15 U.S.C. § 78k–1 — National market system for securities; securities information processors

submitted 92 years ago by Pub. L. 94-29 to r/title-15-COMMERCE-AND-TRADE · 3,402 words · no verdicts yet

in plain englishAI-generated · not legal advice

This law directs the SEC to help create a national system that links all securities markets together. It lets the SEC register and oversee companies that collect and sell stock quote and trade data. It also set up an advisory board and rules for security futures and small stock price increments.

(a) Congress's findings and the SEC's job Congress found five things. First, securities markets are a valuable national asset that must be protected and made stronger. Second, new computer and communication technology makes markets work better. Third, it is in the public's interest to make sure trading is efficient, brokers compete fairly, investors can see quote and trade information, brokers can send orders to the best market, and investors can sometimes trade without a dealer in the middle. Fourth, linking all markets together with shared technology will make markets more efficient, more competitive, and better at matching buy and sell orders. Based on these findings, the SEC must use its powers under this law to help build a "national market system" for securities — one system, though it can have separate parts for different kinds of securities. The SEC picks by rule which securities (other than exempted securities) count as "qualified securities" for this system. To do this, the SEC can create advisory committees and hire outside experts, can by rule or order let self-regulatory organizations (like stock exchanges) work together on building and running the national market system, and can study and recommend to Congress whether the existing system of self-regulation needs to change. (b) Registering securities information processors A "securities information processor" is a company that collects, processes, or distributes stock quote and trade data. Such a company cannot use the mail or interstate commerce to do this work unless it is registered with the SEC. The SEC can exempt a processor or class of processors from this rule if that serves the public interest and investor protection. A processor that is not the exclusive source of any quote or trade information does not have to register, unless the SEC decides by rule or order that registration is necessary. To register, a processor files an application listing its offices, the securities and markets it handles, and information the SEC requires about its ability to do the job, its procedures, staff qualifications, and finances. Once an application is filed, the SEC must publish notice and let interested people comment. Within 90 days (or longer if the applicant agrees), the SEC must either grant the registration or start proceedings to decide whether to deny it. Those proceedings must include notice of the reasons for possible denial and a hearing, and must finish within 180 days of the notice (the SEC can extend this by 60 days for good cause, or longer if the applicant agrees). The SEC must grant registration if it finds the processor is organized and able to do its job promptly, accurately, and reliably, follow the law, and — if it is the exclusive processor for some information — operate fairly and efficiently. If the SEC cannot make that finding, it must deny registration. A registered processor can withdraw from registration by filing written notice, on terms the SEC sets. If the SEC finds a registered processor no longer exists or has stopped doing this work, the SEC must cancel its registration by order. If a registered processor blocks or limits anyone's access to its services, it must promptly tell the SEC. The SEC can review that decision on its own, or if the affected person applies within 30 days (or longer if the SEC allows). Filing for review does not automatically stop the limitation unless the SEC orders a stay, after a hearing (which can be based on written statements or oral arguments) — and the SEC must set up a fast-track process for stay requests. After a hearing, if the SEC finds the limitation follows the law and the person was not treated unfairly, the SEC dismisses the case. If the SEC cannot make that finding, or finds the limitation unreasonably burdens competition, the SEC must set the limitation aside and require the processor to give that person access. After notice and a hearing, the SEC can censure a registered processor, limit its activities, suspend it for up to 12 months, or revoke its registration, if the SEC finds this serves the public interest or investor protection, or is needed to ensure the processor performs its job well — and finds that the processor broke the law or cannot follow it. (c) Rules for using the mail or interstate commerce; reporting trades; limiting off-exchange trading No self-regulatory organization, member, processor, broker, or dealer may use the mail or interstate commerce to collect, process, publish, or help publish quote or trade information for any non-exempt security, or to trade such a security, in a way that breaks SEC rules. The SEC's rules in this area must aim to: stop fraudulent or manipulative information; make sure collecting and publishing this data is prompt, accurate, reliable, and fair; make sure all processors can get, on fair terms, data collected by an exclusive processor; make sure exchange members, brokers, dealers, and processors — and other people, subject to SEC limits — can get published data on non-discriminatory terms; make sure orders for qualified securities are sent and directed in ways consistent with the national market system; and make sure all markets and market participants trading qualified securities are regulated equally. The SEC can require anyone who buys or sells a qualified security to report that trade to a registered processor, exchange, or association, and can require that processor, exchange, or association to publish the information. The SEC can, by rule, ban brokers and dealers from trading certain registered securities anywhere except on a national securities exchange — but only after a hearing where the SEC finds: off-exchange trading has hurt the fairness or orderliness of the market for those securities; no exchange rule unreasonably blocks dealers from trading for themselves or unreasonably limits competition among dealers, including between dealers who are specialists and those who are not; and no other lawful method can fix the problem. The SEC can exempt securities or trades from this ban if that serves the public interest. A rule that reasonably sets the order in which trades must be executed, or that follows an SEC rule, does not count as unreasonably impairing a dealer's ability to trade. The SEC must review all exchange rules that limit members from trading off-exchange. No exchange or association may limit a member's participation in a registered clearing agency. On "tick size" (the minimum price increment for quoting and trading): the SEC had to study the switch to trading in one-penny increments ("decimalization"), looking at its effect on the number of IPOs and on liquidity for small and mid-size company stocks, and report to Congress within 90 days of April 5, 2012. If the SEC decided that emerging growth companies' stock should trade in bigger increments than a penny, it could, by rule within 180 days of April 5, 2012, set a minimum increment between $0.01 and $0.10 for those companies' stock on all trading venues. (d) National Market Advisory Board Within 180 days of June 4, 1975, the SEC had to set up a 15-member National Market Advisory Board, with people from different parts of the country, appointed for terms of 2 to 5 years. Most members had to be connected with brokers or dealers; the rest had to represent the public and, where possible, know the securities markets. The Board's job was to give the SEC its views on major regulatory proposals about how securities markets are set up, run, and regulated. The Board had to study and recommend steps to help build the national market system, taking over the work of any earlier advisory committee on this topic. It also had to study whether the self-regulation system needed to change — including whether a new self-regulatory organization (a "National Market Regulatory Board") should be created to run the national market system. If the Board decided such a board should exist, it had to recommend when to create it, how it should be composed, how much authority it should have, how it would relate to the SEC and existing self-regulators, and how it would be funded. The Board had to report its findings and any recommended legislation to Congress by December 31, 1976. In doing this work, the Board had to consult with self-regulatory organizations, brokers, dealers, processors, issuers, investors, government agencies, and other interested people. (e) National market system for security futures products For security futures products, the SEC and the Commodity Futures Trading Commission (CFTC) must consult and cooperate so their rules can, as much as possible, support a national market system for these products — but only if both agencies jointly decide such a system fits the goals in subsection (a)(1). Before proposing any rule about security futures products for public comment, the SEC must consult the CFTC at least 15 days ahead. No rule made under this section can apply to trading security futures products on an exchange registered under section 78f(g) unless the CFTC has issued an order saying the rule applies.

