13

From July 1, 1936, through June 30, 1959,12 there have been 533 delistings of securities on application of exchanges and 279 on application of issuers. Delistings from the New York Stock Exchange numbered 282 pursuant to its applications and 6 pursuant to applications by issuers. Delistings from the American Stock Exchange numbered 58 pursuant to its applications and 25 pursuant to applications by issuers. Delistings from the regional exchanges numbered 193 pursuant to their applications and 248 pursuant to applications by issuers. Thus, about 2 percent of the New York Stock Exchange delistings, 30 percent of the American Stock Exchange delistings, and 56 percent of the regional exchange delistings were pursuant to applications by issuers.

As indicated above, delisting applications filed by exchanges are ordinarily based on lack of adequate public interest in the security issues concerned. The usual exchange application cites diminution in number of holders and publicly held shares or the moribund condition of the issue or issuer. The reduction in the number of holders and publicly held shares frequently results from acquisitions involving an offer of exchange into other listed shares of the same or another issuer. In some cases, a company will have sold its assets for cash and distributed all but small final payments in liquidation. The specific reason given in an application in case of a moribund condition may be that the issuer has failed to file reports required by the listing agreement and registration, or has discontinued transfer and registrar facilities, or faces insolvency proceedings. Some exchanges, upon learning that an issuer has determined to delist an inactively traded issue, will make the application as a matter of good public relations, stating that it is made at the request of the issuer by reason of its inactivity on the Exchange. The New York Stock Exchange, as the leading exchange in number of listings and number of removals, has developed and published criteria on the basis of which it will consider initiation of a delisting application. (See 24th Annual Report, p. 63.) Some of the stocks delisted upon its application have remained or become listed on other exchanges.14 One of the stocks delisted upon its application has since become prominent.15 In general, however, there are very few instances of substantial public interest in securities after their delisting upon application by exchanges.

a

and those which are good over-the-counter material. Upon the market break in 1937 and the subsequent drying up of exchange activity, from 962 million shares in 1936 to 221 million in 1942, and from $23.6 billion to $4.3 dollar volume respectively, there was a plethora of issuer applications. In this period, the Commission frequently required issuers to notify their stockholders of the pending application and to advise them of their right to be heard. Response of the holders was inconclusive,1e but the contents of the notifications were made the cause of denials or dismissals in some instances. For some time after the low point of the decline in share volumes was reached in 1942, the flow of delisting applications by issuers continued, and the Commission in three cases during the period 1944–46 required important issuers to put their decisions to a vote of stockholders. However, volumes on the exchanges were recovering. New delisting applications by issuers dropped to an average of about 7 per annum in the 15 years to June 30, 1959, compared to over 21 per annum in the 8 years to June 30, 1943. Notifications to stockholders were required in only a few instances after 1943, the last being in 1954; no voting requirement has been ordered by the Commission since 1946. On occasion, either voluntarily or in compliance with a rule of an exchange, issuers have put the matter of delisting to vote of their stockholders before submitting applications. Since 1947, the Commission has held hearings on delisting applications only if requested by an interested party, and only three such hearings have been held since that date, all on delisting applications of the New York Stock Exchange.

Most of the delistings pursuant to applications by issuers during the period have been with respect to issues having little value or issues remaining listed on other exchanges.18 Excluding a number of openend investment company stocks, originally listed to qualify for sale under blue sky laws and not suitable for exchange trading, issues having a current market value of around $500 million have been removed to over-the-counter trading by delistings pursuant to applications by issuers during the period.19 The reporting requirements of the Commission pursuant to section 13 of the Securities Exchange Act seem not to have been much of a factor in the deliberations of the issuers with respect to delisting, since about $400 million of the market value is of issuers continuing to file similar reports under section 15(d) of the act. Delisting Proceedings under Section 19(a)

Under Section 19(a) (2) the Commission may suspend for a period not exceeding 12 months, or withdraw, the registration of a security on a national securities exchange if, in its opinion, such action is necessary or appropriate for the protection of investors and, after notice and opportunity for hearing, the Commission finds that the issuer of the security has failed to comply with any provision of the act or the rules and regulations thereunder. Shown below is the number of such proceedings during the 1959 fiscal year. Proceedings pending at the beginning of the fiscal year-Proceedings initiated during the fiscal year.

5 13

8

Proceedings terminated during the fiscal year:

By order withdrawing security from registration.--
By order suspending registration of security ---

7

Proceedings pending at the end of the fiscal year..

The six proceedings which were terminated during the fiscal year were terminated during the early part of the year and were described in the Commission's 24th Annual Report.20

Section 19(a) (4) authorizes the Commission summarily to suspend trading in any registered security on a national securities exchange for a period not exceeding 10 days if, in its opinion, such action is necessary or appropriate for the protection of investors and the public interest so requires. The Commission has used this power infrequently in the past. However, during the 1959 fiscal year the Commission found it necessary and appropriate in connection with three pending proceedings under section 19(a) (2) to use its authority summarily to suspend trading in securities registered on a national securities exchange. Only one of these suspensions remained in effect at the end of the fiscal year.

