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r : -,48th, Annual Report)

of the Securities and

Exchange Commission

for the fiscal year

ended September 30, 1982

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Chairman's Letter of Transmittal

The Honorable George Bush

President, U.S. Senate

Washington, D.C. 20510

The Honorable Thomas P. O'Neill, Jr.

Speaker, U.S. House of Representatives

Washington, D.C. 20515

Gentlemen:

It is a pleasure to transmit herewith the Securities and Exchange Commission's 48th Annual Report for the fiscal year ended September 30, 1982.

Fiscal 1982 was an exceptional year in terms of the volume and efficacy

of the Commission's efforts, and major programs brought to fruition for

the benefit of shareholders. Such programs reduce their corporations' expenses by hundreds of millions of dollars per annum, as well as the Commission's paperwork, but not investor protections.

The SEC is charged with the protection of investors and the maintenance

of fair and orderly markets. These mandates are discharged through the

SEC's public disclosure, enforcement and oversight functions, which

facilitate the formation, mobility and effective employment of the nation's

capital.

Last year the Commission brought 30% more enforcement cases,conducted 25% more investment company and advisor inspections, processed

8% more broker-dealer reports, and handled 5% more full disclosure filings, than in fiscal 1981, with 5% less personnel. Registration and other

fees offset 94% of the Commission's $83 million budget, as compared

with 81% in fiscal 1981.

The following were records, or the highest levels in several years: 250

enforcement cases were brought, 1,000 Investment Company and advisor

inspections were conducted, 6,600 broker-dealer reports were processed,

and 65,000 full disclosure filings were handled. The staff of less than

1,900 is at the lowest level since 1974.

The Commission also obtained, for the benefit of investors, disgorgements

and restitutions of $30 million, recision offers and refunds of $50 million, and

asset freezes of $35 million. Comparable data are not available for

prior years.

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Securities and Exchange Commission

Fiscal Years Percentage

1981 1982 Change

Enforcement CasesBrought 191 251* +31%

Investment Company and Advisor

Inspections Conducted 848 1,065* +26%

Broker-Dealer Reports Processed 6,106 6,599* +8%

Full Disclosure Filings 62,000 65,000* + 5%

Public Complaints Receivedo 21,000 17,OOOt -19%

Total Staff-Years 1,982 1,882t 5%

Fees Receivedas a Percent of the

SEC Budget 81% 94%

*-A record or the highest level in several years.

t- The lowest level in several years.

o-Estimates due to shift from manual to computer tabulations.

Major programs brought to fruition last year and the Commission's ongoing efforts, include the following:

Integration

Integration of corporations' registration and reporting requirements (under

the 1933 and 1934 securities acts) is one of the most important improvements in the securities laws since they were enacted half a century ago.

In the interest of shareholders, integration increasestheir corporations'

financing flexibility and reduces their expensesby over $350 million per

annum, as well as the Commission's paperwork, but not disclosures to the

investing public.

Net Capital Rule

The securities industry's net capital requirements were updated to take

into account the industry's improved financial and operational conditions.

This freed-up over $500 million of the industry's capital, which has helped

investment banking and brokerage firms handle the much greater volume

of financings and transactions since August and improve other services to

investors.

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Registration Exemptions

In the interest of small business shareholders, the exemption from registration of certain offerings (up to $5 million to other than the general public)

will reduce small businesses'expensesby about $50 million per annum.

Over $4 billion of such financings are expected this year. The exemptions

for larger private placements to sophisticated investors were also simplified

and improved.

These exemptions reduce corporations' expensesand the Commission's

paperwork, but not the investing public's protection. Most states are expected to adopt comparable exemptions, which will be the first joint state

and federal registration exemptions.

Swiss Accord

The Accord concluded with Switzerland removes the haven of the Swiss

secrecy laws from those who would trade on inside information. In this era

of increasing internationalization of the securities markets, the Swiss Accord is an historic precedent.

CFfC Accord

The Accord concluded with the Commodity Futures Trading Commission

resolved a seven-yearjurisdictional dispute, which enabled the SEC to

authorize trading in Treasury, GNMA, foreign currency, certificate of

deposit and stock index options. These new options will facilitate government and mortgage financings, international trade and hedging the risks

of fluctuating interest rates and securities markets.

Proxies and Communications

Proposed improvements in the proxy rules and corporations' ability to

communicate with their shareholders (despite the high percentage of

securities registered in nominee names), will benefit shareholders and

reduce their corporations' expenses,as well as the Commission's paperwork.

Accounting Regulations

Eighty redundant or outmoded Accounting Series Releaseswere withdrawn

and the balance were codified in a ready-referencemanual.

Investment Companies

Proposals to simplify and improve investment company prospectuses will

increase their utility and reduce expenses ultimately borne by investors, as

well as the Commission's paperwork, but not investor protections.

Self-Regulation

Private-sector self-regulation under the SEC's oversight is also being

enhanced. Effective self-regulation increases investor protections and

reduces Commission expenses.

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For example, under the oversight of the Office of the Chief Accountant,

the 428 accounting firms which audit over 90% of publicly owned

corporations, are now on a three-year peer review cycle. The purpose of

these reviews is to assure high auditing standards.

In addition, the stock exchangesand the over-the-counter markets are

enhancing their electronic inter-market surveillance systems and transaction audit trails, under the oversight of the Market Regulation Division.

These measures facilitate the quick identification of possible manipulation

and insider trading.

The Commission is also soliciting comments concerning the creation of a

self-regulatory organization to conduct investment company inspections,

under the oversight of the Investment ManClgementDivision.

National Market System

The exchange and over-the-counter markets in 30 stocks have been electronically linked. This experiment is being closely monitored by the securities industry and the Directorate of Economic and Policy Analysis.

An order exposure rule has been released for public comment, and last

sales in 184 national market system over-the-counter stocks are now being

reported on a real time basis.

Shelf-Registration

The shelf registration rule WClSadopted on a temporary basis. It permits

corporations to file a single registration statement covering securities they

expect to sell from time to time within two years. Over $140 billion of

debt and $2 billion of equity offerings have been filed under the shelf

rule. Later this year, the Commission will determine whether to extend,

modify or withdraw the shelf rule.

Enforcement

Enforcement is the largest activity at the Commission. It accounts for

about a third of the total budget. The 250 enforcement cases brought last

year compare with 190 the year before, despite budgetary constraints and

personnel reductions. Nearly 60% of the caseswere injunctive actions. As

in the past, most involved regulated entities and false or misleading corporate filings.

The 20 insider trading cases brought last year represented 40% of all such

cases within the past five years. Insider trading cases have received high

visibility, but they only amounted to 8% of the year's total cases.

Ten caseswere brought under the accounting provisions of the Foreign

Corrupt practices Act of 1977. They represent 42% of all such cases since

the FCPA was enacted.

Legislation

In addition to the Accord with the CFTC which was enacted last year, the

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SEC has proposed legislation to increase criminal fines from $10,000 to

$100,000; to permit civil fines up to three times insider trading profits; to

repeal the Public Utility Holding Company Act; and to require all brokerdealers to join a registered self-regulatory organization. The Commission

also testified in support of amendments to the Glass-Steagall,Foreign Corrupt Practices and Bankruptcy Reform acts.

Litigation

There are also a number of important cases pending which may significantly impact the securities laws, including the Dirks inside information

case; several implied right of action cases, including Walck, Liberty

National Insurance and San Francisco Real Estate Investors; Dickinson, a

13(d) case; and many others in which the Commission is a party or has

filed amicus briefs.

Conferences

The Commission is also spending more time listening and responding to

the needs and interests of investors, corporations and others. During the

past 12 months, among many others, the Commission held:

the first ResearchForum, at which 40 leading securities analysts

recommended improvements in the SEC's disclosure and

rulemaking practices;

the first Government-BusinessForum on Small Business Capital

Formation, under the Small Business Investment Incentive Act;

the first round of meetings of the full Commission and members of

the senior staff with other boards and commissions with which the

SEC has overlapping jurisdiction:

the Federal ReserveBoard,

the Federal Deposit Insurance Corporation,

the Comptroller of the Currency,

the Federal Home Loan Bank Board,

and the Commodity Futures Trading Commission,

as well as with the executive staffs of the North American

Securities Administrators, the Securities Investor Protection

Corporation and the self-regulatory organizations;

a conference on major issues confronting financial institutions and

markets in the 1980's;

and an international conference with securities regulations from 31

nations.

Task Force

In Congressional testimony and speechesthe Commission has advocated

for over a year the formation of a task force to help simplify and improve

the regulatory structures of the financial service industries, for the benefit

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of investors and depositors. Vice President Bush has recently formed a

task group for this purpose.

1983

As for 1983, in addition to bringing to fruition last year's ongoing efforts,

the Commission is studying:

the tender offer rules and practices;

the adequacy of its enforcement remedies;

and means to further refine and automate its review, inspection and

enforcement practices and techniques.

The Commission will also be an active participant in prospective legislation, and continue to enforce effectively the securities laws in response to

emerging trends in the securities markets and the economy. For example,

many of last year's insider trading cases related to the significant increase

in tender offers. Some of the current financial reporting and internal

accounting controls cases reflect pressures to report profits in a difficult

economic environment.

Conclusion

Some of the past year's results were the product of continuing improvements in mangement techniques, automation and paperwork reduction,

such as computer and data processing screens and computations for filing

and enforcement case reviews and investment advisor inspections; and

reductions in corporations' (and therefore the Commission's) paperwork per

filing.

However, the year's record results and the many major programs brought

to fruition are principally a tribute to the brilliant and dedicated efforts of

the Commissioners and staff. In its new book on regulatory reform, the

Heritage Foundation characterizes the SEC staff as "among the best and

brightest in the government", which is high praise, justly deserved.

The Commission has also received excellent support and cooperation from

the private-sector self-regulatory organizations, other federal and state law

enforcement agencies, the business and financial community, and the legal

and accounting professions.

Sincerely,

John S.R. Shad

viii

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Commissioners and Principal Staff

Officers

(As of November 3D, 1982)

Commissioners

John S.R. Shad, Chairman

John R. Evans

Barbara S. Thomas

Bevis Longstreth

James C. Treadway, Jr.

Secretary: George A. Fitzsimmons

Executive Assistant to the Chairman: Daniel L. Goelzer

Principal Staff Officers

George G. Kundahl, Executive Director

Kenneth A. Fogash, Deputy Executive Director

Lee B. Spencer, Director, Division of Corporation Finance

John J. Huber, Deputy Director

William C. Wood, Associate Director

Mary E.T. Beach, Associate Director

Linda C. Quinn, Associate Director

Amy L. Goodman, Deputy Associate Director

John M. Fedders, Director, Division of Enforcement

Theodore A. Levine, Associate Director

Gary G. Lynch, Associate Director

Frederick B. Wade, Chief Counsel

Alexia L. Morrison, Chief Litigation Counsel

Douglas Scarff, Director, Division of Market Regulation

Edward Kwalwasser, Associate Director

Jeffrey L. Steele, Associate Director

Richard G. Ketchum, Associate Director

Joel H. Goldberg, Director, DuJision of Investment Management

Gerald Osheroff, Associate Director

Richard W. Grant, Associate Director

Term Expires

1986

1983

1985

1984

1987

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Aaron Levy, Director, Division of Corporate Regulation

Grant Guthrie, Associate Director

Edward F. Greene, General CounseL*

Paul Genson, Solicitor

Russell B. Stevenson, .Jr., Deputy GeneraLCounseL

Jacob H. Stillman, Associate General CounseL

Linda D. Fienberg, Associate General Counsel

Andrew L. Rothman, Director, Office of Public Affairs

Chiles T.A. Larson, Deputy Director

A. Clarence Sampson, Chief Accountant

LeGrand C. Kirby, Deputy Chief Accountant

Jeffrey L. Davis, Director, Directorate of Economic and Policy AnaLysis

Terry M. Chuppe, Associate Director

Charles W. Bryson, Associate Director

Charles C. Cox, Chief Economist

William S. Stern, Director, Office of Opinions and Review

Herbert V. Efron, Associate Director

R. Moshe Simon, Associate Director

Warren E. Blair, Chief Administrative Law Judge

Lawrence H. Haynes, Comptroller

Herbert S. Silbert, Assistant Comptroller

Richard J. Kanyan, Director, Office of Administrative Seances

G. William Richardson, Deputy Director

James C. Foster, Director, Office of PersonneL

William E. Ford, II, Assistant Director

Wilson Butler, Director, Office of Applications and Reports Services

Robert R. Wolf, Director, Office of Consumer Affairs and lnkumstion

Services

John D. Adkins, Director, Officer of lnlormetion Systems Management

Thomas J. Whalen, Deputy Director

Ethel Geisinger, Director of LegisLativeAffairs

James A. Clarkson, III, Director of Regional Office Operations

Phillip H. Savage, Director of Equal Employment Opportunity

*Mr. Greene resigned from the position of General Counsel effective November 12,

1982.

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Regional and Branch Offices

Reginal Offices and Administrators

Region 1. New York, New Jersey.-Donald N. Malawsky, Room 1102, 26

Federal Plaza, New York, New York 10278.

Region 2. Massachusetts,Connecticut, Rhode Island,Vermont, New Hampshire,

Maine-Willis H. Riccio, 150 CausewayStreet, Boston, Massachusetts02114.

Region 3. Tennessee, Virgin Islands, Puerto Rico, North Carolina, Sourth

Carolina, Georgia, Alabama, Mississippi, Florida, part of Louisiana.-Michael

K. Wolensky, Suite 788, 1375 Peachtree Street, N.E., Atlanta, Georgia

30367.

Region 4. Illinois, Indiana, Iowa, KansasCity (Kansas),Kentucky, Michigan, Minnesota, Missouri, Ohio, WisconsIn.-William D. Goldsberry, Room 1204,

Everett McKinley Dirksen Bldg., 219 South Dearborn Street, Chicago, Illinois

60604.

Region 5. Oklahoma, Arkansas, Texas, part of Louisiana, Kansas (except Kansas City).-Wayne M. Secore, 8th Floor, 411 West Seventh Street, Fort

Worth, Texas 76102.

Region 6. North Dakota, South Dakota, Wyoming, Nebraska, Colorado, New

Mexico, Utah.-Robert H. Davenport, Suite 700, 410 Seventeenth Street,

Denver, Colorado 80202.

Region 7. California, Nevada, Arizona, Hawaii, Guam.-Michael J. Stewart,

Suite 500 East, 5757 Wilshire Blvd., Los Angeles, California 90036-3648

Region 8. Washington, Oregon, Idaho, Montana, Alaska.-Jack H. Bookey,

3040 Federal Building, 915 Second Avenue, Seattle, Washington 98174.

Region 9. Pennsylvania, Maryland, Virginia, West Virginia, Delaware, District

of Columbia.-Paul F. Leonard, Room 300, Ballston Center Tower No.3,

4015 Wilson Blvd., Arlington, Virginia 22203.

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Branch Offices

Detroit, Michigan 48226.-231 Lafayette St., 1044 Federal Building.

Houston, Texas 77002.-Suite 302, Scanlan Bldg., 405 Main St.

Miami, Florida 33131.-Suite 1114, DuPont Plaza Center, 300 Biscayne

Boulevard Way.

Philadelphia, Pennsylvania 19106.-Federal Building, Room 2204, 600 Arch

Street.

Salt Lake City, Utah 84111.-Suite 810, Boston Bldg., Nine Exchange Place.

San Francisco, California 94102.-450 Golden Gate Ave., Box 36042.

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Biographies of Commissioners

John S.R. Shad, Chairman

Vice President Bush swore in John Shad as the 22nd Chairman of the SEC

on May 6, 1981. His term expires in 1986.

He was previously Vice Chairman of the E.F. Hutton Group, which he helped

build into a major managing underwriter of corporate financings. He has also

personally assisted scores of corporations in consummating billions of dollars

of financings and mergers; served as a director of 17 domestic and multinational, publicly-owned corporations; taught investment banking at the New

York University Graduate School of Business Administration and addressed

numerous legal, accounting, business and academic forums.

He resigned from the boards of directors of the E.F. Hutton Group and six

New York Stock Exchange listed corporations to accept the Chairmanship of

the Commission.

He was born in Utah; served in the Pacific and China as a naval officer during World War II; graduated cum laude from the University of Southern California in 1947; received an M.B.A. from the Harvard BusinessSchool in 1949 and

an LL.B. from New York University Law School in 1959. He is a member of

Beta Gamma Sigma and Phi Kappa Phi.

John R. Evans

John R. Evans was sworn in as a member of the Commission on March 3,

1973, filling out the unexpired term of James J. Needham. His current five

year term expires June 5, 1983. Mr. Evans was a member of the Professional

Staff of the U.S. SenateCommittee on Banking, Housing and Urban Affairs from

June 1971 to March 1973, and served as minority staff director from July 1964

to June 1971.

Mr. Evans was born in Bisbee, Arizona on June 1, 1932. He received his

B.S. degree in Economics in 1957 and his M.S. degree in Economics and his

Secondary Teaching Certificate in Business in 1959 from the University of Utah.

Mr. Evans came to Washington in February 1963 as Economics Assistant

to Senator Wallace F. Bennett of Utah. Prior to that he had been a Research

Assistant and later ResearchAnalyst at the Bureau of Economics and Business

Researchat the University of Utah, where he wasalso an Instructor of Economics

during 1962 and 1963.

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Barbara S. Thomas

Barbara S. Thomas was sworn in as a member of the Commission in a White

House ceremony held October 21, 1980. The 58th person appointed to the

Commission, she is now serving for the term of office expiring June 5, 1985.

A corporate and securities lawyer, Ms. Thomas became a partner of Kaye,

Scholer, Fierman, Hays & Handler, a New York law firm, in January 1978. She

had been an associate of the firm since 1973 and an associate of the Paul, Weiss,

Rifkind, Wharton & Garrison firm, also of New York, from September 1969

to April 1973.

Ms. Thomas has written extensively on the subjects of securities regulation

and corporate law, and has a special interest in issues relating to the internationalization of the world's capital markets, corporate finance, and accounting

matters.

Ms. Thomas is the recipient of the 1982 Award for Outstanding Service in

Government presented by The Financial Marketing Council of Greater

Washington. In addition, she was named the 1981 Outstanding Young Woman

of America for Washington, D.C. She has also been named one of WETA's

Women of the Year for 1983.

Ms. Thomas is a member of the Securities Regulation Committee of the New

York State Bar Association, the Committee on Federal Regulation of Securities

and the Ad Hoc Task Force on the International Aspects of United States Law

of the American Bar Association, and the International Bar Association. In addition, prior to joining the Commission, Ms. Thomas was Chairman of the Corporation Law Committee of the Association of the Bar of the City of New York.

Ms. Thomas is also a member of the Council on Foreign Relations, the Board

of Overseers of the Wharton School of Finance at the University of Pennsylvania,

the University of Pennsylvania Alumni Council on Admissions, the Economic

Club of New York, the Advisory Committee of the Women's Economic Roundtable, and the Financial Women's Association of New York. She also serves

as a Trustee for the University of Pennsylvania Alumni Association of New York

City.

Ms. Thomas was born in New York City on December 28, 1946. She is a

graduate of New York University School of Law, J.D. 1969, cum laude, where

she placed second in a class of 323, was a member of the Order of the Coif,

and was an editor of the New York University Law Review. A John Norton

Pomeroy Scholar, she received the Jefferson Davis Prize in Public Law and

American Jurisprudence Prizes for Excellence in 15 (out of 28) subjects, and

was on the Dean's List every semester. In 1966, she eamed a B.A., cum laude,

in history from the University of Pennsylvania.

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Bevis Longstreth

Bevis Longstreth was sworn in as the 60th member of the Securities and

Exchange Commission on July 29, 1981. His current term expires on June

5, 1984.

From 1962 until July 1981, Mr. Longstreth practiced law with the New York

law firm of Debevoise [,. Plimpton. He was admitted to partnership in that firm

in 1970 and specialized in corporate securities and real estate finance law,

bankruptcy and business work-outs and not-for-profit corporations law.

Mr. Longstreth was a Lecturer at Columbia Law School from 1975 until his

appointment to the Commission, teaching a seminar on the corporation in

modern society. He has also lectured on various securities and corporate law

topics for the Practising Law Institute and at other seminars and has written

numerous articles on business-related subjects. Mr. Longstreth has served on

the boards of a number of charitable and educational organizations active in

the New York area.

Mr. Longstreth was born in New York City in 1934 and grew up in Princeton,

New Jersey. He graduated from Princeton University in 1956 (B.S.E.) and from

Harvard Law School in 1961 (LL.B). From 1956 to 1958 he served in the U.S.

Marine Corps.

James C. Treadway, Jr.

James C. Treadway, Jr., was sworn in as the 61st member of the Securities

and Exchange Commission on September 13, 1982. His five year term expires

June 5, 1987.

At the time of his appointment, Mr. Treadway, 39, was a partner with the

Washington and New York law firm of Dickstein, Shapiro [,. Morin, where he

has been a partner since October I, 1972. During the past 15 years he has

been engaged in a broad securities and corporate finance practice, representing corporate issuers, officers and directors. In addition, he has represented

a U.S. and a foreign securities exchange, investment banking firms and investment companies. He is the author of various articles on the Federal securities

laws.

Mr. Treadway, a native of Anderson, S.c., was formerly an associate with

the Washington and Boston law firm of Gadsby [,. Hannah from 1968 to 1972

and prior to that, he was an associate of the Atlanta law firm of Candler, Cox,

McClain [,. Andrews from 1967 to 1968. Mr. Treadway received his

undergraduate education from Rollins College and the University of Georgia

where he graduated in 1964 with an A.B. degree. He received his LL.B. degree,

summa cum laude, in 1967 from Washington [,. Lee University where he was

Editor-in-Chief of the Washington [,. Lee University Law Review. He was a

member of Phi Beta Kappa, Order of the Coif and Omicron Delta Kappa.

xv
Table of Contents

Enforcement Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Key 1982 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Commission Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I

Sources of Further Inquiry 2

Swiss Accord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Insider Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Proposed Civil Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Corporate Reporting and Accounting . . . . . . . . . . . . . . . . . . . . . 3

Market Manipulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Related Party Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Securities Distribution Violations. . . . . . . . .. . . . . . . . . . . . . . . . 4

Changes in Corporate Control 5

Regulated Entities and Associated Persons . . . . . . . . . . . . . . . . . 5

"Hot Issues" Task Force. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Full Disclosure System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Key 1982 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Role of Selective Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Projects 7

Research Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Integration Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cost Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Regulation D and Other Small Business Activities 10

Government-Business Forum on Capital Formation. . . . . . . . . 10

Classification of Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Form S.I8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

The Proxy Review Program 12

Foreign Issuer Integration Program. . . . . . . . . . . . . . . . . . . . . . . 13

Standardized Options Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 14

Other Rulemaking Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Pro Rata rule 14

Guide 5 14

Amendment to Rule 13d-2(b) . . . . . . . . . . . . . . . . . . . . . . . . . 15

Dollar Limit Increases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Interpretive Advice and Other Activities . . . . . . . . . . . . . . . . . . . 15

Management Remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Proxy Monitoring Program . . . . . . . . . . . . . . . . . . . . . . 15

Accounting Matters 15

Oversight of the Accounting Profession. . . . . . . . . . . . . . . . . . 15

xvi

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SEC Practice Section and Peer Review. . . . . . . . . . . . . . . . . . 16

(1) Access Aggreement 16

(2) Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

FASB Activities 17

(1) Conceptual Framework. . . . . . . . . . . . . . . . . . . . . . . . . . 17

(2) Foreign Currency Translation. . . . . . . . . . . . . . . . . . . . . 18

(3) Other Projects 18

Other Significant Financial Reporting Issues . . . . . . . . . . . . . . 18

(1) Financial Reporting Practices for Oil and Gas Producers. 18

(2) International Accounting and Reporting 19

Accounting-Related Rules and Interpretations 19

Sunset Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

(1) Codification of Financial Reporting Policies 20

(2) Regulation SoX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

(3) Scope of Services by Independent Accountants. . . . . . . 21

Regulation of the Securities Markets 23

Key 1982 Results . . . . . . . . . . . . . . . . . . . . .. 23

Securities Markets, Facilities and Trading. . . . . . . . . . . . . . . . . . 24

The National Market System. . . . . . . . . . . . . . . . . . . . . . . . . . 24

National System for the Clearance and Settlement of Securities

Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

CFTC/SEC Accord 25

Options Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Market Manipulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Stabilization Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Exemption from Short Sale Rule 26

Regulation of Brokers, Dealers, Municipal Securities Dealers and

Transfer Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Broker-Dealer Reporting Requirements .... . . . . . . . . . . . . . . 26

Financial Responsibility Requirements. . . . . . . . . . . . . . . . . . . 26

Broker-Dealers' Carrying Agreements . . . . . . . . . . . . . . . . . . . 27

Broker-Dealer and Transfer Agent Examinations. . . . . . . . . . . 27

Administration of the SECO Program. . . . . . . . . . . . . . . . . . . 27

Self-Underwriting by SECO Broker-Dealers . . . . . . . . . . . . . . . 27

Securities Confirmations . . . . . . . . . . . . . . . . . . . . . . . . .. .. 27

Municipal Securities Brokers and Dealers . . . . . . . . . . . . . . . . 28

Fingerprinting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. 28

Transfer Agent Regulation 28

Oversight of Self-Regulatory Organizations . . . . . . . . . . . . . . . . . 28

National Securities Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . 28

National Association of Securities Dealers, Inc. . . . . . . . . . . . . 29

Surveillance and Compliance Inspections 29

Clearing Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Market Oversight and Surveillance System . . . . . . . . . . . . . . . 30

Applications for Re-Entry 31

Municipal Securities Rulemaking Board. . . . . . . . . . . . . . . . . . 31

xvi i
Investment Companies and Advisers 33

Key 1982 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Inspection Program-A Record Result. . . . . . . . . . . . . . . . . . . 33

Disclosure Study 33

Investment Company Act Study . . . . . . . . . . . . . . . . . . . . . . . . . 34

Bank-related Mutual Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Insurance Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Investment Advisers Act Study. . . . . . . . . . . . . . . . . . . . . . . . . . 35

Significant Applications and Interpretations. . . . . . . . . . . . . . . . . 36

Unifonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Fiduciary Trust Company of New York. . . . . . . . . . . . . . . . . . 36

The Woodside Group . . . . . . . . . . . . . . . . . . . . . . . . 36

Institutional Disclosure Program , 37

Other Litigation and Legal Work. . . . . . . . . . . . . . . . . . . . . . . . . . 39

Key 1982 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Litigation Related to Commission Injunctive Actions . . . . . . . . 40

Litigation Concerning Commission Orders 41

Commission Participation in Private Litigation 42

Actions Involving Requestsfor Access to Commission Files . . 43

Right to Financial Privacy Act. . . . . . . . . . . . . . . . . . . . . . . . . 44

Actions Against the Commission and its Staff. . . . . . . . . . . . . 44

Significant Legislation and Regulatory Reform 44

Financial Services Industry-Task Force and Glass-Steagall

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Foreign Corrupt Practices Act. . . . . . . . . . . . . . . . . . . . . . . . . 45

Sanctions on Insider Trading. . . . . . . . . . . . . . . . . . . . . . . . . . 45

Meetings With Outside Groups. . . . . . . . . . . . . . . . . . . . . . . . 45

Public Otility Holding Companies. . . . . . . . . . . . . . . . . . . . . . . . . 47

Composition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Proposed Repeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Nonutility Subsidiary Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Fuel Programs and Service Companies. . . . . . . . . . . . . . . . . . . . 48

Corporate Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Administration, Support and Analytical Services 53

Key Management and Program Developments . . . . . . . . . . . . . . 53

Inter-American Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Information Systems Management 54

Financial Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Internal Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

xviii
Personnel Management 56

Facilities Management . . .. 56

Equal Employment Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . 57

Public Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Consumer Affairs and Information Services 58

Economic and Policy Analysis . . . . . . . .. 58

Footnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Glossary of Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

The Securities Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Income, Expenses and Selected Balance Sheet Items . . . . . . . 73

Table 1-Unconsolidated Financial Information for Broker-Dealers

1977-1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Table 2-Unconsolidated Annual Revenuesand Expensesof Firms

Doing a Public Business 1977-1981 75

Table 3-Summary Unconsolidated BalanceSheet for Firms Doing a Public Business, Year End, 1977-81 . . . . . . . . . . . . . . 76

Securities Industry Dollar in 1981 for Carrying and Clearing Firms 77

Chart-Securities Industry Dollar in 1981 for Carrying/Clearing

Firms 78

Table 4-Revenues and Expenses of Broker-Dealers Carrying/Clearing Customer Accounts . . . . . . . . . . . . . . . . . . . . . 79

Broker-Dealers, Branch Offices, Employees. . . . . . . . . . . . . . . 80

Chart-Broker-Dealers and Branch Offices 81

Table 5-Brokers and DealersRegisteredUnder the Securities Ex.

change Act of 1934-Effective Registrantsas of September 30,

1982 Classifiedby Type of Organization and by Location of Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Table 6-Principal Business of SECO Broker-Dealers. . . . . . . 83

Table 7-Applications and Registrations of Brokers and Dealers

and Investment Advisers, FY 1982 84

Table 8-Applications and Registrations of Municipal Securities

Dealers and Transfer Agents . . . . . . . . . . . . . . . . . . . . . . . . 85

Self-Regulatory Organizations: Revenues,Expenses, Pre-Tax Income and Balance Sheet Structure . . . . . . . . . . . . . . . . . . . 86

Table 9-Consolidated Balance Sheet Assets, Liabilities and Net

Worth of Self-Regulatory Organizations 1980-1981 88

Table 10-Summary of Consolidated Revenues,Expensesand PreTax Income of Eleven Self-RequlatoryOrganizations 1980-1981 89

Table 11-Consolidated Revenues,Expensesand Pre-TaxIncome

of Self-Regulatory Organizations ..... . . . . . . . . . . . . . . . . 90

Table 12-Self-Regulatory Organizations-Clearing Agencies

Revenues and Expenses, FY 1981 . . . . . . . . . . . . . . . . . . . . 92

xix
Table 13-Revenue and Expenses of Municipal Securities

Rulemaking Board 93

Exemptions ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Section 12(h) Exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Exemptions for Foreign Private Issuers . . . . . . . . . . . . . . . . . . 94

Rule 10b.6 Exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Financial Institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Table 14-Companies Registeredunder the Investment Company

Act of 1940 as of September 30, 1982. . . . . . . . . . . . . . . . 95

Table 15-Companies Registeredunder the Investment Company

Act of 1940 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Table 16-New Investment Company Registrations. . . . . . . . . 97

Table 17-lnvestment Company Registrations Terminated. . . . 97

Securities on Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Market Value and Share Volume 98

Table 18-Market Value and Volume of Sales on Registered 98

Securities Exchanges 99

NASDAQ (Volume and Market Value). . . . . . . . . . . . . . . . . . . 100

Share and Dollar Volume by Exchange. . . . . . . . . . . . . . . . . . 100

Chart-Market Value of Securities Traded on all U.S. Stock

Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Table 19-5hare Volume by Exchanges. . . . . . . . . . . . . . . . . 102

Table 20-Dollar Volume by Exchanges. . . . . . . . . . . . . . . . . 102

Special Block Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Table 21-Special Block Distributions Reported by Exchanges 103

Value and Number of Securities Listed on Exchanges. . . . . . . 104

Table 22-Securities Listed on Exchanges 104

Table 23-Value of Stocks Listed on Exchanges. . . . . . . . . . . 105

Securities on Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Table 24-Securities Traded on Exchanges. . . . . . . . . . . . . . . 106

Table 25-Unduplicated Count of Securities on Exchanges. . . 106

1933 Act Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Effective Registration Statements 107

Table 26-Effective Registrations 108

Chart-Securities Effectively Registered with S.E.c. 1935-1982 109

Purpose and Type of Registration. . . . . . . . . . . . . . . . . . . . . . 110

Table 27-Effective Registrationsby Purposeand Type of Security:

FY 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Chart-Effective Registrations Cash Sale for Account of Issuers

1935-1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Regulation A Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Table 28-0fferings under Regulation A. . . . . . . . . . . . . . . . . 113

Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Types of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Table 29- Types of Proceedings. . . . . . . . . . . . . . . . . . . . . . . 114

xx
Table 30-lnvestigations of Possible Violations of the Acts Administered by the Commission 118

Table 31-Administrative Proceedings Instituted During Fiscal

Year Ending September 30, 1982 . . . . . . . . . . . . . . . . . . . . 118

Table 32-lnjunctive Actions. . . . . . . . . . . . . . . . . . . . . . . . . . 118

Table 33-Criminal Indictments/Informations. . . . . . . . . . . . . . 118

Trading Suspensions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Foreign Restricted List 119

Right to Financial Privacy . . . . . . . . . . . . . . . . . .. 121

Public Utility Holding Companies . . . . . . . . . . . . . . . . . . . . . . . . 122

System Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Table 34-Public Utility Holding Company Systems. . . . . . . . 122

Table 35-Key Financial Statistics of Registered Public Utility

Holding Company Systems . . . . . . . . . . . . . . . . . . . . . . . . . 123

Table 36-Public Financings of Holding Company Systems, FY

1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Table 37-Subsidiary Service Companies of PublicUtilityHolding

Company Systems as of December 31, 1981 126

Fuel Programs .... . . . . . . . . . . . . . . . . . . . . . . . . . . .. 126

Table 38-Regulated Fuel Program Expenditures of HoldingCompany Systems, FY 1982 127

Table 39-Regulated Fuel Program Expenditures of HoldingCompany Systems (Fiscal 1981-1982). . . . . . . . . . . . . . . . . . . . . 128

Corporate Reorganizations . . . . . . . . . 129

Table 40-Pending Reorganization Proceedings Under Chapter X

of the Bankruptcy Act in Which the Commission Participated,

FY 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Table 41-Reorganization Proceedings Under Chapter 11 of the

Bankruptcy Code in Which Commission Entered Appearance 131

SEC Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Chart-Securities and Exchange Commission Appropriated Funds

vs. Fees Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

Table 42-Budget Estimates and Appropriations 134

xxi

Enforcement Program

Key 1982 Results

The Commission maintains a comprehensive enforcement program in order

to addresspromptly violations of the Federal securities laws.The program must

be capable both of promptly responding to emergency threats to investors and

of anticipating emerging problems.

The enforcement program deploys about a third of the Commission's total

resources. In fiscal 1982, improved case and personnel management enabled

the Commission to bring 251 cases,a 31% increase over fiscal 1981, despite

budgetary constraints and personnel reductions. A key factor was careful review

to ensure that casesand investigations were developed and completed without

unnecessary delays, including use of the computer-based Case Analysis and

Tracking System.

The 145 civil injunctive actions brought were a 22% increase over 1981.

