PART II LEGISLATIVE ACTIVITIES Early in the fiscal year, the Congress passed and the President signed Public Law 87-196, which directed the Commission to make a study and investigation of the adequacy of the rules of national securities exchanges and national securities associations.1 Subsequently, Public Law 87-561 extended, from January 3, 1963 to April 3, 1963, the date by which the Commission is required to report to the Congress the results of its study and investigation, together with its recommendations. Because of the extensive study of the securities markets which is still in progress under these laws, the Commission did not recommend any legislative program of its own during the Second Session of the 87th Congress. Several items of legislation suggested by the Commission in recent years which have not as yet been enacted may now be merged in broader legislative recommendations growing out of the Market Study, and it was thought best not to make any piecemeal recommendations during the pendency of the Study. It is unlikely that the Commission will make substantial legislative proposals prior to the completion of the Study in April 1963, unless the results of portions of the Study should suggest certain legislative changes or additions which might lend themselves to separate treatment in advance of completion of the entire Study. Apart from the authorization of the Special Study and the extension of time for its completion, the legislation enacted during this past year which has the most direct effect upon the work of the Commission is S. 2135 which became Public Law 87-592 subsequent to the close of the fiscal year. This law is the legislative version of Reorganization Plan No. 1 which was disapproved at the First Session of the 87th Congress. Prior to the adoption of S. 2135 by the Senate on September 1, 1961, the Commission submitted comments on the bill, recommending its adoption subject to certain suggested amendments. After its adoption by the Senate with amendments suggested by the Commission, a memorandum of comment was submitted by the Commission to the House Committee on Interstate and Foreign Commerce and 1 See the Commission's 27th Annual Report. p. 8 9, for a discussion of H. J. Res. 438, which, as modified, became Public Law 87-196. Chairman Cary appeared before that Committee in support of the bill. In essence, Public Law 87-592 expressly permits the Commission to delegate to one or more members of the Commission or to its staff certain functions which were previously performed by the full Conmission. The statute requires the Commission to retain a discretionary right to review delegated action within a time and in a manner to be prescribed by rule, although in certain situations a person or party adversely affected by delegated action is entitled to review by the Commission as a matter of right. In addition, it provides that the vote of one Commissioner shall be sufficient to bring any delegated action before the Commission for review, and that delegated action shall become the action of the Commission for all purposes. including review by the appellate courts if no Commission review of the delegated action is sought within the time specified by rule, or if the Commission declines review. A substantial amount of time was devoted during the fiscal year to matters pertaining to legislative proposals referred to the Commission for comment and to Congressional inquiries. A total of 47 legislative proposals was analyzed, and numerous Congressional inquiries relating to matters other than specific legislative proposals were reviewed and answered. PART III REVISION OF RULES, REGULATIONS AND FORMS The Commission maintains a continuing program of reviewing its rules, regulations, and forms under the various statutes administered by it in order to determine whether any changes are appropriate in the light of changing conditions, methods and procedures in business and in the financial practices of business. Certain members of the staff are specifically assigned to this task, but changes are also suggested, from time to time, by other members of the staff who are engaged in the examination of material filed with the Commission, and by persons outside of the Commission who are subject to the Commission's requirements or who have occasion to work with those requirements such as underwriters, attorneys, accountants, and other representatives. With a few exceptions provided for by the Administrative Procedure Act, proposed new rules, regulations, and forms and proposed changes in existing rules, regulations, and forms are published in preliminary form for the purpose of obtaining the views and comments of interested persons, including issuers and various industry groups.1 During the 1962 fiscal year, the Commission adopted a number of changes in its rules, regulations, and forms. Other changes which the Commission published in preliminary form for the purpose of obtaining public comments thereon were pending at the end of the fiscal year. The changes made during the fiscal year and those pending at the end of the year are described below. THE SECURITIES ACT OF 1933 Adoption of Rule 152A The Commission adopted Rule 152A which provides that the offering or sale of securities, evidenced by scrip certificates, order forms or similar documents, which represent fractional interests resulting The rules and regulations of the Commission are published in the Code of Federal Regulations, the rules adopted under the various acts administered by the Commission appearing in the following parts of Title 17 of that code: