Legal Authority (15 U.S.C.78q-1)

9238.02

Miscellaneous Statutes and Regulations

12-29-06

(1) ELIMINATION OF DUPLICATION.-The Commssion and the examining authorities,
through cooperation and coordination of examination and oversight activities, shall eliminate

any unnecessary and burdensome duplication in the examination process.
(2) COORDINATION OF EXAMINATIONS.-The Commission and the examning authorities shall share such information, including reports of examinations, customer complaint

information, and other nonpublic regulatory information, as appropriate to foster a
coordinated approach to regulatory oversight of brokers and dealers that are subject to
examination by more than one examining authority.
(3) EXAMINATIONS FOR CAUSE.-At any time, any examining authority may conduct
an examination for cause of any broker or dealer subject to its jurisdiction.
(4) CONFIDENTIALITY.-

(A) IN GENERAL.-Section 24 shall apply to the sharng of information in

accordance with this subsection. The Commssion shall take appropriate action under section
24( c) to ensure that such information is not inappropriately disclosed.

(B) ApPROPRITE DISCLOSURE NOT PROHIBITED.-Nothing in this paragraph autho-

rizes the Commission or any examining authority to withold information from the
Congress, or prevent the Commission or any examining authority from complying with a

request for information from any other Federal deparment or agency requesting the
information for purposes within the scope of its jursdiction, or complying with an order of
a court of the United States in an action brought by the United States or the Commssion.

(5) DEFIITON.-For purposes of this subsection, the term "examning authority"

means a self-regulatory organization registered with the Commssion under this title (other
than a registered clearng agency) with the authority to examine, inspect, or otherwise
oversee the activities of a registered broker or dealer.

¡Codifed to 15 U.S.c. 78q)
¡Source: Section 17 of the Act of June 6, 1934 (Pub. L. No. 291; 48 Stat. 897), 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 4 of the Act of May 27, 1936 (Pub.

L. No. 62; 49 Stat. 1379), effective May 27, 1936; section 5 of the Act of June 25, 1938
(Pub. L. No. 719; 52 Stat. 1076), effective June 25, 1938; and section 14 of the Act of June
4, 1975 (Pub. L. No. 94-29; 89 Stat. 137), effective June 4, 1975; section 102(h) and (i) of
title I of the Act of October 28, 1986 (Pub. L. No. 99-571; 100 Stat. 3219), effective July
25, 1987; section 321 of title 111 and section 801(b) of title VLL of the Act of December 4,
1987 (Pub. L. No. 100-181; 101 Stat. 1257 and 1265 respectively), effective December 4,

1987; section 4(a) of the Act of October 16, 1990 (Pub. L. No. 101-432; 104 Stat. 966),
effective October 16, 1990; section 108 of title 1 of the Act of October 11 1996 (Pub. L.
No. 104-290; 110 Stat. 3425), effective October 11 1996; section 301(b)(5) of title II of

the Act of November 3, 1998 (Pub. L. No. 105-353; 112 Stat. 3236), effective November 3,
1998; section 231(a) of title 11 of the Act of November 12, 1999 (Pub. L. No. 106-102; 113
Stat. 1402), effective May 12, 2000; section 204 of title 11 of the Act of December 21, 2000
(Pub. L. No. 106-554; 114 Stat. 2763A-424), effective December 21, 2000; section

205(c)(2) of title 11 of the Act of July 30, 2002 (Pub. L. No. 107-204; 116 Stat. 774)

effective July 30, 2002; sections 78(f(5) and (6) of the Act of October 30, 2004 (Pub. L.
No. 108-386; 118 Stat. 2232, effective October 30, 2004; section 5 of the Act of September
29, 2006 (Pub. L. No. 109-291; 120 Stat 1338), effective September 29, 2006)

NATIONAL SYSTEM FOR CLEARACE AND SETTEMENT
OF SECURITIES TRASACTIONS

SEC. 17A (a)(1) The Congress finds that(A) The prompt and accurate clearance and settlement of secunties transactions,
including the transfer of record ownership and the safeguarding of securities and funds

related thereto, are necessar for the protection of investors and persons facilitating
transactions by and acting on behalf of investors.
(B) Ineffcient procedures for clearance and settlement impose unnecessar costs on

investors and persons facilitating transactions by and acting on behalf of investors.
(C) New data processing and communications techniques create the opportunity for
more effcient, effective, and safe procedures for clearance and settlement.

