,,ii #aaeth ,,congress #ast ,session ,s4 #agdd ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,august #c1 #bjag,ms4 ,baldwin 7for herself and ,mr4 ,perdue7 introduced the following bill2 which was read twice and referred to the ,committee on ,banking1 ,housing1 and ,urban ,affairs ,a ,,bill ,to require the ,securities and ,exchange ,commission to amend certain regulations1 and for other purposes4 #a4 ,short title ,this ,act may be cited as the ,brokaw ,act4 #b4 ,beneficial ownership and short interests 7a7 ,amendments to rule #ac;d-#a 7#a7 ,in general ,not later than #a year after the date of enactment of this ,act1 the ,securities and ,exchange ,commission shall amend section #bdj4ac;d-#a of title #ag1 ,code of ,federal ,regulations1 by striking subsection 7a7 and inserting the following3 7a7 ,any person who-- 7#a7 after directly or indirectly acquiring the beneficial ownership of any equity security of a class described in subsection 7i71 is directly or indirectly the beneficial owner of more than #e percent of the class shall1 not later than #d business days after the acquisition1 file with the ,commission a statement containing the information required by ,schedule #ac;,d1 as described in section #bdj4ac;d-#aja2 and 7#b7 after acquiring a direct or indirect short interest in an equity security of a class described in subsection 7i71 has a direct or indirect short interest representing more than #e percent of the class shall1 not later than #d business days after the acquisition1 file with the ,commission a statement containing information that is substantially similar to the information required by ,schedule #ac;,d1 as described in section #bdj4ac;d-#aja4 4 7#b7 ,promulgation of regulation ,not later than the date on which the ,securities and ,exchange ,commission makes the amendments required by paragraph 7#a71 the ,commission shall promulgate a regulation detailing the information that shall be submitted to the ,commission under section #bdj4ac;d-#a7;a77#b7 of title #ag1 ,code of ,federal ,regulations1 as added by paragraph 7#a74 7b7 ,amendments to rule #ac;d-#c ,not later than #a year after the date of enactment of this ,act1 the ,securities and ,exchange ,commission shall amend section #bdj4ac;d-#c of title #ag1 ,code of ,federal ,regulations-- 7#a7 in subsection 7a7-- 7,a7 in the undesignated matter preceding paragraph 7#a71 by striking and #ac7;g7 and inserting 1 #ac7;g71 and #ac7s72 7,b7 in paragraph 7#a71 by striking and_/or12 7,c7 in paragraph 7#b71 by striking the period at the end and inserting 2 or2 and 7,d7 by adding at the end the following3 7#c7 ,a pecuniary or indirect pecuniary interest in such security4 2 and 7#b7 by adding at the end the following3 7e7 ,for the purposes of calculating1 with respect to a derivative instrument1 the #e per centum figure described in sections #ac7;d77#a71 #ac7;g77#a71 and #ac7s77#a7 of the ,act1 a person-- 7#a7 may use-- 7,a7 the number of shares that may be delivered to the person or by the person on the exercise of the rights under the derivative instrument2 7,b7 the number of shares by reference to which the amount payable under the derivative instrument is derived or determined2 7,c7 in the case of stock futures contracts1 the product obtained by multiplying the contract multiplier by the number of contracts held2 7,d7 in the case of a cash settled derivative the number of shares in the contract if the contract allows for a cash equivalent of the closing price of the share2 or 7,e7 when determining the number of outstanding shares of a class of equity securities1 the guidance provided under section #ac;d-#a7;j72 7#b7 shall1 with respect to a derivative instrument that does not have a delta that is equal to one 7including cash-settled options71 use the number of shares that the person could purchase with the cash that would result from the product that is obtained by multiplying the delta by the number of exposed shares2 7#c7 7,a7 may not take the difference between the percentage of a class of equity security in which the person has a short interest 7as described in section #ac7s77#c7 of the ,act7 and the percentage of that class of equity security in which the person has a long interest2 and 7,b7 shall use the greater percentage of which the person has-- 7i7 a short interest 7as described in section #ac7s77#c7 of