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[CORRECTED PRINT! [P u b l i c — No. 2 91 — 7 3 d C o n g r ess] [H.R. 9323] AN ACT T o provide for the regulation of securities exchanges and of over-the-counter markets operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges and markets, and for other purposes. Be it enacted by the Senate and H om e of Representatives of the United States o f America in Congress assembled. T it l e I — R e g u l a t io n of S e c u r it ie s E xchanges SHORT TITLE S e c t io n 1. This Act may be cited as the “ Securities Exchange Act of 1934.” NECESSITY FOR REGULATION AS PROVIDED IN THIS TITLE S eo . 2. For the reasons hereinafter enumerated, transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto, including transactions by officers, directors, and principal security holders, to require appropriate reports, and to impose requirements necessary to make such regulation and control reasonably complete and effective, in order to protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions: (1) Such transactions (a) are carried on in large volume by the public generally and in large part originate outside the States in which the exchanges and over-the-counter markets are located and/or are effected by means of the mails and instrumentalities of interstate commerce; (b) constitute an important part of the current of inter state commerce; (c) involve in large part the securities of issuers engaged in interstate commerce; (d) involve the use of credit, directly affect the financing of trade, industry, and transportation in interstate commerce, and directly affect and influence the volume of interstate commerce; and affect the national credit. (2) The prices established and offered in such transactions are generally disseminated and quoted throughout the United States and foreign countries and constitute a basis for determining and estab lishing the prices at which securities are bought and sold, the amount of certain taxes owing to the United States and to the several States by owners, buyers, and sellers of securities, and the value of collateral for bank loans. 2 [Pub. 291,] (3) Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dis semination of such prices gives rise to excessive speculation, result ing in sudden and unreasonable fluctuations in the prices of securities which (a) cause alternately unreasonable expansion and unreason able contraction of the volume of credit available for trade, trans portation, and industry in interstate commerce, (b) hinder the proper appraisal of the value of securities and thus prevent a fair calculation of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities, and (c) prevent the fair valuation of collateral for bank loans and/or obstruct the effective operation of the national banking system and Federal Reserve System. (4) National emergencies, which produce widespread unemploy ment and the dislocation of trade, transportation, and industry, and which burden interstate commerce and adversely affect the general welfare, are precipitated, intensified, and prolonged by manipulation and sudden and unreasonable fluctuations of security prices and by excessive speculation on such exchanges and markets, and to meet such emergencies the Federal Government is put to such great expense as to burden the national credit. DEFINITIONS AND APPLICATION OF TITLE S ec . 3. (a ) W h e n used in th is title , unless the c on tex t otherw ise requires— (1) The term “ exchange” means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for other wise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange. (2) The term u facility ” when used with respect to an exchange includes its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or prop erty or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service. (3) The term “ member ” when used with respect to an exchange means any person who is permitted either to effect transactions on the exchange without the services of another person acting as broker, or to make use of the facilities of an exchange for transactions thereon without payment of a commission or fee or with the payment of a commission or fee which is less than that charged the general public, and includes any firm transacting a business as broker or dealer of which a member is a partner, and any partner of any such firm. (4) The term “ broker ” means any person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank. [PUB. 291J 3 (5) The term u dealer” means any person engaged in the busi ness of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, or any person insofar as he buys or sells securities for his own account, either indi vidually or in some fiduciary capacity, but not as a part of a regular business. ■' (6) The term “ bank ” means (A) a banking institution organized under the laws of the United States, (B) a member bank of the Federal Reserve System, (C) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers simi lar to those permitted to national banks under section 11 (k) of the Federal Reserve Act, as amended, and which is supervised and ex amined by State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the pro visions of this title, and (D) a receiver, conservator, or other liqui dating agent of any institution or firm included in clauses (A ), (B), or (C) of this paragraph. (7) The term “ director ” means any director of a corporation or any person performing similar functions with respect to any organi zation, whether incorporated or unincorporated. (8) The term “ issuer ” means any person who issues or proposes to issue any security ; except that with respect to certificates of deposit for securities, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or of the fixed, restricted management, or unit type, the term 44issuer ” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued; and except that with respect to equipment-trust certifi cates or like securities, the term “ issuer ” means the person by whom the equipment or property is, or is to be, used. (9) The term u person ” means an individual, a corporation, a partnership, an association, a joint-stock company, a business trust, or an unincorporated organization. (10) The term “ security” means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profitsharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, or in general, any instrument commonly known as a “ security” ; or any certificate of interest or participation in, temporary or interim certificate for. receipt for, or warrant or right to subscribe to or purchase, any ot the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of t^race, or any renewal thereof the maturity of which is likewise limited. (11) The term “ equity security ” means any stock or similar secur ity ; or any security convertible, with or witnout consideration, into 4 tPUB. 291.J such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right; or any other security which the Commission shall deem to be of similar nature and consider necessary or appropriate, by such rules and regulations as it may prescribe in the public interest or for the protection of investors, to treat as an equity security. (12^ The term “ exempted security” or “ exempted securities” shall include securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States; such securities issued or guaranteed by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury as necessary or appro priate in the public interest or for the protection of investors; securi ties which are direct obligations of or obligations guaranteed as to principal or interest by a State or any political subdivision thereof or any agency or instrumentality of a State or any political subdivi sion thereof or any municipal corporate instrumentality of one or more States; and such other securities (which may include, among others, unregistered securities, the market in which is predominantly intrastate) as the Commission may, by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods, exempt from the operation of any one or more provisions of this title which by their terms do not apply to an “ exempted security ” or to “ exempted securities.” (13) The terms “ buy ” and “ purchase ” each include any contract to buy, purchase, or otherwise acquire. (14) The terms “ sale” and “ sell” each include any contract to sell or otherwise dispose of. (15) The term “ Commission ” means the Securities and Exchange Commission established by section 4 of this title. (16) The term “ State ” means any State of the United States, the District of Columbia, Alaska, Hawaii, Puerto Kico, the Philippine Islands, the Canal Zone, the Virgin Islands, or any other possession of the United States. (17) The term “ interstate commerce” means trade, commerce, transportation, or communication among the several States, or between any foreign country and any State, or between any State and any place or ship outside thereof. (b) The Commission and the Federal Reserve Board, as to matters within their respective jurisdictions, shall have power by rules and regulations to define technical, trade, and accounting terms used in this title insofar as such definitions are not inconsistent with the provisions of this title. (c) No provision of this title shall apply to, or be deemed to include, any executive department or independent establishment of the United States, or any lending agency which is wholly owned, directly or indirectly, by the United States, or any officer, agent, or employee of any such department, establishment, or agency, acting in the course of his official duty as such, unless such provision makes specific reference to such department, establishment, or agency. 5 CPub . 291.] SECURITIES AND EXCHANGE COMMISSION S ec . 