Securities Exchange Act of 1934,
15 U.S.C. 78q

Federal Deposit Inurance Corporation

Miscellaneous Statutes and Reguations

6-29-01

9238.03

(D) The linkng of all clearance and settlement facilties and the development of
uniform standards and procedures for clearance and settlement wil reduce unnecessar costs
and increase the protection of investors and persons faciltating transactions by and acting

on behalf of investors.

(2)(A) The Commssion is directed, therefore, having due regard for the public

interest, the protection of investors, the safeguarding of securities and funds, and maintenance of fai competition among brokers and dealers, clearng agencies, and transfer agents,
to use its authority under this title-

(i) to faciltate the establishment of a national system for the prompt and
accurate clearance and settlement of transactions in securities (other than exempted

securities); and
(ii) to faciltate the establishment of linked or coordinated facilties for clearance

and settlement of transactions in securities, securities options, contracts of sale for future
delivery and options thereon, and commodity options;
in accordance with the findings and to car out the objectives set forth in paragraph (1) of
ths subsection.

(B) The Commssion shall use its authority under this title to assure equal

regulation under this title of registered clearng agencies and registered transfer agents. In
caring out its responsibilties set fort in subparagraph (A)(ii) of ths paragraph, the

Commssion shall coordinate with the Commodity Futures Trading Commssion and consult
with the Board of Governors of the Federal Reserve System.

,; (b)(1)' Except as otherwise provided in this section, it shall be unlawful for any clearng
agency, unless registered in accordance with this subsection, directly or indirectly, to make
use of the mails or any means or instrmentality of interstate commerce to perform the
functions of a clearng agency with respect to any security (other than an exempted

security). The Commission, by rule or order, upon its own motion or upon application, may

conditionally or unconditionally exempt any clearng agency or security or any class of
clearng agencies or securities from any provisions of this section or the rules or regulations

thereunder, if the Commssion finds that such exemption is consistent with the public
interest, the protection of investors, and the purposes of ths section, including the prompt
and accurate clearance and settlement of securities transactions and the safeguarding of
securties and funds. A clearng agency or transfer agent shall not perform the functions of

both a clearng agency and a transfer agent unless such clearng agency or transfer agent is
registered in accordance with this subsection (c) of ths section.
(2) A clearng agency may be registered under the terms and conditions hereinafter
provided in ths subsection and in accordance with the provisions of section 19(a) of ths
title, by filing with the Commssion an application for registration in such form as the
Commission, by rule, may prescribe contaning the rules of the clearng agency and such
other information and documents as the Commission, by rule, may prescribe as necessar or

appropriate in the public interest or for the prompt and accurate clearance and settlement of
securities transactions.

(3) A clearng agency shall not be registered unless the Commssion determnes

that-

(A) Such clearng agency is so organzed and has the capacity to be able to
agreements,
contracts,
transactions
for which of
it is
responsible,
to safeguard
I derivative
facilitate the
prompt and
accurateand
clearance
and settement
securities
transactions
and
securities and funds in its custody or control or for which it is responsible, to comply with
the provisions of this title and the rules and regulations thereunder, to enforce (subject to

any rule or order of the Commssion pursuant to section l7(d) or 19(9)(2) of this title)
compliance by its paricipants with the rules of the clearng agency, and to car out the

puroses of this section.
(B) Subject to the provisions of paragraph (4) of this subsection, the rules of the
clearng agency provide that any (i) registered broker or dealer, (ii) other registered clearng
agency, (ii) registered investment company, (iv) ban, (v) insurance company, or (vi) other
person or class of persons as the Commssion, by rule, may from tie to time designate as

Federal Depost Inurance Corporation

Securities Exchange Act of 1934,
15 U.S.C. 78q-l

9238.04

Miscellaneous Statutes and Regulations

6-29-01

appropriate to the development of a national system for the prompt and accurate clearance

and settlement of securties transactions may become a paricipant in such clearng agency.
(C) The rules of the clearng agency assure a fair representation of its shareholders
(or members) and paricipants in the selection of its directors and administration of its

affais. (The Commssion may determne that the representation of paricipants is fair if
they are afforded a reasonable opportunity to acquire voting stock of the clearng agency,

directly or indirectly, in reasonable proportion to their use of such clearng agency.)
(D) The rules of the clearng agency provide for the equitable allocation of
reasonable dues, fees, and other charges among its parcipants.
(E) The rules of the clearing agency do not impose any schedule of prices, or fix
rates or other fees, for services rendered by its paricipants.
(F) The rules of the clearng agency are designed to promote the prompt and

