PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933 is primarily a disclosure statute designed to provide investors with material facts concerning securities publicly offered for sale by an issuing company or any person in a control relationship to such company by the use of the mails or instrumentalities of interstate commerce, and to prevent misrepresentation, deceit, or other fraudulent practices in the sale of securities generally. Disclosure is obtained by requiring the issuer of such securities to file with the Commission a registration statement which includes a prospectus containing significant financial and other information about the issuer and the offering. The registration statement is available for public inspection as soon as it is filed. Although the securities may be offered after the registration statement is filed, sales may not be made until the registration statement has become "effective.” A copy of the prospectus must be furnished to each purchaser at or before the sale or delivery of the security. The registrant and the underwriter are responsible for the contents of the registration statement. The Commission has no authority to control the nature or quality of a security to be offered for public sale or to pass upon its merits or the terms of its distribution. Its action in permitting a registration statement to become effective does not constitute approval of the securities, and any representation to a prospective purchaser of securities to the contrary is made unlawful by Section 23 of the Act.

DESCRIPTION OF THE REGISTRATION PROCESS Registration Statement and Prospectus

Registration of any security proposed to be publicly offered may be effected by filing with the Commission a registration statement on the applicable form containing the prescribed disclosure. Generally speaking, when a registration statement relates to a security issued by a corporation or other private issuer, it must contain the information, and be accompanied by the documents, specified in Schedule A of the Act; when it relates to a security issued by a foreign government, the material specified in Schedule B must be supplied. Both schedules specify in considerable detail the disclosure which should be made available to an investor in order that he may make a realistic appraisal of the company and the securities and thus exercise an informed judgment whether to buy the security. In addition, the Act provides flexibility in its administration by empowering the Commission to classify issues, issuers and prospectuses, to prescribe appropriate forms, and to increase, or in certain instances vary or diminish, the particular items of information required to be disclosed in the registration statement as the Commission deems appropriate in the public interest or for the protection of investors. The Commission has prepared special registration forms which vary in their disclosure requirements so as to provide maximum disclosure of the essential facts pertinent in a given type of case while at the same time minimizing the burden and expense of compliance with the law.

In general, the registration statement of an issuer other than a foreign government must describe such matters as the names of persons who participate in the direction, management, or control of the issuer's business; their security holdings and remuneration and the options or bonus and profit-sharing privileges allotted to them; the character and size of the business enterprise, its capital structure, past history and earnings, and its financial statements, certified by independent accountants; underwriters' commissions; payments to promoters made within 2 years or intended to be made; the interest of directors, officers and principal stockholders in material transactions; pending or threatened legal proceedings; and the purpose to which the proceeds of the offering are to be applied. The prospectus constitutes a part of the registration statement and presents the more important of the required disclosures. Examination Procedure

Registration statements are examined by the staff of the Division of Corporation Finance for compliance with the standards of accurate and full disclosure. The registrant is usually notified by an informal letter of comment of any material respects in which the statement appears to fail to conform with the applicable requirements and is afforded an opportunity to file correcting or clarifying amendments. In addition, the Commission has power, after notice and opportunity for hearing, to issue an order suspending the effectiveness of a registration statement if it finds that material representations are misleading, inaccurate or incomplete. In certain cases, such as where the deficiencies in a registration statement appear to stem from careless disregard of applicable requirements or from a deliberate attempt to conceal or mislead, a letter of comment is generally not sent and the Commission either institutes an investigation to determine whether stop-order proceedings should be instituted or immediately institutes stop-order proceedings. Information about the use of this “stoporder” power during 1963 appears below under “Stop-Order

p Proceedings.” Time Required to Complete Registration

Because prompt examination of a registration statement is important to industry, the Commission endeavors to complete its analysis in ás short a time as possible. The Act provides that a registration statement shall become effective on the 20th day after it is filed (or on the 20th day after the filing of any amendment thereto). Since most registration statements require one or more amendments, they usually do not become effective until some time after the original 20-day period. This waiting period is intended to afford investors an opportunity to become familiar with the proposed offering through the dissemination of the preliminary form of prospectus. The Commission is empowered to accelerate the effective date so as to shorten the 20-day waiting period where the facts justify such action. In esercising this power, the Commission is required to take into account the adequacy of the information respecting the issuer theretofore available to the public, the ease with which the facts about the new offering can be disseminated and understood, and the public interest and the protection of investors. The note to Rule 460 under the Act indicates, for the information of interested persons, some of the more common situations in which the Commission considers that the statute generally requires it to deny acceleration of the effective date of a registration statement.