4, (a ) There is hereby established a Securities and Exchange Commission (hereinafter referred to as the “ Commission ” ) to be composed of five commissioners to be appointed by the President by and with the advice and consent of the Senate. Not more than three of such commissioners shall be members of the same political party, and in making appointments members of different political parties shall be appointed alternately as nearly as may be practi cable. No commissioner shall engage in any other business, vocation, or employment than that of serving as commissioner, nor shall any commissioner participate, directly or indirectly, in any stock-market operations or transactions of a character subject to regulation by the Commission pursuant to this title. Each commissioner shail receive a salary at the rate of $10,000 a year and shall hold office for a term of five years, except that (1) any commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed, shall be appointed for the remainder of such term, and (2) the terms of office of the commis sioners first taking office after the date of enactment of this title shall expire, as designated by the President at the time of nomina tion, one at the end of one year, one at the end of two years, one at the end of three years, one at the end of four years, and one at the end of five years, after the date of enactment of this title. (b) The Commission is authorized to appoint and fix the com pensation of such officers, attorneys, examiners, and other experts as may be necessary for carr>dng out its functions under this Act, without regard to the provisions of other laws applicable to the employment and compensation of officers and employees of the United States, and the Commission may, subject to the civil-service laws, appoint such other officers and employees as are necessary in the execution of its functions and fix their salaries in accordance with the Classification Act of 1923, as amended. TRANSACTIONS ON UNREGISTERED EXCHANGES S e c . 5. It shall be unlawful for any broker, dealer, or exchange, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction in a security, or to report any such transaction, unless such exchange (1) is registered as a national securities exchange under section 6 of this title, or (2) is exempted from such registration upon application by the exchange because, in the opinion of the Commission, by reason of the limited volume of transactions effected on such exchange, it is not practi cable and not necessary or appropriate in the public interest or for the protection of investors to require such registration. REGISTRATION OF NATIONAL SECURITIES EXCHANGES 6. (a) Any exchange may be registered with the Commission a national securities exchange under the terms and conditions hereinafter provided in this section, by filing a registration state S ec . as 6 [P ub . 291.1 ment in such form as the Commission may prescribe, containing the agreements, setting forth the information, and accompanied by the documents, below specified: (1) An agreement (which shall not be construed as a waiver of any constitutional right or any right to contest the validity of any rule or regulation) to comply, and to enforce so far as is within its powers compliance by its members, with the provisions of this title, and any amendment thereto and any rule or regulation made or to be made thereunder; (2) Such data as to its organization, rules of procedure, and mem bership, and such other information as the Commission may by rules and regulations require as being necessary or appropriate in the public interest or for the protection of investors; (3) Copies of its constitution, articles of incorporation with all amendments thereto, and of its existing bylaws or rules or instru ments corresponding thereto, whatever the name, which are herein after collectively referred to as the a rules of the exchange ” ; and (4) An agreement to furnish to the Commission copies of any amendments to the rules of the exchange forthwith upon their adoption. (b) No registration shall be granted or remain in force unless the rules of the exchange include provision for the expulsion, suspension, or disciplining of a member for conduct or proceeding inconsistent with just ana equitable principles of trade, and declare that the willful violation of any provisions of this title or any rule or regula tion thereunder shall be considered conduct or proceeding incon sistent with just and equitable principles of trade. (c) Nothing in this title shall be construed to prevent any exchange from adopting and enforcing any rule not inconsistent with this title and the rules and regulations thereunder and the applicable laws of the State in which it is located. (d) I f it appears to the Commission that the exchange applying for registration is so organized as to be able to comply with the provisions of this title and the rules and regulations thereunder and that the rules of the exchange are just and adequate to insure fair dealing and to protect investors, the Commission shall cause such exchange to be registered as a national securities exchange. (e) Within thiny days after the filing of the application, the Commission shall enter an order either granting or, alter appropri ate notice and opportunity for hearing, denying registration as a national securities exchange, unless the exchange applying for regis tration shall withdraw its application or consent to the Commission’s deferring action on its application for a stated longer period after the date of filing. The filing with the Commission of an application for registration by an exchange shall be deemed to have taken place upon the receipt thereof. Amendments to an application may be made upon such terms as the Commission may prescribe. (f) An exchange may, upon appropriate application in accordance with the rules and regulations of the Commission, and upon such terms as the Commission may deem necessary for the protection of investors, withdraw its registration. tPrjB. 2914 7 MARGIN REQUlRE3rENT3 S e c . 7. (a) For the purpose of preventing the excessive use of credit for the purchase or carrying of securities, the Federal Reserve Board shall, prior to the effective date of this section and from time to time thereafter, prescribe rules and regulations with respect to the amount of credit that may be initially extended and subsequently maintained on any security (other than an exempted security) regis tered on a national securities exchange.* For the initial extension of credit, such rules and regulations shall be based upon the following standard: An amount not greater than whichever is the higher of— (1) 55 per centum of the current market price of the security, or (2) 100 per centum of the lowest market price of the security during the preceding thirty-six calendar months, but not more than 75 per centum of the current market price. Such rules and regulations may make appropriate provision with respect to the carrying of undermargined accounts for limited periods and under specified conditions; the withdrawal of funds or securities; the substitution or additional purchases of securities; the transfer of accounts from one lender to another; special or different margin requirements for dela>7ed deliveries, short sales, arbitrage transactions, and securities to which paragraph (2) oi this sub section does not apply; the bases and the methods to be used in calculating loans, and margins and market prices; and similar administrative adjustments and details. For the purposes of para graph (2) of this subsection, until July 1, 1936, the lowest price at which a security has sold on or after July 1, 1933, shall be con sidered as the lowest price at which such security has sold during the preceding thirty-six calendar months. (b) Notwithstanding the provisions of subsection (a) of this section, the Federal Reserve Board, may, from time to time, with respect to all or specified securities or transactions, or classes of securities, or classes pf transactions, by such rules and regulations (1) prescribe such lower margin requirements for the initial exten sion or maintenance of credit as it deems necessary or appropriate for the accommodation of commerce and industry, having due regard to the general credit situation of the country, and (2) prescribe such higher margin requirements for the initial extension or mainte nance of credit as it may deem necessary or appropriate to prevent the excessive use of credit to finance transactions in securities. (c) It shall be unlawful for any member of a national securities exchange or any broker or dealer who transacts a business in securi ties through the medium of any such member, directly or indirectly to extend or maintain credit or arrange for the extension or mainte nance of credit to or for any customer— (1) On any security (other than an exempted security) registered on a national securities exchange, in contravention of the rules and regulations which the Federal Reserve Board shall prescribe under subsections (a) and (b) of this section. (2) Without collateral or on any collateral other than exempted securities and/or securities registered upon a national securities exchange, except in accordance with such rules and regulations as 8 the Federal Reserve Board may prescribe (A) to permit under specified conditions and for a limited period any such member, broker, or dealer to maintain a credit initially extended in con formity with the rules and regulations of the Federal Reserve Board, and (B) to permit the extension or maintenance of credit in cases where the extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of paragraph (1) of this subsection. (a) It shall be unlawful for any person not subject to subsection (c) to extend or maintain credit or to arrange for the extension or maintenance of credit for N the purpose of purchasing or carrying any security registered on a national securities exchange, in contra vention of such rules and regulations as the Federal Reserve Board shall prescribe to prevent the excessive use of credit for the pur chasing or carrying of or trading in securities in circumvention of the other provisions of this section. Such rules and regulations may impose upon all loans made for the purpose of purchasing or carry ing securities registered on national securities exchanges limitations similar to those imposed upon members, brokers, or dealers by sub section (c) of this section and the rules and regulations thereunder. This subsection and the rules and regulations thereunder shall not apply (A^ to a loan made by a person not in the ordinary course of his business, £B) to a loan on an exempted security, (C) to a loan to a dealer to aid in the financing of the distribution of securities to customers not through the medium of a national securities exchange, (D) to a loan by a bank on a security other than an equity security, or (E) to such other loans as the Federal Reserve Board shall, by such rules and regulations as it may deem necessary or appropriate in the public interest or for the protection of investors, exempt, either unconditionally or upon specified terms and condi tions or for stated periods, from the operation of this subsection and the rules and regulations thereunder. (e) The provisions of this section or the rules and regulations