agreements,
and
to assure the
securities
I derivative
accurate clearance
andcontracts,
settlement
of transactions,
securities transactions
and,safeguarding
to the extentofapplicable,

and funds which are in the custody or control of the clearng agency or for which it is

responsible, to foster cooperation and coordination with persons engaged in the clearance
and settlement of securities transactions, to remove impediments to and perfect the
mechanism of a national system for the prompt and accurate clearance and settlement of
securities transactions, and, in general, to protect investors and the public interest; and are
not designed to permt unfai discrimination in the admission of paricipants or among
parcipants in the use of the clearng agency, or to regulate by vire of any authority

conferred by ths title matters not related to the purposes of this section or the
administration of the clearng agency.

(G) The rules of the clearng agency provide that (subject to any rule or order of

the Commssion pursuant to section 17(d) or 19(9)(2) of this title) its paricipants shall be
appropriately disciplined for violation of any provision of the rules of the clearng agency
by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, or
any other fittng sanction.

(R) The rules of the clearng agency are in accordance with the provisions of

paragraph (5) of this subsection, and, in general, provide a fair procedure with respect to
the disciplining of paricipants, the denial of paricipation to any person seeking parcipation therein, and the prohibition or limitation by the clearng agency of any person with
respect to access to services offered by the clearng agency.

(I) The rules of the clearng agency do not impose any burden on competition not

necessar or appropriate in furterance of the purposes of ths title.
(4)(A) A registered clearng agency may, and in cases in which the Commission, by

order, directs as appropriate in the public interest shall, deny paricipation to any person
subject to a statutory disqualification. A registered clearng agency shall fie notice with the
Commssion not less than thirty days prior to admitting any person to parcipation, if the
clearng agency knew, or in the exercise of reasonable care should have known, that such
person was subject to a statutory disqualification. The notice shall be in such form and
contain such information as the Commssion, by rule, may prescribe as necessar or
appropriate in the public interest or for the protection of investors.

(B) A registered clearng agency may deny parcipation to, or condition the
paricipation of, any person if such person does not meet such standards of financial
responsibility, operational capabilty, experience, and competence as are prescribed by the

rules of the clearng agency. A registered clearng agency may examne and veri the
qualifications of an applicant to be a paricipant in accordance with procedures established

by the rules of the clearng agency.

(5)(A) In any proceeding by a registered clearng agency to determne whether a

paricipant should be disciplined (other than a summar proceeding pursuant to subparagraph (C) of ths paragraph), the clearng agency shall bring specific charges, notify such
paricipant of, and give him an opportunity to defend against such charges, and keep a

record. A determnation by the clearng agency to impose a disciplinar sanction shall be
supported by a statement settng fort-

Securities Exchange Act of 1934,

15 U.S.c. 78q-l

Federal Deposit Inurance Corporation

8-30-02

Miscellaneous Statutes and Regulations

9239

(i) any act or practice in which such paricipant has been found to have engaged,
or which such paricipant has been found to have omitted;

(ii) the specific provisions of the rules of the clearng agency which any such
act or practice, or omission to act, is deemed to violate; and
(iii) the sanction imposed and the reasons therefor.

(B) In any proceeding by a registered clearng agency to determne whether a

person shall be denied paricipation or prohibited or limited with respect to access to
services offered by the clearng agency, the clearng agency shall notify such person of, and
give hi an opportunity to be heard upon, the specific grounds for denial or prohibition or

limitation under consideration and keep a record. A determnation by the clearng agency to

deny paricipation or prohibit or limit a person with respect to access to services offered by
the clearng agency shall be supported by a statement setting fort the specific grounds on

which the denial or prohibition or limitation is based.
(C) A registered clearng agency may summarly suspend and close the accounts of
a parcipant who (i) has been and is expelled or suspended from any self-regulatory
organization, (ii) is in default of any delivery of funds or securities to the clearng agency,
or (iii) is in such financial or operating diffculty that the clearg agency determines and so

notifies the appropriate regulatory agency for such parcipant that such suspension and
closing of accounts are necessar for the protection of the clearng agency, its parcipants,

creditors, or investors. A paricipant so summarly suspended shall be promptly aforded an
opportunity for a hearng by the clearng agency in accordance with the provisions of

subparagraph (A) of ths paragraph. The appropriate regulatory agency for such parcipant,
by order, may stay any such summar suspension on its own motion or upon application by
any person aggreved thereby, if such appropriate regulatory agency determnes summarly

or after notice and opportnity for hearng (which hearng may consist solely of the
submission of affdavits or presentation of oral arguments) that such stay is consistent with
the public interest and protection of investors.

