Online Investor Protection Act of 1999 (Introduced in the Senate)
S 1015 IS
106th CONGRESS
1st Session
S. 1015
To require enhanced disclosure with respect to securities transactions conducted `online' , to require the Securities and Exchange Commission to study the effects of onlinetrading on securities markets, to prevent online securities fraud, and for other purposes.
IN THE SENATE OF THE UNITED STATES
May 12, 1999
Mr. SCHUMER (for himself, Mr. SARBANES, Mr. BRYAN, and Mr. JOHNSON) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs
A BILL
To require enhanced disclosure with respect to securities transactions conducted `online' , to require the Securities and Exchange Commission to study the effects of onlinetrading on securities markets, to prevent online securities fraud, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; DEFINITIONS.
(a) SHORT TITLE- This Act may be cited as the `Online Investor Protection Act of 1999'.
(b) DEFINITIONS- In this Act--
(1) the term `Commission' means the Securities and Exchange Commission;
(2) the term `Internet' means the international computer network of both Federal and non-Federal interoperable packet switched data networks;
(3) the term `interactive computer service' means any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions;
(4) the term `investment adviser' has the same meaning as in section 202 of the Investment Advisers Act of 1940;
(5) the term `investment company' has the same meaning as in section 3 of the Investment Company Act of 1940;
(6) the term `registered broker or dealer' has the same meaning as in section 3 of the Securities Exchange Act of 1934; and
(7) the term `retail investor' means--
(A) any investor other than an accredited investor (as defined in section 2(a)(15) of the Securities Act of 1933); and
(B) any other similar person or class of persons, as the Commission determines to be appropriate.
SEC. 2. ONLINETRADING DISCLOSURES.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 35A the following:
`SEC. 35B. ONLINETRADING DISCLOSURES.
`(a) IN GENERAL- Each online broker or dealer shall, on a quarterly basis, make available on the Internet or other interactive computer service, such information as the Commission may require, by rule or order, taking into account the needs of customers, and in such format and within such time periods as the Commission may prescribe regarding--
`(1) the date, time, and duration of any system outage or other event that prevented or materially delayed the execution of online securities transactions during the preceding quarter;
`(2) any steps taken to address or prevent such outages or events; and
`(3) information regarding limiting risk of loss to securities investors that is unique to onlinetrading , as required by the Commission, by rule or order.
`(b) EXCEPTIONS- The Commission, by rule or order, may exempt from the requirements of subsection (a) any online broker or dealer, or class of online brokers or dealers, as the Commission determines to be appropriate.
`(c) DEFINITIONS- In this section--
`(1) the term `Internet' means the international computer network of both Federal and non-Federal interoperable packet switched data networks;
`(2) the term `interactive computer service' means any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions;
`(3) the term `online broker or dealer' means any broker or dealer that provides retail investors with a means to effect securities transactions over the Internet or an interactive computer service;
`(4) the term `online securities transaction' means a securities transaction effected between a
retail investor and an online broker or dealer over the Internet or an interactive computer service; and
`(5) the term `retail investor' means--
`(A) any customer of an online broker or dealer, other than an accredited investor (as defined in section 2(a)(15) of the Securities Act of 1933); and
`(B) any other similar person or class of persons, as the Commission determines to be appropriate, by rule or order.'.
SEC. 3. EXTENDING DISCIPLINARY DISCLOSURES TO THE INTERNET.
(a) IN GENERAL- Section l5A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by striking subsection (i) and inserting the following:
`(i) OBLIGATION TO MAINTAIN DISCIPLINARY AND OTHER DATA-
`(1) MAINTENANCE OF SYSTEM TO RESPOND TO INQUIRIES- A registered securities association shall--
`(A) establish and maintain a toll-free telephone listing or other readily accessible electronic process to receive inquiries regarding disciplinary actions and proceedings and other information involving its members and associated persons of those members; and
`(B) promptly respond to such inquiries.
`(2) RECOVERY OF COSTS- A registered securities association may charge persons, other than individual investors, reasonable fees for responses to inquiries referred to in paragraph (1).
`(3) LIMITATION ON LIABILITY- A registered securities association shall not have any liability to any person for any action taken or omitted in good faith under this subsection.'.
(b) RECORDS AND REPORTS OF INVESTMENT ADVISERS- Section 204 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-4) is amended--
(1) by striking `Every investment' and inserting the following:
`(a) IN GENERAL- Every investment'; and
(2) by adding at the end the following:
`(b) FILING DEPOSITORIES- The Commission, by rule or order, may require an investment adviser--
`(1) to file with the Commission any fee, application, report, or notice required to be filed by this title or the rules issued under this title through any entity designated by the Commission for that purpose; and
`(2) to pay the reasonable costs associated with such filing and the establishment and maintenance of the systems required by subsection (c).
`(c) ACCESS TO DISCIPLINARY AND OTHER INFORMATION-
`(1) MAINTENANCE OF SYSTEM TO RESPOND TO INQUIRIES- The Commission shall require an entity designated by the Commission pursuant to subsection (b)(1)--
`(A) to establish and maintain a toll-free telephone listing or other readily accessible electronic process to receive inquiries regarding disciplinary actions and proceedings and other information involving investment advisers and persons associated with investment advisers; and
`(B) to respond promptly to such inquiries.
