S AMDT 1964

S 1964 IS

To require disclosure of financial relationships between brokers and dealers and mutual fund companies, and of certain commissions paid by mutual fund companies.

October 28, 2009

Mr. AKAKA introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

To require disclosure of financial relationships between brokers and dealers and mutual fund companies, and of certain commissions paid by mutual fund companies.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Mutual Fund Transparency Act of 2009’.

SEC. 2. DISCLOSURE OF FINANCIAL RELATIONSHIPS BETWEEN BROKERS AND DEALERS AND MUTUAL FUND COMPANIES.

(a) In General- Section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended by adding at the end the following:

‘(13) CONFIRMATION OF TRANSACTIONS FOR MUTUAL FUNDS-

‘(A) IN GENERAL- Each broker and dealer shall disclose in writing to customers that purchase the shares of any open-end or closed-end company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8) or any interest in a unit investment trust or municipal securities registered under this title used for education savings plans--

‘(i) the amount of any compensation received or to be received by the broker or dealer in connection with such transaction from any sources; and

‘(ii) such other information as the Commission determines appropriate.

‘(B) REVENUE SHARING- The term ‘compensation’ under subparagraph (A) includes any direct or indirect payment made by an investment adviser (or any affiliate of an investment adviser) to a broker or dealer for the purpose of promoting the sales of securities of an entity described in subparagraph (A), and payments made by an underwriter of the fund to a broker or dealer.

‘(C) TIMING OF DISCLOSURE- The disclosure required under subparagraph (A) shall be provided or sent to a customer not later than the date of the completion of the transaction.

‘(D) LIMITATION- The disclosures required under subparagraph (A) may not be made exclusively in--

‘(i) a registration statement or prospectus of an entity described in subparagraph (A); or

‘(ii) any other filing of an entity described in subparagraph (A) with the Commission.

‘(E) COMMISSION AUTHORITY-

‘(i) IN GENERAL- The Commission shall issue such final rules or regulations as are necessary to carry out this paragraph, not later than 1 year after the date of enactment of the Mutual Fund Transparency Act of 2009.

‘(ii) FORM OF DISCLOSURE- Disclosures under this paragraph shall be in such form as the Commission shall require by rule.

‘(F) DEFINITIONS- In this paragraph--

‘(i) the terms ‘open-end company’ and ‘closed-end company’ have the same meanings as in section 5 of the Investment Company Act of 1940 (15 U.S.C. 80a-5);

‘(ii) the term ‘unit investment trust’ has the same meaning as in section 4 of the Investment Company Act of 1940 (15 U.S.C. 80a-4); and

‘(iii) the term ‘education savings plan’ means a qualified tuition program described in section 529(b)(1)(A)(ii) of the Internal Revenue Code of 1986.’.

(b) Disclosure of Brokerage Commissions- Section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29) is amended by adding at the end the following:

‘(k) Disclosure of Brokerage Commissions- The Commission, by rule, shall require that brokerage commissions as an aggregate dollar amount and percentage of assets paid by an open-end or closed-end company or a unit investment trust or issuer of municipal securities during the 5-year period preceding the date of the transaction be included in any disclosure of the amount of fees and expenses that may be payable by the holder of the securities of such company for purposes of--

‘(1) the registration statement of that company; and

‘(2) any other filing of that company with the Commission, including the calculation of expense ratios.’.

SEC. 3. MUTUAL FUND GOVERNANCE.

(a) Independent Fund Boards- Section 10(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-10(a)) is amended--

(1) by striking ‘shall have’ and inserting the following: ‘shall--

‘(1) have’;

(2) by striking ‘60 per centum’ and inserting ‘25 percent’;

(3) by striking the period at the end and inserting a semicolon; and

(4) by adding at the end the following:

‘(2) have as chairman of its board of directors an interested person of such registered company; or

‘(3) permit any person (other than an interested person, as described in paragraph (1)) to serve as a member of its board of directors, unless that person--

‘(A) is approved or elected by the shareholders of such registered investment company at least once every 5 years; and

‘(B) has been found, on an annual basis, by a majority of the directors who are not interested persons, after reasonable inquiry by such directors, not to have any material business or familial relationship with the registered company, a significant service provider to the company, or any entity controlling, controlled by, or under common control with such service provider, that could reasonably be interpreted as a conflict of interest or cast doubt on the independence of the director.’.

(b) Action by Independent Directors- Section 10 of the Investment Company Act of 1940 (15 U.S.C. 80a-10) is amended by adding at the end the following:

‘(i) Action by Board of Directors- No action taken by the board of directors of a registered investment company may require the vote of a director who is an interested person of such registered investment company.

‘(j) Independent Committee-

‘(1) IN GENERAL- The members of the board of directors of a registered investment company who are not interested persons of such registered investment company shall establish a committee comprised solely of such members, which committee shall be responsible for--

‘(A) selecting persons to be nominated for election to the board of directors; and

‘(B) adopting qualification standards for the nomination of directors.

‘(2) DISCLOSURE- The standards developed under paragraph (1)(B) shall be disclosed in the registration statement of the registered investment company.’.

(c) Definition of Interested Person- Section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)) is amended--

(1) in subparagraph (A)--

(A) in clause (iv), by striking ‘two’ and inserting ‘5’; and

(B) by striking clause (vii) and inserting the following:

‘(vii) any natural person who has served as an officer or director, or as an employee within the preceding 10 fiscal years, of an investment adviser or principal underwriter to such registered investment company, or of any entity controlling, controlled by, or under common control with such investment adviser or principal underwriter;

‘(viii) any natural person who has served as an officer or director, or as an employee within the preceding 10 fiscal years, of any entity that has within the preceding 5 fiscal years acted as a significant service provider to such registered investment company, or of any entity controlling, controlled by, or under the common control with such service provider;

‘(ix) any natural person who is a member of a class of persons that the Commission, by rule or regulation, determines is unlikely to exercise an appropriate degree of independence as a result of--

‘(I) a material business or professional relationship with the investment company or an affiliated person of such investment company;

‘(II) a close familial relationship with any natural person who is an affiliated person of such investment company; or

‘(III) any other reason determined by the Commission:’; and

(2) in subparagraph (B)--

(A) in clause (iv), by striking ‘two’ and inserting ‘5’; and

(B) by striking clause (vii) and inserting the following:

‘(vii) any natural person who is a member of a class of persons that the Commission, by rule or regulation, determines is unlikely to exercise an appropriate degree of independence as a result of--

‘(I) a material business or professional relationship with such investment adviser or principal underwriter or affiliated person of such investment adviser or principal underwriter;

‘(II) a close familial relationship with any natural person who is an affiliated person of such investment adviser or principal underwriter; or

‘(III) any other reason, as determined by the Commission.’.

(d) Definition of Significant Service Provider- Section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by adding at the end the following:

‘(54) SIGNIFICANT SERVICE PROVIDER-

‘(A) IN GENERAL- Not later than 270 days after the date of enactment of the Mutual Fund Transparency Act of 2009, the Commission shall issue final rules defining the term ‘significant service provider’.

‘(B) REQUIREMENTS- The definition developed under paragraph (1) shall include, at a minimum, the investment adviser and principal underwriter of a registered investment company for purposes of paragraph (19).’.

SEC. 4. FINANCIAL LITERACY AMONG MUTUAL FUND INVESTORS STUDY.