Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25843

documents is unnecessary. The

provisions of this amendment state the

affected CFR (and FAR) sections, with

the types and effective dates of the

SIAPs. This amendment also identifies

the airport, its location, the procedure

identification and the amendment

number.

The Rule

This amendment to part 97 is effective

upon publication of each separate SIAP

as contained in the transmittal. Some

SIAP amendments may have been

previously issued by the FAA in a

National Flight Data Center (NFDC)

Notice to Airmen (NOTAM) as an

emergency action of immediate flight

safety relating directly to published

aeronautical charts. The circumstances

which created the need for some SIAP

amendments may require making them

effective in less than 30 days. For the

remaining SIAPs, as effective date at

least 30 days after publication is

provided.

Further, the SIAPs contained in this

amendment are based on the criteria

contained in the U.S. Standard for

Terminal Instrument Procedures

(TERPS). In developing these SIAPs, the

TERPS criteria were applied to the

conditions existing or anticipated at the

affected airports. Because of the close

and immediate relationship between

these SIAPs and safety in air commerce,

I find that notice and public procedure

before adopting these SIAPs are

impracticable and contrary to the public

interest and, where applicable, that

good cause exists for making some

SIAPs effective in less than 30 days.

Conclusion

The FAA has determined that this

regulation only involves an established

body of technical regulations for which

frequent and routine amendments are

necessary to keep them operationally

current. It, therefore—(1) is not a

‘‘significant regulatory action’’ under

Executive Order 12866; (2) is not a

‘‘significant rule’’ under DOT

Regulatory Policies and Procedures (44

FR 11034; February 26, 1979); and (3)

does not warrant preparation of a

regulatory evaluation as the anticipated

impact is so minimal. For the same

reason, the FAA certifies that this

amendment will not have a significant

economic impact on a substantial

number of small entities under the

criteria of the Regulatory Flexibility Act.

List of Subjects in 14 CFR part 97

Air Traffic Control, Airports,

Navigation (Air).

Issued in Washington, DC on April 28,

2000.

L. Nicholas Lacey,

Director, Flight Standards Service.

Adoption of the Amendment

Accordingly, pursuant to the

authority delegated to me, part 97 of the

Federal Aviation Regulations (14 CFR

part 97) is amended by establishing,

amending, suspending, or revoking

Standard Instrument Approach

Procedures, effective at 0901 UTC on

the dates specified, as follows:

PART 97—STANDARD INSTRUMENT

APPROACH PROCEDURES

1. The authority citation for part 97 is

revised to read as follows:

Authority: 49 U.S.C. 106(g), 40103, 40113,

40120, 44701; and 14 CFR 11.49(b)(2).

2. Part 97 is amended to read as

follows:

§§ 97.23, 97.25, 97.27, 97.29, 97.31, 97.33,

97.35 [Amended]

By amending: § 97.23 VOR, VOR/DME,

VOR or TACAN, and VOR/DME or TACAN;

§ 97.25 LOC, LOC/DME, LDA, LDA/DME,

SDF, SDF/DME; § 97.27 NDB, NDB/DME;

§ 97.29 ILS, ILS/DME, ISMLS, MLS, MLS/

DME, MLS/RNAV; § 97.31 RADAR SIAPs;

§ 97.33 RNAV SIAPs; and § 97.35 COPTER

SIAPs, identified as follows:

