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115th Congress   }                                     {  Rept. 115-894
                         HOUSE OF REPRESENTATIVES
 2d Session      }                                     {    Part 1

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



 
             PROTECTING ADVICE FOR SMALL SAVERS ACT OF 2017

                                _______
                                

                August 10, 2018.--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. 3857]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3857) to amend the Securities Exchange Act of 
1934 to establish standards of conduct for brokers and dealers 
that are in the best interest of their retail customers, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          Purpose and Summary

    On September 27, 2017, Representative Ann Wagner introduced 
the ``Protecting Advice for Small Savers Act of 2017'', or 
``PASS Act'', which repeals the final rule of the U.S. 
Department of Labor (DOL) titled ``Definition of the Term 
`Fiduciary' Conflict of Interest Rule--Retirement Investment 
Advice'' and related prohibited transaction exemptions 
published on April 8, 2016. The bill also amends the second 
subsection (k) of Section 15 of the Securities Exchange Act of 
1934 to require a broker-dealer to act in the retail customer's 
best interest when providing a recommendation, which must 
reflect (i) reasonable diligence and (ii) the reasonable care, 
skill, and prudence that a broker-dealer would exercise based 
on the customer's investment profile. The bill also requires a 
broker-dealer to provide increased disclosures to the customer 
before the broker-dealer may purchase a securities product on 
behalf of that customer, including disclosures regarding the 
type and scope of services the broker-dealer provides, the 
standard of conduct that applies to the relationship, the types 
of compensation the broker-dealer receives, and any material 
conflict of interest.

                  Background and Need for Legislation

    On February 23, 2015, President Obama announced his support 
for the DOL to issue rules--which is not the agency designated 
by Congress to oversee and regulate investment advice regarding 
securities--to amend the definition of ``investment advice'' to 
expand the class of financial professionals subject to 
fiduciary duties covered by the Employee Retirement Income 
Security Act (ERISA) for the purpose of curbing the effects of 
perceived conflicts of interest in the marketing and 
development of retirement investments. In support of this 
proposal, President Obama, the DOL, and investor advocates 
claimed that: (i) current consumer protections for investment 
advice in the retail and small retirement plan markets are 
inadequate; and (ii) the current regulatory environment creates 
perverse incentives that ultimately cost retirement savers 
billions of dollars a year. According to President Obama's 
White House, the DOL's proposal sought ``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 estimated that conflicted advice by broker-dealers 
costs retirees about $17 billion in lost returns annually. No 
study directly supports this estimation, however; and the 
number instead comes from a flawed calculation by the 
proposal's proponents who couple unsupported generalizations 
and extrapolations with other empirical data to reach a desired 
result. At a September 10, 2015, joint hearing of the 
Subcommittees on Capital Markets and Government Sponsored 
Entities and Oversight and Investigations about the 
consequences of the DOL's proposal, Paul Stevens, the CEO of 
the Investment Company Institute, testified:

          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.

    On April 20, 2015, the DOL issued a Notice of Proposed 
Rulemaking that sought public comment on its proposed 
amendments to the definition of a fiduciary and related 
exemptions. The DOL received significant opposition to the 
proposed rule, and many market participants believed that the 
proposal was unworkable as drafted and could negatively impact 
$17.6 trillion in retirement assets, harm investors, and 
disrupt the U.S. capital markets. The DOL proposal, as drafted, 
was not business-neutral and was grounded in the misguided 
notion that for every investor charging fees based on the 
amount of assets under management is superior in every respect 
to charging commission-based fees.
    Critics of the DOL proposal also pointed out that the 
Securities and Exchange Commission (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. Title IX of the Dodd-Frank 
Act provided authority to harmonize the standards applicable to 
broker-dealers and investment advisers. Section 913 of the 
Dodd-Frank Act required the SEC to report to the House 
Financial Services and Senate Banking Committee on the 
standards of care applicable to broker-dealers and investment 
advisers. Additionally, Section 913 permits--but does not 
require--the SEC to issue rules that address these standards of 
care.
    Accordingly, the DOL should not define how an investor 
receives financial advice. On June 17, 2015, former Secretary 
of Labor Thomas Perez testified before the House Committee on 
Education and the Workforce that the DOL had coordinated with 
the SEC in the development of the fiduciary duty proposal and 
that the staffs of the two agencies had worked closely 
throughout the drafting process. But former SEC Commissioner 
Daniel Gallagher contradicted this assertion, who said in his 
comment letter to the proposed rule that he was not included in 
any conversations about the DOL rulemaking. 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 [then-SEC] 
Chair White have borne no fruit.'' Further undermining 
Secretary Perez's assertions is a February 2016 Senate Homeland 
Security and Government Affairs staff report, which revealed 
that DOL prioritized expediency in quickly issuing the 
rulemaking over expressed policy concerns about the rule from 
career, non-partisan professional staff at the SEC, regulatory 
experts at the Office of Information and Regulatory Affairs 
(OIRA) within the Office of Management and Budget (OMB), and 
officials at the Department of Treasury. As noted above, the 
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--in this case, the Financial Industry Regulatory 
Authority (FINRA). 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 also 
must establish rigorous systems for compliance and supervision, 
which are examined regularly by FINRA and the SEC--facts the 
DOL ignored.
    On February 3, 2017, President Trump signed an executive 
memorandum that ordered the DOL to review its fiduciary rule 
and whether it ``may adversely affect the ability of Americans 
to gain access to retirement information and financial 
advice.'' The rule's expanded fiduciary definition and 
Impartial Conduct Standards went into effect on June 9, 2017, 
and the remaining rule's requirements, such as the Best 
Interest Contract exemption, has been delayed until July 1, 
2019, while the DOL continues to review the rule.
    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 of all sizes--not the DOL. On 
June 1, 2017, Chairman Jay Clayton issued a request for public 
comment regarding the standards of conduct applicable to 
investment advisers and broker-dealers to assess the current 
regulatory framework to guide any potential SEC regulatory 
actions.
    Several notable events occurred subsequent to the 
Committee's action to report H.R. 3857 to the House with a 
favorable recommendation. On March 15, 2018, the U.S. Court of 
Appeals for the 5th Circuit ruled, in a 2-to-1 decision\1\, 
that the DOL abused its authority and acted unreasonably in 
promulgating its 2016 fiduciary rule and related exemptions. 
The 5th Circuit's decision reversed a 2016 Texas district court 
decision and vacated the fiduciary rule and related exemptions 
in their entirety and on June 21, 2018, the 5th Circuit issued 
its formal mandate to officially vacate the DOL rule.\2\ 
Furthermore, on April 18, 2018, the SEC voted to propose a 
package of rulemakings and interpretations designed to enhance 
the quality and transparency of investors' relationships with 
investment advisers and broker-dealers while preserving access 
to a variety of types of advice relationships and investment 
products.\3\ Also known as ``Regulation Best Interest'', the 
SEC's proposal would require a broker-dealer when making a 
recommendation to a retail customer to act in the best interest 
of that customer at the time the recommendation is made. Under 
the proposed rule, the best-interest obligation would be 
satisfied through disclosure; a duty of care requiring the 
broker-dealer to exercise reasonable diligence, care, skill and 
prudence when dealing with the customer; and two conflict of 
interest obligations requiring the broker-dealer establish, 
maintain, and enforce written policies and procedures and 
disclose, mitigate, or eliminate material conflicts. 
Additionally, broker-dealers would be required to issue Form 
CRS to new customers outlining the summary of their financial 
relationship. Form CRS would prohibit stand-alone broker-
dealers from using the titles ``adviser'' or ``advisor,'' which 
the SEC deemed to be too similar to an ``investment adviser'' 
which has a separate fiduciary duty. Form CRS would require 
financial advisors to provide investors with information 
regarding the types of servicesoffered, fees the customers will 
pay, and certain conflicts of interest that may exist. The 
proposed rule was issued with a 90 day comment period.\4\
---------------------------------------------------------------------------
    \1\Chamber of Commerce of the United States of America, et al. v. 
United States Department of Labor, 2018 U.S. App. LEXIS 6472 (5th Cir. 
2018).
    \2\https://www.naifa.org/NAIFA/media/Communications/NAIFA-Blog/CA5-
Mandate.pdf.
    \3\https://www.sec.gov/news/press-release/2018-68.
    \4\https://www.sec.gov/rules/proposed/2018/34-83062.pdf.
---------------------------------------------------------------------------
    With the 5th Circuit's ruling to vacate the DOL fiduciary 
rule and the SEC actions to propose Regulation Best Interest, 
the expert regulator is acting on the standards of conduct that 
financial advisers adhere to regarding personalized investment 
advice, following the will of Congress set forth in Dodd-Frank.

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Financial Institutions held a hearing examining matters 
relating to H.R. 3857 on April 26, 2017, April 28, 2017 and 
July 13, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
October 11, 2017, and October 12, 2017, and ordered H.R. 3857 
to be reported favorably to the House by a recorded vote of 34 
yeas to 26 nays (recorded vote no. FC-86), a quorum being 
present.

                            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 recorded vote was a motion by Chairman Hensarling to 
report the bill favorably to the House. That motion was agreed 
to by a recorded vote of 34 yeas to 26 nays (Record vote no. 
FC-86), a quorum being present.


                      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. 3857 
will promote investor protection and ensure that individuals 
have access to professional investment advice by creating a 
best-interest standard that is appropriately designed for 
broker dealers, that incorporates pre-existing regulatory 
requirements and imposes additional requirements, and by re-
establishing the SEC as the expert regulator.

   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.

                 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, December 11, 2017.
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. 3857, the PASS Act 
of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 3857--PASS Act of 2017

    H.R. 3857 would repeal regulations issued by the Department 
of Labor that are commonly referred to as the fiduciary rule 
and would direct the Securities and Exchange Commission (SEC) 
to develop a new standard to govern the conduct of brokers and 
dealers. CBO estimates that implementing H.R. 3857 would have 
an insignificant effect on the federal budget.
    Under current law, brokers and dealers must act as 
fiduciaries when they provide financial advice concerning 
pension and retirement plans; that is, their advice must be in 
the sole interest of the client. The Department of Labor issued 
the fiduciary rule on April 8, 2016; some parts took effect on 
June 9, 2017, and under current law, the rule takes full effect 
on January 1, 2018. H.R. 3857 would reinstate previously 
existing regulations.
    H.R. 3857 also would amend the Securities Exchange Act of 
1934 to establish a new standard of conduct for brokers and 
dealers. Under the bill, brokers and dealers would be required 
to make recommendations that are in the customer's best 
interest at the time the recommendation is given. They also 
would be required to make certain disclosures to customers 
regarding the standard of conduct and possible conflicts of 
interest. Under the bill, some individuals and financial 
institutions that comply with those requirements would be 
exempt from certain prohibitions on transactions under the 
Employee Retirement Income Security Act of 1974 and the 
Internal Revenue Code of 1986.
    Using information from the SEC, CBO estimates that 
implementing H.R. 3857 would cost $2 million over the 2018-2022 
period for the agency to issue new guidance on the broker 
dealer standard of conduct and to expand examination and 
enforcement efforts to review compliance. However, because the 
SEC is authorized to collect fees sufficient to offset its 
annual appropriation, CBO estimates that the net effect on 
discretionary spending would be negligible, assuming 
appropriation actions consistent with that authority.
    CBO and the staff of the Joint Committee on Taxation 
estimate that the bill would have a negligible effect on 
revenues over the 2018-2027 period. Because enacting H.R. 3857 
would affect revenues, pay-as-you-go procedures apply. Enacting 
H.R. 3857 would not affect direct spending.
    CBO estimates that enacting H.R. 3857 would not increase 
net direct spending or significantly affect on-budget deficits 
in any of the four consecutive 10-year periods beginning in 
2028.
    H.R. 3857 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA).
    If the SEC increased fees to offset the costs of 
implementing the additional regulatory activities required by 
the bill, H.R. 3957 would increase the cost of an existing 
mandate on private entities that are required to pay those 
fees. Using information from the SEC, CBO estimates that the 
increase in fees to offset those costs would amount to about $2 
million over the 2018-2022 period and would fall well below the 
annual threshold for private-sector mandates established in 
UMRA ($156 million in 2017, adjusted annually for inflation).
    On September 18, 2017, CBO transmitted a cost estimate of 
H.R. 2823, the Affordable Retirement Advise for Savers Act, as 
ordered reported by the House Committee on Education and the 
Workforce on July 19, 2017. That bill has provisions similar to 
those in H.R. 3857 and CBO's estimate of the budgetary effects 
of those provisions are the same for both bills.
    The CBO staff contacts for this estimate are Stephen Rabent 
(for federal costs) and Logan Smith (for mandates). The 
estimate was approved by H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 3857 as the ``Protecting Advice for 
Small Savers Act of 2017'' or the ``PASS Act of 2017''.

Section 2. Repeal of Department of Labor fiduciary rule

    This section repeals the Department of Labor final rule 
titled ``Definition of the Term `Fiduciary' Conflict of 
Interest Rule--Retirement Investment Advice'' published on 
April 8, 2016.

Section 3. Standards of conduct for brokers and dealers

    This section amends the second subsection (k) of section 15 
of the Securities Exchange Act of 1934 by establishing a 
standard of conduct for broker-dealers making recommendations 
to retail customers. Broker-dealers must make a recommendation 
that is in the best interest of the retail customer and that 
reflects reasonable diligence and reasonable care, skill, and 
prudence by a broker-dealer, based on the customer's investment 
profile.
    Additionally, the bill requires increased disclosures to 
the retail customers before buying securities products on 
behalf of the customer, including: the type and scope of 
services the broker-dealer provides; the standard of conduct 
that applies to the relationship; the types of compensation the 
broker-dealer receives; and any material conflict of interest.
    The bill also clarifies what is not a violation of the 
standard of conduct, including: the receipt of compensation, 
including transaction-based compensation, by a broker dealer; 
the recommendation by a broker-dealer to a retail customer of 
principal transactions; or the recommendation of affiliated, 
unaffiliated, or proprietary products and services. The bill 
does not contain a requirement that a broker-dealer recommend 
the least expensive product.
    The bill also states that complying with the new standard 
of conduct does not mean that such a person is a ``fiduciary'' 
under the Employee Retirement Income Security Act of 1974 
(ERISA), section 4975 of the Internal Revenue Code of 1986, the 
Investment Advisers Act of 1940, or any other applicable 
Federal, State or local regulatory regime.
    Further, the bill amends section 913 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act to establish the SEC 
as the expert regulator for broker-dealers and the products 
that they sell to customers and grants rulemaking authority to 
the SEC to help facilitate compliance with the best-interest 
standard, only if such rulemaking does not impose any 
obligation that is in addition to, duplicative of, or 
inconsistent with the standard as set out in the legislation.
    The bill provides exemptions from ERISA and the Internal 
Revenue Code to allow for State insurance regulators to adopt 
and implement practices on a nationwide basis for the sale of 
annuity contracts that is similar to the standard of conduct.

