Conference Report that the changes in the proposed section 3 (a) (9) made in conference were "intended only to clarify its meaning" (H. R. (Conf.) Rep. No. 1838, 73rd Cong., 2nd Sess., p. 40).

Interpretation of the so-called "private offering" exemption provided by the second clause of section 4 (1) presents similar considerations. You will note that the clause in question does not exempt every transaction which is not itself a public offering, but only transactions "not involving any public offering." Accordingly, I am of the opinion that the exemption is not available to securities privately offered if any other securities comprised within the same issue are made the subject of a public offering.

It appears, therefore, that both with respect to section 3 (a) (9) and with respect to section 4 (1) the necessity of registering the Series B and Series C bonds depends upon whether they should be deemed separate issues or merely parts of a single issue: I believe it unnecessary at this time to enter into any extended discussion of what constitutes an "issue" for the purposes of the Act. The opinion of the Commission in In the Matter of Unity Gold Corporation (Securities Act Release No. 1776) discusses this question as it arises under section 3 (b) of the Act. The point is also touched upon, at least inferentially, in the discussion of section 3 (a) (11) contained in Securities Act Release No. 1459. Whatever may be the precise limits of the concept of "issue" when all securities involved are of the same class, I do not believe that securities of different classes can fairly be deemed parts of a single "issue." Since on the facts submitted the Series B and Series C bonds appear to be securities of different classes, they constitute separate "issues," and may be offered and sold in the manner above described without being registered under the Securities Act.

In expressing this opinion I do not mean to imply that any difference in the incidents of two blocks of securities, however trivial, renders the blocks separate classes and consequently separate "issues" for the purposes of the Act. In this case, however, the differences between the Series B and Series C bonds are, I believe, sufficiently substantial to warrant treating them as separate classes even though they will be issued under the same mortgage indenture.

[Securities Act Release No. 2029, August 8, 1939]

§ 231.2340 Statement of Commission policy with respect to the acceleration of the effective date of registration statements.

The Congress having amended Section 8 (a) of the Securities Act of 1933 to confer upon the Commission discretion to accelerate the effective date of registration statements filed under the Securities Act of 1933, the Commission declares that, pursuant to such

discretionary authority, it will be the general policy of the Commission to accelerate the effective date of registration statements filed under the Securities Act of 1933 in accordance with the following procedure:

In determining the date on which a registration statement shall become effective, the Commission will consider, having due regard to the public interest and the protection of investors,

(a) The adequacy of the disclosure and compliance with the requirements of the Act, and compliance with the applicable form and instruction book and rules pertaining thereto at the time the registration statement is initially filed:

(b) The advisability of permitting the acceleration of material amendments filed after the initial filing date; and

(c) The character and date of information previously or concurrently filed under any Act administered by the Securities and Exchange Commission or by any other Federal Agency or which is generally available to the public.

It is expected that examination by the Commission of registration statements and amendments (if any) which have been prepared with due regard to the matters set forth in (a) above, will ordinarily be completed within a few days after the filing date, so that as soon as an appropriate amendment correcting the deficiencies, if any, and an amendment setting forth the price, if the price and terms of offering were not set forth in the statement as initially filed, (or matters relating to price such as redemption or sinking fund, call prices, conversion prices or such other matters relative to price or terms of offering as the Commission may by rules and regulations determine) are filed, the Commission will, subject to the above statement of policy and the requirements of the Act, consent to the filing of the amendments and declare the statement effective as soon as practicable.

The requirements of the Trust Indenture Act of 1939 have materially increased the examination work of the Registration Division of the Commission with respect to registration statements of securities to be issued under indentures which must be qualified under that Act. It will further the effectuation of the above policy if drafts of such indentures are submitted in reasonably final form for consideration and discussion with the staff as far as possible in advance of the actual filing of the registration statement.

The Registration Division of the Commission has, in the past, made its services available to proposed issuers of securities and their counsel and accountants in order to give them advice with respect to questions which might arise in connection with the preparation of registration statements. The Commission will continue this service insofar as possible and will endeavor to assist proposed registrants, in advance of filing, in the solution of specific technical questions which may arise.