They included nine civil and criminal contempt proceedings. Administrative

proceedings increased 47% to 106 cases.Three reports of investigation under

Section 21(a) of the Exchange Act were published.

Commission Remedies-The Federal securities laws provide civil and ad.

ministrative remedies designed to rectify past violations and prevent future

violations.

The Commission's principal enforcement remedy is a Federal court injunction, ordering a defendant to comply with the law in the future. Violation of

the injunction may result in contempt proceedings. In fiscal 1982, 136 injunctive actions named 418 defendants.

In addition, in civil injunctive actions courts often enter orders for other

equitable relief such as restitution, disgorging illicit profits, or other relief appropriate to the particular case.The Commission obtained court orders in fiscal

1982 that required defendants to divest illicit profits of $33 million, either as

disgorgement or as restitution to defrauded investors.Another $53 million was

the subject of orders for rescissionof transactionsor the refund of investorfunds.

Emergency actions brought by the Commission led to freeze orders by courts

that protected $37 million in investor funds until a disposition of the funds could

be made.

The Commission regulates certain entities, such as broker-dealers, investment companies and investment advisers.If regulated entities violate the federal

securities laws or regulations, they may be censured or have their registrations

suspended for up to 12 months or revoked in an administrative proceeding.

An effective registration is needed to stay in business. During fiscal 1982, the

Commission revoked the registration of 11 firms, suspended 9 and censured

28, compared to 7, 7, and 23 respectively, in 1981.
Administrative proceedings may also be instituted against persons associated

with regulated entities. The remedies include censure, suspension for up to 12

months or a bar from participation in the securities industry. The Commission

barred 44 individuals, suspended 82, and censured 19 in fiscal 1982, compared

to 23, 50, and 17, a year earlier.

Issuers may be subject to administrative proceedings pursuant to Section

15(cX4) of the Exchange Act if they fail to comply in a material respect with

the Act's disclosure requirements. They may be ordered to comply upon

specified terms and conditions. Five such proceedings were instituted in fiscal

1982, 9 in fiscal 1981.

Criminal sanctions for Federal securities law violations include fines and imprisonment. The Commission has requested legislation to increase the maximum criminal fine for most violations of the Exchange act from $10,000 to

$100,000 per violation. I The legislation would counter the effects of inflation

and raise the level of risk for those who engage in violative conduct.

In fiscal 1982, 47 defendants were named in 24 criminal indictments or informations relating to Commission investigations, compared to 48 and 26 last

year. In addition, more than $450,000 in criminal fines were imposed in 1982.

The Commission assisted state and local authorities and self-regulatory

organizations in enforcement efforts and also received their assistance. Over

50 representatives of state, federal and foreign agencies attended the Commision's 1982 Enforcement Training Program.

Sources of Further fnquiry- The Commission publishes litigation releases

which describe its civil injunctive actions and criminal proceedings mvolvinq

securities-related violations. Among other things, these releases report the

violative conduct that is either alleged by the Commission or the Department

of Justice or found by a court, and the disposition or status of the case. They

are published in the SEC Docket, copies of which may be reviewed at the Commission's regional offices. Commission orders that institute administrative proceedings and provide remedial relief are also published in the SEC Docket.

Private vendors disseminate much of this information.

Some of the more important areas of enforcement activity in fiscal 1982 are

discussed below. Illustrative casesare cited in footnotes, with referencesto relevant pages of hte SEC Docket.

Swiss Accord

Commission investigations of suspected insider trading have sometimes been

impeded by foreign secrecy laws or blocking statutes. On August 31, 1982,

significant progresswas made in this area when the govemments of Switzerland

and the United States concluded six months of negotiations with the signing

of a Memorandum of Understanding concerning nation-to-nation law enforcement cooperation in insider trading cases.2"fheMemorandum contains: (a) an

exchange of opinions which clarifies the ability of the Commission to use the

1977 Treaty between the United States and Switzerland concerning mutual

2
assistancein criminal matters in its investigationsof insidertrading; (b) an agreement in principal to exchange certain diplomatic notes; and (c) understandings

with respect to an agreement between members of the SwissBankers Association which will permit signatory banks, under certain circumstances,to furnish

information and evidence to the Commission through the Swiss Federal Office for Police Matters, notwithstanding Swiss secrecy laws.

Insider Trading

Insider trading (the purchase or sale of securities by persons in possession

of material, non-public information relating to such securities) undermines the

expectation of fairness and honesty that is the basis of public confidence in

the nation's securities markets. The proliferation of tender offers and the advent of trading in standardized options contracts have increased opportunities

for those with material non-public information to reap large profits.

In response, the Commission has increased its efforts to combat this threat

to the securities markets, In fiscal 1982, the Commission brought 20 insider

trading actions (including the publication of a report pursuant to Section 21(a)

of the Exchange Act)." While these actions constituted only 8% of the total

cases brought, they compare with a total of approximately 50 such actions

brought since 1977, and 97 since 1949. The cases involved corporate executives, attorneys, accountants, bank officers and others who obtained confidential information concerning proposed tender offers, or other significant

developments, in the course of their work.

Proposed Ciuil Penalties-In order to increasethe deterrent effect of its enforcement actions, the Commission, in fiscal 1982, proposed legislation which would

permit court imposed civil penalties of up to three times the profit gained or

the loss avoided by a person who purchases or sells securities while in possession of material non-public information. Personswho aid and abet such conduct would also be subject to such penalties." The proposed penalties would

provide a strong disincentive to counter increasedopportunities to profit from

the use of inside information.

Corporate Reporting and Accounting

The Exchange Act and Commission rules require periodic and timely

disclosure of information by publicly owned companies. Recently, problems

associated with reduced profits and high interest rates have demanded more

attention to the adequacy of reports of financial condition and businessoperations by companies that file with the Commission. Accordingly, the detection

and correction of materially inadequate or inaccurate reports is a high priority.

Financial disclosure violations may involve improper valuation of inventories,

assetsor liabilities, the remuneration of officers and other related parties, the

ability of a corporation to meet its obligations or the recognition of revenue

and expenses.Violations with respect to nonfinancial information may include

3
such things as material misstatements concerning corporate mineral reserves

or production or a failure to disclose relevant facts concerning corporate

management.

Closely related to the emphasis on fraud by reporting companies is enforcement of the accounting provisions of the Foreign Corrupt Practices Act of 1977

(Section 13(bX2)of the Exchange Act). These provisions require issuersto make

and keep accurate books and records and to devise and maintain systems of

internal accounting controls which provide reasonable assurances that certain

statutory objectives are met. The requirements are intended to assure that

issuers have reliable financial information with which to prepare financial

statements and other disclosure documents.

Thirty-six issuerfinancial statement and reporting caseswere brought in 1982,5

including 10 alleging violations of the accounting requirements of the FCPA. 6

This is 40% of the 24 FCPA actions brought since enactment of the statute

in 1977. Nine delinquent filing actions were also included in this category.

Market Manipulation

The Commission is charged with insuring the integrity of trading on the national securities exchanges and in the over-the-counter markets. The Commission's staff, and the exchangesand the National Association of Securities Dealers

under the Commission's oversight, engage in surveillance of these markets.

Ten manipulation actions were brought in fiscal 1982.7They involved attempts

to create the appearance of trading activity through nominee accounts, the use

of confederates to make artificial trades and unauthorized trading of customer

accounts to prevent price declines.

Related Party Transactions

Fundamental to the relationship between an investor and management is

the expectation that a company's assetswill be used for the benefit of the company and not for the personal benefit of its managers. Accordingly, the Commission's rules require disclosure of transactions by companies with management or related parties. In four actions, the Commission alleged that company

officials failed to disclose benefits received in related party transactions. 8

Securities Distribution Violations

Some issuers fail to register public offerings of their securities or rely on purported exemptions which are not available to them. Distribution violations may

also include material misrepresentations or omissions in connection with

securities offerings.

In fiscal 1982, 47 enforcement actions involved securities distribution viola.

tions. 9'fhe Commission also published a report pursuant to Section 21(a) of

the Exchange Act which emphasized the Commission's concern with respect

to disclosure issues raised in connection with the offer and sale of securities

4
in the form of retail repurchase agreements, and reminded thrift institutions

and banks of their disclosure obligations under the Federal securities laws. 10

Changes in Corporate Control

Sections 13 and 14 of the Exchange Act govern the activities of personsand

entities involved in gaining, or attempting to gain or maintain control or ownership of a corporation. These provisions govern proxy solicitations and the fiImg of reports by persons or groups who make a tender offer or acquire

beneficial ownership of more than 5% of a class of equity securities registered

with the Commission. These requirements are intended to insure that investors

have the material information needed to make informed investment or voting

decisions. Nine enforcement actions were brought in this area during fiscal

1982.11

Regulated Entities and Associated Persons

Fiscal 1982 actions involving regulated entities (including broker-dealers, investment companies and advisers) ranged from books and records Violations

to attempts to defraud customers. A number of casesincluded allegations that

broker-dealers failed adequately to supervise their employees. Three actions

involved "money laundering" activities (i.e., the failure to file Currency Transaction Reports as required by Internal RevenueService regulations for cash

transactions in excess of $10,000).

Fiscal 1982 broker-dealer casestotalled 82. 12TheCommission also brought

35 other regulated entity cases,which included violations by investment companies and advisers and fraud upon regulated entities by their customers. 13The

Commission also published one related report pursuant to Section 21(a) of the

Exchange Act.

"Hot Issues" Task Force

"Hot issues" market problems in the Denver area included manipulation,

financial responsibility and recordkeeping Violations by broker-dealers. A task

force of 50 people drawn from Washington, each regional office and the National Association of Securities Dealers conducted examinations of 30 "hot

issue" broker-dealers in February 1982. Injunctive actions were filed against

five broker-dealers, three of which were placed under the supervision of

Securities Investor Protection Corporation receivers.Eleven other firms voluntarily closed for a period of time, five of which havebeen or are being liquidated.

5

Full Disclosure System

The Commission's full disclosure system insures that full and accurate

material information about publicly traded companies is available to investors.

Full disclosure fosters investor confidence, contributes to the maintenance of

fair and orderly markets and facilitates capital formation.

Key 1982 Results

Despite budgetary constraints and personnel reduction, during fiscal 1982

the Commission efficiently handled a record 65,000 full disclosure filings, a

5% increase over the 62,000 handled in fiscal 1981. These full disclosure filings included: Securities Act registration statements; filings under Securities

Act exemptions for small offerings; Exchange Act registration statements and

annual, quarterly and periodic reports; Williams Act filings; and filings governed by the proxy rules. The most complex filings increasedsubstantially to record

levels. They included: (1) approximately 4,400 Securities Act registration

statements, a 15% increase; (2) approximately 160 "new issuer" Exchange Act

registration statements, a 20% increase; approximately 200 merger proxy

statements, a 45% increase; and (4) 550 tender offer statements, a 65%

increase.

In the accounting area, the 428 accounting firms which audit over 90% of

publicly owned corporations are now on a three-year peer review cycle, and

the body of Accounting Series Releaseshave been simplified and codified into

a ready-reference manual, after withdrawing redundant and outmoded portions.

Role of Selective Review-Filings are handled in the selective review system,

which screens all filings received in order to identify those that are likely to

present significant disclosure issuesand thus should be given a full review. A

key part of the system involves the use of computer techniques to aid the screening process. The Commission was able to handle the record volume of filings

due to the selective review system as well as strong management in the reviewing staff, more training, and more use of data processing.

Projects-The Division also completed two major projects: the integrated

disclosure program and Regulation D (which relates to limited securities offerings).The integration program includes Rule 415 (the "shelf rule"), which relates

to delayed or continuous offerings.

The Commission began a major review of the proxy regulations, to provide

more uniform and less duplicative disclosures in clear, concise language and

to reduce compliance costs (which are ultimately borne by shareholders) in a

manner consistent with investor protection.

7
Research Forum

To improve communication between the Commission and various users of

the Commission's disclosure documents, the Commission initiated the first

Research Forum, held on November 17, 1982. Over 40 representatives from

various types of users of Commission documents, such as securities analysts,

institutional investors, investment advisers,rating organizations and shareholder

groups, were invited to meet with the Commission and staff for discussion of

these issuesrelating to the form and content of disclosure documents: (1) nonfinancial reporting requirements; (2) financial reporting requirements; and (3)

proxy statement disclosure requirements.

Of particular importance, the Commission solicited views on how Commission releasescould be improved and how usersof disclosure documents could

be encouraged to be more responsive to the Commission's requests for comments on proposed rulemaking initiatives.

The Integration Program

On February 24, 1982, the Commission announced adoption of the final

phase of its program to integrate the disclosure requirements under the

Securities Act and those under the Exchange Act, which comprehensively revised, simplified and improved the full disclosure system. 14

Movement toward an integrated disclosure system had been under way for

several years. The purpose was to combine the Securities Act transactionoriented system of disclosure and the Exchange Act continuous disclosure

system into a simplified, comprehensive corporate reporting system, reducing compliance costs and also improving investor protection.

The final phase included: (1) three new registration forms which constitute

the basic framework for registration under the Securities Act; (2) an expanded

and reorganized Regulation S-K, which sets forth uniform disclosure standards

applicable under both Acts; (3) revised procedural requirements governing the

registration of securities under the Securities Act and the reports of certain

issuersunder the Exchange Act; (4)temporary Rule 415 governing the registration of securitieson a delayed or continuous basis(seeShelf Registration below);

(5) new Rule 176 identifying certain circumstances which may bear upon the

determination of what constitutes reasonable investigation and reasonable

ground for belief under Section 11(b) of the Securities Act; (6) new rules permitting the voluntary disclosure of securities ratings; (7) revisions to various

rules, forms and schedulesunder both Acts to implement coordinating changes;

and (8)the rescissionof obsolete forms under both Acts and 88% of the Guides

for the Preparation and Filing of Registration Statements and Reports.

Shelf Registration-Rule 415 under the Securities Act, which governs the

registration of securities to be sold on a delayed or continuous basis, was

8
adopted on a temporary basis, until December 10, 1982, when the Commission adopted the integrated disclosure system. At that time, the Commission

noted that the rule had been the subject of substantial commentary, varying

from support for the rule, as proposed or with modifications, to concern that

the proposal would have adverse effects on the capital raising process and the

securities trading markets. Recognizing the importance of commentators' con.

cerns, the Commission determined to afford the opportunity for continued consideration of the shelf registration processby adopting Rule415 on a temporary

basis, monitoring the operation of the rule, conducting public hearings, and

considering written submissions. 151nSeptember 1982, the Commission determined that additional experiencewasnecessaryin order to assessfully the issues

raised, and therefore extended the effective period for the rule until December

31, 1983. 16(Over2,200 shelf registration statements were filed from March

through December, 1982. Nearly 90% were traditional shelf filings, such as

employee stock purchase plans, secondary, best effort, tax shelter and mortgage participation offerings. Most of the balance were investment grade debt

filings. Such debt filings amounted to over 60% of the $70 billion of total debt

issuesfiled in March through December. About $20 billion (nearly half) of these

issues have been sold-of which about 30% were so-called "bought deals"-

sold to institutions without underwriting syndicates. The 34 equity shelf filings

in March through December amounted to only 1% of the 3,400 equity issues

filed-and to only 3 % of the $90 billion of total equity filings. All but two of

the 34 equity filings are for New York Stock Exchange listed companies.)

Cost Savings-One of the goals of the integration program was to reduce

burdens on registrants, while, at the same time, ensuring that investors are

provided with the material information on which to base investment decisions.

It is estimated that integration will save corporations (and, therefore, their

shareholders) over $350 million per annum, without compromising full

disclosure to investors. This estimate reflects anticipated cost savings from: (1)

new registration Forms 5-1, 5-2, and 5-3, with expanded eligibility for short

forms and streamlined procedures and disclosure requirements; (2) reduction

In the cost to the Commission of processing the above documents; (3) amendments to Form 5-8 for the registration of employee benefit plans, which

eliminated much of the disclosure that formerly was required and provided for

automatic updating through incorporation by reference; (4) new Form 5-15,

a simplified form for certain types of business combinations, which utilizes existing annual reports and therefore is much lessexpensiveto prepare than other

available forms; (5) reduction in reporting burdens for various other forms as

a result of the streamlining of disclosure requirements; (6) the availability of

short registration forms for foreign issuers, as a result of adoption of an integrated disclosure system for foreign issuers;(7) new Rule415, which eliminates

the necessity of filing separate registration statementsfor multiple offerings and

permits issuersto go to market quickly according to financing needsand market

conditions; and (8) reduction in underwriting spreads since Rule 415 has been

in effect.

9
Regulation D and Other Small Business Activities

In March 1982, the Commission adopted Regulation D, a series of rules providing exemptions from the Securities Act registration provisions for certain

limited offerings of securities. "The regulation simplifies and makes more

uniform the rules relating to limited and private offerings, eliminates any unnecessary restrictions, facilitates capital formation in a manner consistent with

investor protection, and should reduce costs to small businessesby an estimated

$50 million per annum.

The regulation groups together conditions to the use of the limited offering

exemptions and definitions that the exemptions have in common, and adds

certainty to the exemptions by defining the term "accredited investor"-one

who is deemed able to "fend for himself." The term "accredited investor" in.

c1udes: (1) banks, insurance companies, registered investment companies,

business development companies, or small business investment companies,

and certain employee benefit plans; (2) any employee benefit plan within the

meaning of Title I of the Employee Retirement Income Security Act with total

assets in excess of $5 million; (3) private business development companies;

(4) charitable organizations with assets in excess of $5 million; (5) directors,

executive officers and general partners of the issuer; (6) persons purchasing

at least $150,000 of securities, where the total purchase price does not exceed

20 percent of the purchaser's net worth; (7) natural persons with a net worth

of at least $1 million; and (8) natural personswith an income of at least $200,000

per year for two years preceding the offering and for the year in which the offering is made.

The Commission has continued to coordinate small business rulemaking,

including Regulation D, with the North American Securities Administrators

Association (NASAA) in order to develop a basic framework of limited offering exemptions that can apply uniformly at the Federal and state levels (pursuant to Section 19(cX3)of the Securities Act, which was promulgated by the

Small Business Investment Incentive Act of 1980). At its April 1982 meeting,

NASAA adopted a Uniform Limited Offering Exemption containing the major

elements of Regulation D. These joint efforts will result in a significant reduction of the burdens on small businessesby eliminating many of the differences

between Federal and state securities regulation of limited offerings.

The Uniform Limited Offering Exemption is the first joint state and Federal

registration exemption. It is an important precedent for future joint state and

Federal efforts to simplify and improve corporate compliance requirements in

a manner consistent with investor protection.

Gooernmeni-Business Forum on Capital Formation-Congress, in the Small

Business Investment Incentive Act of 1980, directed the Commission to conduct an annual Government-Business Forum "to review the current status of

problems and programs relating to small business capital formation," and to

include as participants other Federal agencies, state securities commissioners

10
and leading small business and professional organizations concerned with capital

formation.

An Executive Committee for the Forum was selected in March 1982 in accordance with Congressional guidelines. It met several times, sponsored a

survey, sought the views of executives of small businesses on capital formation, and developed discussion papers and proposals on four key subjects identified as crucial to capital raising. The Forum was held on September 23-25,

1982 and was attended by approximately 175 small business executives, accountants, attorneys, financial analysts, economists, broker-dealers, venture

capital investors, financial advisers, bankers and government officials.

(Subsequent to the end of the fiscal year, in November 1982, the final Forum

Report, which made 37 recommendations, was distributed. The recommendations related to eight subject areas; (1) developing incentives for institutional

investors and others to invest in small business; (2) relaxing the Employee Retirement Income Security Act and similar regulatory restrictions to encourage investment in small business; (3) reducing costs associated with securities regulation; (4) developing uniform Federal/state securities regulation; (5) adjusting corporate tax rates and brackets to reflect the internal capital raising needs of small

business; (6) changing the tax treatment of capital gains to provide a stimulus

to capital formation, particularly for small businesses; (7) providing additional

tax modifications to assist small business capital formation and retention; and

(8) revising Small Business Administration programs to assist the financing of

small business.)

Classification of Issuers-In April 1982, the Commission established a system

of classifying small issuers for purposes of exempting certain of them from

reporting and other obligations under the Exchange Act. IBThe system provides

a rational adjustment to the criteria for entry into, or exit from, the Exchange

Act reporting system and eliminates the costs of complying with the registration and reporting provisions of the Exchange Act for the smallest issuers.

The new classification system changed the reporting scheme in three ways:

(1) a company will not have to register and file reports under Section 12(g) until it has 500 or more record holders of a class of equity security and total

assets of $3 million or more, in contrast to the former total asset criterion of

$1 million; (2) a company may deregister a class of securities registered under

Section 12(g) at any time that it has fewer than 500 record holders of the class

and has had total assets of less than $3 million at the end of each of its last

three fiscal years, in contrast to the former deregistration provision, which was

based on 300 record holders; and (3) a company that is subject to Section 15(d)

will generally have its obligation to file reports under that section suspended

with respect to any fiscal year on the first day of which it has fewer than 500

record holders of the class of securities giving rise to its obligation, if the company has had total assets under $3 million at the end of each of its three most

recent fiscal years. The former provisions were based on 300 record holders.

The new provision for suspending the reporting obligation under Section 15(d)

is not available to an issuer for any year in which it has had a registration state11
ment become effective or in the two succeeding years.

Form 5-18-The Commission also broadened the availability of Form S-18,

the simplified Securities Act registration form for issuers that do not file Exchange Act reports, 19toinclude non-corporate registrants (such as limited partnerships) and registrants engaged in oil and gas related operations. The revision permitting limited partnerships to useForm S-18 expanded its useto many

real estate issuers previously unable to use the form.

The Proxy Review Program

In fiscal 1982, the Commission began a major review of the rules and regulations applicable to the proxy solicitation process.The revisedproxy review program includes: (1) proposed Item 404 of Regulation S-K, relating to the

disclosure of management relationships and transactions, which was published for comment in fiscal 1982; (2) reexamination of Rule 14a-8 under the Exchange Act relating to shareholder proposals; (3) the rules concerning the

disclosure of management remuneration; (4) Form S-14 under the Securities

Act relating to merger proxy statements; (5) the proxy contest rules; and (6)

facilitating shareholder communications particularly with respect to securities

registered in nominee names.

As a first step, on July 9, 1982, the Commission proposed for public comment a new Item 404 of Regulation S-K, "Certain relationships and related transactions," which governs disclosure of management relationships and transactions in proxy statements, registration statements and periodic reports."

Proposed Item 404 would mtegrate two disclosure provisions: Item 402(f) of

Regulation S-K, 21relatingto disclosure of transactions in which directors, officers, director nominees and certain of their associateshavea material interest;

and Item 6(b) of Schedule 14A, 22relating to relationships between directors,

officers, nominees, certain owners and significant customers, suppliers and

creditors.

The major changes proposed from the existing disclosure requirements in.

c1uded:(1) eliminating disclosure of a director's relationship with significant

customers, suppliers and creditors where the only relationship is directorship

with the other entity; (2) raising the equity ownership threshold requiring

disclosure of relationships from one percent to ten percent; (3) raising the

amount of business that must be conducted between the registrant and a

customer or supplier before the relationship is required to be disclosed; (4) requiring disclosure of the specific dollar amount of payments made to law and

investment banking firms only if it exceeds the threshold applicable to other

suppliers of services;and (5) expanding the classof relatives to those not more

remote than first cousins of directors, officers and nominees whose material

interests in transactions are required to be disclosed.

(On October 14, 1982, the Commission published for comment a vanety

of issues relating to the Federal regulation of the security holder process,"

including whether security holders' access to the issuer's proxy statement

12
should be provided under the Exchange Act or left to regulation under state

law. The Commission also invited comment on three specific proposals:(1) proposal I would retain the framework of current Exchange Act Rule 14a-8, with

certain changes designed to clarify the rule and simplify its application, (2) proposal II would permit the issuer, with security holders' approval, to vary the

procedures set forth in the rule; and (3) proposal III would require inclusion in

the issuer's proxy statement of all security holder proposals proper under state

law and not involving an election of directors, subject to numerical limitation.)

(Also subsequent to the end of the fiscal year, on December 2, 1982, the

Commission took two further steps in the Proxy Review Program. First, it

adopted Item 404 with two pertinent changes: (1) the classof relatives covered

is the immediate family of the specified persons and (2) only the transactions

of executive officers need be reported. Second, it proposed rule amendments

relating to recommendations made by the Advisory Committee on Shareholder

Communications in its report delivered to the Division of Corporation Finance

in June 1982. The amendments proposed would (1) tighten the timetable for

proxy distribution; (2) under certain limited circumstances,eliminate the obligation of an issuerto disseminate the material that must be delivered to beneficial

owners pursuant to current rules; and (3) establish, without altering the current

process for proxy distribution, a means by which issuerscould obtain the identities, addresses and security positions of consenting beneficial owners.)

Foreign Issuer Integration Program

Forms F-1, F-2 and F-3 were proposed to provide an integrated disclosure

system for non-North American foreign private issuers similar to that recently

adopted for North American issuers. 24Theproposals would permit certain of

these issuers to use "short form registration." Form F-3 would be available to

"world class" issuers that have been filing periodic reports under the Exchange

Act for at least three years; the form relies on incorporation by reference of

such periodic reports. Form F-2 wold be available to other world class Issuers

and to a non-North American foreign private issuerthat had been filing periodic

reports for at least three years; such reports would be delivered to investors

with the prospectus. Form F-1 would be available to any non-North American

foreign private issuer and would require information to be included in the prospectus. Concurrently, rules relating to the age of financial statements 25and

the currency in which financial statements could be presented 25wereproposed.

(Subsequent to the end of the fiscal year, on November 19, 1982, the foreign

issuerintegration program was adopted. Also, in reponseto the recent hot issue

market in the securities of issuers from Canada and Australia, on October 28,

1982, the Commission published proposals to revise Rule 12g3-2 under the

Exchange Act, which exempts from Exchange Act registration the securities

of foreign issuers that have not voluntarily sought entry to the U.S. capital

rnarkets." The proposals would require foreign isuersto register their securities

under the Exchange Act in order to be quoted on NASDAQ.)

13
Standardized Options Disclosure

On September 16, 1982, the Commission adopted new regulations relating

to the offer and sale of standardized options:" (1) an optional registration statement form, Form S-20, to be used to register standardized options under the

Securities Act; (2) Rule 153b under the Securities Act, which provides that the

prospectus delivery requirement of the Securities Act is satisfied by providing

copies of the Form S-20 prospectus to the markets on which the options are

traded; (3) Rule 9b-1 under the Exchange Act, which establishes an option

disclosure document containing information concerning standardized options

and options trading; and (4) Rule 135b under the Securities Act, which exempts

that disclosure document from the requirements of Section 5 of the Act. These

new regulations will save the securities industry $1.5 million per year, while

improving investor understanding of standardized options by presenting the

essential information in a more comprehensible disclosure document, and by

making a prospectus available to investors who may be interested in more detailed information.

At the same time, the Commission adopted Rule 134a under the Securities

Act permitting the dissemination of instructional information about options

without it being deemed a prospectus for purposes of Section 5 of the Securities

Act.

Other Rulemaking Initiatives

Pro Rata Rule-On May 25, 1982, the Commission published for comment

a proposed rule governing the acceptance of securities deposited in response

to a partial tender offer if a greater number of securities are deposited than

the bidder is bound or willing to purchase. 2!lTheproposed rule provided that

in such situations the bidder is required to accept securities on a pro rata basis

according to the number of securities deposited by each depositor during the

period such offer remains open. (Subsequent to the close of the fiscal year,

on December 15, 1982, the rule was adopted.)

Guide 5-ln June 1982, the Commission approved the publication of revisions to Guide 5 of the Securities Act Industry Guides, "Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships," and

the adoption of related rule amendments. 3<YfheGuide revisions, which were

a major cooperative effort between the Commission and the Subcommittee

on Financial Statement and Track Record Disclosure of NASAA, will reduce

the regulatory burden on the real estate industry by promoting uniformity between Federal and state securities regulations. The changes standardized and

simplified disclosure of the prior experience and performance of sponsors of

public real estate programs. In a related rule change, Rule 3-14 of Regulation

SoX, "Special Instructions for Real Estate Operations to be Acquired,'. was

amended to allow, under certain circumstances, presentation of one rather than

three years of audited financial statements for individual properties acquired

by the partnership.

14
Amendment to Rule 13d-2(b)-On June 10, 1982, the Commission proposed an amendment ot Rule 13d-2(b)under the Exchange Act, to delete the part

of the rule that requires a person to file a Schedule 13G when no changes have

occurred in the information contained in the previously filed Schedule 13G. 31

(Subsequent to the close of the fiscal year, on October 28, 1982, the Commission adopted final amendments to the rule which carried out the proposed

change and, in addition, provided that no Schedule 13G amendment need be

filed if the only change in information previously reported is a change in the

percentage of outstanding securities beneficially owned as a result of a change

in the shares outstanding. 32)

Dollar Umit Increases-During 1982, the Commission adopted 33amendments

to certain exemptive rules under the Securities Act and the Exchange Act in.

creasing the dollar amount of the exemptions provided by rules. These changes

reflect the effects of dollar inflation since the adoption of the rules. The amended

rules relate to: (1) salesof sharesto provide cash for distribution to shareholders

in connection with stock splits and similar transactions; (2) resalesof securities

of issuers who do not furnish to the public information about their activities;

and (3) deferral of Section 16(a) reports of certain small transactions by corporate "insiders". At the same time, the Commission rescinded severalobsolete

rules.

Interpretive Advice and Other Activities

Concomitant to the Commission's rule-making function is the role of the staff

in providing interpretive advice. In the area of full disclosure, the staff provides

such advice through telephone inquiries (an estimated 59,000 in fiscal 1982)

and written responses to formal requests for advice (an estimated 1,500).

Management Remuneration-In December 1981, the Commission published

an interpretive releaseconcerning management remuneration in a question and

answer format." The release gave particular attention to the disclosure of defined benefit pension plans, stock options and stock appreciation rights.

Proxy MonitoringProgram-As the final phaseof a three-yearsurvey,the Com.

mission in March 1982 authorized the publication of a release analyzing the

results of its 1981 proxy statement disclosure monitoring program. 35The

analysis indicated that during the three years covered by the program, there

have on the average been declines in (a) the percentage of board members

employed by the issuer or a subsidiary, (b) the number of boards with an affiliate of a supplier or creditor serving as a director and (c)the number of boards

with retained counselor investment banker serving as a director. The program

also found increases in the numbers of boards with audit, nominating and com.

pensation committees and in director compensation and decreases in the

percentage of membership of these committees affiliated with the issuer.

Accounting Matters

Oversight of the Accounting Profession-The Commission has historically

monitored, relied on and encouraged initiatives in the standard-settingprocesses

15
of the private sector, subject to Commission oversight, through frequent staff

contact with the private sector standard-setting organizations, attendance at or

participation in meetings, public hearings, and task forces, and review and comment during the standard setting process. Moreover, this contact speeds referral of emerging problems found in company filings to the right private group

for resolution. Although the Commission will continue to seek to fulfill its

statutory responsibility by close oversight of private sector initiatives, it will not

hesitate to take appropriate regulatory action when necessary.

SEC Practice Section and Peer Review-As of June 3D, 1982, 428 accounting firms had voluntarily become members of the Division for CPA Firms of

the American Institute of Certified Public Accountants and particularly its SEC

Practice Section (SECPS);these firms audit over 90% of all publicly held companies. Firms that are members of the SECPS are subject to certain requirements designed to improve the quality of their audit and accounting practice. Among these are the filing of an annual report, the maintenance of a system

of quality control, and the testing of that system once every three years through

an independent peer review process.

An independent Public Oversight Board (POB) overseesand annually reports

on the SECPS. In its report dated June 30, 1982, the POB concluded that "the

self-regulatory structure is sound and is functioning properly." 36Basedon its

oversight of the 400 peer reviews which had been conducted, the POB concluded that "there is now considerable evidence that the peer review program

is functioning as intended and that section members are taking actions needed to improve the quality of their practice." 37

Although peer reviews provide no assurance that all audit failures will be

identified or avoided in the future, any audit failures that occur should be due

to isolated breakdowns or "people problems," and not to inherent deficiencies

in firms' system of quality control. In a sense, peer reviews should "pay for

themselves" by reducing auditors' risks of liability to those who rely on their

audits.

(1) Access Agreement-Under the terms of an "access" arrangement agreed

to by the SECPSand the Commission, for the first time the Commission's staff

reviewed a sample of the working papers underlying reviews. Based on this

review and the staffs review of the POB's oversight files, the Commission has

determined that it can rely to a great extent on the POB's oversight function

in fulfilling its own oversight responsibilities. Nevertheless,the Commission will

continue to monitor the peer reviewprocess by reviewing certain working papers

pursuant to the accessarrangement so that it can periodically evaluate this important self-regulatory initiative and the need for refinements in the process

as a result of changing professional, economic and regulatory conditions.

(2) Sanctions- The true test of any voluntary self-regulatory organization is

whether it appropriately sanctions members that do not meet its standards.

There are two aspects to the SECP's disciplinary procedures. First, the SECPS

may impose sanctions as a result of serious quality control deficiencies uncovered during peer reviews. While the SECPS has not imposed any "formal"

16
sanctions to date, some peer reviewed firms have voluntarily agreed to take

and report prompt appropriate corrective action. The Commission concurs with

the POB's belief that this informal process gives the SECPS the ability to act

promptly and achieves the same result as the imposition of a sanction. The

formal sanction process remains available and should be used when satisfactory corrective measures are not undertaken promptly or where a member firm

chooses not to cooperate. 38

Pursuant to the second aspectof the SECP'sdisciplinary procedures,member

firms are required to report to the Special Investigations Committee (SIC)litigation against them or their personnel and proceedings or investigations publicly announced by a regulatory agency that involve clients or former clients which

are or were registrants and that allege deficiencies in the conduct of an audit

or in reporting thereon in connection with any required filing under the Federal

securities laws. The SIC considers whether these allegations indicate the need

for corrective measuresby such firms, changes in professional standards,and/or

appropriate disciplinary measures.The POB believes that the SIC made significant progress during the past year and that, although the structure for imposing sanctions has not yet been tested, the SECPS will appropriately discipline

member firms. 39TheCommission thus far has no basis for reaching any conclusion and believes that visible evidence as to specific SIC activity is critical

to demonstrate to the public the effectiveness of this aspect of the profession's

self-regulation.

The Commission continues to believe that all accounting firms which audit

public companies should join the SECPS. During the past year, a number of

changes were made to SECPS membership requirements which the SECPS

believes will significantly reduce the costs of membership while maintaining

an effective self-regulatory program. The principal change was the elimination

of the requirement that a quality control review panel (QCRP) be appointed

for peer reviews conducted by firms or administered by associations of firms.