the ,act7 in a class of equity security2 or 7ii7 a long interest in a class of equity security2 and 7#d7 shall calculate beneficial ownership in accordance with subsection 7d77#a74 7f7 ,for the purposes of this section-- 7#a7 the term delta means1 with respect to a financial instrument1 the proportion that reflects the change in the value of the instrument to the change in the value of the underlying asset2 7#b7 the term derivative instrument-- 7,a7 means any-- 7i7 option1 warrant1 convertible security1 stock appreciation right1 or similar right-- 7,i7 whether or not the right or instrument shall be subjected to settlement in the underlying equity security2 and 7,,ii7 with an exercise1 exchange1 or conversion privilege1 or right to a settlement payment at a price related to an equity security2 or 7ii7 similar instrument with a value derived in whole or in part from the value of an equity security2 and 7,b7 does not include-- 7i7 rights of a bona fide pledgee of securities to sell the pledged securities2 7ii7 rights of all holders of a class of securities of an issuer to receive securities pro rata1 or obligations to dispose of securities1 as a result of a merger1 exchange offer1 or consolidation involving the issuer of the securities2 7iii7 rights or obligations to surrender a security1 or to have a security withheld1 upon the receipt or exercise of a derivative security or the receipt or vesting of equity securities1 in order to satisfy the exercise price or the tax withholding consequences of receipt1 exercise1 or vesting2 7iv7 interests in broad-based index options1 broad-based index futures1 and broad-based publicly traded market baskets of stocks approved for trading by the appropriate authority of the ,federal ,government2 7v7 interests or rights to participate in employee benefit plans of the issuer held by employees or former employees of the issuer2 or 7vi7 options granted to an underwriter in a registered public offering for the purpose of satisfying over-allotments in the offering2 7#c7 the term immediate family-- 7,a7 means a person's-- 7i7 brother-in-law2 7ii7 child2 7iii7 daughter-in-law2 7iv7 father-in-law2 7v7 grandchild2 7vi7 grandparent2 7vii7 mother-in-law2 7viii7 parent2 7ix7 sibling2 7x7 sister-in-law2 7xi7 son-in-law2 7xii7 spouse2 7xiii7 stepchild2 or 7xiv7 stepparent2 and 7,b7 includes adoptive relationships2 7#d7 the term indirect pecuniary interest-- 7,a7 includes-- 7i7 ownership of any derivative instrument that contains the direct or indirect opportunity to profit from1 or share in any profit derived from1 an increase in the value of the subject security1 including the right to acquire the subject security through the exercise or conversion of a derivative instrument1 whether or not the right is exercisable on the date the right is obtained2 7ii7 securities held by immediate family members of an individual who share the same household of the individual1 except that the presumption of beneficial ownership in this circumstance shall be rebuttable2 7iii7 the proportionate interest of a general partner in the portfolio securities held by a general or limited partnership1 where the proportionate interest1 as evidenced by the partnership agreement in effect at the time of the transaction and the most recent financial statements of the partnership1 shall be the greater of-- 7,i7 the share of the profits of the general partner1 including-- 7aa7 7,,aa7 profits attributed to any limited partnership interests held by the general partner2 and 7,,bb7 any other interests in profits that arise from the purchase and sale of the sale of the portfolio securities of the partnership2 or 7,,ii7 the share of the partnership capital account belonging to the general partner1 including the share attributable to any limited partnership held by the general partner2 7iv7 subject to subparagraph 7,b77ii71 a performance-based fee received by any-- 7,i7 broker2 7,,ii7 dealer2 7,,iii7 bank2 7,,iv7 insurance company2 7,v7 investment company2 7,,vi7 investment adviser2 7,,vii7 investment manager2 or 7,,viii7 trustee or person performing a similar function2 7v7 a right to dividends only if the right is separated or separable from the underlying security or securities2 and 7vi7 interest in securities held by a trust1 to the extent that-- 7,i7 with respect to a trustee of the trust-- 