(a) Registration; application. An association of brokers and dealers
may be registered as a national securities association pursuant to
subsection (b) of this section, or as an affiliated securities association
pursuant to subsection (d) of this section, under the terms and conditions
hereinafter provided in this section and in accordance with the provisions
of section 19(a) of this title, by filing with the Commission an application
for registration in such form as the Commission, by rule, may prescribe
containing the rules of the association and such other information
and documents as the Commission, by rule, may prescribe as necessary
or appropriate in the public interest or for the protection of investors.
5-127
(b) Determinations by Commission
requisite to registration of applicant as national securities association. An association of brokers and dealers shall not be registered as
a national securities association unless the Commission determines
that—
(1) By reason of the number
and geographical distribution of its members and the scope of their
transactions, such association will be able to carry out the purposes
of this section.
(2)
Such association is so organized and has the capacity to be able to
carry out the purposes of this chapter and to comply, and (subject
to any rule or order of the Commission pursuant to section 17(d) or
19(g)(2) of this title) to enforce compliance by its members and persons
associated with its members, with the provisions of this chapter,
the rules and regulations thereunder, the rules of the Municipal Securities
Rulemaking Board, and the rules of the association.
(3) Subject to the provisions of subsection
(g) of this section, the rules of the association provide that any
registered broker or dealer may become a member of such association
and any person may become associated with a member thereof.
(4) The rules of the association
assure a fair representation of its members in the selection of its
directors and administration of its affairs and provide that one or
more directors shall be representative of issuers and investors and
not be associated with a member of the association, broker, or dealer.
(5) The rules of the association
provide for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility or system which the association operates or controls.
(6) The rules of the association
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in general,
to protect investors and the public interest; and are not designed
to permit unfair discrimination between customers, issuers, brokers,
or dealers, to fix minimum profits, to impose any schedule or fix
rates of commissions, allowances, discounts, or other fees to be charged
by its members, or to regulate by virtue of any authority conferred
by this chapter matters not related to the purposes of this chapter
or the administration of the association.
(7) The rules of the association provide
that (subject to any rule or order of the Commission pursuant to section
17(d) or 19(g)(2) of this title) its members and persons associated
with its members shall be appropriately disciplined for violation
of any provision of this chapter, the rules or regulations thereunder,
the rules of the Municipal Securities Rulemaking Board, or the rules
of the association, by expulsion, suspension, limitation of activities,
functions, and operations, fine, censure, being suspended or barred
from being associated with a member, or any other fitting sanction.
5-127.1
(8) The rules of the association
are in accordance with the provisions of subsection (h) of this section,
and, in general, provide a fair procedure for the disciplining of
members and persons associated with members, the denial of membership
to any person seeking membership therein, the barring of any person
from becoming associated with a member thereof, and the prohibition
or limitation by the association of any person with respect to access
to services offered by the association or a member thereof.
(9) The rules of the association
do not impose any burden on competition not necessary or appropriate
in furtherance of the purposes of this chapter.
(10) The requirements of subsection (c)
of this section, insofar as these may be applicable, are satisfied.
(11) The rules of the
association include provisions governing the form and content of quotations
relating to securities sold otherwise than on a national securities
exchange which may be distributed or published by any member or person
associated with a member, and the persons to whom such quotations
may be supplied. Such rules relating to quotations shall be designed
to produce fair and informative quotations, to prevent fictitious
or misleading quotations, and to promote orderly procedures for collecting,
distributing, and publishing quotations.