the actual law source: uscode.house.gov ↗public domain

(a) Congressional findings; facilitating establishment of national market system for securities; 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 communications techniques create the opportunity for more efficient and effective market operations.

(C)

It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure—

(i)

economically efficient execution of securities transactions;

(ii)

fair competition among brokers and dealers, among exchange markets, and between 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 securities;

(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 subparagraph, for investors’ orders to be executed without the participation of a dealer.

(D)

The linking of all markets for qualified securities through communication and data processing facilities will foster efficiency, enhance competition, increase the information available to brokers, dealers, and investors, facilitate the offsetting of investors’ orders, and contribute to best execution of such orders.

(2)

The Commission is directed, therefore, having due regard for the public interest, the protection 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 designate the securities or classes of securities qualified for trading in the national market system 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 furtherance of the directive in paragraph (2) of this subsection—

(A)

to create one or more advisory committees pursuant to chapter 10 of title 5 (which shall be in addition to the National Market Advisory Board established pursuant to subsection (d) of this section),2 and to employ one or more outside experts;

(B)

by rule or order, to authorize or require self-regulatory organizations to act jointly with respect to matters as to which they share authority under this chapter in planning, developing, operating, or regulating a national market system (or a subsystem thereof) or one or more facilities thereof; and

(C)

to conduct studies and make recommendations to the Congress from time to time as to the possible need for modifications of the scheme of self-regulation provided for in this chapter so as to adapt it to a national market system.

