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114th Congress    }                                  {   Rept. 114-304
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                  {          Part 1

======================================================================



 
                     RETAIL INVESTOR PROTECTION ACT

                                _______
                                

October 22, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1090]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1090) to amend the Securities Exchange Act of 
1934 to provide protections for retail customers, and for other 
purposes, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                          Purpose and Summary

    Introduced by Representative Wagner on February 25, 2015, 
H.R. 1090, the Retail Investor Protection Act, stays the 
Department of Labor's (DoL's) rulemaking authority under the 
Employee Retirement Income Security Act of 1974 (ERISA) to 
define the circumstances under which an individual is 
considered a fiduciary until 60 days after the Securities and 
Exchange Commission (SEC) issues a final rule to implement 
Section 913 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. No. 111-203). Section 913 authorizes, 
but does not require, the SEC to promulgate rules to extend the 
fiduciary standard of conduct applicable to investment advisors 
to broker-dealers when providing advice about securities to 
retail customers.
    Additionally, H.R. 1090 requires the SEC, before 
promulgating a rule under Section 913, to submit a report to 
the Financial Services Committee and the Senate Committee on 
Banking, Housing, and Urban Affairs describing (i) whether 
retail customers are being harmed because broker-dealers are 
held to a different standard of conduct from that of investment 
advisers; (ii) whether alternative remedies will reduce any 
confusion and harm to retail investors due to the different 
standard of conduct; (iii) whether the adoption of a uniform 
fiduciary standard would adversely impact the commission of 
broker-dealers or the availability of certain financial 
products and transactions; and (iv) whether the adoption of a 
uniform fiduciary standard would adversely impact retail 
investors' access to personalized and cost-effective investment 
advice, recommendations about securities, or the availability 
of such advice and recommendations. Finally, the bill directs 
the SEC to support any conclusions in the report with economic 
analysis.

                  Background and Need for Legislation

    Broker-dealers trade securities for their own account or on 
behalf of their customers. Broker-dealers typically charge 
commissions on the trades they execute for their customers. 
Investment advisers provide advice to clients about the value 
of securities and the advisability of investing in, purchasing, 
or selling securities. Investment advisers typically charge an 
annual fee from their clients calculated as a percentage of the 
total assets that they manage.
    Historically, broker-dealers and investment advisers have 
been held to different standards of conduct in their dealings 
with customers. Broker-dealers are regulated by the SEC and the 
Financial Industry Regulatory Authority (FINRA) under a 
`suitability' standard. FINRA rules require that a broker-
dealer, when recommending the purchase, sale, or exchange of 
any security, must have reasonable grounds to believe that the 
recommendation is suitable for the customer given the 
customer's financial status and investment objectives. By 
contrast, investment advisers are regulated directly by the SEC 
under a heightened `fiduciary duty' standard of conduct 
pursuant to the Investment Advisers Act of 1940. Under this 
fiduciary duty standard, investment advisers owe to their 
clients the affirmative duty of `utmost good faith, and full 
and fair disclosure of all material facts,' as well as an 
obligation `to employ reasonable care to avoid misleading' 
their clients.
    Section 913 of the Dodd-Frank Act required the SEC to 
report on the standards of care applicable to broker-dealers 
and investment advisers. It also permits--but does not 
require--the SEC to issue rules that address these differing 
standards of care.
    The SEC released the staff study mandated by Section 913 in 
2011 and recommended that both broker-dealers and investment 
advisers be held to a fiduciary standard ``no less stringent 
than currently applied to investment advisers.'' Then-SEC 
Commissioners Kathy Casey and Troy Paredes released a separate 
statement expressing their view that the SEC staff had failed 
to justify its recommendations, pointing out that the SEC staff 
had failed to identify whether investors were being harmed or 
disadvantaged under one standard of care compared to the other, 
and therefore lacked a basis for concluding that a uniform 
standard would improve investor protection. Commissioners Casey 
and Paredes also questioned the costs that new standards of 
care would impose on market participants and investors, and 
noted that the SEC staff study did not account for the 
potential overall cost of the recommended changes to broker-
dealers, investment advisers, and retail investors. Since the 
study's release in 2011, the SEC has yet to use its authority 
under Section 913 to promulgate a uniform fiduciary standard of 
care.
    On February 23, 2015, President Obama announced his support 
for rules to be issued by the DoL to amend the definition of 
``investment advice'' to expand the class of financial 
professionals subject to fiduciary duties covered by ERISA in 
an effort to curb the effects of perceived conflicts of 
interest in the marketing and development of retirement 
investments.
    In support of the DoL's fiduciary duty proposal, President 
Obama, the DoL and investor advocates claim that (i) current 
consumer protections for investment advice in the retail and 
small plan markets are inadequate, and (ii) the current 
regulatory environment creates perverse incentives that 
ultimately cost retirement savers billions of dollars a year. 
The DoL's proposal seeks ``to crack down on irresponsible 
behavior in today's market for financial advice by better 
aligning the rules between employer-based retirement savings 
plans and IRAs.'' The DoL and the Obama Administration estimate 
that conflicted advice by broker-dealers costs retirees some 
$17 billion in lost returns annually. However, there is no 
study that directly supports this estimate, and it appears to 
be based upon generalizations and extrapolations that are not 
fully supported by empirical data.
    Following the President's February 23rd roll-out, the DoL 
issued a Notice of Proposed Rulemaking on April 20, 2015, 
seeking public comment on its proposed amendments to the 
definition of fiduciary, the proposed Best Interest Contract 
Exemption, (``BICE'') and other proposed Prohibited Transaction 
Exemptions. In the Financial Services Committee's view, the 
DoL's proposal suffers from a host of deficiencies. For 
example, the proposal is not business-model neutral and 
incorrectly assumes that charging fees based on the amount of 
assets under management is superior in every respect and for 
every investor to charging commission-based fees. The DoL 
proposal dismisses both suitability as a proper standard of 
care for broker-dealers and the arbitration system administered 
by the FINRA as a mechanism to resolve disputes involving 
financial professionals. In fact, the proposal does not 
acknowledge the existing regulatory regime for broker-dealers 
or seek to accommodate the business models of those firms. As a 
consequence, the draft proposal is confusing and actually 
conflicts with existing FINRA rules and securities market 
trading practices and could disrupt the carefully considered 
regulatory regime applicable to broker-dealers and investment 
advisers administered by the SEC and FINRA.

Impact on retail investors

    DoL's proposed changes to ERISA rules regarding financial 
advice will likely limit access to professional retirement 
planning and guidance for retail investors who need it most, 
and would likely reduce American workers' overall level of 
retirement savings. Because of the unworkable rule and BICE, 
retail investors will either be moved from a commission-based 
account into a wrap-fee (flat fee) advisory account or be 
dropped by their financial advisors altogether if their 
accounts are too small. Despite some claims that wrap-fee 
models are superior to commission-based advisory services, the 
former can cost some investors, particularly buy-and-hold 
investors, more over the course of their lifetimes, eroding 
their retirement savings.
    In testimony before a joint hearing of the Financial 
Services Committee's Subcommittees on Capital Markets and 
Government-Sponsored Enterprises and Oversight and 
Investigations, Paul Schott Stevens, President and CEO of the 
Investment Company Institute, stated that

        [t]here are hundreds of thousands of retirement savers 
        like my son in your home states and across our 
        country--young men and women just starting out, people 
        with less financial sophistication for whom help and 
        information are critically important, [and] workers 
        trying to make the most of small accounts. It is 
        essential to ask: how will the Department's proposal 
        impact them? The answer: the wide net cast by the 
        Department's proposal threatens to eliminate or 
        severely reduce . . . exchanges of information--
        provided at no cost to millions of retirement savers 
        through call centers, walk-in centers, and websites. 
        Particularly troubling, the proposal would require 
        firms that offer primarily proprietary investment 
        products to forego the ability simply to explain to a 
        retirement saver--like my son--how their products and 
        services may meet the retirement saver's needs.

    Scott Stolz, Senior Vice President for Private Client Group 
Investment Products at Raymond James & Associates, added in his 
testimony that

        [t]he complexity, ambiguity and legal requirements of 
        the rule will insure that well-meaning advisors that 
        work hard to put their client's best interests first 
        will be subject to Monday morning quarterbacking. Faced 
        with this potential, advisors will make investment 
        recommendations based in part on how they can best 
        limit their future liability. It is inevitable 
        therefore that they will move to a one size fits all 
        pricing model so that they can avoid any possibility of 
        being accused of making a recommendation based on how 
        they are compensated. Under such a model, many will 
        either pay more than they do today or will receive no 
        advice at all. This will be particularly true for the 
        smaller investors--the very investors the DoL is trying 
        to protect.

    These negative effects appear to be occurring in the United 
Kingdom two years after it implemented a similar rule for 
``conflicted'' financial advice in 2013. The rule has created 
an advice gap in which 60,000 investors are unable to receive 
financial advice because their accounts are too small. As a 
result, the UK's government recently initiated a review of the 
extent to which financial advice for smaller investors is being 
diminished by the rule. The UK review will ensure the 
regulatory and legislative environment allows and encourages 
firms to innovate and grow their business models to include 
affordable and accessible financial advice, and consider ways 
to encourage people to seek financial advice, addressing 
unnecessary barriers that currently deter them from doing so. A 
June 2013 report from Cass Consulting on the impact of the UK's 
initiative noted that the initiative has left aside those ``who 
have too few assets to merit attention from professional 
advisers, though they may well be in need of financial advice. 
This cannot be a desirable outcome.'' The Cass report also 
found that the UK rule is likely to have its greatest impact on 
smaller financial advisors who do not have the necessary 
infrastructure to support the new requirements, and who may be 
more affected by the elimination of initial commissions and the 
eventual reduction in recurring income.
    Furthermore, the basis of the DoL's proposal--that 
investors are losing $17 billion a year due to conflicts of 
interest--does not withstand analytical scrutiny. At the 
Capital Markets and Oversight and Investigations Subcommittee 
joint hearing, Mr. Stevens of the ICI testified that:

        Regardless of the number used--$17 billion or $18 
        billion per year--the claims have no basis. The 
        calculations underlying these numbers misinterpret and 
        incorrectly apply the findings of the very same 
        academic research cited as the foundation of the 
        claims, and do not consider the significant harm to 
        retirement savers that is sure to result if the 
        Department adopts the rules as currently drafted. In 
        fact, these assertions do not stand up when tested 
        against actual experience and data. Correcting for the 
        Department's many errors and omissions, we find that 
        the Department's proposal, if adopted, will result in 
        net losses to investors of $109 billion over 10 years.