It will be the Commission's policy to cooperate with registrants in order that the effectiveness of registration statements filed under the Securities Act may be expedited as much as possible consistent with the public interest and the protection of investors.

For additional guidance, consultation with the Commission at or before the time of filing may enable the Commission, whenever possible, to indicate the approximate date on which registration may become effective.

[Securities Act Release No. 2340, August 23, 1940]

$231.2623 Opinion of General Counsel concerning the application of the third clause of section 4 (1) in various situations.

I have been asked to express my opinion as to the circumstances under which brokers and dealers must use prospectuses in connection with trading in the securities of American Telephone and Telegraph Company covered by the registration statement which became effective under the Securities Act on July 15, 1941.

In order to make my discussion more clearly understandable in its application to the various concrete situations which may arise, I shall first describe briefly the nature of the offering in question. The registration statement covered $233,584,900 in principal amount of debentures of the Company, .proposed to be offered by the Company pro rata to its existing stockholders, without the intermediation of any underwriters. The statement covered also full and fractional warrants which the Company proposed to deliver to its stockholders in evidence of their right to purchase debentures from the Company. These warrants were to be issued to all stockholders of record at the close of business on July 25, 1941, and the registration statement specified that the warrants would actually be issued to stockholders on or about August 4, 1941. The warrants by their terms were required to be exercised on or before August 29, 1941. Pursuant to an order of the Commission entered on July 11, 1941, the registration statement became effective at 4:45 P. M., E. S. T., on July 15, 1941. So far as practicable, prospectuses were made generally available by the Company on July 16, 1941.

Before discussing the legal requirements which have been applicable since the registration statement became effective, I should like to point out that until the statement became effective it was illegal for any broker or dealer to use the mails or instrumentalities of interstate commerce to offer or sell either the debentures or the warrants on a whenissued basis. This was clearly stated in a release published by the Commission on July 9, 1941 (Securities Act Release No 2613). Apparently, it was not sufficiently understood that the prohibition of the statute extended not only to offers and sales for immediate execution, but also to solicitations of orders

which were not to be given and executed until after the effective date of the statement. Thus, a circular distributed by a broker or dealer to his customers, describing the debentures and the rights and suggesting that he would be glad to receive and execute orders after the statement became effective, was no less a violation of the statute than a circular inviting the immediate submission of orders before the effective date. The same would be true even if the circular carried a "hedge clause" specifically disclaiming any intent to solicit orders. If the circular in fact constituted a solicitation of orders it could not be brought within the law by mere formal disclaimers.

Now that the statement has become effective, there is no prohibition against offering rights or debentures, or soliciting orders to buy them, whether on a when-issued or an issued basis. However, the Act requires that if any prospectus relating to a registered security is transmitted through the mails or in interstate commerce, that prospectus must be in the form of, or accompanied or preceded by, the formal prospectus filed by the issuer with its registration statement. (For convenience, I shall call this prospectus a “formal prospectus." In the Act it is referred to as a "prospectus that meets the requirements of section 10.") Furthermore, even if in a particular sale no use is made of the mails or interstate commerce to offer the security, or to solicit orders to buy it, the security itself must still be accompanied or preceded by the formal prospectus when the security is delivered through the mails or in interstate commerce.

In applying these principles to particular situations, brokers and dealers should appreciate that the term "prospectus" as used in the Securities Act covers more than the kind of formal document which the layman ordinarily has in mind when he uses the term. Under the Act a "prospectus" includes every kind of written communication which attempts or offers to dispose of, or solicits an offer to buy, a security for value, or which constitutes a contract of sale or disposition of a security for value. If the term "prospectus" is construed in accordance with its language and spirit, it must in my opinion be read to cover any document which is designed to procure orders for a security, or to effectuate the disposition of a security, whether or not the document purports on its face to offer the security for sale, or otherwise to dispose of it for value.

In the light of these general principles let me discuss concrete examples which will illustrate in greater detail the application of the prospectus requirements of the Act to transactions occurring after the effective date of the registration statement.

Question 1.-John Doe, a dealer, writes a letter to Richard Roe, one of his customers, offering him warrants, on a when-issued basis, for ten $100 debentures. Must John Doe send a copy of the formal prospectus with his letter?

