CITE
15 USC Sec. 80a-17 01/05/2009
EXPCITE
TITLE 15 - COMMERCE AND TRADE
CHAPTER 2D - INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I - INVESTMENT COMPANIES
HEAD
Sec. 80a-17. Transactions of certain affiliated persons and
underwriters
STATUTE
(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.
SOURCE
(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.