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FDIC Law, Regulations, Related Acts

[Main Tabs]     [Table of Contents - 8000]     [Index]     [Previous Page]     [Next Page]     [Search] 8000 - Miscellaneous Statutes and Regulations MARGIN REQUIREMENTS   SEC. 7.  (a)  For the purpose of preventing the excessive use of credit for the purchase or carrying of securities, the Board of Governors of the Federal Reserve System shall, prior to the effective date of this section and from time to time thereafter, prescribe rules and regulations with respect to the amount of credit that may be initially extended and subsequently maintained on any security (other than an exempted security or a security futures product). For the initial extension of credit, such rules and regulations shall be based upon the following standard: An amount not greater than whichever is higher of--     (1)  55 per centum of the current market price of the security, or     (2)  100 per centum of the lowest market price of the security during the preceding thirty-six calendar months, but not more than 75 per centum of the current market price. Such rules and regulations may make appropriate provision with respect to the carrying of undermargined accounts for limited periods and under specified conditions; the withdrawal of funds or securities; the substitution or additional purchases of securities; the transfer of accounts from one lender to another; special or different margin requirements for delayed deliveries, short sales, arbitrage transactions, and securities to which paragraph (2) of this subsection does not apply; the bases and the methods to be used in calculating loans, and margins and market prices; and similar administrative adjustments and details. For the purposes of paragraph (2) of this subsection, until July 1, 1936, the lowest price at which a security has sold on or after July 1, 1933, shall be considered as the lowest price at which such security has sold during the preceding thirty-six calendar months.   (b)  Notwithstanding the provisions of subsection (a) of this section, the Board of Governors of the Federal Reserve System, may, from time to time, with respect to all or {{6-29-01 p.9190}}specified securities or transactions, or classes of securities, or classes of transactions, by such rules and regulations (1) prescribe such lower margin requirements for the initial extension or maintenance of credit as it deems necessary or appropriate for the accommodation of commerce and industry, having due regard to the general credit situation of the country, and (2) prescribe such higher margin requirements for the initial extension or maintenance of credit as it may deem necessary or appropriate to prevent the excessive use of credit to finance transactions in securities.   (c)  UNLAWFUL CREDIT EXTENSION TO CUSTOMERS.--     (1)  PROHIBITION.--It shall be unlawful for any member of a national securities exchange or any broker or dealer, directly or indirectly, to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer--       (A)  on any security (other than an exempted security), except as provided in paragraph (2) in contravention of the rules and regulations which the Board of Governors of the Federal Reserve System (hereafter in this section referred to as the "Board") shall prescribe under subsections (a) and (b); and       (B)  without collateral or on any collateral other than securities, except in accordance with such rules and regulations as the Board may prescribe--         (i)  to permit under specified conditions and for a limited period any such member, broker, or dealer to maintain a credit initially extended in conformity with the rules and regulations of the Board; and         (ii)  to permit the extension or maintenance of credit in cases where the extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of subparagraph (A).     (2)  MARGIN REGULATIONS.--       (A)  COMPLIANCE WITH MARGIN RULES REQUIRED.--It shall be unlawful for any broker, dealer, or member of a national securities exchange to, directly or indirectly, extend or maintain credit to or for, or collect margin from any customer on, any security futures product unless such activities comply with the regulations--         (i)  which the Board shall prescribe pursuant to subparagraph (B); or         (ii)  if the Board determines to delegate the authority to prescribe such regulations, which the Commission and the Commodity Futures Trading Commission shall jointly prescribe pursuant to subparagraph (B). If the Board delegates the authority to prescribe such regulations under clause (ii) and the Commission and the Commodity Futures Trading Commission have not jointly prescribed such regulations within a reasonable period of time after the date of such delegation, the Board shall prescribe such regulations pursuant to subparagraph (B).       (B)  CRITERIA FOR ISSUANCE OF RULES.