[House Report 107-283]
[From the U.S. Government Publishing Office]
107th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 107-283
======================================================================
EMERGENCY SECURITIES RESPONSE ACT OF 2001
_______
November 13, 2001.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Oxley, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 3060]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 3060) to amend the Securities Exchange Act of
1934 to augment the emergency authority of the Securities and
Exchange Commission, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
CONTENTS
Page
Purpose and Summary.............................................. 1
Background and Need for Legislation.............................. 2
Hearings......................................................... 3
Committee Consideration.......................................... 3
Committee Votes.................................................. 3
Committee Oversight Findings..................................... 3
Performance Goals and Objectives................................. 3
New Budget Authority, Entitlement Authority, and Tax Expenditures 4
Committee Cost Estimate.......................................... 4
Congressional Budget Office Estimate............................. 4
Federal Mandates Statement....................................... 5
Advisory Committee Statement..................................... 5
Constitutional Authority Statement............................... 5
Applicability to Legislative Branch.............................. 5
Section-by-Section Analysis of the Legislation................... 5
Changes in Existing Law Made by the Bill, as Reported............ 7
Purpose and Summary
The purpose of H.R. 3060, the Emergency Securities Response
Act, is to provide the Securities and Exchange Commission (SEC
or Commission) with enhanced authority to respond to
extraordinary market disturbances. The legislation extends the
duration of a Commission emergency order issued pursuant to
section 12(k)(2) of the Securities Exchange Act of 1934 (15
U.S.C. 78l(k)(2)) from ten to 30 business days, and under
certain circumstances, up to a total of 90 calendar days.
Background and Need for Legislation
The terrorist attacks of September 11, 2001, inflicted
great human and physical loss in New York City, the financial
capital of the world. The damage to lower Manhattan, home of
the world's largest stock market--the New York Stock Exchange--
suspended the operation of the U.S. equities markets for the
longest period since World War I. The U.S. securities markets
reopened for trading on September 17, 2001. The markets resumed
business without incident, in part due to the emergency relief
orders issued by the SEC.
To facilitate the reopening of the equities markets, the
Commission used--for the first time--its emergency powers under
section 12(k)(2) of the 1934 Act to ease certain regulatory
restrictions temporarily. Most significantly, the SEC action
permitted public companies to repurchase their own securities
without meeting the volume and timing restrictions that
ordinarily would apply. Most commentators believe this measure
served its intended purpose of increasing liquidity in the
markets. Additionally, in order to limit the impact of the
market closure and settlement problems on securities firms, the
SEC issued orders allowing brokerage firms to disregard the
days the markets were closed in calculating their net capital.
The SEC also took action under other authority, such as
relaxing requirements applicable to mutual funds for in-person
board meetings, which would have been impossible during the
period in which the Federal Aviation Administration grounded
all flights.
Under current law, the duration of emergency orders granted
by the Commission pursuant to section 12(k)(2) of the 1934 Act
is limited to ten days. The Commission also has general
exemptive authority applying to all of the Federal securities
laws under various sections of each of those laws, including
section 36 of the 1934 Act, which it used in the wake of the
September 11 attacks to extend the duration of its emergency
authority relief. The Committee commends the Commission for its
responsive and appropriate use of its emergency and exemptive
authority to help ensure the smooth reopening of the securities
markets.
The Committee wishes to underscore that the Commission was
entirely within its statutory authority to extend the duration
of the relief it granted pursuant to section 12(k)(2) of the
1934 Act beyond ten days through use of its broad exemptive
authority under section 36 of that Act. It is the Committee's
view that the exemptive authority of section 36, as well as the
corresponding provisions in other Federal securities laws
granted pursuant to the National Securities Markets Improvement
Act of 1996 (Public Law 104-290), were designed to provide the
Commission with the maximum flexibility to reduce and otherwise
alter regulatory requirements under those statutes for
emergency, as well as more quotidian purposes. Nevertheless,
granting the Commission greater flexibility to extend the
duration of emergency authority pursuant to section 12(k)(2)
will further ensure the Commission's continued ability to
respond as necessary to emergencies affecting our nation's
securities markets.
Accordingly, H.R. 3060 extends the time frame under section
12(k)(2) to 30 business days. The legislation also allows the
Commission, in certain circumstances, to extend emergency
orders under section 12(k) for more than 30 business days, up
to a total of 90 calendar days. In order to do so, however, the
SEC must find, at the time of the extension, that the emergency
still exists and determine that the continuation of the order
beyond 30 business days is necessary in the public interest and
for the protection of investors to (i) maintain or restore fair
and orderly securities markets, (ii) ensure prompt,accurate,
and safe clearance and settlement of transactions in securities, or
(iii) reduce, eliminate, or prevent a substantial disruption of
securities markets, investment companies, or securities transaction
processing.
Hearings
The Committee held a hearing on September 26, 2001 on the
state of the nation's financial markets in the wake of the
terrorist attacks of September 11, at which SEC Chairman Harvey
L. Pitt testified with respect to the nation's securities
markets. Pursuant to requests by Members of the Committee at
that hearing, Chairman Pitt submitted a request for expanded
emergency authority under section 12(k)(2).
