tality of interstate commerce or of the mails or of any facility of any national securities exchange to use or employ any such device or contrivance in connection with the purchase or sale of any such security is hereby prohibited.

(Secs. 10, 12, 48 Stat. 891, 892; 15 U.S.0. 78), 781) [18 FR. 8183, Dec. 22, 1948]

CROSS REFERENCES: For applicability of this section, see § 240.198-1 to 240.12a-5. For regulations relating to employment of manipulative and deceptive devices, Bee §§ 240.10b-3 and 240.10b 5.

§ 240.10b-2 Solicitation of purchases on an exchange to facilitate distribution of securities.

(a) No person, participating or otherwise financially interested in the primary or secondary distribution of any security of any issuer, shall, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange:

(1) Pay or offer or agree to pay, directly or indirectly, to any person any compensation for soliciting another to purchase any security of the same issuer on a national securities exchange, or for purchasing any security of the same issuer on any such exchange for any account other than the account of the person who pays or is to pay such compensation; or

(2) Sell, offer to sell or induce an offer to buy such security, or deliver such security after sale, if, in connection with such distribution, such person has paid, or has offered or agreed to pay, directly or indirectly to any person, any compensation for soliciting another to purchase any security of the same issuer on any national securities exchange, or for purchasing any security of the same issuer on any such exchange for any account other than the account of the person who has paid or is to pay such compensation.

(b) No person, participating or otherwise financially interested in the primary or secondary distribution of any security of any issuer, shall cause a purchase or sale of any security of the same issuer on a national securities exchange by paying or offering or agreeing to pay, directly or indirectly, to any person any compensation for soliciting another to purchase such security on any such exchange, or for purchasing such security on any such exchange for any account other than

the account of the person who pays or is to pay such compensation.

(c) The provisions of this section shall not apply with respect to any compensation paid or offered or agreed to be paid by a broker or dealer to any person regularly employed by him whose ordinary duties include the solicitation or execution of orders for the purchase or sale of securities, if such compensation represents only ordinary compensation either in the form of salary or the usual and customary commissions paid to such person for the discharge by such person of such duties in the regular course of his employment.

(d) (1) The provisions of this section shall not apply to any transaction involving the payment of compensation pursuant to the terms of an effective plan authorizing the payment of such compensation in connection with a distribution of securities, which plan has been filled with the Commission by a national securities exchange: Provided, That the person paying such compensation does not know or have reasonable grounds to believe, at the time he pays or offers or agrees to pay such compensation, that transactions connected with such distribution are being carried out in violation of such plan.

(2) For the purposes of this rule a plan filed with the Commission by national securities exchange shall not become effective unless the Commission, having due regard for the public interest and for the protection of investors, declares the plan to be effective. The Commission in its declaration may impose such terms and conditions relating to the provisions of the plan and the period of its effectiveness as it deems necessary or appropriate in the public interest or for the protection of investors. (Sec. 10, 48 Stat. 891; 15 U.S.C. 781) [18 FR. 8183, Dec. 22, 1948, as amended at 18 FR 5087, Aug. 26, 1953; 38 FR 9665, Apr. 18, 1973]

CROSS REFERENCE: For interpretative release applicable to 240.10b-2, see No. 1411 in tabulation, Part 241 of this chapter.

NOTE: Following are FEDERAL REGISTER citations to Exchange Distribution Plans of various stock exchanges and the actions of SEC declaring the plans effective:

1. New York Stock Exchange: 18 F.R. 5087, Aug. 26, 1953; 19 F.R. 1317, Mar. 9, 1954; 20 F.R. 971, Feb. 16, 1955; 20 F.R. 1875, Mar. 8, 1955; 20 F.R. 6576, Sept. 8, 1955; 20 F.R. 8284, Nov. 4, 1955.

2. American Stock Exchange: 18 F.R. 6238, Sept. 30, 1953; 19 F.R. 1419, Mar. 13, 1954; 20 F.R. 1375, Mar. 8, 1955; 20 F.R. 1846, Mar. 26, 1955; 20 F.R. 6576, Sept. 8, 1955.

3. San Francisco Stock Exchange: 18 F.R. 6576, Oct. 24, 1953; 19 F.R. 1713, Mar. 30, 1954; 20 F.R. 1375, Mar. 8, 1955; 20 F.R. 6576, Sept. 8, 1955.