Answer.-Yes. John Doe's letter itself falls within the broad definition of "prospectus" in the Act. As such, it must, in order tc comply with the Act, either be in the form of the formal prospectus-which it obviously is not or else be preceded or accompanied by a formal prospectus.

Question 2.-Instead of writing a letter to Richard Roe, John Doe calls him on the telephone and offers him the warrants. Richard Roe accepts; and John Doe thereupon mails him a confirmation of the sale. Must John Doe send a copy of the formal prospectus with his confirmation?

Answer.-Yes. The term "prospectus" is defined in the Act broadly enough to include within its meaning an ordinary confirmation; and since the confirmation is not itself a formal prospectus, it, like the offering letter in Question 1, must be accompanied or preceded by a formal prospectus.

Question 3. John Doe happens to know that his customer, Richard Roe, is already a stockholder of American Telephone and Telegraph Company, and has therefore already received a prospectus from the Company itself. Must John Doe still, in the situation described in Questions 1 and 2, send Richard Roe a formal prospectus?

Answer. Yes. In requiring that a letter offering registered securities, or a confirmation, must be accompanied or preceded by a formal prospectus, the Act requires further that this formal prospectus shall have been sent or given-not by anyone, but by the person who sent the letter or confirmation, or by his principal. John Doe is not acting for American Telephone and Telegraph Company. Consequently, the fact that Richard Roe has received a prospectus from American Telephone and Telegraph Company does not affect the responsibility that John Doe has to comply with the prospectus requirements.

Question 4. On August 5, 1941, John Doe telephones Richard Roe, his customer, and states that he has warrants for ten $100 debentures, and will be glad to sell them to Richard Roe. Richard Roe accepts the offer. John Doe thereupon immediately puts the warrants in an envelope, and mails them to Richard Roe. Must John Doe enclose also a copy of the formal prospectus?

Answer. Yes. The Act requires that registered securities, when delivered through the mails or in interstate commerce, shall be preceded or accompanied by a formal prospectus; and since John Doe made an oral offer, without sending a formal prospectus, he must send one with the warrants.

Question 5. In the course of the conversation described in Question 4, Richard Roe mentions that he is already a stockholder of American Telephone and Telegraph Company, and so has received a copy of the prospectus. Must John Doe nevertheless send him another copy?

Answer. No. In requiring that securities, when delivered, be accompanied or preceded by a prospectus, the Act does not require that the prospectus shall have been sent or given

by the person making the delivery. It is enough that the purchaser shall already have received a prospectus from some source. (Owing to the particular wording of the Act, this situation must be carefully distinguished from the case in Question 3.)

Question 6. John Doe, a broker, receives an unsolicited telephone call from Richard Roe, asking him to purchase for Richard Roe's account warrants for ten $100 debentures. John Doe does so, and sends them to Richard Roe by mail. Must he send a copy of the prospectus with the warrants?

Answer. No. The prospectus requirements of the Act do not apply to unsolicited brokers' transactions, whether executed on an exchange or over the counter.

Question 7. Richard Roe telephones John Doe, his broker, and states that he has certain warrants which he would like John Doe to sell for his, account. John Doe does so, and sends him a confirmation of the transaction. Must John Doe at the same time send him a copy of the prospectus?

Answer.

No. In confirming a sell order on a brokerage basis, John Doe is not within the prospectus requirements of the Act.

Question 8. Pursuant to the sell order received in Question 7, John Doe sells Richard Roe's warrants to Henry Hoe, another dealer, who purchases for his own account. Must John Doe, in confirming the sale to Henry Hoe, or in delivering the warrants to him, send him a copy of the prospectus?

Answer. No. John Doe, in making the sale, is completing the execution of an unsolicited brokerage order, and therefore is exempt from the prospectus requirements.

Question 9. John Doe writes to his customer Richard Roe, whom he knows to be a stockholder of American Telephone and Telegraph Company and offers to sell for him the warrants he has received. Must John Doe send Richard Roe a formal prospectus with his letter?

Answer. Yes.

The transaction, although on a brokerage basis, results from a solicitation, and consequently the prospectus requirements are applicable to John Doe's sale to Henry Hoe.

Question 11. John Doe writes a letter to Richard Roe, his customer, offering to purchase rights for his account. Must John Doe enclose in his letter a copy of the prospectus?