    The DoL's Regulatory Impact Analysis also appears to have 
omitted the costs of the loss of financial advice to investors. 
Notwithstanding this, a 2011 report by the DoL estimated that 
consumers who invest without professional advice make 
investment errors that collectively cost them $114 billion per 
year--far exceeding the purported benefit of the proposal. By 
the DoL's own logic, implementing a rule that could limit 
access to financial advice, as has occurred in the UK, would 
create costs that far exceed the DoL's presumed benefits.

Best Interest Contract Exemption (BICE)

    There are also numerous concerns surrounding the BICE. The 
BICE would require that a financial institution and adviser 
affirmatively agree to provide investment advice that is in the 
best interest of the retirement investor ``without regard to 
the financial or other interests'' of the financial 
institution, adviser, or other party. This principle is 
borrowed from Section 913 of the Dodd-Frank Act and has not 
previously been developed under ERISA or the federal securities 
laws. As a consequence, financial institutions, their advisers 
and their compliance officers and counsel will be forced to 
guess the intended meaning of this standard. One could read the 
principle as prohibiting any investment advice that takes into 
account the compensation that the financial institution or 
adviser will earn for providing that advice even though the 
rule purportedly allows a variety of compensation mechanisms:

        The ``best interest contract exemption'' will allow 
        firms to continue to set their own compensation 
        practices so long as they, among other things, commit 
        to putting their client's best interest first and 
        disclose any conflicts that may prevent them from doing 
        so. Common forms of compensation in use today in the 
        financial services industry, such as commissions and 
        revenue sharing, will be permitted under this 
        exemption, whether paid by the client or a third party 
        such as a mutual fund. To qualify for the new ``best 
        interest contract exemption,'' the company and 
        individual adviser providing retirement investment 
        advice must enter into a contract with its clients that 
        includes a number of warranties and [a] disclosure.

    As proposed by the DoL, the BICE gives rise to several 
concerns. The BICE will impose excessive compliance costs and 
significantly increase firms' potential liability. 
Specifically, the BICE requires an advisor to enter into a 
written contract with the client prior to providing investment 
advice. However, this requirement makes both the advisor and 
broker-dealer potentially liable for breach of contract, 
thereby exposing both parties to potentially needless and 
burdensome litigation. While advisers and broker-dealers seek 
to maximize their clients' returns and avoid losses, during 
market downturns and at other times clients can and will 
experience losses. It is not uncommon for clients to resort to 
lawsuits in an attempt to recover some, if not all, of their 
losses. Under current standards, the first option explored by 
plaintiffs' attorneys is almost always an inquiry into whether 
the investment recommended by the client's financial advisor 
was suitable given that investor's risk profile. A well-
documented and reasoned recommendation can often be defended 
before a FINRA arbitration panel (a substantially more cost-
effective solution for resolving customer complaints). The BICE 
requires clients to be given the right to file class action 
lawsuits. The numerous and onerous warranties included in the 
BICE, some of which may be impossible to satisfy, will 
undoubtedly result in a dramatic escalation in class action 
lawsuits against financial services firms. Additionally, the 
DoL's proposed requirement that current IRA clients must have 
the ability to bring class action lawsuits will potentially 
create perverse incentives for plaintiff's attorneys.
    A suitability standard acknowledges that there can be a 
multitude of possible product solutions for a particular 
financial need. However, one could interpret a ``best 
interest'' standard as meaning that the product recommendation 
itself has to be the ``best'' solution. Should a recommended 
investment under-perform, the BICE opens the door for 
plaintiffs' attorneys to claim that any product that performed 
better would have been in the client's best interest and that 
the product he or she was sold was not.

The SEC, not DoL, is the expert financial advice regulator

    As the SEC is the agency that Congress designated to 
oversee and regulate the conduct of persons providing 
investment advice and effecting securities transactions in the 
United States, the DoL should not act in a vacuum to define how 
an investor receives financial advice. Secretary of Labor 
Thomas Perez testified before the Committee on Education and 
the Workforce on June 17, 2015, that the DoL coordinated with 
the SEC regarding the development of the proposed DoL rule, and 
that the staffs of the two agencies worked closely throughout 
the drafting process. However, there appears to be disagreement 
about the level of actual coordination. For example, former SEC 
Commissioner Daniel Gallagher stated in his comment letter to 
the DoL proposal that he was not included in any conversations. 
Former Commissioner Gallagher further commented that, ``[f]rom 
a distance--a place where a presidentially-appointed SEC 
Commissioner should not be in this context--it appears that any 
interaction between staffs at DoL and the SEC and all of these 
discussions with Chair White have borne no fruit.'' As noted 
above, the DoL proposed rule does not contemplate or even 
mention potential SEC rules or the SEC's existing regime for 
regulating broker-dealers and investment advisers.
    Furthermore, Congress has mandated that any registered 
broker or dealer must be a member of a registered securities 
association (FINRA). FINRA, which also filed a comment letter 
with the DoL and over the course of 21 pages noted issues and 
provided suggested changes to the DoL proposed rule, urged the 
DoL to base its proposal on existing federal securities law. 
The federal securities laws and FINRA rules comprehensively 
regulate all aspects of a broker-dealer's business. Among the 
many requirements enforced by FINRA are that broker-dealers 
deal fairly with customers, adhere to just and equitable 
principles of trade, and ensure that recommendations are 
suitable for customers. Broker-dealers must also establish 
rigorous systems for compliance and supervision which are 
regularly examined by FINRA and the SEC. As previously stated, 
the DoL ignored these facts in connection with its rulemaking. 
Ultimately, as one brokerage firm noted in its comment letter, 
``it should be up to clients to choose who they work with and 
how they pay that advisor.''
    If changes are necessary to the delivery of financial 
advice, the capital markets regulatory authorities should 
undertake the action necessary to address any perceived 
inadequacies to protect investors with smaller account 
balances, including workers saving for retirement--something 
that SEC Chair White has stated is her intention. When 
challenged by members of the Financial Services Committee at a 
hearing earlier this year, Chair White was unable to point to 
any study or analysis to rebut the concerns previously 
expressed by former SEC Commissioners Casey and Paredes that 
the SEC has failed to identify market failures that are 
resulting in harm or disadvantages to investors under the 
current standards of conduct for broker-dealers.

H.R. 1090, the Retail Investor Protection Act

    During a joint hearing of the Subcommittees on Oversight 
and Investigations and Capital Markets and Government-Sponsored 
Enterprises in September 2015, several witnesses testified that 
H.R. 1090 would eliminate the substantive and procedural 
shortfalls of the DoL proposal. Caleb Callahan, Senior Vice 
President and Chief Marketing Officer of ValMark Securities, 
appearing on behalf of the Association for Advanced Life 
Underwriting (AALU), stated that

        [g]iven the Department of Labor's failure to work 
        within the current regulatory framework, Representative 
        Wagner's Retail Investor Protection Act is an important 
        bill that will lead to better rulemaking on standard of 
        care issues. . . . [The bill] is a thoughtful piece of 
        legislation that will protect average retirement savers 
        from losing choice and access to professional financial 
        advice, and AALU supports its passage.

    Julie McNeely, President of the National Association of 
Insurance and Financial Advisors, noted that

        the one issue the Department of Labor cannot rectify 
        unilaterally is the disharmony that its proposal will 
        create between investments sold through Individual 
        Retirement Accounts and those sold outside of the 
        retirement context; only the SEC can issue rules that 
        would impose a uniform standard in both contexts. To 
        the extent any SEC action in this space does not (or 
        cannot, by statute) mirror the Department's rule-
        making, advisors will be faced with multiple complex 
        and potentially contradictory compliance regimes, none 
        of which would advance any legitimate public policy 
        objectives. Any SEC rules that are issued necessarily 
        will cover the sale of all securities-based products 
        while the DoL rules jurisdictionally are limited to 
        those sold only through employer retirement plans or 
        Individual Retirement Account vehicles.

    Finally, Paul Schott Stevens, President and CEO of the 
Investment Company Institute, testified that

        H.R. 1090 reflects a commonsense goal of ensuring that 
        federal agencies work to adopt a harmonized fiduciary 
        duty for all investors and that they do so in a manner 
        that does not jeopardize investor access to 
        personalized and cost-effective investment advice. 
        Simply put, H.R. 1090 reflects a strong purpose--one 
        shared by the Institute--to get the fiduciary rules 
        right.

