(a) Trading for own account or account of associated person; exceptions.
(1) It shall be unlawful for
any member of a national securities exchange to effect any transaction
on such exchange for its own account, the account of an associated
person, or an account with respect to which it or an associated person
thereof exercises investment discretion: Provided, however, That this paragraph shall not make unlawful—
(A) any
transaction by a dealer acting in the capacity of market maker;
(B) any transaction
for the account of an odd-lot dealer in a security in which he is
so registered;
(C)
any stabilizing transaction effected in compliance with rules under
section 10(b) of this title to facilitate a distribution of a security
in which the member effecting such transaction is participating;
(D) any bona fide arbitrage
transaction, any bona fide hedge transaction involving a long or short
position in an equity security and a long or short position in a security
entitling the holder to acquire or sell such equity security, or any
risk arbitrage transaction in connection with a merger, acquisition,
tender offer, or similar transaction involving a recapitalization;
(E) any transaction
for the account of a natural person, the estate of a natural person,
or a trust created by a natural person for himself or another natural
person;
(F) any transaction
to offset a transaction made in error;
(G) any other transaction for a member’s
own account provided that (i) such member is primarily engaged in
the business of underwriting and distributing securities issued by
other persons, selling securities to customers, and acting as broker,
or any one or more of such activities, and whose gross income normally
is derived principally from such business and related activities and
(ii) such transaction is effected in compliance with rules of the
Commission which, as a minimum, assure that the transaction is not
inconsistent with the maintenance of fair and orderly markets and
yields priority, parity, and precedence in execution to orders for
the account of persons who are not members or associated with members
of the exchange;
(H) any transaction for an account with respect to which such member
or an associated person thereof exercises investment discretion if
such member—
(i) has obtained, from the person or persons
authorized to transact business for the account, express authorization
for such member or associated person to effect such transactions prior
to engaging in the practice of effecting such transactions;
(ii) furnishes the person or
persons authorized to transact business for the account with a statement
at least annually disclosing the aggregate compensation
received by the exchange member in effecting such transactions; and
(iii) complies with any
rules the Commission has prescribed with respect to the requirements
of clauses (i) and (ii); and
(I) any other transaction of a kind
which the Commission, by rule, determines is consistent with the purposes
of this paragraph, the protection of investors, and the maintenance
of fair and orderly markets.
5-063
(2) The Commission, by rule, as it deems
necessary or appropriate in the public interest and for the protection
of investors, to maintain fair and orderly markets, or to assure equal
regulation of exchange markets and markets occurring otherwise than
on an exchange, may regulate or prohibit.
(A) transactions on
a national securities exchange not unlawful under paragraph (1) of
this subsection effected by any member thereof for its own account
(unless such member is acting in the capacity of market maker or odd-lot
dealer), the account of an associated person, or an account with respect
to which such member or an associated person thereof exercises investment
discretion;
(B)
transactions otherwise than on a national securities exchange effected
by use of the mails or any means or instrumentality of interstate
commerce by any member of a national securities exchange, broker,
or dealer for the account of such member, broker, or dealer (unless
such member, broker, or dealer is acting in the capacity of a market
maker)
* the account of an
associated person, or an account with respect to which such member,
broker, or dealer or associated person thereof exercises investment
discretion; and
(C) transactions on a national securities exchange effected by any
broker or dealer not a member thereof for the account of such broker
or dealer (unless such broker or dealer is acting in the capacity
of market maker), the account of an associated person, or an account
with respect to which such broker or dealer or associated person thereof
exercises investment discretion.
5-064
(3) The provisions of paragraph (1) of
this subsection insofar as they apply to transactions on a national
securities exchange effected by a member thereof who was a member
on May 1, 1975 shall not become effective until May 1, 1978. Nothing
in this paragraph shall be construed to impair or limit the authority
of the Commission to regulate or prohibit such transactions prior
to May 1, 1978, pursuant to paragraph (2) of this subsection.
5-065
(b) Registration of members
as odd-lot dealers and specialists. When not in contravention
of such rules and regulations as the Commission may prescribe as necessary
or appropriate in the public interest and for the protection of investors,
to maintain fair and orderly markets, or to remove impediments to
and perfect the mechanism of a national market system, the rules of
a national securities exchange may permit (1) a member to be registered
as an odd-lot dealer and as such to buy and sell for his own account
so far as may be reasonably necessary to carry on such odd-lot transactions,
and (2) a member to be registered as a specialist. Under the rules
and regulations of the Commission a specialist may be permitted to
act as a broker and dealer or limited to acting as a broker or dealer.
It shall be unlawful for a specialist or an official of the exchange
to disclose information in regard to orders placed with such specialist
which is not available to all members of the exchange, to any person
other than an official of the exchange, a representative of the Commission,
or a specialist who may be acting for such specialist: Provided,
however, That the Commission, by rule, may require disclosure
to all members of the exchange of all orders placed with specialists,
under such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the protection
of investors. It shall also be unlawful for a specialist permitted
to act as a broker and dealer to effect on the exchange as broker
any transaction except upon a market or limited price order.
5-066
(c) Exemptions from provisions of section
and rules and regulations. If because of the limited volume of
transactions effected on an exchange, it is in the opinion of the
Commission impracticable and not necessary or appropriate in the public
interest or for the protection of investors to apply any of the foregoing
provisions of this section or the rules and regulations thereunder,
the Commission shall have power, upon application of the exchange
and on a showing that the rules of such exchange are otherwise adequate
for the protection of investors, to exempt such exchange and its members
from any such provision or rules and regulations.
5-067
(d) Prohibition on extension of credit
by broker-dealer. It shall be unlawful for a member of a national
securities exchange who is both a dealer and a broker, or for any
person who both as a broker and a dealer transacts a business in securities
through the medium of a member or otherwise, to effect through the
use of any facility of a national securities exchange or of the mails
or of any means or instrumentality of interstate commerce, or otherwise
in the case of a member, (1) any transaction in connection with which,
directly or indirectly, he extends or maintains or arranges for the extension
or maintenance of credit to or for a customer on any security (other
than an exempted security) which was a part of a new issue in the
distribution of which he participated as a member of a selling syndicate
or group within thirty days prior to such transaction: Provided, That credit shall not be deemed extended by reason of a bona fide
delayed delivery of (i) any such security against full payment of
the entire purchase price thereof upon such delivery within thirty-five
days after such purchase or (ii) any mortgage related security or
any small business related security against full payment of the entire
purchase price thereof upon such delivery within one hundred and eighty
days after such purchase, or within such shorter period as the Commission
may prescribe by rule or regulation or (2) any transaction with respect
to any security (other than an exempted security) unless, if the transaction
is with a customer, he discloses to such customer in writing at or
before the completion of the transaction whether he is acting as a
dealer for his own account, as a broker for such customer, or as a
broker for some other person.
[15 USC 78k. As amended
by acts of Aug. 10, 1954 (68 Stat. 686); June 4, 1975 (89 Stat. 110);
Oct. 3, 1984 (98 Stat. 1690); Aug. 11, 1993 (107 Stat. 691); and Sept.
23, 1994 (108 Stat. 2199).]