. . . Effective May 18, 2000

Louisburg, NC, Franklin County, ILS RWY 4,

Orig

. . . Effective June 15, 2000

Chicago/Lake in the Hills, IL, Lake In The

Hills, RNAV RWY 26, Orig

Winchester, IN, Randolph County, NDB RWY

25, Amdt 4, CANCELLED

Ruston, LA, Ruston Regional NDB RWY 36,

Orig

Duluth, MN, Duluth Intl, COPTER ILS RWY

9, Orig

Mankato, MN, Mankato Muni, COPTER ILS

RWY 33, Orig

Minneapolis, MN, Flying Cloud, COPTER ILS

RWY 9R, Orig

Minneapolis, MN, Flying Cloud, RNAV RWY

36, Orig

Rochester, MN, Rochester International,

COPTER ILS RWY 31, Orig

St. Paul, MN, St. Paul Downtown Holman

Field, COPTER ILS RWY 32, Orig

Lebanon, NH, Lebanon Muni, GPS RWY 7,

Orig

Lebanon, NH, Lebanon Muni, GPS RWY 25,

Orig

McMinnville, TN, Warren County Memorial,

GPS RWY 23, Orig

. . . Effective August 10, 2000

Merced, CA, Merced Muni-Macready Field,

VOR RWY 12 Amdt 7B

Merced, CA, Merced Muni-Macready Field,

LOC BC RWY 12, Amdt 10B

Merced, CA, Merced Muni-Macready Field,

GPS RWY 12, Orig–B

Merced, CA, Merced Muni-Macready Field,

GPS RWY 30, Orig–B

Paso Robles, CA, Paso Robles Muni, VOR/

DME OR GPS RWY 19, Amdt 3A

Lamar, CO, Lamar Muni, VOR/DME RWY 36,

Amdt 1A

Lamar, CO, Lamar Muni, GPS RWY 18, Orig–

A

St. Augustine, FL, St. Augustine, GPS RWY

13, Orig–A

Marion, IL, Williamson County Regional,

VOR OR GPS RWY 2, Amdt 12B

Marion, IL, Williamson County Regional,

NDB OR GPS RWY 20, Amdt 9B

Mattoon/Charleston, IL, Coles County

Memorial, NDB OR GPS RWY 29, Amdt

4B

Rockford, IL, Greater Rockford, NDB OR GPS

RWY 1, Amdt 25A

St. Cloud, MN, St. Cloud Regional, GPS RWY

23, Orig–B

St. Cloud, MN, St. Cloud Regional, GPS RWY

5, Orig–B

Madison, SD, Madison Muni, GPS RWY 33,

Orig–B

Pine Ridge, SD, Pine Ridge, GPS RWY 30,

Orig–B

Petersburg, VA, Petersburg Muni, LOC RWY

5, Orig–C

Petersburg, VA, Petersburg Muni, NDB OR

GPS RWY 5, Amdt 4B

Philipsburg, PA, Mid-State, VOR RWY 24,

Amdt 15A

Philipsburg, PA, Mid-State, NDB RWY 16,

Amdt 6A

Moses Lake, WA, Grant County Intl, GPS

RWY 14L, Orig–A

Kenosha, WI, Kenosha Regional, VOR OR

GPS RWY 14, Orig–D

Kenosha, WI, Kenosha Regional, NDB OR

GPS RWY 6L, Amdt 1C

La Crosse, WI, La Crosse Muni, VOR RWY

13, Amdt 29A

La Crosse, WI, La Crosse Muni, VOR OR GPS

RWY 36, Amdt 30A

Milwaukee, WI, General Mitchell Intl, NDB

OR GPS RWY 1L, Amdt 4A

Milwaukee, WI, General Mitchell Intl, NDB

OR GPS RWY 7R, Amdt 10C

Mosinee, WI, Central Wisconsin, VOR/DME

OR GPS RWY 35, Amdt 7A

Mosinee, WI, Central Wisconsin, LOC BC

RWY 26, Amdt 10B

Mosinee, WI, Central Wisconsin, NDB OR

GPS RWY 17, Orig–A

Oshkosh, WI, Wittman Regional, NDB OR

GPS RWY 36, Amdt 5C

[FR Doc. 00–11162 Filed 5–3–00; 8:45 am]

BILLING CODE 4910–13–M

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 231, 241 and 271

[Release Nos. 33–7856, 34–42728, IC–24426;

File No. S7–11–00]

RIN 3235–AG84

Use of Electronic Media

AGENCY: Securities and Exchange

Commission.

25844 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

1We do not edit personal, identifying

information, such as names or electronic mail

addresses, from electronic submissions. Submit

only information you wish to make publicly

available.

2 Katrina Brooker, They Want You Wired;

Brokerage Firms of All Kinds are Tripping Over

Themselves to Compete Online for Customers,

Fortune, Dec. 20, 1999, at 113. See also Online

Brokerage: Keeping Apace of Cyberspace, Report of

Laura S. Unger, Commissioner, U.S. Securities and

Exchange Commission, Nov. 1999 (the Unger

Report), at 1 (the percentage of equity trades

conducted online in the first quarter of 1999 was

15.9% of all equity trades). The report is available

on our Internet web site at <http://www.sec.gov/

news/spstindx.htm>.

3 It is estimated that over 160 brokerage firms

offer their customers the ability to trade securities

online. See the Unger Report, n. 2 above, at 15.

4Through March of this year, we had filed

approximately 120 Internet-related enforcement

actions. See Statement of Chairman Arthur Levitt

before the Senate Subcommittee on Commerce,

Justice, State and the Judiciary, Committee on

Appropriations, re: Appropriations for Fiscal Year

2001, Mar. 21, 2000. The statement is available on

our Internet web site at <http://www.sec.gov/news/

testmony/ts052000.htm>. We also have conducted

three Internet enforcement sweeps. See SEC Steps

Up Nationwide Crackdown Against Internet Fraud,

Charging 26 Companies and Individuals for Bogus

Securities Offerings, SEC Press Release 99–49 (May

12, 1999); SEC Continues Internet Fraud

Crackdown, SEC Press Release 99–24 (Feb. 25,

1999); Purveyors of Fraudulent Spam, Online

Newsletters, Message Board Postings, and Websites,

SEC Press Release 98–117 (Oct. 28, 1998). These

press releases are available on our Internet web site

at <http://www.sec.gov/news/presindx.htm>.