         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 (existing law 
proposed to be omitted is enclosed in black brackets, 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 a 
        bank, a savings and loan holding company (as defined in 
        section 10 of the Home Owners' Loan Act), 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).]
  (k) Standard of Conduct for Recommendations to Retail 
Customers.--
          (1) In general.--The standard of conduct for a broker 
        or dealer (or registered representative) when providing 
        recommendations to a retail customer is as follows:
                  (A) Recommendation to retail customer.--When 
                a broker or dealer (or registered 
                representative) makes a recommendation to a 
                retail customer, the recommendation shall be in 
                the retail customer's best interest at the time 
                it is made by--
                          (i) reflecting reasonable diligence; 
                        and
                          (ii) reflecting the reasonable care, 
                        skill, and prudence that a broker or 
                        dealer (or registered representative) 
                        would exercise based on the customer's 
                        investment profile.
                  (B) Disclosure to retail customer.--
                          (i) In general.--Before a broker or 
                        dealer (or registered representative) 
                        executes a transaction for the first 
                        time for each retail customer based on 
                        a recommendation to such retail 
                        customer, such broker or dealer (or 
                        registered representative) shall 
                        disclose prior to the point of sale to 
                        such customer, in a clear and concise 
                        manner--
                                  (I) the type and scope of 
                                services the broker or dealer 
                                (or registered representative) 
                                provides;
                                  (II) the standard of conduct 
                                that applies to the 
                                relationship;
                                  (III) the types of 
                                compensation the broker or 
                                dealer (or registered 
                                representative) receives; and
                                  (IV) any material conflict of 
                                interest.
                          (ii) Content of disclosure.--The 
                        Commission may issue regulations 
                        determining the content of the 
                        disclosure required in clause (i). Such 
                        regulations may provide for a 
                        disclosure of fees received by the 
                        broker or dealer, whether from the 
                        retail customer or a third party, prior 
                        to the execution of the transaction.
                  (C) Material conflict of interest.--A broker 
                or dealer (or registered representative) shall 
                avoid, disclose, or otherwise reasonably manage 
                any material conflict of interest with a retail 
                customer.
          (2) Nonviolation of standard of conduct.--The 
        following is not, by itself, a violation of the 
        standard of conduct described in paragraph (1):
                  (A) The receipt of compensation, including 
                transaction-based compensation, by a broker or 
                dealer (or registered representative) or any 
                affiliate of such broker or dealer (or 
                registered representative).
                  (B) The recommendation by a broker or dealer 
                (or registered representative) to a retail 
                customer of principal transactions (including 
                cross transactions), or the recommendation of 
                affiliated, unaffiliated, or proprietary 
                products or services, or a limited range of 
                products or services.
          (3) No requirement to recommend least expensive 
        product.--Nothing in this subsection shall require a 
        broker or dealer (or registered representative) to 
        recommend the least expensive security or investment 
        strategy (however quantified) or to analyze all 
        possible securities, other products, or investment 
        strategies before making a recommendation.
          (4) Definitions.--In this subsection:
                  (A) Compensation.--The term ``compensation'' 
                includes commissions or sales charges, or other 
                fees or variable compensation, for or related 
                to the sale of securities or for the servicing 
                of customer accounts, whether paid by the 
                retail customer or received from a third party.
                  (B) Customer's investment profile.--The term 
                ``customer's investment profile'' has the 
                meaning of such term as described in Rule 2111 
                of the Financial Industry Regulatory Authority 
                as of the date of the enactment of this 
                subsection.
                  (C) Institutional account.--The term 
                ``institutional account'' has the same meaning 
                given such term in Rule 4512 of the Financial 
                Industry Regulatory Authority as of the date of 
                the enactment of this subsection.
                  (D) Material conflict of interest.--The term 
                ``material conflict of interest'' means a 
                financial interest of a broker or dealer (or 
                registered representative) that a reasonable 
                person would expect to affect the impartiality 
                of a recommendation.
                  (E) Reasonable diligence.--The term 
                ``reasonable diligence'' has the meaning of 
                such term as described in Rule 2111 of the 
                Financial Industry Regulatory Authority as of 
                the date of the enactment of this subsection.
                  (F) Recommendation.--The term 
                ``recommendation'' means either of the 
                following recommendations (under the meaning 
                ascribed to such term in Rule 2111 of the 
                Financial Industry Regulatory Authority) for 
                which the broker or dealer (or registered 
                representative) making the recommendation 
                receives or will receive compensation:
                          (i) A non-discretionary 
                        recommendation to buy, hold, or sell 
                        securities, or to follow an investment 
                        strategy involving securities, for 
                        taxable or non-taxable accounts.
                          (ii) A non-discretionary 
                        recommendation to rollover or transfer 
                        assets in an employer-sponsored 
                        retirement plan to an individual 
                        retirement account.
                  (G) Retail customer.--The term ``retail 
                customer'' means a natural person or legal 
                entity, or the legal representative of such 
                natural person or legal entity, in each case 
                other than an institutional account, who--
                          (i) receives a recommendation from a 
                        broker or dealer (or registered 
                        representative); and
                          (ii) implements such recommendation 
                        with such broker or dealer primarily 
                        for personal, family, retirement, or 
                        household purposes.
          (5) Supersession.--The provisions of this subsection 
        shall supersede and preempt State law, other than a 
        State law that regulates insurance products that are 
        not securities, insofar as they may now or hereafter 
        relate to a broker or dealer, or registered 
        representative of a broker or dealer.
          (6) Fiduciary status under erisa, the internal 
        revenue code, the investment advisers act of 1940, or 
        other fiduciary regimes.--The fact that a person may 
        owe, or may in fact comply with, the standard of 
        conduct under this subsection shall not mean or create 
        any presumption that such person is a ``fiduciary'' 
        under the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1001 et seq.), section 4975 of the 
        Internal Revenue Code of 1986, the Investment Advisers 
        Act of 1940 (15 U.S.C. 80b et seq.), or any other 
        Federal, State, or local statutory or regulatory 
        fiduciary regime.
  [(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.

           *       *       *       *       *       *       *

                              ----------                              


     SECTION 913 OF THE DODD-FRANK WALL STREET REFORM AND CONSUMER 
                             PROTECTION ACT


[SEC. 913. STUDY AND RULEMAKING REGARDING OBLIGATIONS OF BROKERS, 
                    DEALERS, AND INVESTMENT ADVISERS

  [(a) Definition.--For purposes of this section, the term 
``retail customer'' means a natural person, or the legal 
representative of such natural person, who--
          [(1) receives personalized investment advice about 
        securities from a broker or dealer or investment 
        adviser; and
          [(2) uses such advice primarily for personal, family, 
        or household purposes.
  [(b) Study.--The Commission shall conduct a study to 
evaluate--
          [(1) the effectiveness of existing legal or 
        regulatory standards of care for brokers, dealers, 
        investment advisers, persons associated with brokers or 
        dealers, and persons associated with investment 
        advisers for providing personalized investment advice 
        and recommendations about securities to retail 
        customers imposed by the Commission and a national 
        securities association, and other Federal and State 
        legal or regulatory standards; and
          [(2) whether there are legal or regulatory gaps, 
        shortcomings, or overlaps in legal or regulatory 
        standards in the protection of retail customers 
        relating to the standards of care for brokers, dealers, 
        investment advisers, persons associated with brokers or 
        dealers, and persons associated with investment 
        advisers for providing personalized investment advice 
        about securities to retail customers that should be 
        addressed by rule or statute.
  [(c) Considerations.--In conducting the study required under 
subsection (b), the Commission shall consider--
          [(1) the effectiveness of existing legal or 
        regulatory standards of care for brokers, dealers, 
        investment advisers, persons associated with brokers or 
        dealers, and persons associated with investment 
        advisers for providing personalized investment advice 
        and recommendations about securities to retail 
        customers imposed by the Commission and a national 
        securities association, and other Federal and State 
        legal or regulatory standards;
          [(2) whether there are legal or regulatory gaps, 
        shortcomings, or overlaps in legal or regulatory 
        standards in the protection of retail customers 
        relating to the standards of care for brokers, dealers, 
        investment advisers, persons associated with brokers or 
        dealers, and persons associated with investment 
        advisers for providing personalized investment advice 
        about securities to retail customers that should be 
        addressed by rule or statute;
          [(3) whether retail customers understand that there 
        are different standards of care applicable to brokers, 
        dealers, investment advisers, persons associated with 
        brokers or dealers, and persons associated with 
        investment advisers in the provision of personalized 
        investment advice about securities to retail customers;
          [(4) whether the existence of different standards of 
        care applicable to brokers, dealers, investment 
        advisers, persons associated with brokers or dealers, 
        and persons associated with investment advisers is a 
        source of confusion for retail customers regarding the 
        quality of personalized investment advice that retail 
        customers receive;
          [(5) the regulatory, examination, and enforcement 
        resources devoted to, and activities of, the 
        Commission, the States, and a national securities 
        association to enforce the standards of care for 
        brokers, dealers, investment advisers, persons 
        associated with brokers or dealers, and persons 
        associated with investment advisers when providing 
        personalized investment advice and recommendations 
        about securities to retail customers, including--
                  [(A) the effectiveness of the examinations of 
                brokers, dealers, and investment advisers in 
                determining compliance with regulations;
                  [(B) the frequency of the examinations; and
                  [(C) the length of time of the examinations;
          [(6) the substantive differences in the regulation of 
        brokers, dealers, and investment advisers, when 
        providing personalized investment advice and 
        recommendations about securities to retail customers;
          [(7) the specific instances related to the provision 
        of personalized investment advice about securities in 
        which--
                  [(A) the regulation and oversight of 
                investment advisers provide greater protection 
                to retail customers than the regulation and 
                oversight of brokers and dealers; and
                  [(B) the regulation and oversight of brokers 
                and dealers provide greater protection to 
                retail customers than the regulation and 
                oversight of investment advisers;
          [(8) the existing legal or regulatory standards of 
        State securities regulators and other regulators 
        intended to protect retail customers;
          [(9) the potential impact on retail customers, 
        including the potential impact on access of retail 
        customers to the range of products and services offered 
        by brokers and dealers, of imposing upon brokers, 
        dealers, and persons associated with brokers or 
        dealers--
                  [(A) the standard of care applied under the 
                Investment Advisers Act of 1940 (15 U.S.C. 80b-
                1 et seq.) for providing personalized 
                investment advice about securities to retail 
                customers of investment advisers, as 
                interpreted by the Commission and the courts; 
                and
                  [(B) other requirements of the Investment 
                Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.);
          [(10) the potential impact of eliminating the broker 
        and dealer exclusion from the definition of 
        ``investment adviser'' under section 202(a)(11)(C) of 
        the Investment Advisers Act of 1940 (15 U.S.C. 80b-
        2(a)(11)(C)), in terms of--
                  [(A) the impact and potential benefits and 
                harm to retail customers that could result from 
                such a change, including any potential impact 
                on access to personalized investment advice and 
                recommendations about securities to retail 
                customers or the availability of such advice 
                and recommendations;
                  [(B) the number of additional entities and 
                individuals that would be required to register 
                under, or become subject to, the Investment 
                Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.), 
                and the additional requirements to which 
                brokers, dealers, and persons associated with 
                brokers and dealers would become subject, 
                including--
                          [(i) any potential additional 
                        associated person licensing, 
                        registration, and examination 
                        requirements; and
                          [(ii) the additional costs, if any, 
                        to the additional entities and 
                        individuals; and
                  [(C) the impact on Commission and State 
                resources to--
                          [(i) conduct examinations of 
                        registered investment advisers and the 
                        representatives of registered 
                        investment advisers, including the 
                        impact on the examination cycle; and
                          [(ii) enforce the standard of care 
                        and other applicable requirements 
                        imposed under the Investment Advisers 
                        Act of 1940 (15 U.S.C. 80b-1 et seq.);
          [(11) the varying level of services provided by 
        brokers, dealers, investment advisers, persons 
        associated with brokers or dealers, and persons 
        associated with investment advisers to retail customers 
        and the varying scope and terms of retail customer 
        relationships of brokers, dealers, investment advisers, 
        persons associated with brokers or dealers, and persons 
        associated with investment advisers with such retail 
        customers;
          [(12) the potential impact upon retail customers that 
        could result from potential changes in the regulatory 
        requirements or legal standards of care affecting 
        brokers, dealers, investment advisers, persons 
        associated with brokers or dealers, and persons 
        associated with investment advisers relating to their 
        obligations to retail customers regarding the provision 
        of investment advice, including any potential impact 
        on--
                  [(A) protection from fraud;
                  [(B) access to personalized investment 
                advice, and recommendations about securities to 
                retail customers; or
                  [(C) the availability of such advice and 
                recommendations;
          [(13) the potential additional costs and expenses 
        to--
                  [(A) retail customers regarding and the 
                potential impact on the profitability of their 
                investment decisions; and
                  [(B) brokers, dealers, and investment 
                advisers resulting from potential changes in 
                the regulatory requirements or legal standards 
                affecting brokers, dealers, investment 
                advisers, persons associated with brokers or 
                dealers, and persons associated with investment 
                advisers relating to their obligations, 
                including duty of care, to retail customers; 
                and
          [(14) any other consideration that the Commission 
        considers necessary and appropriate in determining 
        whether to conduct a rulemaking under subsection (f).
  [(d) Report.--
          [(1) In general.--Not later than 6 months after the 
        date of enactment of this Act, the Commission shall 
        submit a report on the study required under subsection 
        (b) to--
                  [(A) the Committee on Banking, Housing, and 
                Urban Affairs of the Senate; and
                  [(B) the Committee on Financial Services of 
                the House of Representatives.
          [(2) Content requirements.--The report required under 
        paragraph (1) shall describe the findings, conclusions, 
        and recommendations of the Commission from the study 
        required under subsection (b), including--
                  [(A) a description of the considerations, 
                analysis, and public and industry input that 
                the Commission considered, as required under 
                subsection (b), to make such findings, 
                conclusions, and policy recommendations; and
                  [(B) an analysis of whether any identified 
                legal or regulatory gaps, shortcomings, or 
                overlap in legal or regulatory standards in the 
                protection of retail customers relating to the 
                standards of care for brokers, dealers, 
                investment advisers, persons associated with 
                brokers or dealers, and persons associated with 
                investment advisers for providing personalized 
                investment advice about securities to retail 
                customers.
  [(e) Public Comment.--The Commission shall seek and consider 
public input, comments, and data in order to prepare the report 
required under subsection (d).
  [(f) Rulemaking.--The Commission may commence a rulemaking, 
as necessary or appropriate in the public interest and for the 
protection of retail customers (and such other customers as the 
Commission may by rule provide), to address the legal or 
regulatory standards of care for brokers, dealers, investment 
advisers, persons associated with brokers or dealers, and 
persons associated with investment advisers for providing 
personalized investment advice about securities to such retail 
customers. The Commission shall consider the findings 
conclusions, and recommendations of the study required under 
subsection (b).
  [(g) Authority to Establish a Fiduciary Duty for Brokers and 
Dealers.--
          [(1) Securities Exchange Act of 1934.--Section 15 of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78o) is 
        amended by adding at the end the following:
  [``(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).
  [``(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.''.
          [(2) Investment Advisers Act of 1940.--Section 211 of 
        the Investment Advisers Act of 1940, is further amended 
        by adding at the end the following new subsections:
  [``(g) Standard of Conduct.--
          [``(1) In general.--The Commission may promulgate 
        rules to provide that the standard of conduct for all 
        brokers, dealers, and investment advisers, when 
        providing personalized investment advice about 
        securities to retail customers (and such other 
        customers as the Commission may by rule provide), shall 
        be to act in the best interest of the customer without 
        regard to the financial or other interest of the 
        broker, dealer, or investment adviser providing the 
        advice. In accordance with such rules, any material 
        conflicts of interest shall be disclosed and may be 
        consented to by the customer. Such rules shall provide 
        that such standard of conduct shall be no less 
        stringent than the standard applicable to investment 
        advisers under section 206(1) and (2) of this Act when 
        providing personalized investment advice about 
        securities, except the Commission shall not ascribe a 
        meaning to the term `customer' that would include an 
        investor in a private fund managed by an investment 
        adviser, where such private fund has entered into an 
        advisory contract with such adviser. The receipt of 
        compensation based on commission or fees shall not, in 
        and of itself, be considered a violation of such 
        standard applied to a broker, dealer, or investment 
        adviser.
          [``(2) Retail customer defined.--For purposes of this 
        subsection, the term `retail customer' means a natural 
        person, or the legal representative of such natural 
        person, who--
                  [``(A) receives personalized investment 
                advice about securities from a broker, dealer, 
                or investment adviser; and
                  [``(B) uses such advice primarily for 
                personal, family, or household purposes.
  [``(h) 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.''.
  [(h) Harmonization of Enforcement.--
          [(1) Securities Exchange Act of 1934.--Section 15 of 
        the Securities Exchange Act of 1934, as amended by 
        subsection (g)(1), is further amended by adding at the 
        end the following new subsection:
  [``(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.''.
          [(2) Investment Advisers Act of 1940.--Section 211 of 
        the Investment Advisers Act of 1940, as amended by 
        subsection (g)(2), is further amended by adding at the 
        end the following new subsection:
  [``(i) Harmonization of Enforcement.--The enforcement 
authority of the Commission with respect to violations of the 
standard of conduct applicable to an investment adviser 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 a broker or dealer providing personalized 
        investment advice about securities to a retail customer 
        under the Securities Exchange Act of 1934, 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 an investment adviser 
under this Act to same extent as the Commission prosecutes and 
sanctions violators of the standard of conduct applicable to a 
broker or dealer providing personalized investment advice about 
securities to a retail customer under the Securities Exchange 
Act of 1934.''.]

SEC. 913. OBLIGATIONS OF BROKERS AND DEALERS AND OTHER PERSONS AND 
                    ENTITIES.