                                Hearings

    The Committee on Financial Services' Subcommittees on 
Capital Markets and Government Sponsored Enterprises and 
Oversight and Investigations held a hearing examining matters 
relating to H.R. 1090 on September 10, 2015.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
September 30, 2015 and ordered H.R. 1090 to be reported 
favorably to the House without amendment by a recorded vote of 
34 yeas to 25 nays (recorded vote no. FC-62), a quorum being 
present. An amendment offered by Mr. Foster was withdrawn and 
an amendment offered by Mr. Lynch was not agreed to by voice 
vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole record vote in the Committee was a motion by Chairman 
Hensarling to report the bill favorably to the House. The 
motion was agreed to by a recorded vote of 34 yeas to 25 nays 
(Record vote no. FC-62), a quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 1090 
will promote investor protection while ensuring such 
individuals' access to professional investment advice by, among 
other things, prohibiting the Secretary of Labor from 
prescribing any regulation under the Employee Retirement Income 
Security Act of 1974 defining the circumstances under which an 
individual is considered a fiduciary until 60 days after the 
Securities and Exchange Commission issues a final rule 
governing standards of conduct for brokers and dealers as 
permitted by the Dodd-Frank Act.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 21, 2015.
Hon. Jeb Hensarling, 
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1090, the Retail 
Investor Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susan 
Willie and Noah Meyerson.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 1090--Retail Investor Protection Act

    H.R. 1090 would prohibit the Secretary of Labor from 
finalizing a regulation related to certain investment advisors 
until the Securities and Exchange Commission (SEC) issues a 
final rule setting standards of conduct for brokers and dealers 
of securities. The regulation that would be delayed by the bill 
will define the circumstances under which an individual is 
considered to be a fiduciary when providing investment advice 
to employee retirement and other benefit plans and their 
participants. Under current law, the SEC is authorized to 
develop regulations that establish the same standards of 
conduct for brokers and dealers that are already in place for 
investment advisors when providing advice to persons who use 
the information for personal reasons.
    Based on information from the SEC and the Employee Benefits 
Security Administration (EBSA) within the Department of Labor, 
CBO estimates that implementing H.R. 1090 would not affect 
federal spending. The EBSA has proposed a new rule related to 
fiduciary standards for advisors of retirement and employee 
benefit plans but has not published a schedule for 
implementation. Therefore, adding a contingency--that the SEC 
act first--may delay the timing of a final rule from the EBSA, 
but at no additional cost to the agency.
    In a 2011 report,\1\ the staff of the SEC recommended that 
the commission develop a rule to harmonize standards of conduct 
for brokers, dealers, and investment advisors; to that end, in 
2013 the commission issued a request for additional data and 
information on the topic. The SEC has not, however, proposed 
such a rule. Because the bill would not direct the SEC to issue 
a rule on standards of conduct, CBO expects that implementing 
H.R. 1090 would not affect the SEC's workload or its costs. 
Enacting H.R. 1090 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
---------------------------------------------------------------------------
    \1\Securities and Exchange Commission, Study on Investment Advisors 
and Broker Dealers (January 2011), page 101, www.sec.gov/news/studies/
2011/913studyfinal.pdf.
---------------------------------------------------------------------------
    CBO estimates that enacting H.R. 1090 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2026.
    H.R. 1090 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contacts for this estimate are Susan Willie 
and Noah Meyerson. The estimate was approved by H. Samuel 
Papenfuss, Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 1090 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), 
the Committee states that no provision of H.R. 1090 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 1090 contains no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 1090 as the ``Retail Investor 
Protection Act.''

Section 2. Stay on rules defining certain fiduciaries

    This section prevents the Department of Labor from 
exercising its authority under ERISA to define the 
circumstances under which an individual is considered a 
fiduciary until 60 days after the SEC issues a final rule 
relating to standards of conduct governing broker-dealers 
pursuant to section 913 of the Dodd-Frank Act.

Section 3. Amendments to the Securities Exchange Act of 1934

    This section amends Section 15(k) of the Securities 
Exchange Act, as added by section 913(g)(1) of the Dodd-Frank 
Act, to require the SEC to complete a study supported by 
economic analysis before promulgating a rule under Section 913 
to prescribe standards of conduct for broker-dealers. In 
proposing such a rule, the SEC must also consider differences 
in the registration, supervision, and examination requirements 
applicable to brokers, dealers, and investment advisors.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                    SECURITIES EXCHANGE ACT OF 1934

TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *


           registration and regulation of brokers and dealers

  Sec. 15. (a)(1) It shall be unlawful for any broker or dealer 
which is either a person other than a natural person or a 
natural person not associated with a broker or dealer which is 
a person other than a natural person (other than such a broker 
or dealer whose business is exclusively intrastate and who does 
not make use of any facility of a national securities exchange) 
to make use of the mails or any means or instrumentality of 
interstate commerce to effect any transactions in, or to induce 
or attempt to induce the purchase or sale of, any security 
(other than an exempted security or commercial paper, bankers' 
acceptances, or commercial bills) unless such broker or dealer 
is registered in accordance with subsection (b) of this 
section.
  (2) The Commission, by rule or order, as it deems consistent 
with the public interest and the protection of investors, may 
conditionally or unconditionally exempt from paragraph (1) of 
this subsection any broker or dealer or class of brokers or 
dealers specified in such rule or order.
  (b)(1) A broker or dealer may be registered by filing with 
the Commission an application for registration in such form and 
containing such information and documents concerning such 
broker or dealer and any persons associated with such broker or 
dealer as the Commission, by rule, may prescribe as necessary 
or appropriate in the public interest or for the protection of 
investors. Within forty-five days of the date of the filing of 
such application (or within such longer period as to which the 
applicant consents), the Commission shall--
          (A) by order grant registration, or
          (B) institute proceedings to determine whether 
        registration should be denied. Such proceedings shall 
        include notice of the grounds for denial under 
        consideration and opportunity for hearing and shall be 
        concluded within one hundred twenty days of the date of 
        the filing of the application for registration. At the 
        conclusion of such proceedings, the Commission, by 
        order, shall grant or deny such registration. The 
        Commission may extend the time for conclusion of such 
        proceedings for up to ninety days if it finds good 
        cause for such extension and publishes its reasons for 
        so finding or for such longer period as to which the 
        applicant consents.
The Commission shall grant such registration if the Commission 
finds that the requirements of this section are satisfied. The 
order granting registration shall not be effective until such 
broker or dealer has become a member of a registered securities 
association, or until such broker or dealer has become a member 
of a national securities exchange, if such broker or dealer 
effects transactions solely on that exchange, unless the 
Commission has exempted such broker or dealer, by rule or 
order, from such membership. The Commission shall deny such 
registration if it does not make such a finding or if it finds 
that if the applicant were so registered, its registration 
would be subject to suspension or revocation under paragraph 
(4) of this subsection.
  (2)(A) An application for registration of a broker or dealer 
to be formed or organized may be made by a broker or dealer to 
which the broker or dealer to be formed or organized is to be 
the successor. Such application, in such form as the 
Commission, by rule, may prescribe, shall contain such 
information and documents concerning the applicant, the 
successor, and any persons associated with the applicant or the 
successor, as the Commission, by rule, may prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors. The grant or denial of registration to 
such an applicant shall be in accordance with the procedures 
set forth in paragraph (1) of this subsection. If the 
Commission grants such registration, the registration shall 
terminate on the forty-fifth day after the effective date 
thereof, unless prior thereto the successor shall, in 
accordance with such rules and regulations as the Commission 
may prescribe, adopt the application for registration as its 
own.
  (B) Any person who is a broker or dealer solely by reason of 
acting as a municipal securities dealer or municipal securities 
broker, who so acts through a separately identifiable 
department or division, and who so acted in such a manner on 
the date of enactment of the Securities Acts Amendments of 
1975, may, in accordance with such terms and conditions as the 
Commission, by rule, prescribes as necessary and appropriate in 
the public interest and for the protection of investors, 
register such separately identifiable department or division in 
accordance with this subsection. If any such department or 
division is so registered, the department or division and not 
such person himself shall be the broker or dealer for purposes 
of this title.
  (C) Within six months of the date of the granting of 
registration to a broker or dealer, the Commission, or upon the 
authorization and direction of the Commission, a registered 
securities association or national securities exchange of which 
such broker or dealer is a member, shall conduct an inspection 
of the broker or dealer to determine whether it is operating in 
conformity with the provisions of this title and the rules and 
regulations thereunder: Provided, however, That the Commission 
may delay such inspection of any class of brokers or dealers 
for a period not to exceed six months.
  (3) Any provision of this title (other than section 5 and 
subsection (a) of this section) which prohibits any act, 
practice, or course of business if the mails or any means or 
instrumentality of interstate commerce is used in connection 
therewith shall also prohibit any such act, practice, or course 
of business by any registered broker or dealer or any person 
acting on behalf of such a broker or dealer, irrespective of 
any use of the mails or any means or instrumentality of 
interstate commerce in connection therewith.
  (4) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any broker or dealer if it finds, on the record 
after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is in the 
public interest and that such broker or dealer, whether prior 
or subsequent to becoming such, or any person associated with 
such broker or dealer, whether prior or subsequent to becoming 
so associated--
          (A) has willfully made or caused to be made in any 
        application for registration or report required to be 
        filed with the Commission or with any other appropriate 
        regulatory agency under this title, or in any 
        proceeding before the Commission with respect to 
        registration, any statement which was at the time and 
        in the light of the circumstances under which it was 
        made false or misleading with respect to any material 
        fact, or has omitted to state in any such application 
        or report any material fact which is required to be 
        stated therein.
          (B) has been convicted within ten years preceding the 
        filing of any application for registration or at any 
        time thereafter of any felony or misdemeanor or of a 
        substantially equivalent crime by a foreign court of 
        competent jurisdiction which the Commission finds--
                  (i) involves the purchase or sale of any 
                security, the taking of a false oath, the 
                making of a false report, bribery, perjury, 
                burglary, any substantially equivalent activity 
                however denominated by the laws of the relevant 
                foreign government, or conspiracy to commit any 
                such offense;
                  (ii) arises out of the conduct of the 
                business of a broker, dealer, municipal 
                securities dealer municipal advisor,, 
                government securities broker, government 
                securities dealer, investment adviser, bank, 
                insurance company, fiduciary, transfer agent, 
                nationally recognized statistical rating 
                organization, foreign person performing a 
                function substantially equivalent to any of the 
                above, or entity or person required to be 
                registered under the Commodity Exchange Act (7 
                U.S.C. 1 et seq.) or any substantially 
                equivalent foreign statute or regulation;
                  (iii) involves the larceny, theft, robbery, 
                extortion, forgery, counterfeiting, fraudulent 
                concealment, embezzlement, fraudulent 
                conversion, or misappropriation of funds, or 
                securities, or substantially equivalent 
                activity however denominated by the laws of the 
                relevant foreign government; or
                  (iv) involves the violation of section 152, 
                1341, 1342, or 1343 or chapter 25 or 47 of 
                title 18, United States Code, or a violation of 
                a substantially equivalent foreign statute.
          (C) is permanently or temporarily enjoined by order, 
        judgment, or decree of any court of competent 
        jurisdiction from acting as an investment adviser, 
        underwriter, broker, dealer, municipal securities 
        dealer municipal advisor,, government securities 
        broker, government securities dealer, security-based 
        swap dealer, major security-based swap participant, 
        transfer agent, nationally recognized statistical 
        rating organization, foreign person performing a 
        function substantially equivalent to any of the above, 
        or entity or person required to be registered under the 
        Commodity Exchange Act or any substantially equivalent 
        foreign statute or regulation, or as an affiliated 
        person or employee of any investment company, bank, 
        insurance company, foreign entity substantially 
        equivalent to any of the above, or entity or person 
        required to be registered under the Commodity Exchange 
        Act or any substantially equivalent foreign statute or 
        regulation, or from engaging in or continuing any 
        conduct or practice in connection with any such 
        activity, or in connection with the purchase or sale of 
        any security.
          (D) has willfully violated any provision of the 
        Securities Act of 1933, the Investment Advisers Act of 
        1940, the Investment Company Act of 1940, the Commodity 
        Exchange Act, this title, the rules or regulations 
        under any of such statutes, or the rules of the 
        Municipal Securities Rulemaking Board, or is unable to 
        comply with any such provision.
          (E) has willfully aided, abetted, counseled, 
        commanded, induced, or procured the violation by any 
        other person of any provision of the Securities Act of 
        1933, the Investment Advisers Act of 1940, the 
        Investment Company Act of 1940, the Commodity Exchange 
        Act, this title, the rules or regulations under any of 
        such statutes, or the rules of the Municipal Securities 
        Rulemaking Board, or has failed reasonably to 
        supervise, with a view to preventing violations of the 
        provisions of such statutes, rules, and regulations, 
        another person who commits such a violation, if such 
        other person is subject to his supervision. For the 
        purposes of this subparagraph (E) no person shall be 
        deemed to have failed reasonably to supervise any other 
        person, if--
                  (i) there have been established procedures, 
                and a system for applying such procedures, 
                which would reasonably be expected to prevent 
                and detect, insofar as practicable, any such 
                violation by such other person, and
                  (ii) such person has reasonably discharged 
                the duties and obligations incumbent upon him 
                by reason of such procedures and system without 
                reasonable cause to believe that such 
                procedures and system were not being complied 
                with.
          (F) is subject to any order of the Commission barring 
        or suspending the right of the person to be associated 
        with a broker, dealer, security-based swap dealer, or a 
        major security-based swap participant;
          (G) has been found by a foreign financial regulatory 
        authority to have--
                  (i) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign financial regulatory 
                authority, or in any proceeding before a 
                foreign financial regulatory authority with 
                respect to registration, any statement that was 
                at the time and in the light of the 
                circumstances under which it was made false or 
                misleading with respect to any material fact, 
                or has omitted to state in any application or 
                report to the foreign financial regulatory 
                authority any material fact that is required to 
                be stated therein;
                  (ii) violated any foreign statute or 
                regulation regarding transactions in 
                securities, or contracts of sale of a commodity 
                for future delivery, traded on or subject to 
                the rules of a contract market or any board of 
                trade;
                  (iii) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any 
                person of any provision of any statutory 
                provisions enacted by a foreign government, or 
                rules or regulations thereunder, empowering a 
                foreign financial regulatory authority 
                regarding transactions in securities, or 
                contracts of sale of a commodity for future 
                delivery, traded on or subject to the rules of 
                a contract market or any board of trade, or has 
                been found, by a foreign financial regulatory 
                authority, to have failed reasonably to 
                supervise, with a view to preventing violations 
                of such statutory provisions, rules, and 
                regulations, another person who commits such a 
                violation, if such other person is subject to 
                his supervision; or
          (H) is subject to any final order of a State 
        securities commission (or any agency or officer 
        performing like functions), State authority that 
        supervises or examines banks, savings associations, or 
        credit unions, State insurance commission (or any 
        agency or office performing like functions), an 
        appropriate Federal banking agency (as defined in 
        section 3 of the Federal Deposit Insurance Act (12 
        U.S.C. 1813(q))), or the National Credit Union 
        Administration, that--
                  (i) bars such person from association with an 
                entity regulated by such commission, authority, 
                agency, or officer, or from engaging in the 
                business of securities, insurance, banking, 
                savings association activities, or credit union 
                activities; or
                  (ii) constitutes a final order based on 
                violations of any laws or regulations that 
                prohibit fraudulent, manipulative, or deceptive 
                conduct.
  (5) Pending final determination whether any registration 
under this subsection shall be revoked, the Commission, by 
order, may suspend such registration, if such suspension 
appears to the Commission, after notice and opportunity for 
hearing, to be necessary or appropriate in the public interest 
or for the protection of investors. Any registered broker or 
dealer may, upon such terms and conditions as the Commission 
deems necessary or appropriate in the public interest or for 
the protection of investors, withdraw from registration by 
filing a written notice of withdrawal with the Commission. If 
the Commission finds that any registered broker or dealer is no 
longer in existence or has ceased to do business as a broker or 
dealer, the Commission, by order, shall cancel the registration 
of such broker or dealer.
  (6)(A) With respect to any person who is associated, who is 
seeking to become associated, or, at the time of the alleged 
misconduct, who was associated or was seeking to become 
associated with a broker or dealer, or any person 
participating, or, at the time of the alleged misconduct, who 
was participating, in an offering of any penny stock, the 
Commission, by order, shall censure, place limitations on the 
activities or functions of such person, or suspend for a period 
not exceeding 12 months, or bar any such person from being 
associated with a broker, dealer, investment adviser, municipal 
securities dealer, municipal advisor, transfer agent, or 
nationally recognized statistical rating organization, or from 
participating in an offering of penny stock, if the Commission 
finds, on the record after notice and opportunity for a 
hearing, that such censure, placing of limitations, suspension, 
or bar is in the public interest and that such person--
          (i) has committed or omitted any act, or is subject 
        to an order or finding, enumerated in subparagraph (A), 
        (D), (E), (H), or (G) of paragraph (4) of this 
        subsection;
          (ii) has been convicted of any offense specified in 
        subparagraph (B) of such paragraph (4) within 10 years 
        of the commencement of the proceedings under this 
        paragraph; or
          (iii) is enjoined from any action, conduct, or 
        practice specified in subparagraph (C) of such 
        paragraph (4).
  (B) It shall be unlawful--
          (i) for any person as to whom an order under 
        subparagraph (A) is in effect, without the consent of 
        the Commission, willfully to become, or to be, 
        associated with a broker or dealer in contravention of 
        such order, or to participate in an offering of penny 
        stock in contravention of such order;
          (ii) for any broker or dealer to permit such a 
        person, without the consent of the Commission, to 
        become or remain, a person associated with the broker 