(6) No registered clearng agency shall prohibit or limit access by any person to

services offered by any parcipant therein.

(7)(A) A clearng agency that is regulated directly or indirectly by the Commodity
Futures Trading Commssion though its association with a designated contract market for
security futures products that is a national securities exchange registered pursuant to section
6(g), and that would be required to register pursuant to paragraph (1) of ths subsection

only because it performs the functions of a clearng agency with respect to security futures
products effected pursuant to the rules of the designated contract market with which such

agency is associated, is exempted from the provisions of ths section and the rules and
regulations thereunder, except that if such a clearng agency performs the functions of a
clearng agency with respect to a security futures product that is not cash settled, it must

have arangements in place with a registered clearng agency to effect the payment and
delivery of the securities underlying the security futures product.

(B) Any clearng agency that performs the functions of a clearng agency with

respect to security futures products must coordinate with and develop fair and reasonable
links with any and all other clearng agencies that perform the functions of a clearng
agency with respect to security futues products, in order to permt, as of the compliance

date (as defined in section 6(h)(6)(C)), securty futures products to be purchased on one
market and offset on another market that trades such products.

(8) A registered clearng agency shall be permtted to provide facilities for the

clearance and settlement of any derivative agreements, contracts, or transactions that are
excluded from the Commodity Exchange Act, subject to
the requirements of this section
and to such rules and regulations as the Commssion may prescribe as necessar or
appropriate in the public interest, for the protection of investors, or otherwise in furterance
of the
purposes of ths title.
/' (c)(l) Except as otherwise provided in ths section, it shall be unlawful for any transfer

agent, unless registered in accordance with ths section, directly or indirectly, to make use
of the mails or any means of instrmentality of interstate commerce to perform the function

Federa Deposit Inurance Corporation

Securities Exchange Act of 1934,
15 U.S.C. 78q-l

9240

Miscellaneous Statutes and Regulations
8-30-02
of a transfer agent with respect to any security registered under section 12 of this title or
which would be required to be registered except for the exemption from registration
provided by subsection (g)(2)(B) or (g)(2)(G) of that section. The appropriate regulatory
agency, by rule or order, upon its own motion or upon application, may conditionally or
unconditionally exempt any person or security or class of persons or securities from any

provision of this section or any rule or regulation prescribed under this section, if the
appropriate regulatory agency finds (A) that such exemption is in the public interest and
consistent with the protection of investors and the purposes of this section, including the
prompt and accurate clearance and settement of securities transactions and the safeguarding
of securities and funds, and (B) the Commission does not object to such exemption.
(2) A transfer agent may be registered by filing with the appropriate regulatory agency

for such transfer agent an application for registration in such form and containing such
information and documents concerning such transfer agent and any persons associated with
the transfer agent as such appropriate regulatory agency may prescribe as necessar or
appropriate in furtherance of the purposes of this section. Except as hereinafter provided,

such registration shall become effective 45 days after receipt of such application by such
appropriate regulatory agency or within such shorter period of time as such appropriate

regulatory agency may determine.

(3) The appropriate regulatory agency for a transfer agent, by order, shall deny
registration to, censure, place limitations on the activities, functions, or operations of,
suspend for a period not exceeding 12 months, or revoke the registration of such transfer
agent, if such appropriate regulatory agency finds, on the record after notice and

opportunity for hearng, that such denial, censure placing of limitations, suspension, or
revociation is in the public interest and that such tranfer agent, whether prior or subsequent

to becoming such, or any person associated with such transfer agent, whether prior or
subsequent to becoming so associated-

in subparagraph
(A), (D),
(R),
(G)subject
of paragraph
(4)order
of section
15(b) of
Ienumerated
(A) has commtted
or omitted
any(E),
act
ororis
to an
or finding

this title, has been convicted of any offense specified in subparagraph (B) of such

paragraph (4) within ten years of the commencement of the proceedings under this
paragraph, or is enjoined from any action, conduct, or practice specified in subparagraph

