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Common Stock, No Par Value

$4 Cumulative Second Preferred

Stock, No Par Value

File No.1-1905. Promulgated June 6, 1946

(Securities Exchange Act of 1934—Section 12 (d))


Application by Issuer. Application by issuer for withdrawal of securities from listing and registration on national securities exchange granted subject to terms requiring (1) the assent of holders of two-thirds of each class of outstanding securities and of twothirds of security holders of each class to withdrawal, and (2) the making of specific disclosures in connection with future repurchases of securities by applicant.


Louis Loss and Maurice A. Nemirow, of the Trading and Exchange Division of the Commission.

John P. Carr and Francis B. Turner, of Abbott, Rogerson and Carr, for the applicant.

Henry M. Leen, for the Boston Stock Exchange.



Suburban Electric Securities Company (“Suburban”) has applied pursuant to Section 12 (d) of the Securities Exchange Act of 1934 (“the Act”) * to withdraw its common and second preferred (“preferred") shares from listing and registration on the Boston Stock Exchange (“the Exchange"). After appropriate notice a hearing was held before a trial examiner. A trial examiner's report and briefs were filed and exchanged but oral argument was waived.


* Section 12 (d) provides in part that a registered security : .... may be withdrawn ... from listing and registration in accordance with the rules of the exchange and, upon such terms as the Commission may deem necessary to impose for the protection of investors, upon application by the 188uer ..."


Suburban, a Massachusetts trust, is primarily a holding company. It owns all the common stock and is the only substantial creditor, of Middlesex & Boston Street Railway Company ("Middlesex & Boston”), which operates motor buses in the Boston metropolitan area, and of Norumbega Park Company, the proprietor of an amusement park. These investments are the major part of Suburban's assets.

In 1921, when Suburban was organized, it issued and listed the following shares on the Exchange: 2,076 first preferred, 31,203 second preferred and 50,296 common. These securities were, in 1935, pursuant to the Act, registered on the Exchange. By October 1936 all of the first preferred shares were repurchased or redeemed. Since 1934 Suburban has been purchasing its second preferred shares. By September 1, 1945, 21,551 shares of the 31,203 shares of second preferred had been repurchased. The remaining 9,652 shares are owned by 185 holders. On the same date, of 50,296 common shares issued, 50,194 were held by 194 shareholders and 102 shares were carried in the treasury.


Under Section 12 (d) we must determine whether an applicant for withdrawal has complied with the rules of the exchange upon which the security is registered and whether any terms should be imposed for the protection of investors.

The Exchange has no rules pertaining to withdrawal from listing. A custom exists that an applicant send the Exchange a letter stating reasons for requesting withdrawal. The applicant filed such a letter with the Exchange.

2 As we shall note, only second preferred and common shares are now outstanding. The second preferred is a $4 cumulative dividend stock with a liquidation preference of $100 plus unpaid dividends. There is no provision in the basic documents of the Suburban trust for redemption of the second preferred. Each share of preferred and common has one vote. Shareholders elect the fifteen Trustees, five being chosen each year for a term of three years.

The Trustees "have the absolute control, management, and disposition" of all property and "likewise have the absolute control of the conduct of all business of the trust," including “the business of acquiring, owning, ... the stocks, shares, or securities of any ... trust or association, including this trust," and the power

"to release, sell, exchange, or otherwise dispose of, at public or private sale, any or all of the trust property, whether real or personal, for such prices . .. and upon such terms ... as they may deem expedient." No shareholder has “any right to inspect any account or book or document of the Trustees except as authorized by the Trustees or by resolution of the shareholders." The trust terminates 21 years after the death of the last survivor of the three persons signing the instrument, or earlier, by vote of two-thirds of the stockholders. * They were formally retired on December 31, 1936.

Under our Rules an applicant must tell us the reasons for desiring delisting and all the facts material thereto.* The present application asserts:

Both classes of stock are very closely held and sometimes weeks and even months go by without a sale on the Exchange. Because of the infrequency of sales, the market quotations, rather than being a source of information as to current value of the shares, are often misleading.

This company holds all of the stock of Middlesex & Boston Street Railway Company and Norumbega Park Company and under the provisions of the General Laws of Massachusetts regular reports to the Department of Public Utilities of the Commonwealth of Massachusetts are required. These reports are a public record and are available to any person who wishes to examine them. They contain virtually all of the information which a shareholder or prospective shareholder would be interested in.

The preparation of annual reports to the Securities and Exchange Commission requires many hours of work by our Treasurer and his assistants. Since the regular reports to the Massachusetts Department of Public Utilities are available to the public, the work and expense of preparing regular reports to the Securities and Exchange Commission seems hardly justifiable. In view of the foregoing it seems fair to say that investors and the general public would be deprived of no useful information by the delisting of the stock and the elimination of these reports.