        or dealer in contravention of such order, if such 
        broker or dealer knew, or in the exercise of reasonable 
        care should have known, of such order; or
          (iii) for any broker or dealer to permit such a 
        person, without the consent of the Commission, to 
        participate in an offering of penny stock in 
        contravention of such order, if such broker or dealer 
        knew, or in the exercise of reasonable care should have 
        known, of such order and of such participation.
  (C) For purposes of this paragraph, the term ``person 
participating in an offering of penny stock'' includes any 
person acting as any promoter, finder, consultant, agent, or 
other person who engages in activities with a broker, dealer, 
or issuer for purposes of the issuance or trading in any penny 
stock, or inducing or attempting to induce the purchase or sale 
of any penny stock. The Commission may, by rule or regulation, 
define such term to include other activities, and may, by rule, 
regulation, or order, exempt any person or class of persons, in 
whole or in part, conditionally or unconditionally, from such 
term.
  (7) No registered broker or dealer or government securities 
broker or government securities dealer registered (or required 
to register) under section 15C(a)(1)(A) shall effect any 
transaction in, or induce the purchase or sale of, any security 
unless such broker or dealer meets such standards of 
operational capability and such broker or dealer and all 
natural persons associated with such broker or dealer meet such 
standards of training, experience, competence, and such other 
qualifications as the Commission finds necessary or appropriate 
in the public interest or for the protection of investors. The 
Commission shall establish such standards by rules and 
regulations, which may--
          (A) specify that all or any portion of such standards 
        shall be applicable to any class of brokers and dealers 
        and persons associated with brokers and dealers;
          (B) require persons in any such class to pass tests 
        prescribed in accordance with such rules and 
        regulations, which tests shall, with respect to any 
        class of partners, officers, or supervisory employees 
        (which latter term may be defined by the Commission's 
        rules and regulations and as so defined shall include 
        branch managers of brokers or dealers) engaged in the 
        management of the broker or dealer, include questions 
        relating to bookkeeping, accounting, internal control 
        over cash and securities, supervision of employees, 
        maintenance of records, and other appropriate matters; 
        and
          (C) provide that persons in any such class other than 
        brokers and dealers and partners, officers, and 
        supervisory employees of brokers or dealers, may be 
        qualified solely on the basis of compliance with such 
        standards of training and such other qualifications as 
        the Commission finds appropriate.
The Commission, by rule, may prescribe reasonable fees and 
charges to defray its costs in carrying out this paragraph, 
including, but not limited to, fees for any test administered 
by it or under its direction. The Commission may cooperate with 
registered securities associations and national securities 
exchanges in devising and administering tests and may require 
registered brokers and dealers and persons associated with such 
brokers and dealers to pass tests administered by or on behalf 
of any such association or exchange and to pay such association 
or exchange reasonable fees or charges to defray the costs 
incurred by such association or exchange in administering such 
tests.
  (8) It shall be unlawful for any registered broker or dealer 
to effect any transaction in, or induce or attempt to induce 
the purchase or sale of, any security (other than or commercial 
paper, bankers' acceptances, or commercial bills), unless such 
broker or dealer is a member of a securities association 
registered pursuant to section 15A of this title or effects 
transactions in securities solely on a national securities 
exchange of which it is a member.
  (9) The Commission by rule or order, as it deems consistent 
with the public interest and the protection of investors, may 
conditionally or unconditionally exempt from paragraph (8) of 
this subsection any broker or dealer or class of brokers or 
dealers specified in such rule or order.
  (10) For the purposes of determining whether a person is 
subject to a statutory disqualification under section 6(c)(2), 
15A(g)(2), or 17A(b)(4)(A) of this title, the term 
``Commission'' in paragraph (4)(B) of this subsection shall 
mean ``exchange'', ``association'', or ``clearing agency'', 
respectively.
          (11) Broker/dealer registration with respect to 
        transactions in security futures products.--
                  (A) Notice registration.--
                          (i) Contents of notice.--
                        Notwithstanding paragraphs (1) and (2), 
                        a broker or dealer required to register 
                        only because it effects transactions in 
                        security futures products on an 
                        exchange registered pursuant to section 
                        6(g) may register for purposes of this 
                        section by filing with the Commission a 
                        written notice in such form and 
                        containing such information concerning 
                        such broker or dealer and any persons 
                        associated with such broker or dealer 
                        as the Commission, by rule, may 
                        prescribe as necessary or appropriate 
                        in the public interest or for the 
                        protection of investors. A broker or 
                        dealer may not register under this 
                        paragraph unless that broker or dealer 
                        is a member of a national securities 
                        association registered under section 
                        15A(k).
                          (ii) Immediate effectiveness.--Such 
                        registration shall be effective 
                        contemporaneously with the submission 
                        of notice, in written or electronic 
                        form, to the Commission, except that 
                        such registration shall not be 
                        effective if the registration would be 
                        subject to suspension or revocation 
                        under paragraph (4).
                          (iii) Suspension.--Such registration 
                        shall be suspended immediately if a 
                        national securities association 
                        registered pursuant to section 15A(k) 
                        of this title suspends the membership 
                        of that broker or dealer.
                          (iv) Termination.--Such registration 
                        shall be terminated immediately if any 
                        of the above stated conditions for 
                        registration set forth in this 
                        paragraph are no longer satisfied.
                  (B) Exemptions for registered brokers and 
                dealers.--A broker or dealer registered 
                pursuant to the requirements of subparagraph 
                (A) shall be exempt from the following 
                provisions of this title and the rules 
                thereunder with respect to transactions in 
                security futures products:
                          (i) Section 8.
                          (ii) Section 11.
                          (iii) Subsections (c)(3) and (c)(5) 
                        of this section.
                          (iv) Section 15B.
                          (v) Section 15C.
                          (vi) Subsections (d), (e), (f), (g), 
                        (h), and (i) of section 17.
          (12) Exemption for security futures product exchange 
        members.--
                  (A) Registration exemption.--A natural person 
                shall be exempt from the registration 
                requirements of this section if such person--
                          (i) is a member of a designated 
                        contract market registered with the 
                        Commission as an exchange pursuant to 
                        section 6(g);
                          (ii) effects transactions only in 
                        securities on the exchange of which 
                        such person is a member; and
                          (iii) does not directly accept or 
                        solicit orders from public customers or 
                        provide advice to public customers in 
                        connection with the trading of security 
                        futures products.
                  (B) Other exemptions.--A natural person 
                exempt from registration pursuant to 
                subparagraph (A) shall also be exempt from the 
                following provisions of this title and the 
                rules thereunder:
                          (i) Section 8.
                          (ii) Section 11.
                          (iii) Subsections (c)(3), (c)(5), and 
                        (e) of this section.
                          (iv) Section 15B.
                          (v) Section 15C.
                          (vi) Subsections (d), (e), (f), (g), 
                        (h), and (i) of section 17.
  (c)(1)(A) No broker or dealer shall make use of the mails or 
any means or instrumentality of interstate commerce to effect 
any transaction in, or to induce or attempt to induce the 
purchase or sale of, any security (other than commercial paper, 
bankers' acceptances, or commercial bills), or any security-
based swap agreement by means of any manipulative, deceptive, 
or other fraudulent device or contrivance.
  (B) No broker, dealer, or municipal securities dealer shall 
make use of the mails or any means or instrumentality of 
interstate commerce to effect any transaction in, or to induce 
or attempt to induce the purchase or sale of, any municipal 
security or any security-based swap agreement involving a 
municipal security by means of any manipulative, deceptive, or 
other fraudulent device or contrivance.
  (C) No government securities broker or government securities 
dealer shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any 
transaction in, or to induce or to attempt to induce the 
purchase or sale of, any government security or any security-
based swap agreement involving a government security by means 
of any manipulative, deceptive, or other fraudulent device or 
contrivance.
  (2)(A) No broker or dealer shall make use of the mails or any 
means or instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security or 
commercial paper, bankers' acceptances, or commercial bills) 
otherwise than on a national securities exchange of which it is 
a member, in connection with which such broker or dealer 
engages in any fraudulent, deceptive, or manipulative act or 
practice, or makes any fictitious quotation.
  (B) No broker, dealer, or municipal securities dealer shall 
make use of the mails or any means or instrumentality of 
interstate commerce to effect any transaction in, or to induce 
or attempt to induce the purchase or sale of, any municipal 
security in connection with which such broker, dealer, or 
municipal securities dealer engages in any fraudulent, 
deceptive, or manipulative act or practice, or makes any 
fictitious quotation.
  (C) No government securities broker or government securities 
dealer shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any 
transaction in, or induce or attempt to induce the purchase or 
sale of, any government security in connection with which such 
government securities broker or government securities dealer 
engages in any fraudulent, deceptive, or manipulative act or 
practice, or makes any fictitious quotation.
  (D) The Commission shall, for the purposes of this paragraph, 
by rules and regulations define, and prescribe means reasonably 
designed to prevent, such acts and practices as are fraudulent, 
deceptive, or manipulative and such quotations as are 
fictitious.
  (E) The Commission shall, prior to adopting any rule or 
regulation under subparagraph (C), consult with and consider 
the views of the Secretary of the Treasury and each appropriate 
regulatory agency. If the Secretary of the Treasury or any 
appropriate regulatory agency comments in writing on a proposed 
rule or regulation of the Commission under such subparagraph 
(C) that has been published for comment, the Commission shall 
respond in writing to such written comment before adopting the 
proposed rule. If the Secretary of the Treasury determines, and 
notifies the Commission, that such rule or regulation, if 
implemented, would, or as applied does (i) adversely affect the 
liquidity or efficiency of the market for government 
securities; or (ii) impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of this 
section, the Commission shall, prior to adopting the proposed 
rule or regulation, find that such rule or regulation is 
necessary and appropriate in furtherance of the purposes of 
this section notwithstanding the Secretary's determination.
  (3)(A) No broker or dealer (other than a government 
securities broker or government securities dealer, except a 
registered broker or dealer) shall make use of the mails or any 
means or instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security 
(except a government security) or commercial paper, bankers' 
acceptances, or commercial bills) in contravention of such 
rules and regulations as the Commission shall prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors to provide safeguards with respect to 
the financial responsibility and related practices of brokers 
and dealers including, but not limited to, the acceptance of 
custody and use of customers' securities and the carrying and 
use of customers' deposits or credit balances. Such rules and 
regulations shall (A) require the maintenance of reserves with 
respect to customers' deposits or credit balances, and (B) no 
later than September 1, 1975, establish minimum financial 
responsibility requirements for all brokers and dealers.
  (B) Consistent with this title, the Commission, in 
consultation with the Commodity Futures Trading Commission, 
shall issue such rules, regulations, or orders as are necessary 
to avoid duplicative or conflicting regulations applicable to 
any broker or dealer registered with the Commission pursuant to 
section 15(b) (except paragraph (11) thereof), that is also 
registered with the Commodity Futures Trading Commission 
pursuant to section 4f(a) of the Commodity Exchange Act (except 
paragraph (2) thereof), with respect to the application of: (i) 
the provisions of section 8, section 15(c)(3), and section 17 
of this title and the rules and regulations thereunder related 
to the treatment of customer funds, securities, or property, 
maintenance of books and records, financial reporting, or other 
financial responsibility rules, involving security futures 
products; and (ii) similar provisions of the Commodity Exchange 
Act and rules and regulations thereunder involving security 
futures products.
          (C) Notwithstanding any provision of sections 
        2(a)(1)(C)(i) or 4d(a)(2) of the Commodity Exchange Act 
        and the rules and regulations thereunder, and pursuant 
        to an exemption granted by the Commission under section 
        36 of this title or pursuant to a rule or regulation, 
        cash and securities may be held by a broker or dealer 
        registered pursuant to subsection (b)(1) and also 
        registered as a futures commission merchant pursuant to 
        section 4f(a)(1) of the Commodity Exchange Act, in a 
        portfolio margining account carried as a futures 
        account subject to section 4d of the Commodity Exchange 
        Act and the rules and regulations thereunder, pursuant 
        to a portfolio margining program approved by the 
        Commodity Futures Trading Commission, and subject to 
        subchapter IV of chapter 7 of title 11 of the United 
        States Code and the rules and regulations thereunder. 
        The Commission shall consult with the Commodity Futures 
        Trading Commission to adopt rules to ensure that such 
        transactions and accounts are subject to comparable 
        requirements to the extent practicable for similar 
        products.
  (4) If the Commission finds, after notice and opportunity for 
a hearing, that any person subject to the provisions of section 
12, 13, 14, or subsection (d) of section 15 of this title or 
any rule or regulation thereunder has failed to comply with any 
such provision, rule, or regulation in any material respect, 
the Commission may publish its findings and issue an order 
requiring such person, and any person who was a cause of the 
failure to comply due to an act or omission the person knew or 
should have known would contribute to the failure to comply, to 
comply, or to take steps to effect compliance, with such 
provision or such rule or regulation thereunder upon such terms 
and conditions and within such time as the Commission may 
specify in such order.
  (5) No dealer (other than a specialist registered on a 
national securities exchange) acting in the capacity of market 
maker or otherwise shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security or a 
municipal security) in contravention of such specified and 
appropriate standards with respect to dealing as the 
Commission, by rule, shall prescribe as necessary or 
appropriate in the public interest and for the protection of 
investors, to maintain fair and orderly markets, or to remove 
impediments to and perfect the mechanism of a national market 
system. Under the rules of the Commission a dealer in a 
security may be prohibited from acting as broker in that 
security.
  (6) No broker or dealer shall make use of the mails or any 
means or instrumentality of interstate commerce to effect any 
transaction in, or to induce or attempt to induce the purchase 
or sale of, any security (other than an exempted security, 
municipal security, commercial paper, bankers' acceptances, or 
commercial bills) in contravention of such rules and 
regulations as the Commission shall prescribe as necessary or 
