15 U.S.C. § 78k — Trading by members of exchanges, bro-

Page 277 TITLE 15—COMMERCE AND TRADE § 78k 1 So in original. Probably should be ‘‘compensation in’’. Stat. 789, which is classified generally to subchapter I (§ 80a–1 et seq.) of chapter 2D of this title. For complete classification of this Act to the Code, see section 80a–51 of this title and Tables. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of Title 12, Banks and Banking. § 78j–4. Recovery of erroneously awarded com- pensation policy (a) Listing standards The Commission shall, by rule, direct the na- tional securities exchanges and national securi- ties associations to prohibit the listing of any security of an issuer that does not comply with the requirements of this section. (b) Recovery of funds The rules of the Commission under subsection (a) shall require each issuer to develop and im- plement a policy providing— (1) for disclosure of the policy of the issuer on incentive-based compensation that is based on financial information required to be re- ported under the securities laws; and (2) that, in the event that the issuer is re- quired to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting require- ment under the securities laws, the issuer will recover from any current or former executive officer of the issuer who received incentive- based compensation (including stock options awarded as compensation) during the 3-year period preceding the date on which the issuer is required to prepare an accounting restate- ment, based on the erroneous data, in 1 excess of what would have been paid to the executive officer under the accounting restatement. (June 6, 1934, ch. 404, title I, § 10D, as added Pub. L. 111–203, title IX, § 954, July 21, 2010, 124 Stat. 1904.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of Title 12, Banks and Banking. § 78k. Trading by members of exchanges, bro- kers, and dealers (a) Trading for own account or account of associ- ated person; exceptions (1) It shall be unlawful for any member of a national securities exchange to effect any trans- action 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: Pro- vided, 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 78j(b) of this title to facilitate a distribution of a secu- rity in which the member effecting such trans- action 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 secu- rity, or any risk arbitrage transaction in con- nection with a merger, acquisition, tender offer, or similar transaction involving a re- capitalization; (E) any transaction for the account of a nat- ural 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 under- writing 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 nor- mally is derived principally from such busi- ness and related activities and (ii) such trans- action 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 mem- bers of the exchange; (H) any transaction for an account with re- spect to which such member or an associated person thereof exercises investment discretion if such member— (i) has obtained, from the person or per- sons authorized to transact business for the account, express authorization for such member or associated person to effect such transactions prior to engaging in the prac- tice of effecting such transactions; (ii) furnishes the person or persons author- ized to transact business for the account with a statement at least annually dis- closing the aggregate compensation received by the exchange member in effecting such transactions; and (iii) complies with any rules the Commis- sion has prescribed with respect to the re- quirements 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 pro- tection of investors, and the maintenance of fair and orderly markets. (2) The Commission, by rule, as it deems nec- essary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to assure equal regula- tion of exchange markets and markets occurring otherwise than on an exchange, may regulate or prohibit: Page 278 TITLE 15—COMMERCE AND TRADE § 78k 1 So in original. Probably should be followed by a comma. (A) transactions on a national securities ex- change not unlawful under paragraph (1) of this subsection effected by any member there- of 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 na- tional securities exchange effected by use of the mails or any means or instrumentality of interstate commerce by any member of a na- tional 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) 1 the account of an associated person, or an ac- count with respect to which such member, broker, or dealer or associated person thereof exercises investment discretion; and (C) transactions on a national securities ex- change effected by any broker or dealer not a member thereof for the account of such broker or dealer (unless such broker or dealer is act- ing in the capacity of market maker), the ac- count of an associated person, or an account with respect to which such broker or dealer or associated person thereof exercises investment discretion. (3) The provisions of paragraph (1) of this sub- section insofar as they apply to transactions on a national securities exchange effected by a member thereof who was a member on February 1, 1978 shall not become effective until February 1, 1979. Nothing in this paragraph shall be con- strued to impair or limit the authority of the Commission to regulate or prohibit such trans- actions prior to February 1, 1979, pursuant to paragraph (2) of this subsection. (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 impedi- ments to and perfect the mechanism of a na- tional market system, the rules of a national se- curities 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 act- ing as a broker or dealer. It shall be unlawful for a specialist or an official of the exchange to dis- close 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 representa- tive of the Commission, or a specialist who may be acting for such specialist: Provided, however, That the Commission, by rule, may require dis- closure to all members of the exchange of all or- ders placed with specialists, under such rules and regulations as the Commission may pre- scribe 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 ex- change as broker any transaction except upon a market or limited price order. (c) Exemptions from provisions of section and rules and regulations If because of the limited volume of trans- actions effected on an exchange, it is in the opinion of the Commission impracticable and not necessary or appropriate in the public inter- est or for the protection of investors to apply any of the foregoing provisions of this section or the rules and regulations thereunder, the Com- mission 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 ex- change and its members from any such provision or rules and regulations. (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 na- tional securities exchange or of the mails or of any means or instrumentality of interstate com- merce, or otherwise in the case of a member, (1) any transaction in