest or for the protection of investors either unconditionally or upon specified terms and conditions or for specified periods, exempt from paragraph (11) of this subsection any broker or dealer or class of brokers or dealers specified in such rules, regulations or orders."
SEC. 3. The Securities Exchange Act of 1934 is amended by adding a new Section 35 to read as follows:
"SEC. 35 (a) (1) There is hereby established a body corporate to be known as 'Securities Investor Protection Corporation' (herein referred to as the "Corporation"). The Corporation shall have succession until dissolved by Act of Congress, which Act shall make provision that none of the net assets of the Corporation will inure to the benefit of any of its members. The Corporation shall not be an agency or establishment of the United States Government; shall be a membership corporation in which any broker or dealer registered pursuant to section 15 of this title shall be eligible for membership; and shall be subject to the provisions of this section and sections 36 and 37 of this title and, to the extent consistent with such sections, to the provisions of the District of Columbia Nonprofit Corporation Act.
"(2) The Corporation shall have a Board of Governors consisting of not more than twelve individuals, as follows: (i) one governor shall be the Secretary of the Treasury or his delegate; (ii) one governor shall be appointed by the President; (iii) one governor shall be appointed by the governing body of the national securities exchange having the highest dollar volume of trading; provided that if such volume exceeds 50% of the total dollar volume of trading on all national securities exchanges, an additional four governors shall be so appointed by such governing body; (iv) the respective governing bodies of the national securities exchanges ranking second, third and fourth in dollar volume of trading shall each appoint one governor; and (v) two governors shall be appointed by the national securities association registered pursuant to section 15A (b) of this title, or, if there shall be more than one such association, by the association having the greatest number of members. All matters relating to tenure in office, including the terms of office of governors and the periods for determining dollar volumes of trading, shall be as provided in the by-laws of the Corporation.
"(3) The Board of Governors shall elect from its members a chairman who shall be the chief executive officer of the Corporation and shall serve at the pleasure of the Board of Governors.
"(4) In addition to the powers granted to the Corporation elsewhere in this title, the Corporation shall have the power
"(A) to sue and be sued, complain and defend, in its corporate name and through its own counsel, in any court, State or Federal;
"(B) to adopt, alter, and use a corporate seal, which shall be judicially noticed;
"(C) to adopt, amend, and repeal, by its Board of Governors, by-laws, rules and regulations relating to the conduct of its business and the exercise of all other rights and powers granted to the Corporation by this title;
"(D) to conduct its business (including the carrying on of operations and the maintenance of offices) and to exercise all other rights and powers granted to it by this title in any State or other jurisdiction without regard to any qualification, licensing or other statute in such State or other jurisdiction;
"(E) to lease, purchase, accept gifts or donations of or otherwise acquire, to own, hold, improve, use, or otherwise deal in or with, and to sell, convey, mortgage, pledge, lease, exchange or otherwise dispose of, any property, real, personal or mixed, or any interest therein, wherever situated;
"(F) subject to the provisions of paragraph (3) of this subsection, to elect or appoint such officers, attorneys, employees and agents as may be required, to determine their qualifications, to define their duties, to fix their salaries, require bonds for them and fix the penalty thereof; and
"(G) to enter into contracts, to execute instruments, to incur liabilities, and to do any and all other acts and things as may be necessary or incidental to the conduct of its business and the exercise of all other rights and powers granted to the Corporation by this title.
The Corporation shall also have all the powers conferred upon a nonprofit corporation by the District of Columbia Nonprofit Corporation Act which are not inconsistent with this section or section 36 or 37 of this title.
"(5) The adoption, amendment or repeal of any by-law, rule or regulation by the Corporation shall take effect upon the thirtieth day after the filing of a copy thereof with the Commission or upon such earlier date as the Commission may determine, unless the Commission shall enter an order disapproving such adoption, amendment or repeal. The Commission shall not enter such an order of disapproval unless, after appropriate notice and opportunity for hearing, the Commission shall find that such adoption, amendment or repeal is contrary to the public interest or contrary to the purposes for which this section and sections 36 and 37 of this title were enacted. Any resolution of the Board of Governors provided for in subsection (c) (2), (c) (3), (c) (6) or (c) (10) of this section, and, unless specified therein, any other resolution of the Board of Governors, shall not constitute a by-law, rule or regulation of the Corporation.
"(6) The Corporation by-law, rule or regulation, shall establish its fiscal year. As soon as practicable after the close of each fiscal year, the Corporation shall submit to the Commission a written report relative to the conduct of its business and the exercise of the other rights and powers granted by this title during such fiscal year. Such report shall include financial statements setting forth the financial position of the Corporation at the end of such fiscal year and the results of its operations (including the source and application of its funds) for such fiscal year.The financial statements so included shall be examined by an independent public accountant or firm of independent public accounts, selected by the Corporation and satisfactory to the Commission, and shall be accompanied by the report thereon of such accountant or firm. The Commission shall transmit such report to the Congress with such comment thereon as the Commission may deem appropriate.
