15 U.S.C. § 78i — Manipulation of security prices

Page 266 TITLE 15—COMMERCE AND TRADE § 78h that the amendment made by title III [amending this section] shall be effective on any date not earlier than the publication of the regulation in the Federal Reg- ister and not later than the first day of the thirteenth calendar month which begins after the date of enact- ment [Oct. 26, 1970].’’ VALIDITY OF RULES AND REGULATIONS Pub. L. 91–508, title III, § 301(b), Oct. 26, 1970, 84 Stat. 1125, provided that: ‘‘The amendment made by sub- section (a) of this section [amending this section] does not affect the continuing validity of any rule or regula- tion under section 7 of the Securities Exchange Act of 1934 [this section] in effect prior to the effective date of the amendment.’’ § 78h. Restrictions on borrowing and lending by members, brokers, and dealers It shall be unlawful for any registered broker or dealer, member of a national securities ex- change, or broker or dealer who transacts a business in securities through the medium of any member of a national securities exchange, directly or indirectly— (a) In contravention of such rules and regula- tions as the Commission shall prescribe for the protection of investors to hypothecate or ar- range for the hypothecation of any securities carried for the account of any customer under circumstances (1) that will permit the commin- gling of his securities without his written con- sent with the securities of any other customer, (2) that will permit such securities to be com- mingled with the securities of any person other than a bona fide customer, or (3) that will per- mit such securities to be hypothecated, or sub- jected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities. (b) To lend or arrange for the lending of any securities carried for the account of any cus- tomer without the written consent of such cus- tomer or in contravention of such rules and reg- ulations as the Commission shall prescribe for the protection of investors. (June 6, 1934, ch. 404, title I, § 8, 48 Stat. 888; Aug. 23, 1935, ch. 614, § 203(a), 49 Stat. 704; Pub. L. 94–29, § 5, June 4, 1975, 89 Stat. 109; Pub. L. 98–440, title I, § 103, Oct. 3, 1984, 98 Stat. 1690; Pub. L. 103–325, title II, § 204, Sept. 23, 1994, 108 Stat. 2199; Pub. L. 104–290, title I, § 104(b), Oct. 11, 1996, 110 Stat. 3423.) Editorial Notes AMENDMENTS 1996—Pub. L. 104–290 redesignated subsecs. (b) and (c) as (a) and (b), respectively, and struck out former sub- sec. (a) which related to borrowing in ordinary course of business as broker or dealer on any security, except exempted security, registered on national securities ex- change. 1994—Subsec. (a). Pub. L. 103–325 inserted ‘‘or a small business related security’’ after ‘‘mortgage related se- curity’’ in last sentence. 1984—Subsec. (a). Pub. L. 98–440 inserted provision that no person shall be deemed to have borrowed within the ordinary course of business, within the meaning of this subsection, by reason of a bona fide agreement for delayed delivery of a mortgage related security under certain conditions. 1975—Pub. L. 94–29, § 5(1), substituted ‘‘any registered broker or dealer, member of a national securities ex- change, or broker or dealer who transacts a business in securities through the medium of any member of a na- tional securities exchange’’ for ‘‘any member of a na- tional securities exchange, or any broker or dealer who transacts a business in securities through the medium of any such member’’ in provisions preceding subsec. (a). Subsecs. (b) to (d). Pub. L. 94–29, § 5(2), redesignated subsecs. (c) and (d) as (b) and (c), respectively, and in subsec. (c) as so redesignated inserted ‘‘or in contraven- tion of such rules and regulations as the Commissioner shall prescribe for the protection of investors’’ after ‘‘written consent of such customer’’. Former subsec. (b), which covered the maximum allowable aggregate indebtedness of brokers, was struck out. Statutory Notes and Related Subsidiaries CHANGE OF NAME Act Aug. 23, 1935, substituted ‘‘Board of Governors of the Federal Reserve System’’ for ‘‘Federal Reserve Board’’. 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. Executive Documents 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, §§ 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title. § 78i. Manipulation of security prices (a) Transactions relating to purchase or sale of security It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities ex- change— (1) For the purpose of creating a false or misleading appearance of active trading in any security other than a government security, or a false or misleading appearance with respect to the market for any such security, (A) to ef- fect any transaction in such security which in- volves no change in the beneficial ownership thereof, or (B) to enter an order or orders for the purchase of such security with the knowl- edge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (C) to enter any order or orders for the sale of any such security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties. (2) To effect, alone or with 1 or more other persons, a series of transactions in any secu- rity registered on a national securities ex- change, any security not so registered, or in connection with any security-based swap or security-based swap agreement with respect to such security creating actual or apparent ac- Page 267 TITLE 15—COMMERCE AND TRADE § 78i tive trading in such security, or raising or de- pressing the price of such security, for the pur- pose of inducing the purchase or sale of such security by others. (3) If a dealer, broker, security-based swap dealer, major security-based swap participant, or other person selling or offering for sale or purchasing