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sible violations of the antifraud or other provisions of the securities acts were instituted, and 51 orders suspending the exemption from registration provided for small security issues were issued. Delegation of Functions
The enactment in August 1962 of Public Law 87–592, authorizing the Commission to delegate to staff members certain of its functions, should have the effect of strengthening the Commission's administration of the various acts administered by it. When implemented, the proposed delegation will relieve the Commissioners from certain routine matters with which they now deal and free them to devote more attention to major matters of policy and planning.
In December 1962, following extensive work by the Commission and at the staff level with a view to implementation of the law, the Commission published notice that it had under consideration the adoption of rules which would accomplish delegation of various routine functions to certain of its staff officials, including Division and Office heads and regional administrators, to be performed by them or under their direction by such persons as might be designated from time to time by the Chairman.
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. 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
? See the Commission's 27th Annual Report. p. & 9, for a discussion of H. J. Res. 138, 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 Conimission. The statute requires the Commission to retain a discretion ary 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 legisla
. tive proposals was analyzed, and numerous Congressional inquiries relating to matters other than specific legislative proposals were reviewed and answered.
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.
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
1 The rules 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.
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.2
Adoption of Rule 155
During the fiscal year the Commission adopted a new Rule 155.3 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).