§ 80a-17. — Transactions of certain affiliated persons and underwriters.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC80a-17]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I--INVESTMENT COMPANIES
Sec. 80a-17. Transactions of certain affiliated persons and
underwriters
(a) Prohibited transactions
It shall be unlawful for any affiliated person or promoter of or
principal underwriter for a registered investment company (other than a
company of the character described in section 80a-12(d)(3)(A) and (B) of
this title), or any affiliated person of such a person, promoter, or
principal underwriter, acting as principal--
(1) knowingly to sell any security or other property to such
registered company or to any company controlled by such registered
company, unless such sale involves solely (A) securities of which
the buyer is the issuer, (B) securities of which the seller is the
issuer and which are part of a general offering to the holders of a
class of its securities, or (C) securities deposited with the
trustee of a unit investment trust or periodic payment plan by the
depositor thereof;
(2) knowingly to purchase from such registered company, or from
any company controlled by such registered company, any security or
other property (except securities of which the seller is the
issuer);
(3) to borrow money or other property from such registered
company or from any company controlled by such registered company
(unless the borrower is controlled by the lender) except as
permitted in section 80a-21(b) of this title; or
(4) to loan money or other property to such registered company,
or to any company controlled by such registered company, in
contravention of such rules, regulations, or orders as the
Commission may, after consultation with and taking into
consideration the views of the Federal banking agencies (as defined
in section 1813 of title 12), prescribe or issue consistent with the
protection of investors.
(b) Application for exemption of proposed transaction from certain
restrictions
Notwithstanding subsection (a) of this section, any person may file
with the Commission an application for an order exempting a proposed
transaction of the applicant from one or more provisions of said
subsection. The Commission shall grant such application and issue such
order of exemption if evidence establishes that--
(1) the terms of the proposed transaction, including the
consideration to be paid or received, are reasonable and fair and do
not involve overreaching on the part of any person concerned;
(2) the proposed transaction is consistent with the policy of
each registered investment company concerned, as recited in its
registration statement and reports filed under this subchapter; and
(3) the proposed transaction is consistent with the general
purposes of this subchapter.
(c) Sale or purchase of merchandise from any company or furnishing of
services incident to lessor-lessee relationship
Notwithstanding subsection (a) of this section, a person may, in the
ordinary course of business, sell to or purchase from any company
merchandise or may enter into a lessor-lessee relationship with any
person and furnish the services incident thereto.
(d) Joint or joint and several participation with company in
transactions
It shall be unlawful for any affiliated person of or principal
underwriter for a registered investment company (other than a company of
the character described in section 80a-12(d)(3) (A) and (B) of this
title), or any affiliated person of such a person or principal
underwriter, acting as principal to effect any transaction in which such
registered company, or a company controlled by such registered company,
is a joint or a joint and several participant with such person,
principal underwriter, or affiliated person, in contravention of such
rules and regulations as the Commission may prescribe for the purpose of
limiting or preventing participation by such registered or controlled
company on a basis different from or less advantageous than that of such
other participant. Nothing contained in this subsection shall be deemed
to preclude any affiliated person from acting as manager of any
underwriting syndicate or other group in which such registered or
controlled company is a participant and receiving compensation therefor.
(e) Acceptance of compensation, commissions, fees, etc.
It shall be unlawful for any affiliated person of a registered
investment company, or any affiliated person of such person--
(1) acting as agent, to accept from any source any compensation
(other than a regular salary or wages from such registered company)
for the purchase or sale of any property to or for such registered
company or any controlled company thereof, except in the course of
such person's business as an underwriter or broker; or
(2) acting as broker, in connection with the sale of securities
to or by such registered company or any controlled company thereof,
to receive from any source a commission, fee, or other remuneration
for effecting such transaction which exceeds (A) the usual and
customary broker's commission if the sale is effected on a
securities exchange, or (B) 2 per centum of the sales price if the
sale is effected in connection with a secondary distribution of such
securities, or (C) 1 per centum of the purchase or sale price of
such securities if the sale is otherwise effected unless the
Commission shall, by rules and regulations or order in the public
interest and consistent with the protection of investors, permit a
larger commission.