  (a) Rulemaking.--
          (1) Rulemaking by the commission.--The Commission may 
        issue regulations as the Commission determines is 
        necessary to facilitate compliance by brokers and 
        dealers (including their registered representative) 
        with the obligations of such brokers and dealers (and 
        their registered representative) under the second 
        subsection (k) of section 15 of the Securities Exchange 
        Act of 1934 only if such rulemaking does not impose any 
        obligation related to standard of care on a broker or 
        dealer (or its registered representative) that is in 
        addition to, duplicative of, or inconsistent with, the 
        obligations set forth in such subsection.
          (2) Rulemaking by the secretary of labor and the 
        secretary of the treasury.--After the date of the 
        enactment of the PASS Act of 2017, the Secretary of 
        Labor and the Secretary of the Treasury shall not 
        promulgate any regulation under the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1001 et seq.) or 
        section 4975 of the Internal Revenue Code of 1986, 
        respectively, defining the circumstances under which a 
        person is considered a fiduciary that would impose any 
        obligation on a broker or dealer (or its registered 
        representative) or on a life insurer fulfilling the 
        term ``insurance company'' as defined in section 
        3(a)(2) of the Securities Act of 1933 (or its agents or 
        distributors) that is in addition to, duplicative of, 
        or inconsistent with, the obligations set forth in such 
        subsection (k) of section 15 of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78o).
  (b) Exemption Available to Certain Persons With Respect to 
Manufacture or Sale of Annuities.--
          (1) Exemption.--With respect to the manufacture or 
        sale of annuities within paragraphs (2) or (8) of 
        section 3(a) of the Securities Act of 1933 (15 U.S.C. 
        77c(a)) or section 989J of the Dodd-Frank Wall Street 
        Reform and Consumer Protection Act (15 U.S.C. 77c 
        note), a person regulated by a State insurance 
        regulator may rely on the exemptions in section 
        408(b)(21) of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1108(b)(21)) and section 
        4975(d)(24) of the Internal Revenue Code of 1986 (as 
        added by the PASS Act of 2017) only if--
                  (A) such person adopts and implements 
                practices on a nationwide basis for the sale of 
                annuity contracts that meet or exceed the 
                minimum requirements set forth in the second 
                subsection (k) of section 15 of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78o) and such 
                person is subject to regulation or examination 
                by a State insurance regulator for purposes of 
                assessing market conduct; or
                  (B) such person complies with a standard 
                substantially similar to such subsection (k) 
                and is regulated by a State insurance regulator 
                with respect to annuities within paragraphs (2) 
                or (8) of section 3(a) of the Securities Act of 
                1933 (15 U.S.C. 77c(a)) or section 989J of the 
                Dodd-Frank Wall Street Reform and Consumer 
                Protection Act (15 U.S.C. 77c note).
          (2) Coordination and cooperation.--Upon the request 
        of any State insurance regulator, the Commission or the 
        Financial Industry Regulatory Authority shall provide 
        such reasonable assistance to the requesting Authority 
        as needed in connection with the coordination or 
        implementation of this section.
          (3) Definition of state insurance regulator.--As used 
        in this subsection, the term ``State insurance 
        regulator'' means the principal insurance regulatory 
        authority of a State, the District of Columbia, any 
        territory of the United States, Puerto Rico, Guam, 
        American Samoa, the Trust Territory of the Pacific 
        Islands, the Virgin Islands, and the Northern Mariana 
        Islands.
  (c) Additional Exemptions.--A person who complies with a 
standard substantially similar to the second subsection (k) of 
section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 
78o) may rely on the exemptions in section 408(b)(21) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1108(b)(21)) and section 4975(d)(24) of the Internal Revenue 
Code of 1986 (as added by the PASS Act of 2017) only if such 
person is--
          (1) registered as an investment adviser under the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et 
        seq.) or under the laws of the State in which the 
        person maintains its principal office and place of 
        business; or
          (2) a bank or similar financial institution 
        supervised by the United States or a State, or a 
        savings association (as defined in section 3(b)(1) of 
        the Federal Deposit Insurance Act (12 U.S.C. 
        1813(b)(1)).
                              ----------                              


            EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974




           *       *       *       *       *       *       *
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