thereunder shall not apply on or before July 1, 1937, to any loan or extension of credit made prior to the enactment of this title or to the maintenance, renewal, or extension of any such loan or credit, except to the extent that the Federal Reserve Board may by rules and regulations prescribe as necessary to prevent the circumvention of the provisions of this section or the rules and regulations there under by means of withdrawals of funds or securities, substitutions of securities, or additional purchases or by any other device. RESTRICTIONS ON BORROWING BY MEMBERS, BROKERS, AND DEAUERS S e o > 8. It shall be unlawful for any member of a national securi ties exchange, or any broker or dealer who transacts a business in securities through the medium of any such member, directly or indirectly— ^ (a) To borrow in the ordinary course of business as a broker or dealer on any security^ (other than an exempted security) registered on a national securities exchange except (1) from or through a member bank of the Federal Reserve System, (2) from any nonmember bank which shall have filed with the Federal Reserve Board an agreement, which is still in force and which is in the form pre [PUB* 2914 9 scribed by the Board, undertaking to comply with all provisions of this Act, the Federal Reserve Act, as amended, and the Banking Act of 1933, which are applicable to member banks and which relate to the use of credit to finance transactions in securities, and with such rules and regulations as may be prescribed pursuant to such provisions of law or for the purpose of preventing evasions thereof* or (3) in accordance with such rules and regulations as the Federal Reserve Board may prescribe to permit loans between such mem bers and/or brokers and/or dealers, or to permit loans to meet emergency needs. Any such agreement filed with the Federal Reserve Board shall be subject to termination at any time by order of the Board, after appropriate notice and opportunity for hearing, because of any failure by such bank to comply with the provisions thereof or with such provisions of law or rules or regulations: and, for any willful violation of such agreement, such bank shall be subject to the penalties provided for violations of rules and regu lations prescribed under this title. The provisions of sections 21 and 25 of this title shall apply in the. case of any such proceeding or order of the Federal Reserve Board in the same manner as such rovisions apply in the case of proceedings and orders of the ‘ommission. (b) To j>ennit in the ordinary course of business as a broker his aggregate indebtedness to all other persons, including customers’ credit balances (but excluding indebtedness secured by exempted securities), to exceed such percentage of the net capital (exclusive of fixed assets and value of exchange membership) employed in the business, but not exceeding in any case 2,000 per centum, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. (c) In contravention of such rules and regulations as the Commis sion shall prescribe for the protection of investors to hypothecate or arrange for the hypothecation of any securities carried for the account of any customer under circumstances (1) that will permit the. commingling of his securities ’without his written consent with the securities of any^ other customer, (2) that will permit such securities to be commingled with the securities of any person other than a bona fide customer, or (3) that will permit such securities to be hypothecated, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities. (d) To lend or arrange for the lending of any securities carried for the account of any customer without the written consent of such customer. ? PROHIBITION AGAINST MANIPULATION OP SECURITY PRICES Sec. 9. (a) It shall be unlawful for any person, directly or indi rectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange— (1) ^For the purpose of creating a false or misleading appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the Pub. No. 291-----2 10 [P u b . 291J market for any such security, fA) to effect any transaction in such security which involves no change in the beneficial ownership thereof, or (B) to enter an order or orders for the purchase of such security witn the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (C) to enter any order or orders for the sale of any such security with the knowl edge that an order or orders of substantially the same size, at sub stantially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties. (2) To effect, alone or with one or more other persons, a series of transactions in any security registered on a national securities exchange creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others. (3) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security registered on a national securities exchange by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the prices of such security. (4) I f a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to make, re garding any security registered on a national securities exchange, for the purpose of inducing the purchase or sale of such security, any statement which was at the time and in the light of the circum stances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasonable ground to believe was so false or misleading. (5) For a consideration, received directly or indirectly from a dealer or broker, or other person selling or offering for sale or pur chasing or offering to purchase the security, to induce the purchase or sale of any security registered on a national securities exchange by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security. (6) To effect either alone or with one or more other persons any series of transactions for the purchase and/or sale of any security registered on a national securities exchange for the purpose of peg ging, fixing, or stabilizing the price of such security in contraven tion of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the pro tection of investors. (b^ It shall be unlawful for any person to effect, by use of any facility of a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors— (1) any transaction in connection with any security whereby any party to such transaction acquires any put, call, straddle, or other option or privilege of buying the security from or selling the secur ity to anotner without being bound to do so; or (2) any transaction in connection with any security with relation to which he has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege; or (3) any transaction in any security for the account of any person who he has reason to believe has, and who actually has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege with relation to such security. (c) It shall be unlawful for any member of a national securities exchange directly or indirectly to endorse or guarantee the perform ance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (d) The terms “ put ”, “ call ”, “ straddle ”, “ option ”, or “ priv ilege ” as used in this section shall not include any registered war rant, right, or convertible security. (e) Any person who willfully participates in any act or transac tion in violation of subsection (a) , (b), or (c) of this section, shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction, and the person so injured may sue in law or in equity in any court of competent jurisdiction to recover the damages sustained as a result of any such act or transaction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant. Every person who becomes liable to make any payment under this subsection may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. No action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts con stituting the violation and within three years after such violation. (f) The provisions of this section shall not apply to an exempted security. REGULATION OF THE USE OF MANIPULATIVE AND DECEPTIVE DEVICES Sec. 10. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— (a) To effect a short sale, or to use or employ any stop-loss order in connection with the purchase or sale, of any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appro priate in the public interest or for the protection of investors. (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the 12 \?VB. 291,1 Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, SEGREGATION AND LIMITATION OF FUNCTIONS OF MEMBERS, BROKERS, AND DEALERS S ec . 11. (a) The Commission shall prescribe such rules and regu lations as it deems necessary or appropriate in the public interest or for the protection of investors, (1) to regulate or prevent floor trading by members of national securities exchanges, directly or indirectly for their own account or for discretionary accounts, and (2) to prevent such excessive trading on the exchange but off the floor by members, directly or indirectly for their own account, as the Commission may deem detrimental to the maintenance of a fair and orderly market. It shall be unlawful for a member to effect any transaction in a security in contravention of such rules and regula tions, but such rules and regulations may make such exemptions for arbitrage transactions, for transactions in exempted securities, and, within the limitations of subsection (b) of this section, for trans actions by odd-lot dealers and specialists, as the Commission may deem necessary or appropriate in the public interest or for the protection of investors. (b) When not in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, the rules of a national securities exchange may permit (1) a member to be regis tered as an odd-lot dealer and as such to buy and sell for his own account so far as may be reasonably necessary to carry on such oddlot transactions, and/or (2) a member to be registered as a specialist. I f under the rules and regulations of the Commission a specialist is permitted to act as a dealer, or is limited to acting as a dealer, such rules and regulations shall restrict his dealings so far as practi cable to those reasonably necessary to permit him to maintain a fair and orderly market, ana/or to those necessary to permit him to act as an odd-lot dealer if the rules of the exchange permit him to act as an odd-lot dealer. It shall be unlawful for a specialist or an official of the exchange to disclose information in regard to orders placed with such specialist which is not available to all members of the exchange, to any person other than an official of the exchange, a representative of the Commission, or a specialist who