and to simplify the procedures for, requesting certain exemptions from the fingerprinting requirements under the Exchange Act.60

Transfer Agent Regulation-The Commission adopted rules establishing uniform minimum standards for registered transfer agents. The rules ensure the prompt and accurate creation and maintenance of issuer security holder records and the safeguarding of funds and securities in the possession or control of transfer agents.61

Oversight of Self-Regulatory Organizations

National Securities Exchanges-As of September 30, 1983, ten exchanges were registered with the Commission as national securities exchanges.62 During the fiscal year the Commission granted applications by exchanges to delist 44 equity and 12 debt issues, and granted applications by issuers requesting withdrawal from listing and registration for 22 equity and 10 debt issues. In addition, during the fiscal year the Commission granted 775 applications by exchanges for unlisted trading privileges.

The exchanges reported to the Commission 475 final disciplinary actions imposing a variety of sanctions upon member firms and their employees. This contrasts to 334 final disciplinary actions in fiscal 1982.

During the fiscal year, the Commission received 194 proposed rule changes from exchanges. Among the significant rule filings approved by the Commission were: (1) amendments to the Philadelphia Stock Exchange's by-laws and rules relating to disciplinary procedures;63 (2) amendments to the American Stock Exchange, Inc. (Amex) listing standards;64 and (3) amendments to the New York Stock Exchange, Inc.'s (NYSE) Constitution limiting the number of NYSE physical access memberships to 24.65

During the fiscal year, the Commission amended Rule 6a-2 and Form 1 and 1-A under the Exchange Act regarding the form of applications for registration as a national securities exchange and of periodic amendments to an exchange's registration statement.66

Allocation of Regulatory Responsibilities-On September 8, 1983, the Commission approved a plan filed jointly by seven SROS: the Amex, Chicago Board Options Exchange, Inc. (CBOE), Midwest Stock Exchange, Inc. (MSE), NASD, NYSE, Pacific Stock Exchange, Inc. (PSE), and Philadelphia Stock Exchange, Inc. (Phlx). The plan allocates regulatory responsibility for certain option-related sales practice matters with respect to broker-dealers which are members of more than one participating SRO. It is designed to reduce regulatory duplication.

National Association of Securities Dealers, Inc.-The NASD, which has 4,232 members, is the only national securities association registered with the Commission. At the close of the fiscal year, the NASD reported to the Commission the disposition of approximately 227 significant disciplinary actions and 100 summary actions by the NASDAQ Trading Committee, as compared with approximately 429 and 248 a year earlier. In addition, the Commission received from the NASD 17 filings of proposed rule changes, down 1 from 1982.

Under the amendments to the Exchange Act, the Commission's SECO pro

gram terminated on December 6, 1983.67 The NASD has cooperated with the Commission to phase out the SECO program and has submitted a number of rule filings to permit the conversion of SECO members to NASD members.68

Clearing Agencies-The Commission granted full registration to nine clearing agencies under Sections 17A and 19 of the Exchange Act.69 The Commission also extended the temporary registration of two clearing agencies until September 30, 1984.70

Surveillance and Compliance Inspections-During the fiscal year, the staff conducted 18 inspections of SRO market surveillance, disciplinary, compliance and operational programs. When notified of the inspection findings, each SRO took steps to respond to staff recommendations.

During 1983, the staff focused several of its surveillance inspections on the adequacy of transaction audit trails. Through a series of special inspections, the staff monitored the NYSE's progress in developing its equity audit trail. In June 1983, the NYSE and member firms completed systems and procedural modifications to use the comparison process to collect and pass through to the exchange essential audit trail data elements. An inspection of the CBOE found that surveillance for intramarket and intermarket violations at the exchange would be enhanced greatly by an automated options audit trail. Also, an inspection of the NASD's program for surveillance of securities quoted in NASDAQ disclosed significant deficiencies caused largely by the NASD's inability to capture and use for automated surveillance certain detailed information on individual trades. Accordingly, the Commission recommended that the NASD create an adequate audit trail for transactions in all NASDAQ stocks.

In addition, the staff inspected the NASD's enforcement of its standards for inclusion of securities in NASDAQ. While the inspection disclosed that the NASD had improved its tracking of issuers' compliance with qualifications standards, it also disclosed that the NASD had not verified the accuracy of issuers' financial filings. The Commission recommended that the NASD hire additional staff to perform routine analyses of these filings. In addition, the staff completed an inspection of the CSE which was prompted by the CSE's request for permanent approval of its National Securities Trading System (NSTS). The inspection disclosed no major problems with the CSE's operational surveillance programs which would prevent the Commission's permanent approval of the NSTS.

Also during 1983, the staff conducted a series of inspections to examine the exchanges' capability to detect certain intermarket trading violations. A comparative study of surveillance techniques to detect stock/option manipulation discovered certain surveillance weaknesses at each of the options exchanges. A staff review of the treatment of frontrunning violations by the options exchanges, conducted in conjunction with a joint SRO task force, discovered variations in SRO interpretations of the frontrunning prohibition. Finally, several limited inspections of SRO trading programs for options on debt instruments and foreign currency disclosed that surveillance capability for these new products appeared adequate in light of the low trading volume.

At the end of the fiscal year, five surveillance inspections were in progress: Amex disciplinary program, BSE surveillance and operational programs, PSE

stock and options surveillance programs, and the MSE surveillance program.