(C) of such paragraph (4); or
(B) is subject to an order entered pursuant to subparagraph (C) of paragraph (4) of

this subsection barrng or suspending the right of such person to be associated with a
tranfer agent.
(4)

(A) Pending final determnation whether any registration by a transfer agent

under this subsection shall be denied, the appropriate regulatory agency for such transfer

agent, by order, may postpone the effective date of such registration for a period not to
exceed fifteen days, but if, after notice and opportunity for hearng (which may consist
solely of affdavits and oral arguments), it shall appear to such appropriate regulatory

agency to be necessar or appropriate in the public interest or for the protection of
investors to postpone the effective date of such registration until final determination, such
appropriate regulatory agency shall so order. Pending final determnation whether any
registration under this subsection shall be revoked, such appropriate regulatory agency, by

order, may suspend such registration, if such suspension appears to such appropriate
regulatory agency, after notice and opportunity for hearng, to be necessar or appropriate in
the puytic interest or for the protection of investors.

V (B) A registered transfer agent may, upon such terms and conditions as the

appropriate regulatory agency for such transfer agent deems necessary or appropriate in the
public interest, for the protection of investors, or in furterance of the puroses of this

section, withdraw from registration by fiing a written notice of withdrawal with such
appropriate regulatory agency. If such appropriate regulatory agency finds that any transfer
agent for which it is the appropriate regulatory agency, is no longer in existence or has

ceased to do business as a transfer agent, such appropriate regulatory agency, by order, shall
cancel or deny the registration.

Securities Exchange Act of 1934,

15 U.S.c. 78q-l

Federal Deposit Insurance Corporation

Miscellaneous Statutes and Regulations

8-30-02

9240.01

(C) The appropriate regulatory agency for a transfer agent, by order, shall censure
or place limitations on the activities or functions of any person associated, seeking to

become associated, or, at the time of the alleged misconduct, associated or seeking to

become associated with the transfer agent, or suspend for a period not exceeding twelve
months or bar any such person from being associated with the transfer agent, if the
appropriate regulatory agency finds, on the record after notice and opportnity for hearng,
that such censure, placing of limitations, suspension, or bar is in the public interest and

in subparagraph
(A), (D),
(E), (H),any
or (G)
(4) to
of an
section
of this
I enumerated
that such person
has committed
or omitted
act paragraph
or is subject
order15(b)
or finding
title, has been convicted of any offense specified in subparagraph (B) of such paragraph (4)

within ten years of the commencement of the proceedings under this paragraph, or is
enjoined from any action, conduct, or practice specified in subparagraph (C) of such
paragraph (4). It shall be unlawful for any person as to whom such an order suspending or
barng him from being associated with a transfer agent is in effect wilfully to become, or
to be, associated with a transfer agent without the consent of the appropriate regulatory

agency that entered the order and the appropriate regulatory agency for that transfer agent.
It shall be unlawful for any transfer agent to permt such a person to become, or remain, a
person associated with it without the consent of such appropriate regulatory agencies, if the
transfer agent knew, or in the exercise of reasonable care should have known, of such

order. The Commssion may establish, by rule, procedures by which a transfer agent
reasonably can determne whether a person associated or seeking to become associated with
it is subject to any such order, and may require, by rule, that any transfer agent comply
with such procedures.

(d)(1) No registered clearng agency or registered transfer agent shall, directly or

indirectly, engage in any activity as clearng agency or transfer agent in contravention of
such rules and regulations (A) as the Commssion may prescribe as necessar or appropriate

in the public iterest, for the protection of investors, or otherwise in furterance of the
purposes of this title, or (B) as the appropriate regulatory agency for such clearng agency
or transfer agent may prescribe as necessar or appropriate for the safeguarding of
securities and funds.

(2) With respect to any clearng agency or transfer agent for which the Commssion

is not the appropriate regulatory agency, the appropriate regulatory agency for such clearng

agency or transfer may, in accordance with section 8 of the Federal Deposit Insurance Act

(12 U.S.C. 1818), enforce compliance by such clearng agency or transfer agent with the

provisions of ths section, sections l7 and 19 of ths title, and the rules and regulations

thereunder. For purposes of ths preceding sentence, any violation of any such provision

shall constitute adequate basis for the issuance of an order under section 8(b) or 8(c) of the
Federal Deposit Insurance Act, and the parcipants in any such clearng agency and the

persons doing business with any such transfer agent shall be deemed to be "depositors" as
that term is used in section 8(c) of that Act.