7aa7 the trustee receives a performance-based fee that is not of the kind described in subparagraph 7,b77ii72 or 7bb7 an immediate family member of the trustee is a beneficiary of the trust2 7,,ii7 with respect to a beneficiary of the trust1 the beneficiary-- 7aa7 has investment control over trust assets2 or 7bb7 shares investment control over trust assets with the trustee of the trust2 and 7,,iii7 with respect to a settlor of the trust1 the settlor-- 7aa7 reserves the right to revoke the trust without the consent of another person2 and 7bb7 exercises or shares investment control over securities held by the trust2 and 7,b7 does not include-- 7i7 an asset-based fee2 7ii7 a performance-based fee1 regardless of when payable1 that is calculated based upon net capital gains or net capital appreciation generated from-- 7,i7 a portfolio2 or 7,,ii7 from the overall performance of a fiduciary over a period of not less than #a year2 and 7iii7 a situation in which equity securities of an issuer do not account for more than #aj percent of the market value of a portfolio2 7#e7 the term pecuniary interest means the direct or indirect opportunity to profit from1 or share in any profit derived from1 a transaction in the subject security2 and 7#f7 the term person includes-- 7,a7 two or more persons acting as a partnership1 limited partnership1 syndicate1 or other group1 or otherwise coordinating the actions of the persons1 for the purpose of-- 7i7 acquiring1 holding1 or disposing of securities of an issuer2 7ii7 seeking to control or influence the board1 management1 or policies of an issuer2 or 7iii7 evading1 or assisting others in evading1 the designation as a person under this paragraph2 or 7,b7 a hedge fund 7as that term is defined in section #ac7;h7 of the ,bank ,holding ,company ,act of #aief 7#ab ,u4,s4,c4 #ahea7;h77 or a group of hedge funds or persons that are1 as determined by the ,commission1 working together to evade the requirements of section #ac7;d71 #ac7;g71 or #ac7s7 of the ,act4 4 7c7 ,short interests ,section #ac of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #ghm7 is amended by adding at the end the following3 7s7 ,disclosure of short interests 7#a7 ,in general ,a person who1 after acquiring a direct or indirect short interest in an equity security of a class described in paragraph 7#b71 has a direct or indirect short interest representing more than #e per centum of the class1 shall1 not later than #d business days after the acquisition1 file with the ,commission a statement containing information that is substantially similar to the statement required under subsection 7d77#a74 7#b7 ,covered classes 7,a7 ,in general ,the requirements of paragraph 7#a7 shall apply to the following classes of securities3 7i7 ,any equity security of a class which is registered pursuant to section #ab4 7ii7 ,any equity security of an insurance company which would have been required to be registered in accordance with section #ab except for the exemption contained in section #ab7;g77#b77;,g74 7iii7 ,any equity security issued by a closed-end investment company registered under the ,investment ,company ,act of #aidj 7#ae ,u4,s4,c4 #hj;a-#a et seq474 7,b7 ,exception ,the requirements of paragraph 7#a7 shall not apply to an equity security that belongs to a nonvoting class4 7#c7 ,short interest ,for purposes of this section1 a person shall be deemed to have a short interest in a security if the person1 directly or indirectly1 through any contract1 arrangement1 understanding1 relationship1 or otherwise1 has the opportunity to profit from1 or share in any profit derived from1 any decrease in the value of the security1 including-- 7,a7 an interest resulting from transactions in the security1 including the sale of the security by the person when the person does not own the security2 7,b7 a derivative instrument 7as defined in section #bdj4ac;d-#c7;f77#b7 of title #ag1 ,code of ,federal ,regulations72 7,c7 an interest resulting from a securities transaction by members of the immediate family 7as defined in section #bdj4ac;d-#c7;f77#c7 of title #ag1 ,code of ,federal ,regulations7 sharing the same household as the person1 except that the presumption of the short interest in that circumstance is rebuttable2 7,d7 the proportionate interest of a general partner in the securities transaction by a general