§ 78k. — Trading by members of exchanges, brokers, and dealers.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC78k]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B--SECURITIES EXCHANGES
Sec. 78k. Trading by members of exchanges, brokers, and dealers
(a) Trading for own account or account of associated person; exceptions
(1) It shall be unlawful for any member of a national securities
exchange to effect any transaction 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:
Provided, 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 security in which the member effecting such
transaction 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 security, or any risk arbitrage
transaction in connection with a merger, acquisition, tender offer,
or similar transaction involving a recapitalization;
(E) any transaction for the account of a natural 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
underwriting 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 normally is derived
principally from such business and related activities and (ii) such
transaction 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 members of
the exchange;
(H) any transaction for an account with respect to which such
member or an associated person thereof exercises investment
discretion if such member--
(i) has obtained, from the person or persons authorized to
transact business for the account, express authorization for
such member or associated person to effect such transactions
prior to engaging in the practice of effecting such
transactions;
(ii) furnishes the person or persons authorized to transact
business for the account with a statement at least annually
disclosing the aggregate compensation received by the exchange
member in effecting such transactions; and
(iii) complies with any rules the Commission has prescribed
with respect to the requirements 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 protection of investors, and the maintenance of fair and orderly
markets.
(2) The Commission, by rule, as it deems necessary or appropriate in
the public interest and for the protection of investors, to maintain
fair and orderly markets, or to assure equal regulation of exchange
markets and markets occurring otherwise than on an exchange, may
regulate or prohibit:
(A) transactions on a national securities exchange not unlawful
under paragraph (1) of this subsection effected by any member
thereof 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 national securities
exchange effected by use of the mails or any means or
instrumentality of interstate commerce by any member of a national
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 account with respect to which such member,
broker, or dealer or associated person thereof exercises investment
discretion; and
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\1\ So in original. Probably should be followed by a comma.
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(C) transactions on a national securities exchange effected by
any broker or dealer not a member thereof for the account of such
broker or dealer (unless such broker or dealer is acting in the
capacity of market maker), the account 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 subsection 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
construed to impair or limit the authority of the Commission to regulate
or prohibit such transactions 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 impediments to and perfect the mechanism
of a national market system, the rules of a national securities 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 acting as a broker or dealer. It shall be unlawful for a
specialist or an official of the exchange to disclose 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 representative of the Commission, or a specialist who may be
acting for such specialist: Provided, however, That the Commission, by
rule, may require disclosure to all members of the exchange of all
orders placed with specialists, under such rules and regulations as the
Commission may prescribe 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 exchange 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 transactions effected on an
exchange, it is in the opinion of the Commission impracticable and not
necessary or appropriate in the public interest or for the protection of
investors to apply any of the foregoing provisions of this section or
the rules and regulations thereunder, the Commission 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 exchange 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 national securities exchange or of the mails or of any
means or instrumentality of interstate commerce, or otherwise in the
case of a member, (1) any transaction in connection with which, directly
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 syndicate
or group within thirty days prior to such transaction: Provided, That
credit shall not be deemed extended by reason of a bona fide delayed
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 security or any small
business related security against full payment of the entire purchase
price thereof upon such delivery within one hundred 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
transaction 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, Sec. 11, 48 Stat. 891; Aug. 10, 1954,
ch. 667, title II, Sec. 201, 68 Stat. 686; Pub. L. 94-29, Sec. 6, June
4, 1975, 89 Stat. 110; Pub. L. 95-283, Sec. 18(a), May 21, 1978, 92
Stat. 275; Pub. L. 98-440, title I, Sec. 104, Oct. 3, 1984, 98 Stat.
1690; Pub. L. 103-68, Sec. 1, Aug. 11, 1993, 107 Stat. 691; Pub. L. 103-
325, title II, Sec. 205, Sept. 23, 1994, 108 Stat. 2199.)
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, Sec. 1(1), struck out
``(other than an investment company)'' after ``trust''.
Subsec. (a)(1)(H), (I). Pub. L. 103-68, Sec. 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 ``February 1,
1978'' for ``May 1, 1975'', and ``February 1, 1979'' for ``May 1, 1978''
in two places.
1975--Subsec. (a). Pub. L. 94-29, Sec. 6(2), prohibited stock
exchange members from effecting any transaction on the exchange for its
own account, the account of an associated person, or an account with
respect to which the member or an associated person exercises investment
discretion, exempted from that prohibition 8 types of transactions, and
authorized the Commission, as it deems necessary or appropriate in the
public interest or for the protection of investors, to regulate or
prohibit the specifically exempted transactions, certain transactions
otherwise that on a national securities exchange, and transactions on a
national securities exchange effected by a broker or dealer not a member
thereof for the account of such broker or dealer, the account of an
associated person, or an account with respect to which such broker,
dealer, or associated person exercises investment discretion.
Subsec. (b). Pub. L. 94-29, Sec. 6(2), struck out requirement that
specialist's dealings be limited to those transactions reasonably
necessary to permit him to maintain a fair and orderly market, expanded
the Commission's rulemaking authority in the area of specialist's
dealings so that the Commission may define responsibilities and restrict
activities of specialists in response to changing conditions in the
market, expanded the standards to be followed by the Commission in
exercising its rulemaking power to include the maintenance 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
reference 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, Sec. 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 extending credit to purchasers of a
new issue by dealers.
Effective Date of 1978 Amendment
Section 18(b) of Pub. L. 95-283 provided 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.
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, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat.
1265, set out under section 78d of this title.
Section Referred to in Other Sections
This section is referred to in sections 78f, 78o, 78y, 78hh of this
title; title 7 section 2.