appropriate in the public interest and for the protection of 
investors or to perfect or remove impediments to a national 
system for the prompt and accurate clearance and settlement of 
securities transactions, with respect to the time and method 
of, and the form and format of documents used in connection 
with, making settlements of and payments for transactions in 
securities, making transfers and deliveries of securities, and 
closing accounts. Nothing in this paragraph shall be construed 
(A) to affect the authority of the Board of Governors of the 
Federal Reserve System, pursuant to section 7 of this title, to 
prescribe rules and regulations for the purpose of preventing 
the excessive use of credit for the purchase or carrying of 
securities, or (B) to authorize the Commission to prescribe 
rules or regulations for such purpose.
  (7) In connection with any bid for or purchase of a 
government security related to an offering of government 
securities by or on behalf of an issuer, no government 
securities broker, government securities dealer, or bidder for 
or purchaser of securities in such offering shall knowingly or 
willfully make any false or misleading written statement or 
omit any fact necessary to make any written statement made not 
misleading.
  (8) Prohibition of referral fees.--No broker or dealer, or 
person associated with a broker or dealer, may solicit or 
accept, directly or indirectly, remuneration for assisting an 
attorney in obtaining the representation of any person in any 
private action arising under this title or under the Securities 
Act of 1933.
  (d) Supplementary and Periodic Information.--
          (1) In general.--Each issuer which has filed a 
        registration statement containing an undertaking which 
        is or becomes operative under this subsection as in 
        effect prior to the date of enactment of the Securities 
        Acts Amendments of 1964, and each issuer which shall 
        after such date file a registration statement which has 
        become effective pursuant to the Securities Act of 
        1933, as amended, shall file with the Commission, in 
        accordance with such rules and regulations as the 
        Commission may prescribe as necessary or appropriate in 
        the public interest or for the protection of investors, 
        such supplementary and periodic information, documents, 
        and reports as may be required pursuant to section 13 
        of this title in respect of a security registered 
        pursuant to section 12 of this title. The duty to file 
        under this subsection shall be automatically suspended 
        if and so long as any issue of securities of such 
        issuer is registered pursuant to section 12 of this 
        title. The duty to file under this subsection shall 
        also be automatically suspended as to any fiscal year, 
        other than the fiscal year within which such 
        registration statement became effective, if, at the 
        beginning of such fiscal year, the securities of each 
        class, other than any class of asset-backed securities, 
        to which the registration statement relates are held of 
        record by less than 300 persons, or, in the case of 
        bank or a bank holding company, as such term is defined 
        in section 2 of the Bank Holding Company Act of 1956 
        (12 U.S.C. 1841), 1,200 persons persons. For the 
        purposes of this subsection, the term ``class'' shall 
        be construed to include all securities of an issuer 
        which are of substantially similar character and the 
        holders of which enjoy substantially similar rights and 
        privileges. The Commission may, for the purpose of this 
        subsection, define by rules and regulations the term 
        ``held of record'' as it deems necessary or appropriate 
        in the public interest or for the protection of 
        investors in order to prevent circumvention of the 
        provisions of this subsection. Nothing in this 
        subsection shall apply to securities issued by a 
        foreign government or political subdivision thereof.
          (2) Asset-backed securities.--
                  (A) Suspension of duty to file.--The 
                Commission may, by rule or regulation, provide 
                for the suspension or termination of the duty 
                to file under this subsection for any class of 
                asset-backed security, on such terms and 
                conditions and for such period or periods as 
                the Commission deems necessary or appropriate 
                in the public interest or for the protection of 
                investors.
                  (B) Classification of issuers.--The 
                Commission may, for purposes of this 
                subsection, classify issuers and prescribe 
                requirements appropriate for each class of 
                issuers of asset-backed securities.
  (e) Notices to Customers Regarding Securities Lending.--Every 
registered broker or dealer shall provide notice to its 
customers that they may elect not to allow their fully paid 
securities to be used in connection with short sales. If a 
broker or dealer uses a customer's securities in connection 
with short sales, the broker or dealer shall provide notice to 
its customer that the broker or dealer may receive compensation 
in connection with lending the customer's securities. The 
Commission, by rule, as it deems necessary or appropriate in 
the public interest and for the protection of investors, may 
prescribe the form, content, time, and manner of delivery of 
any notice required under this paragraph.
  (f) The Commission, by rule, as it deems necessary or 
appropriate in the public interest and for the protection of 
investors or to assure equal regulation, may require any member 
of a national securities exchange not required to register 
under section 15 of this title and any person associated with 
any such member to comply with any provision of this title 
(other than section 15(a)) or the rules or regulations 
thereunder which by its terms regulates or prohibits any act, 
practice, or course of business by a ``broker or dealer'' or 
``registered broker or dealer'' or a ``person associated with a 
broker or dealer,'' respectively.
  (g) Every registered broker or dealer shall establish, 
maintain, and enforce written policies and procedures 
reasonably designed, taking into consideration the nature of 
such broker's or dealer's business, to prevent the misuse in 
violation of this title, or the rules or regulations 
thereunder, of material, nonpublic information by such broker 
or dealer or any person associated with such broker or dealer. 
The Commission, as it deems necessary or appropriate in the 
public interest or for the protection of investors, shall adopt 
rules or regulations to require specific policies or procedures 
reasonably designed to prevent misuse in violation of this 
title (or the rules or regulations thereunder) of material, 
nonpublic information.
  (h) Requirements for Transactions in Penny Stocks.--
          (1) In general.--No broker or dealer shall make use 
        of the mails or any means or instrumentality of 
        interstate commerce to effect any transaction in, or to 
        induce or attempt to induce the purchase or sale of, 
        any penny stock by any customer except in accordance 
        with the requirements of this subsection and the rules 
        and regulations prescribed under this subsection.
          (2) Risk disclosure with respect to penny stocks.--
        Prior to effecting any transaction in any penny stock, 
        a broker or dealer shall give the customer a risk 
        disclosure document that--
                  (A) contains a description of the nature and 
                level of risk in the market for penny stocks in 
                both public offerings and secondary trading;
                  (B) contains a description of the broker's or 
                dealer's duties to the customer and of the 
                rights and remedies available to the customer 
                with respect to violations of such duties or 
                other requirements of Federal securities laws;
                  (C) contains a brief, clear, narrative 
                description of a dealer market, including 
                ``bid'' and ``ask'' prices for penny stocks and 
                the significance of the spread between the bid 
                and ask prices;
                  (D) contains the toll free telephone number 
                for inquiries on disciplinary actions 
                established pursuant to section 15A(i) of this 
                title;
                  (E) defines significant terms used in the 
                disclosure document or in the conduct of 
                trading in penny stocks; and
                  (F) contains such other information, and is 
                in such form (including language, type size, 
                and format), as the Commission shall require by 
                rule or regulation.
          (3) Commission rules relating to disclosure.--The 
        Commission shall adopt rules setting forth additional 
        standards for the disclosure by brokers and dealers to 
        customers of information concerning transactions in 
        penny stocks. Such rules--
                  (A) shall require brokers and dealers to 
                disclose to each customer, prior to effecting 
                any transaction in, and at the time of 
                confirming any transaction with respect to any 
                penny stock, in accordance with such procedures 
                and methods as the Commission may require 
                consistent with the public interest and the 
                protection of investors--
                          (i) the bid and ask prices for penny 
                        stock, or such other information as the 
                        Commission may, by rule, require to 
                        provide customers with more useful and 
                        reliable information relating to the 
                        price of such stock;
                          (ii) the number of shares to which 
                        such bid and ask prices apply, or other 
                        comparable information relating to the 
                        depth and liquidity of the market for 
                        such stock; and
                          (iii) the amount and a description of 
                        any compensation that the broker or 
                        dealer and the associated person 
                        thereof will receive or has received in 
                        connection with such transaction;
                  (B) shall require brokers and dealers to 
                provide, to each customer whose account with 
                the broker or dealer contains penny stocks, a 
                monthly statement indicating the market value 
                of the penny stocks in that account or 
                indicating that the market value of such stock 
                cannot be determined because of the 
                unavailability of firm quotes; and
                  (C) may, as the Commission finds necessary or 
                appropriate in the public interest or for the 
                protection of investors, require brokers and 
                dealers to disclose to customers additional 
                information concerning transactions in penny 
                stocks.
          (4) Exemptions.--The Commission, as it determines 
        consistent with the public interest and the protection 
        of investors, may by rule, regulation, or order exempt 
        in whole or in part, conditionally or unconditionally, 
        any person or class of persons, or any transaction or 
        class of transactions, from the requirements of this 
        subsection. Such exemptions shall include an exemption 
        for brokers and dealers based on the minimal percentage 
        of the broker's or dealer's commissions, commission-
        equivalents, and markups received from transactions in 
        penny stocks.
          (5) Regulations.--It shall be unlawful for any person 
        to violate such rules and regulations as the Commission 
        shall prescribe in the public interest or for the 
        protection of investors or to maintain fair and orderly 
        markets--
                  (A) as necessary or appropriate to carry out 
                this subsection; or
                  (B) as reasonably designed to prevent 
                fraudulent, deceptive, or manipulative acts and 
                practices with respect to penny stocks.
  (i) Limitations on State Law.--
          (1) Capital, margin, books and records, bonding, and 
        reports.--No law, rule, regulation, or order, or other 
        administrative action of any State or political 
        subdivision thereof shall establish capital, custody, 
        margin, financial responsibility, making and keeping 
        records, bonding, or financial or operational reporting 
        requirements for brokers, dealers, municipal securities 
        dealers, government securities brokers, or government 
        securities dealers that differ from, or are in addition 
        to, the requirements in those areas established under 
        this title. The Commission shall consult periodically 
        the securities commissions (or any agency or office 
        performing like functions) of the States concerning the 
        adequacy of such requirements as established under this 
        title.
          (2) Funding portals.--
                  (A) Limitation on state laws.--Except as 
                provided in subparagraph (B), no State or 
                political subdivision thereof may enforce any 
                law, rule, regulation, or other administrative 
                action against a registered funding portal with 
                respect to its business as such.
                  (B) Examination and enforcement authority.--
                Subparagraph (A) does not apply with respect to 
                the examination and enforcement of any law, 
                rule, regulation, or administrative action of a 
                State or political subdivision thereof in which 
                the principal place of business of a registered 
                funding portal is located, provided that such 
                law, rule, regulation, or administrative action 
                is not in addition to or different from the 
                requirements for registered funding portals 
                established by the Commission.
                  (C) Definition.--For purposes of this 
                paragraph, the term ``State'' includes the 
                District of Columbia and the territories of the 
                United States.
          (3) De minimis transactions by associated persons.--
        No law, rule, regulation, or order, or other 
        administrative action of any State or political 
        subdivision thereof may prohibit an associated person 
        of a broker or dealer from effecting a transaction 
        described in paragraph (3) for a customer in such State 
        if--
                  (A) such associated person is not ineligible 
                to register with such State for any reason 
                other than such a transaction;
                  (B) such associated person is registered with 
                a registered securities association and at 
                least one State; and
                  (C) the broker or dealer with which such 
                person is associated is registered with such 
                State.
          (4) Described transactions.--
                  (A) In general.--A transaction is described 
                in this paragraph if--
                          (i) such transaction is effected--
                                  (I) on behalf of a customer 
                                that, for 30 days prior to the 
                                day of the transaction, 
                                maintained an account with the 
                                broker or dealer; and
                                  (II) by an associated person 
                                of the broker or dealer--
                                          (aa) to which the 
                                        customer was assigned 
                                        for 14 days prior to 
                                        the day of the 
                                        transaction; and
                                          (bb) who is 
                                        registered with a State 
                                        in which the customer 
                                        was a resident or was 
                                        present for at least 30 
                                        consecutive days during 
                                        the 1-year period prior 
                                        to the day of the 
                                        transaction; or
                          (ii) the transaction is effected--
                                  (I) on behalf of a customer 
                                that, for 30 days prior to the 
                                day of the transaction, 
                                maintained an account with the 
                                broker or dealer; and
                                  (II) during the period 
                                beginning on the date on which 
                                such associated person files an 
                                application for registration 
                                with the State in which the 
                                transaction is effected and 
                                ending on the earlier of--
                                          (aa) 60 days after 
                                        the date on which the 
                                        application is filed; 
                                        or
                                          (bb) the date on 
                                        which such State 
                                        notifies the associated 
                                        person that it has 
                                        denied the application 
                                        for registration or has 