or offering to purchase the secu- rity, a security-based swap, or a security- based swap agreement with respect to such se- curity, to induce the purchase or sale of any security registered on a national securities ex- change, any security not so registered, any se- curity-based swap, or any security-based swap agreement with respect to such security by the circulation or dissemination in the ordi- nary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any 1 or more persons conducted for the purpose of raising or depressing the price of such security. (4) If a dealer, broker, security-based swap dealer, major security-based swap participant, or other person selling or offering for sale or purchasing or offering to purchase the secu- rity, a security-based swap, or security-based swap agreement with respect to such security, to make, regarding any security registered on a national securities exchange, any security not so registered, any security-based swap, or any security-based swap agreement with re- spect to such security, for the purpose of in- ducing the purchase or sale of such security, such security-based swap, or such security- based swap agreement any statement which was at the time and in the light of the cir- cumstances under which it was made, false or misleading with respect to any material fact, and which that person knew or had reasonable ground to believe was so false or misleading. (5) For a consideration, received directly or indirectly from a broker, dealer, security- based swap dealer, major security-based swap participant, or other person selling or offering for sale or purchasing or offering to purchase the security, a security-based swap, or secu- rity-based swap agreement with respect to such security, to induce the purchase of any security registered on a national securities ex- change, any security not so registered, any se- curity-based swap, or any security-based swap agreement with respect to such security by the circulation or dissemination of informa- tion to the effect that the price of any such se- curity will or is likely to rise or fall because of the market operations of any 1 or more per- sons conducted for the purpose of raising or depressing the price of such security. (6) To effect either alone or with one or more other persons any series of transactions for the purchase and/or sale of any security other than a government security for the purpose of pegging, fixing, or stabilizing the price of such security in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public in- terest or for the protection of investors. (b) Transactions relating to puts, calls, straddles, options, futures, or security-based swaps It shall be unlawful for any person to effect, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the pro- tection of investors— (1) any transaction in connection with any security whereby any party to such trans- action acquires— (A) any put, call, straddle, or other option or privilege of buying the security from or selling the security to another without being bound to do so; (B) any security futures product on the se- curity; or (C) any security-based swap involving the security or the issuer of the security; (2) any transaction in connection with any security with relation to which such person has, directly or indirectly, any interest in any— (A) such put, call, straddle, option, or privilege; (B) such security futures product; or (C) such security-based swap; or (3) any transaction in any security for the account of any person who such person has reason to believe has, and who actually has, directly or indirectly, any interest in any— (A) such put, call, straddle, option, or privilege; (B) such security futures product with re- lation to such security; or (C) any security-based swap involving such security or the issuer of such security. (c) Endorsement or guarantee of puts, calls, straddles, or options It shall be unlawful for any broker, dealer, or member of a national securities exchange di- rectly or indirectly to endorse or guarantee the performance of any put, call, straddle, option, or privilege in relation to any security other than a government security, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the pub- lic interest or for the protection of investors. (d) Transactions relating to short sales of securi- ties It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities ex- change to effect, alone or with one or more other persons, a manipulative short sale of any security. The Commission shall issue such other rules as are necessary or appropriate to ensure that the appropriate enforcement options and remedies are available for violations of this sub- section in the public interest or for the protec- tion of investors. (e) Registered warrant, right, or convertible se- curity not included in ‘‘put’’, ‘‘call’’, ‘‘strad- dle’’, or ‘‘option’’ The terms ‘‘put’’, ‘‘call’’, ‘‘straddle’’, ‘‘option’’, or ‘‘privilege’’ as used in this section shall not include any registered warrant, right, or con- vertible security. Page 268 TITLE 15—COMMERCE AND TRADE § 78i 1 So in original. Two subsecs. (j) have been enacted. (f) Persons liable; suits at law or in equity Any person who willfully participates in any act or transaction in violation of subsections (a), (b), or (c) of this section, shall be liable to any person who shall purchase or sell any secu- rity at a price which was affected by such act or transaction, and the person so injured may sue in law or in equity in any court of competent ju- risdiction to recover the damages sustained as a result of any such act or transaction. In any such suit the court may, in its discretion, re- quire an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against ei- ther party