State of Illinois
90th General Assembly
Legislation

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90_HB0023ccr001

                                           LRB9000434EGfgccr5
 1                        90TH GENERAL ASSEMBLY
 2                     CONFERENCE COMMITTEE REPORT
 3                          ON HOUSE BILL 23
 4    -------------------------------------------------------------
 5    -------------------------------------------------------------
 6        To the President of the Senate and  the  Speaker  of  the
 7    House of Representatives:
 8        We,  the  conference  committee appointed to consider the
 9    differences  between  the  houses  in  relation   to   Senate
10    Amendments  Nos.  1  and  2  to  House Bill 23, recommend the
11    following:
12        (1)  that the House concur in Senate  Amendments  Nos.  1
13    and 2; and
14        (2)  that  House  Bill 23, AS AMENDED, be further amended
15    as follows:
16    with reference  to  the  page  and  line  numbers  of  Senate
17    Amendment  No. 1, on page 2, by replacing lines 18 through 22
18    with the following:
19    "This Act does not  apply  to  pension  funds  or  retirement
20    systems  established  under the Illinois Pension Code, except
21    as otherwise provided in that Code."; and
22    on page 2,  in  line  28,  after  "1-113.11,",  by  inserting
23    "1-113.12,"; and
24    on  page  20,  by  replacing  lines  23  through  26 with the
25    following:
26        "A dealer may not maintain possession of or control  over
27    securities  of  a  pension  fund subject to the provisions of
28    this Section unless it is registered as a broker-dealer  with
29    the  U.S.  Securities and Exchange Commission and is a member
30    in good standing of the National  Association  of  Securities
31    Dealers,  and  (1)  with  respect  to securities that are not
32    issued only in book-entry form, (A) all  such  securities  of
33    each   fund  are  either  held  in  safekeeping  in  a  place
                            -2-            LRB9000434EGfgccr5
 1    reasonably free from risk of destruction or held  in  custody
 2    by  a  securities  depository  that  is  a  "clearing agency"
 3    registered with the U.S. Securities and Exchange  Commission,
 4    (B)  the  dealer  is  a  member  of  the  Securities Investor
 5    Protection Corporation, (C) the dealer sends to each fund, no
 6    less frequently  than  each  calendar  quarter,  an  itemized
 7    statement showing the moneys and securities in the custody or
 8    possession  of  the dealer at the end of such period, and (D)
 9    an independent certified public account conducts an audit, no
10    less frequently than each calendar  year,  that  reviews  the
11    dealer's  internal  accounting  controls  and  procedures for
12    safeguarding securities; and (2) with respect  to  securities
13    that  are  issued  only  in  book-entry  form,  (A)  all such
14    securities of each fund  are  held  either  in  a  securities
15    depository  that  is  a "clearing agency" registered with the
16    U.S. Securities and Exchange Commission or in a bank that  is
17    a  member  of  the  Federal  Reserve  System,  (B) the dealer
18    records  the  ownership  interest  of  the  funds   in   such
19    securities  on the dealer's books and records, (C) the dealer
20    is  a  member   of   the   Securities   Investor   Protection
21    Corporation,  (D)  the  dealer  sends  to  each fund, no less
22    frequently than each calendar quarter, an itemized  statement
23    showing   the   moneys  and  securities  in  the  custody  or
24    possession of the dealer at the end of such period,  and  (E)
25    the  dealer's  financial statement (which shall contain among
26    other things a statement of the dealer's net capital and  its
27    required  net capital computed in accordance with Rule 15c3-1
28    under  the  Securities  Exchange  Act  of  1934)  is  audited
29    annually by an independent certified public  accountant,  and
30    the  dealer's  most  recent  audited  financial  statement is
31    furnished  to  the  fund.   No  broker-dealer  serving  as  a
32    custodian for any public pension fund as provided by this Act
33    shall be authorized to serve as  an  investment  advisor  for
34    that  same  public  pension  funds  as  described  in Section
35    1-101.4 of this Code,  to  the  extent  that  the  investment
                            -3-            LRB9000434EGfgccr5
 1    advisor acquires or disposes of any asset of that same public
 2    pension fund.  Notwithstanding the foregoing, in no event may
 3    a  broker  or  dealer  that  is  a  natural  person  maintain
 4    possession of or control over securities or other assets of a
