October 1, 1996
TO: BOARD OF GOVERNORS No. 55-96
MEMBERS - ONE PER COMPLEX No. 69-96
FEDERAL LEGISLATION MEMBERS No. 16-96
SEC RULES MEMBERS No. 56-96
STATE SECURITIES MEMBERS No. 35-96
UNIT INVESTMENT TRUST MEMBERS No. 43-96
CLOSED-END MEMBERS - ONE PER COMPLEX No. 1-96
PUBLIC INFORMATION COMMITTEE No. 39-96
INVESTMENT ADVISER ASSOCIATE MEMBERS No. 35-96
INVESTMENT ADVISER MEMBERS No. 38-96
RE: CONGRESS PASSES MAJOR SECURITIES LEGISLATION; PRESIDENT
EXPECTED TO SIGN
______________________________________________________________________________
VIA FACSIMILE AND U.S. MAIL
I am pleased to report that Congress passed H.R. 3005, the "National Securities Markets
Improvement Act of 1996," sending it to President Clinton for his signature. The legislation
addresses three significant areas.
Mutual Funds
For the first time since the federal securities laws were enacted in the 1930s, H.R. 3005
would redefine the manner in which mutual funds are regulated by state and federal
regulators. It would eliminate state registration of mutual funds, eliminate state review of
fund prospectuses and sales literature, and preclude states from imposing merit standards
on funds. States would continue to be able to require funds to make notice filings, to assess
fees, and to bring antifraud actions.
The legislation also amends the Investment Company Act of 1940 to:
establish an exemption from the current restrictions on "funds of funds" for certain
affiliated funds and give the SEC authority to grant further exemptions;
simplify funds’ calculation of registration fees;
ease restrictions on mutual fund advertising;
modify provisions regarding funds’ recordkeeping and periodic reporting
obligations;
permit the SEC to prohibit misleading fund names by rule or order; and
1 See Memorandum to Board of Governors No. 31-96, Federal Legislation Members No. 9-96, Members - One Per Complex No. 51-96, Public Information Committee No. 26-96, SEC Rules Committee No. 63-96, and
State Liaison Committee No. 18-96, dated June 19, 1996.
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establish exemptions for funds sold only to institutional investors and wealthy
individuals that meet certain minimum statutory standards ($25 million and $5
million in investments, respectively) and for certain market intermediaries; the SEC
was not granted additional authority to change these statutory standards.
Investment Advisers
The legislation grants the SEC exclusive jurisdiction over advisers to mutual funds and
large advisers (defined as advisers with assets under management of $25 million or more).
Adviser representatives would continue to be regulated and licensed at the state level. The
legislation provides for the establishment of a toll-free number that investors can call to check
an adviser’s disciplinary history.
SEC Funding
The legislation provides for adequate funding for the SEC while at the same time
lowering fees paid by the securities industry to the SEC by $850 million over 10 years. The
Institute has historically supported appropriate funding for the SEC, but viewed the excess fees,
which go to the general Treasury, as a tax.
This historic legislation is the result of a cooperative effort by the Institute and its
members, the SEC, NASAA, other interested trade organizations and a strong bipartisan
Congressional effort. The core of H.R. 3005 is the landmark Fields/Markey legislation passed
by the House earlier this year.1 The SEC funding provisions are the result of House
Commerce Committee Chairman Thomas Bliley’s (R-VA) initiative. The adviser provisions
are the result of Senate efforts led by Senate Banking Committee Chairman Alfonse D’Amato
(R-NY) and Senator Phil Gramm (R-TX).
I would like to thank the many Institute members who participated in this successful
effort. We will advise you of the President’s action.
Matthew P. Fink
President
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