5-127.2
(12) The rules of the association to promote
just and equitable principles of trade, as required by paragraph (6),
include rules to prevent members of the association from participating
in any limited partnership roll-up transaction (as such term is defined
in paragraphs (4) and (5) of section 14(h)) unless such transaction
was conducted in accordance with procedures designed to protect the
rights of limited partners, including—
(A) the
right of dissenting limited partners to one of the following:
(i) an appraisal
and compensation;
(ii)
retention of a security under substantially the same terms and conditions
as the original issue;
(iii) approval of the limited partnership rollup transaction by not
less than 75 percent of the outstanding securities of each of the
participating limited partnerships;
(iv) the use of a committee that is independent,
as determined in accordance with rules prescribed by the association,
of the general partner or sponsor, that has been approved by a majority
of the outstanding securities of each of the participating partnerships,
and that has such authority as is necessary to protect the interest
of limited partners, including the authority to hire independent advisors,
to negotiate with the general partner or sponsor on behalf of the
limited partners, and to make a recommendation to the limited partners with
respect to the proposed transaction; or
(v) other comparable rights that are prescribed
by rule by the association and that are designed to protect dissenting
limited partners;
(B) the right not to have their voting
power unfairly reduced or abridged;
(C) the right not to bear an unfair
portion of the costs of a proposed limited partnership rollup transaction
that is rejected; and
(D) restrictions on the conversion of contingent interests or fees
into non-contingent interests or fees and restrictions on the receipt
of a non-contingent equity interest in exchange for fees for services
which have not yet been provided.
As used in this paragraph, the term “dissenting
limited partner” means a person who, on the date on which soliciting
material is mailed to investors, is a holder of a beneficial interest
in a limited partnership that is the subject of a limited partnership
rollup transaction, and who casts a vote against the transaction and
complies with procedures established by the association, except that
for purposes of an exchange or tender offer, such person shall file
an objection in writing under the rules of the association during
the period in which the offer is outstanding.
5-127.3
(13) The rules of the association prohibit
the authorization for quotation on an automated interdealer quotation
system sponsored by the association of any security designated by
the Commission as a national market system security resulting from
a limited partnership rollup transaction (as such term is defined
in paragraphs (4) and (5) of section 14(h)), unless such transaction
was conducted in accordance with procedures designed to protect the
rights of limited partners, including—
(A) the right of dissenting
limited partners to one of the following:
(i) an appraisal and compensation;
(ii) retention of a security
under substantially the same terms and conditions as the original
issue;
(iii) approval
of the limited partnership rollup transaction by not less than 75
percent of the outstanding securities of each of the participating
limited partnerships;
(iv) the use of a committee that is independent, as determined in
accordance with rules prescribed by the association, of the general
partner or sponsor, that has been approved by a majority of the outstanding
securities of each of the participating partnerships, and that has
such authority as is necessary to protect the interest of limited
partners, including the authority to hire independent advisors, to
negotiate with the general partner or sponsor on behalf of the limited
partners, and to make a recommendation to the limited partners with
respect to the proposed transaction; or
(v) other comparable rights that are prescribed
by rule by the association and that are designed to protect dissenting
limited partners;
(B) the right not to have their voting
power unfairly reduced or abridged;
(C) the right not to bear an unfair
portion of the costs of a proposed limited partnership rollup transaction
that is rejected; and
(D) restrictions on the conversion of contingent interests or fees
into non-contingent interests or fees and restrictions on the receipt
of a non-contingent equity interest in exchange for fees for services
which have not yet been provided.
As used in this paragraph, the term “dissenting
limited partner” means a person who, on the date on which soliciting
material is mailed to investors, is a holder of a beneficial interest
in a limited partnership that is the subject of a limited partnership
rollup transaction, and who casts a vote against the transaction and
complies with procedures established by the association, except that
for purposes of an exchange or tender offer, such person shall file
an objection in writing under the rules of the association during
the period during which the offer is outstanding.
5-127.4
(14) The rules of the association include
provisions governing the sales, or offers of sales, of securities
on the premises of any military installation to any member of the
Armed Forces or a dependent thereof, which rules require—
(A) the broker or dealer performing brokerage services to clearly
and conspicuously disclose to potential investors—
(i) that the securities
offered are not being offered or provided by the broker or dealer
on behalf of the Federal Government, and that its offer is not sanctioned,
recommended, or encouraged by the Federal Government; and
(ii) the identity of the registered
broker-dealer offering the securities;
(B) such broker or dealer
to perform an appropriate suitability determination, including consideration
of costs and knowledge about securities, prior to making a recommendation
of a security to a member of the Armed Forces or a dependent thereof;
and
(C) that no
person receive any referral fee or incentive compensation in connection
with a sale or offer of sale of securities, unless such person is
an associated person of a registered broker or dealer and is qualified
pursuant to the rules of a self-regulatory organization.
