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butions and distributions of securities under special plans filed by the exchanges, having a total value of $715 million, were also kept under surveillance. Stabilization
When, in 1934, the provisions of the Securities Exchange Act were being drafted, Congress concluded that at times it would be necessary to stabilize offerings of securities in order to raise funds for industry and to protect existing investors while doing so. But rather than set stabilizing standards as a matter of law, Congress delegated to the Commission the authority to adopt rules to govern this little-understood function.
When the Commission was organized, one of its first tasks was to study the subject of stabilizing, decide what was improper and consider the adoption of rules. The principal difficulty has been that stabilizing is a form of market manipulation. The problem was to retain the benefits while removing those antisocial practices which might cause loss to investors. The Commission proceeded slowly, as many new facets of the problem were revealed, and it was difficult to devise a simple formula which had the particularity required in a rule binding on all who dealt in securities, without literally strangling the business.
Until it gained more expertise in the field, the Commission encouraged issuers, underwriters and their counsel to consult with it and the staff concerning problems which might arise in this area. Each such problem was judged on its own merits in the light of whether or not the interests of investors might be adversely affected. As the Commission gained experience, general principles were laid down. It was held, among other things, that stabilizing was not improper if it did no more than prevent or retard a price decline during an offering; that stabilizing purchases should be confined to the fewest transactions necessary to accomplish such a purpose; that stabilizing levels must be based on an existing independent market and not some level believed desirable by the person stabilizing; and that it was improper for a stabilizer to follow a rise in price too closely. Releases were issued from time to time to publicize the Commission's viewpoint with regard to stabilizing. In addition, the Commission expressed its viewpoint in its decisions and opinions.
From time to time it was suggested that what had now become a rather extensive list of settled practices be codified in specific rules, but in various conferences, the industry claimed that any code must necessarily be too rigid to allow for changing conditions.
However, on December 30, 1952, the Committee on Interstate and Foreign Commerce of the House of Representatives recommended that the “Commission should earnestly and expeditiously grapple with the problem of stabilization with the view of either the early
promulgation of rules publicly covering these operations, or of recommending to the Congress such changes in legislation as its experience and study show now to be desirable.” The Commission therefore undertook to codify the stabilizing practices which had been developed over the years.
The Commission requested and obtained the assistance of the securities industry in formulating its stabilizing rules. An ad hoc committee of the public was formed. This committee conferred with and submitted proposals to the staff, which were considered by the Commission together with the recommendations of the staff and views obtained in a public hearing held prior to the adoption of the rules.
The rules as finally adopted are extremely technical. They have, however, served well their purpose of facilitating distributions and preventing unlawful manipulations. Rule 106–6 restricts the trading activities of those who issue or participate in the distribution of securities. Rule 106–7 governs the times, methods and prices at which stabilizing transactions are permissible. Rule 10b-8 deals with the peculiar problems arising in an offering of securities through rights. The Commission is continuously reexamining the effect of these rules and if it appears necessary, it will amend them to conform to any developing practice of the industry which appears to be in the public interest.
During 1959 stabilizing was effected in connection with stock offerings aggregating 32,097,212 shares having an aggregate public offering price of $770,503,662 and bond offerings having a total offering price of $129,038,300. In these offerings, stabilizing transactions resulted in the purchase of 710,015 shares of stock at a cost of $18,146,077 and bonds at a cost of $2,938,340, and 4,461 stabilizing reports showing purchases and sales of securities effected by persons conducting the distribution were received and examined during the fiscal year.
INSIDERS SECURITY HOLDINGS AND TRANSACTIONS
Section 16 of the act is designed to prevent the unfair use of confidential information by directors, officers and principal stockholders by giving publicity to their security holdings and transactions and by removing the profit incentive in short term trading by them in equity securities of their company. Such persons by virtue of their position may have knowledge of the company's condition and prospects which is unavailable to the general public and may be able to use such information to their personal advantage in transactions in the company's securities. Provisions similar to those contained in section 16 of the act are also contained in section 17 of the Public Utility Holding Company Act of 1935 and section 30 of the Investment Company Act of 1940.
Section 16(a) of the Securities Exchange Act requires every person who is a direct or indirect beneficial owner of more than 10 percent of any class of equity securities (other than exempted securities) which is registered on a national securities exchange, or who is a director or officer of the issuer of such securities, to file reports with the Commission and the exchange disclosing his ownership of the issuer's equity securities. This information must be kept current by filing subsequent reports for any month in which a change in his ownership occurs. Similar reports are required by section 17(a) of the Public Utility Holding Company Act of officers and directors of public utility holding companies and by section 30(f) of the Investment Company Act of officers, directors, principal security holders, members of advisory boards and investment advisers or affiliated persons of investment advisers of registered closed-end investment companies.