                                        stayed the pendency of 
                                        the application for 
                                        cause.
                  (B) Rules of construction.--For purposes of 
                subparagraph (A)(i)(II)--
                          (i) each of up to 3 associated 
                        persons of a broker or dealer who are 
                        designated to effect transactions 
                        during the absence or unavailability of 
                        the principal associated person for a 
                        customer may be treated as an 
                        associated person to which such 
                        customer is assigned; and
                          (ii) if the customer is present in 
                        another State for 30 or more 
                        consecutive days or has permanently 
                        changed his or her residence to another 
                        State, a transaction is not described 
                        in this paragraph, unless the 
                        associated person of the broker or 
                        dealer files an application for 
                        registration with such State not later 
                        than 10 business days after the later 
                        of the date of the transaction, or the 
                        date of the discovery of the presence 
                        of the customer in the other State for 
                        30 or more consecutive days or the 
                        change in the customer's residence.
  (j) Rulemaking To Extend Requirements to New Hybrid 
Products.--
          (1) Consultation.--Prior to commencing a rulemaking 
        under this subsection, the Commission shall consult 
        with and seek the concurrence of the Board concerning 
        the imposition of broker or dealer registration 
        requirements with respect to any new hybrid product. In 
        developing and promulgating rules under this 
        subsection, the Commission shall consider the views of 
        the Board, including views with respect to the nature 
        of the new hybrid product; the history, purpose, 
        extent, and appropriateness of the regulation of the 
        new product under the Federal banking laws; and the 
        impact of the proposed rule on the banking industry.
          (2) Limitation.--The Commission shall not--
                  (A) require a bank to register as a broker or 
                dealer under this section because the bank 
                engages in any transaction in, or buys or 
                sells, a new hybrid product; or
                  (B) bring an action against a bank for a 
                failure to comply with a requirement described 
                in subparagraph (A),
        unless the Commission has imposed such requirement by 
        rule or regulation issued in accordance with this 
        section.
          (3) Criteria for rulemaking.--The Commission shall 
        not impose a requirement under paragraph (2) of this 
        subsection with respect to any new hybrid product 
        unless the Commission determines that--
                  (A) the new hybrid product is a security; and
                  (B) imposing such requirement is necessary 
                and appropriate in the public interest and for 
                the protection of investors.
          (4) Considerations.--In making a determination under 
        paragraph (3), the Commission shall consider--
                  (A) the nature of the new hybrid product; and
                  (B) the history, purpose, extent, and 
                appropriateness of the regulation of the new 
                hybrid product under the Federal securities 
                laws and under the Federal banking laws.
          (5) Objection to commission regulation.--
                  (A) Filing of petition for review.--The Board 
                may obtain review of any final regulation 
                described in paragraph (2) in the United States 
                Court of Appeals for the District of Columbia 
                Circuit by filing in such court, not later than 
                60 days after the date of publication of the 
                final regulation, a written petition requesting 
                that the regulation be set aside. Any 
                proceeding to challenge any such rule shall be 
                expedited by the Court of Appeals.
                  (B) Transmittal of petition and record.--A 
                copy of a petition described in subparagraph 
                (A) shall be transmitted as soon as possible by 
                the Clerk of the Court to an officer or 
                employee of the Commission designated for that 
                purpose. Upon receipt of the petition, the 
                Commission shall file with the court the 
                regulation under review and any documents 
                referred to therein, and any other relevant 
                materials prescribed by the court.
                  (C) Exclusive jurisdiction.--On the date of 
                the filing of the petition under subparagraph 
                (A), the court has jurisdiction, which becomes 
                exclusive on the filing of the materials set 
                forth in subparagraph (B), to affirm and 
                enforce or to set aside the regulation at 
                issue.
                  (D) Standard of review.--The court shall 
                determine to affirm and enforce or set aside a 
                regulation of the Commission under this 
                subsection, based on the determination of the 
                court as to whether--
                          (i) the subject product is a new 
                        hybrid product, as defined in this 
                        subsection;
                          (ii) the subject product is a 
                        security; and
                          (iii) imposing a requirement to 
                        register as a broker or dealer for 
                        banks engaging in transactions in such 
                        product is appropriate in light of the 
                        history, purpose, and extent of 
                        regulation under the Federal securities 
                        laws and under the Federal banking 
                        laws, giving deference neither to the 
                        views of the Commission nor the Board.
                  (E) Judicial stay.--The filing of a petition 
                by the Board pursuant to subparagraph (A) shall 
                operate as a judicial stay, until the date on 
                which the determination of the court is final 
                (including any appeal of such determination).
                  (F) Other authority to challenge.--Any 
                aggrieved party may seek judicial review of the 
                Commission's rulemaking under this subsection 
                pursuant to section 25 of this title.
          (6) Definitions.--For purposes of this subsection:
                  (A) New hybrid product.--The term ``new 
                hybrid product'' means a product that--
                          (i) was not subjected to regulation 
                        by the Commission as a security prior 
                        to the date of the enactment of the 
                        Gramm-Leach-Bliley Act;
                          (ii) is not an identified banking 
                        product as such term is defined in 
                        section 206 of such Act; and
                          (iii) is not an equity swap within 
                        the meaning of section 206(a)(6) of 
                        such Act.
                  (B) Board.--The term ``Board'' means the 
                Board of Governors of the Federal Reserve 
                System.
  (j) The authority of the Commission under this section with 
respect to security-based swap agreements shall be subject to 
the restrictions and limitations of section 3A(b) of this 
title.
  (k) Registration or Succession to a United States Broker or 
Dealer.--In determining whether to permit a foreign person or 
an affiliate of a foreign person to register as a United States 
broker or dealer, or succeed to the registration of a United 
States broker or dealer, the Commission may consider whether, 
for a foreign person, or an affiliate of a foreign person that 
presents a risk to the stability of the United States financial 
system, the home country of the foreign person has adopted, or 
made demonstrable progress toward adopting, an appropriate 
system of financial regulation to mitigate such risk.
  (l) Termination of a United States Broker or Dealer.--For a 
foreign person or an affiliate of a foreign person that 
presents such a risk to the stability of the United States 
financial system, the Commission may determine to terminate the 
registration of such foreign person or an affiliate of such 
foreign person as a broker or dealer in the United States, if 
the Commission determines that the home country of the foreign 
person has not adopted, or made demonstrable progress toward 
adopting, an appropriate system of financial regulation to 
mitigate such risk.
  (k) Standard of Conduct.--
          (1) In general.--Notwithstanding any other provision 
        of this Act or the Investment Advisers Act of 1940, the 
        Commission may promulgate rules to provide that, with 
        respect to a broker or dealer, when providing 
        personalized investment advice about securities to a 
        retail customer (and such other customers as the 
        Commission may by rule provide), the standard of 
        conduct for such broker or dealer with respect to such 
        customer shall be the same as the standard of conduct 
        applicable to an investment adviser under section 211 
        of the Investment Advisers Act of 1940. The receipt of 
        compensation based on commission or other standard 
        compensation for the sale of securities shall not, in 
        and of itself, be considered a violation of such 
        standard applied to a broker or dealer. Nothing in this 
        section shall require a broker or dealer or registered 
        representative to have a continuing duty of care or 
        loyalty to the customer after providing personalized 
        investment advice about securities.
          (2) Disclosure of range of products offered.--Where a 
        broker or dealer sells only proprietary or other 
        limited range of products, as determined by the 
        Commission, the Commission may by rule require that 
        such broker or dealer provide notice to each retail 
        customer and obtain the consent or acknowledgment of 
        the customer. The sale of only proprietary or other 
        limited range of products by a broker or dealer shall 
        not, in and of itself, be considered a violation of the 
        standard set forth in paragraph (1).
          (3) Requirements prior to rulemaking.--The Commission 
        shall not promulgate a rule pursuant to paragraph (1) 
        before--
                  (A) providing a report to the Committee on 
                Financial Services of the House of 
                Representatives and the Committee on Banking, 
                Housing, and Urban Affairs of the Senate 
                describing whether--
                          (i) retail investors (and such other 
                        customers as the Commission may 
                        provide) are being harmed due to 
                        brokers or dealers operating under 
                        different standards of conduct than 
                        those that apply to investment advisors 
                        under section 211 of the Investment 
                        Advisers Act of 1940 (15 U.S.C. 80b-
                        11);
                          (ii) alternative remedies will reduce 
                        any confusion or harm to retail 
                        investors due to brokers or dealers 
                        operating under different standards of 
                        conduct than those standards that apply 
                        to investment advisors under section 
                        211 of the Investment Advisers Act of 
                        1940 (15 U.S.C. 80b-11), including--
                                  (I) simplifying the titles 
                                used by brokers, dealers, and 
                                investment advisers; and
                                  (II) enhancing disclosure 
                                surrounding the different 
                                standards of conduct currently 
                                applicable to brokers, dealers, 
                                and investment advisers;
                          (iii) the adoption of a uniform 
                        fiduciary standard of conduct for 
                        brokers, dealers, and investment 
                        advisors would adversely impact the 
                        commissions of brokers and dealers, the 
                        availability of proprietary products 
                        offered by brokers and dealers, and the 
                        ability of brokers and dealers to 
                        engage in principal transactions with 
                        customers; and
                          (iv) the adoption of a uniform 
                        fiduciary standard of conduct for 
                        brokers or dealers and investment 
                        advisors would adversely impact retail 
                        investor access to personalized and 
                        cost-effective investment advice, 
                        recommendations about securities, or 
                        the availability of such advice and 
                        recommendations.
          (4) Economic analysis.--The Commission's conclusions 
        contained in the report described in paragraph (3) 
        shall be supported by economic analysis.
          (5) Requirements for promulgating a rule.--The 
        Commission shall publish in the Federal Register 
        alongside the rule promulgated pursuant to paragraph 
        (1) formal findings that such rule would reduce 
        confusion or harm to retail customers (and such other 
        customers as the Commission may by rule provide) due to 
        different standards of conduct applicable to brokers, 
        dealers, and investment advisors.
          (6) Requirements under investment advisers act of 
        1940.--In proposing rules under paragraph (1) for 
        brokers or dealers, the Commission shall consider the 
        differences in the registration, supervision, and 
        examination requirements applicable to brokers, 
        dealers, and investment advisors.
  (l) Other Matters.--The Commission shall--
          (1) facilitate the provision of simple and clear 
        disclosures to investors regarding the terms of their 
        relationships with brokers, dealers, and investment 
        advisers, including any material conflicts of interest; 
        and
          (2) examine and, where appropriate, promulgate rules 
        prohibiting or restricting certain sales practices, 
        conflicts of interest, and compensation schemes for 
        brokers, dealers, and investment advisers that the 
        Commission deems contrary to the public interest and 
        the protection of investors.
  (m) Harmonization of Enforcement.--The enforcement authority 
of the Commission with respect to violations of the standard of 
conduct applicable to a broker or dealer providing personalized 
investment advice about securities to a retail customer shall 
include--
          (1) the enforcement authority of the Commission with 
        respect to such violations provided under this Act; and
          (2) the enforcement authority of the Commission with 
        respect to violations of the standard of conduct 
        applicable to an investment adviser under the 
        Investment Advisers Act of 1940, including the 
        authority to impose sanctions for such violations, and
the Commission shall seek to prosecute and sanction violators 
of the standard of conduct applicable to a broker or dealer 
providing personalized investment advice about securities to a 
retail customer under this Act to same extent as the Commission 
prosecutes and sanctions violators of the standard of conduct 
applicable to an investment advisor under the Investment 
Advisers Act of 1940.
  (n) Disclosures to Retail Investors.--
          (1) In general.--Notwithstanding any other provision 
        of the securities laws, the Commission may issue rules 
        designating documents or information that shall be 
        provided by a broker or dealer to a retail investor 
        before the purchase of an investment product or service 
        by the retail investor.
          (2) Considerations.--In developing any rules under 
        paragraph (1), the Commission shall consider whether 
        the rules will promote investor protection, efficiency, 
        competition, and capital formation.
          (3) Form and contents of documents and information.--
        Any documents or information designated under a rule 
        promulgated under paragraph (1) shall--
                  (A) be in a summary format; and
                  (B) contain clear and concise information 
                about--
                          (i) investment objectives, 
                        strategies, costs, and risks; and
                          (ii) any compensation or other 
                        financial incentive received by a 
                        broker, dealer, or other intermediary 
                        in connection with the purchase of 
                        retail investment products.
  (o) Authority to Restrict Mandatory Pre-dispute 
Arbitration.--The Commission, by rule, may prohibit, or impose 
conditions or limitations on the use of, agreements that 
require customers or clients of any broker, dealer, or 
municipal securities dealer to arbitrate any future dispute 
between them arising under the Federal securities laws, the 
rules and regulations thereunder, or the rules of a self-
regulatory organization if it finds that such prohibition, 
imposition of conditions, or limitations are in the public 
interest and for the protection of investors.