(15) The rules of the
association provide that the association shall—
(A) request
guidance from the Municipal Securities Rulemaking Board in interpretation
of the rules of the Municipal Securities Rulemaking Board; and
(B) provide information
to the Municipal Securities Rulemaking Board about the enforcement
actions and examinations of the association under section 15B(b)(2)(E),
so that the Municipal Securities Rulemaking Board may—
(i) assist in
such enforcement actions and examinations; and
(ii) evaluate the ongoing effectiveness of
the rules of the Board.
5-128
(c) National association rules;
provision for registration of affiliated securities association. The Commission may permit or require the rules of an association
applying for registration pursuant to subsection (b) of this section,
to provide for the admission of an association registered as an affiliated
securities association pursuant to subsection (d) of this section,
to participation in said applicant association as an affiliate thereof,
under terms permitting such powers and responsibilities to such affiliate,
and under such other appropriate terms and conditions, as may be provided
by the rules of said applicant association, if such rules appear to
the Commission to be necessary or appropriate in the public interest
or for the protection of investors and to carry out the purposes of
this section. The duties and powers of the Commission with respect
to any national securities association or any affiliated securities
association shall in no way be limited by reason of any such affiliation.
5-129
(d) Registration as affiliated
association; prerequisites; association rules. An applicant association
shall not be registered as an affiliated securities association unless
it appears to the Commission that—
(1) such association, notwithstanding that
it does not satisfy the requirements set forth in paragraph (1) of
subsection (b) of this section, will, forthwith upon the registration
thereof, be admitted to affiliation with an association registered
as a national securities association pursuant to subsection (b) of
this section, in the manner and under the terms and conditions provided
by the rules of said national securities association in accordance
with subsection (c) of this section; and
(2) such association and its rules satisfy
the requirements set forth in paragraphs (2) to (10), inclusive, and
paragraph (12), of subsection (b) of this section; except that in
the case of any such association any restrictions upon membership
therein of the type authorized by paragraph (3) of subsection (b)
of this section shall not be less stringent than in the case
of the national securities association with which such association
is to be affiliated.
5-130
(e) Dealings with nonmember professionals.
(1) The rules of a registered
securities association may provide that no member thereof shall deal
with any nonmember professional (as defined in paragraph (2) of this
subsection) except at the same prices, for the same commissions or
fees, and on the same terms and conditions as are by such member accorded
to the general public.
(2) For the purposes of this subsection, the term “nonmember
professional” shall include (A) with respect to transactions
in securities other than municipal securities, any registered broker
or dealer who is not a member of any registered securities association,
except such a broker or dealer who deals exclusively in commercial
paper, bankers’ acceptances, and commercial bills, and (B) with
respect to transactions in municipal securities, any municipal securities
dealer (other than a bank or division or department of a bank) who
is not a member of any registered securities association and any municipal
securities broker who is not a member of any such association.
5-131
(3) Nothing in this subsection
shall be so construed or applied as to prevent (A) any member of a
registered securities association from granting to any other member
of any registered securities association any dealer’s discount,
allowance, commission, or special terms, in connection with the purchase
or sale of securities, or (B) any member of a registered securities
association or any municipal securities dealer which is a bank or
a division or department of a bank from granting to any member of
any registered securities association or any such municipal securities
dealer any dealer’s discount, allowance, commission, or special
terms in connection with the purchase or sale of municipal securities: Provided, however, That the granting of any such discount, allowance,
commission, or special terms in connection with the purchase or sale
of municipal securities shall be subject to rules of the Municipal
Securities Rulemaking Board adopted pursuant to section 15B(b)(2)(K)
of this title.
5-131.1
(f) Rules concerning municipal-securities transactions. Nothing in subsection (b)(6) or (b)(11) of this section shall be
construed to permit a registered securities association to make rules
concerning any transaction by a registered broker or dealer in a municipal
security.
5-132
(g) Denial of membership.
(1) A registered securities
association shall deny membership to any person who is not a registered
broker or dealer.
(2)
A registered securities association may, and in cases in which the
Commission, by order, directs as necessary or appropriate in the public
interest or for the protection of investors shall, deny membership
to any registered broker or dealer, and bar from becoming associated
with a member any person, who is subject to a statutory disqualification.