or limited partnership1 which1 as evidenced by the partnership agreement in effect at the time of the transaction and the most recent financial statements of the partnership1 shall be the greater of-- 7i7 the share of the profits of the partnership of the general partner1 including-- 7,i7 7aa7 profits attributed to any limited partnership interests held by the general partner2 and 7bb7 any other interests in profits that arise from the purchase and sale of the portfolio securities of the partnership2 or 7ii7 the share of the partnership capital account of the general partner1 including the share attributable to any limited partnership interest held by the general partner2 7,e7 a performance-related fee1 other than an asset-based fee1 received by any-- 7i7 broker2 7ii7 dealer2 7iii7 bank2 7iv7 insurance company2 7v7 investment company2 7vi7 investment adviser2 7vii7 investment manager2 or 7viii7 trustee or person performing a similar function2 and 7,f7 an interest of a person in securities transactions by a trust4 7#d7 ,exception to performance-related fee ,a person shall not be deemed to have a short interest in a security because of a performance-related fee described in paragraph 7#c77;,e7 if-- 7,a7 the performance-related fee1 regardless of when payable1 is calculated based upon net capital gains or net capital appreciation generated from-- 7i7 a portfolio2 or 7ii7 the overall performance of the fiduciary over a period of not less than #a year2 7,b7 interests resulting from transactions in the securities of the issuer do not account for more than #aj percent of the market value of a portfolio2 and 7,c7 the fee is only a right to a non performance-related fee4 7#e7 ,use of contract or other device to evade requirements ,a person shall be deemed to have a short interest in the security if the person1 directly or indirectly1 creates or uses a trust1 proxy1 power of attorney1 pooling arrangement1 or any other contract1 arrangement1 or device to divest the person of a short interest in a security or to prevent the vesting of the short interest in a security as part of a plan to evade the reporting requirements of this section4 7#f7 ,aggregation ,all securities of the same class in which a person has a short interest1 regardless of the form of the short interest1 shall be aggregated in calculating the number of shares in which the person has a short interest4 7#g7 ,exceptions ,notwithstanding paragraphs 7#c7 and 7#f7-- 7,a7 a person shall be deemed to have a short interest in a security if the person has the right to acquire1 not later than #fj days after the date on which the right is obtained1 a short interest in the security-- 7i7 through the exercise of any-- 7,i7 option2 7,,ii7 warrant2 or 7,,iii7 right2 7ii7 in accordance with the power to revoke a-- 7,i7 trust2 7,,ii7 discretionary account2 or 7,,iii7 similar arrangement2 or 7iii7 in accordance with the automatic termination of a-- 7,i7 trust2 7,,ii7 discretionary account2 or 7,,iii7 similar arrangement2 7,b7 a person shall be deemed to have a short interest in a security immediately upon acquisition of the security if the person acquires the security-- 7i7 by the means described in subparagraph 7,a72 and 7ii7 7,i7 with the purpose of changing or influencing the control of the issuer2 or 7,,ii7 in connection with1 or as a participant in1 a transaction having the purpose of changing or influencing the control of the issuer2 7,c7 any securities not outstanding which are subject to a provision described in subparagraph 7,a77i7-- 7i7 shall be deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class shorted by a person2 and 7ii7 shall not be deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class by any other person2 and 7,d7 subparagraphs 7,a7 through 7,c7 shall remain applicable for the purpose of determining the obligation to file with respect to the underlying security even though the option1 warrant1 or right is-- 7i7 of a class of equity security1 as defined in section #bdj4ac;d-#a7;i7 of title #ag1 ,code of ,federal ,regulations1 or any successor thereto2 and 7ii7 may give rise to a separate obligation to file4 4 7d7 ,effective date ,the amendments made by subsections 7b7 and 7c7 shall take effect on the date on which the ,securities and ,exchange ,commission makes the amendments required under subsection 7a74