may be acting for such specialist; but the Commission shall have power to require disclosure to all members of the exchange of all orders placed with specialists, under such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. It shall also be unlawful for a specialist acting as a broker to effect on the exchange any transaction except upon a market or limited price order. (c) If because of the limited volume of transactions effected on an exchange, it is in the opinion of the Commission impracticable and not necessary or appropriate in the public interest or for the protec* tion of investors to apply any of the foregoing provisions of this section or the rules and regulations thereunder, the Commission shall have powei\ upon application of the exchange and on a showing that the rules ot such exchange are otherwise adequate for the protection 13 (PUB. 291.] of investors, to exempt such exchange and its members from any such provision or rules and regulations. (d) It shall be unlawful for a member of a national securities exchange who is both a dealer and a broker, or for any person who both as a broker and a dealer transacts a business in securities through the medium of a member or otherwise, to effect through tlio use of any facility of a national securities exchange or of the mails or of any means or instrumentality of interstate commerce, or other wise in the case of a member, (l) any transaction in connection with which, directly or indirectly, he extends or maintains or arranges for the extension or maintenance of credit to or for a customer on any security (other than an exempted security) which was a part of a new issue in the distribution of which he participated as a member of a selling syndicate or group within six months prior to such transaction: Provided, That credit shall not be deemed extended by reason of a bona fide delayed delivery of any such security against full payment of the entire purchase price thereof upon such delivery within thirty-five days after such purchase, or (2) any transaction with respect to any security (other than an exempted security) unless, if the transaction is with a customer, he discloses to such customer in writing at or before the completion of the transaction whether he is acting as a dealer for his own account, as a broker for such customer, or as a broker for some other person. (e) The Commission is directed to make a study of the feasibility and advisability of the complete segregation oi the functions of dealer and broker, and to report the results of its study and its recommendations to the Congress on or before January 3, 1936. REGISTRATION REQUIREMENTS FOR SECURITIES S e c . 12. (a) It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration is effective as to such security for such exchange in accordance with the provisions of this title and the rules and regulations thereunder. (b) A security may be registered on a national securities exchange by the issuer filing an application with the exchange (and filing with the Commission such duplicate originals thereof as the Com mission may require), which application shall contain— (1) Such information, in such detail, as to the issuer and any erson directly or indirectly controlling or controlled by, or under irect or indirect common control with, the issuer, and any guarantor of the security as to principal or interest or both, as the Commission may by rules and regulations require, as necessary or appropriate in the public interest or for the protection of investors, m respect of the following: (A) the organization, financial structure and nature of the business; (B) the termSj position, rights, and privileges of the different classes of securities outstanding; (C) the terms on which their securities are to be. and during the preceding three years have been, offered to the public or otherwise; S 14 [FUB.29iJ (D) the directors, officers, and underwriters, and each security holder of record holding more than 10 per centum of any class of any equity security of the issuer (other than an exempted security) *their remuneration and their interests in the securities of, and their material contracts with, the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the issuer; (E) remuneration to others than directors and officers exceed ing $20,000 per annum; fF) bonus and profit-sharing arrangements; lG ) management and service contracts; (H) options existing or to be created in respect of their securities; (I) balance sheets for not more than the three preceding fiscal years, certified if required by the rules and regulations ox the Commission by independent public accountants; (J) profit and loss statements for not more than the three preceding fiscal years, certified if required by the rules and regulations of the Commission by independent public account ants; and (K) any further financial statements which the Commission may deem necessary or appropriate for the protection of investors. (2) Such copies of articles of incorporation, bylaws, trust inden tures, or corresponding documents by whatever name known, under writing arrangements, and other similar documents of, and voting trust agreements with respect to, the issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with; the issuer as the Commission may require as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security. (c) I f in the judgment of the Commission any information required under subsection (b) is inapplicable to any specified class or classes of issuers, the Commission shall require in lieu thereof the submission of such other information of comparable character as it may deem applicable to such class of issuers. (d) If the exchange authorities certify to the Commission that the security has been approved by the exchange for listing and registra tion the registration shall become effective thirty days after the receipt of such certification by the Commission or within such shorter period of time as the Commission may determine* A security regis tered with a national securities exchange may be withdrawn or stricken from listing and registration in accordance with the rules of the exchange and, upon such terms as the Commission may deem necessary to impose for the protection of investors, upon application by the issuer or the exchange to the Commission; whereupon the issuer shall be relieved from further compliance with the provisions of this section and section 13 of this title and any rules or regulations under such sections as to the securities so withdrawn or stricken. An unissued security may be registered only 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 rules and regulations shall limit the registration [Pub. 291.J 15 of an unissued security to cases where such security is a right or the subject of a right to subscribe or otherwise acquire such security granted to holders of a previously registered security and where the primary purpose of such registration is to distribute such unissued security to such holders. (e) Notwithstanding the foregoing provisions of this section, the Commission may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors permit securities listed on any exchange at the time the registration of such exchange as a national securities exchange becomes effective, to be registered for a period ending not later than July 1, 1935, without complying with the provisions of this section. (f) The Commission is directed to make a study of trading in unlisted securities upon exchanges and to report the results of its study and its recommendations to Congress on or before January 3, 1936. Notwithstanding the foregoing provisions of this section, the Commission may, by such rules and regulations as it deems neces sary or appropriate for the protection of investors, prescribe terms and conditions under which, upon the application of any national securities exchange, such exchange (1) may continue until June 1, 1936, unlisted trading privileges to which a security had been admit ted on such exchange prior to March 1, 1934, and for such purpose exempt such security and the issuer thereof from the provisions of this section and sections 13 and 16, or (2) may extend until July 1, 1935^ unlisted trading privilege to any security registered on any other national securities exchange which security was listed on such other exchange on March 1, 1934. A security for which unlisted trading privileges are so continued shall be considered a “ security registered on a national securities exchange ” within the meaning of this title. The rules and regulations of the Commission relating to such unlisted trading privileges for securities shall require that quotations of transactions upon any national securities exchange shall clearly indicate the difference between fully listed securities and securities admitted to unlisted trading privileges only. PERIODICAL AND OTHER REPORTS S ec . 13. (a) Every issuer of a security registered on a national securities exchange shall file the information, documents, and reports below specified with the exchange (and shall file with the Commission such duplicate originals thereof as the Commission may require), in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security— (1) Such information and documents as the Commission may require to keep reasonably current the information and documents filed pursuant to section 12. (2) Such annual reports, certified if required by the rules and regulations of the Commission by independent pufilic accountants, and such quarterly reports, as the Commission may prescribe. (b) The Commission may prescribe, in regard to reports made pursuant to this title, the form or forms in which the required infor mation shall be set forth, the items or details to be shown in the 16 [P ub . 