Securities Act of 1933, pt. 230. Securities Exchange Act of 1934, pt. 240. Public Utility Holding Company Act of 1935, pt. 250. Investment Company Act of 1940, pt. 270. Investment Advisers Act of 1940, pt. 275. from a stock dividend, stock split, reverse stock split, conversion, merger or similar transaction is deemed to be a transaction by a person other than an issuer, underwriter or dealer within the meaning of the first clause of Section 4(1) of the Act, and therefore exempt from registration under the Act. The rule applies only to offers and sales involved in the matching and combination of fractional interests among security holders and the sale of whole shares representing the remaining fractional interests not so combined. The rule applies whether the transactions are effected on behalf of the security holders by the issuer or an affiliate of the issuer or by a bank or other independent agent." Adoption of Rule 155 During the fiscal year the Commission adopted a new Rule 155. The new rule relates to the interpretation of the exemptions afforded by Section 4(1) in the context of public offerings of convertible securities by or on behalf of any person who purchased such securities directly or indirectly from the issuer in a non-public transaction, or to a public offering of the securities received upon conversion of the securities so placed. Of course, where there is an initial public offering of convertible securities, immediate registration is required in the absence of some exemption, and the rule has no application to such a situation. The new rule defines the phrase "transactions by an issuer not involving any public offering" in Section 4(1) of the Act, as not including certain public offerings of convertible securities or of securities received upon such a conversion. The rule excludes from the quoted exemption two types of public offerings. The first is a public offering of a security, which is immediately convertible into another security of the same issuer, by or on behalf of any person or persons who purchased the convertible security directly or indirectly from the issuer in a non-public transaction. The other type of offering excluded from the quoted exemption is one by or on behalf of any such person or persons of the security acquired upon conversion, unless the person or persons making the public offering are not underwriters within the meaning of that term as defined in Section 2(11) of the Act. In determining whether any such person is an underwriter, the usual statutory tests are to be applied, as in other situations. In order that intermediate persons who are not connected with any public offering of such securities may not be treated as underwriters. the rule provides that any such intermediate holder of the convertible security or of the underlying security who has not acquired it with a 2 Securities Act Release No. 4470 (March 28, 1962). 3 Securities Act Release No. 4450 (Feb. 7, 1962). view to its distribution and is not instrumental in making or arranging a public offering is not to be deemed an underwriter for the purpose of the rule. Of course, even though a person is instrumental in making or arranging a public offering of the underlying security, the rule does not apply if the acquisition, retention and disposition of such security are such that the person is not an underwriter within the meaning of the term as defined in Section 2(11) of the Act. The rule applies only with respect to convertible securities issued after the effective date of the rule. Adoption of Rule 236 The Commission adopted Rule 236 which exempts from registration under the Securities Act, under certain conditions, shares of stock or similar security which are publicly offered to provide funds to be distributed to security holders in lieu of issuing fractional shares, scrip certificates, order forms, or other evidences of such fractional interest, in connection with a stock dividend, stock split, reverse stock split, conversion, merger or similar transaction. The conditions of the exemption are that the issuer is required to file and has filed reports with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, that the aggregate gross proceeds from the sale of the shares do not exceed $100,000 and that the issuer furnish certain information to the Commission at least 10 days prior to the offering of the shares." From the date of adoption of the rule to the end of the 1962 fiscal year, 11 companies furnished notices to the Commission pursuant to the rule. Amendment of Rule 458 Rule 458, which deals with the payment of fees in connection with the registration of securities under the Securities Act, and prescribes the manner in which the required fees shall be paid, was amended during the fiscal year. The amendment to the rule provides that payments of fees may be rounded to the nearest dollar and that the Commission will waive any deficiency in the fee amounting to less than $1. However, in no case may the amount of the registration fee be less than $25. The amendment also provides that refunds to issuers of excess payments amounting to less than $1 will be made only upon the request of the issuer and that refunds of $1 or more may be waived by the issuer. The purpose of the amendment is to reduce the time and clerical work involved in collecting or refunding insignificant amounts. However, as indicated above, the rule preserves the right of an issuer to receive a refund of any amount due it, if it so desires. 'Securities Act Release No. 4470 (March 28, 1962). Securities Act Release No. 4381 (July 3, 1961). |