litigant. Every person who becomes liable to make any payment under this sub- section may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. No action shall be main- tained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such vio- lation. (g) Subsection (a) not applicable to exempted se- curities The provisions of subsection (a) shall not apply to an exempted security. (h) Foreign currencies and security futures prod- ucts (1) Notwithstanding any other provision of law, the Commission shall have the authority to regulate the trading of any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (in- cluding any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency (but not, with respect to any of the foregoing, an option on a contract for future delivery other than a se- curity futures product). (2) Notwithstanding the Commodity Exchange Act [7 U.S.C. 1 et seq.], the Commission shall have the authority to regulate the trading of any security futures product to the extent pro- vided in the securities laws. (i) Limitations on practices that affect market volatility It shall be unlawful for any person, by the use of the mails or any means or instrumentality of interstate commerce or of any facility of any national securities exchange, to use or employ any act or practice in connection with the pur- chase or sale of any equity security in con- travention of such rules or regulations as the Commission may adopt, consistent with the public interest, the protection of investors, and the maintenance of fair and orderly markets— (1) to prescribe means reasonably designed to prevent manipulation of price levels of the equity securities market or a substantial seg- ment thereof; and (2) to prohibit or constrain, during periods of extraordinary market volatility, any trading practice in connection with the purchase or sale of equity securities that the Commission determines (A) has previously contributed sig- nificantly to extraordinary levels of volatility that have threatened the maintenance of fair and orderly markets; and (B) is reasonably certain to engender such levels of volatility if not prohibited or constrained. In adopting rules under paragraph (2), the Com- mission shall, consistent with the purposes of this subsection, minimize the impact on the nor- mal operations of the market and a natural per- son’s freedom to buy or sell any equity security. (j) 1 Limitation on Commission authority The authority of the Commission under this section with respect to security-based swap agreements shall be subject to the restrictions and limitations of section 78c–1(b) of this title. (j) 1 Regulations relating to security-based swaps It shall be unlawful for any person, directly or indirectly, by the use of any means or instru- mentality of interstate commerce or of the mails, or of any facility of any national securi- ties exchange, to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security-based swap, in connection with which such person engages in any fraudulent, deceptive, or manipulative act or practice, makes any fictitious quotation, or engages in any transaction, practice, or course of business which operates as a fraud or deceit upon any person. The Commission shall, for the purposes of this subsection, by rules and regulations de- fine, and prescribe means reasonably designed to prevent, such transactions, acts, practices, and courses of business as are fraudulent, deceptive, or manipulative, and such quotations as are fic- titious. (June 6, 1934, ch. 404, title I, § 9, 48 Stat. 889; Pub. L. 97–303, § 3, Oct. 13, 1982, 96 Stat. 1409; Pub. L. 101–432, § 6(a), Oct. 16, 1990, 104 Stat. 975; Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(1), (2), title III, § 303(b), (c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–425, 2763A–426, 2763A–453, 2763A–454; Pub. L. 111–203, title VII, §§ 762(d)(2), 763(f), (g), title IX, §§ 929L(1), 929X(b), July 21, 2010, 124 Stat. 1760, 1777, 1861, 1870.) Editorial Notes REFERENCES IN TEXT The Commodity Exchange Act, referred to in subsec. (h)(2), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which is classified generally to chapter 1 (§ 1 et seq.) of Title 7, Agriculture. For complete classification of this Act to the Code, see section 1 of Title 7 and Tables. AMENDMENTS 2010—Subsec. (a). Pub. L. 111–203, § 929L(1)(A), sub- stituted ‘‘other than a government security’’ for ‘‘reg- istered on a national securities exchange’’ wherever ap- pearing. Subsec. (a)(2) to (5). Pub. L. 111–203, § 762(d)(2)(A), added pars. (2) to (5) and struck out former pars. (2) to (5) which prohibited certain actions in the purchase or sale of a security or a security-based swap agreement, such as making false or misleading statements or cre- ating conditions to raise or depress the price of such se- curity. Subsec. (b). Pub. L. 111–203, § 929L(1)(B), struck out ‘‘by use of any facility of a national securities ex- change,’’ after ‘‘effect,’’ in introductory provisions. Page 269 TITLE 15—COMMERCE AND TRADE § 78j 1 So in original. Probably should be followed by a comma. Subsec. (b)(1) to (3). Pub. L. 111–203, § 763(f), added pars. (1) to (3) and struck out former pars. (1) to (3) which read as follows: ‘‘(1) any transaction in connection with any security whereby any party to such transaction acquires (A) any put, call, straddle, or other option or privilege of buy- ing the security from or selling the security to another without being bound to do so; or (B) any security fu- tures product on the security; or ‘‘(2) any transaction in connection with any security with relation to which he has, directly or indirectly, any interest in any (A) such put, call, straddle, option, or privilege; or (B) such security futures product; or ‘‘(3) any transaction in any security for the account of any person who he has reason to believe has, and who actually has, directly or indirectly, any interest in any (A) such put, call, straddle, option, or privilege; or (B) such security futures product with relation to such se- curity.’’ Subsec. (c). Pub. L. 111–203, § 929L(1)(C), inserted ‘‘broker, dealer, or’’ after ‘‘unlawful for any’’. Pub. L. 111–203, § 929L(1)(A), substituted ‘‘other than a government security’’ for ‘‘registered on a national se- curities exchange’’. Subsecs. (d) to (i). Pub. L. 111–203, § 929X(b), added subsec. (d) and redesignated former subsecs. (d) to (h) as (e) to (i), respectively. Former subsec. (i), relating to limitation on Commission authority, redesignated (j). Subsec. (j). Pub. L. 111–203, § 929X(b)(1), redesignated subsec. (i), relating to limitation on Commission au- thority, as (j). Pub. L. 111–203, § 763(g), added subsec. (j) relating to regulations relating to security-based swaps. Pub. L. 111–203, § 762(d)(2)(B), which directed amend- ment of subsec. (i) by striking out ‘‘(as defined in sec- tion 206B of the Gramm-Leach-Bliley Act)’’, was exe- cuted by making the strike out after ‘‘security-based swap agreements’’ in subsec. (j) relating to limitation on Commission authority, to reflect the probable in- tent of Congress and the redesignation of subsec. (i) as (j) by Pub. L. 111–203, § 929X(b)(1). See above and Effec- tive Date of 2010 Amendment notes below. 2000—Subsec. (a)(2) to (5). Pub. L. 106–554, § 1(a)(5) [title III, § 303(b)], amended pars. (2) to (5) generally. Prior to amendment, pars. (2) to (5) read as follows: ‘‘(2) To effect, alone or with one or more other per- sons, a series of transactions in any security registered on a national securities exchange creating actual or ap- parent active trading in such security or raising or de- pressing the price of such security, for the purpose of inducing the purchase or sale of such security by oth- ers. ‘‘(3) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any secu- rity registered on a national securities exchange by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons con- ducted for the purpose of raising or depressing the prices of such security. ‘‘(4) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to make, regarding any security reg- istered on a national securities exchange, for the pur- pose of inducing the purchase or sale of such security, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasonable ground to believe was so false or misleading. ‘‘(5) For a consideration, received directly or indi- rectly from a dealer or broker, or other person selling or offering for sale or purchasing or offering to pur- chase the security, to induce the purchase or sale of any security registered on a national securities ex- change by the circulation or dissemination of informa- tion to the effect that the price of any such security will or is likely to rise or fall because of the market op- erations of any one or more persons conducted for the purpose of raising or depressing the price of such secu- rity.’’ Subsec. (b)(1). Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(1)(A)], inserted ‘‘(A)’’ after ‘‘acquires’’ and sub- stituted ‘‘; or (B) any security futures product on the security; or’’ for ‘‘; or’’. Subsec. (b)(2). Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(1)(B)], inserted ‘‘(A)’’ after ‘‘interest in any’’ and substituted ‘‘; or (B) such security futures product; or’’ for ‘‘; or’’. Subsec. (b)(3). Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(1)(C)], inserted ‘‘(A)’’ after ‘‘interest in any’’ and ‘‘; or (B) such security futures product’’ after ‘‘privilege’’. Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(2)], designated existing provisions as par. (1), in- serted ‘‘other than a security futures product’’ after ‘‘future delivery’’, and added par. (2). Subsec. (i). Pub. L. 106–554, § 1(a)(5) [title III, § 303(c)], added subsec. (i). 1990—Subsec. (h). Pub. L. 101–432 added subsec. (h). 1982—Subsec. (f). Pub. L. 97–303, § 3(1), substituted ‘‘The provisions of subsection (a) shall not apply’’ for ‘‘The provisions of this section shall not apply’’. Subsec. (g). Pub. L. 97–303, § 3(2), added subsec. (g). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by sections 929L(1) and 929X(b) of Pub. L. 111–203 effective 1 day after July 21, 2010, except as oth- erwise provided, see section 4 of Pub. L. 111–203, set out as an Effective Date note under section 5301 Title 12, Banks and Banking. Amendment by sections 762(d)(2) and 763(f), (g) of Pub. L. 111–203 effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203 requires a rule- making, not less than 60 days after publication of the final rule or regulation implementing such provision of subtitle B, see section 774 of Pub. L. 111–203, set out as a note under section 77b of this title. Executive Documents 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, §§ 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title. § 78j. Manipulative and deceptive devices It shall be unlawful for any person, directly or indirectly, by the use of any means or instru- mentality of interstate commerce or of the mails, or of any facility of any national securi- ties exchange— (a)(1) To effect a short sale, or to use or em- ploy any stop-loss order in connection with the purchase or sale, of any security other than a government security, in contravention of such rules and regulations as the Commis- sion may prescribe as necessary or appropriate in the public interest or for the protection of investors. (2) Paragraph (1) of this subsection shall not apply to security futures products. (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement 1 any manipulative or deceptive de-