20LJ balance sheet and the earning statement, and the methods to be followed in the preparation of reports, in the appraisal or valuation of assets and liabilities, in the determination of depreciation and depletion, in the differentiation of recurring and nonrecurring income, in the differentiation of investment and operating income, and in the preparation, where the Commission deems it necessary or desirable, of separate and/or consolidated balance sheets or income accounts of any person directly or indirectly controlling or con trolled by the issuer, or any person under direct or indirect common control with the issuer; but m the case of the reports of any person whose methods of accounting are prescribed under the provisions of any law of the United States, or any rule or regulation thereunder, the rules and regulations of the Commission with respect to reports shall not be inconsistent with the requirements imposed by such law or rule or regulation in respect of the same subject matter, and, in the case of carriers subject to the provisions of section 20 of the Interstate Commerce Act, as amended, or carriers required pur suant to any other Act of Congress to ma&e reports of the same general character as those required under such section 20, shall per mit such carriers to file with the Commission and the exchange duplicate copies of the reports and other documents filed with the Interstate Commerce Commission, or with the governmental author ity administering such other Act of Congress, in lieu of the reports, information and documents required under this section and section 12 in respect of the same subject matter. (c) I f in the judgment of the Commission any report required under subsection (a) is inapplicable to any specified class or classes of issuers, the Commission shall require in lieu thereof of the submis sion of such reports of comparable character as it may deem applica ble to such class or classes of issuers. PROXIES S e c . 14. (a) It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of any national securities exchange or otherwise to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered on any national securities exchange in contra vention of such rules and regulations as the Commission may pre scribe as necessary or appropriate in the public interest or for the protection of investors. (b) It shall be unlawful for any member of a national securities exchange or any broker or dealer who transacts a business in secur ities through the medium of any such member to give a proxy, con sent, or authorization in respect of any security registered on a national securities exchange and carried for the account of a cus tomer in contravention ot such rules and regulations as the Com mission may prescribe as necessary or appropriate in the public inter est or for the protection of investors. OVER-THE-COUNTER MARKETS S eo. 15. It shall be unlawful, in contravention of such rules and regulations as the Commission may prescribe as necessary or appro [P u b . 291.1, 17 priate in the public interest and to insure to investors protection comparable to that provided by and under authority of this title in the case of national securities exchanges, (1) for any broker or dealer, singly or with any other person or persons, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of making or creating, or enabling another to make or create, a market, otherwise than on a national securities exchange, for both the purchase and sale of any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills, or unregistered securities the market in which is predominantly intrastate and which have not previously been registered or listed), or (2) for any broker or dealer to use any facility of any such mar ket. Such rules and regulations may provide for the regulation of all transactions by brokers and dealers on any such market, for the registration with the Commission of dealers and/or brokers making or creating such a market, and for the registration of the securities for which they make or create a market and may make special pro vision with respect to securities or specified classes thereof listed, or entitled to unlisted trading privileges, upon any exchange on the date of the enactment of this title, which securities are not registered under the provisions of section 12 of this title. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS Sec. 16. (a) Every person who is directly or indirectly the bene ficial owner of more than 10 per centum of any class of any equity security (other than an exempted security) which is registered on a national securities exchange, or who is a director or an officer of the issuer of such security, shall file, at the time of the registration of such security or within ten days after he becomes such beneficial owner, director, or officer, a statement with the exchange (and a du plicate original thereof with the Commission) of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after the close of each calendar month there after, if there has been any change in such ownership during such month, shall file with the exchange a statement (and a duplicate original thereof with the Commission) indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month. (b) For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit real ized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted secur ity) within any period of less than six months, unless such security was acquired m good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespec tive of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to 18 [Ptm. 291.J bring such suit within sixty days after request or shall fail dili gently to prosecute the same thereafter; but no such suit shall b© brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions’ which the Commission l>y rules and regu lations may exempt as not comprehended within the purpose of this subsection. (c) It shall be unlawful for any such beneficial owner, director, or officer, directly or indirectly, to sell any equity security of such issuer (other than an exempted security), if the person selling the security or his principal (1) does not own the security sold, or (2) if owning the security, does not deliver it against such sale within twenty days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation; but no person shall be deemed to have violated this subsection if he proves that notwithstanding the exercise of good faith he was unable to make such delivery or deposit within such time, or that to do so would cause undue inconvenience or expense. (d) The provisions of this section shall not apply to foreign or domestic arbitrage transactions unless made in contravention of such rules and regulations as the Commission may adopt in order to carry out the purposes of this section. ACCOUNTS AND RECORDS, REPORTS, EXAMINATIONS MEMBERS, AND OTHERS OF EXCHANGES, Seo. IT. (a) Every national securities exchange, every member thereof, every broker or dealer who transacts a business in securities througn the medium of any such member, and every broker or dealer making or creating a market for both the purchase and sale of securities through the use of the mails or of any means or instru mentality of interstate commerce, shall make, keep, and preserve for such periods, such accounts, correspondence, memoranda, papers, books, and other records, and make such reports, as the Commission by its rules and regulations may prescribe as necessary or appro priate in the public Interest or for tne protection of investors. Such accounts, correspondence, memoranda, papers, books, and other rec ords shall be subject at any time or from time to time to such reasonable periodic, special, or other examinations by examiners or other representatives of the Commission os the Commission may deem necessary or appropriate in the public interest or for the pro tection of investors. (b) Any broker, dealer, or other person extending credit who is subject to the rules ana regulations prescribed by the Federal Reserve Board pursuant to this title shall make such reports to the Board as it may require as necessary or appropriate to enable it to perform the functions conferred upon it dv this title. I f any such broker, dealer, or other person shall fail to make any such report or fail to furnish full information therein, or, if in the judgment of the Board it is otherwise necessary, such broker, dealer, or other person shall permit such inspections to be made by the Board with respect to the business operations of such broker, dealer, 19 < Pub. 291.] or other person as^the Board may deem necessary to enable it to obtain the required information. LIABILITY FOR MISLEADING STATE1MENTS S e c . 18. (a) Any person who shall ihake or cause to be made any statement in any application, report, or document filed pursuant to this title or any rule or regulation thereunder, which statement 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, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. A person seeking to enforce such liability may sue at law or in equity in m y court of competent jurisdiction. In any such suit the court may, in its dis cretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant. (b) Every person who becomes liable to make payment under this section may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. (c) No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued. POWERS W IT H RESPECT TO EXCHANGES AND SECURITIES S e c . 19. (a) The Commission is authorized, if in its opinion such action is necessary or appropriate for the protection of investors— ■(1) After appropriate notice and opportunity for hearing, by order to suspend for a period not exceeding twelve months or to withdraw the registration of a national securities exchange if the Commission finds that such exchange has violated any provision of this title or of the rules and regulations thereunder or has failed to enforce, so far as is within its power, compliance therewith by a member or by an issuer of a security registered thereon. (2) After appropriate notice and opportunity for hearing, by order to deny, to suspend the effective date of, to suspend for a period not exceeding twelve months, or to withdraw, the registration of a security if the Commission finds that the issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder. (3) After appropriate notice and opportunity for hearing, by order to suspend for a period not exceeding twelve months or to expel from a national securities exchange any member or officer thereof whom the Commission finds has violated any provision of this title or the rules and regulations thereunder, or has effected any transaction for any other person who, he has reason to believe, is violating in respect of such transaction any provision of this title or the rules and regulations thereunder. 