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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
"Form 4 is 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.
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 prepa
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.
ration 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
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---Authorizations of new or additional securities, modifications of existing securities, and recapitalization plans (other than mergers, consolidations, etc.)
Employee pension and retirement plans (including amendments to existing plans)‒‒‒‒
Bonus, profit-sharing plans and deferred compensation arrangements (including amendments to existing plans and arrangements)Stock option plans (including amendment to existing plans) ___
Stockholder approval of the selection of management of independent auditors___.
Miscellaneous amendments to charter and by-laws, and miscellaneous other matters (excluding those involved in the preceding matters)-Stockholder Proposals
During the 1959 fiscal year, 48 stockholders submitted a total of 156 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
posals submitted by 25 individual stockholders. The principal reasons for such omissions and the numbers of times each such reason was involved (counting only one reason for omission for each proposal even though it may have been omitted under more than one provision of rule 14a-8) were as follows:
(a) 18 proposals related to the ordinary conduct of the company's business;
(b) 17 proposals involved the election of directors;
(c) 13 proposals concerned a personal grievance against the company;
(d) 11 proposals were not a proper subject matter under State law; (e) 5 proposals were resubmitted after not having received sufficient affirmative votes at a previous meeting; and
(f) 1 proposal was not submitted timely.
Ratio of Soliciting to Non-Soliciting Companies
Of the 2,236 issuers that had securities listed and registered on national securities exchanges as of June 30, 1959, 1,985 had voting securities so listed and registered. Of these 1,985 issuers, 1,544 or 78.7 percent, solicited proxies under the Commission's proxy rules during the 1959 fiscal year for the election of directors.
During the 1959 fiscal year, 19 companies were involved in proxy contests when nonmanagement persons filed detailed statements as participants, or proposed participants, under the requirements of rule 14a-11 when proxies are to be solicited from stockholders for the election of directors. A total of 259 persons, including both management and nonmanagement, filed such statements in 11 cases for control of the board of directors and in 8 cases for representation on the board.
Management retained control in 8 of the 11 contests, opposition nominees won in 2, and 1 was settled by negotiation. Of the 8 cases where representation on the board was involved, management retained all places on the board in 5 and in the other 3 cases nonmanagement persons were elected to the board.
REGULATION OF BROKER-DEALERS AND OVER-THE-COUNTER
The Securities Exchange Act requires under section 15(a) that brokers and dealers, with certain exceptions, using the mails or instrumentalities of interstate commerce to engage in securities transactions on the over-the-counter market must register with the Commission. Brokers and dealers whose business is exclusively intrastate or exclusively in exempt securities are not required to register.
The chart below sets forth statistics regarding the registration of brokers and dealers and applications for such registration during the fiscal year 1959.
Effective registrations at close of preceding fiscal year.......
5, 757 *1
*23 registrations were in suspension at close of the fiscal year.
Section 15(b) of the Securities Exchange Act provides that the Commission shall revoke a firm's broker-dealer registration or deny broker-dealer registration to an applicant if, after appropriate notice and opportunity for hearing, it finds such action is in the public interest and that the registrant or applicant or any partner, officer, director or other person directly or indirectly controlling or controlled by such broker-dealer or applicant is subject to one or more of the disqualifications set forth in the act. In addition, pending final determination whether any registration shall be revoked, the Commission shall by order suspend such registration if after appropriate notice and opportunity for hearing, suspension shall appear to the Commission to be necessary or appropriate in the public interest or for the protection of investors.
The disqualifications referred to above, are briefly :
(1) conviction in the past 10 years of a felony or misdemeanor involving the purchase or sale of securities or any conduct arising out of business as a broker-dealer;
(2) willful false or misleading statements in the application or documents supplementing the application;
(3) injunction by a court of competent jurisdiction from engaging in any conduct or practice in connection with the purchase or sale of securities; and