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The distribution of unlisted stocks and share volumes therein among the exchanges is shown in Appendix Table 8 of this annual report.

The reported volume of trading on the exchanges in stocks with only unlisted trading privileges for the calendar year 1962, was about 28,135,000 shares or about 1.7 percent of the total share volume on all the exchanges. About 90.5 percent of this volume was on the American Stock Exchange, 8.2 percent was on the Pacific Coast Stock Exchange, and 3 other exchanges contributed the remaining 1.3 percent. The share volume in these stocks represented about 7.6 percent of the total share volume on the American Stock Exchange and about 4.6 percent of that on the Pacific Coast Stock Exchange.

Unlisted trading privileges on some exchanges in stocks listed and registered on other exchanges numbered 1,570 on June 30, 1963. The volume of unlisted trading in these stocks, for the calendar year 1962, was reported at about 49,252,000 shares. About 14.4 percent of this volume was on the American Stock Exchange in stocks listed on regional exchanges, and about 85.6 percent was on regional exchanges in stocks listed on the New York or American Stock Exchanges. While the 49,252,000 shares amounted to less than 3 percent of the total share volume on all the exchanges, they constituted substantial portions of the share volumes on the leading regional exchanges, reaching about 79 percent on Boston, 69 percent on PhiladelphiaBaltimore Washington, 68 percent on Cincinnati, 59 percent on Detroit, 55 percent on Pittsburgh, 30 percent on Midwest, and 22 percent on Pacific Coast Stock Exchange. Applications for Unlisted Trading Privileges

Applications by exchanges for unlisted trading privileges in stocks listed on other exchanges, made pursuant to Rule 12f-1 under Section 12(f) of the Securities Exchange Act, were granted by the Commission during the fiscal year ended June 30, 1963, as follows: Stock exchange :

of stocks Boston.

5 Cincinnati.

Pacific Coast --
Philadelphia-Baltimore Washington.




5 15



The usual method of distributing blocks of listed securities considered too large for the auction market on the floor of an exchange is to resort to "secondary distributions" over the counter after the close of exchange trading.

In an effort to keep as much as possible of this business on their floors, the leading exchanges adopted Special Offering Plans commencing in 1942, and the somewhat more flexible Exchange Distribution Plans commencing in 1953. The plans, declared effective by this Commission, include an exemption from the anti-manipulative Rule 106–2, as set forth in paragraph (d) thereof, with respect to payment of compensation in connection with the distribution of securities.

The largest number of Special Offerings was 87 in 1944, with $32,454,000 aggregate value. The number has declined through the years, there being only 2 in 1961, aggregating $1,503,750, and 2 in 1962, aggregating $587,650.

The largest number of Exchange Distributions was 57 in 1954, compared with 41 in 1962. However, the $65,459,197 total in 1962 was larger than in any previous year.

Secondary distributions, as reported since 1942, reached a peak of $926,514,294 during the calendar year 1961, and declined to $658,780,395 during 1962.

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Details of these distributions appear in the Commission's monthly Statistical Bulletins. Data for prior years are shown in appendix table 11.


The Exchange Act describes and prohibits certain forms of manipulative activity in any security registered on a national securities exchange. The prohibited activities include wash sales and matched orders effected for the purpose of creating a false or misleading appearance of trading activity in, or with respect to the market for, any such security; a series of transactions in which the price of such security is raised or depressed, or in which actual or apparent active trading is created for the purpose of inducing purchases or sales of such security by others; circulation by a broker, dealer, seller, or buyer, or by a person who receives consideration from a broker, dealer, seller


or buyer, of information concerning market operations conducted for a rise or a decline in the price of such security; and the making of any false and misleading statement of material information by a broker, dealer, seller, or buyer regarding such security for the purpose of inducing purchases or sales. The Act also empowers the commission to adopt rules and regulations to define and prohibit the use of these and other forms of manipulative activity in any security registered on an exchange or traded over the counter.

The Commission's market surveillance staff in its Division of Trading and Markets in Washington and in its New York Regional Office and other field offices observes the tickertape quotations of securities listed on the New York Stock Exchange and on the American Stock Exchange, the sales and quotation sheets of the various regional exchanges, and the bid and asked prices published by the National Quotation Bureau for about 6,000 unlisted securities to observe any unusual and unexplained price variations or market activity. The financial news ticker, leading newspapers, and various financial publications and statistical services are also closely followed.