20 [PtTB. 291.J (4) And if in its opinion the public interest so requires, summarily to suspend trading in any registered security on any national securi ties exchange for a period not exceeding ten days, or with the ap proval of tlie President, summarily to suspend all trading on any national securities exchange for a period not exceeding ninety days. (b) The Commission is further authorized? if after making appro priate request in writing to a national securities exchange that such exchange effect on its own behalf specified changes in its rules and practices, and after appropriate notice and opportunity for hearing, the Commission determines that such exchange has not made the changes so requested, and that such changes are necessary or appro priate for the protection of investors or to insure fair dealing in securities traded in upon such exchange or to insure fair administra tion of such exchange, by rules or regulations or by order to alter or supplement the rules of such exchange (insofar as necessary or appro priate to effect such changes) in respect of such matters as (1) safeguards in respect of the financial responsibility of members and adequate provision against the evasion of financial responsibility through the use of corporate forms or special partnerships; (2) the limitation or prohibition of the registration or trading in any secur ity within a specified period after the issuance or primary distribu tion thereof; (3) the listing or striking from listing of any security; (4) hours of trading; (5) the manner, method, and place of soliciting business; (6) fictitious or numbered accounts; (7) the time and method of making settlements, payments, and deliveries and of closing accounts; (8) the reporting of transactions on the exchange and upon tickers maintained by or with the consent of the exchange, including the method of reporting short sales, stopped sales, sales oi securities of issuers in default, bankruptcy or receivership, and sales involving other special circumstances; (9) the fixing or reasonable rates of commission, interest, listing, and other charges; (10) mini mum units of trading; (11) odd-lot purchases and sales; (12) minimum deposits on margin accounts; and (13j) similar matters. (c) The Commission is authorized and directed to make a study and investigation of the rules of national securities exchanges with respect to the classification of members, the methods of election of officers and committees to insure a fair representation of the mem bership, and the suspension, expulsion, and disciplining of members of such exchanges. The Commission shall report to the Congress on or before January 3, 1935, the results of its investigation, together with its recommendations. LIABILITIES OF CONTROLLING PERSONS S e c . 20. (a) Every person who, directly or indirectly, controls any jerson liable under any provision of this title or of any rule or reguation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. (b) It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such person to do f (PUB. 291j 21 under the provisions of this title or any rule or regulation thereunder through or by means of any other person. (c) It shall be unlawful for any director or officer of, or any owner of any of the securities issued by, any issuer of any security regis tered on a national securities exchange, without just cause to hinder, delay, or obstruct the making or filing of any document, report, or information, required to be filed under this title or any rule or regulation thereunder. INVESTIGATIONS; INJUNCTIONS AND PBOSECTJTION OF OFFENSES S e c . 21. (a) The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this title or any rule or regulation thereunder, and may require or permit any person to file with it a statement in writing, under oath or otherwise as the Commission shall determine, as to all the facts and circumstances concerning the matter to be investigated. The Commission is author ized, in its discretion, to publish information concerning any such violations, and to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in the enforce ment of the provisions of this title, in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this title relates. (b) For the purpose of any such investigation^ or any other pro ceeding under this title, any member of the Commission or any officer designated by it is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, or other records which the Commission deems relevant or material to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in the United States or any State at any designated place of hearing. (c) In case of contumacy by, or refusal to obey a subpena issued to, any person, the Commission may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, correspondence, memoranda, and other records. And such court may issue an order requiring such person to appear before the Commission or member or officer designated by the Commission, there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in any sucn case may be served in the judicial district whereof such person is an inhabitant or wherever he may be found. Any person who shall, without just cause, fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, papers, correspond ence, memoranda, and other records, if in his power so to do, in obedience to the subpena of the Commission, shall be guilty of a misdemeanor and, upon conviction, shall be subject to a fine of not 22 [P u b . 291J more than $1,000 or to imprisonment for a term of not more than one ve&r. or both, (d) No person shall be excused from attending and testifying or from producing books, papers, contracts, agreements, and other records and documents before the Commission, or in obedience to the subpena of the Commission or any member thereof or any officer designated by it, or in any cause or proceeding instituted by the Commission, on the ground that the testimony or evidence, docu mentary or otherwise, required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subject to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after having claimed his privilege against self-incrimi nation, to testify or produce evidence, documentary or otherwise, except that such individual so testifying shall not be exempt from prosecution and punishment for perjury committed in so testifying. (e) Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which consti tute or will constitute a violation of the provisions of this title, or of any rule or regulation thereunder, it may in its discretion bring an action in the proper district court of the United States, the Supreme Court of the District of Columbia, or the United States courts of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond. The Commission may trans mit such evidence as may be available concerning such acts or prac tices to the Attorney General^ who may, in his discretion, institute the necessary criminal proceedings under this title. (f) Upon application of the Commission the district courts of the United States, the Supreme Court of the District of Columbia, and the United States courts oi any Territory or other place subject to the jurisdiction of the United States, shall also have jurisdiction to issue writs of mandamus commanding any person to comply with the provisions of this title or any order of the Commission made in pursuance thereof. HEARINGS BY COMMISSION S e c . 22. Hearings may be public and may be held before the Commission, any member or members thereof, or any officer or officers of the Commission designated by it, and appropriate records thereof shall be kept. RULES AND REGULATIONS; ANNUAL REPORTS S ec . 23. (a) The Commission and the Federal Reserve Board shall each have power to make such rules and regulations as may be necessary for the execution of the functions vested in them by this title, and may for such purpose classify issuers, securities, exchanges, and other persons or matters within their respective jurisdictions. (b) The Commission and the Federal Reserve Board, respec tively, shall include in their annual reports to Congress such infor J [Pub. 291 23 mation, data, and recommendation for further legislation as they may deem advisable with regard to matters within their respective jurisdictions under this title. INFORMATION FILED W IT H THE COMMISSION S e c . 2 4 . (a ) Nothing in this title shall be construed to require, or to authorize the Commission to require, the revealing of trade secrets or processes in any application, report, or document filed with the Commission under this title. (b) Any person filing any such application, report, or document may make written objection to the public disclosure of information contained therein, stating the grounds for such objection, and the Commission is authorized to hear objections in any such case where it deems it advisable. The Commission may, in such cases, make available to the public the information contained in any such appli cation, report, or document only when in its judgment a disclosure of such information is in the public interest; and copies of informa tion so made available may be furnished to any person at such reasonable charge and under such reasonable limitations as the Commission may prescribe. (c) It shall be unlawful for any member, officer, or employee of the Commission to disclose to any person other than a member, officer, or employee of the Commission, or to use for personal benefit, any information contained in any application, report, or document filed with the Commission which is not made available to the public ursuant to subsection (b) of this section: Provided, That the lommission may make available to the Federal Reserve Board any information requested by the Board for the purpose of enabling it to perform its duties under this title. E COURT REVIEW OF ORDERS S ec . 25. (a) Any person aggrieved by an order issued by the Com mission in a proceeding under this title to which such person is a party may obtain a review of such order in the Circuit Court of Appeals of the United States, within any circuit wherein such person resides or has his principal place of business, or in the Court of Appeals of the District of Columbia, by filing in such court, within sixty days after the entry of such order, a written petition praying that the order of the Commission be modified or set aside in whole or in part. A copy of such |>etition shall be forthwith served upon any member of the Commission, and thereupon the Commission shall certify and file in the court a transcript of the record upon which the order complained of was entered, ujson the filing of such tran script such court shall have exclusive jurisdiction to affirm, modify, and enforce or set aside such order, in whole or in part. No objec tion to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission. The finding of the Commission as to the f acts, if supported by sub stantial evidence, shall be conclusive. I f either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is mate rial and that there were reasonable grounds for failure to adduce such 24 [P r o -291.1 evidence in the hearing before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The Commission may modify its findings as to the facts, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by substantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original order. The judgment and decree of the court, affirming, modifying, and enforcing or setting aside, in whole or in part, any such order of the Commission, shall be final, subject to review by the Supreme Court of .the United States upon certiorari or certification as provided in sections 239 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 346 and 347). (b) The commencement of proceedings under subsection (a) shall not, unless specifically ordered by the court, operate as a stay of the Commission’s order. UNLAWFUL REPRESENTATIONS S e c . 