ACTION: Interpretation; Solicitation of

Comment.

SUMMARY: We are publishing guidance

on the use of electronic media by issuers

of all types, including operating

companies, investment companies and

municipal securities issuers, as well as

market intermediaries. The guidance

addresses the use of electronic media in

three areas. First, we update our

previous guidance on the use of

electronic media to deliver documents

under the federal securities laws.

Second, we discuss an issuer’s liability

for web site content. Third, we outline

basic legal principles that issuers and

market intermediaries should consider

in conducting online offerings.

Additionally, because technology is

evolving rapidly, we seek comment on

a number of issues to assist us in

determining whether further regulatory

action is necessary.

DATES: Effective Date: The

interpretations are effective on May 4,

2000. Comment Date: Comments should

be submitted on or before June 19, 2000.

ADDRESSES: You should submit three

copies of your comments to Jonathan G.

Katz, Secretary, U.S. Securities and

Exchange Commission, 450 Fifth Street,

N.W., Washington, D.C. 20549–0609.

You also may submit your comments

electronically to the following electronic

mail address: rule-comments@sec.gov.

All comment letters should refer to File

Number S7–11–00; please include this

file number in the subject line if you use

electronic mail. Comment letters will be

available for inspection and copying at

the Commission’s Public Reference

Room, 450 Fifth Street, N.W.,

Washington, D.C. 20549. We will post

electronically submitted comment

letters on our Internet web site <http:/

/www.sec.gov>.1

FOR FURTHER INFORMATION CONTACT: P.J.

Himelfarb and Mark A. Borges in the

Office of Chief Counsel, Division of

Corporation Finance, at (202) 942–2900.

For questions regarding broker-dealers

(including municipal securities dealers),

please contact Paula R. Jenson, Deputy

Chief Counsel, and Laura S. Pruitt in the

Office of Chief Counsel, Division of

Market Regulation, at (202) 942–0073.

For questions regarding broker-dealer

capacity, please contact Irene A. Halpin

and Joan M. Collopy in the Office of

Risk Management and Control, Division

of Market Regulation, at (202) 942–0772.

For questions regarding investment

companies and investment advisers,

please contact Alison M. Fuller,

Assistant Chief Counsel, and David W.

Grim in the Office of Chief Counsel,

Division of Investment Management, at

(202) 942–0659.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

II. Interpretive Guidance

A. Electronic Delivery

1. Telephonic Consent

2. Global Consent

3. Use of Portable Document Format

4. Clarification of the ‘‘Envelope Theory’’

B. Web Site Content

1. Issuer Responsibility for Hyperlinked

Information

a. Context of the Hyperlink

b. Risk of Confusion

c. Presentation of the Hyperlinked

Information

2. Issuer Communications During a

Registered Offering

C. Online Offerings

1. Online Public Offerings

2. Online Private Offerings under

Regulation D

3. Broker-Dealer Capacity

D. Technology Concepts

1. Access Equals Delivery

2. Electronic Notice

3. Implied Consent

4. Electronic-Only Offerings

5. Access to Historical Information

6. Communications When in Registration

7. Internet Discussion Forums

E. Examples

III. Solicitation of Comment

I. Introduction

By facilitating rapid and widespread

information dissemination, the Internet

has had a significant impact on capitalraising techniques and, more broadly,

on the structure of the securities

industry. Today, almost seven million

people invest in the U.S. securities

markets through online brokerage

accounts.2 To serve this increasing

interest in online trading, there has been

a surge in online brokerage firms

offering an array of financial services.3

Additionally, many publicly traded

companies are incorporating Internetbased technology into their routine

business operations, including setting

up their own web sites to furnish

company and industry information.

Some provide information about their

securities and the markets in which

their securities trade. Investment

companies use the Internet to provide

investors with fund-related information,

as well as shareholder services and

educational materials. Issuers of

municipal securities also are beginning

to use the Internet to provide

information about themselves and their

outstanding bonds, as well as new

offerings of their securities. The

increased availability of information

through the Internet has helped to

promote transparency, liquidity and

efficiency in our capital markets.