The Commission does not object to the SECP's determination to eliminate the

QCRP.The Commission supports other initiatives designed to facilitate membership in the SECPS provided that they do not detract from the credibility of

the self-regulatory program.

FASB Activities-The Commission's staff monitors the activities of the FASB.

While the FASB has continued to perform in a generally satisfactory manner,

progress did not meet earlier expectations. The principal disappointment was

the absence of significant progress on the Conceptual Framework Project. A

description of this Project and certain technical agenda items follows.

(1) Conceptual Framework-An exposure draft of a concepts statement on

reporting income, cash flows, and financial position was issued in November

1981. Based on review of the comments on the exposure draft, the FASB determined to delay the issuance of a final concepts statement, and urged preparers

to report cash flows in 1982 annual reports in a manner consistent with the

concepts proposed in the exposure draft. The Commission believes that it is

17
important for the FASB to expedite development of the concepts underlying

the reporting of relevant cash flow information.

The FASB also devoted substantial time and resources to the accounting

recognition phase of the project. This phase deals with initial recognition of,

subsequent changes in, and the appropriate way to measure-by historical cost,

current exchange value, or some other measure-assets, liabilities and equity

in the financial statements. The measurement issue must be resolved prompt.

Iy because the FASS's inability to select the appropriate measurement attribute

has delayed this phase significantly and raised considerable doubt about the

ultimate success of the Conceptual Framework Project.

(2) Foreign Currency Translation-A troublesome accounting issue was addressed during the year with the withdrawal of the controversial Statement of

Financial Accounting Standards (SFAS) No. 8 and issuance in its stead of

SFAS No. 52, "Foreign Currency Translation." SFAS No.8 was heavily criticized.

SFAS No. 52 addresses this criticism by providing standards to (1) present information that is generally compatible with the expected economic effects of

a rate change on an entity's cash flows and equity, and (2) reflect in consolidated

financial statements the financial results and relationships as measured in the

primary currency in which each entity conducts its business. Since the implementation of SFAS 52 involves a significant amount of management judgment, the successof the new standard will depend on the good-faith of preparers

and independent auditors. The Commission encourages the FASB to continue

its monitoring effort and to provide timely guidance in identified problem areas.

(3) Other Projects-Other important items on the FASS's agenda include consolidations and the equity method of accounting, accounting for income taxes,

disclosures about oil and gas producing activities, and accounting for pensions,

as well as some narrow emerging practice problems. The Commission expects

that the Board will continue its efforts to provide more timely guidance to

preparers and auditors in a rapidly changing economic environment.

Other Significant Finanael Reporting Issues-During the past year, the Commission continued to be involved with several important financial reporting

issues including efforts to achieve more useful financial reporting for oil and

gas producing companies, and to keep abreast of various international standardsetting activities.

(1) Financial Reporting Practices for Oil and Gas Prooucers-Currently, the

Commission's requirements call for companies to disclose supplementary information about the value of their reserves, changes in those values and an

alternative measure of performance, all based on the reserverecognition method

of accounting (RRA). In February 1981, the Commission concluded that RRA

did not currently possessthe requisite degree of certainty for use as a primary

method of accounting and expressed its support for an FASS project to develop

a comprehensive set of disclosures for oil and gas producers. On July 1, 1982,

the Commission proposed amendments to require presentation of supplemental

oil and gas disclosures pursuant to an FASS statement of accounting standards

expected to be issued later in 1982. 40

18
(Subsequent to the close of the fiscal year, in November 1982, the FASB

published a final statement calling for such disclosures. Since the Commission

believes that the statement calls for adequate information about oil and gas

producing activities, it amended its rules in December 1982 to require disclosure

of the information specified in the FASB statement.)

(2) International Accounting and Reporting-The growth of multinational enterprises and the increasing internationalization of the world's capital markets emphasizes the need for a greater degree of uniformity in informational requirements to improve comparability and make disclosures more useful and

understandable.

A number of regional and international bodies are working to narrow the

differences between financial reporting standards and otherwise increase comparability in this area. These include the United Nations (UN), the Organization

for Economic Cooperation and Development (OECD) and the International Accounting Standards Committee. A related organization, the Intemational Federation of Accountants, issues auditing standards.

While the Commission is not a direct participant in any of these international

activities, it is interested in the various efforts to develop international standards of accounting and reporting. A convergence of requirements would pro.

vide more useful and understandable information to investors and other users

of financial reports, and lessenthe differences between reporting requirements

for domestic and foreign private issuers registering securities with the

Commission.

The Office of the Chief Accountant monitors developments in international

accounting and reporting, maintains communications with various national and

international bodies and reviews and sometimes comments on their proposals.

A staff member from the Office of the Chief Accountant serves as an expert

advisor on the United States delegation to the UN and OECD working groups.

While the Commission recognizesthat the harmonization processis a long term

project, it is hopeful that these efforts will continue since they can have a good

effect on the efficiency of the world's capital markets.

Accounting-Related Rules and Interpretations- The Commission's principal accounting requirements are embodied in Regulation SoX(S-X)which governs the

formal and content of, and requirements for, financial statements filed under

the Federal securities laws.The Commission also publicizes its views on various

accounting and financial reporting matters in Financial Reporting Releases

(FRRs).For example, in August 1982, the Commission announced that, while

the FASB considered a final standard, financial reporting should be consistent

with the tentative conclusions of the FASB concerning the proper accounting

treatment for transactions intended to have the same substantive effect as a

legal extinguishment of debt, even though the debtor's obligations are not in

fact discharged as a legal matter."

In addition, the Commission staff periodically issues Staff Accounting

Bulletins (SABs) as a means of informing the financial community of its views

on accounting and disclosure issues."

19
The Commission's accounting-related rules and interpretations serve primarily

to supplement generally accepted accounting principles (GAAP), as established

by the private sector, by addressing those areas which are unique to Commission filings or where GMP is not explicit. The Commission continually evaluates

its requirements as the private sector changes financial reporting standards,

and modifies or eliminates those requirements which become unnecessary.To

the extent that the FASS and the AICPA accelerate their efforts to enhance

frnancial reporting, the Commission should be able to place more reliance on

private sector standards.

Sunset Review-During the past year, the Commission has continued to

devote substantial resourcesto a comprehensive review of its existing accountingrelated rules and interpretations. The objective of this review is to ensure that

the Commission's requirements remain necessary and cost-effective in today's

environment and that they contribute to the usefulness of financial reporting

without imposing unjustified burdens on registrants. As a result of this effort,

the Commission has made progress in reducing and simplifying its rules without

sacrificing the integrity of financial disclosure documents. Some specific initiatives in this area are discussed below.

(1) Codification of Finenciel Reporting Policies-In April 1982, the Comrnission issued FRR No. 1 which announced the publication of a codification of

certain existing Accounting Series Releases(ASRs).Of the 307 ASRs the Com.

mission had issued since 1937, 207 dealt with general accounting issues and

100 addressed various accounting and auditing matters in an enforcement

context. Of the general ASRs, 57 had been rescinded earlier and 79 were no

longer relevant, but portions of the remaining ASRs were codified because they

contained current and meaningful guidance for persons complying with the

Commission requirements. The codification is indexed and organized in a logical

manner and should provide a useful reference for the Commission's current

published views on accounting and auditing matters relating to financial reporting. It will be updated by future FRRs where appropriate.

In a related action, the Commission published Accounting and Auditing Enforcement Release(MER) No. 1 as the first in a new series of releases which

will be used to announce accounting and auditing matters that are related to

Commission enforcement activities. AAER No. 1 includes a topical index for

the material included in the 100 enforcement-relatedASRs to facilitate reference

to specific areas addressed by the Commission in those releases.

(2) Regulation S.X-As part of the continuing efforts to update and streamline

the Comrnlssion's regulations, the Commission has: (a) adopted uniform instructions for the presentation of pro forma financial information; 43(b)revised

the requirements for filing financial statements of businesses acquired or to

be acquired;" (c) simplified and standardized the requirements for disclosure

of a ratio of earnings to fixed charges; 45(d)proposed to revise the financial

statement and industry guide requirements for bank holding companies; 46and

(e) proposed to revise the financial statement requirements for investment companies (adopted December 6, 1982). 47Uponadoption of the proposed rules

20
regarding financial statement requirements for bank holding companies and

investment companies, the Commission will have substantially completed its

project, initiated in 1980, to establish uniform requirements applicable to virtually all filings with the Commission pursuant to the Securities Act and Exchange Act aswell as annual reports to security holders prepared in accordance

with the Commission's proxy rules.

(3)Scope of Seroices by Independent Accountants-In January 1982,the Commission announced the rescission of the rule requiring disclosure in proxy

statements about nonaudit servicesperformed by independent accountants for

their audit clients. The Commission rescinded that rule because it concluded

that, although information about nonaudit services is important to enable the

Commission and others to monitor this activity by accountants, it is not generally of sufficient utility to investors to justify continuation of the disclosure requirement. In addition, the Commission noted that information about nonaudit

sevices performed by accountants will continue to be available to interested

persons because the SECPS revised its membership provisions to require

member firms to disclose additional information about their nonaudit service

activity in public annual reports filed with the SECPSthat cover years ending

on or after January 1, 1982.

21

Regulation of the Securities M.arkets

Key 1982 Results

Fiscal 1982 saw many major developments in the regulation of securities

markets, while the industry smoothly handled a major market surge, commencing with the first 100 million share day on the New York Stock Exchange on

August 18. Commission action freed-up more than an estimated $800 million

in capital and cost savings to the securities industry, in addition to hundreds

of millions of dollars in estimated benefits to the public annually from the Commission's broker-dealerexamination program. Theseactions enhancedthe financial condition of the securities industry without adverse impact on investor

protection.

Specifically, recognitioin of the securities industry's improved financial and

operational condition, the Commission made adjustments to its net capital

rules, that allowed more productive use of more than $500 million of industry

capital previously held in reserves.An additional $200 million was freed up

through expanding permitted usesof letters of credit for clearing fund deposit

and stock loan collateral requirements. In addition, approval of a depository

linkage providing a nationwide institutional delivery system is expected to

realize annual cost savings exceeding $100 million.

In the national market system area, an experimental linkage of exchange

and over-the-counter (OTC) trading in 30 listed stocks commenced and is being carefully monitored by the Division of Market Regulation, the Directorate

of Economic and Policy Analysis and the securities industry. In addtion, the

Commission proposed an order exposure rule, based on principles developed

by a Securities Industry Association (SIA)committee, which addressedconcerns

over brokerage firms internalizing execution of their order flow. Also, in May

1982, Rule llAa2-1 became effective, which has resulted in the designation,

as of September 30, 1982, of 60 actively traded OTC securities as national

market system securities. The primary effect of this designation has been last

sale reporting to the public on a real time basis.

The order exposure initiative and the planning that assured smooth handling of the record trading volume are exceptional examples of the important

role that the securities industry and the self-regulatory organizations fulfill in

realizing the goals of the Federal securities laws.

Shortly after the close of the fiscal year, following enactment of the initial

portion of the historic SEClCFTC Accord, the Commission approved the listing

and trading of GNMA, treasury and foreign currency options products proposed by a number of national securities exchanges. If viable markets for these

new products develop, they will facilitate government and mortgage financ23
ing, foreign trade and hedging the risk of fluctuating interest and foreign exchange rates.

Securities Markets, Facilities and Trading

The National Market System-In April 1981 the Commissioin ordered" an

automated interface between the Computer Assisted Execution System (CAES)

operated by the National Association of Securities Dealers (NASD) and the Intermarket Trading System (ITS)operated by seven national securities exchanges,

which became operational on May 17, 1982. In addition, the Commission approved the NASD's trade-through rules on May 6, 1982,49which are designed

to ensure protection from inferior executions in linked stocks, whether trades

occur on or off the exchange floor.

In 1982, ITS continued to provide investors with improved execution

capabilities, resulting in an estimated annual savings of over $60 million.

The Commission also obseved another year of off-board trading pursuant

to Rule 19c-3 under the Exchange Act. In this regard, the Commission recognized that elimination of off-board principal restrictions involved potential order

exposure concerns and it proposed alternative ways to address these concerns.

The Commission has re-released for comment a rule, based on principles

developed by a special committee of the Securities Industry Association, which

would apply similar order exposure requirements to both off-board and exchange market makers. 50

On February 11,1982, the Commission adopted amendments to Rule llAcI1 under the Exchange Act governing the collection and dissemination of quotation information. 51 The amendments permit, under certain circumstances,

regional exchange specialists and "third market makers" to disseminate quotations on a voluntary, rather than mandatory, basis. The amendments are intended to eliminate unnecessary regulatory burdens on secondary market

makers and enhance the accuracy and reliability of quotation information.

National System for the Clearance and Settlement of Securities TransactionsThe Commission approved proposed rule changes of the Midwest Clearing Corporation (MCC), Pacific Clearing Corporation (PCC) and Stock Clearing Corporation of Philadelphia (SCCP) to create a unified, nationwide system for the

comparison of OTe trades. 52

The Commission approved a proposed rule change of the NASD which requires certain NASD Automated Quotation System (NASDAQ) market makers

to use the facilities of a registered clearing agency to clear and settle NASDAQ

securities transactions when the clearing agency facilities are within 25 miles

of the market maker."

Also approved were proposed rule changes of the Midwest Securities Trust

Company (MSTC)54and the Philadelphia Depository Trust Company (Philadel)"

establishing, through a linage with the Depository Trust Company (DTC), a

nationwide institutional delivery system that provides efficient communications

among brokers, banks and investment managers regarding the settlement of

24
institutional and other securities transactions. The linkage permits participants

in one securities depository to complete institutional trades with participants

in another securities depository and, thereby, to realize annual cost savings in

excess of $100 million.

In orders approving temporary proposed rule changes of the Midwest Clearing Corporation (MCC) and MSTC that enabled volume fee discounts, the Commission reconfirmed its policy that clearing corporations cannot levy fees on

securities transactions flowinq through interfaces. 56

CnC/SEC Accord-In December 1981, the Commission and the Commodity Futures Trading Commission (CFTC) announced that they had reached an

Accord clarifying their respective jurisdictions over trading in certain new options, futures and options on futures products. In February 1982, specific

legislative changes to implement that Accord were proposed in the Securities

Accord Amendments of 198257and in certain provisions of the Futures Trading

Act of 1982. 58

The bills amending the Federal securities lawswere passed in identical form

by both houses in September, and the securities laws amendments were signed by President Reaganon October 13, 1982.59The legislation clarifies not only

the Commission's jurisdiction over options on all securities, groups or indices

of securities, certificates of deposit and options on foreign currency traded on

a national securities exchange but also the CFTC'sjurisdiction over futures (and

options on futures) on exempted securities (other than municipal securities)and

on certain broad-based indices and groups of securities. Pending further study,

futures trading on individual corporate and municipal securities is prohibited.

Options Trading-Proposals submitted by the Chicago Board Options Exchange (CBOE), the American Stock Exchange (Amex), the Philadelphia Stock

Exchange (Phlx) and the Options Clearing Corporation (OCC) regarding options on various GNMA's, United States Treasury securities, and foreign currencies were approved by the Commission on October 14, 1982.60(Trading in

Treasury options began on the CBOE and Amex on October 22, 1982.) In addition, the Amex has proposed trading in options on certificates of deposit

(CDs).61The New York Stock Exchange (NYSE), CBOE and Amex all have

sought permission to trade "stock index" options that would be settled in cash.62

The NASD has also submitted a plan for options trading which includes index

options." Finally, the Commission has received "stock group; options proposals from the Amex, the CBOE, the NYSE and the PacificStock Exchange(PSE)

that would be settled by delivery of securities."

The Commission also adopted a new simplified disclosure system for

options-an optional registration form, Form S-20, and new Rules 153b, 135b,

and 134a under the Securities Act as well as Rule 9b-1 under the Exchange

Act.65Under this new system, the risks, uses and mechanics of standardized

options trading area set forth in a basic "core" disclosure document. A simplified

prospectus (Part I, Form S-20) containing additional information about OCe.

as the issuer and the clearing agency of the options, is available through the

exchanges.

25
Market Manipulation-On March 16, 1982, the Commission published for

comment amendments to Exchange Act Rule 10b-6 which governs trading in

securities.w lf adopted, these amendments would define the term "distribution"

for purposes of the rule, codify existing staff positions concerning some of the

exceptions to the rule, and relax the prohibitions of the rule to permit participants in a distribution of securities to continue trading such securities until

three business days before the commencement of the sale of the securities being distributed.

Stabilization Reports-On August 31, 1982, the Commission published for

comment proposed amendments to Rules 17a-2 and 1Ob-7under the Exchange

Act and rescission of related Form X-17A_1.67 The Commission is proposing

that the requirement for reporting certain transactions, under Rule 17a-2, be

rescinded and that the rule be amended to require only that a manager of an

underwriting syndicate retain, in a separate file, records of all stabilizing transactions.

Exemptions {rom Shoo Sale Rule-On June 1, 1982, the Commission granted,

on a one-year trial basis, an exepmtion from the "tick test" provisions of Rule

1Oa-1, the short sale rule. The exemption permits a broker-dealer that has acquired a security while acting in the capacity of a block positioner" to disregard

a short position in that security in computing its net long position if and to

the extend that such short position is and has been for at least five business

days the subject of one or more offsetting positions created in the course of

"bona fide arbitrage," "risk arbitrage" or "bona fide hedge" activities.

Regulation of Brokers, Dealers, Municipal Securities Dealers and

Transfer Agents

Broker-DealerReporting Requirements-On December 10, 1981, the Commission adopted new Rule 17a-8 under the Exchange Act, which enables SROs

to enforce existing regulations of the U.S. Department of the Treasury promulgated under the Currency and Foreign Transactions Reporting Act of 1970.68

These regulations, among other things, require broker-dealers to make reports

and maintain records on domestic currency transactions of more than $10,000

and the import and export of currency and monetary instruments of $5,000

or more.

Fmancial Responsibility Requirements-During the fiscal year, the Commission adopted major revisions to the uniform net capital and the customer protection rules, Rules 15c3-1 and 15c3-3, respectlvely.s? These revisions included

the lowering of the ratio of minimum required net capital for those brokerdealers electing the alternative method of computing net capital, from 4% of

aggregate debit items to 2%. The early warning and capital lock-in levels were

also reduced from 7% and 6%, respectively, to 5%. 70

These changes were predicated on the industry's improved financial and

operational condition, and were intended to enable securities firms to use these

funds to make better markets and improve services to the investing public.

26
It is estimated that over $500 million of securities industry capital was freed-up

as a result of these changes.

Broker-Dealers' Carrying Agreements-On February 19, 1982, the Commission approved a rule change to amend NYSE Rules 382 and 405.71 This rule

change sets forth the responsibilities of member broker-dealers when handling

customer accounts that are introduced on a fully disclosed basisby one brokerdealer to another under a carrying agreement. The amended rule requires all

"fully disclosed" carrying agreements between introducing and carrying

organizations to identify specifically, allocate between the parties and, at a

minimum, address their respective functions and responsibilities for seven particular areas.

Broker-Dealer and Transfer Agent Examinations-During fiscal year 1982, there

was increased emphasis on improving the efficiency, thoroughness, and overall

quality of regional office examinations, particularly oversight examinations of

SRO member firms. During the fiscal year, the staff developed sophisticated

computer programs for the analysisof information and conducted severaleducational programs for regional office regulatory staff. In addition, the staff reviewed

approximately 230 transfer agent examination reports and 900 regional office

broker-dealer examination reports in order to identify national concerns and

assist the regions. The Commission also adopted Rule 15b2-2, under which

SROs examine newly registered broker-dealers, thereby avoiding duplication

of Commissioin and SRO resources.

Such efforts to improve the Commission's broker-dealer examination program are necessaryin order that the Commission's limited resourcescan meet

its considerable ongoing responsibilities, and respond to extraordinary problem

areas, such as the collapse this last year of the Denver "hot issue" or penny

stock market.

Administration of the SECO Program-Pursuant to the Exchange Act, brokerdealers who do not join the NASD are subject to direct regulation by the Commission through its SECO program with respect to professional qualifications

and just and equitable principles of trade. Following a Division study of this

program the Commission, in May, transmitted draft legislation to Congress to

abolish the SECO program and require all broker-dealers transacting an OTC

securities business to join a registered national securities association. The proposed legislation was under consideration by Congressat the close of the fiscal

year. 72

Self-Underwriting by SECO Broker-Dealers-On January 7, 1982, the Commission approved an amendment to Rule 15blO-9, the so-called "selfunderwriting" rule.?" the amendment created a conditional exception to the rule

for SECO broker-dealers that limit their business to participation in the offer

and sale of securities issued by an affiliate which is not a broker-dealer.

Securities Con/irmations-On August 19, 1982, the Commission withdrew proposed Rule 15c2-12 and a proposed amendment to Rule lOb-lO, the customer

confirmation rule, that would have required disclosure on confirmations of the

amount of any mark-up, mark-down, or similar remuneration received by any

27
broker-dealer effecting a "riskless" principal transaction in a debt security." At

the same time, the Commission proposed to amend Rule lOb-10 by: (1) providing a limited exception from the immediate delivery requiements of the rule

for certain "account management plans" offered by broker-dealers; and (2) requiring disclosures pertaining to yield and call features in transactions in debt

securities, except municipal securities."

MunicipalSecurities Brokers and Dealers- The Commission continued to consult with the bank regulatory agencieswith respectto bank municipal securities

activities. In addition, the Commission staff issued several no-action and interpretive letters with respect to securities activities by municipal broker-dealers.

Fingerprinling- The Commission proposed amendments to Rule 17f-2 that

would simplify the process for and reduce the cost of, claiming exemptions

for certain personnel from the fingerprinting requirement under the Exchange

Act. 76

Transfer Agent Regulation- The Commission proposed rules establishing

minimum standards for registered transfer agents. The proposed rules would

ensure: (1) the prompt and accurate creation and maintenance of issuer

securityholder records; and (2) the safeguarding of funds and securities used

in connection with transfer activities when those funds and securities are in the

possession or control of transfer aqents."

Oversight of Self-Regulatory Organizations

National Securities Exchanges-As of September 30, 1982, ten exchanges

were registered with the Commission as national securities exchanges. During

the fiscal year the Commission granted applications by exchanges to delist 90

equity and 38 debt issues, and granted applications by issuers requesting

withdrawal from listing and registration for 20 equity issuesand ten debt issues.

In addition, during the fiscal year the Commission granted 272 applications

by exchanges for unlisted trading privileges.

The exchanges reported to the Commission 334 final disciplinary actions

imposing a variety of sanctions upon member firms and their employees. This

contrasts to 309 actions reported in fiscal 1981.

During the fiscal year, the Commission received from the exchanges 116

findings of proposed rule changes under Rule 19b-4 under the Exchange Act.

Among the significant rule filings aproved by the Commission, in addition to

rules designed to implement trading in new options products, were: (1) a

Philadelphia Stock Exchange pilot program relating to the allocation of new

listings to specialistsand the reallocation of listings due to substandardspecialist

performance;78 and (2)the creation of the Midwest Stock Exchanges'automated

execution system and the revision of the Boston Stock Exchanges' guaranteed

execution system."?

During the fiscal year, the Commission modified the exemptions provided

to regional stock exchanges from Rule 11b-1 under the Exchange Act so that

each exchange now has rules imposing certain specific obligations on its

28
specialists with respect to any security that is listed on its exchange but is not

listed on either the Amex or the NYSE.80

National Association of SecuritiesDealers, Inc.-The NASD is the only national

securities association registered with the Commission. At the close of the fiscal

year, the NASD, which has 3,577 members, reported to the Commission the

disposition of 429 significant disciplinary actions and 248 summary actions by

the NASDAQ Trading Committee, as compared with approximately 500 and

336 a year earlier. In addition, the Commission received from the NASD 18

filings of proposed rule changes, down 11 from 1981.

One of the significant NASD rules approved by the Commission during the

fiscal year adopted standards for NASD members and their associatedpersons

who participate in a public offering of a direct participation program (DPP).81

The rule change adds an appendix to the NASD's Rules of Fair Practice to

prescribe standards for the offering of DPPs in the areasof investor suitabihty,

disclosure of material information, and underwriter compensation. Adoption

of the rule change culminates severalyears of effort by the NASD and the Commission to establish written standards for the sale of DPPs.

Swveilfance and Compliance Inspections-During the fiscal year, the staff con.

ducted 22 inspections of self-regulatory organization (SRO)market surveillance,

disciplinary, compliance and operational programs. In all of these inspections,

upon notice of the inspection findings, each SRO has taken steps to respond

to the staff recommendation.

Specifically, inspections of the PSE's equity and options trading programs

disclosed only one major concern, a failure to institute disciplinary proceedings

against members in certain cases. Inspections of the Amex Stockwatch and

Market Surveillance units and disciplinary program disclosd that an audit trail

would enhance surveillance and that the exchangedid not alwaysbring charges

against members in appropriate cases. An inspection of the CBOE disclosed

certain deficiencies in the automated trading information collected by the

exchange.

A special inspection of the NYSE'sstockwatch surveillanceprogram disclosed

that the NYSE failed to recognize a major manipulation in one of its listed

stocks. Other NYSE inspections reviewed the NYSE's efforts to develop a complete transaction audit trail. An audit trail would not only enable the NYSE to

conduct adequate surveillance of trading on its floor but would also result in a

reduction of its member firms' transaction reconciliation costs. In August 1982,

the NYSE proposed that an audit trail be implemented in stages in conjunction with the development and expansion of various automated systems at the

exchange, which are scheduled to be completed in January 1985 and that in

the interim, existing exchange and member firm systems and procedures be

modified to provide an effective audit trail in early 1983.

During 1982, the staff conducted comprehensive inspections of the Phlx's

equities and options trading programs. The inspections disclosed that the Phlx

had taken commendable steps to remedy deficiencies noted in previous

inspections.

29
At the end of the fiscal year, surveillance inspections that were in progress

included the NYSE Stockwatch Department, CSE market operations and

surveillance, and the NASD surveillance programs for OTC trading in stocks

quoted in the NASDAQ system.

The staff conducted inspections of four NASD District Offices concerning

investigations of customer complaints and terminations of registered representatives from employment for cause. In addition, the staff inspected the NASD

Denver District Office to evaluate, in particular, the officer's financial surveillance

of member broker-dealers active in the Denver penny stock market. The staff

also inspected the NASD Central Registration Depository. The staff also conducted two inspections focusing on the role of self-regulators in the prevention

or detection of major alleged frauds. These inspections were still in progress

at the end of the fiscal year.

The staff worked with a joint SRO task force, the Intermarket Surveillance

Group (ISG), in its efforts to develop an effective intermarket surveillance system.

The staff also conducted limited inspections of SRO intermarket surveillance

programs.

ClearingAgencies-Significant progress was made in the review of applications for full registration of clearing agencies under Section 17A(b) of the Exchange Act in accordance with the Division's standards for registered clearing

aqencies.v ln connection with its review, the Commission cancelled the clearing registration of Bradford Securities Processing Services, Inc. and TAD

Depository Corporatiorr" and extended until September 30, 1983, the temporary

registrations of, and registration proceedings regarding, the 11 active clearing

agencies. 84

The Commission also approved several proposed rule changes to enhance

clearing agencies' systems for controlling financial exposure, particularly from

participant insolvencies. For example, the National Securities Clearing Corporation increased its clearing fund to reflect variable use of its Envelope Settlement System," and established comprehensive admission and continuance standards, together with an enhanced surveillance program. 86

Market Oversight and Suroeil/ance System- The Market Oversight and

Surveillance System (MOSS) was initiated on a pilot basis in 1980. It is designed to automate the Commission's surveillance and oversight capabilities. In

August 1981, at the Commission's initiative, the SROs submitted a proposal

for an SRO intermarket surveillance program, to which the Commission would

have ready access. The SRO program, when fully implemented, should result

in significantly enhanced SRO surveillance and provide an alternative to the

surveillance capabilities of MOSS. In the interest of avoiding unnecessary costs

and duplication, the Commission has therefore deferred significant enhancement of the MOSS project, pending implementation and evaluation of the SRO

program.

During fiscal year 1982, the MOSS project continued on a pilot basis. It was

moderately refined and expanded from 31 percent to 50 percent coverage of

30
listed stocks. During this period, the Commission has closely monitored the

progress of the SRO project.

Pursuant to the requirement in the Congressional budget authorization for

MOSS, the Commission submitted reports to Congress on the MOSS project

on April 1, 1982 and October 1, 1982, which provide greater detail on MOSS

and SRO projects.

Applications for ReEntry-During the fiscal year, the Division of Market

Regulation received 85 applications to permit persons subjet to statutory disqualifications, as defined in Section 3(a) (39) of the Exchange Act, to become

associated with broker-dealers. The following SRO's filed such applications: (1)

NASD-60 applications; (2) NYSE-23 applications; and (3) Amex-two applications. Five of the 85 applications were subsequently withdrawn, 72 were pro.

cessed and 8 were pending at year end.

Municipal Securities Rulemaking fuard-As in the caseof the NASD, the Commission reviews proposed rule changes of the Municipal Securities Rulemaking Board (MSRB). During the last nine months of the fiscal year, the MSRB

filed 12 proposed rule changes.

The Commission approved three rule changes by the MSRB regarding rhe

formulae for calculating the yield and dollar price on municipal securities, MSRB

Rule G-33. 87

The Commission also approved a rule change by the MSRB which, among

other things, allows either side of a transaction to void a trade if the CUSIP

numbers of both sides are not identical. 88

31

Investment Companies and Advisers

Key 1982 Results

During the fiscal year the Commission completed and took remedial action

in a record number of investment company and adviser inspections while continuing a comprehensive program of simplifying the regulations which govern

investment companies and advisers.

Inspection Program-A Record Result-The Commission inspects the investment and operational activities of investment companies and investment advisers to ensure that they follow the disclosure in the prospectus and registration statement and comply with applicable statutes. The program deters abuses

and minimizes the risk of loss to investors.

During fiscal 1982, the Commission completed 1,065 investment company

and investment adviser inspections, a record number which represents a 26 %

increase over the 848 inspections completed in fiscal 1981. Improved productivity was made possible this year, despite budgetary constraints and personnel reductions, through the development of a computer program which: (1) identifies the relative priority each adviser should have, in terms of the frequency

of inspections, based upon certain client and asset-under-management data;

and (2) determines the relative risk inherent in each adviser'soperations to gUide

the scope of the inspection procedures used by examiners. Based on findings

of the inspections completed during fiscal 1982, the staff found it necessary

to take remedial action in 77% of the cases-an increase of about 15 percentage points over the results in each of the preceding two years Thus, the use

of the new selection and risk appraisal techniques has improved the cost/benefit

ratio of inspection without reducing either the effectiveness of the inspection

program or the level of investor protection it affords.

Disclosure Study

During fiscal 1982, the Division of Investment Mangement's Disclosure Study

conducted a comprehensive re-examination of open-end management investment companies' registration and reporting requirements. At the end of the

year, the study was considering a proposal which will permit such companies

to reduce the length and complexity of their prospectuses and, at the same

time, aid readability and facilitate investors' understanding of the prospectus.

In fiscal 1982, the Commission revised Form N-1Q, the quarterly reporting

form for management investment cornpanies." The requirement for reporting

portfolio changes was shifted from a quarterly to an annual basis because: (1)

the staff made little internal use of the quarterly information; and (2) the institutional disclosure program established under Section 13(f) of the Exchange

33
Act sets appropriate disclosure requirements for all institutions, including investment companies.

The adoption of Rule 487 under the Securities Act permits most registration statements filed by unit investment trust series to become effective

automatically, if certain specified conditions are met. Generally, the rule

eliminates staff review of registration statements that do not present new

disclosure issues.Similarly, Rule486, relating to automatic effectivenessof posteffective amendments to registration statments filed by registered separate accounts of insurance companies, eliminates staff review of routine filings. Rule

486 and Rule 487 were both adopted in May, 1982.

Investment Company Act Study

The Investment Company Act Study Group was formed in 1978 to review

the Investment Company Act and the rules, regulations and administrative practices thereunder in order to alleviate unnecessary regulatory burdens, without

compromising investor protection. The Commission has since adopted a series

of rules which afford exemptive relief from certain Investment Company Act

prohibitions. Generally, these rules codify exemptive orders previously granted

by the Commission.

During fiscal 1982, the Commission adopted Rule 180 which conditionally

exempts from the registration requirements of the Securities Act, interests and

participations issued in connection with the tax-qualified retirement plans commonly known as "H.R. 10" plans. 90 In addition, the Commission proposed Rule

2a-7 which would permit money market funds to maintain stable net assetvalues

per share through amortized cost valuation" or "penny-rounding" pricing.92 Proposed Rule 17f-5 wold permit domestic investment companies to maintain their foreign securities abroad in the custody of foreign banks or

depositories under certain conditions."

Bank-related Mutual Funds

Increased competition for savings and investment dollars has resulted in the

linking of money market funds with depository institutions in new ways. During fiscal 1982, the Commission considered a number of issues raised by these

new arrangements and wrote to bank regulatory authorities to seek their views

on their legality under the Federal banking laws.The Commission is reviewing

the disclosure related to such arrangements and proposes to issue a release

to clarify the disclosure and other securities law requirements for bank-related

funds.

In addition, in September of this year, the Commission held public hearings

to examine the general legal and policy issues that are raised when a mutual

fund proposes to purchase certificates of deposit of banking institutions in

reciprocity for salesof fund shares.94Atthe end of the fiscal year, the Division

of Investment Management was in the process of evaluating the testimony

presented at the hearing.

34
Insurance Products

In October 1981, the Commission adopted Rule 6c-6(T) under the Investment Company Act, 95whichprovided insurance company separate accounts

and others with temporary exemptive relief from various provisions of that Act

to the extent necessary to permit them to take various actions in response to

the impact of Internal Revenue Service (IRS) Revenue Ruling 81-225, issued

on September 25, 1981. Ruling 81-225 announced the IRS'sdetermination that,

prior to the annuity starting date, the owner of a variable annuity contract rather

than the insurance company sponsoring the separate account offering the contract, would be deemed to be the owner of the shares of the open-end investment company serving as the contract's funding portfolio. Thus, the earnings

and gains from the shares would be includible in the contract-owner's gross income for Fedearl income tax purposes. As a result, many sponsoring insurance

companies found it necessaryto create so-called "clone funds," and to substitute

sharesof the clone funds for those of an existing portfolio company. Rule 6c-6(T)

eliminated the need for individual exemptive applications to be filed with and

approved by the Commission in connection with these actions. In the same

release, the Commission proposed permanent Rule 6c-6, which was adopted

on September 21, 1982.98 That rule, among other things, expanded the nature

and modified the scope of the exemptive relief provided by the temporary rule.