(b) Securities information processors; registration; withdrawal of registration; access to services; censure; suspension or revocation of registration

(1)

Except as otherwise provided in this section, it shall be unlawful for any securities information processor unless registered in accordance with this subsection, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce to perform the functions of a securities information processor. The Commission, by rule or order, upon its own motion or upon application, may conditionally or unconditionally exempt any securities information processor or class of securities information processors or security or class of securities from any provision of this section or the rules or regulations thereunder, if the Commission finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of this section, including the maintenance of fair and orderly markets in securities and the removal of impediments to and perfection of the mechanism of a national market system: Provided, however, That a securities information processor not acting as the exclusive processor of any information with respect to quotations for or transactions in securities is exempt from the requirement to register in accordance with this subsection unless the Commission, by rule or order, finds that the registration of such securities information processor is necessary or appropriate in the public interest, for the protection of investors, or for the achievement of the purposes of this section.

(2)

A securities information processor may be registered by filing with the Commission an application for registration in such form as the Commission, by rule, may prescribe containing the address of its principal office, or offices, the names of the securities and markets for which it is then acting and for which it proposes to act as a securities information processor, and such other information and documents as the Commission, by rule, may prescribe with regard to performance capability, standards and procedures for the collection, processing, distribution, and publication of information with respect to quotations for and transactions in securities, personnel qualifications, financial condition, and such other matters as the Commission determines to be germane to the provisions of this chapter and the rules and regulations thereunder, or necessary or appropriate in furtherance of the purposes of this section.

(3)

The Commission shall, upon the filing of an application for registration pursuant to paragraph (2) of this subsection, publish notice of the filing and afford interested persons an opportunity to submit written data, views, and arguments concerning such application. Within ninety days of the date of the publication of such notice (or within such longer period as to which the applicant consents) the Commission shall—

(A)

by order grant such registration, or

(B)

institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred eighty days of the date of publication of notice of the filing of the application for registration. At the conclusion of such proceedings the Commission, by order, shall grant or deny such registration. The Commission may extend the time for the conclusion of such proceedings for up to sixty days if it finds good cause for such extension and publishes its reasons for so finding or for such longer periods as to which the applicant consents.

The Commission shall grant the registration of a securities information processor if the Commission finds that such securities information processor is so organized, and has the capacity, to be able to assure the prompt, accurate, and reliable performance of its functions as a securities information processor, comply with the provisions of this chapter and the rules and regulations thereunder, carry out its functions in a manner consistent with the purposes of this section, and, insofar as it is acting as an exclusive processor, operate fairly and efficiently. The Commission shall deny the registration of a securities information processor if the Commission does not make any such finding.

(4)

A registered securities information processor may, upon such terms and conditions as the Commission deems necessary or appropriate in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any registered securities information processor is no longer in existence or has ceased to do business in the capacity specified in its application for registration, the Commission, by order, shall cancel the registration.

(5)

(A)

If any registered securities information processor prohibits or limits any person in respect of access to services offered, directly or indirectly, by such securities information processor, the registered securities information processor shall promptly file notice thereof with the Commission. 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. Any prohibition or limitation on access to services with respect to which a registered securities information processor is required by this paragraph to file notice shall be subject to review by the Commission on its own motion, or upon application by any person aggrieved thereby filed within thirty days after such notice has been filed with the Commission and received by such aggrieved person, or within such longer period as the Commission may determine. Application to the Commission for review, or the institution of review by the Commission on its own motion, shall not operate as a stay of such prohibition or limitation, unless the Commission otherwise orders, summarily or after notice and opportunity for hearing on the question of a stay (which hearing may consist solely of the submission of affidavits or presentation of oral arguments). The Commission shall establish for appropriate cases an expedited procedure for consideration and determination of the question of a stay.

(B)

In any proceeding to review the prohibition or limitation of any person in respect of access to services offered by a registered securities information processor, if the Commission finds, after notice and opportunity for hearing, that such prohibition or limitation is consistent with the provisions of this chapter and the rules and regulations thereunder and that such person has not been discriminated against unfairly, the Commission, by order, shall dismiss the proceeding. If the Commission does not make any such finding or if it finds that such prohibition or limitation imposes any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter, the Commission, by order, shall set aside the prohibition or limitation and require the registered securities information processor to permit such person access to services offered by the registered securities information processor.

(6)

The Commission, by order, may censure or place limitations upon the activities, functions, or operations of any registered securities information processor or suspend for a period not exceeding twelve months or revoke the registration of any such processor, if the Commission finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest, necessary or appropriate for the protection of investors or to assure the prompt, accurate, or reliable performance of the functions of such securities information processor, and that such securities information processor has violated or is unable to comply with any provision of this chapter or the rules or regulations thereunder.