Answer. Yes. Even though John Doe acts as broker in the transaction, he is soliciting an offer to buy, and is therefore subject to the prospectus requirements of the Act.

In an effort to be of the greatest assistance to brokers and dealers in the practical conduct of their business, I have endeavored to

state the foregoing illustrative questions and answers in as non-technical a fashion as possible. Anyone desiring more detailed information as to the statutory basis for the answers I have given, or wishing information as to any situations which I have not covered, is welcome to address a further inquiry to this office.

[Securities Act Release No. 2623, July 25, 1941]

§ 231.2899 Extract from letter of Director of the Corporation Finance Division. This release is the same as Investment Company Act Release No. 446. (17 CFR, 271.446) [Securities Act Release No. 2899, February 5, 1943]

§ 231.2955 Opinion of Director of the Trading and Exchange Division relating to the violation of the anti-fraud provisions of the Securities Act by manipulation of prices of securities not registered on a national securities exchange. This release is the same as Securities Exchange Act Release No. 3505. (17 CFR, 241.3505) [Securities Act Release No. 2955, November 16, 1943]

§ 231.2956 Opinion of Director of the Trading and Exchange Division relating to the violation of the anti-fraud provisions of the Securities Act in cases of a "syndicate account" while members of the syndicate or selling group are engaged in the retail distribution of such security. This release is the same as Securities Exchange Act Release No. 3506. (17 CFR, 241.3506) [Securities Act Release No. 2956, November 11, 1943]

§ 231.2997 Statement of the Commission relating to the anti-fraud provisions of section 17 (a) of the Securities Act of 1933 and sections 10 (b) and 15 (c) (1) of the Securities Exchange Act of 1934. This is the same as Securities Exchange Act Release 3572. (17 CFR, 241,3572) [Securities Act Release No. 2997, June 1, 1944]

231.3000 Opinion of Chief Counsel to the Corporation Finance Division relating to section 3 (a) (10):

You have requested my opinion as to the legality of trading on a when-issued basis in the new common stock proposed to be issued by The Laclede Gas Light Company under a voluntary plan approved by the Commission on May 27, 1944, pursuant to section 11 (e) of the Public Utility Holding Company Act of 1935 (Holding Company Act Release No. 5071). You have inquired specifically whether the Commission's order approving the plan resulted in exempting such trading

723338-47-SUPP. IX-BK. 2- -69

from the registration and prospectus provisions of the Securities Act of 1933 by virtue of section 3 (a) (10) of that Act.

I shall speak only of when-issued trading over the counter, because when-issued trading on a national securities exchange is subJect to the Commission's Regulation X-12D3 under the Securities Exchange Act of 1934. Under that Act and Regulation registration of a security for when-issued trading on an exchange is subject to various conditions in addition to compliance with the Securities Act of 1933.

It is my opinion that the exemption afforded by section 3 (a) (10) of the Securities Act of 1933 will not be available for any whenissued sales or offers to sell until the date the plan is enforced by the appropriate United States District Court pursuant to section 11 (e) of the Public Utility Holding Company Act of 1935.

Section 5 of the Securities Act of 1933 provides in substance that no person shall sell or offer to sell any security through the mails or in interstate commerce unless a registration statement as to that security is in effect with this Commission and a specified form of prospectus is used. Section 3 (a) (10) of the Securities Act of 1933 exempts from the provisions of Section 5:

"Any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval."

In my opinion the terms and conditions of the issuance and exchange of a security are not "approved" within the meaning of section 3 (a) (10) until completion of the total process of approval required in the particular case. The Commission's order approving the Laclede plan specifically provided "That this order shall not be operative to authorize the consummation of transactions proposed in the plan as amended until an appropriate federal district court shall, upon application thereto, enter an order enforcing such plan." In view of this provision, it cannot be said that the terms and conditions of the issuance and exchange of the new Laclede common have as yet been "approved" within the meaning of section 3 (a) (10) of the Securities Act of 1933. Such approval will not occur until the date of entry of a District Court order enforcing the plan.