           *       *       *       *       *       *       *



Subtitle B--Regulatory Provisions

           *       *       *       *       *       *       *



Part 4--Fiduciary Responsibility

           *       *       *       *       *       *       *



                EXEMPTIONS FROM PROHIBITED TRANSACTIONS

  Sec. 408. (a) The Secretary shall establish an exemption 
procedure for purposes of this subsection. Pursuant to such 
procedure, he may grant a conditional or unconditional 
exemption of any fiduciary or transaction, or class of 
fiduciaries or transactions, from all or part of the 
restrictions imposed by sections 406 and 407(a). Action under 
this subsection may be taken only after consultation and 
coordination with the Secretary of the Treasury. An exemption 
granted under this section shall not relieve a fiduciary from 
any other applicable provision of this Act. The Secretary may 
not grant an exemption under this subsection unless he finds 
that such exemption is--
          (1) administratively feasible,
          (2) in the interests of the plan and of its 
        participants and beneficiaries, and
          (3) protective of the rights of participants and 
        beneficiaries of such plan.
Before granting an exemption under this subsection from section 
406(a) or 407(a), the Secretary shall publish notice in the 
Federal Register of the pendency of the exemption, shall 
require that adequate notice be given to interested persons, 
and shall afford interested persons opportunity to present 
views. The Secretary may not grant an exemption under this 
subsection from section 406(b) unless he affords an opportunity 
for a hearing and makes a determination on the record with 
respect to the findings required by paragraphs (1), (2), and 
(3) of this subsection.
  (b) The prohibitions provided in section 406 shall not apply 
to any of the following transactions:
          (1) Any loans made by the plan to parties in interest 
        who are participants or beneficiaries of the plan if 
        such loans (A) are available to all such participants 
        and beneficiaries on a reasonably equivalent basis, (B) 
        are not made available to highly compensated employees 
        (within the meaning of section 414(q) of the Internal 
        Revenue Code of 1986) in an amount greater than the 
        amount made available to other employees, (C) are made 
        in accordance with specific provisions regarding such 
        loans set forth in the plan, (D) bear a reasonable rate 
        of interest, and (E) are adequately secured. A loan 
        made by a plan shall not fail to meet the requirements 
        of the preceding sentence by reason of a loan repayment 
        suspension described under section 414(u)(4) of the 
        Internal Revenue Code of 1986.
          (2) Contracting or making reasonable arrangements 
        with a party in interest for office space, or legal, 
        accounting, or other services necessary for the 
        establishment or operation of the plan, if no more than 
        reasonable compensation is paid therefor.
          (3) A loan to an employee stock ownership plan (as 
        defined in section 407(d)(6)), if--
                  (A) such loan is primarily for the benefit of 
                participants and beneficiaries of the plan, and
                  (B) such loan is at an interest rate which is 
                not in excess of a reasonable rate.
        If the plan gives collateral to a party in interest for 
        such loan, such collateral may consist only of 
        qualifying employer securities (as defined in section 
        407(d)(5)).
          (4) The investment of all or part of a plan's assets 
        in deposits which bear a reasonable interest rate in a 
        bank or similar financial institution supervised by the 
        United States or a State, if such bank or other 
        institution is a fiduciary of such plan and if--
                  (A) the plan covers only employees of such 
                bank or other institution and employees of 
                affiliates of such bank or other institution, 
                or
                  (B) such investment is expressly authorized 
                by a provision of the plan or by a fiduciary 
                (other than such bank or institution or 
                affiliate thereof) who is expressly empowered 
                by the plan to so instruct the trustee with 
                respect to such investment.
          (5) Any contract for life insurance, health 
        insurance, or annuities with one or more insurers which 
        are qualified to do business in a State, if the plan 
        pays no more than adequate consideration, and if each 
        such insurer or insurers is--
                  (A) the employer maintaining the plan, or
                  (B) a party in interest which is wholly owned 
                (directly or indirectly) by the employer 
                maintaining the plan, or by any person which is 
                a party in interest with respect to the plan, 
                but only if the total premiums and annuity 
                considerations written by such insurers for 
                life insurance, health insurance, or annuities 
                for all plans (and their employers) with 
                respect to which such insurers are parties in 
                interest (not including premiums or annuity 
                considerations written by the employer 
                maintaining the plan) do not exceed 5 percent 
                of the total premiums and annuity 
                considerations written for all lines of 
                insurance in that year by such insurers (not 
                including premiums or annuity considerations 
                written by the employer maintaining the plan).
          (6) The providing of any ancillary service by a bank 
        or similar financial institution supervised by the 
        United States or a State, if such bank or other 
        institution is a fiduciary of such plan, and if--
                  (A) such bank or similar financial 
                institution has adopted adequate internal 
                safeguards which assure that the providing of 
                such ancillary service is consistent with sound 
                banking and financial practice, as determined 
                by Federal or State supervisory authority, and
                  (B) the extent to which such ancillary 
                service is provided is subject to specific 
                guidelines issued by such bank or similar 
                financial institution (as determined by the 
                Secretary after consultation with Federal and 
                State supervisory authority), and adherence to 
                such guidelines would reasonably preclude such 
                bank or similar financial institution from 
                providing such ancillary service (i) in an 
                excessive or unreasonable manner, and (ii) in a 
                manner that would be inconsistent with the best 
                interests of participants and beneficiaries of 
                employee benefit plans.
        Such ancillary services shall not be provided at more 
        than reasonable compensation.
          (7) The exercise of a privilege to convert 
        securities, to the extent provided in regulations of 
        the Secretary, but only if the plan receives no less 
        than adequate consideration pursuant to such 
        conversion.
          (8) Any transaction between a plan and (i) a common 
        or collective trust fund or pooled investment fund 
        maintained by a party in interest which is a bank or 
        trust company supervised by a State or Federal agency 
        or (ii) a pooled investment fund of an insurance 
        company qualified to do business in a State, if--
                  (A) the transaction is a sale or purchase of 
                an interest in the fund,
                  (B) the bank, trust company, or insurance 
                company receives not more than reasonable 
                compensation, and
                  (C) such transaction is expressly permitted 
                by the instrument under which the plan is 
                maintained, or by a fiduciary (other than the 
                bank, trust company, or insurance company, or 
                an affiliate thereof) who has authority to 
                manage and control the assets of the plan.
          (9) The making by a fiduciary of a distribution of 
        the assets of the plan in accordance with the terms of 
        the plan if such assets are distributed in the same 
        manner as provided under section 4044 of this Act 
        (relating to allocation of assets).
          (10) Any transaction required or permitted under part 
        1 of subtitle E of title IV.
          (11) A merger of multiemployer plans, or the transfer 
        of assets or liabilities between multiemployer plans, 
        determined by the Pension Benefit Guaranty Corporation 
        to meet the requirements of section 4231.
          (12) The sale by a plan to a party in interest on or 
        after December 18, 1987, of any stock, if--
                  (A) the requirements of paragraphs (1) and 
                (2) of subsection (e) are met with respect to 
                such stock,
                  (B) on the later of the date on which the 
                stock was acquired by the plan, or January 1, 
                1975, such stock constituted a qualifying 
                employer security (as defined in section 
                407(d)(5) as then in effect), and
                  (C) such stock does not constitute a 
                qualifying employer security (as defined in 
                section 407(d)(5) as in effect at the time of 
                the sale).
          (13) Any transfer made before January 1, 2026, of 
        excess pension assets from a defined benefit plan to a 
        retiree health account in a qualified transfer 
        permitted under section 420 of the Internal Revenue 
        Code of 1986 (as in effect on the date of the enactment 
        of the Surface Transportation and Veterans Health Care 
        Choice Improvement Act of 2015).
          (14) Any transaction in connection with the provision 
        of investment advice described in section 3(21)(A)(ii) 
        to a participant or beneficiary of an individual 
        account plan that permits such participant or 
        beneficiary to direct the investment of assets in their 
        individual account, if--
                  (A) the transaction is--
                          (i) the provision of the investment 
                        advice to the participant or 
                        beneficiary of the plan with respect to 
                        a security or other property available 
                        as an investment under the plan,
                          (ii) the acquisition, holding, or 
                        sale of a security or other property 
                        available as an investment under the 
                        plan pursuant to the investment advice, 
                        or
                          (iii) the direct or indirect receipt 
                        of fees or other compensation by the 
                        fiduciary adviser or an affiliate 
                        thereof (or any employee, agent, or 
                        registered representative of the 
                        fiduciary adviser or affiliate) in 
                        connection with the provision of the 
                        advice or in connection with an 
                        acquisition, holding, or sale of a 
                        security or other property available as 
                        an investment under the plan pursuant 
                        to the investment advice; and
                  (B) the requirements of subsection (g) are 
                met.
          (15)(A) Any transaction involving the purchase or 
        sale of securities, or other property (as determined by 
        the Secretary), between a plan and a party in interest 
        (other than a fiduciary described in section 3(21)(A)) 
        with respect to a plan if--
                  (i) the transaction involves a block trade,
                  (ii) at the time of the transaction, the 
                interest of the plan (together with the 
                interests of any other plans maintained by the 
                same plan sponsor), does not exceed 10 percent 
                of the aggregate size of the block trade,
                  (iii) the terms of the transaction, including 
                the price, are at least as favorable to the 
                plan as an arm's length transaction, and
                  (iv) the compensation associated with the 
                purchase and sale is not greater than the 
                compensation associated with an arm's length 
                transaction with an unrelated party.
          (B) For purposes of this paragraph, the term ``block 
        trade'' means any trade of at least 10,000 shares or 
        with a market value of at least $200,000 which will be 
        allocated across two or more unrelated client accounts 
        of a fiduciary.
          (16) Any transaction involving the purchase or sale 
        of securities, or other property (as determined by the 
        Secretary), between a plan and a party in interest if--
                  (A) the transaction is executed through an 
                electronic communication network, alternative 
                trading system, or similar execution system or 
                trading venue subject to regulation and 
                oversight by--
                          (i) the applicable Federal regulating 
                        entity, or
                          (ii) such foreign regulatory entity 
                        as the Secretary may determine by 
                        regulation,
                  (B) either--
                          (i) the transaction is effected 
                        pursuant to rules designed to match 
                        purchases and sales at the best price 
                        available through the execution system 
                        in accordance with applicable rules of 
                        the Securities and Exchange Commission 
                        or other relevant governmental 
                        authority, or
                          (ii) neither the execution system nor 
                        the parties to the transaction take 
                        into account the identity of the 
                        parties in the execution of trades,
                  (C) the price and compensation associated 
                with the purchase and sale are not greater than 
                the price and compensation associated with an 
                arm's length transaction with an unrelated 
                party,
                  (D) if the party in interest has an ownership 
                interest in the system or venue described in 
                subparagraph (A), the system or venue has been 
                authorized by the plan sponsor or other 
                independent fiduciary for transactions 
                described in this paragraph, and
                  (E) not less than 30 days prior to the 
                initial transaction described in this paragraph 
                executed through any system or venue described 
                in subparagraph (A), a plan fiduciary is 
                provided written or electronic notice of the 
                execution of such transaction through such 
                system or venue.
          (17)(A) Transactions described in subparagraphs (A), 
        (B), and (D) of section 406(a)(1) between a plan and a 
        person that is a party in interest other than a 
        fiduciary (or an affiliate) who has or exercises any 
        discretionary authority or control with respect to the 
        investment of the plan assets involved in the 
        transaction or renders investment advice (within the 
        meaning of section 3(21)(A)(ii)) with respect to those 
        assets, solely by reason of providing services to the 
        plan or solely by reason of a relationship to such a 
        service provider described in subparagraph (F), (G), 
        (H), or (I) of section 3(14), or both, but only if in 
        connection with such transaction the plan receives no 
        less, nor pays no more, than adequate consideration.
          (B) For purposes of this paragraph, the term 
        ``adequate consideration'' means--
                  (i) in the case of a security for which there 
                is a generally recognized market--
                          (I) the price of the security 
                        prevailing on a national securities 
                        exchange which is registered under 
                        section 6 of the Securities Exchange 
                        Act of 1934, taking into account 
                        factors such as the size of the 
                        transaction and marketability of the 
                        security, or
                          (II) if the security is not traded on 
                        such a national securities exchange, a 
                        price not less favorable to the plan 
                        than the offering price for the 
                        security as established by the current 
                        bid and asked prices quoted by persons 
                        independent of the issuer and of the 
                        party in interest, taking into account 
                        factors such as the size of the 
                        transaction and marketability of the 
                        security, and
                  (ii) in the case of an asset other than a 
                security for which there is a generally 
                recognized market, the fair market value of the 
                asset as determined in good faith by a 
                fiduciary or fiduciaries in accordance with 
                regulations prescribed by the Secretary.
          (18) Foreign exchange transactions.--Any foreign 
        exchange transactions, between a bank or broker-dealer 
        (or any affiliate of either), and a plan (as defined in 
        section 3(3)) with respect to which such bank or 
        broker-dealer (or affiliate) is a trustee, custodian, 
        fiduciary, or other party in interest, if--
                  (A) the transaction is in connection with the 
                purchase, holding, or sale of securities or 
                other investment assets (other than a foreign 
                exchange transaction unrelated to any other 
                investment in securities or other investment 
                assets),
                  (B) at the time the foreign exchange 
                transaction is entered into, the terms of the 
                transaction are not less favorable to the plan 
                than the terms generally available in 
                comparable arm's length foreign exchange 
                transactions between unrelated parties, or the 
                terms afforded by the bank or broker-dealer (or 
                any affiliate of either) in comparable arm's-
                length foreign exchange transactions involving 
                unrelated parties,
                  (C) the exchange rate used by such bank or 
                broker-dealer (or affiliate) for a particular 
                foreign exchange transaction does not deviate 
                by more than 3 percent from the interbank bid 
                and asked rates for transactions of comparable 
                size and maturity at the time of the 
                transaction as displayed on an independent 
                service that reports rates of exchange in the 
                foreign currency market for such currency, and
                  (D) the bank or broker-dealer (or any 
                affiliate of either) does not have investment 
                discretion, or provide investment advice, with 
                respect to the transaction.
          (19) Cross trading.--Any transaction described in 
        sections 406(a)(1)(A) and 406(b)(2) involving the 
        purchase and sale of a security between a plan and any 
        other account managed by the same investment manager, 
        if--
                  (A) the transaction is a purchase or sale, 
                for no consideration other than cash payment 
                against prompt delivery of a security for which 
                market quotations are readily available,
                  (B) the transaction is effected at the 
                independent current market price of the 
                security (within the meaning of section 
                270.17a-7(b) of title 17, Code of Federal 
                Regulations),
                  (C) no brokerage commission, fee (except for 
                customary transfer fees, the fact of which is 
                disclosed pursuant to subparagraph (D)), or 
                other remuneration is paid in connection with 
                the transaction,
                  (D) a fiduciary (other than the investment 
                manager engaging in the cross-trades or any 
                affiliate) for each plan participating in the 
                transaction authorizes in advance of any cross-
                trades (in a document that is separate from any 
                other written agreement of the parties) the 
                investment manager to engage in cross trades at 
                the investment manager's discretion, after such 
                fiduciary has received disclosure regarding the 
                conditions under which cross trades may take 
                place (but only if such disclosure is separate 
                from any other agreement or disclosure 
                involving the asset management relationship), 
                including the written policies and procedures 
                of the investment manager described in 
                subparagraph (H),
                  (E) each plan participating in the 
                transaction has assets of at least 
                $100,000,000, except that if the assets of a 
                plan are invested in a master trust containing 
                the assets of plans maintained by employers in 
                the same controlled group (as defined in 
                section 407(d)(7)), the master trust has assets 
                of at least $100,000,000,
                  (F) the investment manager provides to the 
                plan fiduciary who authorized cross trading 
                under subparagraph (D) a quarterly report 
                detailing all cross trades executed by the 
                investment manager in which the plan 
                participated during such quarter, including the 
                following information, as applicable: (i) the 
                identity of each security bought or sold; (ii) 
                the number of shares or units traded; (iii) the 
                parties involved in the cross-trade; and (iv) 
                trade price and the method used to establish 
                the trade price,
                  (G) the investment manager does not base its 
                fee schedule on the plan's consent to cross 
                trading, and no other service (other than the 
                investment opportunities and cost savings 
                available through a cross trade) is conditioned 
                on the plan's consent to cross trading,
                  (H) the investment manager has adopted, and 
                cross-trades are effected in accordance with, 
                written cross-trading policies and procedures 
                that are fair and equitable to all accounts 
                participating in the cross-trading program, and 
                that include a description of the manager's 
                pricing policies and procedures, and the 
                manager's policies and procedures for 
                allocating cross trades in an objective manner 
                among accounts participating in the cross-
                trading program, and
                  (I) the investment manager has designated an 
                individual responsible for periodically 
                reviewing such purchases and sales to ensure 
                compliance with the written policies and 
                procedures described in subparagraph (H), and 
                following such review, the individual shall 
                issue an annual written report no later than 90 
                days following the period to which it relates 
                signed under penalty of perjury to the plan 
                fiduciary who authorized cross trading under 
                subparagraph (D) describing the steps performed 
                during the course of the review, the level of 
                compliance, and any specific instances of non-
                compliance.
        The written report under subparagraph (I) shall also 
        notify the plan fiduciary of the plan's right to 
        terminate participation in the investment manager's 
        cross-trading program at any time.
          (20)(A) Except as provided in subparagraphs (B) and 
        (C), a transaction described in section 406(a) in 
        connection with the acquisition, holding, or 
        disposition of any security or commodity, if the 
        transaction is corrected before the end of the 
        correction period.
          (B) Subparagraph (A) does not apply to any 
        transaction between a plan and a plan sponsor or its 
        affiliates that involves the acquisition or sale of an 
        employer security (as defined in section 407(d)(1)) or 
        the acquisition, sale, or lease of employer real 
        property (as defined in section 407(d)(2)).
          (C) In the case of any fiduciary or other party in 
        interest (or any other person knowingly participating 
        in such transaction), subparagraph (A) does not apply 
        to any transaction if, at the time the transaction 
        occurs, such fiduciary or party in interest (or other 
        person) knew (or reasonably should have known) that the 
        transaction would (without regard to this paragraph) 
        constitute a violation of section 406(a).
          (D) For purposes of this paragraph, the term 
        ``correction period'' means, in connection with a 
        fiduciary or party in interest (or other person 
        knowingly participating in the transaction), the 14-day 
        period beginning on the date on which such fiduciary or 
        party in interest (or other person) discovers, or 
        reasonably should have discovered, that the transaction 
        would (without regard to this paragraph) constitute a 
        violation of section 406(a).
          (E) For purposes of this paragraph--
                  (i) The term ``security'' has the meaning 
                given such term by section 475(c)(2) of the 
                Internal Revenue Code of 1986 (without regard 
                to subparagraph (F)(iii) and the last sentence 
                thereof).
                  (ii) The term ``commodity'' has the meaning 
                given such term by section 475(e)(2) of such 
                Code (without regard to subparagraph (D)(iii) 
                thereof).
                  (iii) The term ``correct'' means, with 
                respect to a transaction--