The staff conducted an inspection of the NYSE to evaluate the exchange's handling of margin maintenance violations at a member firm. As a result, the staff recommended the adoption of procedures to assure the prompt abatement of margin violations by member firms and to assure a more thorough sales practices review. The staff also conducted an inspection of the NYSE concerning routine examinations of member firms and began an inspection of the NASD Central Registration Depository. These inspections were in progress at the end of the fiscal year.

SIPC Assessment-On May 1, 1983, SIPC reimposed its assessment on member broker-dealers at the annual rate of one-fourth of 1% of aggregate gross revenues from the securities business. The renewed assessment on gross revenues followed SIPC's notification to the Commission that the SIPC fund had fallen below the statutory minimum of $150 million on April 13, 1983. This is the first time that the fund dropped below the statutory minimum since that level was achieved in 1977.

The Commission did not disapprove two SIPC bylaw amendments relating to the SIPC assessment. On April 29, 1983, the Commission considered, and did not disapprove, SIPC's requested change in the instructions of the SIPC assessment forms permitting SIPC members a deduction from "gross revenues" of 40% of the interest earned on customers' securities accounts. On August 11, 1983, the Commission considered, and did not disapprove, SIPC's request that, in computing "gross revenues" for assessment purposes, SIPC members be allowed to net all interest expense in connection with repurchase agreements and securities borrowing acitivities against the interest income generated by such transactions.

Clearing Agencies-During fiscal year 1983, the Commission approved many proposed rule changes reducing clearing costs and refining clearing agency systems for controlling financial exposure. For example, the Commission permitted the Options Clearing Corporation to accept letters of credit issued by foreignbased banks to secure participants' margin obligations and to modify the formulas for calculating participants' contributions to the clearing fund, thereby freeing up three hundred million dollars in capital.72

Applications for Re-Entry-During the fiscal year, the Division of Market Regulation received 80 applications to permit persons subject to statutory disqualifications, as defined in Section 3(a)(39) of the Exchange Act, to become associated with broker-dealers. The following SROs filed applications: NASD-49; NYSE-22; Amex-6; CBOE-2; and MSE-1. Six of the 80 applications were subsequently withdrawn, 64 were processed and 10 were pending at year end.

Market Oversight and Surveillance System-The Market Oversight and Surveillance System (MOSS) was initiated on a pilot basis in 1980. It is designed to automate the Commission's surveillance and oversight capabilities. In August 1981, at the Commission's initiative, the SROs submitted a proposal for an SRO intermarket surveillance program, to which the Commission would have ready access. The SRO program, when fully implemented, should result in significantly enhanced intermarket surveillance. Therefore, the Commission has deferred ma

jor enhancement of MOSS pending implementation and evaluation of the SRO program, in the interest of avoiding unnecessary costs and duplication.

During fiscal year 1983, the staff refined and expanded the oversight and research capabilities of MOSS. During this period, the SROS made significant progress towards the implementation of their program. Under the requirement in the Congressional budget authorization for MOSS, the Commission submitted reports to Congress on the MOSS project on April 1, 1983 and October 1, 1983, which provide greater detail on MOSS and the SRO project.

Municipal Securities Rulemaking Board-As in the case of the NASD, the Commission reviews proposed rule changes of the Municipal Securities Rulemaking Board (MSRB). During the last nine months of the fiscal year, the MSRB filed 13 proposed rule changes.

A number of these proposed rule changes revised the content of inter-dealer and customer confirmations. These changes were necessitated by the Tax Equity and Fiscal Responsibility Act of 1982, which provided that municipal securities be issued in registered form to maintain their tax exempt status, and by the advent of new products, such as the zero coupon bond, which require additional disclosure on the confirmation.73

Investment Companies and Advisers

Key 1983 Results

Despite budgetary constraints and personnel reductions, as a result of increasing productivity, during fiscal 1983 the Commission completed a record 1,085 examinations of investment companies and investment advisers, an increase over the 1,065 inspections conducted in fiscal 1982. In addition, through its examination program, the Commission recovered $5.1 million during the year which was returned to investment company shareholders and investment advisory clients. The number of registered investment companies and investment advisers increased significantly during fiscal 1983: 12% in the case of investment companies and 34% for investment advisers. In anticipation of continued growth in the industry and in the complexity of financial products, the Commission initiated a program to increase the number and effectiveness of investment company and investment adviser examinations to be conducted in future years. Existing examination procedures will be streamlined through increased use of computers for developing priorities, scheduling examinations and analyzing collected information. These changes will improve the cost-effectiveness of the inspection program without reducing investor protections.

Office of Regulatory Policy

Early in fiscal 1983, the Investment Company Act Study Group and the Investment Advisers Act Study Group were combined to form the Office of Regulatory Policy. This office is responsible for the Division of Investment Management's ongoing review of the Investment Company Act of 1940 (Investment Company Act), the Investment Advisers Act of 1940 (Advisers Act), and the rules, regulations and administrative practices adopted under those Acts. The objective is to alleviate regulatory burdens imposed upon investment companies and investment advisers without reducing investor protection. During fiscal 1983, the Office responded to recent market and industry trends by examining and proposing several significant deregulatory initiatives.

On the Office's recommendation, the Commission issued two advance concept releases during the fiscal year. The first requested comment on alternatives for mutual fund governance.74 The second requested comment on alternatives for the establishment of a self-regulatory organization to conduct investment company inspections.75 The Commission also proposed, at the recommendation of the Office, Rule 22d-6 under the Investment Company Act that would permit investment companies to sell redeemable securities at prices that reflect different sales loads.76 Also, the Commission proposed Rule 205-3 under the Advisers Act that would permit registered investment advisers to charge certain. financially sophisticated clients advisory fees that are based upon capital gains.77