On September 20, 1982, the Commission proposed Rule 11a-2 under the

Investment Company Act.97 This rule is the first of a planned seriesof proposals

to codify the standards developed with respect to certain so-called "start-up"

exemptive applications filed by insurance company separate accounts and

others. If adopted, Rule 11a-2 would eliminate the need for separate accounts

and others to file individual applications seeking Commission approval of terms

of certain routine exchange offers.

Investment Advisers Act Study

During fiscal 1982, upon the recommendation of the Investment Advisers

Act Study Group, the Commission adopted amendments that clarify and

simplify its investment adviser registration, reporting and disclosure requirernents." Among other things, the amendments eliminated the unaudited balance sheet requirement which had been applicable to approximately 80% of

investment adviser registrants who were required to file unaudited balancesheets

with their registration applications and annually thereafter. The Commission

also adopted temporary amendments to its investment adviser registration requirements deleting a number of items from Part I of Form ADV, the investment adviser registration application form, and is considering making the deletions permanent. 99Whilethe information contained in the deleted items is useful

to the Commission in its understanding of the investment advisory industry,

it is not essential to the Commission's investment adviser regulatory program.

35
Significant Applications and Interpretations

Unifonds-During 1982, the Commission considered an application filed on

behalf of Unifonds, a West Germand mutual fund, that sought relief pursuant

to Sections 6(c) and 7(d) of the Investment Company Act. Since the civil law

of West Germany comprehensively regulates West German investment companies and also permits the sale of securities within its jurisdiction by investment companies organized under the laws of the United States, the Commission considered to what extent the securities laws of the United States could

defer to those of West Germany. The Commission decided that if Unifonds

would modify its proposal in certain respects, the Commission could take the

first procedural steps toward granting the exemptive relief that had been requested by issuing a notice of the filing of the application. (After the close of

the fiscal year, (Jmfonds filed an amendment agreeing to file a registration

statement and disclosure documents comparable to those filed by United

States companies, to withdraw its request for exemption from the enforcement

provisions of the Investment Company Act, and to arrange for an irrevocable

letter of credit in an amount equal to 5% of the value of the outstanding shares

of Unifonds held by shareholders in the United Staes to satisfy any judgments

against the company obtained by such shareholders.)

Fiduciary Trust Company of New York-The Economic Recovery Tax Act

permits an employee who participates in a pension trust qualified under Section 401 of the Internal REvenue Code (Section 401 trust) to deduct from his

gross income certain qualified voluntary contributions to his account in a Section 401 trust or to an individual retirement account (IRA). On November 9,

1981, Fiduciary Trust Company of New York (Fiduciary) requested the staffs

assurance that it would not recommend that the Commission take any enforcement action if Fiduciary should act as trustee of Seciton 401 trusts, which consrsted solely of such qualified voluntary employee contributions, and invest their

assets in its pooled funds which consisted solely of assets of Section 410 trusts.

The staff granted Fiduciary's request, applying the exception in the Investment

Company Act for Section 401 trusts and collective trust funds maintained by

a bank consisting solely of assets of such trusts.

The WoodsideGroup-On March 15, 1982, the staff advised The Woodside

Group that it would not recommend any enforcement action with respect to

the operation of companies which would primarily acquire leases entered into

by state and local governmental entities as the means of acquisition by such

entities of various equipment and facilities. The staffs positon enables such

companies to operate without registering as investment companies in reliance

upon the exception under the Investment Company Act for companies primarily

engaged in the business of acquiring obligations representing part or all of the

sales price of merchandise or of making loans to prospective purchasers of

specified merchandise.

36
Institutional Disclosure Program

Money managers that fall within the definition of an "institutional investment

manager", in Section 13(tX5)of the Exchange Act, and that meet certain criteria

set out in Rule 13f-1 under the Exchange Act, file reports on a quarterly calendar basis on Form 13F. Managers required to file 13F reports disclose certain

equity holdings of the accounts over which they exercise investment discretion. In fiscal 1982, Form 13F reports were filed on behalf of 1,000 institutional

investment managers for holdings totalling almost $500 billion dollars.

Form 13F reports are available to the public at the Commission's Public Reference Room promptly after filing. Also available for public inspection at the

Public Reference Room are two tabulations of the information contained in Form

13F reports. The first of the tabulations includes a listing, arranged according

to the individual security, showing the number of shares held and the name

of the money manager reporting the holding. The second tabulation is a summary listing showing the number of shares of that security reported by all institutional investment managers filing reports. The tabulations are normally

available between 10-14 days after the end of the 45-day period for filing Form

13F reports for a particular calendar quarter.

Both tabulations are produced by an independent contractor selected through

the competitive bidding process. The contractor provides its services to the Commission without charge, and is required to make a variety of specified tabulations available to the public at reasonable prices within 10 days after receipt

of the reports.

37

Other Litigation and Legal Work

The Commission, through its Office of the General Counsel, participates in

a substantial amount of litigation in addition to the litigation it conducts before

trial courts in its injunctive actions and its own administrative proceedings.

Through this litigation, the Commission seeks to insure that its enforcement

program is carried out effectively, that judicial interpretation of the Federal

securities laws affords adequate protection to investors and that Commission

enforcement actions and investigations are not impeded by law suits brought

against the agency or its staff.

Key 1982 Results

In all, during the year 34 appellate matters relating to injunctive caseswere

concluded, with only two outcomes unfavorable to the Commission; 21 cases

relating to Commission orders, with three adverse results; and 18 amicus matters, with five adverse to the Commission.

As to overall workload, the Office handled 251 litigation matters during the

past fiscal year, many of which are still pending. This included 62 appellate

matters before the Supreme Court and Federal courts of appeals in which a

party subject to a Commission injunctive action challenged the lower court's

resolution of the case favorable to the Commission or, much less frequently,

the Commission challenged an unfavorable outcome. The Office also handled

38 appellate matters in which efforts were made to overturn Commission orders,

primarily those issued in administrative proceedings conducted by the Commission or those affirming the outcome of proceedingsconducted by the various

self-regulatory organizations against broker-dealers. In 58 instances during the

year, Commission participation asa friend of the court was considered or undertaken in litigation conducted by private parties, to give the court its views on

significant questions concerning the interpretation and scope of the Federal

securities laws. In addition, the Office handled more than 90 other litigation

matters before the Commission or in the Federal trial courts, including 23 suits

brought against the Commissioners or the Commission's staff, and 19 suits

under the various public information statutes.

In addition to litigation, the Office of the GeneralCounsel is involved in significant legislative and regulatory work. For example, the Office has assisted the

Commission in proposing legislation which would permit civil fines to be levied

against inside traders; proposed repeal of the Public Utility Holding Company

Act (discussed under "Public Utility Holding Companies," page 47); assisted

the Commission in resolving its jurisdictional dispute with the Commodity

Futures Trading Commission (discussed under "Regulation of the Securities

Markets," page 25) ; and supported amendments to the Foreign Corrupt Prac39
tices Act and the Glass Steagall Act. The following is a summary of the status

of these legislative initiatives and other projects of significance to the Commission and the public, as well as a discussion of major areas of the Office's

litigation, along with some of the more important issueslitigated during the year.

Litigation

LitigationRelated to Commission lnjunctiueActions-In fiscal 1982, 34 appellate matters relating to Commission injunctive actions were litigated and

concluded. In only two of those matters were the results not favorable to the

Commission.

This category involved mostly appeals in which a party attempts to reverse

the trial court's resolution of a Commission injunctive action. The Commission addressed issues concerning significant problem areas of compliance with

the Federal securities laws. For example, one important issue arising over the

years in Commission enforcement actions is the extent to which a wrongdoer

should be required to surrender the profits of his wrongdoing, which often may

then be made available to defrauded investors. In fiscal year 1982, two courts

addressed this critical question. In one court of appeals the Commission successfully asked that all members of the court rehear a case.The appellate panel

had previously set aside the trial court's determination that a corporate official,

who had obtained profits by trading in securities on the basis of information

not available to members of the public, should disgorge $53,000 in illegal profits. Instead,the panel found that only $11,000 should be disgorged. 100 The Com.

mission subsequently argued to the full court of appeals that, in Commission

enforcement actions, the standard of disgorgement should force wrongdoers

to give up all profits and not merely those recognized before the discovery of

the fraud. The Commission asserted that principles of unjust enrichment as

well as effective enforcement of the securities laws require that the Commission be able to insure that insider trading violations are not profitable.

In another court of appeals, the Commission was able to overturn a district

court decision denying disgorgement. 101 The court of appeals concluded that,

at a minimum, disgorgement of a substantial sum of money should be required,

and the trial court subsequently ordered the defendant to disgorge a sum in

excess of $140,000. The apellate court in that case also agreed with the Commission on another important point, holding that a corporate official can be

liable for fraud not only where he dealswith an investor directly, but also through

an intermediary.

The appellate litigation handled by the Office also involves significant questions concerning the various reporting requirements of the Federal securities'

laws. In these cases,the Commission seeks to insure that members of the public

are provided with the information necessary to make an informed investment

decision. Of note this year, one court of appeals considered the requirement

under Section 13(d) of the Exchange Act that a filing be made with the Commission and sent to a company, when there has been an aggregation of stock40
holdings totalling more than 5%, in order to alert the company and its stockholders to that aggregation_102 In that case, the trial court had found that

a group with such a stockholding had been formed and had subsequently sold

the stock of its members at a premium of $12-118 per share over market. The

United States Court of Appeals for the Second Circuit agreed with the Commission and the trial court that a group may exist even though its members

are not committed to acquisition, holding, or disposition of the securities on

specific terms. Instead, the members must simply combine to further a common objective. The court also held that members of the group need not have

voting control over the securities; power to dispose of the securities can also

establish beneficial ownership. (After the close of the fiscal year, a petition for

certiorari was filed with the Supreme Court seeking review of the Second Circuit decision.)

The vitality of the Commission's enforcement program can be undermined

if persons subject to injunctions against violating provisions of the Federal

securities laws have these court orders vacated. Last year, in a case pending

in the court of appeals, the Commission urged that a defendant who has consented to an injunctive decree is not entitled to be relieved from his bargain

unless circumstances unforeseen at the time of the original decree cause him

grievous harm. 103

Utigation Concerning Commission Orders-In fiscal 1982,21 caseswere resolved involving judicial review by personsaggrieved by various Commission orders

including disciplinary actions by the Commission, and Commission orders on

reviewof such action by national securities exchangesand the National Association of Securities Dealers, Inc. Resolution was not favorable to the Commission in only three cases.Like injunctive actions, these administrative cases frequently involve issues central to the Commission's enforcement program and

thus to the integrity of the securities markets. In addition, critical regulatory

issues, such as the breadth of the Commission's jurisdiction, frequently arise.

For example, in a case that at year end was pending before the Supreme

Court, the Commission obtained a favorable ruling from the United StatesCourt

of Appeals for the District of Columbia Circuit concerning the purchase or sale

of securities while in possessionof material, non-public information. 104 The court

affirmed the Commission's censure of a securities analyst for selectively releasing material inside information concerning widespread fraud within a publicly

traded corporation to institutional investors.The institutional investorsthen sold

over $17 million of the company's securities, which became worthless soon

after the fraud was publicly exposed. The Commission had determined that

corporate insiders must either disclose or abstain from trading in the securities

of their corporation on the basis of material inside information and that tippeeswho receive that type of information from insiders assume a similar duty.

In the regulatory area, the allocation of jurisdiction between the Commission and the Commodity Futures Trading Commission (CFTC) was also the

subject of litigation. lOS In addition, this case presented the question of whether

41
options on Government National Mortgage Association securities (GNMA options) are securities. The United States Court of Appeals for the Seventh Circuit

overturned a Commission order approving trading in GNMA options, holding

that the options are not securities under the Federal securities laws. The Court

also held that GNMA options are subject to the exclusive jurisdiction of the

CFTC. In this and a companion case,the Commission sought Supreme Court review of the court of appeals'decision. In the petition, the Commission argued that

the court's analysis threatened to undermine seriously the ability of the Commission to fulfill its statutory responsibilities to regulate the options markets.

(Shortly after the close of the fiscal year, legislation was enacted to clarify

that options on securities are separate securities and that the Commission has

authority to regulate such options. The Commission thereafter approved certain options trading on two exchanges,which was challenged again in the court

of appeals. Following the legislation, the Supreme Court directed the court of

appeals to vacate its earlier decision as moot. The court of appeals also dismissed as moot the challenge to the Commission's later orders approving certain

options trading.)

Commission Participation in Private Utigation- The Commission also furthers

its goals of investor protection and maintenance of fair and orderly markets

through its participation as a friend of the court in litigation between private

parties. Since the Federal securities laws provide for both government and pnvate enforcement, decisions in private actions construing provisions of the Federal securities laws could have an adverse precedential effect on the Commission's own administration and enforcement of the law. In addition, private actions provide a necessary supplement to the Commission's enforcement program, enabling individual litigants to recoup investor losses.During fiscal 1982,

determinations were reached in 19 casesin which the Commission participated

as a friend of the court, of which five were not in accord with the views expressed by the Commission.

As with Commission enforcement litigation, the range of issues presented

by these cases is far-reaching. Certain issues, such as the scope of the term

"security," on which the Commission's jurisdiction depends, arise in enforcement cases as well as private litigation. In 1982 the Commission participated

in several private actions to take the position that the transfer of a controlling

stock interest, or a 100% stock interest, in a business constitutes the sale of

a security. 106 In these cases the Commission argued that the application of the

Federal securities laws should not depend on whether the purchaser of stock

buys a small interest, a controlling interest or all of the stock of a corporation.

Moreover, the Commission urged that a standard which permits such distinctions would deny persons who relied on the coverage of the securities laws the

protections of those laws.

Significantly, the Supreme Court decided a case in which the Commission

submitted a brief in conjunction with the Federal bank regulatory agencies,

urging that a certificate of deposit issued by a federally-regulated and insured

bank is not a security subject to the antifraud provisions of the Federal securities

42
laws."? The Supreme Court agreed with the government's position, pointing out

that there are important differences between a certificate of deposit issued by

a bank which is subject to comprehensive Federal banking regulations, and

other long-term debt obligations. The Supreme Court held that it is unnecessary

to subject banks issuing certificates of deposit to liability under the antifraud

provisions of the Federal securities laws since there is abundant protection for

the holders of bank certificates of deposit under the Federal banking laws. Consistent with the Commission's position, the Supreme Court limited its decision

to the applicability of the antifraud provisions to the issuance of certificates

of deposit by banks that are federally regulated.

An important and recurrent issue peculiar to private litigation-under what

circumstances injured parties can sue under the Federal securities laws to obtain redress for violations-was recently raised in a case now pending before

the Supreme Court. In this case, the Supreme Court granted review to consider whether Section 11 of the Securities Act, which expressly provides a

damage remedy for misrepresentations in registration statements filed under

that Act, precludes defrauded purchasers of registered securities from maintaining an action under the antifraud provisions of Exchange Act Section 100b)

and Rule lOb-5.108 In the Supreme Court, the Commission has urged that a

holding precluding the Section 100b)remedy would create serious gaps in investor protection. Similarly, the Commission has participated in several private

cases to urge that shareholders and their companies can bring suit for injunctive and other equitable relief to enforce Section 13(d) of the Exchange Act,

which protects shareholders by giving them information concerning persons

in a position to effect possible changes in corporate control. 109

This year the Supreme Court also provided a final resolution for many issues

that the lower courts have faced in deciding the constitutionality of state takeover

laws.110 The Supreme Court ruled, as urged by the Commission, that the provisions of the Illinois law at issue, which delay tender offers and give local officials the right to pass upon the merits of such offers, impose burdens on interstate commerce which outweigh legitimate local benefits, and thus violate

the Commerce Clause of the United States Constitution. In reaching this result,

the Supreme Court stated that a state has no interest in protecting non-resident

shareholders.

Actions InvolVingRequests for Access to Commission Ales-In 1982 the Commission experienced a substantial increase in administrative Freedom of Information Actll1 and confidential treatment appeals (161 FOIA appeals and 18

confidential treatment appeals). The majority of the FOIA appeals were for access to Commission files relating to ongoing investigations; the majority of the

confidential treatment appeals were for documents containinq confidential

business information or trade secrets within the scope of FOIA Exemption 4112

and/or the Trade Secrets Act.'!" To expedite the processing of its burgeon.

ing case load, the Commission amended its FOIA appeal rules (17 C.F.R.200.80

et seq.)and its confidential treatment rules (17 C.F.R.200.83 et seq.)to delegate

authority to the General Counsel to decide these appeals,

43
In deciding each of these cases,the Office carefully considered the requestor's,

as well as the submitter's, arguments as to the disclosability of information, so

as to balance the right of the requestor to have access to information in the

Commission's possession, against the legitimate concems of the submitters to

maintain the confidentiality of non-public information (such as trade secrets

and privileged commercial or financial data). Despite the fact that 179 requests

were processed in fiscal 1982, only 13 resulted in the filing of lawsuits against

the Commission. And, in each of the lawsuits resolved to date, the Commission's decision has been sustained by the reviewing court.

Right to Financiel Privacy Act-The Right to Financial Privacy Act (RFPA)

114 requires the Commission, when it issues a subpoena to a "financial institution" seeking records maintained there by a "customer," to provide simultaneous

notice of the subpoena to the customer. 115 The Act, which is designed to protect the legitimate privacy interests of bank customers, allows a customer, upon

receipt of notice, to challenge the subpoena by filing a motion for that purpose in Federal court. 116 If a customer can demonstrate to the district court

that the subpoena seeks information that is irrelevant to the Commission's investigation, or the Commission's investigation is not legitimate, the court may

quash the subpoena.

During fiscal 1982 the Commission issued 142 subpoenas subject to the

RFPA customer challenge provisions. Fewer than 20 of these subpoenas resulted

in customer challenge proceedings. And, in each case, the district court dismissed the customer's challenge and enforced the Commission's subpoena, finding

that the Commission was properly seeking the subpoenaed records.

Actions Against the Commission and its Sta/f- The Office of General Counsel

also defended the Commission and members of its staff in at least ten lawsuits

in which plaintiffs sought to enjoin Commission law enforcement proceedings

and/or damages against Commission employees conducting those proceedings.

In all but one of these actions resolved in fiscal 1982, the Office of General

Counsel obtained favorable decisions.

Significant Legislation and Regulatory Reform

Financial Seniices Industry- Task Force and Glass.Steagall Legislation- The

emergence of new products offered by mutual funds, banks, savings and loans,

and insurance companies has led to blurring of the lines that traditionally

separated the financial services industries. In order to deal with the resulting

wasteful, duplicative, and inconsistent regulation by a variety of government

agencies, the Commission proposed formation of a one-year bipartisan task

force to review the regulatory structure of the securities, banking, saving and

loan, and insurance industries. The task force would consider the regulation

of financial markets and services by function rather than outmoded industry

classifications, and would consider consolidating the functions of the various

regulatory bodies to achieve administrative savings and greater efficiency. (After

the close of the fiscal year, such a Task Force was established, chaired by Vice

President Bush.)

44
The Commission also supported proposed amendments to the Glass-Steaqall

Act to permit banks to underwrite and deal in municipal revenue bonds and

sponsor and distribute mutual funds, if those activities are carried out by

separate subsidiaries fully subject to the Federal securities laws.

Foreign Corrupt Practices Act-The Commission supported amendments duro

ing 1982 that would amend and clarify the accounting provisions of the Foreign

Corrupt PracticesAct of 1977 (FCPA) in order to reduce uncertainty and compliance burdens. The accounting provisions require that issuersmake and keep

accurate books and records and devise and maintain systems of internal accounting controls which provide reasonable assurancesthat certain statutory

objectives are met. These provisions are intended to assure that issuers have

reliable information with which to prepare financial statements and other

disclosure documents.

The Commission also has responsibility for civil enforcement of the anti.

bribery provisions of the FCPA. These prohibit the corrupt use of payments

or gifts to officials of foreign governments and certain other persons in order

to obtain or retain business.In testimony submitted to the Congress,the Commission stated that it did not object to proposals that enforcement of the antibribery provisions of the FCPA be consolidated in the Department of Justice.

Sanctions on Insider Trading-In September 1982, the Commission propos.

ed legislation to Congress to amend the Exchange Act to add new sanctions

for illegal insider trading. Despite vigorous enforcement efforts, insider trading

violations, which undermine public confidence in the fairness of the securities

markets, apparently continue becauseof the opportunity to reap large profits

with little risk.

To deter illegal trading, the Commission proposes to impose greater risk

on insiders. The proposed legislation would authorize the Commission to seek

a court order requiring any person who violates the Exchange Act by purchasing or selling securities while in possessionof material nonpublic information

to pay, in addition to disgorging the profit made, up to three times the profit

gained (or loss avoided) as a result of the unlawful transaction. The penalty

would be payable into the United States Treasury. It would also increase the

current maximum fine of $10,000 for a criminal violation of the Exchange Act

to $100,000, which would affect, in addition to insider trading, most criminal

violations of the Exchange Act. The current $10,000 fine was established when

the Act was passed in 1934. The Commission believes that the deterrent effect

of the fine has been significantly diminished because of inflation. The larger

fine would restore and enhance the deterrent effect of the criminal provisions

of the Exchange Act.

Meetings With Outside Groups-During the year, the Commission completed

preparation for a Major IssuesConference, designed to bring together heads

of other Federal and state regulatory agencies and chairmen and presidents

of leading financial institutions and exchangesto explore the major issuescon.

fronting the nation's financial institutions and markets in the 1980's.(This con.

ference was held on October 6-8, 1982, attended by nearly 550 leading officials

45
of the financial, corporate, legal, accounting, and government regulatory communities, at which significant problems were identified and possible solutions

were suggested.)

The Commission also scheduled meetings, to reduce regulatory conflicts and

overlaps and to develop a more cooperative, coordinated approach regarding

matters of mutual interest, with the Federal Reserve Board, Federal Deposit

Insurance Corporation, Comptroller of the Currency, Federal Home Loan Bank

Board, and the Commodity Futures Trading Commission. In addition, meetings

were scheduled with the executive staffs of several exchanges and the National

Association of Securities Dealers, Inc., to obtain a better appreciation of problems confronting the self-regulatory organizations and suggestions for improvements in the Commission's regulatory programs. (These meetings were

conducted after the close of the fiscal year. Similar meetings will be scheduled

with Congressional staffs and associations that represent investors, industry,

and the legal and accounting professions.)

46
Public Utility Holding Companies

Composition

Under the Public Utility Holding Company Act of 1935 (Holding Company

Act), the Commission regulates interstate public utility holding company

systems engaged in the electric utility business or in the retail distribution of

gas. The Commission's jurisdiction also covers the natural gas pipeline companies and nonutility companies within a registered holding company system.

There are presently 13 registered holding companies with aggregate assets,

as of June 30, 1982, of $62.9 billion. Total holding company system assets

increased $5.9 billion in the 12-month period ended June 30, 1982. Total

operating revenues, as of June 30, 1982, were $30 billion, a $3.5 billion increase over the previous year. In the 13 systems, there are 67 electric and/or

gas utility subsidiaries, 62 nonutility subsidiaries and 19 inactive companies,

for a total of 161 system companies, including the parent companies but excluding 7 power supply company subsidiaries. Table 34 in the Appendix lists

the systems and Table 35 lists their aggregate assetsand operating revenues.

Proposed Repeal

Eight bills proposing modifications to or repeal of the Holding Company Act

were introduced in the 97th Congress. The Commission determined that, if

enacted,the industry-sponsored bills to amend the Holding Company Act would

leave it with insufficient authority to properly administer the Act. Instead, the

Commission voted to support the repeal of the Act stating that the Act was,

in fact, no longer necessary to fulfill its original purposes.

The Holding Company Act was originally designed to effect a restructuring

of the gas and electric utility industry and to prevent recurrence of the abuses

caused by multi-tiered utility holding companies. The Commission has achieved these purposes and most of the industry has been geographically integrated

and simplified. Developments since 1935 in the form of new accounting standards, sophisticated financial analysis, increased disclosure requirements and

other Federal securities laws and more effective state regulation all ensure the

soundness of the utility industry and the protection of utility consumers and

investors.

Financing

During fiscal year 1982, approximately $3.3 billion of senior securities and

common stock fmancing of the 13 registered systems was approved by the

Commission. Of this amount, approximately $2.5 billion was long-term debt

financing, and over $800 million was for equity financing. The Commission ap47
proved $4.4 billion of short-term debt financing and $292 million of pollution

control financing for the registered holding company systems. The short-term

debt amounted to approximately 38% less than the $7.1 billion authorized in

fiscal year 1981. Table 36 in the Appendix presents the amount and types of

securities issued by the holding company systems under the Holding Company

Act.

Nonutility Subsidiary Matters

In National Fuel Gas Company, 117 and Consolidated Natural Gas Compenu.v?

both registered holding companies, the Commission authorized the acquisition of the outstanding common stock of newly organized nonutility subsidiaries,

Enerop Corporation and CNG Energy Company, respectively. In each case the

proceeds of the sale would be applied, at least in part, toward the marketing,

installation, servicing and financing of fuel conversion equipment to adapt

gasoline powered motor vehicles used in short-haul fleets to use compressed

natural gas or gasoline.

In New England Electric System, Commission authorization was granted

to permit: (1) New England Energy, Inc. (NEEI), a subsidiary of New England

Electric System (NEES), a registered holding company, to enter into a joint

venture with Keystone Shipping Company to build, own or lease, and operate

a self-loading, coal-fired collier; (2) NEES to advance to NEEI, and NEEI to

provide to the joint venture, funds for initial capital and for construction of the

collier; and (3) NEES to make certain guarantees in connection with these

trensactlons.!'? By an Opinion and Order dated December 9, 1981,120New

England Power Company, another subsidiary of NEES, was authorized to

charter the vessel from the joint venture for a term of 24-112 years.

In American Electric Power Company, the Commission authorized the

American Electric Power Co., Inc., to acquire the capital stock of, and make

capital contributions to, a new consulting subsidiary, AEP Energy Services,

Inc.121 The principal function of the new subsidiary is the competitive marketing of management, technical and training services to non-affiliated entities. Business operations will be managed by a limited, permanent staff complemented by personnel and resources from the American Electric Power Service Corporation (AEP Service), temporarily assigned for particular consulting

projects on a full-cost reimbursement basis under applicable rules under the

Holding Company Act. 122 It is intended that expertise in the utility business,

developed over the years for intemal needs, be channeled to the open market

in order to create new sourcesof revenueand profit for the parent holding company and to spread fixed labor costs of AEP Service over a broader base, permitting the retention of skilled personnel during off-peak operating periods.

Fuel Programs and Service Companies

During fiscal year 1982, the Commission authorized over $1.5 billion for fuel

exploration and development activities of the holding company systems. This

48
represents a 50% increase over fiscal year 1981 fuel expenditures. Table 38

in the Appendix lists the authorization by holding company system for each

fuel program.

Largely as a result of radical changes in cost and availability of fuel, utilities

have embarked on major programs to acquire control over part of their fuel

supply. Generally, the arrangements involve the formation of subsidiaries or

entry into joint ventures for the production, transportation and financing of fuel

supplies or the supply of capital for the exploration and development of reserves

with a right to share in any discovered reserves.Since 1971, the Commission

has authorized expenditures of over $5.7 billion for fuel programs of holding

companies subject to the Holding Company Act.

At the end of calendar year 1981, there were 12 subsidiary servicecompanies

providing managerial, accounting, administrative and engineering service to

11 of the 13 holding companies registered under the Holding Company Act.

The billings for services rendered to the holding company systems amounted

to $730.4 million or 2.59% of the total revenues generated by the electric and

gas operating utilities. The subsidiary service companies are heavily laborintensive, employing over 14,000 people, and have assetsof over $352 million.

Table 37 in the Appendix lists the subsidiary service companies with billings,

total assets,total personnel, and number of operating utility companies served.

49

Corporate Reorganizations

Reorganization proceedings in the United States Courts are commenced by

a debtor or by its creditors. Federal bankruptcy law allows a debtor in reorganization to continue to operate under the court's protection while it attempts to

rehabilitate its business and work out a plan to pay its debts. Where a debtor

corporation has publicly held securities outstanding, such cases raise many

issues that materially affect the rights of public investors. The issuanceof new

securities to creditors and shareholders pursuant to a plan are exempt from

registration under the Securities Act. The Commission enters its appearance

and participates in corporate reorganization proceedings to protect the interests

of public investors holding the debtor's securities and to render independent,

expert assistanceto the courts and parties in a complex area of law and finance.

Chapter 11 of the Bankruptcy Code authorizes the Commission to enter its

appearance in any reorganization case and to raise, or present its views on,

any issue in a Chapter 11 case. Although Chapter 11 applies to all types of

business reorganizations, the Commission, in its 40 years of participation in

reorganization cases, has generally limited its participation to those in which

a substantial public investor interest was involved.

During the past fiscal year, 76 debtors with publicly issuedsecurities outstanding entered Chapter 11 reorganization proceedings. The Commission entered

its appearance in 28 of these cases,with aggregate assets of $8.8 billion and

close to 290,000 public investors, compared to 18 caseswith $2.5 billion and

130,000 investors in 1981. A list of these proceedings is set forth in Table 40

in the Appendix to this Report. In these cases the Commission presented its

views, in court and to other participants, on a variety of issues, including: (1)

the need for appointment of additional committees to represent equity security holders; (2) issues concerning the debtor's operations and sales of assets;

(3) the need for appointment of a trustee or examiner to conduct an investigation into the debtor's affairs; (4) questions concerning the status and rights of

the securities held by public investors, the classification of their claims, and

proposed treatment in reorganization plans; (5) the adequacy of disclosure

statements required to be transmitted to creditors and investorswhen their votes

on a plan are being solicited; (6)the reasonablenessof fees sought by counsel

and other professionals; and (7) interpretive questions concerning the securities

laws and the Bankruptcy Code.

The Commission has been concerned to insure that public investors are adequately represented in Chapter 11 cases,especially since a plan of reorganization is developed through negotiations between the debtor and committees.

During the fiscal year, the Commission moved or supported the appointment

of investor committees in eight Chapter 11 cases involving about 70,000 in51
vestors. Committees were appointed in all casesexcept one which commenced a liquidation of its assets. In two of these cases, plans filed by the debtor

in possession,after negotiations with the committees, accorded public investors

a significant interest in the reorganized company.

The Commission has also moved for the appointment of a trustee in one

case and an examiner in three cases. In two cases the examiner's preliminary

report indicated a high probability of the existence of causes of action against

former officers, directors and possibly accountants. In two other cases, examiners, appointed in the previous year, have filed reports recommending

(1) the pursuit of causes against former officers, counsel, and others and (2)

subordination of certain senior bank creditor claims, respectively.

During the past year, the Commission has reviewed applications for interim

allowancesfiled by professionalsin all participating Chapter 11 cases.As a result

of the Commission's efforts, courts have adhered to the long-standing policy

of paying only a portion of interim allowances, generally limiting the award

to about 75% of the request. Fees payable in a large Chapter 11 case can be

substantial. For example, in White Motor Corp., for a two year period official

participants in the case requested interim allowances of over $12.6 million but

were paid about $9 million. Also, in Braniff International, interim fee requests

for a five month period totaled about $2.7 million with the court awarding about

$1.3 million. And in ltel Corporation, the court paid the full amount requested

of $6.5 million during the first six months of the case but thereafter reduced

the amount paid to 75% of amounts requested, which continue at about $10

million per year.

52
Administration, Support and

Analytical Services

Key Management and Program Developments

During fiscal 1982, the Commission stressed its commitment to maximize

the use of available resources.To this end, the Office ofthe Executive Director

gave technical assistancethat strengthened the Commission's internal management. Significant was the relocation and consolidation of the Commission's

headquarters staff into a single location at Judiciary Plaza. The move closed

a decade of duplicative facilities and services at Commission offices dispersed

at three locations, enhancing productivity an estimated 7% and averting over

$400,000 in costs associated with maintaining three buildings.

Assistance was also provided to shift dissemination of Commission findings

to the private sector, saving more than $300,000 annually. The Commission's

Docket, News Digest and Compilation of Decisions and Reports are now internally produced for use by the Commission's staff and is distributed externally

at no added cost to the public through private contractors.

Technical assistance was also provided to: (1) the Directorate of Economic

and Policy Analysis to increase the utility of their study reports to the Commission, increasethe efficiency of maintaining an economic data baseand provide for an Office of the Chief Economist; (2)the Office of the General Counsel

to improve available management information; (3) the Division of Enforcement to refine the Commission's CaseTracking System; (4) the Commission's

Public Reference Room to improve the delivery of information to the public;

and (5) other Federal agencies including the Central Intelligence Agency, the

Department of Health and Human Services, the Department of Justice, and

the Equal Employment Opportunity Commission on various management

topics.

The Commission continues to maintain an experienced, highly motivated

corps of senior executives. In 1982, the President honored the Commission by

awarding three of its top executiveswith coveted Senior Executive Service rank

awards. Theodore H. Levine and David P. Doherty, both Associate Directors

in the Division of Enforcement, were awardedthe rank of Meritorious Executive.

William D. Goldsberry, Administrator of the Chicago Regional Office, was one

of the few Federal managers designated the rank of Distinguished Executive,

the highest award given to Federal employees.

Inter-American Conference

The Commission hosted the Seventh Annual Inter-American Conference of

Securities Commissions and Similar Organizations in May of this year.The Inter53
American Conference provides an opportunity for delegations of securities

regulators from throughout the world to exchange views and expepriences on

topics of common interest concerning the development, promotion, expansion,

and appropriate regulation of their national securities markets. The Conference

was attended by representatives of 30 member and observer nations and 10

self-regulatory and international financial organizations. The Conference theme

was "Improving Capital Markets Through Cooperation and Competition." The

major topics addressed were: (1) the organization and structure of securities

markets as a means of improving capital markets; (2) competition and cooperation between government and private enterprise with respect to investor savings; and (3) the role of foreign issuers and foreign investors in domestic capital

markets.

Information Systems Management

Data processing capabilities were extended to several new areas in 1982.

Some regional offices are using two new information systems. A prototyipe

customer accounts system uses microcomputers for financial analysis of brokerdealer customer accounts. An on-line system on the Commission's headquarters

mainframe computer provides the regions instant current and historical price

data from major stock exchanges. Other new systems implemented this year

allow the Commission to monitor and control filing fee records; allocate basic

automatic data processing (ADP) costs; monitor various regulated entities;

queueing the General Counsel's legal briefs by topic; and audit Commission

long-distance telephone calls.

Existing information systems were also extensively modified. The on-line personnel management system was expanded to incorporate additional data

elements required by the Office of Personnel Management and improve analysis

of personnel data. The filings tracking system was expanded to a fully integrated

on-line system to control all corporate filings and analyze new securities registration offering statistics. Finally, the complaint processing system was converted

to on-line to improve tracking of investor complaints.