UNLISTED TRADING PRIVILEGES ON EXCHANGES

The classical method by which stock exchanges evolved was for a group of local brokers to commence trading in any available securities. For more than half a century after the historic 1792 meeting under the buttonwood tree, any security could be called up for trading on the New York Stock Exchange at the pleasure of any member. By 1856, vote of a majority of members present came to be required for the placing of a security on the list to be called, but upon payment of a 25-cent "fine" any member could have any other security temporarily inserted. Unlisted trading on the New York Stock Exchange was finally abolished in 1910, upon the recommendation of the New York Governor's Committee on Speculation in Securities and Commodities (the "Hughes Committee") and because most of the stocks in the unlisted department were in any event becoming listed.

The leading regional stock exchanges began trading in much the same way. For example, the rule on the Philadelphia Stock Exchange as late as 1876 was that "members may call up the various stocks of any chartered company, whether on the regular list or not.” As their growth in trading volumes and prestige enabled them to impose formal listing agreements and listing fees upon issuers, many of these exchanges came to abolish unlisted trading entirely, as the New York Stock Exchange has done, or to restrict it to issues listed upon other leading exchanges.21 A resolution adopted by the Boston Stock Exchange in 1869 provided that “securities dealt in at the New York or Philadelphia Stock Exchanges may be called once, after the regular list, without charge ..." The rule on the Philadelphia Stock Exchange by 1932 was that no securities could be admitted to unlisted trading which were not listed on the New York Stock Exchange, New York Curb Exchange, as it was then styled, Boston Stock Exchange, Pittsburgh Stock Exchange, or Chicago Stock Exchange.

The American Stock Exchange (known as the New York Curb Exchange until 1953) is the principal center of exchange trading on an unlisted basis. In 1931–32 it had over 1,800 stock and 850 bond issues on its unlisted roster. As a result of the New York State Attorney General's examination of unlisted trading practices, the number was substantially reduced during 1933–34 by removal of issues inactively traded on the Exchange. The New York Produce Exchange provided facilities for security trading from 1928 to 1935, and had about 750 stock and 150 bond issues available for unlisted trading. The New York Real Estate Securities Exchange operated from 1929 to 1941, and had about 100 stock and 200 bond issues available for trading on an unlisted basis. A number of other exchanges on which unlisted trading occurred ceased to operate in the early days of the

Commission. The net number of securities admitted to unlisted trading on the exchanges prior to 1934 is not available, but clearly ran into thousands.

Under section 12(f) of the Securities Exchange Act of 1934 22 the Commission may approve applications by national securities exchanges to admit securities to unlisted trading privileges without action on the part of the issuers, if it finds such admissions are necessary or appropriate in the public interest or for the protection of investors. Such admissions impose no duties on issuers beyond any they may already have under the act. Section 12(f) provides for three categories of unlisted trading privileges. Clause (1) provides for continuation of unlisted trading privileges existing on the exchanges prior to March 1, 1934. Clause (2) provides for granting by the Commission of applications by exchanges for unlisted trading privileges in securities listed on other exchanges. Clause (3) provides for granting by the Commission of applications for unlisted trading privileges conditioned, among other things, upon the availability of information substantially equivalent to that required to be filed by listed issuers.

Included under clause (1) of section 12(f) are securities which had unlisted trading privileges on some exchanges prior to March 1, 1934, and (a) were also listed and registered on some other exchange or exchanges, or (b) were admitted only to unlisted exchange trading. Issuers of securities in group (a) are subject to the statutory reporting requirements by reason of the listing and registration of their securities. Issuers of securities in group (b) may or may not be issuing public reports. Of the issues in group (b), only 246 stock and 20

) bond issues remained in that status as of June 30, 1959. The attrition has been due to many factors. Bond and preferred stock issues have been retired. Companies have merged or liquidated. Marginal exchanges opening around the 1929 peak of market activity ceased operations thereafter. Many leading common stocks traded on an unlisted basis have subsequently been listed or exchanged for listed stocks of merging companies.

The stocks with only unlisted trading privileges on the exchanges had an aggregate market value of $21.4 billion as of December 31, 1958. Standard Oil (New Jersey) held 52.5 percent of this total in stocks of Creole Petroleum Corporation, Humble Oil & Refining Company, Imperial Oil Limited, and International Petroleum Company, Limited. An additional 17.5 percent of the total was of 58 issues of

The original bills proposed abolition of unlisted trading on stock exchanges. The proposals were opposed by the American Stock Exchange and other smaller exchanges as presenting too sharp a transition. Congress directed the Commission to study the problem and submit its recommendations, which was done in a "Report on Trading in Unlisted Securities upon Exchanges," dated January 3, 1936. The recommendations were adopted and the present section 12() was enacted in May 1938.