is evident that they performed Herculean labors by way of investigation and ferreting out the facts." During the year 1,534 broker-dealer inspections were conducted, and broker-dealer registrations were revoked in 75 cases. Inspections were completed with respect to 219 investment advisers, and 5 investment adviser registrations were revoked. Examinations or investigations were initiated in 20 cases to determine whether stop order proceedings should be brought with respect to registration statements filed under the Securities Act of 1933, and investigations were instituted in 19 cases to determine whether other information filed with the Commission was accurate and adequate. Orders which suspended the exemption from registration provided for small security issues were issued in 53 instances. The fiscal year also saw a further increase in the Commission's inspection program under the Investment Company Act of 1940. During the year, 84 inspections of investment companies were completed, as compared to a total of 165 inspections conducted in all prior years since the inception of the program in 1957, and 52 inspections during the 1962 fiscal year. Chiefly as a result of information obtained through inspections, 29 investigations were commenced, and 9 civil actions were instituted. The inspection and investigation program produced rather dramatic results in certain instances in terms of tangible benefits to investment companies or their shareholders. In one instance, where it appeared that an investment company's investment adviser, a broker-dealer, had taken improper brokerage commissions in executing securities transactions for the company, a settlement was agreed upon which will result in the return of more than $200,000 to the company. In another instance, where an inspection and investigation revealed that promoters had used a company and its wholly-owned subsidiary, a registered investment company, as a means of financing other corporations controlled by them, and had committed numerous violations of the Securities Act of 1933 and the Investment Company Act of 1940, the Commission's staff negotiated a settlement which provided, among other things, for a return of about $250,000 to public shareholders. Registration of New Security Offerings Continuing the trend set since the severe market break of May 1962, fiscal year 1963 saw a considerable reduction, by contrast with recent years, in the number of registration statements filed under the Securities Act of 1933 for public offerings of securities. A total of 1,159 statements was filed during the year, representing a dollar amount of $14.7 billion. The lower number of filings enabled the Commission's staff to reduce the processing period substantially. The median number of days elapsing from the date of filing to the date of the staff's letter of comment, with respect to registration statements which became effective during the year (excluding certain investment company filings), was 27 during the 1963 fiscal year as compared with 57 days in the preceding year. A total of 1,157 statements in the amount of $14.8 billion became effective during the year. The chart below portrays the dollar volume and number of registrations with respect to securities which became registered during the fiscal years 1935 through 1963. LEGISLATIVE ACTIVITIES 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. 10 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.1 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. Proposed Rule 156 THE SECURITIES ACT OF 1933 During the fiscal year the Commission invited public comments on a proposed rule relating to transactions involving certain group annuity contracts.2 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.3 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, 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). |