A registered securities association shall file notice with the Commission
not less than thirty days prior to admitting any registered broker
or dealer to membership or permitting any person to become associated
with a member, if the association knew, or in the exercise of reasonable
care should have known, that such broker or dealer or person was subject
to a statutory disqualification. The notice shall be in such form
and contain such information as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest or for the protection
of investors.
5-133
(3) (A) A registered securities
association may deny membership to, or condition the membership of,
a registered broker or dealer if (i) such broker or dealer does not
meet such standards of financial responsibility or operational capability
or such
broker or dealer or any natural person associated with such broker
or dealer does not meet such standards of training, experience, and
competence as are prescribed by the rules of the association or (ii)
such broker or dealer or person associated with such broker or dealer
has engaged and there is a reasonable likelihood he will again engage
in acts or practices inconsistent with just and equitable principles
of trade. A registered securities association may examine and verify
the qualifications of an applicant to become a member and the natural
persons associated with such an applicant in accordance with procedures
established by the rules of the association.
5-134
(B) A registered securities association
may bar a natural person from becoming associated with a member or
condition the association of a natural person with a member if such
natural person (i) does not meet such standards of training, experience,
and competence as are prescribed by the rules of the association or
(ii) has engaged and there is a reasonable likelihood he will again
engage in acts or practices inconsistent with just and equitable principles
of trade. A registered securities association may examine and verify
the qualifications of an applicant to become a person associated with
a member in accordance with procedures established by the rules of
the association and require a natural person associated with a member,
or any class of such natural persons, to be registered with the association
in accordance with procedures so established.
5-135
(C) A registered securities association
may bar any person from becoming associated with a member if such
person does not agree (i) to supply the association with such information
with respect to its relationship and dealings with the member as may
be specified in the rules of the association and (ii) to permit examination
of its books and records to verify the accuracy of any information
so supplied.
(D)
Nothing in subparagraph (A), (B), or (C) of this paragraph shall be
construed to permit a registered securities association to deny membership
to or condition the membership of, or bar any person from becoming
associated with or condition the association of any person with, a
broker or dealer that engages exclusively in transactions in municipal
securities.
5-135.2
(4) A registered securities association
may deny membership to a registered broker or dealer not engaged in
a type of business in which the rules of the association require members
to be engaged: Provided, however, That no registered securities
association may deny membership to a registered broker or dealer by
reason of the amount of such type of business done by such broker
or dealer or the other types of business in which he is engaged.
5-136
(h) Discipline of registered
securities association members and persons associated with members;
summary proceedings.
(1) In any proceeding by a registered securities
association to determine whether a member or person associated with
a member should be disciplined (other than a summary proceeding pursuant
to paragraph (3) of this subsection) the association shall bring specific
charges, notify such member or person of, and give him an opportunity
to defend against, such charges, and keep a record. A determination
by the association to impose a disciplinary sanction shall be supported
by a statement setting forth—
(A) any act or practice
in which such member or person associated with a member has been found
to have engaged, or which such member or person has been found to
have omitted;
(B)
the specific provision of this chapter, the rules or regulations thereunder,
the rules of the Municipal Securities Rulemaking Board, or the rules
of the association which any such act or practice, or omission to
act, is deemed to violate; and
(C) the sanction imposed and the reason
therefor.
5-137
(2) In
any proceeding by a registered securities association to determine
whether a person shall be denied membership, barred from becoming
associated with a member, or prohibited or limited with respect to
access to services offered by the association or a member thereof
(other than a summary proceeding pursuant to paragraph (3) of this
subsection), the association shall notify such person of and give
him an opportunity to be heard upon, the specific grounds for denial,
bar, or prohibition or limitation under consideration and keep a record.
A determination by the association to deny membership, bar a person
from becoming associated with a member, or prohibit or limit a person
with respect to access to services offered by the association or a
member thereof shall be supported by a statement setting forth the
specific grounds on which the denial, bar, or prohibition or limitation
is based.