The Office of Information Systems Management reorganized during 1982

to improve responsiveness to the Commission's ADP workload. Two new entities were created. The first serves as a focal point for the development of ADP

policy and standards, the oversight of the Commission's on-going ADP security program, the establishment of data administration functions, and the

organization of the Commission's microcomputer resource facility. The second

entity is responsible for systems development and securities market oversight

and surveillance activities.

In 1982, the Commission's computer hardward configuration was enhanced. A second processing unit was installed and internal memory capabilities

of both central processing units and data storage devices for on-lone systems

were upgraded. A switching unit was installed to allow operation of the

teleprocessing system when the primary processor becomes inoperable. The

54
Commission acquired 12 additional microcomputers in furtherance of the next

phase of the regional office microcomputer support project. The Commission's

ADP facility in the new building contains the latest in security, environmental,

and electrical controls and provides space and layout flexibility for current and

future operations, a marked improvement over the previous facility.

Extensive efforts were undertaken to review and evaluate ADP services,

eliminate nonessential services and, where possible, consolidate requirements.

These efforts resulted in a cost avoidance of over $600,000. Reliance upon the

industry to develop the market oversight surveillance system generated an additional cost avoidance of over $1 million.

Financial Management

In fiscal 1982 the Commission collected $78.2 million in fees for deposit

into the General Fund of the Treasury. This represented 94 % of the Commission's appropriated funds, as compared with 81 % in 1981.

Fees were collected from four major sources: (1) registrations under the

Securities Act of 1933, provided for 68%; (2) transactions on securities exchanges provided 24%; (3) other filing and report fees made provided 7%; and

(4) registration of SEC regulated broker/dealers provided 1%.

The rise in 1982 revenues resulted principally from the growth in money

market funds.

The Office of the Comptroller continued to implement an automated integrated financial management system. The cash management system was expanded to track accounts receivable. It automatically generates payment requests and follow up letters. By producing faster payments, it is estimated that

the system will save the government over $6,000 annually in interest earned

which would otherwise be lost.

Recordkeeping of commercial long-distance telephone calls by individual

organizations was expanded to include Federal Telephone System calls in 1982.

The General Services Administration (GSA) provides the Commission with a

20% sample of all calls made for internal management review. During the year,

approximately $70,000 was saved in long-distance telephone charges.

Initiatives were begun to improve resource utilization, including the selection of a budget formulation package to track expenditures by cost categories.

Data transcription has been converted to terminal entry for certain payroll actions, reducing errors. The Commission took part in a no-cost travel agent project designed to purchase tickets at the lowest rate available.

Internal Audit

The internal audit function was transferred to the Office of the Executive

Director in 1982 with reporting responsibilities both to the Chairman and the

Executive Director. During the year, intemal audit examined the agency's payroll

system, helped develop an on-line payroll system, and began to implement OMB

Circular A-123, requiring vulnerability assessments and internal control reviews.

Follow-up studies of cash management and imprest fund audits were completed.

55
Personnel Management

During 1982, the Commission sustained a 5% reduction in its staffing level.

Although attrition enabled the Commission to meet its personnel reductions,

during 1982 plans were made to implement reductions-in-force (RIF).Procedures

developed made extensive use of ADP to rank employees in order of release.

This was the first full year of operation for the new performance appraisal

system developed under the Civil Service Reform Act. All employees were

evaluated using performance standards and critical elements tailored to their

specific positions. These appraisals are being used in decisions involving training, reassignments, promotions, and awards.

The merit pay program was implemented on schedule with a fixed pool of

money to pay for salary increases, with larger increases paid for superior

performances.

A number of other initiatives were taken to enhance productivity and the

reputation of the Commission as a progressive employer:

A retirement planning seminar was conducted utilizing speakers from the

Office of Personnel Management, the Social Security Administration, organizations of retired persons, and retired members of the Commission's staff. This

widely praised seminar is to become an annual event.

A conference was held to brief management on policies and trends in personnel, fiscal data processing, and procurement management.

Despite curtailed hiring, the Commission continued its lawyer recruitment,

maintaining contact with law schools to keep the prospect of SEC employment

before law graduates.

The SEC aggressively pursued affirmative action for handicapped persons

and undertook development of a disabled veterans program. The Commission's

new building is being equipped with stainless steel braille directional signs and

teletypwriter (TTY) telephones. The handicapped persons placement coordinator

is often asked to address new coordinators in other agencies regarding the

development and implementation of affirmative action programs, an indication of the respect the Commission enjoys in this area.

Facilities Management

The Commission moved into a consolidated headquarters building in 1982.

Furniture and equipment were moved, after prior planning, during June, July

and August weekends to minimize disruption. Consolidating Commission activities within one building eliminated the inconvenience of three previous locations and improved employee productivity by eliminating 15,000 trips between

buildings at a cost of over $60,000 per annum.

Nationwide use of common carrier service in lieu of the mails was begun

in 1982, resulting in guaranteed overnight delivery and annual savings of

$40,000. Obsolete facsimile equipment was replaced with telecopiers that will

improve transmission quality and speed.

Efforts to reduce or eliminate all but essential periodicals, and halt the prin56

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ting and mailing of releases, and discontinuing the printing and typeset of the

SEC Docket resulted in a cost savings of over $1 million.

Subsidized parking in the Washington, D.C. and the Fort Worth offices was

eliminated for an annual savings of $55,000. The Commission exceeded its

Small Business Administration goal of 20% for awarding Federal contract

dollars to small and disadvantaged businesses.

To facilitate the acquisition of new field office space, a computerized system

was developed to monitor lease expiration dates.

Equal Employment Opportunity

The Equal Employment Opportunity Office completed an affirmative action

plan for minorities and women for 1982-1986, under guidance issued by the

Equal Employment Opportunity Commission. Black women in the agency

workforce increased 9% to 331 in 1982. Approximately 325 employees of

various regional offices completed a four-hour course on sexual harassment

prevention during 1982.

Annual observations were conducted for Hispanic Heritage Week, Asian and

Pacific American Heritage Week, Afro-American History Month, National

Secretaries Week, and Women's Week. Committees on the Federal Women's

Program and Hispanic Employment Program were also active during the year.

For the fourth year, the SEC-Securities Industry Committee on Equal Employment Opportunity sponsored achievement scholarships for minority students.

This program offers scholarships to an outstanding minority students seeking

a business career. The committee has donated more than $35,000 in

scholarships.

Public Affairs

The principal source of information on Commission actions is the Office of

Public Affairs. In fiscal 1982, the office processed 98,000 telephone inquiries,

responded to 1,100 written inquiries, and issued 64 press releases, as compared

with 92,000, 1,000 and 70 respectively in 1981.

The program assures cost-effective dissemination of news about Commission actions to millions of investors and thousands of corporations, brokerdealers, attorneys, accountants and others.

During 1982, 247 individuals from foreign and domestic regulatory agency

staffs, industry members and student groups visited the Commission to learn

about securities issues.

Additional published and audiovisual information on the Commission is produced by Public Affairs. "What Every Investor Should Know, A Handbook from

the SEC", a comprehensive new brochure, was published in 1982 and distributed

to the public throughout the U.S. by the Consumer Information Center,

Pueblo, Colorado. "Eagle on the Street", a 22-minute show dealing with the

SEC and the securities markets, is being rented and sold by the National

AudioVisual Center in 16mm and videotape versions.

57
Consumer Affairs and Information Services

The Commission's move into its new headquarters building provided important additional space for the public reference room. The conversion of public

records from paper to microfiche is almost complete; the records now contain

over one million microfiche, all accessable within minutes. During fiscal 1982,

public reference room inquiries decreased 15% to 140,000. These included

14,000 publication and 72,000 telephone requests.

Consumer complaints declined 19% to 17,000. Of these, 7,300 concerned

operation problems of registered broker-dealers, such as failure to deliver

securities or funds, or errors in account records; and 6,000 concerned issuers,

transfer agents, banks, mutual funds and investment advisers.

Finally, Consumer Affairs processed 1,536 Freedom of Information Act and

54 Privacy Act requests, as compared with 1,622 and 66 in 1981.

Economic and Policy Analysis

The goal of the Commission's economic and policy analysis program is to

provide the operating divisions with an objective economic perspective and the

related technical support to understand and evaluate the economic dimensions of the agency's regulatory oversight. This program is carried out by the

Directorate of Economic and Policy Analysis and the Office of the Chief

Economist. The Office of the Chief Economist was established during the fiscal

year to enhance the Commission's long range policy overview, to draw increased

attention to the fundamental economic issues raised by the agency's regulatory

actions and to coordinate liaison on such issues with Congress, other government agencies and the academic community.

The economic staff meets regularly with the operating divisions to determine

which regulatory issues or programs are suitable for economic analysis and

plans for the collection of data needed for policy deliberations of program administration. The Directorate also reviews rule proposals before they are submitted to the Commission for consideration. In particular, the Directorate seeks

to assess the effects which proposed rules would have, if adopted, on competition within the securities industry and among competing securities markets,

as required by Section 23 of the Exchange Act, and on small businesses, as

required by the Regulatory Flexibility Act and the Small Business Investment

Incentive Act. Where appropriate, the Directorate also identifies more costeffective means of accomplishing the regulatory objective under review.

When issues are particularly significant and effects uncertain, the Directorate

may develop and implement a program to monitor the proposed rule after its

adoption. Alternatively, the Directorate or Chief Economist may recommend

that the Commission not adopt or modify a rule because the expected costs

exceed the perceived benefits.

In the past fiscal year the Commission made special efforts to coordinate

activities of its various operating divisions in order to identify adverse economic

consequences at an earlier stage in the rulemaking process. This permits per58
tinent data collection and analysis to be planned and conducted in a more

thorough and timely manner.

The following are some of the Directorate's fiscal 1982 projects:

Two analyses of Rule 15c3-1, the net capital rule.

Publication of the annual "Staff Report on the Securities Industry" which

provides information on the structure, performance, and condition of the

securities industry and analyzes market conditions and other factors which led

to such results;

Reports on the Intermarket Trading System and the National Securities

Trading System of the Cincinnati Stock Exchange, and the monitoring of the

operation of Exchange Act Rule 19c-3;

A joint proposal with the Division of Market Regulation that eliminated

certain schedules in the FOCUS report, filed periodically by registered brokerdealers. The elimination of these schedules will savethe securities industry $1.5

million annually without reducing investor protection.

A study which employed economic and statistical analysis to estimate

the likely effects of Rule 415;

An analysis of the cost effectiveness of Regulation 13D beneficial ownership disclosure requirements;

An investigation into the operation of the Commission's tender offer rules,

focusing initially on the rule governing the proration period for tender offers;

A study on the use of Regulation A and the effects of the increased dollar

amount of salespermitted under this exemption which became effective in 1978;

59

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Footnotes

'''Commission Recommends Enactment of Tougher Insider Trading Sanctions",

82 SEC News Digest 188 (September 29, 1982).

2"Swiss and U.S. Governments Sign Memorandum of Understanding", Press

Release No. 82.44, 82 SEC News Digest 169 (September I, 1982).

3Examples of insider trading cases include: SEC v. Charles L. Andes, et el.,

Civ. Act. No. 82-1659 (E.D. Pa.), Litigation Release No. 9649 (April 14, 1982), 25

SEC Docket 2133; SEC v. Certain Unknown Purchasers of the Common Stock of, and

CaIl Options for, the Common Stock of Santa Fe lruemsuonel Corporation, et el., Civ.

Act. No. 81-6553 (S.D.N.Y.), Litigation Release Nos. 9484, 9485 (October 26, 1981),

23 SEC Docket 1378, 1379, Litigation Release No. 9770 (September 29, 1982), 26

SEC Docket 471; SEC v. Martm W Cooper, et el., Civ. Act. No. 82-3462 (C.D. Cal.),

Litigation Release "lo. 9718 (July 15, 1982), 25 SEC Docket 1247; SEC v. Guy O.

Dove, Iff, Civ. Act. I~o. 82.1522 (D.D.C), Litigation Release No. 9685 (June 3,

1982), 25 SEC Docket 691; SEC v. J. Robert Fabregas and Stephen W Porter, CIV

Act. No. 82-3440 (C.D. Cal.), Litigation Release No. 9717 (July 14, 1982), 25 SEC

Docket 1181; and, SEC v. Gary L Mertm, Marlin Marlin, M & M Investments and

Gary L. Marlin, ltic., P'S., Civ. Act. No. C-82.381 (W.D. Wash.), Litigation Release

No. 9642 (April 7, 1982), 24 SEC Docket 1958.

"See footnote 1.

5Examples of issuer financial statement and reporting cases include: SEC v.

Data Access Systems, lnc., et el., Civ. Act. No. 81-3362 (D.N.J.), Litigation Release

No. 9487, (October 29, 1981), 23 SEC Docket 1380; SEC v. Hotel Associates of

Atlantic City, et el., Civ. Act No. 82.721 (D.N.J.), Litigation Release No. 9612,

(March II, 1982), 24 SEC Docket 1528; SEC v. Quality Care, lnc., Civ. Act. No.

82.1438 (D.D.C), Litigation Release No. 9679 (May 25, 1982),25 SEC Docket 630;

In the Matter of Southern States Petroleum Corporation, Securities Exchange Act

Release No. 18609 (March 31, 1982),24 SEC Docket 1774; SEC v. Swanton Cor.

poretion, et el., Civ. Act. No. 82-0014 (D.D.C.), Litigation Release No. 9542 (January

5, 1982),24 SEC Docket 660; SEC v. Teletrans Industries, lnc., Civ. Act. No. 81

Civil 7654 (S.D. N.Y.), Litigation Release No. 9538 (December 28, 1981), 24 SEC

Docket 595; and, SEC v. Vomado, Inc., Civ. Act. No. 81.3068 (D.D.C.), Litigation

Release No. 9531 (December 18, 1981), 24 SEC Docket 524.

6FCPA cases include: SEC v. WtIJiamR. Bundy, Civ. Act. No. IP 81-1350 (S.D.

lnd.), Litigation Release No. 9532 (December 18, 1981),24 SEC Docket 526; SEC

v. Computer Communications lnc., et el., Civ. Act. No. 81-2490 (0 D.C.), Litigation

Release No. 9472 (October19, 1981),23 SEC Docket 1305; SEC v. Data Access,

Civ. Act. No. 81.3362 (D. N.J.), Litigation Release No. 9487 (October 29, 1981), 23

SEC Docket 1380; SEC v. Right Transportation Corp., Civ. Act. No. 4-82.874 (D.

Minn.), Litigation Release No. 9736 (August 18, 1982), 25 SEC Docket 1499; SEC

v. Jack Friedland, Civ. Act. No. 82.1784 (E.D. Pa.), Litigation Release No. 9655

(April 21, 1982),25 SEC Docket 2213; In the Matter of Govemment Secunties

Management Company, lnc., Investment Advisors Act Release No. 814 (July 21,

1982), 25 SEC Docket 1244; SEC v. Hermitite Corp; Civ. Act. No. 82-1223 (D.

D.C.), Litigation Release No. 9756 (September 15, 1982), 26 SEC Docket 226; SEC

v. Saxon Industries, lnc., Civ. Act. No. 82.5992 (S.D.N.Y.), Litigation Release No.

9763 (September 27, 1982), 26 SEC Docket 465; SEC v. William E. Tate, Civ. Act.

No. H82.0175R (S.D. Miss.), Litigation Release No. 9774 (October 6, 1982), 26

61
Docket 550; and, In the Matter of Telex Corporation, Securities Exchange Act

Release No. 18694 (April 29, 1982),25 SEC Docket 275.

"Exernples of market manipulation cases include: SEC v. James T. Hinz, Civ.

Act No. 82-0401 (E. D. Wise.), Litigation Release No. 9638 (April 2, 1982), 24 SEC

Docket 1953; SEC v. GaJY V. Lewellyn and G. V. Lewellyn & Co., Civ. Act. No.

2102 (S.D.N.Y.), Litigation Release No. 9639 (April 2, 1982), 24 SEC Docket 1954,

Litigation Release No.9673 (May 14, 1982), 25 SEC Docket 576; and, In the Matter

of Wall Street West, lnc., Administrative Proceeding File No. 3.6119 (April 21,

1982).

8Examples of related party transactions include: SEC v. Frederix P. DeVeau, et

el., Civ. Act No. SA82 (W.D. Texas), Litigation Release No. 9682 (June !, 1982), 25

SEC Docket 688, Litigation Release No. 9754 (September 10, 1982), 26 SEC

Docket 224; and, SEC v. W.s.c. Group, lric., et sl., Civ. Act. No. H-81-2844 (S.D.

Texas), Litigation Release No. 9508 (November 9, 1981), 23 SEC Docket 1637.

9Examples of securities distribution violations cases include: SEC v. Brady

Energy Corporation, et el., Civ. Act. No. 82-1910 (D.D.C), Litigation Release No.

9715 (July 12, 1982),25 SEC Docket 1176, and Litigation Release No. 9742

(August 27, 1982), 26 SEC Docket 75; SEC v. James L. Douglas a/k/a James L.

Cooper, Civ. Act. No. C82.29 (N.D. Ohio), Litigation Release No. 9589 (February

19, 1982), 24 SEC Docket 1184; SEC v. Row General lnc., Civ. Act. No. 82-1344

(D.D.C), Litigation Release No. 9674 (May 17, 1982),25 SEC Docket 578; SEC v.

Future American Petroleum, lnc., et el., Civ. Act. No. F81-0245 (N.D. Ind.), Litigation

Release No. 9496 (November 16, 1981),23 SEC Docket 1626; and, SEC v. Daniel

H. Uoyd, et el., Civ. Act. No. 82-824W (W.O. Okla.), Litigation Release No. 9696

{June 17, 1982),25 SEC Docket 1629.

lOInthe Matter of Adelity Fmandal Corporation and Adehty Savings and Loan

Association, Securities Exchange Act Release No. 18927 (July 30, 1982), 25 SEC

Docket 1299.

llExamples of changes in corporate control cases include: SEC v. Severyn

Ashkenazy, Civ. Act. No. 82-1799 (CD. CaL), Litigation Release No. 9645 (April 13,

1982), 25 SEC Docket 2129; SEC v. Bayswater Realty & Capital Corporation, et el.,

Civ. Act. No. 81-3203 (D.D.C), Litigation Release No. 9540 (December 30, 1981),

24 SEC Docket 597; SEC v. Grumman Corporation, Civ. Act. No. 81-3685

(E.D.N.Y.), Litigation Release No. 9493 (November 9, 1981), 23 SEC Docket 1550;

and, In the Matter of Paine Webber Jackson & Curtis, lnc., Securities Exchange Act

Release No. 18318 (December 9, 1981),24 SEC Docket 26l.

l2Exampies of broker-dealer violation cases include: In the Matter of Bache

Halsey Sauut Shields, lnc., et el., Securities Exchange Act Release No. 19003

(August 24, 1982), 25 SEC Docket 1527; SEC v. Larry D. Blavin, Civ. Act. No.

81-74281 (E.D. Mich.), Litigation Release No. 9506 (November 18, 1981), 23 SEC

Docket 1635; SEC v. Diversified Securities, lnc., Robert J. Conway, Joseph W. Conway, Calvin Blakely and Paul Benes, Civ. Act. No. 82-1204 (CD. CaL), Litigation

Release No. 9631, (March 25, 1982); 24 SEC Docket 1749; SEC v. Firs; Interregional

Eqwty Corp., Civ. Act. No. 82-1995 (D.N.J.), Litigation Release No. 9702 (June 23,

1982), 25 SEC Docket 960; SEC v. Halpert, Oberst & Co., Alan P. Halpert. litigation Release No. 9559 (January 22, 1982), 24 SEC Docket 926; SEC v. J.B.

Hanauer & Co., Civ. Act. No. 82-407 (D. N.J.), Litigation Release No. 9582 (February

11, 1982),24 SEC Docket 1079; SEC v. Joseph Glenski, Civ. Act. No. 81-3184

(D.N.J.) Litigation Re!ease No. 9478 (October 21, 1981) 23 SEC Docket 1308; SEC

v. Kneger Wunderlich & Company, Andrew B. Krieger, Stanley Wunderlich, 82 Civ.

Act. No. 5502 (S.D. N.Y.), Litigation Release No. 9740 (August 20, 1982) 25 SEC

Docket 1587; In the Matter of MerrillLimch, Pierce, Fenner & Smith, Inc., et ei.,

Securities Exchange Act Release No. 18923 (July 26, 1982), 25 SEC Docket 1259;

In the Matter of John MarieLee Osborne, et aI., Securities Exchange Act Release No.

62
18973 (August 17, 1982),25 SEC Docket 1448; SEC v. aTC Net Incorporated, et

el., Civ. Act. No. 82-Z-877 (D. Colo.), Litigation Release No. 9686 (June 8, 1982),

25 SEC Docket 787; In the Matter of PaIker/Hunter Incorporated, Securities Exchange Act Release No. 19010 (August 24, 1982),25 SEC Docket 1556; In the

Matter of Pesker/Hunier Incorporated, David W Hunter, James W Braham and

James A. MandizyckJ. Securities Exchange Act Release No. 19009 (August 25,

1982), 25 SEC Docket 1552; In the Matter of Perker/Hunter Incorporated, Benjamin

F Lear and Richard J. Beisel, Securities Exchange Act Release No. 19008 (August

24, 1982), 25 SEC Docket 1548; and, SEC v. Stix [; Co., Inc., Civ. Act. No.

81-1402-C, (E.D Mo.), Litigation Release No. 9517 (December 1, 1981),24 SEC

Docket 234.

I3Examples of other regulated entities cases include: In the Matter of CMC Funding, Lid., Investment Advisers Act Release No. 822 (September I, 1982), 26 SEC

Docket 70; SEC v. Edward J. Falvey, Civ. Act. No. 82-0197, Litigation Release No.

9575 (D. Mass.), (February 2, 1982), 24 SEC Docket 996, Litigation Release No.

9728 (August 5, 1982), 25 SEC Docket 1364; In the Matter of Government Securities

Management Company, lnc., Investment Advisers Act Release No. 814 (July 21,

1982),25 SEC Docket 1244; SEC v. Martin Rosenberg and David Rosenberg, Civ.

Act. No. 82-6184 (S.D.N.Y.), Litigation Release No. 9759 (September 24, 1982), 26

SEC Docket 459; and, SEC v. Tax Deferred Capital Corp., Civ. Act. 82-8062 (S.D

Fla.), Litiqation Release No. 9623 (March 22, 1982), 24 SEC Docket 1742.

14Securities Act Release No. 6383 (March 3, 1982), 24 SEC Docket 1318.

15Securities Act Release No. 6391 (March 12, 1982), 24 SEC Docket 1580.

"Secuntles Act Release No. 6423 (September 2, 1982), 26 SEC Docket 3.

I7Securities Act Release No. 6398 (March 8, 1982), 24 SEC Docket 1444.

16Securities Exchange Act Release No. 18647 (April 15, 1982), 25 SEC Docket

120.

19Securities Act Release No. 6406 (June 4, 1982), 25 SEC Docket 695.

2°Securities Act Release No. 6416 (July 9, 1982), 25 SEC Docket 1121.

21}7 CFR 229.402(f).

2217 CFR 240.14a-101 et seq.

23Securities Exchange Act Release No. 19135 (October 14, 1982), 26 SEC

Docket 601.

24Securities Act Release No. 6360 (November 20, 1981), 24 SEC Docket 2.

25Securities Act Release No. 6361 (November 20, 1981), 24 SEC Docket 32.

26Securities Act Release No. 6362 (November 20, 1981), 24 SEC Docket 34.

27Securities Exchange Act Release No. 19188 (October 28, 1982),26 SEC

Docket 800.

26Securities Act Release No. 6426 (September 16, 1982), 26 SEC Docket 148.

29Securities Exchange Act Release No. 18761 (May 25, 1982), 25 SEC Docket

591.

30Securities Act Release No. 6405 (June 3, 1982), 25 SEC Docket 644.

3JSecurities Exchange Act Release No 18801 (June 10, 1982), 25 SEC Docket

737.

32Securities Act Release No. 6433 (October 28, 1982), 26 SEC Docket 756.

33Securities Act Release No. 6414 (June 29, 1982),25 SEC Docket 964.

34Securities Act Release No. 6364 (December 3, 1981), 24 SEC Docket 168.

35Securities Exchange Act Release No. 18532 (March 3, 1982), 24 SEC Docket

1224.

36public Oversight Board, Annual Report (1981.1982) at 22.

37Supra at 21.

36Supra at 5-6.

39Supra at 21-22.

40Securities Act Release No. 6412 (July 1, 1982), 25 SEC Docket 893.

63
41Fmancial Reporting Release No.3 (August 24, 1982), 25 SEC Docket 1507.

42Staff Accounting Bulletin No. 42 (December 23, 1981) 24 SEC Docket 521

(purchase accounting); Staff Accounting Bulletin No. 44 (March 3, 1982),24 SEC

Docket 1312 (parent company information); Staff Accounting Bulletin No. 45 (May

20, 1982), 25 SEC Docket 632 (business combinations); Staff Accounting Bulletin

No. 46 (May 20, 1982), 25 SEC Docket 633 (interim reporting); Staff Accounting

Bulletin No. 47 (September 16, 1982), 26 SEC Docket 227 (oil and gas), and Staff

Accounting Bulletin No. 48 (September 27, 1982), 26 SEC Docket 474 (asset

valuation).

43Financial Reporting Release No.2 (June 24, 1982), 25 SEC Docket 897.

44ld.

45Securities Act Release No. 6383 (March 3, 1982), 24 SEC Docket 1318.

46Securities Act Release No. 6417 (July 9, 1982),25 SEC Docket 1184.

47Financial Report Release No.8 (December 6, 1982), 6 SEC Docket 1360.

48Securities Exchange Act Release No. 17744 (April 21, 1981),21 SEC Docket

845.

49Securitles Exchange Act Release No. 18714 (May 6, 1982), 25 SEC Docket

371.

soSecurities Exchange Act Release No. 18738 (May 13, 1982), 25 SEC Docket

484.

51Securities Exchange Act Release No. 18482 (February II, 1982),24 SEC

Docket 1032.

52Securities Exchange Act Release No. 18277 (November 20, 1981), 24 SEC

Docket 45.

53Securities Exchange Act Release No. 18689 (April 28, 1982), 25 SEC Docket

269.

54Securities Exchange Act Release No. 18531 (March 4, 1982), 24 SEC Docket

1223.

55Securities Exchange Act Release No. 19029 (September I, 1982), 26 SEC

Docket 28.

56Securities Exchange Act Release No. 18823 (June 21, 1982), 25 SEC Docket

917.

57S.2260, 97th Cong , 2d Sess.

58S.2109, 97th Cong., 2d Sess.

59As enacted, Public Law 97-303 amends the definition of "security" in Section

3(aXI0) of the Exchange Act explicitly to include any put, call, straddle, option, or

privilege on any security, certificate of deposit, group or index of securities (in.

c1uding any interest therein or based on the value thereof), or any foreign currency

when the option on that foreign currency is traded on a national securities ex.

change. In addition, Section 9(f) of the Exchange Act was amended to provide that

the Commission's plenary authority to regulate options trading on securities exchanges extends to options on exempted securities. Finally, the legislation added

Section 9(g) to the Exchange Act to provide that, notwithstanding any other provision of law, the Commission shall have the authority to regulate the trading of any

options referred to in Section 3(aXI0).

60Securities Exchange Act Release Nos. 19125-19134, (October 14, 1982),26

SEC Docket 580.

61File No. SR-Amex-81-20.

62File Nos. SR-NYSE-82-2 and SR.Amex-82-8.

63File No. SR-NASD-80.lO.

64Flles Nos. SR.Amex-82-3, SR.CBOE-81-22, SR.NYSE-82-6 and SR.PSE-82-4.

65Securities Act Release No. 6426 and Securities Exchange Act Release No.

19055 (September 16, 1982), 26 SEC Docket 148.

66Securities Exchange Act Release No. 18528 (March 16, 1982), 24 SEC Docket

64
1420.

67Securities Exchange Act Release No. 18983 (August 31, 1982), 25 SEC

Docket 1473.

68Securities Exchange Act Release No. 18321 (December 10, 1981), 24 SEC

Docket 266.

69Securities Exchange Act Release No. 18417 (January 13, 1982, 24 SEC Docket

710; Securities Exchange Act Release No. 19737 (May 13, 1982), 25 SEC Docket

468. See also Securities Exchange Act Release No. 18418 (January 13, 1982), 24

SEC Docket 719; Securities Exchange Act Release No. 18419 (January 13, 1982),

24 SEC Docket 729; Securities Exchange Act Release No. 18420 (January 13,

1982), 24 SEC Docket 733.

70 Securities Exchange Act Release No. 18417 (January 13, 1982),24 SEC

Docket 710.

71 Securities Exchange Act Release No. 18497 (February 19, 1982), 24 SEC

Docket 1124.

72 H.R. 562, 98th Cong., 1st Sess., January 6, 1983.

73 Securities Exchange Act Release No. 18395 (January 7, 1982), 24 SEC Docket

611.

74 Securities Exchange Act Release No. 18987 (August 19, 1982),25 SEC

Docket 1508.

75 Securities Exchange Act Release No. 18988 (August 19, 1982), 25 SEC

Docket 1509.

76 Securities Exchange Act Release No. 18645 (April 14, 1982), 25 SEC Docket

2029.

77 Securities Exchange Act Release No. 19142 (October 15, 1982), 26 SEC

Docket 672.

78 Securities Exchange Act Release No. 18975 (August 17, 1982), 25 SEC

Docket 1453.

79 Securities Exchange Act Release No. 18742 (May 17, 1982), 25 SEC Docket

536; Securities Exchange Act Release No. 18640 (April 13, 1982), 25 SEC Docket

2024.

80 Securities Exchange Act Release No. 18157 (October 7, 1981), 23 SEC Docket

1105.

81 Securities Exchange Act Release No. 19054 (September 16, 1982), 26 SEC

Docket 163.

82 Securities Exchange Act Release No. 16900 (June 17, 1980), 20 SEC Docket

415.

83 Securities Exchange Act Release No. 18583 (March 22, 1982), 24 SEC Docket

1682.

84 Securities Exchange Act Release No. 18584 (March 22, 1982), 24 SEC Docket

1683.

85 Securities Exchange Act Release No. 18852 (June 28, 1982), 25 SEC Docket

976.

86 Securities Exchange Act Release No. 18744 (May 17, 1982),25 SEC Docket

539.

87 Securities Exchange Act Release No. 18830, 18831, and 18832 (June 30,

1982),25 SEC Docket 927.

88 Securities Exchange Act Release No. 19120 (October 13, 1982),26 SEC

Docket 575.

89 Securities Exchange Act Release No. 6366 (December 16, 1981), 24 SEC

Docket 363.

90 Investment Company Act Release No 6363 (November 24, 1981), 24 SEC

Docket 39.

91 Under the amortized cost method of valuation, money market funds may

65
calculate their current net asset value for use in computing the current price of

their redeemable securities by valuing all portfolio securities and assets, regardless

of whether market quotations are readily available, at the acquisition cost as ad.

justed for amortization of premium or accumulation of discount rather than at cur.

rent market value as would be required by Rule 2a-4.

92 Under the penny-rounding method of computation, money market funds

calculate their current net asset value in conformance with Rule 2a-4 by valuing

protfolio securities for which market quotations are readily available at current

market value, and other securities and assets at fair market value as determined in

good faith by the board of directors. However, they may then compute the current

price of their redeemable securities by rounding the net asset value per share to

the nearest one cent of one dollar.

93 Investment Company Act Release No. 12354 (April 15, 1982), 24 SEC Docket

1914.

94 Investment Company Act Release No. 12542 (July 9, 1982), 25 SEC Docket

1118.

95 Investment Company Act Release No. 11970 (October 20, 1981),23 SEC

Docket 1006.

96 Investment Company Act Release No. 12678 (October 5, 1982), 26 SEC

Docket 310.

97 Investment Company Act Release No. 12675 (October 5, 1982),26 SEC

Docket 286.

98 Investment Advisers Act Release No. 805 (May 14, 1982), 25 SEC Docket 572.

99 Investment Advisers Act Release No. 805 (May 14, 1982), 25 SEC Docket 572.

100 SEC v. MacDonald, pending on rehearing, Nos. 81-1356, 1513, 1514 (1st Cir.).

101 SEC v. Wasfungton County Utihty District, 676 F. 2d 218 (6th Cir. 1982).

102 Welbnan v. Dickinson, 682 F. 2d 355 (2d Cir. 1982), cert. pending, No.

81.1079 (S. Ct.).

103 SEC v. Clifton, 540 F. Supp. 848 (D.D.C. 1982), appeal pending, No. 82-1486

(D.C. Cir.).

104 Dirks v SEC, 681 F. 2d 824 (D C Cir. 1982), pending, No. 82.276 (S. Ct.).

lOS Board of Trade of the Cay of OJicago v. SEC, 677 F. 2d 1137 (7th Cir.),

vacated as moot, No. 82-526 (Nov. 23, 1982).

106 Daily v. Morgan, appeal pending, No. 82-4077 (5th Cir.); Seagrave Corp. v.

VISta Resources, lnc., No. 82-7238 (2d Cir., Dec. 27, 1982); Landreth Timber Co. v.

Landreth, appeal pending, No. 81.3446 (9th Cir.); Golden v. Garafalo, 678 F. 2d

1139 (2d Cir. 1982)

107 Marine Bank v. Weaver, 102 S.Ct. 1220 (1982).

108 Herman & MacLean v. Huddleston, 640 F.2d 534 (5th Cir.), on rehearing, 650

F.2d 815 (1981), cert. granted, Nos. 81-680, 1076 (S.Ct. 1982).

109 Liberty National Insurance Co. v. The Charter Co., appeal pending, No. 82-7260

(11th Cir.); San Francisco Real Estate Investors v. Real Estate Investment Trust of

Amenca, appeal pending, No. 81-1853 (1st Cir.); The Hanna Muunq Co. v. Noreen

Energy Resources Corp., [1982] Fed. Sec. L. Rep (CCH) 198,742 (N.D. Ohio), appeal dismissed, No. 82-3386 (6th Cir. 1982); Fred S. James & Co. v. Rathmell, No.

C82-3708 (N.D. Cal. 1982); Aagship Bank, Inc. v. Inversiones Credival, motion pen.

ding, No. 82-2097 (S.D. Fla. 1982); Jacob v. Pabst Breuiinq Co., No. 82.200 (D.

Del., Oct. 7, 1982).

110 Edgar v. MITE, 102 S. Ct. 2629 (1982).

III The Freedom of Information Act, 5 U.S.c. 552(a). Certain of these requests

also sought information under the Privacy Act, 5 U.S.c. 552a, and the Government

in the Sunshine Act, 5 U.s.c. 552b.

112 FOIA Exemption 4, 5 U.S.C 552(bX4), exempts from disclosure "trade secrets

66
and commercial or financial information obtained from a person and privileged or

confidential. ..