"(7) Every broker or dealer registered pursuant to subsection (b) of section 15 of this title on the 120th day following the date of enactment of the Securities Investor Protection Act of 1970 shall automatically become a member of the Corporation on such 120th day unless prior to such day the Commission shall, pursuant to subsection (b) (13) of section 15 of this title, have exempted such broker or dealer from subsection (b) (11) of such section. Any broker or dealer who shall become registered pursuant to subsection (b) of section 15 of this title after such 120th day shall at the time such registration becomes effective automatically become a member of the Corporation unless at such time such broker or dealer either becomes a member of another approved investor protection organization or is exempted by the Commission, pursuant to subsection (b) (13) of section 15 of this title, from membership in any approved investor protection organization. A broker or dealer shall automatically become a member of the Corporation upon the termination of the exemption, pursuant to subsection (b) (13) of section 15 of this title, of such broker or dealer from membership in any approved investor protection organization, unless at such time such broker or dealer becomes a member of another approved investor protection organization. As soon as practicable after the abovementioned date of enactment and from time to time thereafter, the Commission shall furnish to the Corporation the names and addresses of brokers and dealers registered and becoming registered pursuant to subsection (b) of section 15 of this title together with such other information concerning such brokers and dealers and their operations as may be appropriate in connection with the exercise by the Corporation of the rights and powers granted to it by this title.
"(b) (1) As hereinafter used in this title, the term 'self-regulatory organization' shall mean a national securities exchange or a national securities association registered pursuant to section 15A(b) of this title; the term 'financial responsibility rules' shall mean the rules and regulations pertaining to financial responsibility which are applicable to a broker or dealer, as prescribed by the Commission under subsection (c) (3) of section 15 of this title or prescribed by a national securities exchange; and the term 'examining authority' shall mean the self-regulatory organization which examines a member thereof or the Commission if the broker or dealer is not a member of any self-regulatory organization. The self-regulatory organization of which a member of the Corporation is a member shall examine such member for compliance with applicable financial responsibility rules, except that if a member of the Corporation is a member of more than one self-regulatory organization, the Corporation shall designate one of such self-regulatory organizations to examine such member of the Corporation for compliance with applicable financial responsibility rules. Such self-regulatory organization shall be selected by the Corporation on the basis of regulatory procedures employed, availability of staff, convenience of location, and such other factors as the Corporation may consider appropriate for the protection of customers of its members.
"(2) The Corporation shall consult and cooperate with the self-regulatory organizations toward the end (i) that there will be developed and carried into effect procedures reasonably designed to detect approaching financial difficulty upon the part of any member of the Corporation; (ii) that, as nearly as may be practicable, examinations to ascertain whether members of the Corporation are in compliance with applicable financial responsibility rules will be conducted by the self-regulatory organizations under appropriate standards (both as to method and scope) and reports of such examinations will, where appropriate, be standard in form; and (iii) that, as frequently as may be practicable under the circumstances, each member of the Corporation will file information with, and be examined by, the self-regulatory organizations which is the examining authority for such member.
"(3) There shall be filed with the Corporation by the self-regulatory organizations such reports of examinations of the members of the Corporation as may be designated by the Corporation by by-law, rule or regulation. Any report so filed shall not be available for public inspection unless the Corporation shall determine that disclosure thereof is in the public interest.
"(4) Nothing in this subsection shall in any manner limit the powers of the Commission under this title.
"(c) (1) The Corporation shall establish a fund to permit the exercise of the rights and powers granted to it by, and to effectuate the purposes of, this section and section 36 of this title without resort, to the greatest extent possible, to any loans from the Treasury pursuant to paragraph (11) of this subsection. If and so long as the total amount of the assets in such fund shall aggregate $150,000,000 or such other amount (not less than $75,000,000) as the Corporation may, by bylaw, rule or regulation, determine to be adequate in the public interest for the protection of customers of its members, assessments made upon the members of the Corporation shall be limited to those required for its current operating expenses. In computing such total amount of assets, there shall be deducted (i) such sums as shall be reasonably estimated by the Corporation to be required to be paid by the Corporation, less the amount estimated to be recoverable by it, in proceedings pending pursuant to applications under subsection (a) of section 36 of this title, and (ii) if assets of the Corporation (other than assessments of members) have been pledged to secure the payment of bonds, notes or other evidences of indebtedness issued by the Corporation, the principal amount of such bonds, notes or other evidences of indebtedness or the amount of the investment of the Corporation in such assets, whichever is the lesser, and there shall be included as assets only cash on hand or on deposit and the amount invested in securities issued or guaranteed by the United States or any person controlled or supervised by and acting as an instrumentality of the United States government pursuant to authority granted by Act of Congress; provided that if the total amount of assets as so computed aggregates at least $75,000,000, there shall be deemed to be included as cash in the fund the amount, if any, which the Corporation has the right to borrow from a bank under a line of credit or other agreement at the time in effect if the cash so borrowed shall be repayable by the Corporation not less than one year from the time of borrowing, including all rights of extension, refunding or renewal at the election of the Corporation.