5-138
(3) A registered securities
association may summarily (A) suspend a member or person associated
with a member who has been and is expelled or suspended from any self-regulatory
organization or barred or suspended from being associated with a member
of any self-regulatory organization, (B) suspend a member who is in
such financial or operating difficulty that the association determines
and so notifies the Commission that the member cannot be permitted
to continue to do business as a member with safety to investors, creditors,
other members, or the association, or (C) limit or prohibit any person
with respect to access to services offered by the association if subparagraph
(A) or (B) of this paragraph is applicable to such person or, in the
case of a person who is not a member, if the association determines
that such person does not meet the qualification requirements or other
prerequisites for such access and such person cannot be permitted
to continue to have such access with safety to investors, creditors,
members, or the association. Any person aggrieved by any such summary
action shall be promptly afforded an opportunity for a hearing by
the association in accordance with the provisions of paragraph (1)
or (2) of this subsection. The Commission, by order, may stay any
such summary action on its own motion or upon application by any person
aggrieved thereby, if the Commission determines summarily or after
notice and opportunity for hearing (which hearing may consist solely
of the submission of affidavits or presentation of oral arguments)
that such stay is consistent with the public interest and the protection
of investors.
5-138.1
(i) Obligation to maintain registration, disciplinary,
and other data.
(1) A registered securities association
shall—
(A) establish and maintain a system
for collecting and retaining registration information;
(B) establish and maintain
a toll-free telephone listing, and a readily accessible electronic
or other process, to receive and promptly respond to inquiries regarding—
(i) registration information on its members and their associated
persons; and
(ii) registration
information on the members and their associated persons of any registered
national securities exchange that uses the system described in subparagraph
(A) for the registration of its members and their associated persons;
and
(C) adopt rules governing the process for making inquiries and the
type, scope, and presentation of information to be provided in response
to such inquiries in consultation with any registered national securities
exchange providing information pursuant to subparagraph (B)(ii).
(2) A registered
securities association may charge persons making inquiries described
in paragraph (1)(B), other than individual investors, reasonable fees
for responses to such inquiries.
(3) Each registered securities association
shall adopt rules establishing an administrative process for disputing
the accuracy of information provided in response to inquiries under
this subsection in consultation with any registered national securities
exchange providing information pursuant to paragraph (1)(B)(ii).
(4) A registered securities
association, or an exchange reporting information to such an association,
shall not have any liability to any person for any actions taken or
omitted in good faith under this subsection.
(5) For purposes of this subsection, the
term “registration information” means the information
reported in connection with the registration or licensing of brokers
and dealers and their associated persons, including disciplinary actions,
regulatory, judicial, and arbitration proceedings, and other information
required by law, or exchange or association rule, and the source and
status of such information.
(j) Registration for sales of private securities
offerings. A registered securities association shall create a
limited qualification category for any associated person of a member
who effects sales as part of a primary offering of securities not
involving a public offering, pursuant to section 3(b), 4(2), or 4(6)
of the Securities Act of 1933 and the rules and regulations thereunder,
and shall deem qualified in such limited qualification category, without
testing, any bank employee who, in the six month period preceding
the date of the enactment of the Gramm-Leach-Bliley Act, engaged in
effecting such sales.
5-138.2
(k) Limited
purpose national securities association.
(1) A futures association registered under
section 17 of the Commodity Exchange Act shall be a registered national
securities association for the limited purpose of regulating the activities
of members who are registered as brokers or dealers in security futures
products pursuant to section 15(b)(11).
(2) Such a securities association shall—
(A) be so organized and have the capacity to carry out the purposes
of the securities laws applicable to security futures products and
to comply, and (subject to any rule or order of the Commission pursuant
to section 19(g)(2)) to enforce compliance by its members and persons
associated with its members, with the provisions of the securities
laws applicable to security futures products, the rules and regulations
thereunder, and its rules;
(B) have rules that—
(i) are designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest, including rules governing sales
practices and the advertising of security futures products reasonably
comparable to those of other national securities associations registered
pursuant to subsection (a) that are applicable to security futures
products; and
(ii) are
not designed to regulate by virtue of any authority conferred by this
title matters not related to the purposes of this title or the administration
of the association;
(C) have rules that provide that (subject
to any rule or order of the Commission pursuant to section 19(g)(2))
its members and persons associated with its members shall be appropriately
disciplined for violation of any provision of the securities laws
applicable to security futures products, the rules or regulations
thereunder, or the rules of the association, by expulsion, suspension,
limitation of activities, functions, and operations, fine, censure,
being suspended or barred from being associated with a member, or
any other fitting sanction; and
(D) have rules that ensure that members
and natural persons associated with members meet such standards of training,
experience, and competence necessary to effect transactions in security
futures products and are tested for their knowledge of securities
and security futures products.