26. No action or failure to act by the Commission or the Fed eral Reserve Board, in the administration of this title shall be con strued to mean that the particular authority has in any way passed upon the merits of, or given approval to, any security or any transac tion or transactions therein, nor shall such action or failure to act with regard to any statement or report filed with or examined by such authority pursuant to this title or rules and regulations there under, be deemed a finding by such authority that such statement or report is true and accurate on its face or that it is not false or mislead ing. It shall be unlawful to make, or cause to be made, to any pros pective purchaser or seller of a security any representation that any such action or failure to act by any such authority is to be so con strued or has such effect. JURISDICTION OF OFFENSES AND SUITS S e c . 27. The district courts of the United States, the Supreme Court of the District of Columbia, and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder. Any criminal pro ceeding may be brought in the district wherein any act or transac tion constituting the violation occurred. Any suit or action to en force any liability or duty created by this title or rules and regula tion s th ereu n der, or to en io in any violation of such title or rules and reg u la tio n s, may be Drought in any such district or in the district wherein the defendant is found or is an inhabitant or trans acts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in sections 128 and 240 of the Judir, c ia l Code, as amended (UJS.C., title 28, secs. 225 and 347)* No 25 IFub. 281.1 costs shall be assessed for or against the Commission in any pro ceeding under this title brought by or against it in the Supreme Court or such other courts. EFFECT ON EXISTING LAW S e c . 28. (a) The rights and remedies provided by this title shall be in addition to any and all other rights and remedies that may exist at law or in equity; but no person permitted to maintain a suit for damages under the provisions of this title shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of. Nothing in this title shall affect the jurisdiction of the securities commission (or any agency or officer performing like functions) of any State over any security or any person insofar as it does not con flict with the provisions of this title or the rules and regulations thereunder. (b) Nothing in this title shall be construed to modify existing law (1) with regard to the binding effect on anv member of any exchange of any action taken by the authorities of such exchange to settle disputes between its members, or (2) with regard to the binding effect of such action on any person who has agreed to be bound thereby, or (3) with regard to the binding effect on any such member of any disciplinary action taken by the authorities of the exchange as a result of violation of any rule of the exchange, insofar as the action taken is not inconsistent with the provisions of this title or the rules and regulations thereunder. VALIDITY OF CONTRACTS 29. (a) Any condition, stipulation, or provision binding any person to waive compliance with any provision of this title or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void. (b) Every contract made in violation of any provision of this title or of any rule or regulation thereunder, and every contract (including any contract for listing a security on an exchange) heretofore or hereafter made the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this title or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule, or regulation, shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any person who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in violation of any such provi sion, rule or regulation. (c) Nothing in this title shall be construed (1) to affect the va lidity of any loan or extension of credit (or any extension or renewal thereof) made or of any lien created prior or subsequent to the enactment of this title, unless at the time of the making of such loan or extension of credit (or extension or renewal thereof) or the creating of such lien, the person making such loan or extension of credit (or extension or renewal thereof) or acquiring such lien S ec . 26 [P u b . 201.1 r shall have actual knowledge of facts by reason of which the making of such loan or extension of credit (or extension or renewal thereof) or the acquisition of such lien is a violation of the provisions of this title or any rule or regulation thereunder, or (2) to afford a defense to the collection of any debt or obligation or the enforcement of any lien by any person who shall have acquired such debt, obligation, or lien in good faith for value and without actual knowledge of the violation of any provision of this title or any rule or regulation thereunder affecting the legality of such debt, obligation, or lien. FOREIGN SECURITIES EXCHANGES S ec . 30* (a) It shall be unlawful for any broker or dealer, directly or indirectly, to make use of the mails or of any means or instru mentality of interstate commerce for the purpose of effecting on an exchange not within or subject to the jurisdiction of the United States, any transaction in any security the issuer of which is a resident of,-or is organized under the laws of, or has ite principal place of business in, a place within or subject to the jurisdiction of the United States, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors or to prevent the evasion of this title. (b) The provisions of this title or of any rule or regulation there. under shall not apply to any person insofar as he transacts a business in securities without the jurisdiction of the United States, unless he transacts such business in contravention of such rules and regu lations as the Commission may prescribe as necessary or appropriate to prevent the evasion of this title. REGISTRATION FEES S e c . 31. E v e r y n a tio n a l securities exch a n ge s h a ll p a y to the C o m m iss io n on o r b e fo re M a rc h 15 o f each c a le n d a r y e a r a re g is tra tio n fee f o r the p riv ile g e o f d o in g business as a n a tio n a l securities e xc h a n ge d u r in g th e p re c e d in g ca len d a r y e a r o r a n y p a rt th e re o f. S u c h fee s h a ll be in an a m o u n t equal to one five -h u n d re d th s o f 1 p e r ce ntum o f th e a g g re g a te d o lla r a m o u n t o f th e sales o f securities transacted o n such n a tio n a l securities exch a nge d u rin g th e p re c e d in g c a le n d a r y e a r a n d subsequent to its re g is tra tio n as a n a tio n a l secu ri ties exchange. PENALTIES Any person who willfully violates any provision of this title, or any rule or regulation thereunder the violation of which is made unlawful or the observance of which is required under the terms of this title, or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed under this title or any rule or regulation thereunder, which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $10,000, or imprisoned not more than two years, or both, except that when such person is an exchange, a fine not exceeding $ 5 0 0 ,0 0 0 may be imposed; but no person shall be subject to im prisonment under this section for the violation of any rule or regula■tion if he proves that he had no knowledge of such rule or regulation. S e c . 32. [Pub. 2914 27 SEPARABILITY OF PROVISIONS S ec . 33. I f any provision of this Act, or the application of such provision to any person or circumstances, shall be held invalid, the remainder of the Act, and the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. EFFECTIVE DATE S ec . 34. This Act shall become effective on July 1, 1934, except that sections 6 and 12(b), (c), (d), and (e) shall become effective on September 1, 1934; and sections 5, 7, 8, 9(a) (6), 10, 11, 12(a), 13, 14, 15, 16, 17, 18, 19, and 30 shall become effective on October 1, 1934. T it l e II— A m e n d m e n t s to S e c u r it ie s A c t of 1933 S ec t io n 201. (a) Paragraph (1) 'o? section 2 of the Securities Act of 1933 is amended to read as follows:* w(l) The term ‘ security5 means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certifi cate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a ‘ security , or any certificate of interest or participation in, tem porary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.” , (b) Paragraph (4) of such section 2 is amended to read as follows: “ (4) The term 6issuer ’ means every person who issues or proposes to issue any security; except that with respect to certificates of deposit, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors (or persons per forming similar functions) or of the fixed, restricted management, or unit type, the term issuer ’ means the person or persons perform ing the acts and assuming the duties of depositor or manager pur suant to the provisions of the trust or other agreement or instrument under which such securities are issued; except that in the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, com mittee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity; except that with respect to equipment-trust certificates or like securities, the term * issuer ’ means the person by whom the equipment or property is or is to be used; and except that with respect to fractional undivided interests in oil, gas, or other mineral rights, the term 4issuer ’ means the owner of any such right or of any interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of public offering.” 