4. Midwest Stock Exchange: 19 F.R. 2808, May 15, 1954; 20 F.R. 1375, Mar. 8, 1955; 20 FR. 6576, Sept. 8, 1955.

§ 240.10b-3 Employment of manipulative and deceptive devices, by brokers or dealers.

(a) It shall be unlawful for any broker or dealer, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, to use or employ, in connection with the purchase or sale of any security otherwise than on a national securities exchange, any act, practice, or course of business defined by the Commission to be included within the term "manipulative, deceptive, or other fraudulent device or contrivance", as such term is used in section 15(c) (1) of the act.

(b) It shall be unlawful for any municipal securities dealer directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, to use or employ, in connection with the purchase or sale of any muncipal security, any act, practice, or course of business defined by the Commission to be included within the term "manipulative, deceptive, or other fraudulent device or contrivance," as such term is used in Section 15 (c) (1) of the Act.

(Secs. 10, 12, 48 Stat. 891, 892, as amended; 18 U.S.C. 781, 787) [13 F.R. 8183, Dec. 22, 1948, as amended at 19 FR. 8017, Dec. 4, 1954; 41 FR 22824, June 7, 1976]

CROSS REFERENCES: See also § 240.10b 5. For regulation relating to prohibition of manipulative or deceptive devices, see

240.10b-1. For the term "manipulative, deceptive, or other fraudulent device or contrivance", as used in section 15(c) (1) of the act, see §§ 240.15c1-2 to 240.15c1-9.

§ 240.10b-4 Short tendering of securities.

(a) It shall constitute a "manipulative or deceptive device or contrivance" as used in section 10(b) of the Act for any person, in response to an offer for, or

to a request or invitation for tenders of, any security,

(1) To tender any security for his own account unless (1) he owns the security or, (ii) he owns a security convertible into or exchangeable for, or owns an option, warrant or right to purchase the tendered security, intends to acquire the tendered security, by conversion, exchange, or exercise of such option, warrant, or right to the extent necessary to deliver the tendered security, and, upon the acceptance of his tender, he does convert, exchange, or excercise such option, warrant, or right to the extent necessary to deliver the tendered security: Provided, however, That if he tenders a security on the basis of his ownership of an option to purchase such security, he shall have reason to believe that the maker or writer of the option has title to and possession of such security and will promptly deliver it upon exercise of the option; or,

(2) To tender or guarantee the tender of any security on behalf of another person, unless (1) such security is in the possession of the person making the tender or giving the guarantee, or (11) the person making the tender or giving the guarantee, upon information furnished by the person on whose behalf the tender or guarantee is made, has reason to believe that such person owns the security tendered and, as soon as possible, without undue inconvenience or expense, will deliver the security for the purpose of the tender to the person making the tender or giving the guarantee, or (iii) the person on whose behalf the tender or guarantee is made owns a security convertible into, or exchangeable for, or owns an option, warrant, or right to purchase the tendered security and the person making the tender has reason to believe that such other person intends to acquire the tendered security, by the conversion, exchange, or exercise of such option, warrant or right to the extent necessary to deliver the tendered security: Provided, however, That if the tender or guarantee of the tender of a security is made on the basis of the ownership of an option to purchase such security, the person making the tender or guarantee shall have reason to believe that the maker or writer of the option has title to and possession of such security and will promptly deliver it upon exercise of the option.

(b) For the purposes of this section, a person shall be deemed to own a security if (1) he or his agent has title to it; or (2) he has purchased, or has entered into an unconditional contract, binding on both parties thereto, to purchase it but has not yet received it; or (3) he owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange; or (4) he has an option to purchase or acquire it and has exercised such option; or (5) he has rights or warrants to subscribe to it and has exercised such rights or warrants: Provided, however, That a person shall be deemed to own securities only to the extent that he has a net long position in such securities.

(Sec. 10, 48 Stat. 891; 15 U.S.C. 781) [38 FR. 8269, June 4, 1968]

§ 240.10b-5

Employment of manipula

tive and deceptive devices.