--The Board shall prescribe, or, if the authority is delegated pursuant to subparagraph (A)(ii), the Commission and the Commodity Futures Trading Commission shall jointly prescribe, such regulations to establish margin requirements, including the establishment of levels of margin (initial and maintenance) for security futures products under such terms, and at such levels, as the Board deems appropriate, or as the Commission and the Commodity Futures Trading Commission jointly deem appropriate--         (i)  to preserve the financial integrity of markets trading security futures products;         (ii)  to prevent systemic risk;         (iii)  to require that--           (I)  the margin requirements for a security future product be consistent with the margin requirements for comparable option contracts traded on any exchange registered pursuant to section 6(a) of this title; and           (II)  initial and maintenance margin levels for a security future product not be lower than the lowest level of margin, exclusive of premium, required for any comparable option contract traded on any exchange registered pursuant to section 6(a) of this title, other than an option on a security future; {{6-29-01 p.9191}} except that nothing in this subparagraph shall be construed to prevent a national securities exchange or national securities association from requiring higher margin levels for a security future product when it deems such action to be necessary or appropriate; and         (iv)  to ensure that the margin requirements (other than levels of margin), including the type, form, and use of collateral for security futures products, are and remain consistent with the requirements established by the Board, pursuant to subparagraphs (A) and (B) of paragraph (1).     (3)  EXCEPTION.--This subsection and the rules and regulations issued under this subsection shall not apply to any credit extended, maintained, or arranged by a member of a national securities exchange or a broker or dealer to or for a member of a national securities exchange or a registered broker or dealer--       (A)  a substantial portion of whose business consists of transactions with persons other than brokers or dealers; or       (B)  to finance its activities as a market maker or an underwriter; except that the Board may impose such rules and regulations, in whole or in part, on any credit otherwise exempted by this paragraph if the Board determines that such action is necessary or appropriate in the public interest or for the protection of investors.   (d)  Unlawful Credit Extension in Violation of Rules and Regulations; Exception to Application of Rules, Etc.--     (1)  PROHIBITION.--It shall be unlawful for any person not subject to subsection (c) to extend or maintain credit or to arrange for the extension or maintenance of credit for the purpose of purchasing or carrying any security, in contravention, of such rules and regulations as the Board shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of the other provisions of this section. Such rules and regulations may impose upon all loans made for the purpose of purchasing or carrying securities limitations similar to those imposed upon members, brokers, or dealers by subsection (c) and the rules and regulations thereunder.     (2)  EXCEPTIONS.--This subsection and the rules and regulations issued under this subsection shall not apply to any credit extended, maintained, or arranged--       (A)  by a person not in the ordinary course of business;       (B)  on an exempted security;       (C)  to or for a member of a national securities exchange or a registered broker or dealer--         (i)  a substantial portion of whose business consists of transactions with persons other than brokers or dealers; or         (ii)  to finance its activities as a market maker or an underwriter;       (D)  by a bank on a security other than an equity security; or       (E)  as the Board shall, by such rules, regulations, or orders as it may deem necessary or appropriate in the public interest or for the protection of investors, exempt, either unconditionally or upon specified terms and conditions or for stated periods, from the operation of this subsection and the rules and regulations thereunder.     (3)  BOARD AUTHORITY.--The Board may impose such rules and regulations, in whole or in part, on any credit otherwise exempted by subparagraph (C) if it determines that such action is necessary or appropriate in the public interest or for the protection of investors.   (e)  The provisions of this section or the rules and regulations thereunder shall not apply on or before July 1, 1937, to any loan or extension of credit made prior to the enactment of this title or to the maintenance, renewal, or extension of any such loan or credit, except to the extent that the Board of Governors of the Federal Reserve System may by rules and regulations prescribe as necessary to prevent the circumvention of the provisions of this section or the rules and regulations thereunder by means of withdrawals of funds or securities, substitutions of securities, or additional purchases or by any other device.   (f)(1)  It is unlawful for any United States person, or any foreign person controlled by a United States person or acting on behalf of or in conjunction with such person, to obtain, receive, or enjoy the beneficial use of a loan or other extension of credit from any lender (without regard to whether the lender's office or place of business is in a State or the {{6-29-01 p.9192}}transaction occurred in whole or in part within a State) for the purpose of (A) purchasing or carrying United States securities, or (B) purchasing or carrying within the United States of any other securities, if, under this section or rules and regulations prescribed thereunder, the loan or other credit transaction is prohibited or would be prohibited if it had been made or the transaction had otherwise occurred in a lender's office or other place of business in a State.     (2)  For the purposes of this subsection--       (A)  The term "United States person" includes a person which is organized or exists under the laws of any State or, in the case of a natural person, a citizen or resident of the United States; a domestic estate; or a trust in which one or more of the foregoing persons has a cumulative direct or indirect beneficial interest in excess of 50 per centum of the value of the trust.       (B)  The term "United States security" means a security (other than an exempted security) issued by a person incorporated under the laws of any State, or whose principal place of business is within a State.       (C)  The term "foreign person controlled by a United States person" includes any noncorporate entity in which United States persons directly or indirectly have more than a 50 per centum beneficial interest, and any corporation in which one or more United States persons, directly or indirectly, own stock possessing more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock.     (3)  The Board of Governors of the Federal Reserve System may, in its discretion and with due regard for the purposes of this section, by rule or regulation exempt any class of United States persons or foreign persons controlled by a United States person from the application of this subsection.   (g)  Subject to such rules and regulations as the Board of Governors of the Federal Reserve System may adopt in the public interest and for the protection of investors, no member of a national securities exchange or broker or dealer shall be deemed to have extended or maintained credit or arranged for the extension or maintenance of credit for the purpose of purchasing a security, within the meaning of this section, by reason of a bona fide agreement for delayed delivery of a mortgage related security or a small business related security against full payment of the purchase price thereof upon such delivery within one hundred and eighty days after the purchase, or within such shorter period as the Board of Governors of the Federal Reserve System may prescribe by rule or regulation. [Codified to 15 U.S.C. 78g] [Source:  Section 7 of the Act of June 6, 1934 (Pub. L. No. 291; 48 Stat. 886), effective October 1, 1934, as amended by section 203(a) of the Act of August 23, 1935 (Pub. L. No. 305; 49 Stat. 704), effective August 23, 1935; the Act of July 29, 1968 (Pub. L. No. 90--437; 82 Stat. 452), effective July 29, 1968; section 301(a) of title III of the Act of October 26, 1970 (Pub. L. No. 91--508; 84 Stat. 1124), effective not later than November 1, 1971; and section 102 of title I of the Act of October 3, 1984 (Pub. L. No. 98--440; 98 Stat. 1690), effective October 3, 1984; section 203 of title II of the Act of September 23, 1994 (Pub. L. No. 103--325; 108 Stat. 2199), effective September 23, 1994; section 104(a) of title I of the Act of October 11, 1996 (Pub. L. No. 104--290; 110 Stat. 3422), effective October 11, 1996; sections 301(b)(5) and (6) of title III of the Act of November 3, 1998 (Pub. L. No. 105--353; 112 Stat. 3236; section 206(b) of title II of the Act of December 21, 2000 (Pub. L. No. 106--554; 114 Stat. 2763A--429), effective December 21, 2000] RESTRICTIONS ON BORROWING BY MEMBERS, BROKERS, AND DEALERS   SEC. 8.  It shall be unlawful for 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, directly or indirectly-- {{6-29-01 p.9193}}   (a)  In contravention of such rules and regulations as the Commission shall prescribe for the protection of investors to hypothecate or arrange for the hypothecation of any securities carried for the account of any customer under circumstances (1) that will permit the commingling of his securities without his written consent with the securities of any other customer, (2) that will permit such securities to be commingled with the securities of any person other than a bona fide customer, or (3) that will permit such securities to be hypothecated, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities.   (b)  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. [Codified to 15 U.S.C. 78h] [Source:  Section 8 of the Act of June 6, 1934 (Pub. L. No. 291; 48 Stat. 888), effective October 1, 1934, as amended by section 203(a) of the Act of August 23, 1935 (Pub. L. No. 305; 49 Stat. 704), effective August 23, 1935; section 5 of the Act of June 4, 1975 (Pub. L. No. 94--29; 89 Stat. 109), effective June 4, 1975; section 103 of title I of the Act of October 3, 1984 (Pub. L. No. 98--440; 98 Stat. 1690), effective October 3, 1984; section 204 of title II of the Act of September 23, 1994 (Pub. L. No. 103--325; 108 Stat. 2199), effective September 23, 1994; section 104(b) of title I of the Act of October 11, 1996 (Pub. L. No. 104--290; 110 Stat. 3423), effective October 11, 1996] PROHIBITION AGAINST MANIPULATION OF SECURITY PRICES   SEC. 9.  (a)  It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange--     (1)  For the purpose of creating a false or misleading appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security, (A) to effect any transaction in such security which involves no change in the beneficial ownership thereof, or (B) to enter an order or orders for the purchase of such security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (C) to enter any order or orders for the sale of any such security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties.     (2)  To effect, alone or with one or more other persons, a series of transactions in any security registered on a national securities exchange or in connection with any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.     (3)  If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to induce the purchase or sale of any security registered on a national securities exchange or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.     (4)  If a dealer or broker, or the person selling or offering for sale or purchasing or offering to purchase the security or a security-based swap agreement (as defined in section {{6-29-01 p.9194}}206B of the Gramm-Leach-Bliley Act) with respect to such security, to make, regarding any security registered on a national securities exchange or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, for the purpose of inducing the purchase or sale of such security or such security-based swap agreement, 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, and which he knew or had reasonable ground to believe was so false or misleading.     (5)  For a consideration, received directly or indirectly from a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to induce the purchase of any security registered on a national securities exchange or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with respect to such security by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.     (6)  To effect either alone or with one or more other persons any series of transactions for the purchase and/or sale of any security registered on a national securities exchange for the purpose of pegging, fixing, or stabilizing the price of such security in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.   (b)  It shall be unlawful for any person to effect, by use of any facility of a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors--     (1)  any transaction in connection with any security whereby any party to such transaction acquires any (A) put, call, straddle, or other option or privilege of buying the security from or selling the security to another without being bound to do so; or (B) any security futures product on the security; or     (2)  any transaction in connection with any security with relation to which he has, directly or indirectly, any interest in any (A) such put, call, straddle, option, or privilege; or (B) such security futures product; or     (3)  any transaction in any security for the account of any person who he has reason to believe has, and who actually has, directly or indirectly, any interest in any (A) such put, call, straddle, option, or privilege; or (B) such security futures product with relation to such security.   (c)  It shall be unlawful for any member of a national securities exchange directly or indirectly to endorse or guarantee the performance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.   (d)  The terms "put", "call", "straddle", "option", or "privilege" as used in this section shall not include any registered warrant, right, or convertible security.   (e)  Any person who willfully participates in any act or transaction in violation of subsection (a), (b), or (c) of this section, shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction, and the person so injured may sue in law or in equity in any court of competent jurisdiction to recover the damages sustained as a result of any such act or transaction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys' fees, against either party litigant. Every person who becomes liable to make any payment under this subsection may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. No action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation. {{8-30-02 p.9194.01}}   (f)  The provisions of subsection (a) shall not apply to an exempted security.   (g)(1)  Notwithstanding any other provision of law, the Commission shall have the authority to regulate the trading of any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency (but not, with respect to any of the foregoing, an option on a contract for future delivery other than a security futures product).     (2)  Notwithstanding the Commodity Exchange Act, the Commission shall have the authority to regulate the trading of any security futures product to the extent provided in the securities laws.   (h)  Limitations on Practices That Affect Market Volatility. --It shall be unlawful for any person, by the use of the mails or any means or instrumentality of interstate commerce or of any facility of any national securities exchange, to use or employ any act or practice in connection with the purchase or sale of any equity security in contravention of such rules or regulations as the Commission may adopt, consistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets--     (1)  to prescribe means reasonably designed to prevent manipulation of price levels of the equity securities market or a substantial segment thereof; and     (2)  to prohibit or constrain, during periods of extraordinary market volatility, any trading practice in connection with the purchase or sale of equity securities that the Commission determines (A) has previously contributed significantly to extraordinary levels of volatility that have threatened the maintenance of fair and orderly markets; and (B) is reasonably certain to engender such levels of volatility if not prohibited or constrained. In adopting rules under paragraph (2), the Commission shall, consistent with the purposes of this subsection, minimize the impact on the normal operations of the market and a natural person's freedom to buy or sell any equity security.   (i)  The authority of the Commission under this section with respect to security-based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) shall be subject to the restrictions and limitations of section 3A(b) of this title. [Codified to 15 U.S.C. 78i] [Source:  Section 9 of the Act of June 6, 1934 (Pub. L. No. 291; 48 Stat. 889), effective July 1, 1934, except section 9(a)(6) effective October 1, 1934; as amended by section 3 of the Act of October 13, 1982 (Pub. L. No. 93-303; 96 Stat. 1409), effective October 13, 1982; and section 6 of the Act of October 16, 1990 (Pub. L. No. 101--432; 104 Stat. 975), effective October 16, 1990; sections 205(a)(1) and (2), and 303(b) and (c) of titles II and III of the Act of December 21, 2000 (Pub. L. No. 106--554; 114 Stat. 2753A--425, 426, 453, and 454, respectively), effective December 21, 2000] REGULATION OF THE USE OF MANIPULATIVE AND DECEPTIVE DEVICES   SEC. 10.  