Adoption of Rules 462 and 263 The Commission adopted Rule 462 which requires that if a bona fide effort is not made to proceed with the offering and sale of registered securities to the public within 3 business days after the registration statement becomes effective, or if the offering or sale is suspended within 15 days after the effective date, telegraphic or air mail notice of the delay or suspension must be filed with the Commission. A similar rule, designated as Rule 263, has been added to Regulation A with respect to offerings under that regulation. The new rules are intended to apply to situations where an offering is delayed or suspended by the issuer or principal underwriters and information with respect to such delay or suspension and the reasons therefor are not contained in the prospectus or offering circular. Adoption of Revised Form S-8 6 During the fiscal year, the Commission published notice that it had under consideration certain proposed amendments to Form S-8 which is the form authorized for use in registering securities under the Securities Act to be offered pursuant to certain stock purchases, savings or similar plans, and for registering the interests in such plans where such registration is required. A number of comments were received in regard to the proposed amendments and shortly after the close of the fiscal year the Commission adopted a revised Form S-8. The rule as to the use of the form has been simplified and clarified in certain respects and has been amplified to permit use of the form for securities other than "equity" securities and for securities to be offered pursuant to restricted stock options. The transmittal of annual reports and other material to employees is now required by undertakings set forth at the end of the form and the provisions making such transmittal a condition to the use of the form have been deleted. General Instruction E which defined the term "transactions within 1 year" as previously used in the third clause of Section 4(1) of the Securities Act, has been amended to define the term "transactions prior to the expiration of 40 days," which is the present language of the statute. Additional items calling for information with respect to securities to be offered pursuant to restricted stock options have been added to the form. Adoption of Form S-11 During the fiscal year the Commission adopted a new form, designated Form S-11, for registration under the Securities Act of securities of certain real estate companies. The form is to be used for Securities Act Release No. 4427 (November 14, 1961). securities issued by real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, or securities issued by other issuers whose business is primarily that of acquiring and holding for investment real estate or interests in real estate or interests in other issuers whose business is primarily that of acquiring and holding real etate or interests in real estate for investment. The new form is not to be used, however, for securities of any investment company which is registered or required to register under the Investment Company Act of 1940. THE SECURITIES EXCHANGE ACT OF 1934 Adoption of Rules 13a–15 and 15d–15 and Form 7–K During the fiscal year, the Commission adopted two new rules with regard to the periodic reporting requirements and a new quarterly report form. The new rules, designated Rules 13a-15 and 15d-15, require certain real estate companies to file with the Commission, pursuant to Sections 13 and 15 (d) of the Act, quarterly reports with respect to distributions made to shareholders. Such reports are required to be filed on the new Form 7-K within 45 days after the end of the fiscal quarter for which they are filed. However, investment companies registered under the Investment Company Act of 1940, and partnerships all of whose properties are under long term lease to other persons, are not required to file such reports.10 Adoption of Rule 15d-21 and Form 11-K; Amendment to Form 10-K Shortly after the end of the fiscal year, the Commission adopted regulations governing the filing of annual reports pursuant to Section 15(d) of the Securities Exchange Act, relating to employee stock purchase, savings and similar plans. Proposed regulations relating to the filing of such reports were published for comment on June 13, 1961.11 As a result of further consideration of these proposals and the comments and suggestions received in regard thereto, certain changes have been made in the proposed regulations. A new Form 11-K has been adopted for use in filing annual reports with respect to such plans. A new Rule 15d-21 has been adopted which provides that separate annual and other reports need not be filed with respect to any plan if the issuer of the stock or other securities offered to employees through their participation in the plan files annual reports on Form 10-K or U5S and furnishes to the Commission as a part of its annual report on such form the information, financial statements and exhibits required by Form 11-K and furnishes to the Commission copies of any annual report submitted to employees in regard to the plan. A new general instruction has been added to Form 10-K which specifies the procedure "Securities Exchange Act Release No. 6820 (June 12, 1962). "Securities Exchange Act Release No. 6576 (June 13, 1961). to be followed where an issuer elects to file information and document> pursuant to Rule 15d-21.12 Proposed Rule 19a2-1 During the 1960 fiscal year the Commission invited public comments on a proposed Rule 19a2-1 under the Act, which would provide that the failure or refusal of an issuer or its officers, directors, employees, or controlling persons to cooperate with the Commission in proceedings under Section 19 (a) (2) or investigations under Section 21 of the Act with respect to compliance with Section 12 or 13 of the Act shall be deemed a failure to comply with the provisions of the Act or the rules and regulations thereunder for the purpose of Section 19 (a) (2)." The proposed rule would provide a basis for the issuance of an order under Section 19(a) (2) denying, suspending, or withdrawing the registration of a security in such cases. This matter was pending at the end of the fiscal year. Proposed Amendments to Form 8-K Form 8-K is the form prescribed for current reports filed pursuant to Section 13 or 15 (d) of the Securities Exchange Act. During the fiscal year, the Commission announced that it has under consideration certain proposed amendments to Form 8-K and invited public comments.14 The amendments are intended to supersede proposed amendments previously published for comment.15 They are designed to bring promptly to the attention of investors information regarding inaterial changes affecting the company or its affairs when it appears that the changes are of such importance that they should be reported promptly rather than at the end of the fiscal year. The amendments relate to matters such as the pledging of securities of the issuer or its affiliates under circumstances that a default will result in a change in control of the issuer, changes in the board of directors otherwise than by stockholder action, the acquistion or disposition of significant amounts of assets otherwise than in the ordinary course of business, interests of management and others in certain transactions. and the issuance of debt securities by subsidiaries. The proposed amendments were still under consideration at the close of the year. 12 Securities Exchange Act Release No. 6857 (July 23, 1962). 