                          (I) to undo the transaction to the 
                        extent possible and in any case to make 
                        good to the plan or affected account 
                        any losses resulting from the 
                        transaction, and
                          (II) to restore to the plan or 
                        affected account any profits made 
                        through the use of assets of the plan.
          (21) Any transaction involving a recommendation made 
        by a broker or dealer (including its registered 
        representative), or other persons or entities, that is 
        subject to the requirements of the second subsection 
        (k) of section 15 of the Securities Exchange Act of 
        1934 (15 U.S.C. 78o(k)).
  (c) Nothing in section 406 shall be construed to prohibit any 
fiduciary from--
          (1) receiving any benefit to which he may be entitled 
        as a participant or beneficiary in the plan, so long as 
        the benefit is computed and paid on a basis which is 
        consistent with the terms of the plan as applied to all 
        other participants and beneficiaries;
          (2) receiving any reasonable compensation for 
        services rendered, or for the reimbursement of expenses 
        properly and actually incurred, in the performance of 
        his duties with the plan; except that no person so 
        serving who already receives full time pay from an 
        employer or an association of employers, whose 
        employees are participants in the plan, or from an 
        employee organization whose members are participants in 
        such plan shall receive compensation from such plan, 
        except for reimbursement of expenses properly and 
        actually incurred; or
          (3) serving as a fiduciary in addition to being an 
        officer, employee, agent, or other representative of a 
        party in interest.
  (d)(1) Section 407(b) and subsections (b), (c), and (e) of 
this section shall not apply to a transaction in which a plan 
directly or indirectly--
          (A) lends any part of the corpus or income of the 
        plan to,
          (B) pays any compensation for personal services 
        rendered to the plan to, or
          (C) acquires for the plan any property from, or sells 
        any property to,
any person who is with respect to the plan an owner-employee 
(as defined in section 401(c)(3) of the Internal Revenue Code 
of 1986), a member of the family (as defined in section 
267(c)(4) of such Code) of any such owner-employee, or any 
corporation in which any such owner-employee owns, directly or 
indirectly, 50 percent or more of the total combined voting 
power of all classes of stock entitled to vote or 50 percent or 
more of the total value of shares of all classes of stock of 
the corporation.
  (2)(A) For purposes of paragraph (1), the following shall be 
treated as owner-employees:
          (i) A shareholder-employee.
          (ii) A participant or beneficiary of an individual 
        retirement plan (as defined in section 7701(a)(37) of 
        the Internal Revenue Code of 1986).
          (iii) An employer or association of employees which 
        establishes such an individual retirement plan under 
        section 408(c) of such Code.
  (B) Paragraph (1)(C) shall not apply to a transaction which 
consists of a sale of employer securities to an employee stock 
ownership plan (as defined in section 407(d)(6)) by a 
shareholder-employee, a member of the family (as defined in 
section 267(c)(4) of such Code) of any such owner-employee, or 
a corporation in which such a shareholder-employee owns stock 
representing a 50 percent or greater interest described in 
paragraph (1).
  (C) For purposes of paragraph (1)(A), the term ``owner-
employee'' shall only include a person described in clause (ii) 
or (iii) of subparagraph (A).
  (3) For purposes of paragraph (2), the term ``shareholder-
employee'' means an employee or officer of an S corporation (as 
defined in section 1361(a)(1) of such Code) who owns (or is 
considered as owning within the meaning of section 318(a)(1) of 
such Code) more than 5 percent of the outstanding stock of the 
corporation on any day during the taxable year of such 
corporation.
  (e) Sections 406 and 407 shall not apply to the acquisition 
or sale by a plan of qualifying employer securities (as defined 
in section 407(d)(5)) or acquisition, sale or lease by a plan 
of qualifying employer real property (as defined in section 
407(d)(4))--
          (1) if such acquisition, sale, or lease is for 
        adequate consideration (or in the case of a marketable 
        obligation, at a price not less favorable to the plan 
        than the price determined under section 407(e)(1)),
          (2) if no commission is charged with respect thereto, 
        and
          (3) if--
                  (A) the plan is an eligible individual 
                account plan (as defined in section 407(d)(3)), 
                or
                  (B) in the case of an acquisition or lease of 
                qualifying employer real property by a plan 
                which is not an eligible individual account 
                plan, or of an acquisition of qualifying 
                employer securities by such a plan, the lease 
                or acquisition is not prohibited by section 
                407(a).
  (f) Section 406(b)(2) shall not apply to any merger or 
transfer described in subsection (b)(11).
  (g) Provision of Investment Advice to Participant and 
Beneficiaries.--
          (1) In general.--The prohibitions provided in section 
        406 shall not apply to transactions described in 
        subsection (b)(14) if the investment advice provided by 
        a fiduciary adviser is provided under an eligible 
        investment advice arrangement.
          (2) Eligible investment advice arrangement.--For 
        purposes of this subsection, the term ``eligible 
        investment advice arrangement'' means an arrangement--
                  (A) which either--
                          (i) provides that any fees (including 
                        any commission or other compensation) 
                        received by the fiduciary adviser for 
                        investment advice or with respect to 
                        the sale, holding, or acquisition of 
                        any security or other property for 
                        purposes of investment of plan assets 
                        do not vary depending on the basis of 
                        any investment option selected, or
                          (ii) uses a computer model under an 
                        investment advice program meeting the 
                        requirements of paragraph (3) in 
                        connection with the provision of 
                        investment advice by a fiduciary 
                        adviser to a participant or 
                        beneficiary, and
                  (B) with respect to which the requirements of 
                paragraph (4), (5), (6), (7), (8), and (9) are 
                met.
          (3) Investment advice program using computer model.--
                  (A) In general.--An investment advice program 
                meets the requirements of this paragraph if the 
                requirements of subparagraphs (B), (C), and (D) 
                are met.
                  (B) Computer model.--The requirements of this 
                subparagraph are met if the investment advice 
                provided under the investment advice program is 
                provided pursuant to a computer model that--
                          (i) applies generally accepted 
                        investment theories that take into 
                        account the historic returns of 
                        different asset classes over defined 
                        periods of time,
                          (ii) utilizes relevant information 
                        about the participant, which may 
                        include age, life expectancy, 
                        retirement age, risk tolerance, other 
                        assets or sources of income, and 
                        preferences as to certain types of 
                        investments,
                          (iii) utilizes prescribed objective 
                        criteria to provide asset allocation 
                        portfolios comprised of investment 
                        options available under the plan,
                          (iv) operates in a manner that is not 
                        biased in favor of investments offered 
                        by the fiduciary adviser or a person 
                        with a material affiliation or 
                        contractual relationship with the 
                        fiduciary adviser, and
                          (v) takes into account all investment 
                        options under the plan in specifying 
                        how a participant's account balance 
                        should be invested and is not 
                        inappropriately weighted with respect 
                        to any investment option.
                  (C) Certification.--
                          (i) In general.--The requirements of 
                        this subparagraph are met with respect 
                        to any investment advice program if an 
                        eligible investment expert certifies, 
                        prior to the utilization of the 
                        computer model and in accordance with 
                        rules prescribed by the Secretary, that 
                        the computer model meets the 
                        requirements of subparagraph (B).
                          (ii) Renewal of certifications.--If, 
                        as determined under regulations 
                        prescribed by the Secretary, there are 
                        material modifications to a computer 
                        model, the requirements of this 
                        subparagraph are met only if a 
                        certification described in clause (i) 
                        is obtained with respect to the 
                        computer model as so modified.
                          (iii) Eligible investment expert.--
                        The term ``eligible investment expert'' 
                        means any person--
                                  (I) which meets such 
                                requirements as the Secretary 
                                may provide, and
                                  (II) does not bear any 
                                material affiliation or 
                                contractual relationship with 
                                any investment adviser or a 
                                related person thereof (or any 
                                employee, agent, or registered 
                                representative of the 
                                investment adviser or related 
                                person).
                  (D) Exclusivity of recommendation.--The 
                requirements of this subparagraph are met with 
                respect to any investment advice program if--
                          (i) the only investment advice 
                        provided under the program is the 
                        advice generated by the computer model 
                        described in subparagraph (B), and
                          (ii) any transaction described in 
                        subsection (b)(14)(A)(ii) occurs solely 
                        at the direction of the participant or 
                        beneficiary.
                Nothing in the preceding sentence shall 
                preclude the participant or beneficiary from 
                requesting investment advice other than that 
                described in subparagraph (A), but only if such 
                request has not been solicited by any person 
                connected with carrying out the arrangement.
          (4) Express authorization by separate fiduciary.--The 
        requirements of this paragraph are met with respect to 
        an arrangement if the arrangement is expressly 
        authorized by a plan fiduciary other than the person 
        offering the investment advice program, any person 
        providing investment options under the plan, or any 
        affiliate of either.
          (5) Annual audit.--The requirements of this paragraph 
        are met if an independent auditor, who has appropriate 
        technical training or experience and proficiency and so 
        represents in writing--
                  (A) conducts an annual audit of the 
                arrangement for compliance with the 
                requirements of this subsection, and
                  (B) following completion of the annual audit, 
                issues a written report to the fiduciary who 
                authorized use of the arrangement which 
                presents its specific findings regarding 
                compliance of the arrangement with the 
                requirements of this subsection.
        For purposes of this paragraph, an auditor is 
        considered independent if it is not related to the 
        person offering the arrangement to the plan and is not 
        related to any person providing investment options 
        under the plan.
          (6) Disclosure.--The requirements of this paragraph 
        are met if--
                  (A) the fiduciary adviser provides to a 
                participant or a beneficiary before the initial 
                provision of the investment advice with regard 
                to any security or other property offered as an 
                investment option, a written notification 
                (which may consist of notification by means of 
                electronic communication)--
                          (i) of the role of any party that has 
                        a material affiliation or contractual 
                        relationship with the fiduciary adviser 
                        in the development of the investment 
                        advice program and in the selection of 
                        investment options available under the 
                        plan,
                          (ii) of the past performance and 
                        historical rates of return of the 
                        investment options available under the 
                        plan,
                          (iii) of all fees or other 
                        compensation relating to the advice 
                        that the fiduciary adviser or any 
                        affiliate thereof is to receive 
                        (including compensation provided by any 
                        third party) in connection with the 
                        provision of the advice or in 
                        connection with the sale, acquisition, 
                        or holding of the security or other 
                        property,
                          (iv) of any material affiliation or 
                        contractual relationship of the 
                        fiduciary adviser or affiliates thereof 
                        in the security or other property,
                          (v) the manner, and under what 
                        circumstances, any participant or 
                        beneficiary information provided under 
                        the arrangement will be used or 
                        disclosed,
                          (vi) of the types of services 
                        provided by the fiduciary adviser in 
                        connection with the provision of 
                        investment advice by the fiduciary 
                        adviser,
                          (vii) that the adviser is acting as a 
                        fiduciary of the plan in connection 
                        with the provision of the advice, and
                          (viii) that a recipient of the advice 
                        may separately arrange for the 
                        provision of advice by another adviser, 
                        that could have no material affiliation 
                        with and receive no fees or other 
                        compensation in connection with the 
                        security or other property, and
                  (B) at all times during the provision of 
                advisory services to the participant or 
                beneficiary, the fiduciary adviser--
                          (i) maintains the information 
                        described in subparagraph (A) in 
                        accurate form and in the manner 
                        described in paragraph (8),
                          (ii) provides, without charge, 
                        accurate information to the recipient 
                        of the advice no less frequently than 
                        annually,
                          (iii) provides, without charge, 
                        accurate information to the recipient 
                        of the advice upon request of the 
                        recipient, and
                          (iv) provides, without charge, 
                        accurate information to the recipient 
                        of the advice concerning any material 
                        change to the information required to 
                        be provided to the recipient of the 
                        advice at a time reasonably 
                        contemporaneous to the change in 
                        information.
          (7) Other conditions.--The requirements of this 
        paragraph are met if--
                  (A) the fiduciary adviser provides 
                appropriate disclosure, in connection with the 
                sale, acquisition, or holding of the security 
                or other property, in accordance with all 
                applicable securities laws,
                  (B) the sale, acquisition, or holding occurs 
                solely at the direction of the recipient of the 
                advice,
                  (C) the compensation received by the 
                fiduciary adviser and affiliates thereof in 
                connection with the sale, acquisition, or 
                holding of the security or other property is 
                reasonable, and
                  (D) the terms of the sale, acquisition, or 
                holding of the security or other property are 
                at least as favorable to the plan as an arm's 
                length transaction would be.
          (8) Standards for presentation of information.--
                  (A) In general.--The requirements of this 
                paragraph are met if the notification required 
                to be provided to participants and 
                beneficiaries under paragraph (6)(A) is written 
                in a clear and conspicuous manner and in a 
                manner calculated to be understood by the 
                average plan participant and is sufficiently 
                accurate and comprehensive to reasonably 
                apprise such participants and beneficiaries of 
                the information required to be provided in the 
                notification.
                  (B) Model form for disclosure of fees and 
                other compensation.--The Secretary shall issue 
                a model form for the disclosure of fees and 
                other compensation required in paragraph 
                (6)(A)(iii) which meets the requirements of 
                subparagraph (A).
          (9) Maintenance for 6 years of evidence of 
        compliance.--The requirements of this paragraph are met 
        if a fiduciary adviser who has provided advice referred 
        to in paragraph (1) maintains, for a period of not less 
        than 6 years after the provision of the advice, any 
        records necessary for determining whether the 
        requirements of the preceding provisions of this 
        subsection and of subsection (b)(14) have been met. A 
        transaction prohibited under section 406 shall not be 
        considered to have occurred solely because the records 
        are lost or destroyed prior to the end of the 6-year 
        period due to circumstances beyond the control of the 
        fiduciary adviser.
          (10) Exemption for plan sponsor and certain other 
        fiduciaries.--
                  (A) In general.--Subject to subparagraph (B), 
                a plan sponsor or other person who is a 
                fiduciary (other than a fiduciary adviser) 
                shall not be treated as failing to meet the 
                requirements of this part solely by reason of 
                the provision of investment advice referred to 
                in section 3(21)(A)(ii) (or solely by reason of 
                contracting for or otherwise arranging for the 
                provision of the advice), if--
                          (i) the advice is provided by a 
                        fiduciary adviser pursuant to an 
                        eligible investment advice arrangement 
                        between the plan sponsor or other 
                        fiduciary and the fiduciary adviser for 
                        the provision by the fiduciary adviser 
                        of investment advice referred to in 
                        such section,
                          (ii) the terms of the eligible 
                        investment advice arrangement require 
                        compliance by the fiduciary adviser 
                        with the requirements of this 
                        subsection, and
                          (iii) the terms of the eligible 
                        investment advice arrangement include a 
                        written acknowledgment by the fiduciary 
                        adviser that the fiduciary adviser is a 
                        fiduciary of the plan with respect to 
                        the provision of the advice.
                  (B) Continued duty of prudent selection of 
                adviser and periodic review.--Nothing in 
                subparagraph (A) shall be construed to exempt a 
                plan sponsor or other person who is a fiduciary 
                from any requirement of this part for the 
                prudent selection and periodic review of a 
                fiduciary adviser with whom the plan sponsor or 
                other person enters into an eligible investment 
                advice arrangement for the provision of 
                investment advice referred to in section 
                3(21)(A)(ii). The plan sponsor or other person 
                who is a fiduciary has no duty under this part 
                to monitor the specific investment advice given 
                by the fiduciary adviser to any particular 
                recipient of the advice.
                  (C) Availability of plan assets for payment 
                for advice.--Nothing in this part shall be 
                construed to preclude the use of plan assets to 
                pay for reasonable expenses in providing 
                investment advice referred to in section 
                3(21)(A)(ii).
          (11) Definitions.--For purposes of this subsection 
        and subsection (b)(14)--
                  (A) Fiduciary adviser.--The term ``fiduciary 
                adviser'' means, with respect to a plan, a 
                person who is a fiduciary of the plan by reason 
                of the provision of investment advice referred 
                to in section 3(21)(A)(ii) by the person to a 
                participant or beneficiary of the plan and who 
                is--
                          (i) registered as an investment 
                        adviser under the Investment Advisers 
                        Act of 1940 (15 U.S.C. 80b-1 et seq.) 
                        or under the laws of the State in which 
                        the fiduciary maintains its principal 
                        office and place of business,
                          (ii) a bank or similar financial 
                        institution referred to in subsection 
                        (b)(4) or a savings association (as 
                        defined in section 3(b)(1) of the 
                        Federal Deposit Insurance Act (12 
                        U.S.C. 1813(b)(1)), but only if the 
                        advice is provided through a trust 
                        department of the bank or similar 
                        financial institution or savings 
                        association which is subject to 
                        periodic examination and review by 
                        Federal or State banking authorities,
                          (iii) an insurance company qualified 
                        to do business under the laws of a 
                        State,
                          (iv) a person registered as a broker 
                        or dealer under the Securities Exchange 
                        Act of 1934 (15 U.S.C. 78a et seq.),
                          (v) an affiliate of a person 
                        described in any of clauses (i) through 
                        (iv), or
                          (vi) an employee, agent, or 
                        registered representative of a person 
                        described in clauses (i) through (v) 
                        who satisfies the requirements of 
                        applicable insurance, banking, and 
                        securities laws relating to the 
                        provision of the advice.
                For purposes of this part, a person who 
                develops the computer model described in 
                paragraph (3)(B) or markets the investment 
                advice program or computer model shall be 
                treated as a person who is a fiduciary of the 
                plan by reason of the provision of investment 
                advice referred to in section 3(21)(A)(ii) to a 
                participant or beneficiary and shall be treated 
                as a fiduciary adviser for purposes of this 
                subsection and subsection (b)(14), except that 
                the Secretary may prescribe rules under which 
                only 1 fiduciary adviser may elect to be 
                treated as a fiduciary with respect to the 
                plan.
                  (B) Affiliate.--The term ``affiliate'' of 
                another entity means an affiliated person of 
                the entity (as defined in section 2(a)(3) of 
                the Investment Company Act of 1940 (15 U.S.C. 
                80a-2(a)(3))).
                  (C) Registered representative.--The term 
                ``registered representative'' of another entity 
                means a person described in section 3(a)(18) of 
                the Securities Exchange Act of 1934 (15 U.S.C. 
                78c(a)(18)) (substituting the entity for the 
                broker or dealer referred to in such section) 
                or a person described in section 202(a)(17) of 
                the Investment Advisers Act of 1940 (15 U.S.C. 
                80b-2(a)(17)) (substituting the entity for the 
                investment adviser referred to in such 
                section).

