sixth to the executive and administrative work which is performed under all of the acts. The tabular statement that follows indicates the personnel, both in the departmental and field services, assigned to each of these projects.

Estimated personnel and annual salary costs by projects for fiscal year 1943 compared with allotments for 1942 and actual costs for 1941

A description of these projects and the nature and volume of work performed under each follows:

PROJECT NO. 1. ADMINISTRATION AND ENFORCEMENT of the SECURITIES ACT OF 1933, AS AMENDED, and the TRUST INDENTURE Act of 1939

Generally, the work of the Commission under these two acts embraces the supervision of the registration of security issues publicly offered and sold in interstate commerce or through the mails; the qualification of trust indentures relating to particular types of such security issues; and the suppression of fraudulent practices in the sale of such securities. The legislation does not confer upon the Commission the power to approve or pass upon the merits of any security.

The principal functions of the Commission in administering the provisions of these acts may be divided into three main groups. They are:

1. Examination of, and action on registration statements, prospectuses, periodic and supplemental reports, and applications and filings pertaining to exemptions;

2. Enforcement of judicial sanctions through (a) institution of injunctive civil proceedings to prevent violation of the fraud provisions, and (b) reference of cases to the Department of Justice for institution of criminal proceedings to punish persons willfully violating the fraud provisions of the act; and

3. Miscellaneous activities.

1. Examination of, and action on registration statements, prospectuses, periodic and supplemental reports, and applications and filings pertaining to exemptions.— Statistics with respect to the number of registration statements, applications, and other documents filed with the Commission under the provisions of these two acts during the past 3 fiscal years are indicated in the following table: Principal filings under the Securities Act

All of these different types of filings must be examined for compliance with the appropriate statutory provisions and the rules and regulations of the Commission. Although many of these documents are voluminous and quite technical, it is necessary in some cases that the examination work be completed within certain time limits. Under the provisions of the Securities Act, registration statements automatically become effective 20 days after the date of filing, unless appropriate action is taken by the Commission to prevent the statements becoming effective. Under certain circumstances, the Commission has discretionary authority to accelerate the effective date of registration statements. The same thing is true with respect to filings under the Trust Indenture Act.

In cases where registration statements contain untrue statements, omit material facts, or indicate an intentional disregard of full and fair disclosure of material facts, the Commission institutes action to refuse or suspend the effectiveness of such statements.

Before a refusal order can be issued, notice must be given to the registrant within 10 days after the filing date of the registration statement, and an opportunity for an appropriate hearing must be provided in the matter, and the refusal order itself entered before the twentieth day after filing. This also applies to registration statements for indenture securities and applications for qualification of indentures. If the indenture provisions do not comply with the statutory requirements, and the Commission's staff is unable to institute refusal order proceedings by sending the required notice within the tenth day after filing, it is possible for the registration statement to become effective and the indenture qualified on the twentieth day after filing. This would, in effect, fix such indenture provisions for the life of the indenture securities and thus make it impossible for the Commission to carry out fully the mandate of Congress in the act.

Accordingly, the Commission's staff must be able to complete the examination work and be prepared to act, if necessary, before the tenth day after filing. To accomplish this within such a short period of time, it is necessary that the examination work be geared to an intensive time schedule.

The volume of work performed by the Commission during the past 3 fiscal years in connection with the imposition of administrative sanctions on registration statements, applications, and other documents filed with the Commission under the Securities Act and the Trust Indenture Act is reflected in the table below:

2. Enforcement of judicial sanctions through (a) institution of injunctive civil proceedings to prevent continued or future violations of the fraud provisions.-Under the provisions of the Securities Act, the Commission is empowered to institute civil action in courts in order to prevent or suppress violations of the fraud or other provisions of the act. The table that follows indicates the number of proceedings instituted and disposed of during the past 3 fiscal years:

Information regarding possible violations is obtained through the examination of registration statements; from facts furnished by cooperating State and Federal agencies; and from letters of complaint received from the public. The Comission annually receives and replies to thousands of these complaints.

Where the violation of a statute is indicated, a preliminary inquiry is made. Where the preliminary inquiry fails to disclose sufficient evidence to justify action by the Commission, the case is closed. However, where there is such evidence, a formal order is issued by the Commission, at which stage the case is given the status of a docketed investigation. From this stage the investigation often results in the institution by the Commission of injunction proceedings in the courts, either to prevent continued violations of the statute, or forestall possible future violations thereof.