(c) Rules and regulations covering use of mails or other means or instrumentalities of interstate commerce; reports of purchase or sale of qualified securities; limiting registered securities transactions to national securities exchanges

(1)

No self-regulatory organization, member thereof, securities information processor, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to collect, process, distribute, publish, or prepare for distribution or publication any information with respect to quotations for or transactions in any security other than an exempted security, to assist, participate in, or coordinate the distribution or publication of such information, or to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any such security in contravention of such rules and regulations as the Commission shall prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter to—

(A)

prevent the use, distribution, or publication of fraudulent, deceptive, or manipulative information with respect to quotations for and transactions in such securities;

(B)

assure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information;

(C)

assure that all securities information processors may, for purposes of distribution and publication, obtain on fair and reasonable terms such information with respect to quotations for and transactions in such securities as is collected, processed, or prepared for distribution or publication by any exclusive processor of such information acting in such capacity;

(D)

assure that all exchange members, brokers, dealers, securities information processors, and, subject to such limitations as the Commission, by rule, may impose as necessary or appropriate for the protection of investors or maintenance of fair and orderly markets, all other persons may obtain on terms which are not unreasonably discriminatory such information with respect to quotations for and transactions in such securities as is published or distributed by any self-regulatory organization or securities information processor;

(E)

assure that all exchange members, brokers, and dealers transmit and direct orders for the purchase or sale of qualified securities in a manner consistent with the establishment and operation of a national market system; and

(F)

assure equal regulation of all markets for qualified securities and all exchange members, brokers, and dealers effecting transactions in such securities.

(2)

The Commission, by rule, as it deems necessary or appropriate in the public interest or for the protection of investors, may require any person who has effected the purchase or sale of any qualified security by use of the mails or any means or instrumentality of interstate commerce to report such purchase or sale to a registered securities information processor, national securities exchange, or registered securities association and require such processor, exchange, or association to make appropriate distribution and publication of information with respect to such purchase or sale.

(3)

(A)

The Commission, by rule, is authorized to prohibit brokers and dealers from effecting transactions in securities registered pursuant to section 78l(b) of this title otherwise than on a national securities exchange, if the Commission finds, on the record after notice and opportunity for hearing, that—

(i)

as a result of transactions in such securities effected otherwise than on a national securities exchange the fairness or orderliness of the markets for such securities has been affected in a manner contrary to the public interest or the protection of investors;

(ii)

no rule of any national securities exchange unreasonably impairs the ability of any dealer to solicit or effect transactions in such securities for his own account or unreasonably restricts competition among dealers in such securities or between dealers acting in the capacity of market makers who are specialists in such securities and such dealers who are not specialists in such securities, and

(iii)

the maintenance or restoration of fair and orderly markets in such securities may not be assured through other lawful means under this chapter.

The Commission may conditionally or unconditionally exempt any security or transaction or any class of securities or transactions from any such prohibition if the Commission deems such exemption consistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets.

(B)

For the purposes of subparagraph (A) of this paragraph, the ability of a dealer to solicit or effect transactions in securities for his own account shall not be deemed to be unreasonably impaired by any rule of an exchange fairly and reasonably prescribing the sequence in which orders brought to the exchange must be executed or which has been adopted to effect compliance with a rule of the Commission promulgated under this chapter.

(4)

The Commission is directed to review any and all rules of national securities exchanges which limit or condition the ability of members to effect transactions in securities otherwise than on such exchanges.

(5)

No national securities exchange or registered securities association may limit or condition the participation of any member in any registered clearing agency.

(6)Tick size.—

(A)Study and report.—

The Commission shall conduct a study examining the transition to trading and quoting securities in one penny increments, also known as decimalization. The study shall examine the impact that decimalization has had on the number of initial public offerings since its implementation relative to the period before its implementation. The study shall also examine the impact that this change has had on liquidity for small and middle capitalization company securities and whether there is sufficient economic incentive to support trading operations in these securities in penny increments. Not later than 90 days after April 5, 2012, the Commission shall submit to Congress a report on the findings of the study.

(B)Designation.—

If the Commission determines that the securities of emerging growth companies should be quoted and traded using a minimum increment of greater than $0.01, the Commission may, by rule not later than 180 days after April 5, 2012, designate a minimum increment for the securities of emerging growth companies that is greater than $0.01 but less than $0.10 for use in all quoting and trading of securities in any exchange or other execution venue.