Committee Consideration
On October 11, 2001, the Committee met in open session and
ordered H.R. 3060 reported to the House, without amendment,
with a favorable recommendation by a voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. No
record votes were taken in conjunction with the consideration
of this legislation. A motion by Mr. Oxley to report the bill
to the House with a favorable recommendation was agreed to by a
voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a hearing and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The Commission will continue to use its emergency powers to
ensure the effective functioning of the securities markets.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that this
legislation would result in no new budget authority,
entitlement authority, or tax expenditures or revenues.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 15, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3060, the
Emergency Securities Response Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Ken Johnson.
Sincerely,
Barry B. Anderson,
(For Dan L. Crippen, Director).
Enclosure.
H.R. 3060--Emergency Securities Response Act of 2001
H.R. 3060 would lengthen the amount of time during which
the Securities and Exchange Commission (SEC) can exercise
special authority over securities markets in the event of an
emergency. The bill also would expand the definition of an
emergency to include major disturbances that disrupt the
functioning of securities markets.
Based on information from the SEC, CBO estimates that
implementing H.R. 3060 would have no significant budgetary
effect. The bill would not affect receipts or direct spending;
therefore, pay-as-you-go procedures would not apply.
H.R. 3060 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
The CBO staff contact for this estimate is Ken Johnson. The
estimate was approved by Robert A. Sunshine, Assistant Director
for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) and clause 3 (relating to
the power to regulate interstate commerce).
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section establishes the short title of the bill, the
``Emergency Securities Response Act.''
Section 2. Extension of emergency order authority of the securities
exchange commission
Section 2 modifies the authority of the Securities and
Exchange Commission to issue emergency orders under section
12(k)(2) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(k)(2)). The section modifies section 12(k)(2) to grant the
Commission authority to take emergency action with respect to
any matter or action subject to regulation by the Commission or
a self-regulatory organization under the securities laws, not
just under the Securities Exchange Act of 1934. The Committee
recognizes that emergency conditions can necessitate emergency
relief under securities laws other than the Securities Exchange
Act of 1934 and is broadening the emergency measures the
Commission can take under section 12(k)(2) accordingly.
The section also modifies the findings required for the
Commission to enter an emergency order by adding a third
finding that may support emergency action. Under new section
12(k)(2)(A)(iii), the Commission may take emergency action if
it determines that action is necessary in the public interest
and for the protection of investors ``to reduce, eliminate, or
prevent the substantial disruption by the emergency of (I)
securities markets, investment companies, or any other
significant portion or segment of such markets, or (II) the
transmission or processing of securities transactions.''
The first of these two findings--in section
12(k)(2)(A)(iii)(I)--covers situations in which emergency
relief is warranted to reduce, eliminate or prevent the
substantial disruption by the emergency of securities markets
broadly defined, including investment companies or any other
significant portion or segment of the securities markets (such
as broker-dealers or investment advisers, or a class thereof).
As illustrated by the aftermath of the terrorist attacks of
September 11, 2001, the effects of transportation and
communication problems, no less than market disruptions, can
require emergency relief. If transportation or communication
problems or other circumstances substantially disrupt or
threaten to substantially disrupt the operation of investment
companies, broker-dealers, or any other significant portion or
segment of the securities markets, and constitute an
``emergency'' under section 12(k)(6) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(k)(6)), section 12(k)(2)(A)(iii)(I)
allows the Commission to take emergency action under section
12(k)(2) even if the securities secondary-trading markets and
the national system for clearance and settlement of securities
transactions are not threatened or disrupted.
The second of these two findings--in section
12(k)(2)(A)(iii)(II)--covers situations in which emergency
relief is warranted to reduce, eliminate or prevent the
substantial disruption by the emergency of the transmission or
processing of securities transactions. The Committee is aware
that certain market participants experienced difficulties in
transmitting and processing securities transactions, including
government securities transactions, in the aftermath of the
attacks of September 11, 2001. In the future, should these or
other circumstances substantially disrupt or threaten to
substantially disrupt the transmission or processing of
securities transactions and constitute an ``emergency'' under
section 12(k)(6), section 12(k)(2)(A)(iii)(II) allows the
Commission to take emergency action under section 12(k)(2) even
if the national system for clearance and settlement of
securities transactions is not threatened or disrupted.
The section modifies the statute's definition of
``emergency'' to reflect the broader scope of findings that may
support an emergency order. Specifically, the definition of
``emergency'' in section 12(k)(6) of the Securities Exchange
Act (15 U.S.C. 78l(k)(6)) is modified to include a major
disturbance that substantially disrupts, or threatens to
substantially disrupt, the functioning of securities markets,
investment companies, or any other significant portion or
segment of such markets, or the transmission or processing of
securities transactions. This modification of section 12(k)(6)
mirrors the changes to the findings under section 12(k)(2)(A)
and, as discussed above, is designed to account for emergencies
that substantially disrupt, or threaten to substantially
disrupt, the securities markets broadly defined, including the
functioning of investment companies or any other significant
portion or segment of the securities markets or the
transmission or processing of securities transactions, even in
the absence of a major market disturbance under section
12(k)(6)(A).