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interestate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

(Sec. 10; 48 Stat. 891; 15 U.S.C. 781) [13 F.R. 8183, Dec. 22, 1948, as amended at 16 F.R. 7928, Aug. 11, 1951]

(3) Who is a broker, dealer, or other person who has agreed to participate or is participating in such a distribution, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, either alone or with one or more other persons, to bid for or purchase for any account in which he has a beneficial interest, any security which is the subject of such distribution, or any security of the same class and series, or any right to purchase any such security, or to attempt to induce any person to purchase any such security or right, until after he has completed his participation in such distribution: Provided, however, That this section shall not prohibit (1) transactions in connection with the distribution effected otherwise than on a securities exchange with the issuer or other person or persons on whose behalf such distribution is being made or among underwriters, prospective underwriters or other persons who have agreed to participate or are participating in such distribution; (11) unsolicited privately negotiated purchases, each involving a substantial amount of such security, effected neither on a securities exchange nor from or through a broker or dealer; or (iii) purchases by an issuer effected more than forty days after the commencement of the distribution for the purpose of satisfying a sinking fund or similar obligation to which it is subject; or (iv) odd-lot transactions (and the off-setting round-lot transactions hereinafter referred to) by a person registered as an odd-lot dealer in such security on a national securities exchange who offsets such odd-lot transactions in such security by round-lot transactions as promptly as possible; or (v) brokerage transactions not involving solicitation of the customer's order; or (vi) offers to sell or the solicitation of offers to buy the securities being distributed (including securities or rights acquired in stabilizing) or securities or rights offered as principal by the person making such offer to sell or solicitation; or (vii) the exercise of any right or conversion privilege to acquire any security; or (vill stabilizing transactions not in violation of 240.10b-7; or (ix) bids for or pur. chases of rights not in violation of 240.10b-8; or (x) transactions effected on a national securities exchange in accordance with the provisions of a plan

filed by such exchange under § 240.10b-2 (d) and declared effective by the Commission; or (xi) purchases or bids by an underwriter, prospective underwriter or dealer otherwise than on a securities exchange, 10 or more business days prior to the proposed commencement of such distribution (or 5 or more business days in the case of unsolicited purchases), if none of such purchases or bids are for the purpose of creating actual, or apparent, active trading in or raising the price of such security. In the case of securities offered pursuant to an effective registration statement under the Securities Act of 1933 the distribution shall not be deemed to commence for purposes of this subdivision prior to the effective date of the registration statement.

(b) The distribution of a security (1) which is immediately exchangeable for or convertible into another security, or (2) which entitles the holder thereof immediately to acquire another security, shall be deemed to include a distribution of such other security within the meaning of this section.

(c) The following shall be applicable for the purposes of this section.

(1) The term "underwriter" means a person who has agreed with an issuer or other person on whose behalf a distribution is to be made (1) to purchase securities for distribution or (ii) to distribute securities for or on behalf of such issuer or other person or (ii) to manage or supervise a distribution of securities for or on behalf of such issuer or other person.

(2) The term "prospective underwriter" means a person (1) who has agreed to submit or has submitted a bid to become an underwriter of securities as to which the issuer, or other person on whose behalf the distribution is to be made, has issued a public invitation for bids, or (ii) who has reached an understanding, with the issuer or other person on whose behalf a distribution is to be made, that he will become an underwriter, whether or not the terms and conditions of the underwriting have been agreed upon.

(3) A person shall be deemed to have completed his participation in a particular distribution as follows: (1) The issuer or other person on whose behalf such distribution is being made, when such distribution is completed; (11) an underwriter, when he has distributed his participation, including all other securities

of the same class acquired in connection with the distribution, and any stabilization arrangements and trading restrictions with respect to such distribution to which he is a party have been terminated; (iii) any other person, when he has distributed his participation. A person, including an underwriter or dealer, shall be deemed for purposes of this subparagraph to have distributed securities acquired by him for investment.

(d) The provisions of this section shall not apply to any of the following securities: (1) “Exempted securities" as defined in section 3 (a) (12) of the act, including securities issued, or guaranteed both as to principal and interest, by the International Bank for Reconstruction and Development; or (2) face-amount certificates issued by a face-amount certificate company, or redeemable securities issued by an open-end management company or a unit investment trust. Any terms used in subparagraph (2) of this paragraph which are defined in the Investment Company Act of 1940 shall have the meanings specified in such act.