(d) National Market Advisory Board

(1)

Not later than one hundred eighty days after June 4, 1975, the Commission shall establish a National Market Advisory Board (hereinafter in this section referred to as the “Advisory Board”) to be composed of fifteen members, not all of whom shall be from the same geographical area of the United States, appointed by the Commission for a term specified by the Commission of not less than two years or more than five years. The Advisory Board shall consist of persons associated with brokers and dealers (who shall be a majority) and persons not so associated who are representative of the public and, to the extent feasible, have knowledge of the securities markets of the United States.

(2)

It shall be the responsibility of the Advisory Board to formulate and furnish to the Commission its views on significant regulatory proposals made by the Commission or any self-regulatory organization concerning the establishment, operation, and regulation of the markets for securities in the United States.

(3)

(A)

The Advisory Board shall study and make recommendations to the Commission as to the steps it finds appropriate to facilitate the establishment of a national market system. In so doing, the Advisory Board shall assume the responsibilities of any advisory committee appointed to advise the Commission with respect to the national market system which is in existence at the time of the establishment of the Advisory Board.

(B)

The Advisory Board shall study the possible need for modifications of the scheme of self-regulation provided for in this chapter so as to adapt it to a national market system, including the need for the establishment of a new self-regulatory organization (hereinafter in this section referred to as a “National Market Regulatory Board” or “Regulatory Board”) to administer the national market system. In the event the Advisory Board determines a National Market Regulatory Board should be established, it shall make recommendations as to:

(i)

the point in time at which a Regulatory Board should be established;

(ii)

the composition of a Regulatory Board;

(iii)

the scope of the authority of a Regulatory Board;

(iv)

the relationship of a Regulatory Board to the Commission and to existing self-regulatory organizations; and

(v)

the manner in which a Regulatory Board should be funded.

The Advisory Board shall report to the Congress, on or before December 31, 1976, the results of such study and its recommendations, including such recommendations for legislation as it deems appropriate.

(C)

In carrying out its responsibilities under this paragraph, the Advisory Board shall consult with self-regulatory organizations, brokers, dealers, securities information processors, issuers, investors, representatives of Government agencies, and other persons interested or likely to participate in the establishment, operation, or regulation of the national market system.

(e) National markets system for security futures products

(1) Consultation and cooperation required

With respect to security futures products, the Commission and the Commodity Futures Trading Commission shall consult and cooperate so that, to the maximum extent practicable, their respective regulatory responsibilities may be fulfilled and the rules and regulations applicable to security futures products may foster a national market system for security futures products if the Commission and the Commodity Futures Trading Commission jointly determine that such a system would be consistent with the congressional findings in subsection (a)(1). In accordance with this objective, the Commission shall, at least 15 days prior to the issuance for public comment of any proposed rule or regulation under this section concerning security futures products, consult and request the views of the Commodity Futures Trading Commission.

(2) Application of rules by order of CFTC

No rule adopted pursuant to this section shall be applied to any person with respect to the trading of security futures products on an exchange that is registered under section 78f(g) of this title unless the Commodity Futures Trading Commission has issued an order directing that such rule is applicable to such persons.

Source credit: (June 6, 1934, ch. 404, title I, § 11A, as added Pub. L. 94–29, § 7, June 4, 1975, 89 Stat. 111; amended Pub. L. 98–620, title IV, § 402(14), Nov. 8, 1984, 98 Stat. 3358; Pub. L. 100–181, title III, §§ 313, 314, Dec. 4, 1987, 101 Stat. 1256; Pub. L. 106–554, § 1(a)(5) [title II, § 206(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–430; Pub. L. 112–106, title I, § 106(b), Apr. 5, 2012, 126 Stat. 312; Pub. L. 117–286, § 4(a)(62), Dec. 27, 2022, 136 Stat. 4312.)

history & why it existsrecord from the source credit

1934Enacted · Pub. L. 94-29 · 89 Stat. 111
1984Amended · Pub. L. 98-620 · 98 Stat. 3358
1987Amended · Pub. L. 100-181 · 101 Stat. 1256
2000Amended · Pub. L. 106-554 · 114 Stat. 2763, 2763
2012Amended · Pub. L. 112-106 · 126 Stat. 312
2022Amended · Pub. L. 117-286 · 136 Stat. 4312

A history note hasn’t been published yet. The record shows enactment by Pub. L. 94-29 on 1934-06-06.

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