"(2) Each broker or dealer who is a member of the Corporation on the 120th day following the date that the Securities Investor Protection Act of 1970 is enacted shall pay to the Corporation an assessment equal to one-tenth of 1 % of the gross revenues from the securities business of such broker or dealer during the calendar year 1969, or if the Commission shall determine that, for purposes of assessment pursuant to this paragraph (2), a lesser percentage of gross revenues from the securities business is appropriate for any class or classes of brokers or dealers (taking into account relevant factors, including types of business done and nature of securities sold), such lesser percentage as the Commission, by rule or regulation, shall establish for such class or classes, but in no event less than 1/16 of 1% for any such class; provided that in no event shall such assessment upon a member be less than $250 or more than $150,000. Each self-regulatory organization shall act as collection agent for the Corporation to collect the assessments payable by all brokers or dealers for whom such self-regulatory organization is the examining authority, and such brokers or dealers shall pay such assessments to the Corporation through such examining authority, and members of the Corporation who are not members of any self-regulatory organization shall make payment direct to the Corporation. All assessments made pursuant to this paragraph (2) shall be payable in two equal installments, of which the first shall be due on or before the 120th day following such data of enactment, and the second shall be due on December 31, 1970 2 or such date prior thereto as the Corporation, by resolution of its Board of Governors, shall specify. As used in this section, the term "gross revenues from the securities business" shall mean the sum of (but without duplication): (i) commissions earned in connection with transactions in securities effected for customers as agent, net of commissions paid to other brokers or dealers in connection with such transactions, and markups in respect of purchases or sales of securities as principal, (ii) charges for executing or clearing transactions in securities for other brokers or dealers, (iii) the net realized gain, if any, from principal transactions in securities in trading accounts, (iv) the net profit, if any, from the management of or participation in the underwriting or distribution of securities, (v) interest earned on customers' securities accounts, (vi) fees for investment advisory services or account supervision in respect of securities and management fees from investment companies, (vii) fees for the solicitation of proxies with respect to, or tenders or exchanges of, securities, (viii) income from service charges or other surcharges in respect of securities, (ix) dividends and interest received on securities in investment accounts, (x) fees in connection with put, call and other option transactions, and (xi) fees and other income for all other investment banking services; provided that securities shall not include any interests in real estate or oil, gas or other mineral rights. To the extent provided by the Corporation, by-law, rule or regulation, gross revenues from the securities business of a broker or dealer and all its subsidiaries and the operations of any business to which such broker or dealer has succeeded shall be included. The corporation shall have the right, by by-law, rule or regulation to define all terms used in this paragraph insofar as such definitions are not inconsistent with the provisions of this paragraph.
"(3) After consultation with self-regulatory organizations, the Corporation shall, by resolution of its Board of Governors, make upon the members of the Corporation such assessments as may be necessary that, at the earliest practicable time, the fund established pursuant to paragraph (1) of this subsection will have, and continue to have, therein the total amount of assets required by such paragraph, and that the Corporation will have all moneys required for its current operating expenses and for the payment when due of the principal of, and interest and premium, if any, on, all moneys borrowed by the Corporation; provided that the assessments so made shall be in conformity with contractual obligations assumed by the Corporation in connection with any loan or pledge made pursuant to paragraph (10) or (11) of this subsection. For the purpose of making such assessments, the Corporation, by resolution of its Board of Governors, may classify the members of the Corporation according to the amount or composition of their gross revenues from the securities business, the number or dollar volume of transactions effected by them, the number of and the amounts of cash and securities in the customer accounts maintained by them, their net capital, the nature of their activities, whether in the securities business or otherwise, and other relevant factors, all as the Board of Governors determines to be fair and reasonable. Assessments shall be paid by members of the Corporation upon a quarterly basis or upon such other basis as the Corporation by resolution of its Board of Governors may determine, and, in the case of members of self-regulatory organizations, shall be collected through their respective examining authorities. An examining authority shall be obligated to remit to the Corporation assessments made under this subsection only to the extent that payments of such assessments are received by such examining authority.
"(4) Each broker or dealer who is a member of the Corporation shall file with such broker's or dealer's examining authority such information (including reports of, and information with respect to, the gross revenues from the securities business of such member, including the composition thereof, transactions in securities effected by such member, and such other information with respect to such member's activities, whether in the securities business or otherwise, including customer accounts maintained, net capital employed, and activities conducted) as, by by-law, rule or regulation, the Corporation may determine necessary or appropriate for the purpose of paragraphs (2) or (3) of this subsection. The examining suthority shall file with the Corporation all or such part of such information (and such compilations and analyses thereof) as the Corporation, by by-law, rule or regulation, shall prescribe. No application, report or document filed pursuant to this section or section 36 or section 37 of this title shall be deemed to be filed pursuant to this title for the purpose of section 18 of this title.