113 18 u.s.c. 1905.

114 12 U.S.c. 3400 et seq.

115 The Act imposes liability for damages upon an agency, as well as on the

financial institution, for violating this requirement. Section 1117(a), 12 U.S.c.

3417(a).

116 Section 1110, 12 U.S.c. 3410.

117 Holding Company Act Release No. 22560 (June 30, 1982), 25 SEC Docket

1017.

118 Holding Company Act Release No. 22582 (July 22, 1982), 25 SEC Docket

1233.

119 Holding Company Act Release No. 21919 (February 13, 1981),22 SEC

Docket 72.

120 Holding Company Act Release No. 22309 (December 9, 1981),24 SEC

Docket 298.

121 Holding Company Act Release No. 22468 (April 21, 1982), 25 SEC Docket

2175.

122 17 CFR 250.90 and 250.91.

67

Glossary of Acronyms

AAER-Accounting and Auditing Enforcement Release

ADP-Automatic Data Processing

AICPA-American Institute of Certified Public Accountants

Amex-American Stock Exchange

ASB-Auditing Standards Board

ASR-Accounting Series Release

BSE-Boston Stock Exchange

CAES-Computer Assisted Execution System

CBOE-Chicago Board Options Exchange

CDs-Cetificates of Deposit

CFTC-Commodity Futures Trading Commission

CSE-Cincinnati Stock Exchange

DPP-Direct Participation Program

DTC-Depository Trust Company

FASB-Financial Accounting Standards Board

FCPA-Foreign Corrupt Practices Act

FERC-Federal Energy Regulatory Commission

FOIA-Freedom of Information Act

FRR-Financial Reporting Release

FRS-Federal Reserve System

GAAP-Generally Accepted Accounting Principles

GNMA-Government National Mortgage Association

GSA-General Services Administration

ID-Institutional Delivery

IRA-Individual Retirement Account

ISE-Intermountain Stock Exchange

ISG-Intermarket Surveillance Group

ITS-Intermarket Trading System

MCC-Midwest Clearing Corporation

MOSS-Market Oversight Surveillance System

MSE-Midwest Stock Exchange

MSRB-Municipal Securities Rulemaking Board

MSTC-Midwest Securities Trust Company

NASAA-North American Securities Administrators Association

NASD-National Association of Securities Dealers

NASDAQ-National Association of Securities Dealers Automatic Quotation

System

NESDTC-New England Securities Depository Trust Company

NMS-National Market System

NSCC-National Securities Clearing Corporation

NYSE-New York Stock Exchange

OCC-Options Clearing Corporation

69
OECD-Organization for Economic Cooperation and Development

OTC-Over-the-Counter

PCC-Pacific Clearing Corporation

Philadep-Philadelphia Depository Trust Company

Phlx-Philadelphia Stock Exchange

POB-Public Oversight Board

PSDTC-Pacific Securities Depository Trust Company

PSE-Pacific Stock Exchange

QCRB-Quality Control Review Board

RFPA-Right to Financial Privacy Act

RIF-Reduction-In-F orce

RRA-Reserve Recognition Accounting

SAB-Staff Accounting Bulletin

SBIC-Small Business Investment Company

SCCP-Stock Clearing Corporation of Philadelphia

SECPS-SEC Practice Section (of the American Institute of Certified

Public Accountants)

SECO-SEC-only

SFAS-Statement of Financial Accounting Standards

SIA-Securities Industry Association

SIC-Securities Information Center

SIC-Special Investigations Committee (of SEC Practice Section of

American Institute of Certified Public Accountants)

SRO-Self.Regulatory Organization

SSE-Spokane Stock Exchange

UN-United Nations

70
Appendix

THE SECURITIES INDUSTRY

Income, Expenses and Selected

Balance Sheet Items

Broker-dealers which are selfregulated through their membership in

a national securities exchange or the National Association of Securities Dealers

earned revenues of $24,372 million in

1981, 22 percent above the 1980 level I

Three-fourths of this increase in

revenues stemmed from the growth of

the "All Other Revenues" category

which is composed primarily of margin

interest income and interest earned on

repurchase agreements.

Securities commission income, in the

past the largest component of total revenues, fell $211 million and accounted

for 27 percent of total revenues, whereas

"All Other Revenues" grew $3,349

million and accounted for 39 percent of

total revenues in 1981. Despite a three

percent increase in the market value of

equity sales on all registered exchanges,

securities commission incorne declined

because of changes in the mix of trans.

actions. Trading of broker-dealers for

their own account and the volume of

large public transactions, which generate

'Due to changes in FOCUSreporting requirements, consolidated Information for

1981IS not available.In orderto provideconsistent information, new financral data was

Appendix

fewer commission dollars relative to

trading volume, were up. However, the

volume of small public transactions,which

generate proportionately more commission dollars, was down.

Trading profits grew by 25 percent to

$5,401 million to account for 22 percent

of total revenues. Revenues from underwriting rose by 17 percent in 1981; a slight

decrease in the combined volume of primary corporate and municipal offerings

were more than offset by a more profitable

mix of securities offerings.

Expenses grew by $4,652 million to

$21,583 million in 1981. A year-over-year

increase of 67 percent in interest expense

to $6,506 million accounted for over onehalf of the growth in total expenses. "All

Other Expenses"which includes registered

representatives' compensation, rose by

$1,271 million to $8,845 million in 1981

The 27 percent growth in expenses out.

stripped the 22 percent rise in revenues,reducing pre-tax income to $2,789 million,

a nine percent decline from the preceding

year.

Assets rose by $34,911 million to

$155,063 million and liabilities grew to

$144,734 million. Ownership equity roseby

$1,778 million to $10,329 million in 1981.

developed for pnor years and Table 1 now

presents unconsolidated data for all years

This datawill not becomparableto theTable

1 of previous years.

73
Table 1

UNCONSOLIDATED FINANCIAL INFORMATION FOR BROKER.DEALERS

1977-1981

(MIllions of Dollars)

1977 1978 1979 1!l3O 1981P

A Revenues

1 secunnes Cornrrussrons $ 3,278 $ 4,430 $ 4,737 $ 6,a:J() $ 6,589

2 Gam (Loss) m TradIng 1,602 1,925 2,909 4,3J9 5,401

3 Gam (Loss) rn Investments 338 385 732 007 635

4 Profrt (Loss) from underwntmp

and SeilIng Groups 954 927 930 1,594 1,860

5 Revenue from Sale of Investment

Company seeunues 160 160 197 278 342

6 All Other Revenues 2,270 3,446 4,452 6,196 9,545

7 Total Revenues $ 8,602 $ 11,273 $ 13,957 $ 19,984 $ 24,372

B Expenses

8 All Employee Oornpensatron and

Benefits (Except RegIstered

RepresentatIves' Cornpensatron) $ 1,765 $ 2,129 $ 2,475 $ 3,402 $ 3,951

9 Oornrrnssrons and Clearance Paid

to Other Brokers 582 787 845 1,079 1,104

10 Interest Expense 1,273 1,967 3,058 3,893 6,506

11 RegUlatory Fees and Expenses 67 72 75 100 121

12 Cornpensation to Partners and

VotIng Stockholder Offrcers 536 602 664 8B3 1,056

13 All Other Expenses (lncludmq

RegIstered RepresentatIves'

Compensatrom 3,697 4,644 5,188 7,574 8,845

14 Total Expenses $ 7,920 $ 10,201 $ 12,305 $ 16,931 $ 21,583

15 Pre-Tax Income $ 682 $ 1,072 $ 1,652 $ 3,053 $ 2,789

C Assets, ueintmee and CapItal

16 Total Assets $ 55,507 $ 65,354 $ 87,068 $120,152 $155,063

17 LIabIlitIes

a Total Llabliltoes (excludln9

subordinated debt) 49,552 58,506 79,537 109,742 142,865

b Subordinated debt 942 1,167 1,296 1,859 1,869

c Total IIab,llttes (17a +17b) 50,494 59,673 60,833 111,601 144,734

18 Ownership EqUIty 5,013 5,681 6,235 8,551 10,329

19 Total LIabIlItIes and Ownersrnp

EqUIty $ 55,507 $ 65,354 $ 87,068 $120,152 $155,063

Number of FIrms 4,602 4,822 4,824 5,283 5,714

P=Prellmmary

Note Includes only those broker-dealers self-regulated through their membership In the NatIonal Assocranoo of secunnes

Dealers or a regIstered secunties exchange

Source FOCUS Report

74
•,

,

1,

i Table 2

UNCONSOLIDATED ANNUAL REVENUES AND EXPENSES OF FIRMS

DOING A PUBLIC BUSINESS

1977.1981

(MIllions of Dollars)

1977 1978 1979 1980 1981?

Revenues

, Securities Cornmtssrons $ 3,0041 $ 3,9830 $ 4,5181 s 6,4540 $ 6,1433 )

2 Realized and Unrealized Gains or

Losses In Trading and

Investment Accounts 1,7955 2,0432 3,3781 4,686 4 5,5754

3 Cornmodrtres Revenues 2633 3447 4805 6693 5950

4 Profits or Losses From Underwriting and Seiling Groups 9217 8705 8998 1,5189 1,7919

5 Revenues From Sale of Investment

Company Securities 1467 1482 1786 2739 3339

6 Margin Interest 7489 1,1154 1,6689 2,1361 2,91161 :.

7 All Other Revenues 1,1056 1,5325 2,0380 2,9934 5,2797

8 Total Revenues $ 7,985 8 $ 10,0377 $ 13,1620 $ 18,7320 $ 22,6308

Expenses

9 Salaries and Other Employment Costs

for General Partners and Voting

Stockholder Officers $ 4787 $ 5400 $ 5997 $ 7934 $ 9254

10 All Other Employee Compensation and

Benefits (Except Registered

Representatives' cornpensanon)' 1,6279 1,908 3 2,3532 3,1157 3,7304

11 Cornrmssrons and Clearance Paid 5212 7016 7909 9486 9620

12 Interest Expense 1,2082 1,8173 2,9574 3,7780 5,9988

13 RegUlatory Fees and Expenses 579 598 654 854 1017

14 All Other Expenses' 3,4878 4,096 8 4,9436 7,2511 8,3570

15 Total Expenses $ 7,3818 s 9,1237 $ 11,7102 $ 15,9722 $ 20,0754

16 Pre-Tax Income $ 6041 $ 9139 $ 1,4517 $ 2,7597 $ 2,5554

17 Number of firms as of

end-of-year 2,442 2,516 2,479 2,613 2,678

P=Prelimlnary

, Registered representatives' compensation IS Included In "All Other Expenses" because It IS not reported

separately on Part IIA of the FOCUS Report

Note Figures may not sum due to rounding

Source FOCUS Report

75

"
Table 3

SUMMARY UNCONSOLIDATED BALANCE SHEET FOR FIRMS

DOING A PUBLIC BUSINESS YEAR.END, 1977.1981

(MIllions of Dollars)

1977 1978 1979 1980 1981P

A Assets

1 Cash $ 9251 $ 1,1615 $ 2,0781 $ 2,6113 $ 2,6459

2 ReceIvables from other broker-dealers

a Securities tarred to deliver 2,4374 2,4356 3,1383 3,8810 3,2681

b Secuntres borrowed 2,3235 2,6112 4,3190 7,7519 8,9485

c Other 6976 8724 8272 1,1768 1,8938

3 ReceIvables from customers 14,1875 15,7959 16,9418 23,4638 21,1427

4 Long posrnons In secuntres and

cornrnodrnes 19,2364 17,6235 23,7565 33,0010 41,7017

5 Secuntras owned not readIly

marketable 628 567 670 1209 1031

6 sscunues borrowed under subordinated

agreements and partners' indIvIdual

and capital securities accounts 763 687 742 898 884

7 Securttres purchased under agreement

to resell 10,0617 15,4685 26,6298 32,888 3 45,2146

8 Secured capital demand notes 2686 2763 2920 3046 3058

9 Exchange rnembersrups 1240 1224 1710 2130 2139

10 Other assets 2,6621 3,2254 4,3199 5,5787 6,6668

11 Total Assets $53,0630 $59,7181 $82,6148 $111,0812 $132,1932

B Lrstntmes and EqUIty CapItal

12 Bank loans payable

a Secured by customer collateral $ 5,9390 $ 5,0447 $ 4,283 7 $ 3,8920 $ 3,6412

b Secured by firm collateral 7,1539 5,4427 5,5536 5,5916 7,4977

13 secuntres sold under repurchase

agreements 14,7744 17,586 8 27,1052 34,9488 55,5187

14 Payable to other broker-dealers and

clearing organizations

a secunnes Iaued to receive 2,6814 2,490 5 3,0795 4,0951 3,2828

b sscuntres loaned 1,7917 2,0413 3,8431 7,1834 8,0478

c Other 1,0701 790 1 8291 1,1052 1,4057

15 Payable to customers 5,3048 7,784 4 9,6128 14,8328 12,7311

16 Short posmons In secunties and

cornrnodrtres 4,8285 7,1059 14,4921 21,160 1 18,5687

17 Other habrhtres 4,2436 5,7173 7,096 9 9,4441 11,486 4

18 Total lratnunes excluding

subordinated habrntres 47,7874 54,0037 75,896 0 102,2531 122,1801

19 Subordinated habrtrttes 8751 1,0420 1,1975 1,648 1 1,6761

20 Total Lratnunes $48,6625 $55,0457 $77,0935 $103,9012 $123,856 2

21 Equity Caprtal $ 4,400 5 $ 4,672 3 $ 5,5213 $ 7,1800 $ 8,3370

22 Total Lrabthtres and Equity Caprtal $53,0630 $59,7181 $82,6148 $111,0812 $132,1932

23 Debt-to-Equrty RatIO 111 118 140 145 149

24 Average Equrty Caprtal as a Percent

of Average Total Oaprtal 851% 833% 827% 810% 831%

25 Number of frrrns as of end-of-year 2,442 2,516 2,479 2,613 2,678

P=Preltmtnary

'Data derived from four quarter average

Note All data were drawn from the most recently revised FOCUS Reports FIgures may not sum due to rounding

Source FOCUS Report

76

-

'
Securities Industry Dollar In 1981

For Carrying and Clearing Firms

Data for carrying and clearing firms only

are presented here to allow for more detail,

as reporting requirements for tnlrodLLcing

and carrying and clearing firms differ and

data aggregation of these two types of firms

necessarily results in loss of detail. Carrying and clearing firms are those firms which

clear securities transactions or maintain

possession or control of customers' cash or

securities. The 86 percent of industry revenues earned by carrying and clearing firms

in 1981 suggests that this group is a suitable proxy for the industry.

Securities commissions and trading

gains accounted for 26 cents and 23 cents,

respectively, of each revenue dollar in 1981.

Together these two items accounted for 49

cents of each revenue dollar eamed in 1981

as compared to 56 cents in 1980. In terms

of dollars, they accounted for $10,124 million of the $20,862 million of total revenues

eamed by carrying and clearing firms.

"Other related revenues" securities accounted for 18 cents of the revenue dollar

in 1981, a substantial increase from 12

cents in 1980. Margin interest income rose

to account for 14 cents of each revenue

dollar in 1981 compared with 12 cents in

1980.

Total expenses rose to consume 89 cents

of each revenue dollar eamed in 1981, an

increase over the 1980 level of 86 cents.

The industry's pre-tax profit margin fell to

11 cents per revenue dollar in 1981 from

15 cents in 1980.

Interest expense, agam the single largest

expense item, rose by 59 percent to absorb

28 cents of each revenue dollar, which

compares to 22 cents in 1980. In dollars,

interest expense grew to $5,916 million in

1981 from $3,718 million in 1980 Employee-related expenses (registered representatives' compensation and clerical and

administrative employees' expenses) consumed 34 cents of the revenue dollar in

1981,2 cents below the 36 cent level in

1980. Registered representatives' cornpensation while increasing by 8 percent over

the 1980 level, absorbed less of each revenue dollar in 1981 (18 cents) than It did

the previous year (20 cents). In dollar terms,

employee-related expenses accounted for

$6,989 million of the $18,516 million of

total expenses.

The "AllOther Expense" category, which

includes promotional costs, regulatory fees

and expenses and rruscellaneous items,

consumed 10 cents of each revenue dollar, in both 1980 and 1981.

77
Securities Industry Dollar In 1981

For Carrying/Clearing Firms

SOURCES OF REVENUE EXPENS

Investment Company

SecUtltl8S 1.0

Investments 3.0

Commodl!les 2.8

All Other Revenues 4.4

CommunicatIon and

Data Processing 6 6

All Other Expenses 9

NOTE Includes mformatlOn for firm, that carry customer accounts or clear s"cuntlN transactIOn

SOURCE X 17A 5 FOCUS REPORTS
Table 4

REVENUES AND EXPENSES OF BROKER.DEALERS

CARRYING/CLEARING CUSTOMER ACCOUNTS

(Millions of Dollars)

1980 1981' 1980-1981

Percent of Percent of Percent

Dollars Total Revenues Dollars Total Revenues Increase

Revenues

1 secunnes Commissions $ 5,781 335 $ 5,354 257 (74)

2 Gain (Loss) In Trading 3,817 221 4,770 229 250

3 Gain (Loss) In Investments 633 37 619 30 (22)

4 Profit (Loss) from Underwriting

and Selling Groups 1,459 85 1,696 81 162

5 Revenue from Sale of Investment

Company Securities 178 10 205 10 152

6 Margin Interest Income 2,136 124 2,912 139 363

7 Commodity Revenue 667 39 591 28 (114)

8 Other Revenue Related to

Securities BUSiness 2,026 117 3,807 182 879

9 Revenue from All Other Sources 548 32 908 44 657

10 Total Revenues $17,245 1000 $20,862 1000 210

Expenses

11 Registered Representatives'

Compensation $ 3,447 200 $ 3,714 178 78

12 Clerical and Administrative

Employees' Expenses 2,721 158 3,275 157 204

13 Commissions and Clearance Paid

to Others 768 45 719 34 (64)

14 Interest Expense 3,718 216 5,916 284 591

15 Communication and Data

Processing 1,082 63 1,384 66 279

16 Occupancy and Equipment 562 32 716 34 274

17 Oornpensanon to Partners and Voting

Stockholder Officers 845 37 736 35 141

18 All Other Expenses 1,801 104 2,056 99 142

19 Total Expenses $14,744 855 $18,516 887 256

Pre-Tax Income

20 Pre-Tax Income $ 2,501 145 $ 2,346 113 62

Number of Firms 1,161 1,083

P=Prellmlnary

Note Includes information for firms that carry customer accounts or clear securities transactions Percentages may

not add due to rounding

Source FOCUS Report

79
Brokers-Dealers, Branch Offices,

Employees

The number of broker-dealers filing

FOCUS Reports rose from 5,283 in 1980

to 5,714 in 1981. During the same period,

the number of branch offices increased

from 6,968 to 7,693.

The number of full-time personnel employed in the securities industry rose from

197,722 to 220,219 in 1981, an 11 percent

80

increase. New York Stock Exchange

("NYSE")member firms accounted for 77

percent of the industry's full-time employees with 170,169 such personnel. Full-time

registered representatives increased by 3

percent to 79,385 in 1981. Full-time regis.

tered representatives associated with memo

bers of the NYSE rose by 9 percent to

58,290 and accounted for 73 percent of the

industry's registered representatives.
Broker-Dealers and Branch Offices

6000 9000

\

j6301

I

16267

I

16290

I

16498

I

15893

I

16639R

.... 'J4081

I

3000

I

":::::'" ..... :.;:::.~::::.:::::::.: ...-:::.::.::~:::.: ... ':.,::: -,:.:.:...<: .....:. 14315

":"'::::":::::::.::. 0.• ::0 ::: .:::.: -, :.::.:.::.::.:.~:.:. :_:.::.:. ." ....... :

o

1974

1975

1976

1978

1977

1979

1980

I

J5283R

......:-, :. ."

1981

. T I . .

rttI~~r~i;:;;;::.JBroker-Dealers __ ~l Branch OffIces

P=Prellminary R=Revised

SOURCE: FORM X-17A-l0 AND FOCUS REPORTS

81
Table 5

BROKERS AND DEALERS REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF

1934-EFFECTIVE REGISTRANTS AS OF SEPTEMBER 30, 1982 CLASSIFIED BY

TYPE OF ORGANIZATION AND BY LOCATION OF PRINCIPAL OFFICE

Number of Propnetors

Number of Registrants Partners, Officers, Etc ,1,2

Sole Sole

Run Date 00/3QI82 Total Propne- Partner. Corpora- Total Propne- Partner. Corporatorsrnps ships nons' torsmps ships lions

Alabama 30 3 1 26 146 3 2 141

Alaska 1 0 0 1 5 0 0 5

Anzona 31 2 2 27 110 2 7 101

Ar1<ansas 23 2 0 21 124 2 0 122

Cahforrua 791 232 78 461 2,951 234 393 2,324

Colorado 143 5 5 133 802 5 63 734

Connecticut 55 11 13 75 502 11 93 398

Delaware 11 1 0 10 40 1 0 39

Distnct of Columbia 40 3 5 32 300 3 22 275

Flonda 254 13 14 227 792 13 38 741

Georgia 82 3 3 76 694 7 14 673

Hawan 25 1 1 23 99 1 2 96

Idaho 8 2 0 6 25 2 0 23

llhnors 2,314 1,520 242 552 5,669 1,523 1,496 2,650

Indiana 53 9 1 43 292 9 2 281

Iowa 38 5 1 32 199 5 16 178

Kansas 31 2 2 27 127 2 9 116

Kentucky 11 2 0 9 105 2 0 103

Louisrana 98 4 7 37 246 4 22 220

Mame 11 0 2 9 46 0 17 29

Maryland 56 6 3 47 258 6 56 196

Massachusetts 186 28 14 144 1,101 28 56 1,017

Michigan 76 7 3 66 308 7 17 284

Minnesota 91 3 0 88 739 3 0 736

MISSISSIPPI 21 2 2 17 91 2 5 84

Mrssoun 73 1 3 69 830 1 90 739

Montana 4 0 0 4 28 0 0 28

Nebraska 21 0 0 21 148 0 0 148

Nevada 8 3 1 4 14 3 2 ?

New Hampshire 7 1 0 6 23 1 0 ?2

New Jersey 216 33 20 163 008 33 61 714

New MeXICO 9 1 0 8 50 1 0 49

New York (excludtng NY City) 302 69 22 211 1,547 70 225 1,252

North Carolina 38 3 1 34 193 3 2 188

North Dakota 3 0 0 3 9 0 0 9

Oruo 103 5 12 86 762 5 244 513

Oklahoma 61 4 1 56 249 4 6 239

Oregon 46 2 1 43 179 2 2 175

Pennsylvania 309 25 87 197 1,715 25 313 1,377

Rhode Island 18 5 1 12 48 5 3 40

South Carolina 15 1 0 14 45 1 0 44

South Dakota 2 0 0 2 14 0 0 14

Tennessee 65 3 3 59 453 3 34 416

Texas 264 20 7 237 1,763 20 30 1,713

Utah 44 3 1 40 161 3 2 156

Vermont 8 3 1 4 46 3 2 41

Virginia 39 5 2 32 275 5 11 259

Washington 85 8 2 75 401 8 20 373

West Virginia 7 1 0 6 26 1 0 25

Wisconsin 64 9 1 54 489 9 2 478

Wyoming 5 1 0 4 15 1 0 14

Total (excludinq NY City) 6,290 2,072 565 3,653 26,082 2,082 3,379 20,601

New York City 1,843 646 297 000 10,510 648 2,959 6,503

Subtotal 8,133 2,718 862 4,553 36,572 2,730 6,338 27,504

Forelgn4 24 0 2 22 138 0 9 129

Grand Total 8,157 2,718 864 4,575 36,710 2,730 6,347 27,633

'Includes directors, officers, trustees and all other persons occupy 109 Similar status or performtng SImilar functions

'Allocations made on the basis of location of pnncipel otnces of registrants, not actual locations of persons

'Includes all forms of organization other than sole propnetorsrups and partnerships

'Registrants whose pnncipal offices are located In foreign countnes or other junsdicnons not listed

82
1900

Table 6

PRINCIPAL BUSINESS OF SECO BROKER.DEALERS

Exchange member pnmanly engaged In exchange comrrusson busmess

Exchange member pnmanly engaged In floor actIVItIes

Broker or dealer In general secunties business

MutUal fund underwnter

Mutual fund drstnoutor

Broker or dealer seiling vanable annuity contracts

soncrtor of savings and loan accounts

Real estate syndicator and mortgage broker and dealer

Real estate condorruruum Interests

Umoted partnersrnp interests

Broker or dealer selling 011 and gas Interests

Put and call broker or dealer or option wnter (non-exchange options)

Broker or dealer seiling secunties of only one Issuer or assocrated

Issuers (other th<r1 mutual funds)

Broker or dealer seiling church secunnes

Government bond dealer (other than munoclpal)

Broker or dealer on rnurncipal bonds

Broker or dealer m other secunties busmess

No secunties business

Totals

Source Fonn SEC04-82

FIscal Year

1981

1 13

5 5

41 37

8 5

2 1

9 7

4 5

32 30

3 3

89 116

27 23

8 7

27 25

10 8

1 1

6 5

42 47

28 22

352 360

1982

20

10

53

6

4

8

3

26

4

126

20

5

26

12

2

6

46

30

407

83
Table 7

APPLICATIONS AND REGISTRATIONS OF BROKERS AND DEALERS

AND INVESTMENT ADVISERS

Fiscal Year 1982

BROKER-DEALER APPLICATIONS

Apphcations pending at close of preceding year

Appllcallons received dunng fiscal 1982

Total applications for drsposrnon

Drsposinon of Applications

Accepted for filing

Returned

Withdrawn

Dented

Total applications disposed of

Appllcallons pending as of september 30, 1982

BROKER.DEALER REGISTRATIONS

Effective reglstrallons at close of preceding year

Registrations effective dunng fiscal 1982

Total reglstrallons

Reglstrallon terrmnated dunng fiscal 1982

Withdrawn

Revoked

Cancelled/Other

Total registrations termmated

Total registrations at end of fiscal 1982

INVESTMENT ADVISER APPLICATIONS

Appllcallons pending at close of preceding year

Applications received dunng fiscal 1982

Total applications for disposmon

DIsposition of applications

Accepted for ftllng

Returned

Withdrawn

Dented

Total applications disposed of

Applications pending as of september 30, 1982

INVESTMENT ADVISER REGISTRATIONS

Effective regiStratiOns at close of preceding year

Registrations effective dunng fiscal 1982

Total registrations

Registrations terrmnated dunng fiscal 1982

Withdrawn

Revoked

Cancelled/Other

Total registrations terrmretec

Total registrations at end of fiscal 1982

84

.().

2,022

2,022

1,651

:J68

0

0

2,019

3

7,423

1,651

9,074

623

111

264

998

8,076

.().

1,757

1,757

1,374

381

0

0

1,755

2

5,798

1,374

7,172

164

7

1,556

1,727

5,445
Table 8

APPLICATIONS AND REGISTRATIONS OF MUNICIPAL SECURITIES

DEALERS AND TRANSFER AGENTS

F,scal Year 1982

MUNICIPAL SECURITIES DEALERS APPLICATIONS

Apphcanons pending at close of precedinq year

Applications received dunng fIscal 1982

Total applications for disposrtton

Drsposrtion of Applications

Accepted for filing

Returned

Demed

Total spphcanons drsposed of

ApplicatIons pendmq as of September 30, 1982

MUNICIPAL SECURITIES DEALERS REGISTRATIONS

Effectlve regIstratIons at close of preceding year

RegIstratIons effectIve dunng frscal 1982

Total regIstrations

RegIstrations terminated dunng nscal 1982

Withdrawn

Cancelled

Suspended

Total regIstratIons terrrnnated

Total regIstratIons at end of nscai 1982

TRANSFER AGENTS APPLICATIONS

ApplicatIons pendIng at close of precedIng year

Apphcations receIVed dunng fiscal 1982

Total apphcatrons for dISPOSItIon

D,sposItion of appllcatlons

Accepted for fIling

Returned

Withdrawn

Demed

Total appncanons disposed of

Apphcatrons pendmp as of September 30, 1982

TRANSFER AGENTS REGISTRATIONS

Effective regIstratIons at close of precedIng year

RegIstratIons ettective dunng fIscal 1982

Total regIstratIons

RegIstrations termmated dunng fiscal year 1982

Withdrawn,

Cancelled

Suspended

Total regIstratIons terrrunated

Total regIstratIons at end of fiscal 1982

.().

25

25

18

7

0

25

.().

361

18

379

7

0

0

7

372

.().

45

45

45

0

0

0

45

0

968

45

1,033

46

1

0

47

900

85
Self-Regulatory Organizations:

Revenues, Expenses, Pre-Tax Income

and Balance Sheet Structure!

In 1981, volume in the secondary equity

market expanded at a less rapid rate than

the previous year, and stock prices fell considerably in the latter half of the year. These

factors help to explain the modest increase

In self-regulatory organizations' ("SROs' ")

and their subsidiaries' aggregate total

revenues, and the sharp decline in their aggregate net income. Aggregate total

revenues of SROs reached $372 million in

1981, up from $337 million (about 11 percent) the previous year. However, SROs' ago

gregate total expenses rose nearly 20 percent from $283 million to $338 million

resulting in a more than 36 percent decline

in aggregate pre-tax income from $54

million in 1980 to $34 million in 1981.

As is clear from the accompanying

tables, individual SROs differ widely in their

dependence on particular sources of revenues. For example, over 56 percent of the

NYSE's 1981 total revenues were generated

from two income categories: Commission

fees/transaction revenues and listing fees.

This contrasts sharply with data from the

Intermountain and Spokane Stock Exchanges who reported no income from

Commission fees/transaction revenues but

respectively received 21 percent and 60

percent of revenues from listing fees. Fees

associated with communication activities

increased for each of the three SROs' reporting income in that category. Consistent

with previous years, the "All Other Revenues" category continued to be the largest

single source of revenues. In 1981, all other

revenues exceeded $182 million, or 49 percent of total revenues.

On the expense side, aggregate employee costs jumped one-fifth during the

year to $145 million, of which such costs

at the NYSE accounted for approximately

'Data for self-regulatory organizations for

1980 and 1981 are not comparable With previous data because of a change in the data source

86

44 percent of the aggregate total figure.

Communication, data processing and col.

lection expenses constitute the next largest

specific cost category. Such expenses for

all SROs combined increased 18 percent

last year to over $63 million. Occupancy

and equipment costs increased by 25 percent to reach $22 million in 1981. As in

the past, expenses classified in the "All

Other Expenses" increased, but at a lesser

rate than in previous years. Finally, total expenses for all SROs combined rocketed to

$338 million, up almost 20 percent from

1980.

The 1980-1981 balance sheet structure

of SROs, also set forth in the accompany.

ing tables, provides insight into the overall

operations of these entities. Aggregate total

assets of SROs dipped to $629 million in

1981 from a high of $760 million in 1980.

Most of this decline can be traced to the

Midwest Stock Exchange, whose assets

slipped from $156 to $110 million. Total

assets for five other SROs also declined in

1981. Although the NYSE was among

those experiencing a decline, with $165

million in total assets at year-end 1981, it

continued to maintain the largest asset base

of all of the eleven reporting SROs. Aggregate total liabilities which dropped even

more sharply than total assets declined 28

percent to $394 million at fiscal year-end

1981. As a result aggregate net worth for

all SROs totalled $236 million last yearthe largest figure reported to-date. Seven

of the eleven SROs experienced an increase

in net worth in 1981. The sharp diversity

in the relative size of these SROs can be

seen by contrasting the $109 million net

worth of the NYSE with the $13 thousand

net worth of the Spokane Stock Exchange.

Aggregate 1981 clearing agency revenues increased approximately $10.6 million

over 1980. However, total revenues from

clearing and depository services remained

relativelyunchanged as the result of various

offsetting factors. Specifically, clearing revenues were reduced by the transfer of Brad.

ford Securities Processing Services, Inc.
operations to its brokerage and banking

affiliates. In 1980, Bradford accounted for

$10 million of clearing service revenues. On

the other hand, the Options Clearing Corporation doubled its revenues to $10 4

million as a result of an expansion during

the year in the number of listed options

The increase in the "Interest and Other

Revenues" category by $12.5 million was

primarily due to an over-all rise In Interest

rates over the previous year.

Aggregate clearing agency expenses also

increased during the year, rising by $11

million despite the transfer of Bradford's

operations, which last year accounted for

$11.7 million in expenses. For the most

part, the increase in expenses can be attributed to a general rise in the cost of

operations resulting from inflation. For example, Employee Costs increased by $5.3

million to $68 4 million.

In addition to ordinary operating expenses, clearing agencies may Incur losses

as a result of the default of a participant.

During 1981 Midwest Cleannq Corporation

incurred a $2.4 million loss from the default of one of its participants. This loss was

the largest of its kind ever experienced by

a clearing agency, eliminated Midwest's

$1.6 million operating profit, and created

an "Excess of Expenses over Revenues" of

approximately $750,000. Stock Cleannq

Corporation of Philadelphia also incurred

a loss due to a participant default dunnq

the year. Philadelphia's loss of $730,000 increased its Excess of Expenses over Revenues to $806,000.

87
88

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Table 10

SUMMARY OF CONSOLIDATED REVENUES, EXPENSES, AND PRE.TAX

INCOME OF ELEVEN SELF.REGULATORY ORGANIZATIONS

198Q.1981

(Thousands of Dollars)

1980R 1981

Revenues

Cornrrussron FeeslTransactlon

Revenues

Listing Fees

Communication Fees

Clearing Fees

All Other Revenues

Total Revenues

Expenses

Employee Costs

Occupancy and Equrprnent Costs

Professional and Legal Servrces

Deprecratron and Amortization

Advertismp Printing Postage

Communication, Data Processing

and Collection

All Other Expenses

Total Expenses

Pre-Tax Income

R=Revlsed

Note Figures Include unaudited financial data for the Spokane Stock Exchange

Totals may not sum due to rounding

Source SRO Annual Reports and Ftnancral Statements

s 92,919 s 103,164

52,160 62438

16,818 21946

2,687 2,340

172,176 182,388

$336,761 $372,277

$119,636 $144,474

17,887 22,355

14,509 14,361

9,535 13,984

5,833 6,650

53,834 63,341

61,690 72,816

$282,924 $337,976

s 53,835 s 34,301

89
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Table 13

REVENUE AND EXPENSES OF MUNICIPAL SECURITIES

RULEMAKING BOARD

Years Ended September 30

1982 1981

Revenues

Assessment Fees $ 1,582,498 $ 1,257,786

Annual Fees 182,400 178294

Initial Fees 15,800 12,200

Investment Income 113,478 48,635

Other 23,094 16,018

1,917,270 1,512,933

Expenses

Salanes and employee benefits 504,309 460236

Board and Committee 276,845 325,153

Operations 153,207 138,663

Educatron and oornmumcanon 194,442 166,043

Professional services 17147 42,508

Deprecration and amortization 11,035 10,977

1,156,985 1,143,580

Revenues over (under) expenses 760,285 369,353

Fund balance, beginning of year 650,702 281,349

Fund balance, end of year $1,410,987 $ 650702

93
EXEMPTIONS

Section 12(h) Exemptions

Section 12(h) of the Exchange Act

authorizes the Commission to grant a complete or partial exemption from the registration provisions of Section 12(g) or from

other disclosure and insider trading provisions of the Act where such exemption is

consistent with the public interest and the

protection of investors.

