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empts various types of securities from the registration requirements of Section 12(g), including securities issued by an insurance company if all of the following conditions are met: (1) the company is required to and does file an annual statement, conforming to that prescribed by the National Association of Insurance Commissioners (“NAIC”), with the insurance regulatory authority of its domiciliary state; (2) it is regulated in the solicitation of proxies as prescribed by the NAIC; and (3) after July 1, 1966, the purchase and sale of securities issued by such insurance company by beneficial owners, directors or officers of the company are subject to reporting and trading regulations by its domiciliary state in the manner provided by Section 16 of the Act.
The NAIC has prescribed a uniform annual reporting form which has been adopted in every state and the District of Columbia as the required annual report form for insurance companies. In addition, the NAIC, as part of that form, has developed a “stockholders' information supplement” which is designed to elicit whether the company's stockholders have been furnished information substantially equivalent to that which the Commission would require under its periodic reporting requirements and proxy rules. The Commissioners of each of the 50 states and the District of Columbia have stated that they would require insurance companies within their respective jurisdictions to file the supplement and any future revisions thereof and to comply with the proxy solicitation practices referred to therein. However, subsequent to the passage of the 1964 amendments, the insurance regulatory authorities of many states expressed the opinion that it may be necessary or desirable to receive express legislative authority to adopt the proxy regulations prescribed by the NAIC. In order to provide additional time for this purpose, the Commission adopted Rule 12h-1 granting insurance companies a temporary exemption from the registration requirements of Section 12(g) for the calendar year 1965, even if they do not meet the condition relating to the regulation of proxies.19 As of August 15, 1965, 29 states had passed the necessary legislation. In some of the remaining states such legislation is not believed necessary and it is pending in the others and in the District of Columbia.
The NAIC has also undertaken a program to bring about enactment of a "model insider trading statute" in each state and the District of Columbia which would afford investor protections comparable to those provided in Section 16 of the Exchange Act. As of August 15, 1965, 40 states had passed such legislation and the remainder of the states and the District of Columbia have such legislation pending.
Securities Exchange Act Release No. 7562 (March 26, 1965).
The NAIC expects that all jurisdictions will have complied with condition (3) by July 1, 1966, the date specified in the Act.
Section 12(g) (3) specifically authorizes the Commission to exempt foreign securities and certificates of deposit issued against such securities from the registration requirements if it finds that such action is in the public interest and is consistent with the protection of investors. Pursuant to this authority, the Commission has adopted Rule 12g3-1 which provides a temporary exemption from such requirements for foreign issuers until 120 days after their first fiscal year end following November 30, 1965.20 The adoption of Rule 12g3-1 was intended to give the Commission time to study the problems involved in the coverage of foreign securities. During the fiscal year, the Commission and its staff engaged in a study of these problems and, with the cooperation of various representatives of the foreign securities industry, extensive information relating to the various aspects of these problems has been collected. On the basis of this study, proposed rules will be formulated which will determine the extent to which various foreign issuers and their insiders will be subject to the disclosure requirements of the Exchange Act. Prior to the adoption of any rules, all interested persons—including foreign issuers, groups of foreign issuers, and American broker-dealers interested in foreign securities—will have an opportunity to present their comments.20a
The Commission believes that, to the extent practicable, American investors in foreign securities should be afforded the same protections as American investors in domestic securities. However, the Commission recognizes the practical problems of enforcement and compliance and of differing foreign laws. The Commission believes that it can administer the provisions of the 1964 amendments with respect to foreign securities in a manner that will provide the greatest practicable benefits for American investors, while at the same time not disrupting existing trading markets. Changes in Prospectus Delivery Requirements
The effect of the dealers' transaction exemption, now contained in Section 4(3) of the Securities Act of 1933, is to require all dealers, whether or not they participate in the initial distribution of a registered security, to deliver a prospectus for a designated period in connection with all transactions in such security in which the mails
Securities Exchange Act Release No. 7427 (September 15, 1964). 20a On November 16, 1965, the Commission published its rule of proposals for comment. Securities Exchange Act Release No. 7746.
or facilities of interstate commerce are used, excepting only unsolicited brokers' transactions. Prospectuses must be delivered by an underwriter continuing to act as such and by a dealer effecting transactions in securities constituting the whole or a part of an unsold allotment to or subscription by such dealer as a participant in the distribution so long as such underwriter or dealer is participating in a distribution, no matter how much time has elapsed since the commencement of the offering. In other situations, the period during which prospectus delivery was required prior to the Securities Acts Amendments of 1964, in the case of a security as to which a registration statement had been filed, expired 40 days after the effective date of such registration statement or the first date upon which the security was bona fide offered to the public by or through an underwriter after such effective date, whichever was later. In addition to renumbering the various provisions of Section 4 of the Act, the 1964 amendments made two substantive changes in the dealers' transaction exemption. First, the 40-day period was extended to 90 days if no securities of the issuer had previously been sold pursuant to an earlier effective registration statement-So-called "first registered offerings.' Second, the amendments give the Commission power to shorten the 40-day or 90-day period by rule, regulation or order.