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                     INTERNAL REVENUE CODE OF 1986




           *       *       *       *       *       *       *
Subtitle D--Miscellaneous Excise Taxes

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CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

           *       *       *       *       *       *       *


SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

  (a) Initial Taxes on Disqualified Person.--There is hereby 
imposed a tax on each prohibited transaction. The rate of tax 
shall be equal to 15 percent of the amount involved with 
respect to the prohibited transaction for each year (or part 
thereof) in the taxable period. The tax imposed by this 
subsection shall be paid by any disqualified person who 
participates in the prohibited transaction (other than a 
fiduciary acting only as such).
  (b) Additional Taxes on Disqualified Person.--In any case in 
which an initial tax is imposed by subsection (a) on a 
prohibited transaction and the transaction is not corrected 
within the taxable period, there is hereby imposed a tax equal 
to 100 percent of the amount involved. The tax imposed by this 
subsection shall be paid by any disqualified person who 
participated in the prohibited transaction (other than a 
fiduciary acting only as such).
  (c) Prohibited Transaction.--
          (1) General rule.--For purposes of this section, the 
        term ``prohibited transaction'' means any direct or 
        indirect--
                  (A) sale or exchange, or leasing, of any 
                property between a plan and a disqualified 
                person;
                  (B) lending of money or other extension of 
                credit between a plan and a disqualified 
                person;
                  (C) furnishing of goods, services, or 
                facilities between a plan and a disqualified 
                person;
                  (D) transfer to, or use by or for the benefit 
                of, a disqualified person of the income or 
                assets of a plan;
                  (E) act by a disqualified person who is a 
                fiduciary whereby he deals with the income or 
                assets of a plan in his own interests or for 
                his own account; or
                  (F) receipt of any consideration for his own 
                personal account by any disqualified person who 
                is a fiduciary from any party dealing with the 
                plan in connection with a transaction involving 
                the income or assets of the plan.
          (2) Special exemption.--The Secretary shall establish 
        an exemption procedure for purposes of this subsection. 
        Pursuant to such procedure, he may grant a conditional 
        or unconditional exemption of any disqualified person 
        or transaction, orders of disqualified persons or 
        transactions, from all or part of the restrictions 
        imposed by paragraph (1) of this subsection. Action 
        under this subparagraph may be taken only after 
        consultation and coordination with the Secretary of 
        Labor. The Secretary may not grant an exemption under 
        this paragraph unless he finds that such exemption is--
                  (A) administratively feasible,
                  (B) in the interests of the plan and of its 
                participants and beneficiaries, and
                  (C) protective of the rights of participants 
                and beneficiaries of the plan.
        Before granting an exemption under this paragraph, the 
        Secretary shall require adequate notice to be given to 
        interested persons and shall publish notice in the 
        Federal Register of the pendency of such exemption and 
        shall afford interested persons an opportunity to 
        present views. No exemption may be granted under this 
        paragraph with respect to a transaction described in 
        subparagraph (E) or (F) of paragraph (1) unless the 
        Secretary affords an opportunity for a hearing and 
        makes a determination on the record with respect to the 
        findings required under subparagraphs (A), (B), and (C) 
        of this paragraph, except that in lieu of such hearing 
        the Secretary may accept any record made by the 
        Secretary of Labor with respect to an application for 
        exemption under section 408(a) of title I of the 
        Employee Retirement Income Security Act of 1974.
          (3) Special rule for individual retirement 
        accounts.--An individual for whose benefit an 
        individual retirement account is established and his 
        beneficiaries shall be exempt from the tax imposed by 
        this section with respect to any transaction concerning 
        such account (which would otherwise be taxable under 
        this section) if, with respect to such transaction, the 
        account ceases to be an individual retirement account 
        by reason of the application of section 408(e)(2)(A) or 
        if section 408(e)(4) applies to such account.
          (4) Special rule for Archer MSAs.--An individual for 
        whose benefit an Archer MSA (within the meaning of 
        section 220(d)) is established shall be exempt from the 
        tax imposed by this section with respect to any 
        transaction concerning such account (which would 
        otherwise be taxable under this section) if section 
        220(e)(2) applies to such transaction.
          (5) Special rule for Coverdell education savings 
        accounts.--An individual for whose benefit a Coverdell 
        education savings account is established and any 
        contributor to such account shall be exempt from the 
        tax imposed by this section with respect to any 
        transaction concerning such account (which would 
        otherwise be taxable under this section) if section 
        530(d) applies with respect to such transaction.
          (6) Special rule for health savings accounts.--An 
        individual for whose benefit a health savings account 
        (within the meaning of section 223(d)) is established 
        shall be exempt from the tax imposed by this section 
        with respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) 
        if, with respect to such transaction, the account 
        ceases to be a health savings account by reason of the 
        application of section 223(e)(2) to such account.
  (d) Exemptions.--Except as provided in subsection (f)(6), the 
prohibitions provided in subsection (c) shall not apply to--
          (1) any loan made by the plan to a disqualified 
        person who is a participant or beneficiary of the plan 
        if such loan--
                  (A) is available to all such participants or 
                beneficiaries on a reasonably equivalent basis,
                  (B) is not made available to highly 
                compensated employees (within the meaning of 
                section 414(q)) in an amount greater than the 
                amount made available to other employees,
                  (C) is made in accordance with specific 
                provisions regarding such loans set forth in 
                the plan,
                  (D) bears a reasonable rate of interest, and
                  (E) is adequately secured;
          (2) any contract, or reasonable arrangement, made 
        with a disqualified person for office space, or legal, 
        accounting, or other services necessary for the 
        establishment or operation of the plan, if no more than 
        reasonable compensation is paid therefor;
          (3) any loan to an leveraged employee stock ownership 
        plan (as defined in subsection (e)(7)), if--
                  (A) such loan is primarily for the benefit of 
                participants and beneficiaries of the plan, and
                  (B) such loan is at a reasonable rate of 
                interest, and any collateral which is given to 
                a disqualified person by the plan consists only 
                of qualifying employer securities (as defined 
                in subsection (e)(8));
          (4) the investment of all or part of a plan's assets 
        in deposits which bear a reasonable interest rate in a 
        bank or similar financial institution supervised by the 
        United States or a State, if such bank or other 
        institution is a fiduciary of such plan and if--
                  (A) the plan covers only employees of such 
                bank or other institution and employees of 
                affiliates of such bank or other institution, 
                or
                  (B) such investment is expressly authorized 
                by a provision of the plan or by a fiduciary 
                (other than such bank or institution or 
                affiliates thereof) who is expressly empowered 
                by the plan to so instruct the trustee with 
                respect to such investment;
          (5) any contract for life insurance, health 
        insurance, or annuities with one or more insurers which 
        are qualified to do business in a State if the plan 
        pays no more than adequate consideration, and if each 
        such insurer or insurers is--
                  (A) the employer maintaining the plan, or
                  (B) a disqualified person which is wholly 
                owned (directly or indirectly) by the employer 
                establishing the plan, or by any person which 
                is a disqualified person with respect to the 
                plan, but only if the total premiums and 
                annuity considerations written by such insurers 
                for life insurance, health insurance, or 
                annuities for all plans (and their employers) 
                with respect to which such insurers are 
                disqualified persons (not including premiums or 
                annuity considerations written by the employer 
                maintaining the plan) do not exceed 5 percent 
                of the total premiums and annuity 
                considerations written for all lines of 
                insurance in that year by such insurers (not 
                including premiums or annuity considerations 
                written by the employer maintaining the plan);
          (6) the provision of any ancillary service by a bank 
        or similar financial institution supervised by the 
        United States or a State, if such service is provided 
        at not more than reasonable compensation, if such bank 
        or other institution is a fiduciary of such plan, and 
        if--
                  (A) such bank or similar financial 
                institution has adopted adequate internal 
                safeguards which assure that the provision of 
                such ancillary service is consistent with sound 
                banking and financial practice, as determined 
                by Federal or State supervisory authority, and
                  (B) the extent to which such ancillary 
                service is provided is subject to specific 
                guidelines issued by such bank or similar 
                financial institution (as determined by the 
                Secretary after consultation with Federal and 
                State supervisory authority), and under such 
                guidelines the bank or similar financial 
                institution does not provide such ancillary 
                service--
                          (i) in an excessive or unreasonable 
                        manner, and
                          (ii) in a manner that would be 
                        inconsistent with the best interests of 
                        participants and beneficiaries of 
                        employee benefit plans;
          (7) the exercise of a privilege to convert 
        securities, to the extent provided in regulations of 
        the Secretary but only if the plan receives no less 
        than adequate consideration pursuant to such 
        conversion;
          (8) any transaction between a plan and a common or 
        collective trust fund or pooled investment fund 
        maintained by a disqualified person which is a bank or 
        trust company supervised by a State or Federal agency 
        or between a plan and a pooled investment fund of an 
        insurance company qualified to do business in a State 
        if--
                  (A) the transaction is a sale or purchase of 
                an interest in the fund,
                  (B) the bank, trust company, or insurance 
                company receives not more than a reasonable 
                compensation, and
                  (C) such transaction is expressly permitted 
                by the instrument under which the plan is 
                maintained, or by a fiduciary (other than the 
                bank, trust company, or insurance company, or 
                an affiliate thereof) who has authority to 
                manage and control the assets of the plan;
          (9) receipt by a disqualified person of any benefit 
        to which he may be entitled as a participant or 
        beneficiary in the plan, so long as the benefit is 
        computed and paid on a basis which is consistent with 
        the terms of the plan as applied to all other 
        participants and beneficiaries;
          (10) receipt by a disqualified person of any 
        reasonable compensation for services rendered, or for 
        the reimbursement of expenses properly and actually 
        incurred, in the performance of his duties with the 
        plan, but no person so serving who already receives 
        full-time pay from an employer or an association of 
        employers, whose employees are participants in the plan 
        or from an employee organization whose members are 
        participants in such plan shall receive compensation 
        from such fund, except for reimbursement of expenses 
        properly and actually incurred;
          (11) service by a disqualified person as a fiduciary 
        in addition to being an officer, employee, agent, or 
        other representative of a disqualified person;
          (12) the making by a fiduciary of a distribution of 
        the assets of the trust in accordance with the terms of 
        the plan if such assets are distributed in the same 
        manner as provided under section 4044 of title IV of 
        the Employee Retirement Income Security Act of 1974 
        (relating to allocation of assets);
          (13) any transaction which is exempt from section 406 
        of such Act by reason of section 408(e) of such Act (or 
        which would be so exempt if such section 406 applied to 
        such transaction) or which is exempt from section 406 
        of such Act by reason of section 408(b)(12) of such 
        Act;
          (14) any transaction required or permitted under part 
        1 of subtitle E of title IV or section 4223 of the 
        Employee Retirement Income Security Act of 1974, but 
        this paragraph shall not apply with respect to the 
        application of subsection (c)(1) (E) or (F);
          (15) a merger of multiemployer plans, or the transfer 
        of assets or liabilities between multiemployer plans, 
        determined by the Pension Benefit Guaranty Corporation 
        to meet the requirements of section 4231 of such Act, 
        but this paragraph shall not apply with respect to the 
        application of subsection (c)(1) (E) or (F);
          (16) a sale of stock held by a trust which 
        constitutes an individual retirement account under 
        section 408(a) to the individual for whose benefit such 
        account is established if--
                  (A) such stock is in a bank (as defined in 
                section 581) or a depository institution 
                holding company (as defined in section 3(w)(1) 
                of the Federal Deposit Insurance Act (12 U.S.C. 
                1813(w)(1)),
                  (B) such stock is held by such trust as of 
                the date of the enactment of this paragraph,
                  (C) such sale is pursuant to an election 
                under section 1362(a) by such bank or company,
                  (D) such sale is for fair market value at the 
                time of sale (as established by an independent 
                appraiser) and the terms of the sale are 
                otherwise at least as favorable to such trust 
                as the terms that would apply on a sale to an 
                unrelated party,
                  (E) such trust does not pay any commissions, 
                costs, or other expenses in connection with the 
                sale, and
                  (F) the stock is sold in a single transaction 
                for cash not later than 120 days after the S 
                corporation election is made;
          (17) Any transaction in connection with the provision 
        of investment advice described in subsection (e)(3)(B) 
        to a participant or beneficiary in a plan that permits 
        such participant or beneficiary to direct the 
        investment of plan assets in an individual account, 
        if--
                  (A) the transaction is--
                          (i) the provision of the investment 
                        advice to the participant or 
                        beneficiary of the plan with respect to 
                        a security or other property available 
                        as an investment under the plan,
                          (ii) the acquisition, holding, or 
                        sale of a security or other property 
                        available as an investment under the 
                        plan pursuant to the investment advice, 
                        or
                          (iii) the direct or indirect receipt 
                        of fees or other compensation by the 
                        fiduciary adviser or an affiliate 
                        thereof (or any employee, agent, or 
                        registered representative of the 
                        fiduciary adviser or affiliate) in 
                        connection with the provision of the 
                        advice or in connection with an 
                        acquisition, holding, or sale of a 
                        security or other property available as 
                        an investment under the plan pursuant 
                        to the investment advice; and
                  (B) the requirements of subsection (f)(8) are 
                met,
          (18) any transaction involving the purchase or sale 
        of securities, or other property (as determined by the 
        Secretary of Labor), between a plan and a disqualified 
        person (other than a fiduciary described in subsection 
        (e)(3)) with respect to a plan if--
                  (A) the transaction involves a block trade,
                  (B) at the time of the transaction, the 
                interest of the plan (together with the 
                interests of any other plans maintained by the 
                same plan sponsor), does not exceed 10 percent 
                of the aggregate size of the block trade,
                  (C) the terms of the transaction, including 
                the price, are at least as favorable to the 
                plan as an arm's length transaction, and
                  (D) the compensation associated with the 
                purchase and sale is not greater than the 
                compensation associated with an arm's length 
                transaction with an unrelated party,
          (19) any transaction involving the purchase or sale 
        of securities, or other property (as determined by the 
        Secretary of Labor), between a plan and a disqualified 
        person if--
                  (A) the transaction is executed through an 
                electronic communication network, alternative 
                trading system, or similar execution system or 
                trading venue subject to regulation and 
                oversight by--
                          (i) the applicable Federal regulating 
                        entity, or
                          (ii) such foreign regulatory entity 
                        as the Secretary of Labor may determine 
                        by regulation,
                  (B) either--
                          (i) the transaction is effected 
                        pursuant to rules designed to match 
                        purchases and sales at the best price 
                        available through the execution system 
                        in accordance with applicable rules of 
                        the Securities and Exchange Commission 
                        or other relevant governmental 
                        authority, or
                          (ii) neither the execution system nor 
                        the parties to the transaction take 
                        into account the identity of the 
                        parties in the execution of trades,
                  (C) the price and compensation associated 
                with the purchase and sale are not greater than 
                the price and compensation associated with an 
                arm's length transaction with an unrelated 
                party,
                  (D) if the disqualified person has an 
                ownership interest in the system or venue 
                described in subparagraph (A), the system or 
                venue has been authorized by the plan sponsor 
                or other independent fiduciary for transactions 
                described in this paragraph, and
                  (E) not less than 30 days prior to the 
                initial transaction described in this paragraph 
                executed through any system or venue described 
                in subparagraph (A), a plan fiduciary is 
                provided written or electronic notice of the 
                execution of such transaction through such 
                system or venue,
          (20) transactions described in subparagraphs (A), 
        (B), and (D) of subsection (c)(1) between a plan and a 
        person that is a disqualified person other than a 
        fiduciary (or an affiliate) who has or exercises any 
        discretionary authority or control with respect to the 
        investment of the plan assets involved in the 
        transaction or renders investment advice (within the 
        meaning of subsection (e)(3)(B)) with respect to those 
        assets, solely by reason of providing services to the 
        plan or solely by reason of a relationship to such a 
        service provider described in subparagraph (F), (G), 
        (H), or (I) of subsection (e)(2), or both, but only if 
        in connection with such transaction the plan receives 
        no less, nor pays no more, than adequate consideration,
          (21) any foreign exchange transactions, between a 
        bank or broker-dealer (or any affiliate of either) and 
        a plan (as defined in this section) with respect to 
        which such bank or broker-dealer (or affiliate) is a 
        trustee, custodian, fiduciary, or other disqualified 
        person person, if--
                  (A) the transaction is in connection with the 
                purchase, holding, or sale of securities or 
                other investment assets (other than a foreign 
                exchange transaction unrelated to any other 
                investment in securities or other investment 
                assets),
                  (B) at the time the foreign exchange 
                transaction is entered into, the terms of the 
                transaction are not less favorable to the plan 
                than the terms generally available in 
                comparable arm's length foreign exchange 
                transactions between unrelated parties, or the 
                terms afforded by the bank or broker-dealer (or 
                any affiliate of either) in comparable arm's-
                length foreign exchange transactions involving 
                unrelated parties,
                  (C) the exchange rate used by such bank or 
                broker-dealer (or affiliate) for a particular 
                foreign exchange transaction does not deviate 
                by more than 3 percent from the interbank bid 
                and asked rates for transactions of comparable 
                size and maturity at the time of the 
                transaction as displayed on an independent 
                service that reports rates of exchange in the 
                foreign currency market for such currency, and
                  (D) the bank or broker-dealer (or any 
                affiliate of either) does not have investment 
                discretion, or provide investment advice, with 
                respect to the transaction,
          (22) any transaction described in subsection 
        (c)(1)(A) involving the purchase and sale of a security 
        between a plan and any other account managed by the 
        same investment manager, if--
                  (A) the transaction is a purchase or sale, 
                for no consideration other than cash payment 
                against prompt delivery of a security for which 
                market quotations are readily available,
                  (B) the transaction is effected at the 
                independent current market price of the 
                security (within the meaning of section 
                270.17a-7(b) of title 17, Code of Federal 
                Regulations),
                  (C) no brokerage commission, fee (except for 
                customary transfer fees, the fact of which is 
                disclosed pursuant to subparagraph (D)), or 
                other remuneration is paid in connection with 
                the transaction,
                  (D) a fiduciary (other than the investment 
                manager engaging in the cross-trades or any 
                affiliate) for each plan participating in the 
                transaction authorizes in advance of any cross-
                trades (in a document that is separate from any 
                other written agreement of the parties) the 
                investment manager to engage in cross trades at 
                the investment manager's discretion, after such 
                fiduciary has received disclosure regarding the 
                conditions under which cross trades may take 
                place (but only if such disclosure is separate 
                from any other agreement or disclosure 
                involving the asset management relationship), 
                including the written policies and procedures 
                of the investment manager described in 
                subparagraph (H),
                  (E) each plan participating in the 
                transaction has assets of at least 
                $100,000,000, except that if the assets of a 
                plan are invested in a master trust containing 
                the assets of plans maintained by employers in 
                the same controlled group (as defined in 
                section 407(d)(7) of the Employee Retirement 
                Income Security Act of 1974), the master trust 
                has assets of at least $100,000,000,
                  (F) the investment manager provides to the 
                plan fiduciary who authorized cross trading 
                under subparagraph (D) a quarterly report 
                detailing all cross trades executed by the 
                investment manager in which the plan 
                participated during such quarter, including the 
                following information, as applicable: (i) the 
                identity of each security bought or sold; (ii) 
                the number of shares or units traded; (iii) the 
                parties involved in the cross-trade; and (iv) 
                trade price and the method used to establish 
                the trade price,
                  (G) the investment manager does not base its 
                fee schedule on the plan's consent to cross 
                trading, and no other service (other than the 
                investment opportunities and cost savings 
                available through a cross trade) is conditioned 
                on the plan's consent to cross trading,
                  (H) the investment manager has adopted, and 
                cross-trades are effected in accordance with, 
                written cross-trading policies and procedures 
                that are fair and equitable to all accounts 
                participating in the cross-trading program, and 
                that include a description of the manager's 
                pricing policies and procedures, and the 
                manager's policies and procedures for 
                allocating cross trades in an objective manner 
                among accounts participating in the cross-
                trading program, and
                  (I) the investment manager has designated an 
                individual responsible for periodically 
                reviewing such purchases and sales to ensure 
                compliance with the written policies and 
                procedures described in subparagraph (H), and 
                following such review, the individual shall 
                issue an annual written report no later than 90 
                days following the period to which it relates 
                signed under penalty of perjury to the plan 
                fiduciary who authorized cross trading under 
                subparagraph (D) describing the steps performed 
                during the course of the review, the level of 
                compliance, and any specific instances of non-
                compliance.
        The written report shall also notify the plan fiduciary 
        of the plan's right to terminate participation in the 
        investment manager's cross-trading program at any time, 
        or
          (23) except as provided in subsection (f)(11), a 
        transaction described in subparagraph (A), (B), (C), or 
        (D) of subsection (c)(1) in connection with the 
        acquisition, holding, or disposition of any security or 
        commodity, if the transaction is corrected before the 
        end of the correction period.
          (24) any transaction involving a recommendation made 
        by a broker or dealer (including its registered 
        representatives), or other persons or entities, that is 
        subject to the requirements of the second subsection 
        (k) of section 15 of the Securities Exchange Act of 
        1934 (15 U.S.C. 78o(k)).
  (e) Definitions.--
          (1) Plan.--For purposes of this section, the term 
        ``plan'' means--
                  (A) a trust described in section 401(a) which 
                forms a part of a plan, or a plan described in 
                section 403(a), which trust or plan is exempt 
                from tax under section 501(a),
                  (B) an individual retirement account 
                described in section 408(a),
                  (C) an individual retirement annuity 
                described in section 408(b),
                  (D) an Archer MSA described in section 
                220(d),
                  (E) a health savings account described in 
                section 223(d),
                  (F) a Coverdell education savings account 
                described in section 530, or
                  (G) a trust, plan, account, or annuity which, 
                at any time, has been determined by the 
                Secretary to be described in any preceding 
                subparagraph of this paragraph.
          (2) Disqualified person.--For purposes of this 
        section, the term ``disqualified person'' means a 
        person who is--
                  (A) a fiduciary;
                  (B) a person providing services to the plan;
                  (C) an employer any of whose employees are 
                covered by the plan;
                  (D) an employee organization any of whose 
                members are covered by the plan;
                  (E) an owner, direct or indirect, of 50 
                percent or more of--
                          (i) the combined voting power of all 
                        classes of stock entitled to vote or 
                        the total value of shares of all 
                        classes of stock of a corporation,
                          (ii) the capital interest or the 
                        profits interest of a partnership, or
                          (iii) the beneficial interest of a 
                        trust or unincorporated enterprise,
                which is an employer or an employee 
                organization described in subparagraph (C) or 
                (D);
                  (F) a member of the family (as defined in 
                paragraph (6)) of any individual described in 
                subparagraph (A), (B), (C), or (E);
                  (G) a corporation, partnership, or trust or 
                estate of which (or in which) 50 percent or 
                more of--
                          (i) the combined voting power of all 
                        classes of stock entitled to vote or 
                        the total value of shares of all 
                        classes of stock of such corporation,
                          (ii) the capital interest or profits 
                        interest of such partnership, or
                          (iii) the beneficial interest of such 
                        trust or estate, is owned directly or 
                        indirectly, or held by persons 
                        described in subparagraph (A), (B), 
                        (C), (D), or (E);
                  (H) an officer, director (or an individual 
                having powers or responsibilities similar to 
                those of officers or directors), a 10 percent 
                or more shareholder, or a highly compensated 
                employee (earning 10 percent or more of the 
                yearly wages of an employer) of a person 
                described in subparagraph (C), (D), (E), or 
                (G); or
                  (I) a 10 percent or more (in capital or 
                profits) partner or joint venturer of a person 
                described in subparagraph (C), (D), (E), or 
                (G).
        The Secretary, after consultation and coordination with 
        the Secretary of Labor or his delegate, may by 
        regulation prescribe a percentage lower than 50 percent 
        for subparagraphs (E) and (G) and lower than 10 percent 
        for subparagraphs (H) and (I).
          (3) Fiduciary.--For purposes of this section, the 
        term ``fiduciary'' means any person who--
                  (A) exercises any discretionary authority or 
                discretionary control respecting management of 
                such plan or exercises any authority or control 
                respecting management or disposition of its 
                assets,
                  (B) renders investment advice for a fee or 
                other compensation, direct or indirect, with 
                respect to any moneys or other property of such 
                plan, or has any authority or responsibility to 
                do so, or
                  (C) has any discretionary authority or 
                discretionary responsibility in the 
                administration of such plan.
        Such term includes any person designated under section 
        405(c)(1)(B) of the Employee Retirement Income Security 
        Act of 1974.
          (4) Stockholdings.--For purposes of paragraphs 
        (2)(E)(i) and (G)(i) there shall be taken into account 
        indirect stockholdings which would be taken into 
        account under section 267(c), except that, for purposes 
        of this paragraph, section 267(c)(4) shall be treated 
        as providing that the members of the family of an 
        individual are the members within the meaning of 
        paragraph (6).
          (5) Partnerships; trusts.--For purposes of paragraphs 
        (2)(E)(ii) and (iii), (G)(ii) and (iii), and (I) the 
        ownership of profits or beneficial interests shall be 
        determined in accordance with the rules for 
        constructive ownership of stock provided in section 
        267(c) (other than paragraph (3) thereof), except that 
        section 267(c)(4) shall be treated as providing that 
        the members of the family of an individual are the 
        members within the meaning of paragraph (6).
          (6) Member of family.--For purposes of paragraph 
        (2)(F), the family of any individual shall include his 
        spouse, ancestor, lineal descendant, and any spouse of 
        a lineal descendant.
          (7) Employee stock ownership plan.--The term 
        ``employee stock ownership plan'' means a defined 
        contribution plan--
                  (A) which is a stock bonus plan which is 
                qualified, or a stock bonus and a money 
                purchase plan both of which are qualified under 
                section 401(a), and which are designed to 
                invest primarily in qualifying employer 
                securities; and
                  (B) which is otherwise defined in regulations 
                prescribed by the Secretary.
        A plan shall not be treated as an employee stock 
        ownership plan unless it meets the requirements of 
        section 409(h), section 409(o), and, if applicable, 
        section 409(n), section 409(p), and section 664(g) and, 
        if the employer has a registration-type class of 
        securities (as defined in section 409(e)(4)), it meets 
        the requirements of section 409(e).
          (8) Qualifying employer security.--The term 
        ``qualifying employer security'' means any employer 
        security within the meaning of section 409(l). If any 
        moneys or other property of a plan are invested in 
        shares of an investment company registered under the 
        Investment Company Act of 1940, the investment shall 
        not cause that investment company or that investment 
        company's investment adviser or principal underwriter 
        to be treated as a fiduciary or a disqualified person 
        for purposes of this section, except when an investment 
        company or its investment adviser or principal 
        underwriter acts in connection with a plan covering 
        employees of the investment company, its investment 
        adviser, or its principal underwriter.
          (9) Section made applicable to withdrawal liability 
        payment funds.--For purposes of this section--
                  (A) In general.--The term ``plan'' includes a 
                trust described in section 501(c)(22).
                  (B) Disqualified person.--In the case of any 
                trust to which this section applies by reason 
                of subparagraph (A), the term ``disqualified 
                person'' includes any person who is a 
                disqualified person with respect to any plan to 
                which such trust is permitted to make payments 
                under section 4223 of the Employee Retirement 
                Income Security Act of 1974.