(5) If a member shall have paid in full an assessment made upon him by the Corporation, or such portion thereof as at the time shall be due and payable, such member shall, within 30 days after the making of such payment, be entitled to apply to the Commission for a determination by it whether the amount of such assessment is unfair and inequitable to such member as compared to the assessments made upon the other members of the Corporation. The Commission is authorized, after appropriate notice and opportunity for hearing, upon consideration of the resolution of the Board of Governors making such assessments and such other evidence as it may deem relevant, to determine whether such assessment upon such member is unfair and inequitable as alleged. If the Commission shall determine that such assessment upon such member is not unfair and inequitable as alleged, the Commission shall enter an order to that effect. If the Commission shall determine that such assessment upon such member is unfair and inequitable as alleged, the Commission shall by order reduce the amount of such assessment upon such member to such amount as, in the judgment of the Commission, is fair and equitable as compared to the assessments made upon the other members of the Corporation, and the Corporation shall repay the amount of such reduction to such member, together with interest thereon at the same rate as is then applicable under paragraph (6) of this subsection.
"(6) If a member of the Corporation shall fail to pay when due all or any part of an assessment made upon him, the unpaid portion thereof shall bear interest at such rate as may be determined by the Corporation by by-law, rule or regulation, and if such failure shall continue for a period of 15 days, the Corporation shall be entitled, after appropriate notice and opportunity for hearing, to expel such member from membership in the Corporation.
"(7) Anything in this section to the contrary notwithstanding, (i) no assessments shall be made pursuant to paragraph (3) of this subsection upon a member for payments during any twelve-month period which exceeds 1/4of 1 % of such member's gross revenues from the securities business for such period, or 1/2 of 1 % thereof if any borrowing by the Corporation pursuant to paragraph (10) or (11) of this subsection shall be outstanding at any time during such period; and (ii) if and to the extent that an assessment upon a member is based upon or measured by such member's gross revenues from the securities business, it shall be deemed to be fair and equitable.
"(8) Subject to the foregoing provisions of this subsection, the Corporation, by resolution of its Board of Governors, may prescribe such procedures with respect to the making and collection of assessments as it may determine to be necessary or appropriate to permit the exercise of the rights and powers granted to the Corporation by, or to effectuate the purposes of, this section or section 36 of this title.
"(9) There may be contributed and transferred at any time to the Corporation any funds or securities held by any trust established by a self-regulatory organization prior to January 1, 1970, and the amounts so contributed and transferred shall be applied as a reduction in the amounts payable pursuant to assessments made or to be made by the Corporation upon members of such self-regulatory organization, as may be determined by the Corporation; provided, however, that no such reduction shall be made at any time when there shall be outstanding any borrowing by the Corporation pursuant to paragraph (10) or (11) of this subsection.
"(10) The Corporation, by resolution of its Board of Governors, shall have the power to borrow moneys and to evidence such borrowed moneys by the issuance of bonds, notes or other evidences of indebtedness, all upon such terms and conditions as the Board of Governors may determine, in the case of a borrowing other than pursuant to paragraph (11) of this subsection, or as may be prescribed by the Secretary of the Treasury in the case of a borrowing pursuant to said paragraph (11). To secure the payment of the principal of, and interest and premium, if any, on, all bonds, notes or other evidences of indebtedness so issued, the Corporation, by resolution of the Board of Governors, may make agreements with respect to the amount of future assessments to be made upon members and may pledge all or any part of the assets of the Corporation and of the assessments made or to be made upon members; provided that, during any period when a borrowing by the Corporation pursuant to paragraph (11) of this subsection is outstanding, no pledge of any assesment made pursuant to paragraph (3) of this subsection upon a member to secure any bonds, notes or other evidences of indebtedness issued other than pursuant to said paragraph (11) shall be effective to the extent that the assessment on such member provides for payment by such member during any twelve-month period of an amount in excess of l/4 of 1% of such member's gross revenues from the securities business for such period. Any such pledge shall be valid and binding from the time that it is made, and the assessments so pledged and thereafter received by the Corporation, or any examining authority as collection agent for the Corporation, shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding against all parties having claims of any kind against the Corporation whether pursuant to this section or section 36 of this
title, in tort, contract or otherwise, irrespective of whether such parties have notice thereof. Neither the resolution of the Board of Governors nor any other instrument by which a pledge is created need be filed or recorded in any jurisdiction.