(3)(A) With respect to any clearng agency or transfer agent for which the Commssion is not the appropriate regulatory agency, the Commssion and the appropriate

regulatory agency for such clearng agency or transfer agent shall consult and cooperate
with each other, and, as may be appropriate, with State banking authorities having
supervision over such clearng agency or transfer agent toward the end that, to the
maximum extent, practicable, their respective regulatory responsibilties may be fulfilled and
the rules and regulations applicable to such clearng agency or transfer agent may be in

accord with both sound banking practices and a national system for the prompt and
accurate clearance and settlement of securities transactions. In accordance with ths
objective(i) the Commssion and such appropriate regulatory agency shall, at least fifteen
days prior to the issuance for public comment of any proposed rule or regulation or

adoption of any rule or regulation concernng such clearng agency or transfer agent,
consult and request the views of the other; and

(ii) such appropriate regulatory agency shall assume primar responsibilty to

examne and enforce compliance by such clearng agency or transfer agent with the
provisions of this section and sections l7 and i 9 of this title.

Securities Exchange Act of 1934,
Federal Depoit Inurance Corporation

15 U.S.c. 78q-l

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Miscellaneous Statutes and Regulations

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(B) Nothing in the preceding subparagraph or elsewhere in ths title shal be

constred to impai or limit (other than by the requirement of notification) the Commssion's authority to make rules under any provision of this title or to enforce compliance

pursuant to any transfer agent, or person associated with a transfer agent rules and
regulations thereunder.

(4) Nothing in ths section shall be constred to impair the authority of any State

banng authority or other State or Federal regulatory authority having jurisdiction over a

person registered as a clearng governing such person which are not inconsistent with ths
title and the rules governing such person which are not inconsistent with this title and the
rules and regulations thereunder.

(5) A registered transfer agent may not, directly or indirectly, engage in any activity
in connection with the guarantee of a signature of an endorser of a security, inCluding the

acceptance or rejection of such guarantee, in contravention of such rules and regulations as
the Commssion may prescribe as necessar or appropriate in the public interest, for the
protection of investors, to facilitate the equitable treatment of financial institutions which

issue such guarantees, or otherwise in furterance of the purposes of ths title.
(e) The Commssion shall use its authority under this title to end the physical
movement of securities certficates in connection with the settlement among brokers and
dealers of transactions in securities consummated by means of the mails or any means or
instrmentalities of interstate commerce.
(f)(1) Notwithstanding any provision of State law, except as provided in paragraph (3),

if the Commission makes each of the findings described in paragraph (2)(A), the
Commssion may adopt rules concerning(A) the transfer of certficated or uncertficated securities (other than governent
securities issued pursuant to chapter 31 of title 31, United States Code, or securities
otherwise processed within a book-entr system operated by the Federal Reserve bans
pursuant to a Federal book-entr regulation) or limted interests (including security interests)

therein; and
(B) rights and obligations of purchasers, sellers, owners, lenders, borrowers, and

financial intermediares (including brokers, dealers, bans, and clearng agencies) involved

in or affected by such transfers, and the rights of thd pares whose interests in such
securities devolve from such transfers.

(2)(A) The findings described in ths paragraph are findings by the Commssion

that-

(i) such rule is necessar or appropriate for the protection of investors or in the
public interest and is reasonably designed to promote the prompt, accurate,

clearance and settlement of securities transactions;

and safe

(ii) in the absence of a uniform rule, the safe and effcient operation of the
national system for clearance and settlement of securities transactions wil be, or is,

substantially impeded; and
(iii) to the extent such rule will impai or dinish, directly or indirectly, rights

of persons specified in paragraph (1)(B) under State law concernng transfers of securties

(or limited interests therein), the benefits of such rule outweigh such impaient òr

diminution of rights.

(B) In makng the findings described in subparagraph (A), the Commssion shall
give consideration to the recommendations of the Advisory Commttee established under
paragraph (4), and it shall consult with and consider the views of the Secretar of the
Treasury and the Board of Governors of the Federal Reserve System. If the Secretar of the

Treasury objects, in writing, to any proposed rule of the Commssion on the basis of the
Secretar's view on the issues described in clauses (i), (ii), and (iii) of subparagraph (A),
the Commssion shall consider all feasible alternatives to the proposed rule, and it shall not

adopt any such rule unless the Commssion makes an explicit finding that the rule is the
most practicable method for achieving safe and effcient operation of the national clearance
and settement system.