connection with which, di- rectly 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 syn- dicate or group within thirty days prior to such transaction: Provided, That credit shall not be deemed extended by reason of a bona fide de- layed 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 secu- rity or any small business related security against full payment of the entire purchase price thereof upon such delivery within one hun- dred 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 trans- action 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. (June 6, 1934, ch. 404, title I, § 11, 48 Stat. 891; Aug. 10, 1954, ch. 667, title II, § 201, 68 Stat. 686; Pub. L. 94–29, § 6, June 4, 1975, 89 Stat. 110; Pub. L. 95–283, § 18(a), May 21, 1978, 92 Stat. 275; Pub. L. 98–440, title I, § 104, Oct. 3, 1984, 98 Stat. 1690; Pub. L. 103–68, § 1, Aug. 11, 1993, 107 Stat. 691; Pub. L. 103–325, title II, § 205, Sept. 23, 1994, 108 Stat. 2199.) Page 279 TITLE 15—COMMERCE AND TRADE § 78k–1 1 So in original. Probably should be ‘‘are hereinafter’’. Editorial Notes AMENDMENTS 1994—Subsec. (d)(1)(ii). Pub. L. 103–325 inserted ‘‘or any small business related security’’ after ‘‘mortgage related security’’. 1993—Subsec. (a)(1)(E). Pub. L. 103–68, § 1(1), struck out ‘‘(other than an investment company)’’ after ‘‘trust’’. Subsec. (a)(1)(H), (I). Pub. L. 103–68, § 1(2)–(4), added subpar. (H) and redesignated former subpar. (H) as (I). 1984—Subsec. (d)(1). Pub. L. 98–440 designated existing provisions of par. (1) as cl. (i) and added cl. (ii). 1978—Subsec. (a)(3). Pub. L. 95–283 substituted ‘‘Feb- ruary 1, 1978’’ for ‘‘May 1, 1975’’, and ‘‘February 1, 1979’’ for ‘‘May 1, 1978’’ in two places. 1975—Subsec. (a). Pub. L. 94–29, § 6(2), prohibited stock exchange members from effecting any transaction on the exchange for its own account, the account of an as- sociated person, or an account with respect to which the member or an associated person exercises invest- ment discretion, exempted from that prohibition 8 types of transactions, and authorized the Commission, as it deems necessary or appropriate in the public in- terest or for the protection of investors, to regulate or prohibit the specifically exempted transactions, certain transactions otherwise that on a national securities ex- change, and transactions on a national securities ex- change effected by a broker or dealer not a member thereof for the account of such broker or dealer, the ac- count of an associated person, or an account with re- spect to which such broker, dealer, or associated person exercises investment discretion. Subsec. (b). Pub. L. 94–29, § 6(2), struck out require- ment that specialist’s dealings be limited to those transactions reasonably necessary to permit him to maintain a fair and orderly market, expanded the Com- mission’s rulemaking authority in the area of special- ist’s dealings so that the Commission may define re- sponsibilities and restrict activities of specialists in re- sponse to changing conditions in the market, expanded the standards to be followed by the Commission in ex- ercising its rulemaking power to include the mainte- nance of fair and orderly markets and the removal of impediments to and the perfection of the mechanism of a national market system, and inserted specific ref- erence to the Commission’s power to limit the activity of a specialist to that of a broker or dealer. Subsec. (e). Pub. L. 94–29, § 6(3), struck out subsec. (e) which directed the Commission to make a study, to be submitted on or before Jan. 3, 1936, of the feasibility of segregating the functions of dealer and broker. 1954—Subsec. (d). Act Aug. 10, 1954, reduced from 6 months to 30 days the prohibition period against ex- tending credit to purchasers of a new issue by dealers. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–283, § 18(b), May 21, 1978, 92 Stat. 275, pro- vided that: ‘‘The amendment made by subsection (a) of this section [amending this section] shall be effective as of May 1, 1978.’’ EFFECTIVE DATE OF 1975 AMENDMENT Amendment by Pub. L. 94–29 effective June 4, 1975, see section 31(a) of Pub. L. 94–29, set out as a note under section 78b of this title. EFFECTIVE DATE OF 1954 AMENDMENT Amendment by act Aug. 10, 1954, effective 60 days after Aug. 10, 1954, see note under section 77b of this title. Executive Documents TRANSFER OF FUNCTIONS For transfer of functions of Securities and Exchange Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title. § 78k–1. National market system for securities; securities information processors (a) Congressional findings; facilitating establish- ment of national market system for securi- ties; designation of qualified securities (1) The Congress finds that— (A) The securities markets are an important national asset which must be preserved and strengthened. (B) New data processing and communica- tions techniques create the opportunity for more efficient and effective market oper- ations. (C) It is in the public interest and appro- priate for the protection of investors and the maintenance of fair and orderly markets to as- sure— (i) economically efficient execution of se- curities transactions; (ii) fair competition among brokers and dealers, among exchange markets, and be- tween exchange markets and markets other than exchange markets; (iii) the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securi- ties; (iv) the practicability of brokers executing investors’ orders in the best market; and (v) an opportunity, consistent with the provisions of clauses (i) and (iv) of this sub- paragraph, for investors’ orders to be exe- cuted without the participation of a dealer. (D) The linking of all markets for qualified securities through communication and data processing facilities will foster efficiency, en- hance competition, increase the information available to brokers, dealers, and investors, fa- cilitate the offsetting of investors’ orders, and contribute to best execution of such orders. (2) The Commission is directed, therefore, hav- ing due regard for the public interest, the pro- tection of investors, and the maintenance of fair and orderly markets, to use its authority under this chapter to facilitate the establishment of a national market system for securities (which may include subsystems for particular types of securities with unique trading characteristics) in accordance with the findings and to carry out the objectives set forth in paragraph (1) of this subsection. The Commission, by rule, shall des- ignate the securities or classes of securities qualified for trading in the national market sys- tem from among securities other than exempted securities. (Securities or classes of securities so designated hereinafter 1 in this section referred to as ‘‘qualified securities’’.) (3) The Commission is authorized in further- ance of the directive in paragraph (2) of this sub- section— (A) to create one or more advisory commit- tees pursuant to chapter 10 of title 5 (which shall be in addition to the National Market Advisory Board established pursuant to sub-