13 Securities Exchange Act Release No. 6297 (June 23, 1960): see 26th Annual Report p. 21; 27th Annual Report, p. 18. 14 Securities Exchange Act Release No. 6770 (April 5, 1962). 15 Securities Exchange Act Release No. 5979 (June 9, 1959), see 26th Annual Report p. 22; 27th Annual Report, p. 19. - Adoption of Rule 15c2-4 There have been instances where, as a result of financial reverses or for other reasons, underwriters and other broker-dealers participating in distributions have failed to remit amounts collected to the issuer, or to return payments made by customers to them where such return was required unless the distribution was completed within a specified period of time. Rule 15c2-4 was adopted to deal with this type of situation. The rule makes it a "fraudulent, deceptive, or manipulative act or practice" for any broker or dealer participating in any distribution other than a firm-commitment underwriting, to accept any part of the sale price of any security being distributed unless (1) it is promptly transmitted to the persons entitled thereto, or (2) if the distribution is being made on an "all-or-none" basis, or on any other contingent basis, the money is put into a trust or agency account, or delivered to an escrow bank, until the event or contingency has occurred, and it is then promptly transmitted or returned to the persons entitled thereto.16 Adoption of Rule 15c2-5 17 Shortly after the close of the fiscal year, the Commission adopted Rule 15c2-5 to prevent fraudulent practices by brokers or dealers in connection with the offer or sale of securities under a program which contemplates that the securities sold to the customer will be used as collateral for a loan, whose proceeds will be used to pay the premium on a life insurance policy sold to the customer at or about the same time (an activity which in various forms has come to be known as "equity funding," "secured funding," or "life funding").' The Commission had previously expressed the view that such a plan generally involves the offer and sale of an additional security, i.e., an investment contract, which is required to be registered under the Securities Act of 1933.18 Some dealers were offering this type of program without adequate consideration of whether it was suitable. for particular customers, and they failed to furnish customers with adequate information concerning the nature and extent of the obligations and risks involved and the commissions and other remuneration which the dealer and his associates would receive in connection with the transactions. The rule makes it unlawful for any broker or dealer to offer, sell or attempt to induce the purchase of any security by any person if the broker or dealer, in connection therewith, offers to extend any credit to or to arrange any loan for such person, or participates in 1 Securities Exchange Act Release No. 6737 (February 21, 1962). 17 Securities Exchange Act Release No. 6851 (July 17, 1962). 15 Securities Act Release No. 4491 (May 22, 1962). arranging any such loan or credit, unless, before any part of the transaction is entered into, the broker or dealer delivers to him a written statement setting forth certain material information concerning the arrangement being offered. In addition, the broker or dealer is required to obtain from each customer information concerning the latter's financial situation and needs, to reasonably determine that the entire transaction, including the loan arrangement, is suitable for the customer, and to deliver to him a written statement setting forth the basis upon which this determination was made. If, in connection with the transaction, it is contemplated that the prospect will cancel existing life insurance, the written statement delivered to the prospect before the transaction is entered into will have to disclose the disad vantages, if any, which the prospect will incur because of this Among other things, this may require disclosure that the premium on the new life insurance is higher than the premium on the old insurance; that the purchaser may be incurring additional expense because he is paying the "acquisition costs" twice; that it may take a specified additional period of time for the dividends or the cash value of the new policy to equal those under the old policy; and that the prospect may lose the benefits of the "incontestability provision" because the period during which the insurer may contest the policy for specified reasons may have expired under the old policy and the prospect may be required to "wait through" this period again under the new policy. Amendment of Rule 15c3-1 Rule 15c3-1, which provides that no broker or dealer shall permit his aggregate indebtedness to exceed 2,000% of his net capital. exempts from its requirements the members of specified exchanges whose "rules and settled practices" were deemed by the Commission to impose requirements more comprehensive than the requirements of the rule. However, a condition precedent to the continuation of any such exemption is that the exchange conduct such inspections and maintain such other procedures as are necessary to be reasonably sure that members are complying with its capital requirements. The Salt Lake Stock Exchange requested termination of the exemption for its members because it was burdensome for it to conduct the inspec tions and other procedures necessary to a continuation of the exemp tion. Accordingly, the Commission amended Rule 15c3-1 to delete the exemption previously available to members of that exchange.19 Amendment of Rules 17a-3 and 17a-4 Rule 17a-3 specifies the books and records which must be maintained by certain members of national securities exchanges and other broker 19 Securities Exchange Act Release No. 6691 (Dec. 21, 1961). |