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1 ing on the exchange but off the floor by members, directly or 2 indirectly for their own account, or for the account of any 3 affiliated person as defined in section 11A of this title. Rules 4 under this section shall, as a minimum, (i) require that 5 transactions on the floor by members, directly or indirectly 6 for their own account or for discretionary accounts, and 7 transactions on the exchange but off the floor by members, 8 directly or indirectly for their own account or for the account 9 of any such affiliated person, shall yield priority, parity, and 10 precedence to orders of nonaffiliated persons and (ii) pre11 vent those transactions which do not contribute to the mainte12 nance of a fair and orderly market.

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"(2) It shall be unlawful for a member to effect any 14 transaction in a security in contravention of rules and regu15 lations under paragraph (1), but such rules and regulations 16 may make such exemptions for arbitrage, block positioning or 17 market maker transactions, for transactions in exempted 18 securities, for transactions by odd-lot dealers and specialists 19 (within the limitations of subsection (b) of this section), and 20 for such other transactions as the Commission may deem nec21 essary or appropriate in the public interest or for the protec22 tion of investors. Rules under this subsection may limit the 23 aggregate amount of such transactions in relation to the total 24 transactions effected by such member on a national securities 25 exchange."

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1 SEC. 205. The Securities Exchange Act of 1934 is

2 amended by inserting after section 11 (15 U.S.C. 78h)

3 the following new section:

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"TRANSACTIONS WITH AFFILIATED PERSONS

"SEC. 11A. (a) (1) On or after February 1, 1974, it 6 shall be unlawful for any member of a registered national 7 securities exchange to effect, whether as broker or dealer, any 8 transaction on an exchange for himself or with or for any af9 filiated person. For purposes of this section an 'affiliated 10 person' shall include

“(A) any person directly or indirectly controlling, controlled by or under common control with such member, whether by contractual arrangement or otherwise;

"(B) any officer, director, partner or employee of such member or any person or account in which such member or officer, director, partner or employee of such member has a direct or indirect interest or any person or account of such person directly or indirectly controlling, controlled by, or under common control with an

officer, director, partner or employee of such member; and

"(C) any person (including any investment company, insurance company, bank, trust company, pensionbenefit or profit sharing or similar plan, foundation, or educational or charitable endowment), for which such

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member or any person controlled by, controlling or under common control with such member, or any partner,

officer, director or employee of such member: (i) is

empowered to determine what securities or other property shall be purchased or sold or is otherwise authorized to select the securities bought or sold or (ii) regularly furnishes advice with respect to the desirability of investing in, purchasing or selling securities or other property. For the purposes o fthis section a member or an affiliate of

such member shall not be considered to be regularly fur

nishing advice with respect to the desirability of investing in, purchasing or selling securities or other property if such member or its affiliate furnishes only statistical or other factual information, advice regarding economic factors and trends, or advice as to occasional transactions in specific securities or if such member's or affiliate's advice is furnished solely through uniform publications distributed to subscribers thereto.

19 For purposes of this section a person controls another person 20 if such person has a right to participate to the extent of 10

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per centum or more in the profits of such other person or

owns beneficially, directly or indirectly, 10 per centum or

23 more of the outstanding voting securities of such person, or

24 if such person accounts for 10 per centum or more of the

20-306 - 74 pt. 1 - 4

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1 value of exchange transactions effected by such member in

2 any six-month period, whether as broker or dealer.

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"(2) The provisions of paragraph (1) of this sub

4 section shall not apply to

"(A) any transaction by a registered specialist, acting in such capacity, in a security in which he is so registered;

"(B) any transaction for the account of an odd-lot dealer in a security in which he is so registered;

"(C) any transaction determined by an exchange. in accordance with criteria acceptable to the Commission to be a transaction by a block positioner acting as such,

except where an affiliated person is a party to the transaction;

"(D) any stabilizing transaction effected in compliance with rules under section 10 (b) of this title to facilitate a distribution of a security in which the member effecting such transaction is participating;

"(E) any bona fide arbitrage transaction, including hedging between an equity security and a security en

titling the holder to acquire such equity security, or any

risk arbitrage transaction in connection with a merger,

acquisition, tender, offer, or similar transaction involving

a recapitalization;

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"(F) any transaction for the account of an individ

ual for which a member or an affiliated person exercises investment discretion if such individual is not otherwise

an affiliated person of such member;

"(G) any transaction for a member who is an individual, or for an account of an affiliated person who is an individual, made in compliance with rules promulgated by the Commission under section 11 (a) of this title; and

"(H) any transaction to offset a transaction made

in error.

"(b) Any member of an exchange who does not comply 13 with the requirements of this section, and who acquired 14 membership on such exchange prior to February 1, 1973, 15 shall be given a period not to exceed one year following 16 the effective date of this subsection to bring itself into com17 pliance if within thirty days after the effective date of this 18 subsection such member shall furnish a written commitment 19 to the exchange of which it is a member to make good faith 20 efforts to comply with the requirements of this subsection, 21 accompanied by a written plan setting forth in detail those 22 steps such member intends to take to comply with such 23 requirements. No plan filed pursuant to this subsection shall 24 be deemed to satisfy the requirements of this subsection unless 25 the plan has been declared effective by the exchange with