  (f) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) Joint and several liability.--If more than one 
        person is liable under subsection (a) or (b) with 
        respect to any one prohibited transaction, all such 
        persons shall be jointly and severally liable under 
        such subsection with respect to such transaction.
          (2) Taxable period.--The term ``taxable period'' 
        means, with respect to any prohibited transaction, the 
        period beginning with the date on which the prohibited 
        transaction occurs and ending on the earliest of--
                  (A) the date of mailing a notice of 
                deficiency with respect to the tax imposed by 
                subsection (a) under section 6212,
                  (B) the date on which the tax imposed by 
                subsection (a) is assessed, or
                  (C) the date on which correction of the 
                prohibited transaction is completed.
          (3) Sale or exchange; encumbered property.--A 
        transfer or real or personal property by a disqualified 
        person to a plan shall be treated as a sale or exchange 
        if the property is subject to a mortgage or similar 
        lien which the plan assumes or if it is subject to a 
        mortgage or similar lien which a disqualified person 
        placed on the property within the 10-year period ending 
        on the date of the transfer.
          (4) Amount involved.--The term ``amount involved'' 
        means, with respect to a prohibited transaction, the 
        greater of the amount of money and the fair market 
        value of the other property given or the amount of 
        money and the fair market value of the other property 
        received; except that, in the case of services 
        described in paragraphs (2) and (10) of subsection (d) 
        the amount involved shall be only the excess 
        compensation. For purposes of the preceding sentence, 
        the fair market value--
                  (A) in the case of the tax imposed by 
                subsection (a), shall be determined as of the 
                date on which the prohibited transaction 
                occurs; and
                  (B) in the case of the tax imposed by 
                subsection (b), shall be the highest fair 
                market value during the taxable period.
          (5) Correction.--The terms ``correction'' and 
        ``correct'' mean, with respect to a prohibited 
        transaction, undoing the transaction to the extent 
        possible, but in any case placing the plan in a 
        financial position not worse than that in which it 
        would be if the disqualified person were acting under 
        the highest fiduciary standards.
          (6) Exemptions not to apply to certain 
        transactions.--
                  (A) In general.--In the case of a trust 
                described in section 401(a) which is part of a 
                plan providing contributions or benefits for 
                employees some or all of whom are owner-
                employees (as defined in section 401(c)(3)), 
                the exemptions provided by subsection (d) 
                (other than paragraphs (9) and (12)) shall not 
                apply to a transaction in which the plan 
                directly or indirectly--
                          (i) lends any part of the corpus or 
                        income of the plan to,
                          (ii) pays any compensation for 
                        personal services rendered to the plan 
                        to, or
                          (iii) acquires for the plan any 
                        property from, or sells any property 
                        to,
                any such owner-employee, a member of the family 
                (as defined in section 267(c)(4)) of any such 
                owner-employee, or any corporation in which any 
                such owner-employee owns, directly or 
                indirectly, 50 percent or more of the total 
                combined voting power of all classes of stock 
                entitled to vote or 50 percent or more of the 
                total value of shares of all classes of stock 
                of the corporation.
                  (B) Special rules for shareholder-employees, 
                etc.
                          (i) In general.--For purposes of 
                        subparagraph (A), the following shall 
                        be treated as owner-employees:
                                  (I) A shareholder-employee.
                                  (II) A participant or 
                                beneficiary of an individual 
                                retirement plan (as defined in 
                                section 7701(a)(37)).
                                  (III) An employer or 
                                association of employees which 
                                establishes such an individual 
                                retirement plan under section 
                                408(c).
                          (ii) Exception for certain 
                        transactions involving shareholder-
                        employees.--Subparagraph (A)(iii) shall 
                        not apply to a transaction which 
                        consists of a sale of employer 
                        securities to an employee stock 
                        ownership plan (as defined in 
                        subsection (e)(7)) by a shareholder- 
                        employee, a member of the family (as 
                        defined in section 267(c)(4)) of such 
                        shareholder-employee, or a corporation 
                        in which such a shareholder-employee 
                        owns stock representing a 50 percent or 
                        greater interest described in 
                        subparagraph (A).
                          (iii) Loan exception.--For purposes 
                        of subparagraph (A)(i), the term 
                        ``owner-employee'' shall only include a 
                        person described in subclause (II) or 
                        (III) of clause (i).
                  (C) Shareholder-employee.--For purposes of 
                subparagraph (B), the term ``shareholder-
                employee'' means an employee or officer of an S 
                corporation who owns (or is considered as 
                owning within the meaning of section 318(a)(1)) 
                more than 5 percent of the outstanding stock of 
                the corporation on any day during the taxable 
                year of such corporation.
          (7) S corporation repayment of loans for qualifying 
        employer securities.--A plan shall not be treated as 
        violating the requirements of section 401 or 409 or 
        subsection (e)(7), or as engaging in a prohibited 
        transaction for purposes of subsection (d)(3), merely 
        by reason of any distribution (as described in section 
        1368(a)) with respect to S corporation stock that 
        constitutes qualifying employer securities, which in 
        accordance with the plan provisions is used to make 
        payments on a loan described in subsection (d)(3) the 
        proceeds of which were used to acquire such qualifying 
        employer securities (whether or not allocated to 
        participants). The preceding sentence shall not apply 
        in the case of a distribution which is paid with 
        respect to any employer security which is allocated to 
        a participant unless the plan provides that employer 
        securities with a fair market value of not less than 
        the amount of such distribution are allocated to such 
        participant for the year which (but for the preceding 
        sentence) such distribution would have been allocated 
        to such participant.
          (8) Provision of investment advice to participant and 
        beneficiaries.--
                  (A) In general.--The prohibitions provided in 
                subsection (c) shall not apply to transactions 
                described in subsection (d)(17) if the 
                investment advice provided by a fiduciary 
                adviser is provided under an eligible 
                investment advice arrangement.
                  (B) Eligible investment advice arrangement.--
                For purposes of this paragraph, the term 
                ``eligible investment advice arrangement'' 
                means an arrangement--
                          (i) which either--
                                  (I) provides that any fees 
                                (including any commission or 
                                other compensation) received by 
                                the fiduciary adviser for 
                                investment advice or with 
                                respect to the sale, holding, 
                                or acquisition of any security 
                                or other property for purposes 
                                of investment of plan assets do 
                                not vary depending on the basis 
                                of any investment option 
                                selected, or
                                  (II) uses a computer model 
                                under an investment advice 
                                program meeting the 
                                requirements of subparagraph 
                                (C) in connection with the 
                                provision of investment advice 
                                by a fiduciary adviser to a 
                                participant or beneficiary, and
                          (ii) with respect to which the 
                        requirements of subparagraphs (D), (E), 
                        (F), (G), (H), and (I) are met.
                  (C) Investment advice program using computer 
                model.--
                          (i) In general.--An investment advice 
                        program meets the requirements of this 
                        subparagraph if the requirements of 
                        clauses (ii), (iii), and (iv) are met.
                          (ii) Computer model.--The 
                        requirements of this clause are met if 
                        the investment advice provided under 
                        the investment advice program is 
                        provided pursuant to a computer model 
                        that--
                                  (I) applies generally 
                                accepted investment theories 
                                that take into account the 
                                historic returns of different 
                                asset classes over defined 
                                periods of time,
                                  (II) utilizes relevant 
                                information about the 
                                participant, which may include 
                                age, life expectancy, 
                                retirement age, risk tolerance, 
                                other assets or sources of 
                                income, and preferences as to 
                                certain types of investments,
                                  (III) utilizes prescribed 
                                objective criteria to provide 
                                asset allocation portfolios 
                                comprised of investment options 
                                available under the plan,
                                  (IV) operates in a manner 
                                that is not biased in favor of 
                                investments offered by the 
                                fiduciary adviser or a person 
                                with a material affiliation or 
                                contractual relationship with 
                                the fiduciary adviser, and
                                  (V) takes into account all 
                                investment options under the 
                                plan in specifying how a 
                                participant's account balance 
                                should be invested and is not 
                                inappropriately weighted with 
                                respect to any investment 
                                option.
                          (iii) Certification.--
                                  (I) In general.--The 
                                requirements of this clause are 
                                met with respect to any 
                                investment advice program if an 
                                eligible investment expert 
                                certifies, prior to the 
                                utilization of the computer 
                                model and in accordance with 
                                rules prescribed by the 
                                Secretary of Labor, that the 
                                computer model meets the 
                                requirements of clause (ii).
                                  (II) Renewal of 
                                certifications.--If, as 
                                determined under regulations 
                                prescribed by the Secretary of 
                                Labor, there are material 
                                modifications to a computer 
                                model, the requirements of this 
                                clause are met only if a 
                                certification described in 
                                subclause (I) is obtained with 
                                respect to the computer model 
                                as so modified.
                                  (III) Eligible investment 
                                expert.--The term ``eligible 
                                investment expert'' means any 
                                person which meets such 
                                requirements as the Secretary 
                                of Labor may provide and which 
                                does not bear any material 
                                affiliation or contractual 
                                relationship with any 
                                investment adviser or a related 
                                person thereof (or any 
                                employee, agent, or registered 
                                representative of the 
                                investment adviser or related 
                                person).
                          (iv) Exclusivity of recommendation.--
                        The requirements of this clause are met 
                        with respect to any investment advice 
                        program if--
                                  (I) the only investment 
                                advice provided under the 
                                program is the advice generated 
                                by the computer model described 
                                in clause (ii), and
                                  (II) any transaction 
                                described in subsection 
                                (d)(17)(A)(ii) occurs solely at 
                                the direction of the 
                                participant or beneficiary.
                        Nothing in the preceding sentence shall 
                        preclude the participant or beneficiary 
                        from requesting investment advice other 
                        than that described in clause (i), but 
                        only if such request has not been 
                        solicited by any person connected with 
                        carrying out the arrangement.
                  (D) Express authorization by separate 
                fiduciary.--The requirements of this 
                subparagraph are met with respect to an 
                arrangement if the arrangement is expressly 
                authorized by a plan fiduciary other than the 
                person offering the investment advice program, 
                any person providing investment options under 
                the plan, or any affiliate of either.
                  (E) Audits.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if an 
                        independent auditor, who has 
                        appropriate technical training or 
                        experience and proficiency and so 
                        represents in writing--
                                  (I) conducts an annual audit 
                                of the arrangement for 
                                compliance with the 
                                requirements of this paragraph, 
                                and
                                  (II) following completion of 
                                the annual audit, issues a 
                                written report to the fiduciary 
                                who authorized use of the 
                                arrangement which presents its 
                                specific findings regarding 
                                compliance of the arrangement 
                                with the requirements of this 
                                paragraph.
                          (ii) Special rule for individual 
                        retirement and similar plans.--In the 
                        case of a plan described in 
                        subparagraphs (B) through (F) (and so 
                        much of subparagraph (G) as relates to 
                        such subparagraphs) of subsection 
                        (e)(1), in lieu of the requirements of 
                        clause (i), audits of the arrangement 
                        shall be conducted at such times and in 
                        such manner as the Secretary of Labor 
                        may prescribe.
                          (iii) Independent auditor.--For 
                        purposes of this subparagraph, an 
                        auditor is considered independent if it 
                        is not related to the person offering 
                        the arrangement to the plan and is not 
                        related to any person providing 
                        investment options under the plan.
                  (F) Disclosure.--The requirements of this 
                subparagraph are met if--
                          (i) the fiduciary adviser provides to 
                        a participant or a beneficiary before 
                        the initial provision of the investment 
                        advice with regard to any security or 
                        other property offered as an investment 
                        option, a written notification (which 
                        may consist of notification by means of 
                        electronic communication)--
                                  (I) of the role of any party 
                                that has a material affiliation 
                                or contractual relationship 
                                with the fiduciary adviser, in 
                                the development of the 
                                investment advice program and 
                                in the selection of investment 
                                options available under the 
                                plan,
                                  (II) of the past performance 
                                and historical rates of return 
                                of the investment options 
                                available under the plan,
                                  (III) of all fees or other 
                                compensation relating to the 
                                advice that the fiduciary 
                                adviser or any affiliate 
                                thereof is to receive 
                                (including compensation 
                                provided by any third party) in 
                                connection with the provision 
                                of the advice or in connection 
                                with the sale, acquisition, or 
                                holding of the security or 
                                other property,
                                  (IV) of any material 
                                affiliation or contractual 
                                relationship of the fiduciary 
                                adviser or affiliates thereof 
                                in the security or other 
                                property,
                                  (V) the manner, and under 
                                what circumstances, any 
                                participant or beneficiary 
                                information provided under the 
                                arrangement will be used or 
                                disclosed,
                                  (VI) of the types of services 
                                provided by the fiduciary 
                                adviser in connection with the 
                                provision of investment advice 
                                by the fiduciary adviser,
                                  (VII) that the adviser is 
                                acting as a fiduciary of the 
                                plan in connection with the 
                                provision of the advice, and
                                  (VIII) that a recipient of 
                                the advice may separately 
                                arrange for the provision of 
                                advice by another adviser, that 
                                could have no material 
                                affiliation with and receive no 
                                fees or other compensation in 
                                connection with the security or 
                                other property, and
                          (ii) at all times during the 
                        provision of advisory services to the 
                        participant or beneficiary, the 
                        fiduciary adviser--
                                  (I) maintains the information 
                                described in clause (i) in 
                                accurate form and in the manner 
                                described in subparagraph (H),
                                  (II) provides, without 
                                charge, accurate information to 
                                the recipient of the advice no 
                                less frequently than annually,
                                  (III) provides, without 
                                charge, accurate information to 
                                the recipient of the advice 
                                upon request of the recipient, 
                                and
                                  (IV) provides, without 
                                charge, accurate information to 
                                the recipient of the advice 
                                concerning any material change 
                                to the information required to 
                                be provided to the recipient of 
                                the advice at a time reasonably 
                                contemporaneous to the change 
                                in information.
                  (G) Other conditions.--The requirements of 
                this subparagraph are met if--
                          (i) the fiduciary adviser provides 
                        appropriate disclosure, in connection 
                        with the sale, acquisition, or holding 
                        of the security or other property, in 
                        accordance with all applicable 
                        securities laws,
                          (ii) the sale, acquisition, or 
                        holding occurs solely at the direction 
                        of the recipient of the advice,
                          (iii) the compensation received by 
                        the fiduciary adviser and affiliates 
                        thereof in connection with the sale, 
                        acquisition, or holding of the security 
                        or other property is reasonable, and
                          (iv) the terms of the sale, 
                        acquisition, or holding of the security 
                        or other property are at least as 
                        favorable to the plan as an arm's 
                        length transaction would be.
                  (H) Standards for presentation of 
                information.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if the 
                        notification required to be provided to 
                        participants and beneficiaries under 
                        subparagraph (F)(i) is written in a 
                        clear and conspicuous manner and in a 
                        manner calculated to be understood by 
                        the average plan participant and is 
                        sufficiently accurate and comprehensive 
                        to reasonably apprise such participants 
                        and beneficiaries of the information 
                        required to be provided in the 
                        notification.
                          (ii) Model form for disclosure of 
                        fees and other compensation.--The 
                        Secretary of Labor shall issue a model 
                        form for the disclosure of fees and 
                        other compensation required in 
                        subparagraph (F)(i)(III) which meets 
                        the requirements of clause (i).
                  (I) Maintenance for 6 years of evidence of 
                compliance.--The requirements of this 
                subparagraph are met if a fiduciary adviser who 
                has provided advice referred to in subparagraph 
                (A) maintains, for a period of not less than 6 
                years after the provision of the advice, any 
                records necessary for determining whether the 
                requirements of the preceding provisions of 
                this paragraph and of subsection (d)(17) have 
                been met. A transaction prohibited under 
                subsection (c) shall not be considered to have 
                occurred solely because the records are lost or 
                destroyed prior to the end of the 6-year period 
                due to circumstances beyond the control of the 
                fiduciary adviser.
                  (J) Definitions.--For purposes of this 
                paragraph and subsection (d)(17)--
                          (i) Fiduciary adviser.--The term 
                        ``fiduciary adviser'' means, with 
                        respect to a plan, a person who is a 
                        fiduciary of the plan by reason of the 
                        provision of investment advice referred 
                        to in subsection (e)(3)(B) by the 
                        person to a participant or beneficiary 
                        of the plan and who is--
                                  (I) registered as an 
                                investment adviser under the 
                                Investment Advisers Act of 1940 
                                (15 U.S.C. 80b-1 et seq.) or 
                                under the laws of the State in 
                                which the fiduciary maintains 
                                its principal office and place 
                                of business,
                                  (II) a bank or similar 
                                financial institution referred 
                                to in subsection (d)(4) or a 
                                savings association (as defined 
                                in section 3(b)(1) of the 
                                Federal Deposit Insurance Act 
                                (12 U.S.C. 1813(b)(1)), but 
                                only if the advice is provided 
                                through a trust department of 
                                the bank or similar financial 
                                institution or savings 
                                association which is subject to 
                                periodic examination and review 
                                by Federal or State banking 
                                authorities,
                                  (III) an insurance company 
                                qualified to do business under 
                                the laws of a State,
                                  (IV) a person registered as a 
                                broker or dealer under the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78a et seq.),
                                  (V) an affiliate of a person 
                                described in any of subclauses 
                                (I) through (IV), or
                                  (VI) an employee, agent, or 
                                registered representative of a 
                                person described in subclauses 
                                (I) through (V) who satisfies 
                                the requirements of applicable 
                                insurance, banking, and 
                                securities laws relating to the 
                                provision of the advice.
                        For purposes of this title, a person 
                        who develops the computer model 
                        described in subparagraph (C)(ii) or 
                        markets the investment advice program 
                        or computer model shall be treated as a 
                        person who is a fiduciary of the plan 
                        by reason of the provision of 
                        investment advice referred to in 
                        subsection (e)(3)(B) to a participant 
                        or beneficiary and shall be treated as 
                        a fiduciary adviser for purposes of 
                        this paragraph and subsection (d)(17), 
                        except that the Secretary of Labor may 
                        prescribe rules under which only 1 
                        fiduciary adviser may elect to be 
                        treated as a fiduciary with respect to 
                        the plan.
                          (ii) Affiliate.--The term 
                        ``affiliate'' of another entity means 
                        an affiliated person of the entity (as 
                        defined in section 2(a)(3) of the 
                        Investment Company Act of 1940 (15 
                        U.S.C. 80a-2(a)(3))).
                          (iii) Registered representative.--The 
                        term ``registered representative'' of 
                        another entity means a person described 
                        in section 3(a)(18) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity 
                        for the broker or dealer referred to in 
                        such section) or a person described in 
                        section 202(a)(17) of the Investment 
                        Advisers Act of 1940 (15 U.S.C. 80b-
                        2(a)(17)) (substituting the entity for 
                        the investment adviser referred to in 
                        such section).
          (9) Block trade.--The term ``block trade'' means any 
        trade of at least 10,000 shares or with a market value 
        of at least $200,000 which will be allocated across two 
        or more unrelated client accounts of a fiduciary.
          (10) Adequate consideration.--The term ``adequate 
        consideration'' means--
                  (A) in the case of a security for which there 
                is a generally recognized market--
                          (i) the price of the security 
                        prevailing on a national securities 
                        exchange which is registered under 
                        section 6 of the Securities Exchange 
                        Act of 1934, taking into account 
                        factors such as the size of the 
                        transaction and marketability of the 
                        security, or
                          (ii) if the security is not traded on 
                        such a national securities exchange, a 
                        price not less favorable to the plan 
                        than the offering price for the 
                        security as established by the current 
                        bid and asked prices quoted by persons 
                        independent of the issuer and of the 
                        party in interest, taking into account 
                        factors such as the size of the 
                        transaction and marketability of the 
                        security, and
                  (B) in the case of an asset other than a 
                security for which there is a generally 
                recognized market, the fair market value of the 
                asset as determined in good faith by a 
                fiduciary or fiduciaries in accordance with 
                regulations prescribed by the Secretary of 
                Labor.
          (11) Correction period.--
                  (A) In general.--For purposes of subsection 
                (d)(23), the term ``correction period'' means 
                the 14-day period beginning on the date on 
                which the disqualified person discovers, or 
                reasonably should have discovered, that the 
                transaction would (without regard to this 
                paragraph and subsection (d)(23)) constitute a 
                prohibited transaction.
                  (B) Exceptions.--
                          (i) Employer securities.--Subsection 
                        (d)(23) does not apply to any 
                        transaction between a plan and a plan 
                        sponsor or its affiliates that involves 
                        the acquisition or sale of an employer 
                        security (as defined in section 
                        407(d)(1) of the Employee Retirement 
                        Income Security Act of 1974) or the 
                        acquisition, sale, or lease of employer 
                        real property (as defined in section 
                        407(d)(2) of such Act).
                          (ii) Knowing prohibited 
                        transaction.--In the case of any 
                        disqualified person, subsection (d)(23) 
                        does not apply to a transaction if, at 
                        the time the transaction is entered 
                        into, the disqualified person knew (or 
                        reasonably should have known) that the 
                        transaction would (without regard to 
                        this paragraph) constitute a prohibited 
                        transaction.
                  (C) Abatement of tax where there is a 
                correction.--If a transaction is not treated as 
                a prohibited transaction by reason of 
                subsection (d)(23), then no tax under 
                subsections (a) and (b) shall be assessed with 
                respect to such transaction, and if assessed 
                the assessment shall be abated, and if 
                collected shall be credited or refunded as an 
                overpayment.
                  (D) Definitions.--For purposes of this 
                paragraph and subsection (d)(23)--
                          (i) Security.--The term ``security'' 
                        has the meaning given such term by 
                        section 475(c)(2) (without regard to 
                        subparagraph (F)(iii) and the last 
                        sentence thereof).
                          (ii) Commodity.--The term 
                        ``commodity'' has the meaning given 
                        such term by section 475(e)(2) (without 
                        regard to subparagraph (D)(iii) 
                        thereof).
                          (iii) Correct.--The term ``correct'' 
                        means, with respect to a transaction--
                                  (I) to undo the transaction 
                                to the extent possible and in 
                                any case to make good to the 
                                plan or affected account any 
                                losses resulting from the 
                                transaction, and
                                  (II) to restore to the plan 
                                or affected account any profits 
                                made through the use of assets 
                                of the plan.
  (g) Application of Section.--This section shall not apply--
          (1) in the case of a plan to which a guaranteed 
        benefit policy (as defined in section 401(b)(2)(B) of 
        the Employee Retirement Income Security Act of 1974) is 
        issued, to any assets of the insurance company, 
        insurance service, or insurance organization merely 
        because of its issuance of such policy;
          (2) to a governmental plan (within the meaning of 
        section 414(d)); or
          (3) to a church plan (within the meaning of section 
        414(e)) with respect to which the election provided by 
        section 410(d) has not been made.
In the case of a plan which invests in any security issued by 
an investment company registered under the Investment Company 
Act of 1940, the assets of such plan shall be deemed to include 
such security but shall not, by reason of such investment, be 
deemed to include any assets of such company.
  (h) Notification of Secretary of Labor.--Before sending a 
notice of deficiency with respect to the tax imposed by 
subsection (a) or (b), the Secretary shall notify the Secretary 
of Labor and provide him a reasonable opportunity to obtain a 
correction of the prohibited transaction or to comment on the 
imposition of such tax.
  (i) Cross Reference.--For provisions concerning coordination 
procedures between Secretary of Labor and Secretary of the 
Treasury with respect to application of tax imposed by this 
section and for authority to waive imposition of the tax 
imposed by subsection (b), see section 3003 of the Employee 
Retirement Income Security Act of 1974.