(f) Custody of securities
(1) Every registered management company shall place and maintain its
securities and similar investments in the custody of (A) a bank or banks
having the qualifications prescribed in paragraph (1) of section 80a-
26(a) of this title for the trustees of unit investment trusts; or (B) a
company which is a member of a national securities exchange as defined
in the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], subject
to such rules and regulations as the Commission may from time to time
prescribe for the protection of investors; or (C) such registered
company, but only in accordance with such rules and regulations or
orders as the Commission may from time to time prescribe for the
protection of investors.
(2) Subject to such rules, regulations, and orders as the Commission
may adopt as necessary or appropriate for the protection of investors, a
registered management company or any such custodian, with the consent of
the registered management company for which it acts as custodian, may
deposit all or any part of the securities owned by such registered
management company in a system for the central handling of securities
established by a national securities exchange or national securities
association registered with the Commission under the Securities Exchange
Act of 1934 [15 U.S.C. 78a et seq.], or such other person as may be
permitted by the Commission, pursuant to which system all securities of
any particular class or series of any issuer deposited within the system
are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities.
(3) Rules, regulations, and orders of the Commission under this
subsection, among other things, may make appropriate provision with
respect to such matters as the earmarking, segregation, and
hypothecation of such securities and investments, and may provide for or
require periodic or other inspections by any or all of the following:
Independent public accountants, employees and agents of the Commission,
and such other persons as the Commission may designate.
(4) No such member which trades in securities for its own account
may act as custodian except in accordance with rules and regulations
prescribed by the Commission for the protection of investors.
(5) If a registered company maintains its securities and similar
investments in the custody of a qualified bank or banks, the cash
proceeds from the sale of such securities and similar investments and
other cash assets of the company shall likewise be kept in the custody
of such a bank or banks, or in accordance with such rules and
regulations or orders as the Commission may from time to time prescribe
for the protection of investors, except that such a registered company
may maintain a checking account in a bank or banks having the
qualifications prescribed in paragraph (1) of section 80a-26(a) of this
title for the trustees of unit investment trusts with the balance of
such account or the aggregate balances of such accounts at no time in
excess of the amount of the fidelity bond, maintained pursuant to
subsection (g) of this section covering the officers or employees
authorized to draw on such account or accounts.
(6) The Commission may, after consultation with and taking into
consideration the views of the Federal banking agencies (as defined in
section 1813 of title 12), adopt rules and regulations, and issue
orders, consistent with the protection of investors, prescribing the
conditions under which a bank, or an affiliated person of a bank, either
of which is an affiliated person, promoter, organizer, or sponsor of, or
principal underwriter for, a registered management company may serve as
custodian of that registered management company.
(g) Bonding of officers and employees having access to securities or
funds
The Commission is authorized to require by rules and regulations or
orders for the protection of investors that any officer or employee of a
registered management investment company who may singly, or jointly with
others, have access to securities or funds of any registered company,
either directly or through authority to draw upon such funds or to
direct generally the disposition of such securities (unless the officer
or employee has such access solely through his position as an officer or
employee of a bank) be bonded by a reputable fidelity insurance company
against larceny and embezzlement in such reasonable minimum amounts as
the Commission may prescribe.
(h) Provisions in charter, by-laws, etc., protecting against liability
for willful misfeasance, etc.
After one year from the effective date of this subchapter, neither
the charter, certificate of incorporation, articles of association,
indenture of trust, nor the by-laws of any registered investment
company, nor any other instrument pursuant to which such a company is
organized or administered, shall contain any provision which protects or
purports to protect any director or officer of such company against any
liability to the company or to its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.
(i) Provisions in contracts protecting against willful misfeasance, etc.
After one year from the effective date of this subchapter no
contract or agreement under which any person undertakes to act as
investment adviser of, or principal underwriter for, a registered
investment company shall contain any provision which protects or
purports to protect such person against any liability to such company or
its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence, in the performance
of his duties, or by reason of his reckless disregard of his obligations
and duties under such contract or agreement.
(j) Rules and regulations prohibiting fraudulent, deceptive or
manipulative courses of conduct
It shall be unlawful for any affiliated person of or principal
underwriter for a registered investment company or any affiliated person
of an investment adviser of or principal underwriter for a registered
investment company, to engage in any act, practice, or course of
business in connection with the purchase or sale, directly or
indirectly, by such person of any security held or to be acquired by
such registered investment company in contravention of such rules and
regulations as the Commission may adopt to define, and prescribe means
reasonably necessary to prevent, such acts, practices, or courses of
business as are fraudulent, deceptive or manipulative. Such rules and
regulations may include requirements for the adoption of codes of ethics
by registered investment companies and investment advisers of, and
principal underwriters for, such investment companies establishing such
standards as are reasonably necessary to prevent such acts, practices,
or courses of business.