In order that dealers will be apprised more readily of their obligation to deliver a prospectus, the Commission adopted a new Rule 425A, which requires a statement on the cover of a prospectus specifying the date on which the relevant 40 or 90-day period will expire. 21
At the same time, the Commission also adopted Rule 174 which exempts offerings of certain types of securities from the propectusdelivery requirements, establishes 40 days as the maximum period during which dealers must deliver a prospectus if the issuer has a class of securities listed and registered on a national securities exchange, and provides that where securities are to be offered at different times by one or more of several offerors, no new prospectusdelivery period will begin for dealers trading in the offering after the first 40- or 90-day prospectus-delivery period has expired following the initial offering of any of the registered securities for the accounts of any of the offerors.22 Other suitable relaxations of the dealers' exemption in Section 4(3) may become apparent as the Commission and the financial community gain experience under the amended requirements of the Securities Act. In the meantime, the rule reserves to the Commission the power to modify the applicable period by order upon application or on its own motion in particular cases.
Securities Act Release No. 4749 (December 23, 1964).
Enlargement of Disciplinary Authority as to Broker-Dealers
The 1964 amendments modified in important respects the provisions of Section 15 of the Exchange Act relating to disciplinary action against brokers and dealers and persons associated with them. For the first time, the Commission was authorized to proceed directly against individuals associated with broker-dealer firms and to impose sanctions on such individuals, including suspension or bar from being associated with a broker-dealer. The sanctions which the Commission may impose upon broker-dealers were expanded to include censure and suspension of registration for up to 12 months, and the statutory disqualifications from being registered as a broker-dealer or associated with a broker-dealer were expanded to include certain additional types of injunctions, convictions and violations.
The Commission has generally not applied these new provisions in any administrative proceeding commenced prior to August 20, 1964, the date when the Securities Acts Amendments were enacted. Since most of the administrative proceedings concluded during the fiscal year were commenced prior to that date, the operation of the amendments in this area was correspondingly limited. However, as a result of the consents of respondents in several such cases and the defaults or consents of respondents in a number of cases commenced subsequent to such date, 25 persons were barred during the fiscal year from association with any broker or dealer, three persons were suspended for varying periods from such association and one person was formally censured. In addition, one broker-dealer firm was censured and the registration of another was suspended. One proceeding was instituted only against individuals and not against their employer firm. Regulation of Broker-Dealers Who Are Not Members of Registered Securities
Association Prior to the passage of the 1964 amendments, broker-dealers registered with the Commission who were not members of the National Association of Securities Dealers, Inc. (NASD), or one of the principal exchanges, were not subject to any comprehensive regulation concerning qualifications, experience in the securities business, or fair business practices. A major objective of the amendments, according to the House Committee on Interstate and Foreign Commerce, was "to insure that the Commission has the necessary authority to provide regulation of non-member brokers and dealers comparable to that imposed by (self-regulatory) associations on their membership, including the requirement that these non-member brokers and dealers pay fees which will compensate the Commission for this additional regulation.” 23
House Report No. 1418, 88th Cong., 2d Sess., p. 12.
In August 1964, the Commission, as contemplated by new subsections (8), (9), and (10) of Section 15 (b) of the Exchange Act, began to formulate a regulatory program for those broker-dealers who are not members of a registered securities association. The new provisions authorize the Commission to adopt rules and regulations prescribing standards of training, experience and other qualifications for such brokers and dealers and persons associated with them, and to adopt rules and regulations governing non-member broker-dealers designed to promote just and equitable principles of trade, to provide safeguards against unreasonable profits or unreasonable rates of commissions or other charges, and in general to protect investors and the public interest and to remove impediments to and perfect the mechanism of a free and open market.
In February and March 1965, the Commission prepared studies of non-NASD broker-dealers, based upon information obtained in replies to a questionnaire sent to all such firms. On the basis of these studies, and after conferences with securities industry representatives, the Commission published for comment proposed Rule 15b8–1,24 which proposed to establish qualification requirements and set fees for nonNASD broker-dealers who do an over-the-counter business, and for their principals, salesmen and other persons associated with them. Subsequent to the end of the fiscal year, the Commission adopted Rule 15b8-1 with revisions that took into account comments from broker-dealers, the NASD, state securities administrators and others.25 The rule includes a requirement that persons associated with nonmember broker-dealers in certain capacities successfully complete a qualifications examination; that non-member broker-dealers file with the Commission a personnel form for each of their associated persons engaged in securities activities; and that they pay fees to defray the additional costs of regulation incurred between August 20, 1964, the date of the enactment of the 1964 amendments, and June 30, 1965.
The rule exempts from its provisions broker-dealers who are members of a national securities exchange if they do not carry customers' accounts and if their annual gross income derived from over-thecounter business is no more than $1,000. This exemption applies mainly to exchange specialists and other floor members who on occasion introduce accounts to other members.
The Commission is currently drafting rules under Section 15(b) (10) relating to broker-dealers' business conduct, and under Sections 15(b) (8) and (9) relating to a permanent fee schedule. In drafting
Securities Exchange Act Release No. 7603 (May 18, 1965).