" (11) At any time that the available assets of the Corporation are insufficient to permit the exercise of the rights and powers granted to the Corporation by, or to effectuate the purposes of, this section and section 36 of this title, the Treasury is authorized to make a loan or loans to the Corporation upon application therefor. At the time of application for, and as a condition to, any such loan, the Corporation shall file with the Commission a statement setting forth the proposed use of the proceeds of such loan and a projection of the assessments proposed to be made during the term of the loan for which application is made. If the Commission shall determine and certify to the Secretary of the Treasury, based upon conditions existing at the time of such application, either (a) that the assessments so projected provide reasonable assurance of repayment when due of such loan, including the interest thereon, or (b) that such loan is necessary in the public interest and essential for the protection of investors and the maintenance of confidence in United States securities markets, the Secretary of the Treasury is authorized and directed to make such loan as hereinafter provided; provided that the aggregate principal amount at any time outstanding of all bonds, notes or other evidences of indebtedness evidencing loans so made by the Secretary of the Treasury shall not exceed $1,000,000,000 and provided, further, that the terms and provisions of each such loan (and the forms and denominations of the bonds, notes or other evidences of indebtedness issued by the Corporation to evidence such loan) shall be as determined by the Secretary of the Treasury who, in determining the rate of interest thereon, shall take into consideration the current average yield on outstanding marketable obligations of the United States of comparable maturities issued during the month preceding the issuance by the Corporation of such bonds, notes or other evidences of indebtedness. The Secretary of the Treasury shall purchase any bonds, notes or other evidences of indebtedness issued to evidence a loan under this paragraph (11) and for that purpose he is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under that Act, as amended, are extended to include any purchase of such bonds, notes or other evidences of indebtedness. The Secretary of the Treasury may at any time sell any of the bonds, notes or other evidences of indebtedness acquired by him under this paragraph. All redemptions, purchases and sales by the Secretary of the Treasury of such bonds, notes or other evidences of indebtedness shall be treated as public debt transactions of the United States.
"(d) The provisions of section 20 of this title shall not apply to any liability under or in connection with this section or section 36 of this title."
SEC. 4. The Securities Exchange Act of 1934 is amended by adding a new section 36 to read as follows:
"SEC. 36 (a) (1) Whenever an examining authority shall determine that a member of the Corporation, or a member who has been expelled pursuant to subsection (c) (6) of section 35 of this title and not thereafter exempted from membership in an approved investor protection organization pursuant to subsection (b) (13) of section 15 of this title, or a member whose registration pursuant to subsection (b) of section 15 of this title is suspended or revoked pursuant to subsection (b) (12) of section 15 of this title, has failed or is in danger of failing to meet its outstanding obligations to customers, such examining authority shall forthwith give notice thereof to the Corporation.
"(2) For the purposes of this section, a member of the Corporation shall conclusively be deemed to have failed or to be in danger of failing to meet its outstanding obligations to customers if:
"(A) such member is insolvent within the meaning of section 1(19) of the Bankruptcy Act;
"(B) such member is unable to meet its obligations as they mature;
"(C) such member has committed an act of bankruptcy within the meaning of section 3 of the Bankruptcy Act;
"(D) such member is the subject of a receivership or an insolvency or liquidation proceeding pending in any court or before any agency of the United States or any State; or
"(E) such member is unable to demonstrate that it is in compliance with applicable financial responsibility rules and the examining authority for such member determines that such member is generally unable to meet demands upon such member for reasonably prompt payment or delivery of cash or securities.
"(3) Any notice given pursuant to paragraph (1) of this subsection by reason of a condition referred to in subparagraph (E) of paragraph (2) of this subsection shall be accompanied by a statement of the examining authority whether, in its opinion, such condition could be eliminated reasonably promptly by the imposition of restrictions on transactions or other activities of the member involved, by the making of a subordinated loan by the Corporation to such member, or by the merger or other combination of the business of such member with another broker or dealer, or by any combination of the foregoing, and, if so, the plan proposed for the elimination of such condition; provided, however, that if and so long as there remains outstanding any borrowing by the Corporation pursuant to subsection (c) (11) of section 35 of this title, no such plan may provide for the making of a subordinated loan by the Corporation. Upon receipt of a notice which is accompanied by such a plan, the Corporation shall determine whether it is in the public interest (i) to permit the member involved to continue operations pursuant to such plan or any modification thereof approved by the Corporation or (ii) to liquidate the business of such member; provided, however, that notwithstanding the Corporation's permitting such member so to continue operations, the Corporation may, at any time thereafter during the continuance of the condition specified in such notice, make application pursuant to paragraph (4) of this subsection if it shall determine that liquidation of the business of such member is in the public interest. Any subordinated loan made to a member pursuant to any such plan or modification shall be on such terms and provisions as shall be determined by the Corporation, and the Corporation shall provide the proceeds of such loan to such member.