(Aug. 22, 1940, ch. 686, title I, Sec. 17, 54 Stat. 815; Pub. L. 91-547,
Sec. 9, Dec. 14, 1970, 84 Stat. 1420; Pub. L. 100-181, title VI,
Sec. 612, Dec. 4, 1987, 101 Stat. 1261; Pub. L. 106-102, title II,
Secs. 211(a), 212, Nov. 12, 1999, 113 Stat. 1396.)
References in Text
The Securities Exchange Act of 1934, referred to in subsec.
(f)(1)(B), (2), is act June 6, 1934, ch. 404, 48 Stat. 881, as amended,
which is classified generally to chapter 2B (Sec. 78a et seq.) of this
title. For complete classification of this Act to the Code, see section
78a of this title and Tables.
For the effective date of this subchapter, referred to in subsecs.
(h) and (i), see section 80a-52 of this title.
Amendments
1999--Subsec. (a)(4). Pub. L. 106-102, Sec. 212, added par. (4).
Subsec. (f). Pub. L. 106-102, Sec. 211(a), inserted heading,
designated first sentence as par. (1) and cls. (1) to (3) as (A) to (C),
respectively, designated second through fifth sentences as pars. (2) to
(5), respectively, and realigned margins, and added par. (6).
1987--Subsec. (h). Pub. L. 100-181 struck out second sentence which
read as follows: ``In the event that any such instrument does not at the
effective date of this chapter comply with the requirements of this
subsection and is not amended to comply therewith prior to the
expiration of said one year, such company may nevertheless continue to
be a registered investment company and shall not be deemed to violate
this subsection if prior to said expiration date each such director or
officer shall have filed with the Commission a waiver in writing of any
protective provision of the instrument to the extent that it does not
comply with this subsection, and each such person subsequently elected
or appointed shall before assuming office file a similar waiver.''
Subsec. (i). Pub. L. 100-181 struck out second sentence which read
as follows: ``In the event that any such contract or agreement does not
at the effective date of this chapter comply with the requirements of
this subsection and is not amended to comply therewith prior to the
expiration of said one year, this subsection shall not be deemed to have
been violated if prior to said expiration date each such investment
adviser or principal underwriter shall have filed with the Commission a
waiver in writing of any protective provision of the contract or
agreement to the extent that it does not comply with this subsection.''
1970--Subsec. (f). Pub. L. 91-547, Sec. 9(a), provided in cl. (1)
for a registered investment company which is a collective fund
maintained by a bank authority to keep its securities and similar
investments in the custody of the sponsoring bank, authorized a
registered management company or its custodian (with the consent of the
management company), subject to the rulemaking power of the Commission,
to deposit the securities of the management company in a central
certificate depository established by a national securities exchange or
a registered national securities association, and provided that if an
investment company employs a bank as a custodian for securities and
similar investments, then all of its cash assets, shall likewise be held
by a bank, subject to direction as to expenditure and disposition by
proper company officials, and provided for maintenance of a checking
account or accounts in one or more banks in amounts not to exceed the
amount of the fidelity bond covering persons authorized to draw on the
accounts.
Subsec. (g). Pub. L. 91-547, Sec. 9(b), substituted ``officer or
employee'' for ``officer and employee'' and inserted ``(unless the
officer or employee has such access solely through his position as an
officer or employee of a bank)'' before ``be bonded''.
Subsec. (j). Pub. L. 91-547, Sec. 9(c), added subsec. (j).
Effective Date of 1999 Amendment
Amendment by Pub. L. 106-102 effective 18 months after Nov. 12,
1999, see section 225 of Pub. L. 106-102, set out as a note under
section 77c of this title.
Effective Date of 1970 Amendment
Amendment by Pub. L. 91-547 effective Dec. 14, 1970, except that
amendment by section 9(a) of Pub. L. 91-547 effective on expiration of
one year after Dec. 14, 1970, see section 30 (introductory text and par.
(1)) of Pub. L. 91-547, set out as a note under section 80a-52 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 80a-6, 80a-35, 80a-56, 80a-
58 of this title.