It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange--   (a)(1)  To effect a short sale, or to use or employ any stop-loss order in connection with the purchase or sale, of any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.     (2)  Paragraph (1) of this subsection shall not apply to security futures products.   (b)  To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and {{8-30-02 p.9194.02}}regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. Rules promulgated under subsection (b) that prohibit fraud, manipulation, or insider trading (but not rules imposing or specifying reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading), and judicial precedents decided under subsection (b) and rules promulgated thereunder that prohibit fraud, manipulation, or insider trading, shall apply to security-based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) to the same extent as they apply to securities. Judicial precedents decided under section 17(a) of the Securities Act of 1933 and sections 9, 15, 16, 20, and 21A of this title, and judicial precedents decided under applicable rules promulgated under such sections, shall apply to security-based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) to the same extent as they apply to securities. [Codified to 15 U.S.C. 78j] [Source:  Section 10 of the Act of June 6, 1934 (Pub. L. No. 291; 48 Stat. 891), effective October 1, 1934; sections 206(g) and 303(d) of titles II and III of the Act of December 21, 2000 (Pub. L. No. 106--554; 114 Stat. 2763A--432 and 454), effective December 21, 2000] AUDIT REQUIREMENTS   SEC. 10A (a)   IN GENERAL.--Each audit required pursuant to this title of the financial statements of an issuer by a registered public accounting firm shall include, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the Commission--     (1)  procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts;     (2)  procedures designed to identify related party transactions that are material to the financial statements or otherwise require disclosure therein; and     (3)  an evaluation of whether there is substantial doubt about the ability of the issuer to continue as a going concern during the ensuring fiscal year.   (b)   REQUIRED RESPONSE TO AUDIT DISCOVERIES.--     (1)  INVESTIGATION AND REPORT TO MANAGEMENT.--If, in the course of conducting an audit pursuant to this title to which subsection (a) applies, the registered public accounting firm detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have a material effect on the financial statements of the issuer) has or may have occurred, the firm shall, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the Commission--       (A)(i)  determine whether it is likely that an illegal act has occurred; and         (ii)  if so, determine and consider the possible effect of the illegal act on the financial statements of the issuer, including any contingent monetary effects, such as fines, penalties, and damages; and       (B) as soon as practicable, inform the appropriate level of the management of the issuer and assure that the audit committee of the issuer, or the board of directors of the issuer in the absense of such a committee, is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of such firm in the course of the audit, unless the illegal act is clearly inconsequential.     (2)   RESPONSE TO FAILURE TO TAKE REMEDIAL ACTION.--If, after determining that the audit committee of the board of directors of the issuer, or the board of directors of the issuer in the absence of an audit committee, is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of the firm in the course of the audit of such firm, the registered public accounting firm concludes that--       (A)  the illegal act has a material effect on the financial statements of the issuer; {{12-31-07 p.9194.03}}       (B)  the senior management has not taken, and the board of directors has not caused senior management to take, timely and appropriate remedial actions with respect to the illegal act; and       (C)  the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor, when made, or warrant resignation from the audit engagement; the registered public accounting firm shall, as soon as practicable, directly report its conclusions to the board of directors.     (3)  Notice To Commission; Response To Failure To Notify.--An issuer whose board of directors receives a report under paragraph (2) shall inform the Commission by notice not later than 1 business day after the receipt of such report and shall furnish the registered public accounting firm making such report with a copy of the notice furnished to the Commission. If the registered public accounting firm fails to receive a copy of the notice before the expiration of the required 1-business-day period, the registered public accounting firm shall--       (A)  resign from the engagement; or       (B)  furnish to the Commission a copy of its report (or the documentation of any oral report given) not later than 1 business day following such failure to receive notice.     (4)   REPORT AFTER RESIGNATION.--If a registered public accounting firm resigns from an engagement under paragraph (3)(A), the firm shall, not later than 1 business day following the failure by the issuer to notify the Commission under paragraph (3), furnish to the Commission a copy of the report of the firm (or the documentation of any oral report given).   (c)  AUDITOR LIABILITY LIMITATION.--No registered public accounting firm shall be liable in a private action for any finding, conclusion, or statement expressed in a report made pursuant to paragraph (3) or (4) of subsection (b), including any rule promulgated pursuant thereto.   (d)  CIVIL PENALTIES IN CEASE-AND-DESIST PROCEEDINGS.--If the Commission finds, after notice and opportunity for hearing in a proceeding instituted pursuant to section 21C, than a registered public accounting firm has willfully violated paragraph (3) or (4) of subsection (b), the Commission may, in addition to entering an order under section 21C, impose a civil penalty against the registered public accounting firm and any other person that the Commission finds was a cause of such violation. The determination to impose a civil penalty and the amount of the penalty shall be governed by the standards set fourth in section 21B.   (e)  PRESERVATION OF EXISTING AUTHORITY.--Except as provided in subsection (d), nothing in this section shall be held to limit or otherwise affect the authority of the Commission under this title.   (f)  DEFINITIONS.--As used in this section, the term "illegal act" means an act or omission that violates any law, or any rule or regulation having the force of law. As used in this section, the term "issuer" means an issuer (as defined in section 3), the securities of which are registered under section 12, or that is required to file reports pursuant to section 15(d), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.   (g)  PROHIBITED ACTIVITIES.--Except as provided in subsection (h), it shall be unlawful for a registered public accounting firm (and any associated person of that firm, to the extent determined appropriate by the Commission) that performs for any issuer any audit required by this title or the rules of the Commission under this title or, beginning 180 days after the date of commencement of the operations of the Public Company Accounting Oversight Board established under section 101 of the Sarbanes--Oxley Act of 2002 (in this section referred to as the "Board"), the rules of the Board, to provide to that issuer, contemporaneously with the audit, any non-audit service, including--     (1)  bookkeeping or other services related to the accounting records or financial statements of the audit client;     (2)  financial information systems design and implementation; {{12-31-07 p.9194.04}}     (3)  appraisal or valuation services, fairness opinions, or contribution-in-kind reports;     (4)  actuarial services;     (5)  internal audit outsourcing services;     (6)  management functions or human resources;     (7)  broker or dealer, investment adviser, or investment banking services;     (8)  legal services and expert services unrelated to the audit; and     (9)  any other service that the Board determines, by regulation, is impermissible.   (h) PREAPPROVAL REQUIRED FOR NON–AUDIT SERVICES.--A registered public accounting firm may engage in any non-audit service, including tax services, that is not described in any of paragraphs (1) through (9) of subsection (g) for an audit client, only if the activity is approved in advance by the audit committee of the issuer, in accordance with subsection (i).   (i)  PREAPPROVAL REQUIREMENTS.--     (1)  IN GENERAL.--       (A)  AUDIT COMMITTEE ACTION.--All auditing services (which may entail providing comfort letters in connection with securities underwritings or statutory audits required for insurance companies for purposes of State law) and non-audit services, other than as provided in subparagraph (B), provided to an issuer by the auditor of the issuer shall be preapproved by the audit committee of the issuer.       (B)  DE MINIMUS EXCEPTION.--The preapproval requirement under subparagraph (A) is waived with respect to the provision of non-audit services for an issuer, if--         (i)  the aggregate amount of all such non-audit services provided to the issuer constitutes not more than 5 percent of the total amount of revenues paid by the issuer to its auditor during the fiscal year in which the nonaudit services are provided;         (ii)  such services were not recognized by the issuer at the time of the engagement to be non-audit services; and         (iii)  such services are promptly brought to the attention of the audit committee of the issuer and approved prior to the completion of the audit by the audit committee or by 1 or more members of the audit committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the audit committee.     (2)  DISCLOSURE TO INVESTORS.--Approval by an audit committee of an issuer under this subsection of a non-audit service to be performed by the auditor of the issuer shall be disclosed to investors in periodic reports required by section 13(a).     (3)  DELEGATION AUTHORITY.--The audit committee of an issuer may delegate to 1 or more designated members of the audit committee who are independent directors of the board of directors, the authority to grant preapprovals required by this subsection. The decisions of any member to whom authority is delegated under this paragraph to preapprove an activity under this subsection shall be presented to the full audit committee at each of its scheduled meetings.       (4)  APPROVAL OF AUDIT SERVICES FOR OTHER PURPOSES.--In carrying out its duties under subsection (m)(2), if the audit committee of an issuer approves an audit service within the scope of the engagement of the auditor, such audit service shall be deemed to have been preapproved for purposes of this subsection.   (j)  AUDIT PARTNER ROTATION.--It shall be unlawful for a registered public acounting firm to provide audit services to an issuer if the lead (or coordinating) audit partner (having primary responsibility for the audit), or the audit partner responsible for reviewing the audit, has performed audit services for that issuer in each of the 5 previous fiscal years of that issuer.   (k)  REPORTS TO AUDIT COMMITTEES.--Each registered public accounting firm that performs for any issuer any audit required by this title shall timely report to the audit committee of the issuer--     (1)  all critical accounting policies and practices to be used;     (2)  all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management officials of the issuer, {{12-31-07 p.9194.04-A}}ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the registered public accounting firm; and     (3)  other material written communications between the registered public accounting firm and the management of the issuer, such as any management letter or schedule of unadjusted differences.   (1)  CONFLICTS OF INTEREST.--It shall be unlawful for a registered public accounting firm to perform for an issuer any audit service required by this title, if a chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for the issuer, was employed by that registered independent public accounting firm and participated in any capacity in the audit of that issuer during the 1--year period preceding the date of the initiation of the audit.   (m)  STANDARDS RELATING TO AUDIT COMMITTEES.--     (1)  COMMISSION RULES.--       (A)  IN GENERAL.--Effective not later than 270 days after the date of enactment of this subsection, the Commission shall, by rule, direct the national securities exchanges and national securities associations to prohibit the listing of any security of an issuer that is not in compliance with the requirements of any portion of paragraphs (2) through (6).       (B)  OPPORTUNITY TO CURE DEFECTS.--The rules of the Commission under subparagraph (A) shall provide for appropriate procedures for an issuer to have an opportunity to cure any defects that would be the basis for a prohibition under subparagraph (A), before the imposition of such prohibition.     (2)  Responsibilities Relating To Registered Public Accounting Firms.--The audit committee of each issuer, in its capacity as a committee of the board of directors, shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by that issuer (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work, and each such registered public accounting firm shall report directly to the audit committee.     (3)  INDEPENDENCE.--       (A)  IN GENERAL.--Each member of the audit committee of the issuer shall be a member of the board of directors of the issuer, and shall otherwise be independent.       (B)  CRITERIA.--In order to be considered to be independent for purposes of this paragraph, a member of an audit committee of an issuer may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee--         (i)  accept any consulting, advisory, or other compensatory fee from the issuer; or         (ii)  be an affiliated person of the issuer or any subsidiary thereof.       (C)  EXEMPTION AUTHORITY.--The Commission may exempt from the requirements of subparagraph (B) a particular relationship with respect to audit committee members, as the Commission determines appropriate in light of the circumstances.     (4)  COMPLAINTS.--Each audit committee shall establish procedures for--       (A)  the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and       (B)  the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.     (5)  AUTHORITY TO ENGAGE ADVISERS.--Each audit committee shall have the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties.     (6)  FUNDING.--Each issuer shall provide for appropriate funding, as determined by the audit committee, in its capacity as a committee of the board of directors, for payment of compensation--       (A)  to the registered public accounting firm employed by the issuer for the purpose of rendering or issuing an audit report; and       (B)  to any advisers employed by the audit committee under paragraph (5). {{12-31-07 p.9194.04-B}} [Codified to 15 U.S.C. 78j--1] [Source:  Section 10a of the Act of June 6, 1924 (Pub. L. No. 291) as added by section 301 (a) of title III of the Act of December 22, 1995 (Pub. L. No. 104--67; 109 Stat. 762), effective December 22, 1995; as amended by sections 201(a), 202, 203, 204, 205(b)(2)--(b)(4), 205(d), 206 of title II and section 301 of title III of the Act of July 30, 2002 (Pub. L. No. 107--204; 116 Stat. 771--775), effective July 30, 2002] TRADING BY MEMBERS OF EXCHANGES, BROKERS, AND DEALERS   SEC. 11.  (a)(1)  It 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 person, or an account with respect to which it or an associated person thereof exercises investment discretion: Provided, however, That this paragraph shall not make unlawful--       (A)  any transaction by a dealer acting in the capacity of market maker;       (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 any 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 natural person, or a trust created by a natural person for himself or another natural person;       (F)  any transaction to offset a transaction made in error;       (G)  any other transaction for a member's own account provided that (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;       (H)  any transaction for an account with respect to which such member or an associated person thereof exercises investment discretion if such member--         (i)  has obtained, from the person or persons authorized to transact business for the account, express authorization for such member or associated person to effect such transactions prior to engaging in the practice of effecting such transactions;         (ii)  furnishes the person or persons authorized to transact business for the account with a statement at least annually disclosing the aggregate compensation received by the exchange member in effecting such transactions; and         (iii)  complies with any rules the Commission has prescribed with respect to the requirements of clauses (i) and (ii); and       (I)  any other transaction of a kind which the Commission, by rule, determines is consistent with the purposes of this paragraph, the protection of investors, and the maintenance of fair and orderly markets.     (2)  The 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 prohibit:       (A)  transactions on a national securities exchange not unlawful under paragraph (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 {{8-30-02 p.9194.04-C}}person, or an account with respect to which such member or an associated person thereof exercises investment discretion;       (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 which 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.     (3)  The provisions of paragraph (1) of this subsection insofar as they apply to transactions on a national securities exchange effected by a member thereof who was a {{6-29-01 p.9194.05}}member on February 1, 1978 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 February 1, 1979, pursuant to paragraph (2) of this subsection.   (b)  When not in contravention of such rules and regulations as the Commission may 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, 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 regulations of the Commission a specialist may be permitted to act as a broker and dealer or limited to acting as a broker or dealer. It shall be unlawful for a specialist or an official of the exchange to disclose information 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 who may be acting for such specialist: Provided, however, That the Commission, by rule, may require disclosure to all members of the exchange of all orders placed with specialists, under such rules and regulations as the Commission may prescribe as necessary or appropriate 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.   (c)  If because of the limited volume of transactions effected on an exchange, it is in the opinion of the Commission impracticable and not necessary or appropriate in the public interest or for the protection of investors to apply any of the foregoing provisions of this section or the rules and regulations thereunder, the Commission shall have power, upon application of the exchange and on a showing that the rules of such exchange are otherwise adequate for the protection of investors, to exempt such exchange and its members from any such provision or rules and regulations.   (d)  It shall be unlawful for a member of a national securities exchange who is both a dealer and a broker, or for any person who both as a broker and a dealer transacts a business in securities through the medium of a member or otherwise, to effect through the use of any facility of a national securities exchange or of the mails or of any means or instrumentality of interstate commerce, or otherwise in the case of a member, (1) any transaction in connection with which, directly or indirectly, he extends or maintains or arranges for the extension or maintenance of credit to or for a customer on any security (other than an exempted security) which was a part of a new issue in the distribution of which he participated as a member of a selling syndicate or group within thirty days prior to such transaction: Provided, That credit shall not be deemed extended by reason of a bona fide delayed delivery of (i) any such security against full payment of the entire purchase {{10-31-94 p.9195}}price thereof upon such delivery within thirty-five days after such purchase or (ii) any mortgage related security or any small business related security against full payment of the entire purchase price thereof upon such delivery within one hundred and eighty days after such purchase, or within such shorter period as the Commission may prescribe by rule or regulation, or (2) any transaction with respect to any security (other than an exempted security) unless, if the transaction is with a customer, he discloses to such customer in writing at or before the completion of the transaction whether he is acting as a dealer for his own account, as a broker for such customer, or as a broker for some other person.   (e)  [Repealed] [Codified to 15 U.S.C. 78k] [Source:  Section 11 of the Act of June 6, 1934 (Pub. L. No. 291; 48 Stat. 891), effective October 1, 1934, as amended by section 201 of title II of the Act of August 10, 1954 (Pub. L. No. 577; 68 Stat. 686), effective October 8, 1954; section 6 of the Act of June 4, 1975 1975; section 18(a) of the Act of May 21, 1978 (Pub. L. No. 95-283; 92 Stat. 275), effective May 1, 1978; section 104 of title I of the Act of October 3, 1984 (Pub. L. No. 98--440; 98 Stat. 1690-1691), effective October 3, 1984; section 1 of the Act of August 11, 1993 (Pub. L. No. 103--68; 107 Stat. 691), effective August 11, 1993; section 205 of title II of the Act of September 23, 1994 (Pub. L. No. 103--325; 108 Stat. 2199), effective September 23, 1994] [Main Tabs]     [Table of Contents - 8000]     [Index]     [Previous Page]     [Next Page]     [Search]

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