"(4) Upon receipt of a notice given pursuant to paragraph (1) of this subsection by reason of a condition referred to in subparagraph (A), (C) or (D) of paragraph (2) of this subsection, the Corporation shall, and upon receipt of a notice given pursuant to paragraph (1) of this subsection by reason of any other condition the Corporation in its discretion may apply to any court of competent jurisdiction specified in section 27 of this title and, upon notice to the member involved, obtain a decree adjudicating that such member has failed or is in danger of failing to meet its outstanding obligations to customers. Such application may be filed notwithstanding the pendency in the same or any other court of any bankruptcy, mortgage foreclosure, or equity receivership proceeding or any proceeding to reorganize, conserve, or liquidate such member or its property, or any proceeding to enforce a lien against property of such member. A member in respect of which such an application has been filed is hereinafter in this section referred to as a "debtor", and the date on which such an application with respect to any debtor is filed is hereinafter in this section referred to as the "filing date", except that if a notice is required by reason of a condition referred to in subparagraph (D) of paragraph (2) of this subsection, the 'filing date' shall mean such earlier date, if any, as a petition was filed by or against the debtor under the Bankruptcy Act.
"(5) Upon the filing of an application pursuant to paragraph (4) of this subsection, the court to which application is made shall have exclusive jurisdiction of the debtor involved and its property wherever located. Pending an adjudication such court shall stay, and upon appointment by it of a trustee as hereinafter provided such court shall continue the stay of, any pending bankruptcy, mortgage foreclosure, equity receivership or other proceeding to reorganize, conserve or liquidate the debtor or its property and any other suit against any receiver, conservator or trustee of the debtor or its property. Pending such adjudication and upon the appointment by it of such trustee, the court may stay any proceeding to enforce a lien against property of the debtor or any other suit against the debtor. Pending such adjudication, such court may appoint a temporary receiver.
"(6) If the debtor shall consent to or fail to contest the Corporation's application or if the debtor fails adequately to controvert any material allegation of such application, the court shall forthwith appoint as trustee for the liquidation of the business of debtor (including the other purposes of a proceeding under this section), and as attorney for such trustee, such persons as the Corporation shall specify, provided that no person shall be appointed as such trustee or attorney if such person is not 'disinterested' within the meaning of section 158 of the Bankruptcy Act.
"(b)(1) A trustee appointed pursuant to this section shall be vested with the same powers and title with respect to the debtor and the property of the debtor, and the same rights to avoid preferences, as a trustee in bankruptcy and a trustee under Chapter X of the Bankruptcy Act have with respect to a bankrupt and a Chapter X debtor; provided that the trustee shall have the right (i) with the approval of the Corporation, to hire and fix the compensation of all personnel (including officers and employees of the debtor and of its examining authority) and other persons (including but not limited to accountants) that are deemed necessary to liquidate the business of the debtor and for the other purposes of a proceeding under this section, and (ii) to operate the business of the debtor in order to complete open contractual commitments as hereinafter provided, and no approval of the court shall be required therefor. The Corporation is authorized to advance to the trustee such moneys as may be required to effectuate clause (i) of the foregoing proviso, and shall advance to the trustee such moneys as (with those available pursuant to subsection (d) (2) of this section) may be required to effectuate clause (ii) of such proviso.
"(2) Except as inconsistent with the provisions of this section or otherwise ordered by the court, a trustee appointed pursuant to subsection (a) of this section shall be subject to the same duties as a trustee appointed under section 44 of the Bankruptcy Act, provided, however, that a trustee appointed pursuant to subsection (a) of this section may, but shall have no duty to, reduce to money any securities in the estate of the debtor.
"(3) Except as inconsistent with the provisions of this section and except that in no event shall a plan of reorganization be formulated, proceedings under this section shall be conducted in accordance with, and as though they were being conducted under, the provisions of Chapter X and such of the provisions of Chapter I to VII, inclusive, of the Bankruptcy Act as Section 102 of Chapter X would make applicable if an order of the court had been entered directing that bankruptcy be proceeded with pursuant to the provisions of such Chapters I to VII, inclusive; provided that the court may stay enforcement of, but shall not abrogate, the rights provided in section 68 of the Bankrutcy Act. For all such purposes the filing date shall be deemed to be the date of commencement of proceedings under the Bankruptcy Act.
"(c) The purposes of any proceeding under this section shall be:
"(1) to operate the business of the debtor in order to complete all contractual commitments of the debtor relating to transactions in securities which were made in the ordinary course of the debtor's business and were outstanding on the filing date, other than contractual commitments the completion of which the Commission shall have determined by rule or regulation not to be in the public interest;
"(2) as promptly as practicable after the appointment of the trustee, in accordance with the provisions of this section:
"(A) to return specifically identifiable property to the customer of the debtor entitled thereto;
"(B) to distribute the single and separate fund, and (in anticipation thereof or concurrently therewith) to pay to customers moneys advanced by the Corporation as hereinafter provided; and (3) to liquidate the business of the debtor.
"(d) For the purpose of any proceeding under this section the term 'stockbroker', as used in section 60e of the Bankruptcy Act, shall mean the debtor, and:
"(1) Customers and their subrogees shall have all rights to reclaim specifically identifiable property, and all other rights and priorities, provided for in said section 60e, and shall have the additional rights provided by this section.