28 (Pub. 291.] (c) Paragraph (10) of such section 2 is amended to read as follows: “ (10) The term ‘ prospectus’ means any prospectus, notice, circu lar^ advertisement, letter, or communication, written or by radio, which offers any security for sale; except that (a) a communication shall not be deemed a prospectus if it is proved that prior to or at the same time with such communication a written prospectus meeting the requirements of section 10 was sent or given to the person to whom the communication was made, by the person making such communication or his principal, and (b) a notice, circular, adver tisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written pros pectus meeting the requirements of section 10 may be obtained and, m addition, does no more than identify the security, state the price thereof, and state by whom orders will be executed.” S ec . 202* (a) Paragraph ( 2 ) of section 3 (a) of such Act is amended to read as follows: ^ . “ (2) Any security issued or guaranteed by the United States or any Territory thereof, or by the District*of Columbia, or by any State of the United States, or by any political subdivision of a State or Territory, or by any public instrumentality of one or more States or Territories, or by any person controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States, or any certificate of deposit for any of the foregoing, or any security issued or guaranteed by any national bank, or by any banking insti tution organized under the laws of any State or Territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or Territorial banking commission or similar official; or any security issued by or represent ing an interest in or a direct obligation of a Federal Reserve Dank ” ; (b) Paragraph (4) of such section 3 (a) is amended by striking out “ corporation ” and inserting in lieu thereof “ person.” (c) Such section 3 (a) is further amended by striking out the period at the end of paragraph (8) and inserting in lieu thereof a semicolon, and by inserting immediately after such paragraph (8) the following new paragraphs: “ (9) Any security exchanged by the issuer with its existing secu rity holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange; ^(10) Any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hear ing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval; “ (11) Any security which is a part of an issue sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a cor [P u b . 201.1 29 poration, incorporated by and doing business within, such State or Territory.” S e c . 203. (a) Paragraph ( 1 ) of section 4 of such Act is amended (1) by striking out “ not with or through an underwriter and and (2) by striking out “ last ” and inserting in lieu thereof “ first . (b) Paragraph (3) of such section 4 is hereby repealed. S e c . 204. Subsection (c) of section 5 of such Act is hereby repealed. S e c . 205. Paragraph (1 ) of section 1 0 ( b ) of such Act is amended to read as follows: “ (:H When a prospectus is used more than thirteen months after the effective date of the registration statement, the information in the statements contained therein shall be as of a date not more than twelve months prior to such use, so far as such information is known to the user of such prospectus or can be furnished by such user without unreasonable effort or expense.” S e c . 20 6 . (a) Section 11 (a) of such Act is amended bv adding after the last line thereof the following new sentence: If such person acquired the security after the issuer has made generally available to its security holders an earning statement covering a period of at least twelve months beginning after the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not know ing of such omission, but such reliance may be established without proof of the reading of the registration statement by such person.” (b) Clauses (C) and (D) of paragraph (3) of section 11 (b) of such Act are amended to read as follows: u (C) as regards any part of the registration statement purporting to be made on the autnority of an expert (other than himself) or purporting to be a copy of or extract from a report or valuation of an expert (other than him self), he had no reasonable ground to believe and did not believe, at the time such part of the registration statement became effective, that the statements therein were untrue or that there was an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that such part of the registration statement did not fairly represent the statement of the expert or was not a fair copy of or extract from the report or valuation of the expert; and (D) as regards any part of the registration statement purporting to be a statement made by an official person or purporting to be a copy of or extract from a public official document, he had no reasonable ground to believe and did not believe, at the time such part of the registration statement became effective, that the statements therein were untrue, or that there was an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that such part of the registration statement did not fairly repre sent the statement made by the official person or was nQt a fair copy of or extract from the public official document.” (c) Subsection (c) of such section 11 is amended to read as follows: “ (c) In determining, for the purpose of paragraph (3) of sub section (b) of this section, what constitutes reasonable investigation 30 (Pub. 291J and reasonable ground for belief, the standard of reasonableness shall be that required of a prudent man in the management of his own property.” (d) Subsection (e) of such section 11 is amended to read as follows: “ (e) The suit authorized under subsection (a) may be to recover such damages as shall represent the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and (1) the value thereof as of the time such suit was brought, or (2) the price at which such security shall have been disposed of in the market before suit, or (3) the price at which such security shall have been disposed of after suit but before judgment if such damages shall be less than the damages repre senting the difference between the amount paid for the security (not exceeding the price at which the security was offered to the ublic) and the value thereof as of the time such suit was brought: *• roviaed, That if the defendant proves that any portion or all of such damages represents other than the depreciation in value of such security resulting from such part of the registration statement, with respect to which his liability is asserted, not being true or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading, such por tion of or all such damages shall not be recoverable. In no event shall any underwriter (unless such underwriter shall have know ingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters sim ilarly situated did not share in proportion to their respective interests in the underwriting) be liable in any suit or as a conse quence of suits authorized under subsection (a) for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public. In any suit under this or any other section of this title the court may, in its discretion, require an undertaking for the payment of the costs of such suit, including reasonable-attorney’s fees, and if judgment shall be rendered against a party litigant, upon the motion of the other party litigant, such costs may oe assessed in favor of such party litigant (whether or not such undertaking has been required) if the court believes the suit or the defense to have been without merit, in an amount sufficient to reimburse him for the reasonable expenses incurred by him, in connection with such suit, such costs to be taxed in the manner usually provided for taxing of costs in the court in which the suit was heard.” Sec. 207. Section 13 of such Act is amended (a) by striking out “ two years” wherever it appears therein and inserting in lieu thereof “ one year” ; (b) by striking out “ ten years” and inserting in lieu thereof “ three years” ; and (c) by inserting immediately before the period at the end thereof a comma and the following: “ or under section 12 (2) more than three years after the sale Sec. 208. Section 15 of such Act is amended by inserting imme diately before the period at the end thereof a comma and the fol lowing: “ unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist”. ? [Pub. 2911 31 S e c . 209. (a) The first sentence of subsection (a) of section 19 of such Act is amended by inserting after the word. “ accounting ” a comma and the word “ technical . (b) Subsection (a) of such section 19 is further amended by adding at the end thereof the following new sentence: “ No pro vision of this title imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule or regu lation of the Commission, notwithstanding that such rule or regula tion may, after such act or omission, be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.” Sec. 210. Upon the expiration of sixty days after the date upon which a majority of the members of the Securities and Exchange Commission appointed under section 4 of title I of this Act have qualified and taken office, all powers, duties, and functions of the Federal Trade Commission under the Securities Act of 1938 shall be transferred to such Commission, together with all property, books, records, and unexpended balances of appropriations used by or available to the Federal Trade Commission for carrying out its functions under the Securities Act of 1933. All proceedings, hear ings, or investigations commenced or pending before the Federal Trade Commission arising under the Securities Act of 1933 shall be continued by the Securities and Exchange Commission. All orders, rules, and regulations which have been issued by the Federal Trade Commission under the Securities Act of 1933 and which are in effect shall continue in effect until modified, superseded, revoked, or repealed. All rights and interests accruing or to accrue under the Securities Act of 1933, or any provision of any regulation relating to, or out of action taken by, the Federal Trade Commission under such Act, shall be followed in all respects and may be exercised and enforced. Sec. 211. The Commission is authorized and directed to make a study and investigation of the work, activities, personnel, and func tions of protective and reorganization committees in connection with the reorganization, readjustment, rehabilitation, liquidation, or consolidation of persons and properties and to report the result of its studies and investigations and its recommendations to the Congress on or before January 3, 1936. Approved, June 6, 1934, 12.15 p. m. O