During the 1963 fiscal year, 985 registration statements became effective. The number of calendar days which elapsed from the date of the original filing to the effective date of registration for the median registration statement was 52, compared with 78 days for 1,646 registration statements in fiscal year 1962, and 55 days for 1,389 registration statements in fiscal year 1961. The number of registration statements filed during fiscal year 1963 was 1,159, as compared with 2,307 and 1,830) in fiscal years 1962 and 1961, respectively.?

The following table shows by months during the 1963 fiscal year the number of calendar days for the median registration statement during each of the three principal stages of the registration process,

the total elapsed time and the number of registration statements effective:

Time in registration under the Securities Act of 1933 by months during the fiscal year

ended June 30, 1963

NUMBER OF CALENDAR DAYS

Months

From date of From date of From amend-
original filing letter of com- ment after Total number Number of

to date of ment to date letter to of days in registration
stafl's letter of filing effective registration statements
of comment amendment date of

effective a thereafter registration

VOLUME OF SECURITIES REGISTERED During the fiscal year 1963, a total of 1,157 statements in the amount of $14.8 billion became fully effective under the Securities Act of 1933. This was a decrease of 37 percent in number of statements and 24 percent in dollar amount from the record registrations of the preceding fiscal year. The chart on page 9 shows the number and dollar amounts of fully effective registrations from 1935 to 1963.

These figures cover all registrations which became fully effective, including secondary distributions and securities registered for other than cash sale, such as exchange transactions and issues reserved for conversion. Of the dollar amount of securities registered in 1963, 80 percent was for account of issuer for cash sale, 12 percent for account of issuer for other than cash sale and 8 percent for account of others, as shown below.

Account for which securities were registered under the Securities Act of 1933 during

the fiscal year 1963 compared with the fiscal years 1962 and 1961

Registered for account of issuer for cash

sale... Registered for account of issuer for other

than cash sale. Registered for account of others than

1, 523
1, 738

1,139

7.7

8.9

1, 306

6.8 a

The $11.9 billion of securities to be offered for cash sale for account of issuer represented a decrease of $4.4 billion, or 27 percent, from the previous year. This was due chiefly to a decrease of almost $1.3 billion in common stock, debt securities declining by only $140 million. Debt securities made up $4.4 billion of the 1963 volume, preferred stock $270 million and common stock $7.2 billion. Of issues for cash sale, most of the common stock, 88 percent, was to be offered over an extended period, including investment company issues, stock to be issued under employee purchase plans and stock called for by warrants and options. Appendix Table 1 shows the number of statements which became effective and total amounts registered for each of the fiscal years 1935 through 1963, and contains a classification, by type of security, of issues to be offered for cash sale on behalf of the issuer during those years. More detailed information for 1963 is given in Appendix Table 2.

Corporate issues scheduled for immediate offering following etfeetive registration amounted to $5.1 billion, a decrease of $1.2 billion

, from the previous year. Of the total, electric, gas and water companies registered $2.3 billion of securities, about the same amount as in the preceding 2 years. The total for communication companies was $1.1 billion, exceeding the volume registered in fiscal year 1962 by 35 percent. All other groups, except for the extractive industry, registered lower amounts for immediate offering. The decline was greatest for manufacturing companies with $850 million of issues in 1963 compared with $1.8 billion in 1962. Issues registered for offering over an estended period amounted to $6.5 billion, as against $9.7 billion in fiscal year 1962.