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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                             MINORITY VIEWS

    H.R. 1090 stops the Department of Labor's (DOL) current 
rulemaking effort to ensure that the advice Americans saving 
for retirement receive is in their best interests and subject 
to a fiduciary duty. The bill prohibits the DOL from 
promulgating a rule until 60 days after the Securities and 
Exchange Commission (SEC) finalizes its own fiduciary rule for 
investment advisers and broker dealers under Section 913(g) of 
the Dodd-Frank Act. In addition, the bill delays the SEC's 
fiduciary rulemaking by requiring the agency to first undertake 
a separate economic analysis that, among other things, 
considers whether a new standard would adversely affect broker 
compensation. Hardworking Americans should not have to wait any 
longer to know that the advice they receive will be in their 
best interests.
    Unlike in past Congresses when the House considered similar 
legislation, we now have a serious proposal by the Department 
of Labor to update its fiduciary rules. This proposal, issued 
five years after the Department's initial proposal in 2010, 
reflects the Administration's effort to protect our nation's 
workers and retirees from conflicted investment advice that the 
White House Council of Economic Advisers estimates costs $17 
billion per year. In addition, the Department has endeavored to 
engage interested stakeholders and provide for ample 
opportunity for public comment as it works to operationalize 
the rule. Indeed, in response to requests from Members of 
Congress and other interested stakeholders, the DOL extended 
the original 75-day comment period by 15-days and convened a 4-
day multi-panel public hearing on the proposal, after which 
interested stakeholders had an additional 30-day comment 
period.
    While the SEC should similarly update its rules governing 
investment advice related to securities, we should not hinge 
the DOL's efforts on the SEC's ability to do so.
    H.R. 1090 is opposed by investment adviser groups like the 
Financial Planning Coalition, whose members are willing to 
provide advice to savers under a fiduciary standard. The bill 
is likewise opposed by scores of advocates working to protect 
the best interests of consumers--groups like the AARP, the 
Consumer Federation of America, Consumer Union, Public Citizen 
and Americans for Financial Reform.
    For these reasons we oppose H.R. 1090.

                                   Maxine Waters.
                                   Daniel T. Kildee.
                                   Stephen F. Lynch.
                                   Carolyn B. Maloney.
                                   Emanuel Cleaver.
                                   Keith Ellison.
                                   Michael E. Capuano.
                                   Al Green.
                                   Gwen Moore.
                                   Ruben Hinojosa.
                                   Nydia M. Velaquez.

                                  [all]