For the year beginning October 1,1981,

9 applications were pending, and an additional 20 applications were flied during

the year Of these 29 applications, 6 were

granted, one was denied and 3 were Withdrawn. Nineteen applications were pending at the close of the year.

The decrease in the number of applications from previous years may have

resulted from the wider use of general ex.

emptive rules.

Exemptions for Foreign

Private Issuers

Rule 12g3-2providesvarious exemptions

from the registration provisions of Section

12(g)of the Exchange Act for the securities

of foreign private issuers,Perhapsthe most

important of these is that contained in subparagraph (b) which provides an exemption

for certain foreign issuerswhich submit on

a current basis material specified in the

rule. Such material includes that information about which investors ought

reasonably to be informed and which the

issuer:(1) has made public pursuant to the

law of the country of domicile or In which

94

it is Incorporated or organized, (2) has

filed with a foreign stock exchange on

which its securities are traded and which

was made public by such exchange; and/or

(3) has distributed to its security holders.

Periodically, the Commission publishes a

list of those foreign issuers which appear

to be current under the exemptive provision. The most current list is as of

September 30, 1982 and contains a total

of 335 foreign Issuers.

Rule 10b-6 Exemptions

Exchange Act Rule 10b-6 is an antimanipulative rule that prohibits trading in

securities by persons interested in a

distribution of such securities. During the

fiscal year, the Commission granted approximately 360 exemptions pursuant to

paragraph (f) of Rule 10b-6 under circumstances indicating that proposed purchase transactions did not appear to constitute manipulative or deceptivedevices or

contrivances comprehended within the purposes of the rule.

FINANCIAL INSTITUTIONS

There were 1,944 companies registered

under the Investment Company Act of

1940 as of September 30, 1982, with active companies having an approximate

market value of assets of $281,644 million New registrations totaled 305, With45

registrations terminated during the fiscal

year. This compares with 1981 fiscal year

figures of 1,683 total registrations, 172

new registrations and 80 terminations.
Table 14

COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY

ACT OF 1940 AS OF SEPTEMBER 30, 1982

Number of Re9'stered Compames Approximate

Market Value

of Assets of

Active Ina:::tlvea Total Active

Companies

(Millions)

Management open-end ("Mutual Funds') 1,211 33 1,244 $266,728

Vanabte annUity-separate accounts 74 3 77 6,632

All other toad funds 1,137 30 1,167 260,096

ManaQleffient ctoseoend 159 54 213 7498

Small busmess Investment cornpaues 37 6 43 237

All other closed-end cornparues 122 48 170 7,261

Umt Investment trust 456 22 478 7,364"

Vanable annuity-separate accounts 102 1 103 2,936

All other urut Investment trusts 354 21 375 4,428

Face-amount certificate Companies 5 9 54

Total 1,831 113 1,944 281,644

a Inactive refers to registered companies which as of September 30, 1982, were In the process of being uquioated or merged,

or have filed an application pursuant to Section 8(0 of the Act for dereglstratlon, or which have otherwise gone out of ex

istence and remain only until such time as the Commission Issues order under Section 8(~ terminating their registration

b Includes about 43 billion of assets of trusts which Invest In secunnes of other Investment companies, SUbstantially all of

them mutual funds

95
Table 15

COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY

ACT OF 1940

Approximate

market value

of assets

Registered Registered Registration Registered of active

Fiscal year ended at beginning dunng terminated at end of Companies

September 30 of year yeer dunng year year (millions)

1941 0 450 14 436 $ 2,500

1942 436 17 46 407 2,400

1943 407 14 31 39J 2,300

1944 390 18 27 371 2,200

1945 371 14 19 366 3,250

1946 366 13 18 361 3,750

1947 361 12 21 352 3,600

1946 352 18 11 359 3,825

1949 359 12 13 358 3,700

1950 358 26 18 366 4,700

1951 366 12 10 366 5,600

1952 368 13 14 367 6,800

1953 367 17 15 369 7,fXXJ

1954 369 20 5 384 8,700

1955 384 37 34 387 12,fXXJ

1956 387 46 34 399 14,fXXJ

1957 399 49 16 432 15,fXXJ

1958 432 42 21 453 17,fXXJ

1959 453 70 11 512 2O,fXXJ

1960 512 67 9 570 23,500

1961 570 118 25 663 29,fXXJ

1962 663 97 33 727 27,300

1963 727 48 48 727 36,fXXJ

1964 727 52 48 731 41,600

1955 731 50 54 727 44,600

1956 727 78 30 775 49,800

1967 755 108 41 842 58,197

1968 842 167 42 967 69,732

1969 967 222 22 1,167 72,465

1970 1,167 187 26 1,328 56,337

1971 1,328 121 98 1,351 78,109

1972 1,351 91 108 1,334 80,816

1973 1,334 91 84 1,361 73,149

1974 1,361 108 90 1,377 62,287

1975 1,377 88 66 1,399 74,192

1976 1,399 63 83 1,376 80,564

1977" 1,403 91 57 1,437 78,904

1978 1,437 98 84 1,471 93,921

1979 1,471 63 47 1,507 108,572

1980 1,507 136 52 1,591 155,981

1981 1,591 172 00 1,683 193,362

1982 1,683 305 45 1,944 281,644

"Began Fiscal Year Ending September 30, 1977

96
Table 16

NEW INVESTMENT COMPANY REGISTRATIONS

Management open-end

Vanable anrunnes

All others

Sub-total

Management closeoend

SBIC's

All others

Sub-total

Unit Investment trust

Vanable anrunties

All others

Sub-total

Face amount certificates

Total Registered

Table 17

INVESTMENT COMPANY REGISTRATIONS TERMINATED

Management open-end

Vanable anruntses

All others

Sub-total

Management closed-end

SBIC's

All others

Sul>total

Unit Investment trust

Vanable annuities

All others

Sub-total

Face amount cernncates

Total temunaled

1982

9

234

243

1

11

12

24

26

50

o

305

1982

1

28

29

1

10

11

1

4

5

o

45

97
SECORmES ON EXCHANGES

Market Value and Share Volume

The total market value of all equity securities transactions on registered exchanges totaled $533 billion in 1981. Of

this total, $491 billion, or 92 percent, represented the market value of transactions

in stocks and $42 billion, or eight percent,

the market value of options transactions.

The remainder covers the market value of

transactions in warrants and riqhts. The

value of equity transactions on the New

York Stock Exchange was $416 billion, up

five percent from the previous year. In contrast, the market value of such transactions

fell 15 percent to $40 billion on the American Stock Exchange and one percent to

98

$76 billion on all regional exchanges combined. The volume of trading in stocks on

all registered exchanges totaled 16 billion

shares in 1981, a three percent increase

over the previous year with 81 percent of

the total accounted for by trading on the

New York Stock Exchange.

Although the number of contracts

traded on options exchanges rose 13 percent during 1981 to 109 million contracts,

the market value of such contracts eased

three percent to $42 billion. The volume

of contracts executed on the Chicago Board

Options Exchange rose nine percent to 58

million; trading on the American Stock Exchange increased 20 percent; Philadelphia

Stock Exchange contract volume expanded

30 percent; and Pacific Stock Exchange

contract volume went up 27 percent.
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~~
NASDAQ (Volume and Market

Value)

NASDAQ share volume and market

value information for over-the-counter trading has been reported on a daily basis since

November 1, 1971. At the end of 1981,

there were approximately 3,700 issues in

the NASDAQ system, an increase of 21

percent during the year. Volume for 1981

was eight billion shares, up 16 percent from

seven billion shares in the previous year.

This trading volume encompasses the

number of shares bought and sold by

market-makers plus their net inventory

changes. The market value of outstanding

shares of stocks in the NASDAQ system

was $71 billion at the end of 1981.

100

Share and Dollar Volume by

Exchange

Share volume in 1981 for stocks, rights,

and warrants on exchanges totaled $16 billion, an increase of three percent from the

previous year. The New York Stock Exchange accounted for 81 percent of 1981

share volume; the American Stock Exchange, nine percent; the Midwest Stock

Exchange, five percent; and the Pacific

Stock Exchange, three percent.

The market value of stocks, rights, and

warrants traded was $491 billion, an in.

crease of three percent over the previous

year. Trading on the New York Stock Exchange contributed 85 percent of the total;

and trading on the American Stock Ex.

change and the Midwest Stock Exchange

each accounted for five percent of the total.
Market Value Of Securities Traded On

All O.S. Stock Exchanges

Dollars Billions

500

450

400

350

300

250

200

150

100

o

BStocks, Rights

& Warrants

Options

64 ".7109

19 0 22 7

45 6 41 7

197172 73 74 75 76 77 78 79 80 1981

]0]
Table 19

SHARE VOLUME BY EXCHANGES'

In Percentage

Total Share Volume

Year (thousands) NYSE AMEX MSE PSE PHLX SSE CSE Other'

1935 $ 681,971 7313 1242 191 269 110 096 003 776

1940 377,897 7544 1320 211 278 133 119 008 387

1945 769,018 6587 2131 177 296 106 066 005 630

1950 893,320 7632 1354 216 311 097 065 009 316

1955 1,321,401 6885 1919 209 308 085 048 005 541

1960 1,441,120 6847 2227 220 311 088 038 004 265

1961 2,142,523 6499 2558 222 341 079 030 004 267

1962 1,711,945 7131 2011 234 295 087 031 004 207

1963 1,880,793 7293 1883 232 282 083 029 004 194

1964 2,118,326 7281 1942 243 265 093 029 003 144

1965 2,671,012 6990 2253 263 233 081 026 005 149

1966 3,313,899 6938 2284 256 268 086 040 005 123

1967 4,646,553 6440 2841 235 246 087 043 002 106

1968 5,407,923 6198 2974 263 264 089 078 001 133

1969 5,134,856 6316 2761 284 347 122 051 000 119

1970 4,834,887 7128 1903 316 368 163 051 002 069

1971 6,172,668 7134 1842 352 372 191 043 003 063

1972 6,518,132 7047 1822 371 413 221 059 003 064

1973 5,899,678 7492 1375 409 368 219 071 004 062

1974 4,950,833 7847 1027 439 348 182 086 004 067

1975 6,381,669 8092 896 405 325 154 084 013 031

1976 7,125,201 8003 935 387 393 141 078 044 019

1977 7,134,946 7954 973 395 371 149 066 064 028

1978 9,564,663 8008 1075 358 314 149 060 015 021

1979 10,977,775 7978 1082 329 338 164 054 027 028

1980 15,584,209 7995 1079 383 280 151 056 032 024

1981 15,969,398 8068 932 460 287 155 051 037 010

'Share volume for exchanges Includes stocks, fights, and warrants

'Other Includes all exchanges not listed above

Table 20

DOLLAR VOLUME BY EXCHANGES'

In Percentage

Total Dollar Volume

Year (thousands) NYSE AMEX MSE PSE PHLX SSE CSE Other'

1935 $ 15,396,139 8664 783 132 139 088 134 004 056

1940 8,419,772 8517 768 207 152 111 191 009 045

1945 16,284,552 8275 1081 200 178 096 116 006 048

1950 21,808,284 8591 685 235 219 103 112 011 044

1955 38,039,107 8631 698 244 190 103 078 009 047

1960 45,309,825 8380 935 272 194 103 060 007 049

1961 64,071,623 8243 1071 275 199 103 049 007 053

1962 54,855,293 8632 681 275 200 105 046 007 054

1963 84,437,900 8519 751 272 239 106 041 006 066

1964 72,461,584 8349 845 315 248 114 042 006 081

1965 89,549,093 8178 991 344 243 112 042 008 082

1966 123,697,737 7977 1184 314 284 110 056 007 068

1967 162,189,211 7729 1448 308 279 113 066 003 054

1968 197,116,387 7355 1799 312 265 113 104 001 051

1969 176,389,759 7348 1759 339 312 143 067 001 031

1970 131,707,946 7844 1111 376 381 199 067 003 019

1971 186,375,130 7907 998 400 379 229 058 005 024

1972 205,956,263 7777 1037 429 394 256 075 005 027

1973 178,863,622 8207 606 454 355 245 100 006 027

1974 118,828,272 8362 439 489 350 202 123 006 029

1975 157,555,469 8504 366 482 325 172 118 017 016

1976 195,224,815 84 35 387 475 382 168 093 053 007

1977 187,393,082 8396 460 479 353 162 073 074 003

1978 249,603,319 8435 617 419 284 163 061 017 004

1979 300,728,389 8365 693 382 285 180 056 035 004

1980 476,416,379 8354 732 432 227 159 051 040 005

1981 491,017,044 84 74 541 504 232 160 050 040 000

'Dollar volume for exchanges Includes stocks, fights, and warrants

'Other Includes all exchanges not listed above

102
Special Block Distribution distnbutions with a value of $450 rmllion

Secondary distributions accounted for all of

In 1981, there were 43 special block these block distributions.

Table 21

SPECIAL BLOCK DISTRIBUTIONS REPORTED BY EXCHANGES

(Value In Thousands)

Secondary drstrrbutrons Exchange drstnbutrons Spacral oftenngs

YEAR

Number Shares Value No Shares Value No Shares Value

Sold Sold Sold

1942 116 2.397,454 $ 82,840 0 0 0 79 812,390 $22,694

1943 81 4,270,580 127,462 0 0 0 80 1,097,338 31,054

1944 94 4,097,298 135,760 0 0 0 87 1,053,667 32,454

1945 115 9,457,358 191,961 0 0 0 79 947,231 29,878

1946 100 6,481,291 232,398 0 0 0 23 308,134 11,002

1947 73 3,961,572 124,671 0 0 0 24 314,270 9,133

1948 95 7,302,420 175,991 0 0 0 21 238,879 5,466

1949 86 3,737,249 104,062 0 0 0 32 500,211 10,956

1950 77 4,280,681 88,743 0 0 0 20 150,308 4,940

1951 88 5,193,756 146,459 0 0 0 27 323,013 10,751

1952 76 4,223,258 149,117 0 0 0 22 357,897 9,931

1953 68 6,906,017 108,229 0 0 0 17 380,680 10,486

1954 84 5,738,359 218,490 57 705,781 $ 24,664 14 189,772 6,670

1955 116 6,756,767 344,871 19 258,348 10,211 9 161,850 7,223

1956 146 11,696,174 520,966 17 156,481 4,645 8 131,755 4,557

1957 99 9,324,599 339,062 33 390,832 15,855 5 63,408 1,845

1958 122 9,508,505 361,886 38 619,876 29,454 5 88,152 3,286

1959 146 17,330,941 822,336 28 545,038 26,491 3 33,500 3,730

1960 92 11,439,065 424,688 20 441,644 11,108 3 63,663 5,439

1961 130 19,910,013 926,514 33 1,127,266 58,072 2 35,000 1,504

1962 59 12,143,656 658,780 41 2,345,076 65,459 2 46,200 588

1963 100 18,937,935 814,984 72 2,892,233 107,498 0 0 0

1964 110 19,462,343 909,821 68 2,553,237 97,711 0 0 0

1965 142 31,153,319 1,603,107 57 2,334,277 86,479 0 0 0

1966 126 29,045,038 1,523,373 52 3,042,599 118,349 0 0 0

1967 143 30,783,604 1,154,479 51 3,452,856 125,404 0 0 0

1968 174 36,110,489 1,571,600 35 2,669,938 93,528 1 3,352 63

1969 142 38,224,799 1,244,186 32 1,706,572 52,198 0 0 0

1970 72 17,830,008 504,562 35 2,066,590 48,218 0 0 0

1971 204 72,801,243 2,007,517 30 2,595,104 65,765 0 0 0

1972 229 82,385,749 3,216,126 26 1,469,666 30,156 0 0 0

1973 120 30,825,890 1.151,087 19 802,322 9,140 91 6,662,111 79,889

1974 45 7,512,200 133,838 4 82,200 6,836 33 1,921,755 16,805

1975 51 34,149,069 1,409,933 14 483,846 8,300 14 1,252,925 11,521

1976 44 20,568,432 517,546 16 752,600 13,919 22 1,475,842 18,459

1977 39 9,848,986 261,257 6 295,264 5,242 18 1,074,290 14,519

1978 37 15,233,141 569,487 3 79,000 1,429 3 130,675 1,820

1979 37 10,803,680 192,258 3 1,647,600 86,066 6 368,587 4,708

1980 R 44 24,979,045 813,542 2 177,900 5,101 4 434,440 7,097

1981 R 43 16,079,897 449,600 0 0 0 0 0 0

R ReVIsed

]03

=
Value and Number of Securities

Listed on Exchanges

The market value of stocks and bonds

listed on U.S. exchanges at the end of 1981

was $1,820 billion, a decrease of two percent over the previous year. The market

value for stocks was $1,238 billion, a decrease of eight percent during the year. In

contrast, the value of listed bonds increased

13 percent. Stocks with primary listing on

the New York Stock Exchange had a

market value of $1,144 billion and rep.

resented 92 percent of the value of com.

mon and preferred stocks listed on reg.

istered exchanges. Those listed on the

Amex accounted for seven percent of the

total listed and were valued at $90 billion.

Table 22

SECURITIES LISTED ON EXCHANGES'

December 31, 1981

EXCHANGES COMMON PREFERRED BONDS TOTAL SECURITIES

Market Market Market Market

Value Value Value Value

Registered Number (Million) Number (Million) Number (MIllion) Number (Million)

Amencan 915 $ 87,612 99 $ 1,771 245 $ 5,104 1,259 $ 94,487

Boston 72 911 1 + 1 1 74 912

Cmcmnati 5 23 2 3 6 37 13 63

Midwest 16 458 3 15 0 0 19 473

New York 1,534 1,120,059 686 23,734 3,110 573,893 5,330 1,717,686

Pacmc 59 1,718 18 428 38 884 115 3,030

Philadelphia 26 1,409 2 25 5 1,808 33 3,242

Intermountain 35 1 0 0 0 0 35 1

Spokane 25 11 0 0 0 0 25 11

Total 2,687 $1,212,202 811 $25,976 3,405 $581,727 6,903 $1,819,905

InclUdes the tollowmq

foreign stocks

Registered

New York 41 $45,182 3 $51 140 $7,489 184 $52,722

American 54 24,591 0 0 8 210 62 24,801

Pacrtrc 3 180 2 39 0 0 5 219

Total 98 $69,953 5 $90 148 $7,699 251 $77,742

'Excluding secuntres which were suspended from trading at the end of the year, and secunties which because of

inactivity had no available quotes

+ Less than 05 rmllron, but greater than zero

Source SEC Form 1392

104

=
Table 23

VALUE OF STOCKS LISTED ON EXCHANGES

(Buttons of Dollars)

New York Amencan Exclusively

Dec 31 Stock Stock On Other Total

Exchange Exchange Exchanges

1936 599 $ 148 $747

1937 389 102 491

1938 475 108 583

1939 465 101 566

1940 419 86 505

1941 358 74 432

1942 388 78 466

1943 476 99 575

1944 555 112 667

1945 738 144 882

1946 686 132 818

1947 683 121 804

1948 670 119 $30 819

1949 763 122 31 916

1950 938 139 33 1110

1951 1095 165 32 1292

1952 1205 169 31 1405

1953 1173 153 28 1354

1954 1691 221 36 194 8

1955 2077 271 40 2388

1956 2192 310 38 2540

1957 1956 255 31 2242

1958 2767 317 43 3127

1959 3077 254 42 3373

1960 3070 242 41 3353

1961 3878 330 53 4261

1962 3458 244 40 3742

1963 4113 261 43 4417

1964 4743 282 43 506 8

1965 5375 309 47 5731

1966 4825 279 40 5144

1967 6058 430 39 6527

1968 6923 612 60 7595

1969 6295 477 54 6826

1970 6364 395 48 680 7

1971 7418 491 47 7956

1972 8715 556 56 9327

1973 7210 387 41 7638

1974 5111 233 29 5373

1975 6851 293 43 7187

1976 8583 360 42 8985

1977 7767 376 42 8185

1978 8227 392 29 8648

1979 9606 578 39 1,0223

1980 1,2428 1035 29 1,3492

1981 1,1438 894 50 1,2382

105
Securities on Exchanges

As of September 30, 1982, a total of

7,119 securities, representing 3,014 issuers,

were admitted to trading on securities exchanges in the United States. This compares with 7,062 issues, involving 3,128

issuers a year earlier. Over 5,000 issues

were listed and registered on the New York

Stock Exchange, accounting for 61.2 percent of the stock issues and 88.5 percent

of the bond issues. Data below on

"Securities Traded on Exchanges" involved some duplication since it includes both

solely and dually listed securities.

Table 24

SECURITIES TRADED ON EXCHANGES

Issuers Stocks Bonds'

Temporanly

RegIstered exempted Unlisted Total

Amencan 925 961 22 984 244

Boston 999 149 915 1,064 tl

Chicago Board of Trade 3 1 2 3

Cmcmnati 454 67 407 474 36

Intermountain 44 41 3 44

Midwest 1,299 359 1,004 1,364 32

New York 1,862 2,305 2,306 2,964

Pacitrc Coast 602 781 197 979 165

Phrladelptua 974 278 860 1,159 95

Spokane 31 31 3 34

'Issuers exempted under Section 3(a)(12)of the Act, such as obligations of US Government, the states, and CIties,

are not Included In thrs table

Table 25

UNDUPLICATED COUNT OF SECURITIES ON EXCHANGES

(September 30, 1982)

Issuers

Stocks Bonds Total Involved

Registered and Listed 3,743 3,340 7,083 3,002

Temporanly Exempted from registration 2 2 4 2

Admitted to unlisted trading pnvlleges 24 8 32 10

Total 3,769 3,350 7,119 3,014

106
1933 ACT REGISTRATIONS

Effective Registration Statements

During the fiscal year ending September

3D, 1982, 4,744 registration statements

valued at $158 billion became effective.

This represented increases of 10 percent

over 1981 results in both number and value

of effective registrations.

Among issuers whose registration statements became effective, there were 1,927

first-time registrants in fiscal year 1982, an

increase of 467 registrants (32 percent)

from the previous fiscal year's total of

1,460.

The number of registration statements

filed rose by 4 percent to 4,413 in fiscal

year 1982 from the 4,223 statements filed

in fiscal year 1981.

107
Table 26

EFFECTIVE REGISTRATIONS

(Millions of Dollars)

Cash Sale for Account of Issuers

Total Bonds,

Fiscal Year Number of Common Debentures Preferred

Statements Value Stock' and Notes Stock Total

Fiscal Year ended June 30

1935' 284 $913 $168 $490 $28 $666

1936 689 4,835 531 3,153 252 3,936

1937 840 4,851 802 2,426 406 3,634

1936 412 2,101 474 666 209 1,349

1939 344 2,579 318 1,593 109 2,020

1940 306 1,787 210 1,112 110 1,432

1941 313 2,611 196 1,721 164 2,081

1942 193 2,003 263 1,041 162 1,466

1943 123 659 137 316 32 485

1944 221 1,760 272 732 343 1,347

1945 340 3,225 456 1,851 407 2,714

1946 661 7,073 1,331 3,102 991 5,424

1947 493 6,732 1,150 2,937 787 4,874

1948 435 6,405 1,678 2,817 537 5,032

1949 429 5,333 1,083 2,795 326 4,204

1950 487 5,307 1,766 2,127 468 4,381

1951 487 6,459 1,904 2,838 427 5,169

1952 635 9,500 3,332 3,346 851 7,529

1953 593 7,507 2,808 3,093 424 6,325

1954 631 9,174 2,610 4,240 531 7,381

1955 779 10,960 3,664 3,951 462 8,277

1956 906 13,096 4,544 4,123 539 9,206

1957 876 14,624 5,858 5,689 472 12,019

1958 813 16,490 5,998 6,857 427 13,282

1959 1,070 15,657 6,387 5,265 443 12,095

1960 1,426 14,367 7,260 4,224 253 11,737

1961 1,550 19,070 9,850 6,162 248 16,260

1962 1,844 19,547 11,521 4,512 253 16,266

1963 1,157 14,790 7,227 4,372 270 11,669

1964 1,121 16,660 10,006 4,554 224 14,784

1965 1,266 19,437 10,638 3,710 307 14,655

1966 1,523 30,109 18,218 7,061 444 25,723

1967 1,649 34,218 15,083 12,309 558 27,950

1968 2,417 54,076 22,092 14,036 1,140 37,268

1969 3,645 66,810 39,614 11,674 751 52,039

1970 3,389 59,137 28,939 18,436 823 48,198

1971 2,989 69,562 27,455 27,637 3,360 58,452

1972 3,712 62,487 26,518 20,127 3,237 49,882

1973 3,285 59,310 26,615 14,841 2,578 44,034

1974 2,890 56,924 19,811 20,997 2,274 43,082

1975 2,780 77,457 30,502 37,557 2,201 70,260

1976 2,813 87,733 37,115 29,373 3,013 69,501

Transitron Quarter

July-Sept 1976 639 15,010 6,767 5,066 413 12,246

Fiscal Year ended

September 30

1977 2,915 92,579 47,116 28,026 2,426 77,568

1978' 3,037 65.043 25,330 23,251 2,128 50,709

1979 3,112 77,400 22,714 28,894 1,712 53,320

1980 3,402 110,583 33,076 42,764 2,879 78,719

1981 (r) 4,326 144,132 49,276 40,163 2,505 91,944

1982 (p) 4,744 158,325 48,799 62,200 4,012 115,011

Cumulative Total 74,991 $1,606,607 $629,702 $540,227 $47,916 $1,217,845

(r) revised

(p) preliminary

'Includes warrants, shares of benefrcral Interest, certificates of parncrpanon and all other equity Interests not

elsewhere Included

'For 10 months ended June 30, 1935

'The adoption of Rule 241-2(17 CFR 270 24f-2) effective November 3, 1977 made It rmpossrbte to report the dollar

value of secunnes registered by Investment companies

Note The Total Cash Sale differs from earlier presentations due to changes In rounding procedures

108

=

=
Securities Effectively Registered With S.E.C.

1935-1982 Dollars Billions

170

150

130

BILLIONS OF DOLLARS

110

(F.scal Yeor s )

::::::FISCAL YEAR END CHANGED FROM JUNE TO SEPTEMBER

DATA FOR TRANSITION QUARTER JULY.SEPTEMBER 1976 NOT SHOWN ON CHARTS

EF FECTIVE REGISTRA TIONS S15.0 BILLION, NUMBE R OF RE GISTRA TlONS 639

1/ DOES NOT INCLUDE INVESTMENT COMPANIES AS OF 1/1/78 DUE TO RULE CHANGE

- 109
Purpose and Type of Registration

Effective registrations for cash sale for

the account of issuers amounted to $115

billion (73 percent) of the $158 billion of

effective registrations in fiscal year 1982.

Some $62 billion of these effective registrations (39 percent of all registrations) were

intended for immediate offerings rather

than for extended or other types of offerings, an increase of $1 billion (2 percent)

from the value of such registrations in the

previous fiscal year. Securities issues

registered by business to be offered to the

general public totalled $60 billion, an increase of $3 billion (6 percent) from the

value of such offerings in fiscal year 1981.

Of this amount, debt securities accounted for $38 billion (or 63 percent of

this total), preferred stock $4 bilion (6 percent) and common stock $19 billion (31

percent). Cash rights offerings (offerings to

security holders) came to $543 million, a

decline of 17 percent from the $656 million

of such offerings in the previous year. Immediate cash offerings by foreign governments in fiscal year 1982 totalled $1 billion,

a decrease of $2 billion (57 percent) from

the $3 billion of such offerings in fiscal year

1981.

In fiscal year 1982, another $53 billion

of securities (33 percent of all registrations)

were registered for cash sale for the account

of the issuer in delayed and extended offerings (offerings other than those for immediate cash sale). Registrations for

delayed offerings (offerings pursuant to

Rule 415, or so-called "shelf' registrations)

110

amounted to $21 billion. Securities

registered for the account of issuers other

than for cash sale (in conjunction with exchange offers, for example) amounted to

$39 billion in 1982, or 25 percent of all

registrations. Registrations of securities for

secondary offerings (for the account of

security holders rather than issuers) amounted to $5 billion (3 percent) of all registrations in fiscal year 1982. Of these latter registrations, $1 billion(23 percent) were

in conjunction with cash sales and $3

billion (77 percent) were for other types of

offerings such as ones to be offered from

time to time.

Of the $67 billion of debt securities registered in fiscal year 1982, 56 percent or

($38 billion) were registered for immediate

cash sale to the general public for the account of the issuer, and delayed and extended cash sale for the account of issuer

accounted for 34 percent. Registrations of

preferred stock for immediate cash sale for

the account of issuer represented 54 percent of the $7 billion of preferred stock registrations; registrations for other than cash

sale for the account of issuer made up 39

percent of such registrations. Registrations

of common stock for immediate cash sale

for the account of issuer ($19 billion) comprised 23 percent of the $83 billion of common stock registrations; registrations for

delayed and extended cash sales for the account of issuer accounted for 35 percent

of these registrations; and registrations for

other than cash sale for the account of

issuer comprised 37 percent.

Note: 1981 figures have been revised.
Table 27

EFFECTIVE REGISTRATIONS BY PURPOSE AND TYPE OF SECURITY:

FISCAL YEAR 1982

(MIllIons of Dollars)

Type of Security

Purpose of reqrstranons Bonds

Debentures Preferred Common

Total and Notes Stock Stock'

All registratIons (estimated value) $158,325 $67,408 $7,029 $83,888

For account of Issuer for cash sale 115,011 62,200 4,012 48,799

lrnrnecnate offering 62,325 39,450 3,815 19,060

Corporate 60,978 38,104 3,815 19,060

Offered 10

General Public 60,436 38,011 3,815 18,610

Security Holders 543 93 0 450

Foreign Governments 1,346 1,346 0 0

Delayed and extended cash sale and other Issues 52,686 22,750 197 29,739

For account of Issuer for other than cash sale 38,862 5,101 2,758 31,002

Secondary Offerings 4,452 106 259 4,087

Cash Sale 1,030 10 230 790

Other 3,423 96 30 3,297

'Includes warrants, shares of benencrat Interest, certrticates of parncipanon and all other equity Interests not

elsewhere Included

Note Preliminary

111
Dollars Billions

Effective Registrations

Cash Sale For Account Of Issuers

1935-1982

70

60

Common Stock --.I

,

I

50

40

30

20

10

o

1935 40 45 50 55 60 65 70

.. ...... ..... ,

75*801982

112

(F.scal Years)

*Begonnlng on 1977, Fiscal Years End In September Rather than June.

Data for Transition Quarter July-September 1976 Not Shown on Chart.

Bonds $5.1 Billion, Preferred Stock $.4 Billion, Common Stock $6.8 BIII.on
Regulation A Offerings

During fiscal year 1982, 259 notifications

were filed for proposed offerings under

Regulation A. Issues between $500,000-

$1,500,000 predominated.

Table 28

OFFERINGS UNDER REGULATION A

Fiscal Fiscal Fiscal 1982 1981 1980

Size

$100,000 or Less 7 8 17

$100,000-$200,000 30 31 25

$200,000-$300,000 11 39 17

$300,000-$400,000 7 23 23

$400,000-$500,000 15 35 35 $500,000-$1,500,000 189 303 281

Total 259 439 398

Underwnters

Used 74 172 100

Not Used 185 267 298

Total 259 439 398

Offerors

Issuing Companies 246 429 382

Stockholders 12 3 14

Issuers and Stockholders JOintly 1 7 2

Total 259 439 398

ENFORCEMENT

Types of Proceedings

As the table reflects, the securities laws

provide for a wide range of enforcement actions by the Commission. The most common types of actions are injunctive

proceedings instituted in the Federal district

courts to enjoin continued or threatened

securities law violators, and administrative

proceedings pertaining to broker-dealer

firms and/or individuals associated with

such firms which may lead to various

remedial sanctions as required in the public

interest. When an injunction is entered by

a court, violation of the court's decree is a

basis for criminal contempt against the

violator.