We shall discuss these reasons in turn.


As of September 1, 1945, there were only 328 holders of both preferred and common stock. There are less than 10,000 shares of preferred and about 50,000 shares of common outstanding. The market in the shares has not been very active. In the 44 month period between January 1, 1942, and September 1, 1945, about 900 shares of preferred and 12,500 shares of common changed hands in 160 transactions. In the same period there were 15 months in which no transaction occurred in the common and 25 months in which none occurred in the preferred."

Suburban's application implies that market quotations for both classes are misleading. During the hearing Suburban's witness admitted that it had no criticism of market quotations for the preferred. But the witness insisted that the market over-valued the common and that withdrawal of the common from the Exchange would result in lower prices.

* Rule X-12D2-1 (b) (1) (C) provides :

The application shall state the reasons for such proposed withdrawal ... together with all material facts relating thereto and such facts as in the opinion of the applicant have a bearing on whether the Commission should impose any terms for the protection of investors.

• However, studies by our Trading and Exchange Division, introduced into the record, indicate that bids for the preferred and common shares were made regularly. During the period studied (six months between January 2 and June 30, 1945) there were only three days when no bid was entered for the preferred stock and only one day when no bid was entered for the common.

We do not here undertake a valuation of the common stock; our purpose is to weigh the assertions of the management in the light of the record. The record does not support the management's inference that Suburban's common is behaving unreasonably in view of all relevant circumstances. The prices of Suburban shares (like many others) have gone up over a long period as shown by the following table:

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Simultaneously the consolidated income and book equity figures of Suburban's system have been increasing as follows:

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And, during the same period, Suburban's repurchases of preferred stock have been cutting down the arrears, current dividends, and liquidation claims prior to the common stock at substantial discounts. We analyze these purchases in greater detail below. At present it is to be noted that a reduction of almost $85,000 per annum in current dividend requirements, $950,000 of dividend arrears and $2,200,000 in prior liquidating claims of second preferred shares alone (ignoring repurchases of first preferred) has already been effected through the expenditure of about $541,000 for repurchases. Suburban intends to continue these purchases. Whatever equitable or legal questions may exist as to these purchases they are a considerable factor in market appraisals of the common shares. The trends of the purchases and of income make it understandable that the market should presently capitalize the possibility of foreseeable dividends for the common.

Suburban has not shown that the prices of its common shares are distorted by the Exchange market, in the light of present market conditions and of other elements related to the shares. And it has

• The common shares, to which the management's criticisms have been especially directed, have been actively quoted. The record contains evidence as to the extent of spreads between bid and asked prices of Suburban's common stock on the Exchange for the period from January 2 to June 30, 1945. The record shows that during this period spreads of one point or less occurred in 120 days, and in the remaining 15 days in which there were both bids and offers, the spread was between 1% and 142.

not shown that, absent an Exchange market, the common shares will sell at a lower price over the counter. For the only period for which

a comparison of Exchange and over-the-counter prices is available, - purchasers of common stock who chose the over-the-counter market

paid on an average 49 cents per share more than the stock would have cost them on the Exchange, a substantial difference in a security which sold for $6.75 to $7.75.? Of course, we take into account the tendency of co-existing over-the-counter and Exchange quotations to move within close range of each other. Thus we regard the data of higher over-the-counter net prices to customers as having only a limited significance. They do show, however, that the downward movement on the over-the-counter market will have to be more drastic if the over-the-counter price is to approximate the management's conception of “true" value. Nothing has been shown to warrant anticipating such a move in a free over-the-counter market.

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Suburban asserts that as owner of Middlesex & Boston Street Railway Company and Norumbega Park Company, regular reports which contain virtually all the information of interest to present or prospective shareholders are filed with the Department of Public Utilities of Massachusetts and are available to the public. However, a comparison of the reports required by the Massachusetts Department of Public Utilities with the items required in our Form 11-K, the annual supplement for unincorporated issuers, reveals that while practically all the information required by the Commonwealth is contained in the filing under the Exchange Act, much pertinent data is obtainable only through our Form 11-K. The state reports do not require information about the security holdings of officers, trustees, directors and record owners of 10 percent of any class of security; changes in the general character of business done by Suburban or its subsidiaries;


' Between January 2 and June 30, 1945, 6 public purchases of common shares over the counter occurred on days in which transactions were consummated on the Exchange. In every case, the buyer paid more over the counter (after adding to the Exchange price the Exchange minimum commission per share).

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