When unusual and unexplained market activity in a security is observed, all known information regarding the security is examined and a decision made as to the necessity for an investigation. Most investigations are not made public so that no unfair reflection will be cast on any persons or securities and the trading markets will not be upset. These investigations, which are conducted by the Commission's regional offices, take two forms. A preliminary investigation or "quiz" is conducted to discover rapidly evidence of unlawful activity. If it appears that more intensive investigation is necessary, a formal order of investigation, which carries with it the right to subpoena witnesses and documents, is issued by the Commission. If violations by a broker-dealer are discovered, the Commission may institute administrative proceedings to determine whether or not to revoke his registration or suspend or expel him from membership in the National Association of Securities Dealers, Inc., or from a national securities exchange. The Commission may also seek an injunction against any person violating the Exchange Act and it may refer information obtained in its investigation to the Department of Justice recommending that persons violating the Act be criminally prosecuted. In some cases, where the activities are essentially local in character and state jurisdiction is not open to question, the information obtained may be referred to state agencies for injunctive action or criminal prosecution.

The following table shows the number of quizzes and investigations pending at the beginning of fiscal 1963, the number initiated in fiscal 1963, the number closed or completed during the same period, and the number pending at the end of the fiscal year:

Trading investigations

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When securities are to be offered to the public, their markets are watched very closely to make sure that the price is not unlawfully raised prior to or during the distribution. A total of 1,157 registered offerings, having a value of $14.8 billion, and 517 offerings exempt under Section 3(b) of the Securities Act, having a value of about $101 million, were so observed during the fiscal year. A total of 162 other offerings, such as secondary distributions and distributions of securities under special plans filed by the exchanges, having a total value of $374 million, were also kept under surveillance. Stabilization

Stabilization involves open-market purchases of securities to prevent or retard a decline in the market price in order to facilitate a distribution. It is permitted by the Exchange Act subject to the restrictions provided by the Commission's Rules 10b-6, 7 and 8. These rules are designed to confine stabilizing activity to that necessary for the above purpose, to require proper disclosure and to prevent unlawful manipulation.

During 1963 stabilizing was effected in connection with stock offerings totaling 24,435,202 shares having an aggregate public offering price of $680,107,579 and bond offerings having a total offering price of $216,689,800. In these offerings, stabilizing transactions resulted in the purchase of 476,799 shares of stock at a cost of $12,603,474 and bonds at a cost of $3,019,225. In connection with the stabilizing transactions, 4,337 stabilizing reports showing purchases and sales of securities effected by persons conducting the distribution were received and examined during the fiscal year.

INSIDERS' SECURITY HOLDINGS AND TRANSACTIONS Section 16 of the Act is designed to prevent the unfair use of information by directors, officers and principal stockholders by giving publicity to their security holdings and transactions and by removing the profit incentive in short-term trading by them in securities of their company. Such persons by virtue of their position may have knowledge of the company's condition and prospects which is unavailable to the general public and may be able to use such information to their personal advantage in transactions in the company's securities. Provisions similar to those contained in Section 16 of the Act are also contained in Section 17 of the Public Utility Holding Company Act of 1935 and Section 30 of the Investment Company Act of 1940. Ownership Reports

Section 16(a) of the Securities Exchange Act requires every person who is a direct or indirect beneficial owner of more than 10 percent of any class of equity securities (other than exempted securities) which is registered on a national securities exchange, or who is a director or officer of the issuer of such securities, to file reports with the Commission and the exchange disclosing his ownership of the issuer's equity securities. This information must be kept current by filing subsequent reports for any month in which a change in his ownership occurs. Similar reports are required by Section 17(a) of the Public Utility Holding Company Act of officers and directors of public utility holding companies and by Section 30(f) of the Investment Company Act of officers, directors, principal security holders, members of advisory boards and investment advisers or affiliated persons of investment advisers of registered closed-end investment companies.

All ownership reports are available for public inspection as soon as they are filed at the Commission's office in Washington and reports filed pursuant to Section 16(a) of the Securities Exchange Act may also be inspected at the exchanges where copies of such reports are filed. In addition, for the purpose of making the reported information available to interested persons who may not be able to inspect the reports in person, the Commission summarizes and publishes such information in a monthly "Official Summary of Security Transactions and Holdings,” which is distributed by the Government Printing Office on a subscription basis. Subscriptions to this publication exceed 16,000.

During the fiscal year, 41,807 ownership reports were filed, a slight decrease from the record high of 42,983 reports filed during the 1962

fiscal year.

Recovery of Short-Swing Trading Profits by Issuer

In order to prevent insiders from making unfair use of information which may have been obtained by reason of their relationship with a

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