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The Commission's major activity relating to legislation during the fiscal year 1963, namely, the preparation and submission of its legislative program based on the recommendations of the Special Study of Securities Markets, has already been discussed in some detail in the preceding part of this report.
Additionally, Chairman Cary testified before Subcommittee No. 2 of the Committee on the District of Columbia, House of Representatives, in favor of H.R. 4200, a bill to provide for the regulation of the business of selling securities in the District of Columbia and for the licensing of persons engaged in that business. Chairman Cary also appeared before the Legal and Monetary Affairs Subcommittee of the Committee on Government Operations, House of Representatives, to discuss the relation of the Federal securities laws to certain aspects of the Comptroller of the Currency's revised Regulation 9, particularly the expansion, as contemplated by that regulation, of the power of national banks to commingle funds for investment management and the relation of the Federal securities laws to the provisions of the Self Employed Individuals Tax Retirement Act of 1962. In addition, Chairman Cary discussed the problem of the exploitation of elderly citizens in securities transactions and the Commission's responsibility in that area in hearings before the Special Committee on Aging, United States Senate. Commissioner Cohen testified before the Subcommittee on Administrative Practice and Procedure of the Senate Committee on the Judiciary with respect to S. 1664, a bill to establish a Permanent Administrative Conference.
During the fiscal year the Commission and its staff analyzed or commented on 49 bills and other legislative matters referred by various committees of the Senate and House of Representatives and the Bureau of the Budget.
REVISION OF RULES, REGULATIONS, AND FORMS As previously noted, the Report of the Special Study of Securities Markets recommended, among other things, changes in the Commission's rules in various areas. Even aside from the Special Study and its implementation, the Commission maintains a continuing program of reviewing its rules, regulations and forms 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, and in the light of the experience gained in the administration of the statutes administered by it. 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 in a professional capacity such as underwriters, attorneys and accountants. 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. These views and comments are carefully reviewed by the staff and by the Commission and are very helpful in revealing the manner in which proposed changes will operate.?
During the 1963 fiscal year, the Commission made a number of changes in its rules, regulations and forms, and published in preliminary form various proposed changes. The changes made during the year and those pending at the end of the year are described below.
1 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. Trust Indenture Act of 1939, pt. 260. Investment Company Act of 1940, pt. 270. Investment Advisers Act of 1940, pt. 275.
THE SECURITIES ACT OF 1933 Proposed Rule 156
During the fiscal year the Commission invited public comments on a proposed rule relating to transactions involving certain group annuity contracts. The proposed rule, to be designated Rule 156, would define as "transactions by an issuer not involving any public offering” in Section 4(1) of the Securities Act, transactions which are exempted from the Investment Company Act of 1940 by Rule 3c-3 under that Act. Rule 3c-3, which was recently adopted, exempts from the provisions of the Investment Company Act transactions by any insurance company with respect to certain group annuity contracts providing for the administration of funds held by such company in separate accounts established and maintained pursuant to state law. It has been represented to the Commission that these contracts are individually negotiated with employers who are able to fend for themselves. The proposed new rule provides that transactions of the character referred to therein shall come within the rule only if the transaction is not solicited by advertising which, insofar as it relates to a separate account group annuity contract, does more than identify the insurance company, state that it is engaged in the business of writing separate account contracts and invite inquiries in regard thereto. The rule provides, however, that disclosure in the course of direct discussion or negotiation of such contracts would not be prohibited. The proposed rule would provide an exemption only from the provisions of Section 5 of the Act and would not, therefore, afford any exemption from the anti-fraud provisions of the Act.: Proposed Rules 402A and 440
The Commission announced that it has under consideration two proposed new rules relating to the registration of securities by foreign issuers other than foreign governments."