           *       *       *       *       *       *       *

                              ----------                              


                    INVESTMENT ADVISERS ACT OF 1940




           *       *       *       *       *       *       *
TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *



                     rules, regulations, and orders

  Sec. 211. (a) The Commission shall have authority from time 
to time to make, issue, amend, and rescind such rules and 
regulations and such orders as are necessary or appropriate to 
the exercise of the functions and powers conferred upon the 
Commission elsewhere in this title, including rules and 
regulations defining technical, trade, and other terms used in 
this title, except that the Commission may not define the term 
``client'' for purposes of paragraphs (1) and (2) of section 
206 to include an investor in a private fund managed by an 
investment adviser, if such private fund has entered into an 
advisory contract with such adviser. For the purposes of its 
rules or regulations the Commission may classify persons and 
matters within its jurisdiction and prescribe different 
requirements for different classes of persons or matters.
  (b) Subject to the provisions of chapter 15 of title 44, 
United States Code, and regulations prescribed under the 
authority thereof, the rules and regulations of the Commission 
under this title, and amendments thereof, shall be effective 
upon publication in the manner which the Commission shall 
prescribe, or upon such later date as may be provided in such 
rules and regulations.
  (c) Orders of the Commission under this title shall be issued 
only after appropriate notice and opportunity for hearing. 
Notice to the parties to a proceeding before the Commission 
shall be given by personal service upon each party or by 
registered mail or certified mail or confirmed telegraphic 
notice to the party's last known business address. Notice to 
interested persons, if any, other than parties may be given in 
the same manner or by publication in the Federal Register.
  (d) No provision of this title imposing any liability shall 
apply to any act done or omitted in good faith in conformity 
with any rule, regulation, or order of the Commission, 
notwithstanding that such rule, regulation, or order may, after 
such act or omission, be amended or rescinded or be determined 
by judicial or other authority to be invalid for any reason.
  (e) Disclosure Rules on Private Funds.--The Commission and 
the Commodity Futures Trading Commission shall, after 
consultation with the Council but not later than 12 months 
after the date of enactment of the Private Fund Investment 
Advisers Registration Act of 2010, jointly promulgate rules to 
establish the form and content of the reports required to be 
filed with the Commission under subsection 204(b) and with the 
Commodity Futures Trading Commission by investment advisers 
that are registered both under this title and the Commodity 
Exchange Act (7 U.S.C. 1a et seq.).
  [(g) Standard of Conduct.--
          [(1) In general.--The Commission may promulgate rules 
        to provide that the standard of conduct for all 
        brokers, dealers, and investment advisers, when 
        providing personalized investment advice about 
        securities to retail customers (and such other 
        customers as the Commission may by rule provide), shall 
        be to act in the best interest of the customer without 
        regard to the financial or other interest of the 
        broker, dealer, or investment adviser providing the 
        advice. In accordance with such rules, any material 
        conflicts of interest shall be disclosed and may be 
        consented to by the customer. Such rules shall provide 
        that such standard of conduct shall be no less 
        stringent than the standard applicable to investment 
        advisers under section 206(1) and (2) of this Act when 
        providing personalized investment advice about 
        securities, except the Commission shall not ascribe a 
        meaning to the term ``customer'' that would include an 
        investor in a private fund managed by an investment 
        adviser, where such private fund has entered into an 
        advisory contract with such adviser. The receipt of 
        compensation based on commission or fees shall not, in 
        and of itself, be considered a violation of such 
        standard applied to a broker, dealer, or investment 
        adviser.
          [(2) Retail customer defined.--For purposes of this 
        subsection, the term ``retail customer'' means a 
        natural person, or the legal representative of such 
        natural person, who--
                  [(A) receives personalized investment advice 
                about securities from a broker, dealer, or 
                investment adviser; and
                  [(B) uses such advice primarily for personal, 
                family, or household purposes.
  [(h) 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.
  [(i) Harmonization of Enforcement.--The enforcement authority 
of the Commission with respect to violations of the standard of 
conduct applicable to an investment adviser 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 a broker or dealer providing personalized 
        investment advice about securities to a retail customer 
        under the Securities Exchange Act of 1934, 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 an investment adviser 
under this Act to same extent as the Commission prosecutes and 
sanctions violators of the standard of conduct applicable to a 
broker or dealer providing personalized investment advice about 
securities to a retail customer under the Securities Exchange 
Act of 1934.]

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                             MINORITY VIEWS

    H.R. 3857 is another effort by Republicans to kill the 
Department of Labor's (DOL) fiduciary rulemaking, which has 
been partially effective for four months now to finally protect 
American seniors and retirement savers from conflicted advice 
about their retirement assets. Prior to that time, unscrupulous 
salespeople masquerading as financial advisers were legally 
able to provide retirement savers with conflicted investment 
advice that lined their own pockets, but cost savers $17 
billion each year.
    Many registered investment advisers and other financial 
advisers that already abide by a fiduciary standard support the 
DOL's fiduciary rule, as do consumer, labor and retirement 
groups. Those groups include the Financial Planning Coalition, 
AARP, AFL-CIO, NAACP, and Consumer Federation of America. In 
addition, nine in ten Americans reportedly agree with the DOL's 
rule. An overwhelming majority or around 65% of Americans who 
voted for President Trump also appear to support the 
regulation.
    Nevertheless, H.R. 3857 would repeal the DOL's fiduciary 
rule and require SEC registered broker-dealers to comply with a 
vague and less protective best interest standard when providing 
retail investors with financial advice. This standard is 
essentially the current suitability standard. The bill also 
would prohibit the DOL from crafting a rule that is 
inconsistent with the SEC's regime. With respect to insurance 
agents, the bill would provide for substituted compliance to 
allow agents to comply with state law where it is substantially 
similar to the SEC regime; or, if state law is not 
substantially similar to the SEC regime, the insurer 
voluntarily adopts a standard that is substantially similar to 
the SEC regime. Finally, the bill would effectively undermine 
the SEC's rulemaking authority by barring any regulations that 
``impose any obligation related to standard of care on a broker 
or dealer (or its registered representative) that is in 
addition to'' the obligations set forth in the bill.
    This bill is contrary to the interests of investors, 
retirement savers, and seniors. It is opposed by: AARP; 
American Federation of State, County and Municipal Employees; 
Americans for Financial Reform; Center for American Progress; 
Center for Economic Justice; Committee for the Fiduciary 
Standard; Consumer Action; Consumer Federation of America; EPI 
Policy Center; Financial Planning Coalition; International 
Association of Machinists and Aerospace Workers; National 
Active and Retired Federal Employees Association; National 
Association of Social Workers; National Organization for Women; 
NELP; North American Securities Administrators Association; 
Pension Rights Center; Public Citizen; UnidosUS; U.S. PIRG; and 
Woodstock Institute.
    For all of these reasons, we oppose H.R. 3857.

                                   Maxine Waters.
                                   Keith Ellison.
                                   Michael E. Capuano.
                                   Nydia M. Velazquez.
                                   Wm. Lacy Clay.
                                   Gregory W. Meeks.
                                   Al Green.
                                   Carolyn B. Maloney.
                                   Emanuel Cleaver.
                                   Gwen Moore.
                                   Brad Sherman.
                                   Denny Heck.
                                   Joyce Beatty.
                                   Bill Foster.