All ownership reports are available for public inspection as soon as they are filed at the Commission's office in Washington and reports filed pursuant to section 16(a) of the Securities Exchange Act may also be inspected at the exchanges where copies of such reports are filed. In addition, for the purpose of making the reported information available to interested persons who may not be able to inspect the reports in person, the Commission summarizes and publishes such information in a monthly “Official Summary of Security Transactions and Holdings,” which is distributed by the Government Printing Office on a subscription basis. Increasing interest in this publication is evidenced by the increase in the total circulation from a rate of about 6,000 at the end of the 1958 fiscal year to more than 8,000 at the end of the 1959 fiscal year.
During the fiscal year, 39,275 ownership reports were filed. This represents a considerable increase over the 33,126 reports filed during the 1958 fiscal year. The following table shows details concerning reports filed during the fiscal year ended June 30, 1959.
Number of reports filed during fiscal year 1959
33, 848 Form 5. Form 6_
Form 4 18 used to report changes in ownership; Form 5 to report ownership at the time an equity security of an insurer is first registered on a national securities exchange ; and Form 6 to report ownership of persons who subsequently become officers, directors or principal stockholders of the issuer.
Recovery of Short-Swing Trading Profits by Issuer
In order to prevent insiders from making unfair use of information which may have been obtained by reason of their relationship with a company, section 16(b) of the Securities Exchange Act, section 17(b) of the Public Utility Holding Company Act, and section 30(f) of the Investment Company Act provide for the recovery by or on behalf of the issuer of any profit realized by insiders from certain purchases and sales, or sales and purchases, of securities of the company within any period of less than 6 months. The Commission has certain exemptive powers with respect to transactions not comprehended within the purpose of these provisions, but is not charged with the enforcement of the civil remedies created thereby.
REGULATION OF PROXIES
Scope of Proxy Regulation
Under section 14(a) of the Securities Exchange Act, 12(e) of the Public Utility Holding Company Act of 1935, and 20(a) of the Investment Company Act of 1940 the Commission has adopted regulation 14 requiring the disclosure in a proxy statement of pertinent information in connection with the solicitation of proxies, consents and authorizations in respect of securities of companies subject to those statutes. The regulation also provides means whereby any security holders so desiring may communicate with other security holders when management is soliciting proxies, either by distributing their own proxy statements or by including their proposals in the proxy statements sent out by management.
Copies of proposed proxy material must be filed with the Commission in preliminary form prior to the date of the proposed solicitation. Where preliminary material fails to meet the prescribed disclosure standards, the management or other group responsible for its preparation is notified informally and given an opportunity to avoid such defects in the preparation of the proxy material in the definitive form in which it is furnished to stockholders. Statistics Relating to Proxy Statements
29 Form U-17-1 is used for initial reports and Form U-17-2 for reports of changes of ownership.
29 Form N-30F-1 is used for initial reports and Form N-30F-2 for reports of changes of ownership.
During the 1959 fiscal year 1,975 proxy statements in definitive form were filed under the Commission's regulation 14 for the solicitation of proxies of security holders; 1,959 of these were filed by management and 16 by nonmanagement groups or individual stockholders. These 1,975 solicitations related to 1,814 companies, some 150 of which had more than one solicitation during the year, generally for a special meeting not involving the election of directors.
There were 1,790 solicitations of proxies for the election of directors, 152 for special meetings not involving the election of directors and 33 for assents and authorizations for actions not involving a meeting of security holders or the election of directors.
In addition to the election of directors, the decisions of security holders were sought through the solicitation in the 1959 fiscal year of their proxies, consents and authorizations with respect to the following types of matters: Mergers, consolidations, acquisitions of businesses, purchases and sales of property, and dissolutions of companies---
103 Authorizations of new or additional securities, modifications of existing
securities, and recapitalization plans (other than mergers, consolidations, etc.)----
270 Employee pension and retirement plans (including amendments to existing plans)-
71 Bonus, profit-sharing plans and deferred compensation arrangements (including amendments to existing plans and arrangements)
21 Stock option plans (including amendment to existing plans)
178 Stockholder approval of the selection of management of independent audi
tors.---Miscellaneous amendments to charter and by-laws, and miscellaneous other matters (excluding those involved in the preceding matters)
410 Stockholder Proposals During the 1959 fiscal year, 48 stockholders submitted a total of 156
a proposals which were included in the 99 proxy statements of 99 companies under rule 14a-8 of regulation 14.
Typical of such stockholder proposals submitted to a vote of security holders were resolutions relating to amendments to charters or by-laws to provide for cumulative voting for the election of directors, limitations on the granting of stock options and their exercise by key employees and management groups, the sending of a post-meeting report to all stockholders, changing the place of the annual meeting of stockholders and the approval by stockholders of management's selection of independent auditors.
The management of 20 companies omitted from their proxy statements under the Commission's rule 14a-8 a total of 65 additional pro