Statistics on the number of such investigations during the past 3 fiscal years are set forth in the table below:

(b) Reference of cases to the Department of Justice for criminal prosecution.— Where evidence developed by the staff of the Commission shows a willful violation that would warrant institution of criminal proceedings, the case is transmitted to the Department of Justice, which in its discretion, may refer it to the appropriate United States attorney for the institution of criminal proceedings. In the event such proceedings are instituted, the Department of Justice usually requests that the services of the Commission's staff members who participated in the development of the particular case' be made available to the United States attorney. Thereafter, those members of the Commission's staff assist in the presentation of the case to the grand jury; the drafting of indictments; the preparation of preliminary and interlocutory trial briefs; the trial; and, when necessary, the preparation of appeal briefs.

The following table indicates the number of cases so referred, the number of persons indicted, and the number of defendants convicted during the past 3 fiscal years:

Cases referred to Department of Justice for criminal prosecution

3. Miscellaneous activities.-There are many duties performed by the staff of the Commission under these two acts that have not been specifically mentioned in the above description of the Commission's functions. For example, the staffs of the regional offices cooperate with the Legal Division, the Registration Division, and the other offices of the Commission in matters arising under these acts. This field staff conducts investigations and hearings and renders interpretative and advisory assistance to the interested public. This interpretative and advisory assistance is also available in Washington, D. C.

Other phases of the Commission's work under these acts involve the conduct of hearings; the preparation of the Commission's opinions; the assembling and compilation of statistical data; and research work in the accounting and other fields.

PROJECT NO. 2. ADMINISTRATION AND ENFORCEMENT OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

The Securities Exchange Act of 1934 is designed to prevent manipulative, deceptive, and other fraudulent practices in the trading of securities; to prevent the diversion into security transactions of a disproportionate amount of the Nation's resources; and to make available currently to the investing public sufficient information regarding the affairs and financial conditions of the corporations whose securities are traded in the exchange markets to enable the investor to act intelligently in making or retaining his investments. The act also requires adequate and truthful disclosure in regard to the solicitation of proxies and authorizations, as well as security transactions by insiders, such as officers, directors, and principal stockholders of corporations.

The Commission's work under this act may be divided into three general groups, viz: (1) Regulation of national securities exchanges, (2) regulation of Over-the-counter markets, and (3) miscellaneous duties.

1. Regulation of national securities exchanges. The principal duties involved in the regulation of national securities exchanges are (a) supervision of the functionng of securities exchanges, both registered and exempt; (b) examination of and action on documents filed with the Commission pertaining to securities registered a exchanges; and (c) enforcement of margin regulations; manipulative, decepve, and other fraud prohibitions of the act; and regulations with respect to the solicitation of proxies, consents, and authorizations.

SUPERVISION OF SECURITIES EXCHANGES

As of June 30, 1941, there were 19 registered exchanges and 6 exchanges exempted from registration.

The many varied functions related to the Commission's activities in the supersion of national securities exchanges have been explained in previous justificaons of Budget estimates. As there has been no material change in the nature of the functions during the last fiscal year the description will not be repeated bere.

EXAMINATION OF AND ACTION ON DOCUMENTS PERTAINING TO SECURITIES

REGISTERED ON EXCHANGES

The examination of the many documents filed with the Commission under the provisions of this act is a recurring function. The statistics given below indicate the volume of those filings for the past 3 fiscal years:

Principal filings relating to registered national securities exchanges and securities listed thereon

wnership reports of officers, directors, and principal stockholders ay material.

Applestions for withdrawal or striking from listing and registration of erties on exchanges

157

154

225

213

272

289

4, 685

4,737

4, 657

22, 881

14, 253

1, 801

Applications for the granting, continuance, extension, and termination of unlisted trading privileges.

ENFORCEMENT OF MARGIN REGULATIONS, MANIPULATIVE, DECEPTIVE AND OTHER

FRAUD PROHIBITIONS OF THE ACT

As in previous years the Commission continued its work in connection with the enforcement of regulation T of the Board of Governors of the Federal Reserve System. This regulation limits the extension and maintenance of credit by trokers, dealers, and members of national securities exchanges.

The Commission has continued its effort to detect and suppress the use of manipulative practices or activities in securities markets. Experience has shown that the most effective method of detection lies in the systematic observation of the market behavior of all securities on national securities exchanges and the interpretation of the price and volume movements of all securities on the basis of a' factual information which can be obtained. At the end of the past fiscal year, 3 467 securities issues were under observation. This is in comparison to 3,500 sses under observation at the end of the 1940 fiscal year and 3,410 at the end of *he 1939 fiscal year.

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