(3) Such a securities association shall
be exempt from submitting proposed rule changes pursuant to section
19(b) of this title, except that—
(A) the association
shall file proposed rule changes related to higher margin levels,
fraud or manipulation, recordkeeping, reporting, listing standards,
or decimal pricing for security futures products, sales practices
for, advertising of, or standards of training, experience, competence,
or other qualifications for security futures products for persons
who effect transactions in security futures products, or rules effectuating
the association’s obligation to enforce the securities laws
pursuant to section 19(b)(7);
(B) the association shall file pursuant
to sections 19(b)(1) and 19(b)(2) proposed rule changes related to
margin, except for changes resulting in higher margin levels; and
(C) the association
shall file pursuant to section 19(b)(1) proposed rule changes that
have been abrogated by the Commission pursuant to section 19(b)(7)(C).
(4) Such
a securities association shall be exempt from and shall not be required
to enforce compliance by its members, and its members shall not, solely
with respect to their transactions effected in security futures products,
be required to comply, with the following provisions of this title
and the rules thereunder:
(A) Section 8.
(B) Subsections (b)(1), (b)(3), (b)(4),
(b)(5), (b)(8), (b)(10), (b)(11), (b)(12), (b)(13), (c), (d), (e),
(f), (g), (h), and (i) of this section.
(C) Subsections (d), (f), and (k) of
section 17.
(D) Subsections
(a), (f), and (h) of section 19.
5-138.3
(l) Consistent with this title, each national securities association
registered pursuant to subsection (a) of this section shall issue
such rules as are necessary to avoid duplicative or conflicting rules
applicable to any broker or dealer registered with the Commission
pursuant to section 15(b) (except paragraph (11) thereof), that is
also registered with the Commodity Futures Trading Commission pursuant
to section 4f(a) of the Commodity Exchange Act (except paragraph (2)
thereof), with respect to the application of—
(1) rules of such national securities association
of the type specified in section 15(c)(3)(B) involving security futures
products; and
(2) similar
rules of national securities associations registered pursuant to subsection
(k) of this section and national securities exchanges registered pursuant
to section 6(g) involving security futures products.
(m) Procedures and rules
for security future products. A national securities association
registered pursuant to subsection (a) shall, not later than 8 months
after the date of the enactment of the Commodity Futures Modernization
Act of 2000, implement the procedures specified in section 6(h)(5)(A)
of this title and adopt the rules specified in subparagraphs (B) and
(C) of section 6(h)(5) of this title.
(n) Data standards.
(1) A national securities association registered
pursuant to subsection (a) shall adopt data standards for all information
that is regularly filed with or submitted to the association.
(2) The data standards required
under paragraph (1) shall incorporate, and ensure compatibility with
(to the extent feasible), all applicable data standards established
in the rules promulgated under section 124 of the Financial Stability
Act of 2010, including, to the extent practicable, by having the characteristics
described in clauses (i) through (vi) of subsection (c)(1)(B) of such
section 124.
[15 USC 78o-3. As added
by act of June 25, 1938 (52 1070) and amended by acts of Aug. 20,
1964 (78 Stat. 574-578); June 4, 1975 (89 Stat. 127); Oct. 28, 1986
(100 Stat. 3218); Oct. 15, 1990 (104 Stat. 957); Dec. 17, 1993 (107
Stat. 2350, 2364, 2366); Nov. 12, 1999 (113 Stat. 1391); Dec. 21,
2000 (114 Stat. 2763A-422, 433); Sept. 29, 2006 (120 Stat. 1319, 1320);
and Dec. 23, 2022 (136 Stat. 3428).]