Section 6(a) of the Securities Act requires that where a registrant is a foreign or territorial person, the registration statement shall be signed by its duly authorized representative in the United States. This signature is in addition to the signatures required where the registrant is a domestic issuer. Under Section 11 of the Act, an authorized representative may be liable to persons purchasing the securities offered pursuant to the registration statement. In order for this provision to operate effectively for the protection of investors, it is essential that the authorized representative be a person having a reasonable degree of responsibility. In the past, efforts have been made to meet the requirement that the registration statement be signed by an authorized representative in the United States by organizing a dummy corporation solely for that purpose. Other devices may similarly be used to evade the intent and purpose of the requirement. The proposed new Rule 402A would require that where the registrant is a foreign person other than a foreign government, the authorized representative in the United States shall meet certain qualifications designed to insure that there will be in this country a person against whom investors may have recourse in appropriate cases.
2 Securities Act Release No. 4598 (April 16, 1963).
3 Rule 156 was adopted shortly after the end of the fiscal year. See Securities Act Release No. 4627 (August 1, 1963).
• Securities Act Release No. 4511 (July 16, 1962); Securities Act Release No. 4524 (August 10, 1962).
The proposed new Rule 440 would require that where the registrant, any of its directors or officers, any selling security holder or any underwriter is a nonresident (other than a foreign government or a political subdivision thereof), it shall furnish to the Commission a consent and power of attorney authorizing the Commission to accept service of process in connection with civil actions arising out of the offering or sale of the registered securities. The purpose of this rule is to make it easier for purchasers of the registered securities to obtain service of process upon foreign issuers and their insiders in connection with civil actions instituted in the courts in this country.
The proposed rules were still under consideration at the close of the year. Adoption of Revised Form S-8
During the fiscal year the Commission adopted certain 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 purchase, savings or similar plans, and for registering the interests in such plans where such registration is required. In addition to certain changes designed to simplify and clarify the form in certain respects, Form S-8 was 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 SECURITIES EXCHANGE ACT OF 1934 Proposed Amendments to Rule 3a12–3
Rule 3a12–3 exempts the securities of certain foreign issuers from the operation of Sections 14(a) and 16 of the Securities Exchange Act. During the fiscal year, the Commission announced that it has under consideration certain proposed amendments to Rule 3a 12–3
& Securities Act Release No. 4533 (August 30, 1962). See 28th Annual Report, p. 12.
and invited public comments. The rule, as amended, would provide that no exemption is available for voting trust certificates where the voting trustee is or, if there is more than one, at least one-half of the voting trustees are citizens or residents of the United States, or if any person or persons controlling such voting trustee or trustees are citizens or residents of the United States.
A further amendment of the rule would take out of the exemption from Sections 14(a) and 16 of the Act certain issuers organized in a foreign country. These would include (i) companies which have their principal executive offices in the United States and which have a substantial portion of their assets in, or derive a substantial portion of their gross revenues from sources in, the United States; (ii) companies which have the major portion of their assets in, or derive the major portion of their gross revenues from sources in, the United States; (iii) companies the majority of whose directors are citizens or residents of the United States; and (iv) companies more than 50 percent of whose voting securities are owned by residents of the United States.
This matter was pending at the end of the fiscal year. Adoption of Rule 10b-9
There have been instances where persons distributing securities have represented that such securities were being offered on an "all-or-none" basis when, because of ambiguities in the contractual arrangement, it was not clear whether the conditions for a completed offering would be met if persons were found who agreed to purchase all of the securities within the specified time, but the underwriter did not succeed in collecting the purchase price for all of the securities. Rule 106-9 was adopted to deal with this type of situation. The rule makes it a “manipulative or deceptive device or contrivance," as used in Section 10(b) of the Act, for any person, in connection with the offer or sale of a security, to make any representation to the effect that the security is being offered or sold on an "all-or-none” basis unless the security is part of an offering being made on the condition that all or a specified amount of the purchase price will be promptly refunded to the purchaser if all of the securities being offered are not sold at a specified price within a specified time and the total amount due to the seller is not received by him by a specified date. The rule would also prohibit a representation to the effect that the security is being offered or sold on any other basis under which all or part of the amount paid will be refunded to the purchaser if all or part of the securities are not sold, unless the security is part of an offering being made on the condition
• Securities Exchange Act Release No. 6912 (October 11, 1962); Securities Excbange Act Release No. 6930 (November 5, 1962).