Consequently, any dealer who makes use of the mails or any means of interstate commerce to sell or offer to sell new Laclede common "when issued" prior to court enforcement of the plan will violate Section 5 of the Securities Act of 1933. This applies also

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to any broker who, as a result of the solicitation of a customer's order, sells or offers to sell "when issued" on an agency basis.

I might add that in my opinion the taking of an appeal to the Circuit Court of Appeals from the order of the District Court enforcing the plan, or the institution of further review proceedings in the Supreme Court of the United States, would not render unavailable the exemption under section 3 (a) (10) of the Securities Act, and hence would not affect the legality of when-issued trading, unless the order of the lower court were stayed pending the appeal.

[Securities Act Release No. 3000, June 7, 1944]

§ 231.3011

Opinion of Chief Counsel

to the Corporation Finance Division relating to section 3 (a) (10).

You have requested my opinion as to the legality of trading on a when-issued basis in the new debentures and common stock contemplated by the plan of reorganization of *** and . • • approved by the United States District Court for the Southern District of New York on August 26, 1944, pursuant to section 174 of Chapter X of the Bankruptcy Act. It is my understanding that the plan has not yet been finally confirmed by the court pursuant to Section 221 of Chapter X. Before a confirmation order can be entered, it will, of course, be necessary for the plan to be accepted in writing by two-thirds of each class of creditors of each corporation participating in the plan.

I shall speak only of when-issued trading over the counter, because when-issued trading on a national securities exchange is subject to the Commission's Regulation X-12D3 under the Securities Exchange Act of 1934. Under that Act and Regulation registration of a security for when-issued trading on an exchange is subject to various conditions in addition to compliance with the Securities Act of 1933 and, in the case of a debt security, the Trust Indenture Act of 1939.

It is my opinion that any sales or offers, of sale of the new debentures or common stock made through the mails or in interstate commerce prior to final confirmation of a plan under section 221 of Chapter X would violate the registration and prospectus provisions of Section 5 of the Securities Act of 1933. It is my opinion further that any sales or offers of sale of the new debentures made through the mails or in interstate commerce prior to qualification of an indenture with this Commission would violate the provisions of Section 306 of the Trust Indenture Act of 1939.

Section 5 of the Securities Act of 1933 provides in substance that no person shall sell or offer to sell any security through the mails or in interstate commerce unless a registration statement as to that security is in effect with this Commission and a specified form of prospectus is used. Section 306 of the

Indenture Act of 1939 provides in substance that no person shall sell or offer to sell any bond or debenture or other debt security through the mails or in interstate commerce unless that security has been or is to be issued under a specified form of indenture which has been effectively qualified with this Commission.

Section 264 of Chapter X of the Bankruptcy Act exempts from the registration and prospectus provisions of Section 5 of the Securities Act of 1933 "any transaction in any security issued pursuant to a plan in exchange for securities of or claims against the debtor or partly in such exchange and partly for cash and/or property .." Section

3 (a) (10) of the Securities Act of 1933 exempts from the registration and prospectus provisions of Section 5 of that Act.

"Any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval."

Neither of these exemptions applies to the provisions of Section 306 of the Trust Indenture Act of 1939 requiring the qualification of an indenture in respect of any debt security.

So far as the new common stock contemplated by the plan is concerned, it is my opinion that there will be no exemption under either Section 264 of Chapter X of the Bankruptcy Act or section 3 (a) (10) of the Securities Act of 1933 until final confirmation of a plan pursuant to Section 221 of Chapter X. It seems clear that no security can be issued "pursuant to a plan," as required by Section 264, prior to its confirmation under Section 221. It seems clear also that the terms and conditions of the issuance and exchange of the new common stock cannot be said to have been "approved," as required by section 3 (a) (10), until entry of an order of confirmation by the court. As I have stated in an earlier opinion (Securities Act Release No. 3000), in which I considered the similar problem of the applicability of section 3 (a) (10) to a plan approved by this Commission pursuant to section 11 (e) of the Public Utility Holding Company Act of 1935 but not yet approved or enforced by a District Court, it is my opinion that the approval contemplated by section 3 (a) (10) is the total process of approval which is required by the particular statute relied upon to grant an exemption under that section. In the case of a reorganization under Chapter X of the Bankruptcy Act, the total process of approval required for the issuance of any secu