Securities Exchange Act of 1934,
15 U.S.C. 78q-l

Federal Deposit Insurance Corpration

Miscellaneous Statutes and Regulations

8-30-02

9240.03

(3) Any State may, prior to the expiration of 2 years after the Commssion adopts a
rule under ths subsection, enact a statute that specifcally refers to ths subsection and the

specific rule thereunder and establishes, prospectively from the date of enactment of the
State statute, a provision that differs from that applicable under the Commssion's rule.
(4)(A) Withn 90 days afer the date of enactment of this subsection, the Commssion

shall (and at such times thereafter as the Commission may determne, the Commssion

may), afer consultation with the Secretar of the Treasury and the Board of Governors of
the Federal Reserve System, establish an advisory commttee under the Federal Advisory

Commttee act (5 U.S.c. App.). The Advisory Committee shall be directed to consider and
report to the Commssion on such matters as the Commssion, afer consultation with the
Secretar of the Treasury and the Board of Governors of the Federal Reserve System,

determnes, including the areas, if any in which State commercial laws and related Federal
laws concerning the transfer of certificated or uncertficated securities, limited interests
(including security interests) in such securities, or the creation or perfection of security

interests in such securities do not provide the necessar certainty, uniformity, and clarty for
purchasers, sellers, owners, lenders, borrowers, and financial intermediares concerning their
respective rights and obligations.

(B) The Advisory Committee shall consist of 15 members, of which(i) 11 shal be designated by the Commission in accordance with the Federal

Advisory Commttee Act; and
(ii) 2 each shall be designated by the Board of Governors of the Federal Reserve

System and the Secretar of the Treasury.

(C) The Advisory Committee shall conduct its activities in accordance with the
Federal Advisory Commttee Act. Withn 6 months of its designation, or such longer tirne
as the Commssion may designate, the Advisory Commttee shall issue a report to the

Commssion, and shall cause copies of that report to be delivered to the Secretar of the
Treasur and the Chairman of the Board of Governors of the Federal Reserve System.

¡Codifed to 15 U.S.c. 78q-l)

¡Source: Section 17A of the Act of June 6, 1934 (Pub. L. No. 291), as added by section
15 of the Act of June 4, 1975 (Pub. L. No. 94-29; 89 Stat. 141), effective June 4, 1975,
except section 17A(b) and (c), effective December 1, 1975; as amended by section 322 of

title 1I of the Act of December 4, 1987 (Pub. L. No. 100-181; 101 Stat. 1257), effective
December 4, 1987; section 206 of title II of the Act of October 15, 1990 (Pub. L. No.
101-429; 104 Stat. 941), effective October 15, 1990; section 5 of the Act of October 16,
1990 (Pub. L. No. 101-432; 104 Stat. 973), effective October 16, 1990; section 203(c)(l) of
title Il of the Act of November 15, 1990 (Pub. L. No. 101-550; 104 Stat. 2718), effective
November 15, 1990; section 206(d) and 207 of title Il of the Act of December 21, 2000
(Pub. L. No. 106-554; 114 Stat. 2763A-43l) effective December 21, 2000; section

604(c)(l)(C) of title V1 of the Act of July 30, 2002 (Pub. L. No. 107-204; 116 Stat. 796),
effective July 30, 2002)

AUTOMATED QUOTATION SYSTEMS FOR PENNY STOCKS
SEC. 17B. (A) FINDINGS.-The Congress finds that-

(1) the market for penny stocks suffers from a lack of reliable and accurate quotation
and last sale information available to investors and regulators;

(2) it is in the public interest and appropriate for the protection of investors and the

maintenance of fair and orderly markets to improve significantly the information available

to brokers, dealers, investors, and regulators with respect to quotations for and transactions
in penny stocks; and
(3) a fully implemented automated quotation system for penny stocks would meet the

information needs of investors and market paricipants and would add visibility and
regulatory and surveilance data to that market.
(b) MANDATE TO FACILITATE THE ESTABLISHMENT OF AUTOMATED QUOTATION SyS-

TEMS.-

(1) IN GENERAL.-The Commssion shall facilitate the widespread dissemination of
reliable and accurate last sale and quotation information with respect to penny stocks in

Federal Deposit Insurance Corporation

Securities Exchange Act of 1934,
15 U.S.C. 78q-2