The section also extends the duration of a Commission
emergency order to 30 business days, from the current ten
business days. The section also allows the Commission to extend
an emergency order for more than 30 business days, up to a
total of 90 calendar days, based upon certain findings.
Specifically, under new section 12(k)(2)(C) (15 U.S.C.
78l(k)(2)(C)), the Commission may extend the duration of an
emergency order beyond 30 business days if the Commission
finds, at the time of the extension, that the emergency still
exists, and determines that the continuation is necessary in
the public interest and for the protection of investors to
attain one of the three objectives that may support the
Commission's initial emergency action. The calendar day, as
opposed to business day, limit on total extensions of an
emergency order reflects the judgment that a total of
approximately three months is a reasonable limit on Commission
discretion, while providing sufficient latitude for the
Commission to provide appropriate immediate relief.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
registration requirements for securities
Sec. 12. (a) * * *
* * * * * * *
(k) Trading Suspensions; Emergency Authority.--
(1) * * *
[(2) Emergency orders.--(A) The Commission, in an
emergency, may by order summarily take such action to
alter, supplement, suspend, or impose requirements or
restrictions with respect to any matter or action
subject to regulation by the Commission or a self-
regulatory organization under this title, as the
Commission determines is necessary in the public
interest and for the protection of investors--
[(i) to maintain or restore fair and orderly
securities markets (other than markets in
exempted securities); or
[(ii) to ensure prompt, accurate, and safe
clearance and settlement of transactions in
securities (other than exempted securities).
[(B) An order of the Commission under this paragraph
(2) shall continue in effect for the period specified
by the Commission, and may be extended, except that in
no event shall the Commission's action continue in
effect for more than 10 business days, including
extensions. If the actions described in subparagraph
(A) involve a security futures product, the Commission
shall consult with and consider the views of the
Commodity Futures Trading Commission. In exercising its
authority under this paragraph, the Commission shall
not be required to comply with the provisions of
section 553 of title 5, United States Code, or with the
provisions of section 19(c) of this title.]
(2) Emergency orders.--(A) The Commission, in an
emergency, may by order summarily take such action to
alter, supplement, suspend, or impose requirements or
restrictions with respect to any matter or action
subject to regulation by the Commission or a self-
regulatory organization under the securities laws, as
the Commission determines is necessary in the public
interest and for the protection of investors--
(i) to maintain or restore fair and orderly
securities markets (other than markets in
exempted securities);
(ii) to ensure prompt, accurate, and safe
clearance and settlement of transactions in
securities (other than exempted securities); or
(iii) to reduce, eliminate, or prevent the
substantial disruption by the emergency of (I)
securities markets, investment companies, or
any other significant portion or segment of
such markets, or (II) the transmission or
processing of securities transactions.
(B) An order of the Commission under this paragraph
(2) shall continue in effect for the period specified
by the Commission, and may be extended. Except as
provided in subparagraph (C), the Commission's action
may not continue in effect for more than 30 business
days, including extensions. If the actions described in
subparagraph (A) involve a security futures product,
the Commission shall consult with and consider the
views of the Commodity Futures Trading Commission. In
exercising its authority under this paragraph, the
Commission shall not be required to comply with the
provisions of section 553 of title 5, United States
Code, or with the provisions of section 19(c) of this
title.
(C) An order of the Commission under this paragraph
(2) may be extended to continue in effect for more than
30 business days if, at the time of the extension, the
Commission finds that the emergency still exists and
determines that the continuation of the order beyond 30
business days is necessary in the public interest and
for the protection of investors to attain an objective
described in clause (i), (ii), or (iii) of subparagraph
(A). In no event shall an order of the Commission under
this paragraph (2) continue in effect for more than 90
calendar days.
* * * * * * *
[(6) Definition of emergency.--For purposes of this
subsection, the term ``emergency'' means a major market
disturbance characterized by or constituting--
[(A) sudden and excessive fluctuations of
securities prices generally, or a substantial
threat thereof, that threaten fair and orderly
markets, or
[(B) a substantial disruption of the safe or
efficient operation of the national system for
clearance and settlement of securities, or a
substantial threat thereof.]
(6) Definition of emergency.--For purposes of this
subsection, the term ``emergency'' means--
(A) a major market disturbance characterized
by or constituting--
(i) sudden and excessive fluctuations
of securities prices generally, or a
substantial threat thereof, that
threaten fair and orderly markets; or
(ii) a substantial disruption of the
safe or efficient operation of the
national system for clearance and
settlement of transactions in
securities, or a substantial threat
thereof; or
(B) a major disturbance that substantially
disrupts, or threatens to substantially
disrupt--
(i) the functioning of securities
markets, investment companies, or any
other significant portion or segment of
the securities markets; or
(ii) the transmission or processing
of securities transactions.
* * * * * * *