113
Table 29

TYPES OF PROCEEDINGS

ADMINISTRATIVE PROCEEDINGS

Persons SubjeCt to, Acts consntunnq,

and BaSIs for, Enforcement Acllon

Broker-deaJer, mulllQP8l secuntIes

dealer, Investment adviser or associated per.;on

Willful violation of secunnes acts provision or rule, aiding or

abetting such violation, fallure reasonably to supervise others,

willful rmsstaternent or O/TISSlon In Iollng With the comrrussion, conviction of or munction against certain cnmes or

conduct

Regislenld securibes association

Orqaruzsnon or rule not cooforrmng to statutory requirements

viotanon of or inabIlity to comply WIth the 1934 Act, rules

thereunder, or ItS own rules, uruusnned f",lure to enforoe cornpliance With the fOreg<llng or With rules of the MUniCIpal

secunnes Rulemaklng Board by a member or person

associated With a member

Member of mgislered securities

association, or associaled per.;on

Being SUbject to Cornrrussion order pursuant to 1934 Act,

15 (b), WIllful Violation 01 or effective transamon for other

person WIth reason to believe that person was VIolating

secuntres acts provrstors, rules thereunder, or rules of

MUniCipal secunues Rulernaklng Board

National securibes exclwlge

Organization or rule not conforming to statutory requirements

ViolatIon of or inability to comply With 1934 Act, rules

thereunder or ItS own rules, unjustified f",lure to enforce cornpliance With the foregoing by a member or person associated

WIth a member

Member of national securities

exchange, or associaled persons

Being subject to Cornrrussron order pursuant to 1934 Act,

15(b), Willful VIolation of or effectove transaction for other person With reason to believe that person was VIolating secunties

acts, provrsrons or rules, thereunder

Registered clearing agency

ViolatIon of or Inabllty to comply With 1934 Act, rules

thereunder, or ItS own rules, f",lure to enforoe compliance With

ItS own rules by partlClpa>1tS

Sanction

Censure or hrrutanon on activitres, revocallon, suspension or

denial of regiStration, bar or suspension from associenon (1934

Act 99 15B(cX2)-(6) 15b(bX4)-(6) AdVIsers Act 99 203(e)-(I))

SuspenSIon of regIStration or hmrtanon of actIVIties, functoons,

or operanons (1934 Act 1~X1))

Suspension or revocaion of registratIon, censure or limitation

of acnvmes, functioos, or operations (1934 Act, 1~X1))

SuspensIon or expulaon from the sssocenon, bar or suspenaon from associenoo With member of association (1934 Act,

~19(hX2H3))

SuSpenSion of regiStration or limitation of actIVIties, funcnons,

or operations (1934 Act 1~X1))

Suspension or revocation of regIstration, censure or limitation

of actIVities, functions, or operaaons (1934 Act, 19(hX1))

SuspensIon or expulsIon from exchange, bar or suspension

from associenon wrth member (1934 Act, 99 1~X2H3))

Suspension or revocaton of regiStration, censure or limitation

of actoVltles, functions, or operanons (1934 Act, 1~X1))

'Statutory references are as follows "1933 Act", the Securities Act of 1933, "1934 Act", the Securities Exchange

Act of 1934, "Investment Company Act", The Investment Company Act of 1940, "Advisers Act", the Investment Advisers Act of 1940, "Holding Company Act", the Public UtilIty Holding Company Act of 1935, "Trust Indenture Act",

the Trust Indenture Act of 1939, and "SIPA", the Securities Investor Protection Act of 1970

114

~

~

~

~

~

~

~
Table 29-Conllnued

TABLE OF PROCEEDINGS

ADMINISTRATIVE PROCEEDINGS

Persons Subject to, Acts consntunnc,

and BasIs for, Enforcement Acnon

Participant in regIStered clearing agency

Being subject to Oomrrsssron order pursuan to 1934 Act,

S 15(bX4), willful Violation of or effecting transaction for other

person with reason to believe that person was violating provisrons of cleanng agency rules

SecuritJes informaban processor

Violation of or Inability to comply with provisions of 1934 Act

or rules thereunder

Transfer agent

Willful violation of or inability to comply wrth 1934 Act, % 17

or 17A, or regulations thereunder

Any person

Willful Violation of secuntoes act ProVISIon or rule, adlng or abet.

tlng such Violation, willful misstatement In filing with

Commission

Officer or dlnlctor 01 self.

regulatory organization.

Willful Violation of lr04 Act, rules thereunder, or the orqaruzation's own rules, Willful abuse of authonty or unjustified failure

to enforce compliance

PrIncipal of broker-dealer

Engaging In busmess as a broker<lealer after appointment of

SIPC trustee

1933 Act registration statement

Statement matenally Inaccurate or Incomplete

Investment company has not attained $100,000 net worth 90

days after statement became effective

Persons subject to Sections 12, 13

or 15(d) of the 1934 AcL

Matenal noocornpuetce With such provrsioos

SecuritJes Issue

Noncompliance by ISSuer With 1934 Act or rules thereunder

Public Interest requres trading suspension

Sanction

Suspension or exputsron from cleanng agency (1934 Act,

S 19(hX2)

Censure or operanona limitations, suspension or revocation

of registration (1934 Act, S lIA(bX6»

Censure or hrmtanon of actMlIes, denial, SUspenSIon, or revocalion of registration (1r04 Act, S 17A(cX3»

Temporary or pennanent prohibition from serving In certain

capacities for regiStered Investment company (nvestment C0mpany Act, S 9(b»

Removal from office or censure (1r04 Act, S 19(hX4»

Bar or suspension from being or being associated With a

broker-dealer (SIPA, SICX!J»

Stop order suspending effectiveness (1933 Act, S 8(d)

Stop order (Investment Company, Act, S 14(a)

Order dlrecllng compliance (1934 Act, S 15(cX4»

Denial, suspension of effective date, suspension or revocation

of reglSlratlOl1 on nabonal secunnes exch<nge (1r04 Act, S 12(j)

Summary suspension of over-the-counter or exchange trading

1934 !It:t, S 12(1<)

115
Table 29-Continued

TYPES OF PROCEEDINGS

ADMINISTRATIVE PROCEEDINGS

Persons Subject to, Acts consntunna,

and BasIs for, Enforcement ActIon

Registered inwstment company

Failures to hie Investment Company Act registratIon statement

or reqUIred report, filing rnalenally Incomplete or misleading

statement of report

Company has not attained $100,CXXJnet worth 00 days after

1933 Act registration statement became effective

Attorney, accountant, or alher

professional or expert

Lack of reqursite Qualifications to represent others, lacking In

character or Integnly, unethtcal or Improper professional conduct, Willful Violation of secunloes laws or rules, or aiding and

abetting such VIolation

Attorney suspended or disbarred by court,

expert's license rewked or suspended; conviclJon

ot a felony or rrusdemeanor involving moraJ turpitude.

Permanent InJunction against or finding of secuntres VIolation

In Cornrrussion-mstjtuted action finding of secunnes violation

by Cornrrusston In admlntstratlve proceedings

Member of Munlcipal 5ecurities

Rulemalung Board

Willful VIolation of secunties laws, rules thereunder, or rules

of the Board

sencnon

Revocation of registration (Investment Company Act, 8(e))

RevocatIOn or SUSpension of registration (Investment Company

Act, 14(<1))

Permanent or temporary dental of pnvllege to appear or practice before the Corrrrussron (17 C F R 201.2(eX1))

Autornenc SUSpenSIOn from appearance or pracuce before the

CommiSSIon (17 C F R 201.2(eX2))

Temporary suspenaon from appearance before comrmssion

(17 C F R 201.2(eX3))

Censure or removal from office (1934 Act, 15B(cXB))

CIVIL PROCEEDINGS IN FEDERAL DISTRICT COURTS

Persons Subject to, Acts Oonstitutmq,

and BasIs for, Enforcement Action

Any person

Engaging In or about to engage In acts or practices VIolating

secunnes acts, rules or orders thereunder Qncludlng rules of

a regIstered self-regulatol)' organtzatlon)

Noncompliance With proastons of the law, rule, or regulation

under 1933, 1934, or Holling Company Act, order ISSUed by

Cornrrnssron rules of a reglstered self-regulatory organIZation,

or undertaking In a registration statement

5ecurities Investor Protection

CorporalIon

Refusal to cornrrnt fIDds or act for the protectIOn of customers

116

Sancnon

InJunclton against acts or pracllces which constitute or would

constitute VIolations (plus other equitable relief under court's

general eqUIty powers) (1933 Act, ~r. 1934 Act 21(d), 1935

Act 18(1), Investment Company Act, 42(e), Advtsers Act,

2J9(e), Trust Indenture Act, 321)

Wnt of mandamus, IIlJunctlon, or order lirectlng compliance

(1933 Act, 2O(c), 1934 Act, 21(e), Holding Company Act

18(g))

Order directing dlschwge of obligatIOnS or other appropnate

relief (SIPA, 7(b)

~

~

~

~

~

~

~ ~

~ ~ ~

~

~ ~

~

~
Table 29-Contlnued

TYPES OF PROCEEDINGS

CIVIL PROCEEDINGS IN FEDERAL DISTRICT COURTS

Persons Subject to, Acts consntunnq,

and BaSIs for, Enforcement Action

National securities exchange or

registered secunbes assoclatIon

Noncompliance by Its members and persons associated WIth

Its members With the 1934 Act, rules and ocders thereunder,

or rules of the exchange or association

Registered cleanng agency

Noncompliance by rts partrcspants With Its own rules

Issuer subject to reporting requirements

Failure to file reports reqinred under 15(d) of 1934 Act

Registered IIIwstment company or

affiliate

Name of company or of secunty ISSUed t¥ It deceptive or

misleading

Officer, dinlctor, member 01 advisory

board, adivser, depositor, or undetwriter 01

investmenl company.

Engage In act or practice constituting breach 01 frducrary duty mvolvmq personal misconduct

Any person having Iiduc:iay duty respecting

receopl 01 compensation from investment company.

Breach 01 fidUCIary duty

Sanction

Wnt of mandamus, Injunclton or order directIng such exchange

or associatron to enforce compliance (1934 Act, 21 (e)

Wnt of lTlClI"IdErnus, mjurction or order dlloctlng cleanng agency

to enforce compliance (1934 Act, 21 (e)

Forfeiture of $100 per day (1934 Act, 32 (b»

Injunction against use of name (Investment Company Act,

35(d)

Injunction against acting In certam capacities for Investment

company, and other appropnate relief (Investment Company

Act, 36(a)

Injunction (Investment Company Act, 36(a)

III REFERRAL TO ATTORNEY GENERAL FOR CRIMINAL PR:>SECUTlON

aesis for Enforcement Acton

Any person

Willful Vlolalton of secunnes acts or rules thereunder or WIllful

mIsstatement In any document requIred to be filed t¥ seeunties

laws and rules or by self-regulatory orgaro:atlOO In conneclton

With an appflcatlon for membership, partiCIpation or to become

associated WIth a member thereof

Any issuer which violates 3OA(a) of

the 1934 Act (foreIgn corrupt practices)

Any officer or director of an Issuer, of any stockholder actIng on behalf of such Issuer who Willfully Violates 30A(a)

of the 1934 Act

Any employee or agent (subject to the JUrisdiction of the

Unoted States) 01 an Issuer found to have Violated 30A(a)

of the 1934 Act, who Willfully carned out the act or practice constituting such vrolatron

Sanction or Relief

Maximum penalties $10,000 fine and 5 years unpnsonment,

an exchange may be fined up to $500,000, a publlc-utlilty

holding company up to $200,000 (1933 Act, m), 24, 1934

Act, 21(d), 32(a), Hddlng Company Act, 18(~, 29; 1939 Act,

325, Investment Company Act, 42(e), 49; Advtsers Act,

209(e), 217)

Maximum penalty $1,000,000 fine (1934 Act, 32(cXl»)

Maximum penalty $10,000 fine m 5 years Impnsonment (1934

Act, 32(cX2»

Maximum penalty $10,000 fine m 5 years Impnsonment (1934

Act, 32(cX3»)

117

~

~

~ ~

~

~

~

~

~ ~

~ ~ ~

~ ~

~ ~

~ ~
Table 30

INVESTIGATIONS OF POSSIBLE VIOLATIONS OF THE ACTS

ADMINISTERED BY THE COMMISSION

Pending as of October 1, 1981

Opened In fiscal year 1982

Total for Drstnbutron In fiscal year 1982

Closed In frscal year 1982

Pending as of September 30, 1982

921

295

1,216

476

740

During the fiscal year ending September

30, 1982, 133 formal orders were issued

by the Commission upon recommendation

of the Division of Enforcement

Table 31

ADMINISTRATIVE PROCEEDINGS INSTITUTED DURING FISCAL YEAR

ENDING SEPTEMBER 30, 1982

Broker-Dealer Proceedings

Investment Adviser and Investment Company Proceedings

Stop Order Proceedings

Rule 2(e) ProceedIngs

DIsclosure Proceedings (Sectron 15(c)(4)of the Exchange Act)

Total Proceedings In fiscal year 1982

"Inclurtes 5 proceedings which were combined broker-dealer and Investment adviser proceedings

Table 32

INJUNCTIVE ACTIONS

83.

15

1

2

5

106

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

FIscal Year Actions lnrtrated

178

148

174

158

166

135

108

103

115.

136

Defendants Named

654

613

749

722

715

607

511

387

398.

418

.Correctlon from figures In 1981 Annual Report

Table 33

CRIMINAL INDICTMENTS/INFORMATIONS

1973_

1974

1975

1976

1977

1978_

1979

1980

1981

1982

Fiscal Year Actions lmtrated

40

40

53

23

68

50

42

26

26

24

Defendants Named

178

169

199

118

230

144

112

49

48.

47

"Correcttcn from figure In 1981 Annual Report

118

_
Trading Suspensions

During fiscal year 1982, the Commission

suspended trading in the securities of nine

companies, 14 less than the 23 trading suspensions in fiscal 1981. In most instances

the trading suspension was ordered eithe;

because of substantial questions as to the

adequacy, accuracy or availability of public information conceming the company's

financial condition or business operations,

or because transactions in the company's

securities suggested possible manipulation

or other violations.

Foreign Restricted List

The Commission maintains and publishes a Foreign Restricted List which is

designed to put broker-dealers, financial institutions, investors and others on notice of

possible unlawful distributions of foreign

securities in the United States. The list consists of names of foreign companies whose

securities the Commission has reason to

believe have been, or are being offered for

public sale in the United States in possible

violation of the registration requirement of

Section 5 of the Securities Act. The offer

and sale of unregistered securities deprives

investors of all the protections afforded by

the Securities Act, including the right to receive a prospectus containing the information required by the Act for the purpose of

enabling the investor to determine whether

the investment is suitable for him. While

most broker-dealers refuse to effect transactions in securities issued by companies

on the Foreign Restricted List, this does not

necessarily prevent promoters from illegally

offering such securities directly to investors

in the United States by mail, by telephone,

and sometimes by personal solicitation.

The following foreign corporations and

other foreign entities comprise the Foreign

Restricted List

1. Aguacate Consolidated Mines, Incorporated (Costa Rica)

2. Alan MacTavish, Ltd. (England)

3. Allegheny Mining and Exploration

Company, Ltd. (Canada)

4. Allied Fund for Capital Appreciation (AFCA, SA) (Panama)

5. Amalgamated Rare Earth Mines,

Ltd. (Canada)

6. American Industrial Research S.A.,

also known as Investigation In.

dustrial Americana, SA (MeXICO)

7. American International Mining

(Bahamas)

8. American Mobile Telephone and

Tape Co., Ltd. (Canada)

9. Antel International Corporation,

Ltd. (Canada)

10. Antoine Silver Mines, Ltd.(Canada)

11. ASCA Enterprisers Limited (Hong

Kong)

12. Atholl Brose (Exports) Ltd.

(England)

13. Atholl Brose Ltd. (England)

14. Atlantic and PacificBank and Trust

Co., Ltd. (Bahamas)

15. Bank of Sark (Sark, Channel Island

UK)

16. Briar Court Mines, Ltd. (Canada)

17. British Overseas Mutual Fund Corporation, Ltd. (Canada)

18. Califomia & Caracas Mining Corp.,

Ltd. (Canada)

19. Canterra Development Corporation, Ltd. (Canada)

20. Cardwell Oil Corporation, Ltd.

(Canada)

21. Caribbean Empire Company, Ltd.

(British Honduras)

22. Caye Chapel Club, Ltd. (British

Honduras)

23. Central and Southern Industries

Corp. (Panama)

24. Cerro Azul Coffee Plantation

(Panama)

25. Cia. Rio Banano, SA (Costa Rica)

26. City Bank A.S. (Denmark)

27. Claw Lake Molybdenum Mines,

Ltd. (Canada)

28. C1aravellaCorporation (Costa Rica)

29. Compressed Air Corporation,

Limited (Bahamas)

119
30. Continental and Southern In.

dustries, S.A. (Panama)

31. Crossroads Corporation, S.A.

(Panama)

32. Darien Exploration Company, S.A.

(Panama)

33. Derkglen, Ltd. (England)

34. De Veers Consolidated Mining Cor.

poration, S.A. (Panama)

35. Doncannon Spirits, Ltd. (Bahamas)

36. Durman, Ltd. Formerly known as

Bankers International Investment

Corporation (Bahamas)

37. Empresia Minera Caudalosa

dePanama, SA (Panama)

38. Ethel Copper Mines, Ltd. (Canada)

39. Euroforeign Banking Corporation,

Ltd. (Panama)

40. Finansbanker a1s (Denmark)

41. First Liberty Fund, Ltd. (Bahamas)

42. General Mining S.A. (Canada)

43. Global Explorations, Inc. (Panama)

44. Global Insurance Company,

Limited (British West Indies)

45. Globus Anlaqe-Vermittlunqsqesellschaft MBH (Germany)

46. Golden Age Mines, Ltd. (Canada)

47. Hebilla Mining Corporation (Costa

Rica)

48. Hemisphere Land Corporation

Limited (Bahamas)

49. Henry Ost & Son, Ltd. (England)

50. International Communications Cor.

poration (British West Indies)

51. International Monetary Exchange

(Panama)

52. International Trade Development of

Costa Rica, SA

53. lronco Mining & Smelting Com.

pany, Ltd. (Canada)

54. James G. Allan & Sons (Scotland)

55. J.P. Morgan s Company, Ltd., of

London, England (not to be con.

fused with J.P. Morgan & Co., In.

corporated, New York)

56. Jupiter Explorations, Ltd. (Canada)

57. Kenilworth Mines, Ltd. (Canada)

58. Klondike Yukon Mining Company

(Canada)

120

59. KoKanee Moly Mines, Ltd.(Canada)

60. Land Sales Corporation (Canada)

61. Los Dos Hermanos, SA (Spain)

62. Lynbar Mining Corp., Ltd. (Canada)

63. Massive Energy Ltd. (Canada)

64. Mercantile Bank and Trust & Co.,

Ltd. (Cayman Island)

65. Norart Minerals Limited (Canada)

66. Normandie Trust Company, S.A.

(Panama)

67. Northern Survey (Canada)

68. Northern Trust Company, S.A.

(Switzerland)

69. Northland Minerals, Ltd. (Canada)

70. Obsco Corporation, Ltd. (Canada)

71. Pacific Northwest Developments,

Ltd. (Canada)

72. Pan-Alaska Resources, S.A.

(Panama)

73. Panamerican Bank s Trust Company (Panama)

74. Pascar Oils Ltd. (Canada)

75. Paulpic Gold Mines, Ltd. (Canada)

76. Pyrotex Mining and Exploration

Co., Ltd. (Canada)

77. Radio HillMines Co., Ltd. (Canada)

78. Rancho San Rafael, S.A. (Costa

Rica)

79. Rodney Gold Mines Limited

(Canada)

80. Royal Greyhound and Turf

Holdings Limited (South Africa)

81. SA Valles & Co., Inc. (Philippines)

82. San Salvador Savings & Loan Co.,

Ltd. (Bahamas)

83. Santack Mines Limited (Canada)

84. Security Capital Fiscal & Guaranty

Corporation S.A. (Panama)

85. Silver Stack Mines, Ltd. (Canada)

86. Societe Anonyme de Refinancement (Switzerland)

87. Strathmore Distillery Company,

Ltd. (Scotland)

88. Strathross Blending Company

Limited (England)

89. Swiss Caribbean Development &

Finance Corporation (Switzerland)

90. Tam O'Shanter, Ltd. (Switzerland)

91. Timerland (Canada)
paragraph or clause of [Section 21(hX2»)or

the provisions of the Right to Financial

PrivacyAct of 1978 (12 U.s.c. 3401-22 (the

"RFPA")] to obtain access to financial

records of a customer and include it in its

annual report to the Congress." During the

fiscal year, the Commission successfully

made applications to courts for orders pursuant to the subparagraphs and clauses of

Section 21(hX2)to obtain access to financial records of customers on four occasions.

In these four applications, the provisions of

Subsections 21(hX2XAXv), (B)and «(Xi)and

(ii)were relied upon seven times; Subsections 21(hX2XAXv), (B)and «(Xii)were relied

upon five times; and Subsections

21(hX2XAXiii),(iv)and (v),(8) and «(Xi)and

(ii)were each relied upon once. The table

below sets forth the number of occasions

upon which the Commission obtained access to financial records of a customer using the procedures provided by (i)Section

1104 of the RFPA (12 U.S.c. 3404), applicable to customer authorizations; and (ii)

Section 1105 of the RFPA (12U.S.c. 3405J,

applicable to administrative subpoenas.

92. Trans-American Investments,

Limited (Canada)

93. Trihope Recources, Ltd. (West

Indies)

94. Trust Company of Jamaica, Ltd.

(West Indies)

95. United Mining and MillingCorporation (Bahamas)

96. Unitrust Limited (Ireland)

97. Vacationland (Canada)

98. Valores de Inversion, S.A. (Mexico)

99. Victoria Oriente, Inc. (Panama)

100. Warden Walker Worldwide Investment Co. (England)

101. Wee Gee Uranium Mines, Ltd.

(Canada)

102. Western International Explorations,

Ltd. (Bahamas)

103. Yukon Wolverine Mining Company

(Canada)

Right to Financial Privacy

Section 21(hX6) of the Securities Exchange Act of 1934 [15 U.S.c. 78u(hX6)]

requires that the Commission "compile an

annual tabulation of the occasions on which

the Commission used each separate subSection 1104

4

Section 1105

142

121
PUBLIC UTILITY HOLDING

COMPANIES

System Companies

At fiscal year 1982, there were 13 hold.

ing companies registered under the Public

Utility Holding Company Act of 1935 of

which 12 are "active". In the 13 registered

systems, there were 65 electric and/or gas

utility subsidiaries, 62 non-utility sub.

sidiaries, and 19 inactive companies, or a

total of 161 system companies including

the top parent and sub holding companies.

The following table lists the active systems.

Table 34

PUBLIC UTILITY HOLDING COMPANY SYSTEMS

Solely Registered Electric

Registered Holding and/or

Holding Operating Gas Utility Nonunhty Inactive Total

Companoes CompanoesSubsldlarlesSubsldlarles Companoes Companoes Other

Allegheny Power System

(APS) .

American Electric Power

Company (AEP)

Central and South West

Corporation (CSW)

Columbia Gas System

(CGS)

Consolidated Natural Gas

Company (CNG)

Eastern utrunes Associates

(EUA)

General Public Utllllles

(GPU)

MIddle South Utilities

(MSU)

National Fuel Gas Company

(NFG)

New England Electric

System (NEES)

Northeast Utilities (NEU)

Philadelphia Electric Power

Co (PEP)

Southern Company (SC)

Total Companoes

o

1

12

3 4 10

0 12 13 5 31

4 4 11

0 9 14 0 24

0 5 5 0 11

0 3 0 5

0 4 3 2 10

0 7 3 3 14

0 3 0 5

0 5 2 0 8

0 6 6 6 19

1 1 0 1 3

0 5 4 0 10

3 65 62 19 161

o

o

o

o

o

o

18

"Ohio Valley Elec Corp & Subs

lndrana-Kentucky Elec Corp

electric utility

378% AEP

125% APS

497% Other Companoes

122

bArklahoma Corp

32% CSW

34% MSU

34% Oklahoma Gas & Elec

,cYankee Atomic Electric Co

30% NEES, 31 5% NEU,

45% EUA

Connecticut Yankee Atomic Power

Co 15% NEES, 44% NEU

45% EUA

Vermont Yankee Nuclear Power

Corp 20% NEES, 12% NEU,

25% EUA

Maine Yankee Atorruc Power Co

20% NEES, 15% NEU, 4% EUA

Statutory utility subsidranes
Table 35

KEY FINANCIAL STATISTICS OF REGISTERED PUBLIC UTILITY

HOLDING COMPANY SYSTEMS

As of June 30, 1982 (000 omItted)

Name of Company Total Assets Operating Revenues

Allegheny Power System (APS)

American ElectriC Power Company, Inc (AEP)

Central and South West Corporation (CSW)

Columbia Gas System, Inc, The (CGS)

Consolidated Natural Gas Company (CNG)

Eastern unnues Associates (EUA)

General Public Utilities Corp (GPU)

MIddle South unnties, Inc (MSU)

National Fuel Gas Company (NFG)

New England Electric System (NEES)

Northeast Utilities (NEU)

Pruladelptua ElectriC Power Company (PEP)

Southern Company, The (SCj

$ 3,384,463

11,736,678

4,849,289

4,489,234

2,947,776

450,759

5,105,687

9,918,354

819,478

2,367,938

3,904,479

59,538

12,903,405

Total $62,937,078

$ 1,655,509

4,223,000

2,161,793

4,934,569

2,999,783

291,744

2,272,607

2,885,845

984,527

1,210,151

1,742,452

6,371

4,586,900

$29,955,251

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Table 37

SUBSIDIARY SERVICE COMPANIES OF PUBLIC UTILITY HOLDING COMPANY SYSTEMS

AS OF DECEMBER 31, 1981

(In MIllions)

Total Total Total Number of Operatong

Name of Service Company BIllings Assets Personnel Utilities Served

Allegheny Power service Corporation $ 287 $ 28 528 3

American Electric Power Service Corp 1242 460 2,596 8

Central and South West Service, Inc 182 55 258 4

Columbia Gas System Service Corp 462 225 729 7

Consolidated Natural Gas Service Corp 286 66 356 5

EUA Service Corporation 109 21 271 3

GPU Service Corporation 664 324 1,372 4

Middle South Services, Inc 450 613 718 5

New England Power Service Co 776 87 1,540 4

Northeast unnnes Service Co 1307 974 2,713 4

Southern Company Services, Inc 1539 664 2,960 5

Total $7304 $3517 14,041 52

Fuel Programs

During fiscal year 1982, the Commission

authorized over $1.5 billion for fuel exploration and development activities for the

holding company systems. This represents

a 50 percent increase over fiscal year 1981

fuel expenditures. The following table lists

the authorization by holding company system for each fuel program.

Largely as a result of radical changes in

cost and availability of fuel, utilities have

embarked on major programs to acquire

126

control over part of their fuel supply.

Generally, the arrangements involve the formation of subsidiaries or entry into joint

ventures for the production, transportation

and financing of fuel supplies or the supply of capital for the exploration and development of reserves with a right to share

in any discovered reserves. Since 1971, the

Commission has authorized expenditures

of over $5.7 billion for fuel programs of

holding companies subject to the Holding

Company Act.
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CORPORATEREORGAN~TIONS

During the fiscal year the Commission

entered 28 reorganization cases filed under

Chapter 11 of the Bankruptcy Code involving companies with aggregate stated assets

of about $8.8 billion and close to 290,000

public investors. Including these new cases,

the Commission was a party in a total of

51 Chapter 11 cases during the fiscal year.

The stated assets of the companies involved in these cases totalled approximately

$12.5 billion and their indebtedness of

about $10.8 billion. During the fiscal year,

two cases were concluded through confirmation of a plan of reorganization and liquidation, leaving 49 cases In which the

Commission was a party at year-end.

The Commission also continued its

participation in pending reorganization

cases under Chapter X of the prior

Bankruptcy Act. During the fiscal year four

Chapter X cases were closed, leaving at

year-end 48 open Chapter X cases

129
Table 40

PENDING REORGANIZATION PROCEEDINGS UNDER CHAPTER X OF THE

BANKRUPTCY ACT IN WHICH THE COMMISSION PARTICIPATED

Fiscal Year 1982

SEC Notice of

Debtor District Court Petition Filed Appearance Filed

Aldersgate Foundation, Inc' M 0 Fla Sept 12,1974 Oct 3,1974

Arlan's Dept Stores, Inc 2 SO NY March 8,1974 March 8,1974

Bankers Trust Co' SO MIss Dec 16,1976 April 5,1977

Beck Industries, Inc SO NY May 27,1971 July 30,1971

Bermec Corp' SO NY April 16,1971 April 19,1971

Beverly Hills Bancorp CD Cal April 11,1974 May 14,1974

Brethren's Home, The' SO Ohio Nov 23, 1977 Dec 27, 1977

Bubble up Delaware, Inc CD Cal Aug 31,1970 Oct 19,1970

Carolina Caribbean Corp' WD NC Feb 28,1975 April 17,1975

CItizens Mortgage Investment Trust o Mass Oct 5,1978 Nov 1,1978

Commonwealth Corp' NO Fla June 28, 1974 July 17, 1974

Continental Investment Corp' o Mass Oct 31,1978 Oct 31,1978

Continental Mortgage Investors o Mass Oct 21,1976 Oct 21,1976

Diversified Mountameer Corp' SO WVa Feb 8,1974 April 24, 1974

Duplan Corp' SO NY Oct 5,1976 Oct 5,1976

Farrington Manufacturmg Co' ED Va Dec 22, 1970 Jan 14,1971

Frrst Baptist Church, Inc of Margate, Fla' SOFia Sept 10,1973 Oct 1,1973

First Home Investment Corp of Kansas, Inc D Kan April 24,1973 April 24,1973

Fort Cobb, Okla Irngatton Fuel Authonty" W 0 Okla April 20, 1979 July 16,1979

GEBCO Investment Corp WD Pa Feb 8,1977 March 24,1977

Wm Gluckrn Co , Ltd SO NY Feb 22, 1973 March 6,1973

Guaranty Trust Co' W 0 Okla April 9,1979 April 9,1979

Gulfco Investment Corp W 0 Okla March 22, 1974 March 28, 1974

Harmony Loan, Inc 2 ED Ky Jan 31,1973 Jan 31,1973

Hawan Corp' 3 o HawaII March 17,1977 March 17,1977

Home-Stake Production Co NO Okla Sept 20,1973 Oct 2,1973

Investors Funding Corp of New York' SO NY Oct 21,1974 Oct 22, 1974

Kmg Resources Co' o Colo Aug 16,1971 Oct 19,1971

Lake Winnebago Development Co , Inc WD Mo Oct 14,1970 Oct 26, 1970

Lusk Corp o Anz Oct 28, 1965 Nov 15,1965

Mount Everest Corp' ED Pa May 29, 1974 June 28, 1974

National Telephone Co, Inc' o Conn July 10,1975 May 27, 1976

North American Acceptance Corp' NO Ga March 5,1974 March 28, 1974

Orneqa-Alpha, Inc 2 NO Texas Jan 10,1975 Jan 10,1975

Pacrnc Homes' CD Cal Dec 9,1977 Feb 2,1978

Pan American Fmanclal Corp' o Hawau Oct 2,1972 Jan 9,1973

Parkvlew Gem, Inc' WD Mo Dec 18,1973 Dec 28,1973

Pocono Downs, Inc M 0 Pa Aug 20,1975 Aug 20,1975

John Rich Enterprises, Inc' o Utah Jan 16,1970 Feb 6,1970

Reliance Industries, Inc o Hawau May 24,1976 Aug 10,1976

Royal Inns of America, Inc' SO Cal April 24,1975 June 24,1975

Sierra Trading Corp 2 o Colo July 7,1970 July 22, 1970

Stanndco Developers, Inc WO NY Feb 5,1974 March 7,1974

Stifling Homex Corp' WO NY July 11,1972 July 24,1972

Sunset International Petroleum Corp' NO Texas May 27, 1970 June 10,1970

TMT Trailer Ferry, Inc' SOFia June 27, 1957 Nov 22,1957

Trlco, Inc t o Kans Feb 7,1973 Feb 22,1973

US Fmanctal, Inc 2 SO Cal Sept 23,1975 Nov 3,1975

Washington Group, Inc MO NC June 20, 1977 July 25,1977

Western Growth Capital Corp o Anz Feb 10,1967 May 16,1968

Westgate California Corp SO Cal Feb 26, 1974 March 8,1974

Wonderbowl, Inc.' CD Cal March 10,1967 June 7,1967

'Reorganization proceedmgs closed dUring fiscal year 1982

'Plan has been substantially consummated but no final decree has been entered because of pending matters

'Report or memorandum on plan of rsorqaruzatron filed dunnq fiscal year 1981

130

'

I
Table 41

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

IN WHICH COMMISSION ENTERED APPEARANCE

Debtor

Airlift lnternatronal, Inc

AM lnternatronal

American Nautilus Fitness Center?

Arctic Enterprises, Inc 1

Atlas Mortgage Loan Co

Auto Train Corp'

Bear Lake West

Bobble Brooks, Inc

Braniff International

Christian Life Center

Coleman American Companies, Inc

Colorual Commercial Corp

Colonial Discount Corp

Combustion Equipment Association

Computer Cornmurucatrons

Dreco Energy Service Ltd

Empire 011 & Gas Co

Fashion Two-Twenty, Inc

Fidelity American Fmancral Corp

FWD Corporation I

General Resources Corp

Goldblatt Brothers, Inc

Grove Finance Company

G Weeks Securities

Haven Properties, Inc

Hawau Nevada Investment Corp'

Heritage Investment Group of Ark'

HOrizon HOSPital, Inc

Inforex, Inc 1

Itel Corporation

KDT Industries, Inc

L S Good & Co'

Leisure Time Products, Inc

LeWIS Energy Corporation

The Lionel Corp

Mansfield Tire & Rubber

ManVille Corp

McClouth Steel Corp

Mid American Lines Inc

NOVA REIT

Nucorp Energy, Inc

Omega Financral Investment Corp'

Park Nursmq Center

Penn-Drxte Industries

Pleasant Grove Medical Center'

Resource ExploratIon, Inc'

Rusco Industries, Inc

Sambos Restaurants, Inc

Saxon Industries, Inc

SBE, Incorporated'

Seat rain Lines, Inc

Shelter Resources

Southland Lutheran Home'

Stewart Energy Systems

Tax Info Ctr IP&K Fry

Tenna Corp'

Distnct

Court

S D FL

N D IL

S DCA

D MN

ED CA

D DC

DID

N DOH

N D TX

N DCA

D KS

S D NY

SD IN

S D NY

CD CA

S D TX

D CO

N DOH

CD CA

ED PA

N D GA

N D IL

D UT

WD TN

D OR

D NV

ED AR

M 0 FL

D MA

N DCA

SD NY

N D WV

N D IN

D CO

SONY

N D OH

SD NY

S D MI

WD MI

DC VA

S DCA

CD CA

ED MI

S D NY

N D TX

N DOH

SD GA

CD CA

S D NY

N DCA

SD NY

NDOH

CD CA

D ID

DOH

N DOH

Fiscal

Year Filed

1981

1982

1981

1981

1982

1980

1982

1982

1982

1980

1980

1982

1982

1981

1981

1982

1982

1982

1981

1981

1980

1981

1981

1980

1982

1981

1981

1981

1980

1981

1982

1980

1982

1982

1982

1980

1982

1982

1982

1981

1982

1981

1980

1980

1980

1980

1982

1982

1982

1980

1981

1982

1980

1982

1982

1980

131
Table 41-Continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

IN WHICH COMMISSION ENTERED APPEARANCE

Debtor

Topps & Trowsers'

uruehetter, Inc

UNR Industnes

Western Farmers Association

WhIte Motor Corp

Wickes Companies

Wllnor Dnillng, Inc

'Plan of reorganization confirmed

'Case hquidated under Chapter 7

'Chapter 11 petition dismissed

SEC OPERATIONS

The Commission collects fees for the

registration of securities, securities transactions on national securities exchanges, and

miscellaneous filings, reports and applications. In fiscal year 1982 the Commission

132

Distnct Fiscal

Court Year Filed

N DCA 1980

ED WI 1981

N D IL 1982

DWA 1980

N D OH

1980

CD CA 1982

S D IL 1982

collected $78.2 million in fees for deposit

into the General Fund of the Treasury. This

amount represented 94 percent of the

Commission's appropriated funds, as compared with 81 percent ($65.3 million) in the

preceding year.
Appropriated Funds vs Fees Collected

Dollars Millions

90

80

70

60

50

40

30

20

U 1972 73 74 75 76 77 78 79 80 81 1982

!!Estimated

133
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