"(2) All cash or securities held, recoverable or receivable by or for the account of the debtor (except for cash or securities specifically identifiable as the property of particular customers), and all property in the single and separate funds, shall be available to complete open contractual commitments pursuant to subsection (c) of this section. No securities purchased or cash received upon the completion of any such commitment shall constitute specifically identifiable property.
"(3) In or for the purpose of distributing the single and separate fund:
"(A) all property other than cash shall be valued as of the close of business on the filing date;
"(B) there shall be repaid to the Corporation, in priority to all other claims payable from such single and separate fund, the amount of all advances made by the Corporation to the trustee to permit the completion of open contractual commitments as provided in subsection (c) of this section;
"(C) there shall be paid from such single and separate fund all costs and expenses specified in clauses (1) and (2) of section 64a of the Bankruptcy Act, and any moneys advanced by the Corporation for such costs and expenses shall be recouped as such; and
"(D) to the greatest extent considered practicable by the trustee, the trustee shall deliver in payment of claims of customers for securities, securities of the same class and series of an issuer (ratably up to the respective amounts) to which such customers were entitled on the filing date.
"(4) In determining whether particular customers are able to identify specifically their property, whether property remained in its identical form in the debtor's possession or whether such property or any substitutes therefor have been allocated to or physically set aside for such customers, and remained so allocated or set aside, it shall be sufficient that on the filing date:
"(A) securities are segregated individually, or in bulk for customers collectively;
“(B) in the case of securities held for the account of the debtor as part of any central certificate service of any clearing corporation or any similar depositary, the records of the debtor show that all or a specified part of the securities held by such clearing corporation or other similar depositary are held for specified customers, or for customers collectively, if such records of the debtor also show the identities of the particular customers entitled to receive specified numbers or units of such securities so held for customers collectively; or
"(C) such securities are held for the account of customers of the debtor in such other manner as the Commission, for the protection of customers and other creditors on a fair and equitable basis, by rule or regulation shall determine to be sufficiently identifiable as the property of such customers;
"Provided that: if there is any shortage in securities of the same class and series of an issuer so segregated in bulk or otherwise held for customers, as compared to the aggregate rights of particular customers to receive securities of such class and series, the respective interests of such customers in such securities of such class and series, shall be pro rated, without prejudice, however, to the satisfaction of any claim for deficiencies as otherwise provided in this section.
"(5) the term 'customer' shall include any person who has deposited cash with the debtor for the purpose of purchasing securities, but shall not include any person to the extent that such person has a claim for property which by contract, agreement or understanding, or by operation of law, is part of the capital of the debtor or is subordinated to the claims of creditors of the debtor.
"(6) to the extent that moneys are advanced by the Corporation to the trustee to pay the claims of customers, the Corporation shall be subrogated to the claims of such customers with the rights and priorities above provided in this subsection (d).
"(e) It shall be the duty of the trustee to discharge promptly, in accordance with the provisions of this section, all obligations of the debtor to each of its customers relating to securities by the delivery of securities or effecting payments to such customers insofar as such obligations are ascertainable from the books and records of the debtor or are otherwise determined to the satisfaction of the trustee, whether or not the particular customer shall have filed formal proof of such claim. For that purpose the court among other things shall
"(A) authorize the payment and discharge of claims out of moneys made available to the trustee by the Corporation notwithstanding the fact that there shall not have been any formal proof of such claims or any showing or determination that there are sufficient funds of the debtor available to make such payment; and
"(B) authorize the trustee to satisfy claims to delivery securities of a class and series of an issuer which are ascertainable from the books and records of the debtor or are otherwise determined to the satisfaction of the trustee, if and to the extent that securities of such class and series to satisfy such claims (in whole or pro rata in part) are sufficiently identifiable, any payment or delivery of property pursuant to this paragraph may be conditioned upon the trustee requiring claimants to execute in a form to be determined by the trustee, appropriate receipts, supporting affidavits and assignments, but shall be without prejudice to the right of any claimant to file formal proof of claim for any balance of securities or cash to which he may deem himself entitled.
"(f) The provisions of this section permitting discharge of obligations of the debtor to pay cash or to deliver securities without formal proof of claim shall not apply to any person "associated" with the debtor as defined in section 3(a) (18) of this title or any beneficial owner of 5% or more of the voting stock of the debtor or any spouse or minor child of any of the foregoing.
"(g) In order to provide for prompt payment and satisfaction of the net equities of customers of the debtor, the Corporation shall advance to the Trustee such moneys as may be required to pay or otherwise satisfy claims in full of each customer but not to exceed $50,000 for such customer or (if at the time no borrowing by the Corporation pursuant to subsection (c) (11) of section 35 of this title is outstanding) such greater amount as the Corporation shall have determined by by-law, rule or regulation; provided that a customer who holds accounts with the debtor in separate capacities shall be deemed to be a different customer in each capacity, and provided, further, that no such advance shall be made by the Corporation to the trustee to pay or otherwise satisfy any claims of any customer who is a broker or dealer, a partner, officer or director of the debtor, or the beneficial owner of 5% or more of the voting stock of the debtor.