`(2) RECOVERY OF COSTS- An entity designated under subsection (b)(1) may charge persons, other than individual investors, reasonable fees for responses to inquiries referred to in paragraph (1).
`(3) LIMITATION ON LIABILITY- An entity designated under subsection (b)(1) shall not have any liability to any person for any action taken or omitted in good faith under this subsection.'.
(c) CONFORMING AMENDMENTS-
(1) IN GENERAL- Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3a) is amended--
(A) by striking subsection (d); and
(B) by redesignating subsection (e) as subsection (d).
(2) REPEAL- Section 306 of the National Securities Markets Improvement Act of 1996 (Public Law 104-290; 110 Stat. 3438) is repealed.
SEC. 4. ELECTRONIC ACCESS TO COMMISSION INFORMATION.
(a) ELECTRONIC LINKS- Not later than 1 year after the date of enactment of this Act, each broker or dealer, investment company, and investment adviser that effects securities transactions with retail investors, or makes securities market information available to retail investors for the purpose of effecting such transactions over the Internet or other interactive computer service, shall provide to those investors information regarding investor education and fraud prevention provided by the Commission, through a hypertext link to a Commission website established for that purpose, or in such other manner as may be prescribed by the Commission.
(b) REGULATORY ACTION- The Commission shall issue final regulations to implement this section not later than 6 months after the date of enactment of this Act.
SEC. 5. CIVIL PENALTIES FOR INTERNET-RELATED VIOLATIONS.
(a) SECURITIES ACT OF 1933- Section 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the following:
`(D) INTERNET-RELATED VIOLATIONS- In any case in which the Internet or other interactive computer service (as defined in section 35B of the Securities Exchange Act of 1934) is used as part of the Act or omission resulting in a violation referred to in paragraph (1) the amount of the penalty provided for in this paragraph shall be doubled.'.
(b) SECURITIES EXCHANGE ACT OF 1934-
(1) SECTION 21- Section 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by adding at the end the following:
`(iv) INTERNET-RELATED VIOLATIONS- In any case in which the Internet
or other interactive computer service (as defined in section 35B) is used as part of the act or omission resulting in a violation referred to in subparagraph (A), the amount of the penalty provided for in this subparagraph shall be doubled.'.
(2) SECTION 21B- Section 21B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-2(b)) is amended by adding at the end the following:
`(4) INTERNET-RELATED VIOLATIONS- In any case in which the Internet or other interactive computer service (as defined in section 35B) is used as part of the act or omission resulting in a violation referred to in subsection (a), the amount of the penalty provided for in this subsection shall be doubled.'.
(c) INVESTMENT ADVISERS ACT OF 1940-
(1) SECTION 203- Section 203(i)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended by adding at the end the following:
`(D) INTERNET-RELATED VIOLATIONS- In any case in which the Internet or other interactive computer service (as defined in section 35B of the Securities Exchange Act of 1934) is used as part of the act or omission resulting in a violation referred to in paragraph (1), the amount of the penalty provided for in this paragraph shall be doubled.'.
(2) SECTION 209- Section 209(e)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-9(e)(2)) is amended by adding at the end the following:
`(D) INTERNET-RELATED VIOLATIONS- In any case in which the Internet or other interactive computer service (as defined in section 35B of the Securities Exchange Act of 1934) is used as part of the act or omission resulting in a violation referred to in paragraph (1), the amount of the penalty provided for in this paragraph shall be doubled.'.
(d) INVESTMENT COMPANY ACT OF 1940- Section 9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended by adding at the end the following:
`(D) INTERNET-RELATED VIOLATIONS- In any case in which the Internet or other interactive computer service (as defined in section 35B of the Securities Exchange Act of 1934) is used as part of the act or omission resulting in a violation referred to in paragraph (1), the amount of the penalty provided for in this paragraph shall be doubled.'.
SEC. 6. STUDY AND REPORT ON MARKET IMPACT OF ONLINETRADING .
(a) STUDY- The Commission shall conduct a study of the effects that trading in securities by retail investors over the Internet or other interactive computer service has on the securities markets, including--
(1) with respect to `day trading' activities--
(A) whether a greater risk of fraud exists;
(B) whether such trading results in market volatility;
(C) the effects on individual companies, the stock of which fluctuates as a result of such volatility, if any; and
(D) the effects on investors and their investment patterns resulting from such volatility, if any; and
(2) the quality of execution received through onlinetrading services, including the effect of `payment for order flow' and other practices on--
(A) the promptness of execution; and
(B) the purchase or sale price obtained for the retail investor.
(b) REPORT- Not later than 1 year after the date of enactment of this Act, the Commission shall submit to the Congress a report on the results of its study under subsection (a).
SEC. 7. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated to the Office of Internet Enforcement of the Securities and Exchange Commission $70,000,000 for each of fiscal years 2000 through 2004, for the purpose of Internet enforcement and other related investor protection activities, subject to appropriations Acts.