 5    pension  fund  subject to the provisions of this Section.  In
 6    maintaining securities of  a  pension  fund  subject  to  the
 7    provisions  of  this Section, each dealer must maintain those
 8    securities  in  conformity  with  the  provisions   of   Rule
 9    15c3-3(b)  of  the  Securities Exchange Act of 1934 (Physical
10    Possession or Control of Securities).  The  Director  of  the
11    Department  of Insurance may adopt such rules and regulations
12    as shall be necessary and appropriate in his or her  judgment
13    to effectuate the purposes of this Section."; and
14    on  page  21,  by  replacing  lines  10  through  17 with the
15    following:
16        "(40 ILCS 5/1-113.9 new)
17        Sec. 1-113.9.  Illegal investments.  A person  registered
18    as  a  dealer,  salesperson,  or investment adviser under the
19    Illinois Securities Law of 1953 who sells a  pension  fund  a
20    security,  or  engages  in a transaction with a pension fund,
21    that is not authorized by this Code, shall be subject to  the
22    penalty  provisions  of  Subsection  E  of  Section  8 of the
23    Illinois  Securities  Law  of  1953,  if  (1)   the   dealer,
24    salesperson,   or   investment   adviser   has  discretionary
25    authority  or  control  over  the  fund's  assets   and   has
26    acknowledged  in  writing  that  it  is acting in a fiduciary
27    capacity for  the  fund,  (2)  the  fund  has  requested  the
28    investment  advice  of the dealer, salesperson, or investment
29    adviser  and  has  provided  the  dealer,   salesperson,   or
30    investment  adviser  with  its  investment  policy,  and  the
31    dealer,  salesperson,  or  investment adviser acknowledges in
32    writing that the fund is relying primarily on the  investment
33    advice of that dealer, salesperson, or investment adviser, or
                            -4-            LRB9000434EGfgccr5
 1    (3)  the  dealer, salesperson, or investment adviser knows or
 2    has  reason  to  know  that  the  fund  is  not  capable   of
 3    independently   evaluating   investment  risk  or  exercising
 4    independent judgment with respect to a particular  securities
 5    transaction,  and nonetheless recommends that the fund engage
 6    in that transaction."; and
 7    on page 21, in line 19, after "Illinois", by inserting "or  a
 8    broker-dealer"; and
 9    on page 22, below line 5, by inserting the following:
10        "(40 ILCS 5/1-113.12 new)
11        Sec.  1-113.12.  Application.   Sections  1-113.1 through
12    1-113.10  apply  only  to  pension  funds  established  under
13    Article 3 or 4 of this Code."; and
14    on  page  26,  by  replacing  lines  3  through  5  with  the
15    following:
16        "The  Department  may  implement  a  flexible  system  of
17    examinations  under which it directs resources  as  it  deems
18    necessary  or  appropriate.  In consultation with the pension
19    fund being  examined,  the  Division  may  retain  attorneys,
20    independent    actuaries,    independent   certified   public
21    accountants,  and  other  professionals  and  specialists  as
22    examiners, the cost of which (except in the case  of  pension
23    funds established under Article 3 or 4) shall be borne by the
24    pension fund that is the subject of the examination.
25        (b)  The  Division  shall  examine  or  investigate  each
26    pension fund established under Article 3 or Article 4 of this
27    Code."; and
28    on page 28, below line 28, by inserting the following:
29        "The  Division  shall  ensure  that  this  automation  is
30    designed  so  as  to  protect  any  confidential  data it may
31    receive from a pension fund.  This Section does not authorize
32    the Division or the Department of Insurance to  disclose  any
                            -5-            LRB9000434EGfgccr5
 1    information identifying specific pension fund participants or
 2    relating to an identifiable pension fund participant.".
 3        Submitted on                     , 1997.
 4    ______________________________  _____________________________
 5    Senator Fitzgerald              Representative Murphy
 6    ______________________________  _____________________________
 7    Senator Madigan                 Representative Smith
 8    ______________________________  _____________________________
 9    Senator Walsh                   Representative Hannig
10    ______________________________  _____________________________
11    Senator Jacobs                  Representative Churchill
12    ______________________________  _____________________________
13    Senator Clayborne               Representative Lindner
14    Committee for the Senate        Committee for the House

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