"(h) Nothing in this section shall limit the right of any person to establish by formal proof such claims as such person may have to payment, or to delivery of specific securities, without resort to moneys advanced by the trustee to the Corporation.
"(i) Promptly after his appointment, the trustee shall cause notice of the commencement of proceedings under this section to be published in accordance with a designation of the court, made in accordance with the requirements of Section 28 of the Bankruptcy Act. Except for claims allowed without the filing of formal proof thereof as in this section provided, no claim for specifically identifiable property or claim payable from property in the single and separate fund or with moneys advanced by the Corporation, shall be allowed which has not been filed within 90 days after such publication, and no other claim shall be allowed after the time specified in section 57 of the Bankruptcy Act. Subject to the foregoing and without limiting the powers and duties of the trustee to discharge promptly obligations as specified in this section, the court may make appropriate provision for proof and enforcement of all claims against the debtor including those of any subrogee.
"(j) All reports to the court by a trustee in any proceeding under this section shall be in such form and detail as, having due regard to the requirements of section 17 of this title and the rules and regulations thereunder and the magnitude of items and transactions involved in connection with the operations of a broker or dealer, the Commission shall determine, by rules and regulations to present fairly the results of such proceeding as at the dates or for the periods covered by such reports.
"(k) Any approved investor protection organization other than the Corporation shall have with respect to its members and their customers the same powers and duties conferred by this section on the Corporation with respect to members of the Corporation and their customers."
SEC. 5. The Securities Exchange Act of 1934 is amended by adding a new section to read as follows:
SEC. 37(a) The Corporation, its assets and its income, including but not limited to income from investment of the fund established by subsection (c) (1) of section 35, shall be exempt from all taxation, now or hereafter imposed by the United States or by any State or local taxing authority, except that any real property and any tangible personal property (other than cash and securities) of the Corporation shall be subject to State and local taxation to the same extent according to its value as other real and tangible personal property is taxed. Assessments made upon a member of the Corporation shall constitute ordinary and necessary expenses in carrying on the business of such member for the purpose of section 162(a) of the Internal Revenue Code of 1954, as amended. The contribution and transfer to the Corporation of funds or securities held by any trust established by a national securities exchange prior to January 1, 1970, for the purpose of providing assistance to customers of members of such exchange, shall not result in any taxable gain to such trust under any provision of the Internal Revenue Code of 1954, as amended, nor shall such contribution or transfer, or any reduction in assessments made pursuant to subsection (c) (9) of section 35 of this title, in any way affect the status, as ordinary and necessary expenses under Section 162(a) of the Internal Revenue Code of 1954, as amended, of any contributions made to such trust by such exchange at any time prior to such transfer.
"(b) Whoever steals, unlawfully abstracts, unlawfully and willfully converts to his own use or to the use of another, or embezzles any of the monies, securities, or other assets of the Corporation shall be deemed guilty of a crime, and upon conviction shall be fined not more than $50,000 or imprisoned not more than five years or both.
"(c) Except for such assessments as may be made upon such member pursuant to the provisions of subsections (c) (2) and (3) of section 35 of this title, no member of the Corporation shall have any liability under section 35 or section 36 of this title (whether as a member of the Corporation, a member of a self-regulatory organization, or otherwise) for, or in connection with, any act or omission of any other broker or dealer whether in connection with the conduct of the business or affairs of such broker or dealer or otherwise.
"(d) Neither the Corporation or any self-regulatory organization shall have any liability to any person for any action taken or omitted in good faith by the Corporation or such self-regulatory organization under, or in connection with any matter contemplated by, sections 35 and 36 of this title.
"(e) It shall be unlawful for any member, officer, or employee of the Commission, any governor, officer or employee of the Corporation, or any officer or employee of the Treasury to disclose to any person other than such a member, governor, officer or employee, or to use for personal benefit any information contained in any application, report, or document submitted to or filed with the Corporation by any member of the Corporation or any self-regulatory organization, or submitted or filed by the Corporation to or with the Commission or the Treasury, unless such application, report or document is made available to the public or such disclosure by a governor. officer or employee of the Corporation is determined by the Board of Governors to be necessary or desirable in the exercise of the rights or powers granted to the Corporation by, or to effectuate the purposes of, section 35 or 36 of this title."
SEC. 6. The amendments made by this Act shall take effect as follows:
(1) The effective date of subsections (b) (11) and (12) of section 15 of the Securities Exchange Act of 1934, as added by section 2 of this Act, shall be the 120th day following the date that this Act is enacted.
(2) All other amendments contained in this Act shall take effect on the date of its enactment.