(e) The provisions of this rule shall not apply to any distribution of securities by an issuer to its employees, or to employees of its subsidiaries, or to a trustee or other person acquiring such securities for the account of such employees, pursuant to (1) a stock option plan involving only "qualified stock options," or qualifying as an "employee stock purchase plan" as those terms are defined in sections 422 and 423 of the Internal Revenue Code of 1954, as amended or "restricted stock options" as defined in section 424 (b) of the Internal Revenue Code of 1954, as amended, provided however, that for the purposes of this paragraph an option which meets all of the conditions of that section other than the date of issuance shall be deemed to be "restricted stock options"; or (2) a savings, investment, or stock purchase plan providing for both (1) periodic payments (or payroll deductions) for acquisition of securities by participating employees and (11) periodic purchases of the securities by participating employees, or the person acquiring them for the account of such employees.

(f) This section shall not prohibit any transaction or transactions if the Commission, upon written request or upon its own motion, exempts such transaction or transactions, either unconditionally

or on specified terms and conditions, as not constituting a manipulative or deceptive device or contrivance comprehended within the purpose of this section.

(Secs. 6, 7, 10, 19, 3, 10, 16, 48 Stat. 78, 81, 85 as amended, 882, 891, 896; 15 U.S.C. 771, 77g, 771, 77s, 78c, 781, 78p) [20 F.R. 5075, July 15, 1955, as amended at 29 F.R. 16857, Dec. 9, 1964]

§ 240.10b-7 Stabilizing to facilitate a distribution.

(a) Scope of section. The provisions of this section shall apply to any person who, either alone or with one or more other persons, directly or indirectly, stabilizes the price of a security to facilitate an offering of any security. It shall constitute a "manipulative or deceptive device or contrivance", as used in section 10(b) of the act, for any such person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, to effect, either alone or with one or more other persons, any transaction or series of transactions prohibited by this section.

(b) Definitions. Unless the context clearly indicates otherwise, for the purposes of this section the following terms shall have the meaning indicated:

(1) The term "offering at the market" shall mean an offering in which it is contemplated that any offering price set in any calendar day will be increased more than once during such day.

(2) The term "transaction" shall mean a bid or a purchase.

(3) The terms "stabilize", "stabilizes", "stabilizing" or "stabilized" shall mean the placing of any bid, or the effecting of any purchase, for the purpose of pegging, fixing or stabilizing the price of any security: Provided, however, That a bid shall not constitute a stabilizing bid unless or until it is shown in the market.

(c) Transactions must be necessary. No stabilizing bid or purchase shall be made except for the purpose of preventing or retarding a decline in the open market price of a security.

(d) Priority must be granted. Any person placing or transmitting a bid which he knows is for the purpose of stabilizing the price of any security shall disclose the purpose of such bid to the person with whom it is placed or to whom it is transmitted. Any person placing a stabilizing bid or effecting a

stabilizing purchase on a securities exchange shall grant priority to any independent bid at the same price irrespective of the size of such independent bid or the time when it is entered. Any person placing a stabilizing bid or effecting a stabilizing purchase otherwise than on a securities exchange shall grant priority to any independent bid at the same price placed with or transmitted to him irrespective of the size of such independent bid or the time when it is entered.

(e) Control of stabilizing. No sole distributor or syndicate or group stabilizing the price of a security nor any member or members of such syndicate or group shall maintain more than one stabilizing bid in any one market at the same price at the same time: Provided, however, That more than one such bid at the same price may be maintained otherwise than on a securities exchange by or for the account of such distributor, syndicate or group.

(f) Stabilizing at prices resulting from unlawful activity. No stabilizing shall be initiated at a price which the stabilizer knows or has reason to know is the result of activity which is fraudulent, manipulative, or deceptive under the act or any rule or regulation thereunder.

(g) Stabilizing prohibited in offerings at the market. No person shall effect any stabilizing transaction to facilitate any offering at the market.

(h) Stabilizing securities traded in more than one market. If a security is traded in more than one market, stabilizing shall not be initiated at any price which would be unlawful in the market which is the principal market for such security in the United States open for trading at the time when such stabilizing is initiated: Provided, however, That if the principal market for such security in the United States is a securities exchange, stabilizing may be initiated in any market after the close of such exchange at the price at which stabilizing could have been initiated on such exchange at the close thereof unless the person stabilizing knows or has reason to know that other persons have offered or sold such security at a lower price after such close, except that special prices available to any group or class of persons (including employees or holders of warrants or rights) shall not limit the stabilizing price.