This release is designed to provide

guidance to issuers of all types,

including operating companies,

investment companies and municipal

securities issuers, as well as market

intermediaries, on several issues

involving the application of the federal

securities laws to electronic media. In

developing this guidance, we

considered the significant benefits that

investors can gain from the increased

use of electronic media. We also

considered the potential for electronic

media, as instruments of inexpensive,

mass communication, to be used to

defraud the investing public.4 We

believe that the guidance advances our

central statutory goals: Ensuring full and

fair disclosure to investors; promoting

the public interest, including investor

protection, efficiency, competition and

capital formation; and maintaining fair

and orderly markets.

One of the key benefits of electronic

media is that information can be

disseminated to investors and the

financial markets rapidly and in a costeffective and widespread manner. Our

recently adopted rules permitting

increased communications with security

holders and the markets in connection

with business combinations and similar

transactions should enable issuers to

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25845

5See Securities Act Release No. 7760 (Oct. 22,

1999) [64 FR 61408]. This new regulatory system

relaxes restrictions on communications in cash

tender offers, mergers, exchange offers and proxy

solicitations.

6We also are considering separately the use of

road shows in the capital-raising context.

7A ‘‘hypertext link,’’ or ‘‘hyperlink,’’ is an

electronic path often displayed in the form of

highlighted text, graphics or a button that associates

an object on a web page with another web page

address. It allows the user to connect to the desired

web page address immediately by clicking a

computer-pointing device on the text, graphics or

button. See Harvey L. Pitt & Dixie L. Johnson,

Avoiding Spiders on the Web: Rules of Thumb for

Issuers Using Web Sites and E-Mail, in Practising

Law Institute, Securities Law & the Internet, No.

1127 (1999), at 107–118, n. 5.

8 In this release, when we refer to a Section 10

prospectus, we are referring both to prospectuses

satisfying the requirements of Section 10(a) of the

Securities Act, 15 U.S.C. 77j(a), and prospectuses

satisfying the requirements of Section 10(b) of the

Securities Act, 15 U.S.C. 77j(b).

9 15 U.S.C. 77b(a)(3).

10 ‘‘In registration’’ is a term that refers to the

entire registration process under the Securities Act,

‘‘at least from the time an issuer reaches an

understanding with the broker-dealer which is to

act as managing underwriter [before] the filing of a

registration statement’’ until the end of the period

during which dealers must deliver a prospectus.

See Securities Act Release No. 5180, at n. 1 (Aug.

16, 1971) [36 FR 16506]. An issuer will not be

considered to be ‘‘in registration’’ at any particular

point in time solely because it has filed one or more

registration statements on Form S–8, 17 CFR

239.16b, or it has on file a registration statement for

a delayed shelf offering on Form S–3, S–4, F–3 or

F–4, 17 CFR 239.13, 239.25, 239.33 or 239.34, and

has not commenced or is not in the process of

offering or selling securities ‘‘off of the shelf.’’

11Securities Act Release No. 7233 (Oct. 6, 1995)

[60 FR 53458] (the 1995 Release).

12 [12]: 15 U.S.C. 77a, et seq.

13 15 U.S.C. 78a, et seq.

14 15 U.S.C. 80a–1, et seq.

15Securities Act Release No. 7288 (May 9, 1996)

[61 FR 24644] (the 1996 Release). The 1996 Release

also provided additional examples supplementing

the guidance in the 1995 Release. Since 1996, we

have further addressed the use of electronic media

in the context of offshore sales of securities and

investment services, see Securities Act Release No.

7516 (Mar. 23, 1998) [63 FR 14806] (the 1998

Release), and cross-border tender offers, see

Securities Act Release No. 7759, Section II.G (Oct.

22, 1999) [64 FR 61382].

16 15 U.S.C. 80b–1, et seq.

17 In Section D below, we also request comment

on a number of additional issues involving

electronic delivery.

18See the 1995 Release, n. 11 above, at n. 29 and

the accompanying text.

19See the 1996 Release, n. 15 above, at n. 23.

20See John R. Hewitt & Richard B. Carlson,

Securities Practice and Electronic Technology, Law

Journal Seminars-Press (1998), at 3.01[1].

21See Stephen I. Glover & Lanae Holbrook,

Electronic Proxies, Nat. L. J., Mar. 29, 1999, at B5;

See also Jennie Blizzard, Investor Relations Gets

Tech Updates; Proxy Voting Among the Signs of

Change, Rich. Times Dispatch, Mar. 28, 1999, at E1.

Similarly, mutual fund shareholders may effect

purchases and redemptions of fund shares

telephonically, where permitted by the fund and

under applicable state law.

take further advantage of this benefit.5

Thus far, we have not extended the

same flexible treatment to securities

offerings aimed at raising capital. For

these offerings, we are considering

separately the liberalization of

communications by issuers and other

market participants.6

Today’s interpretive guidance will do

the following:

• Facilitate electronic delivery of

communications by clarifying that

—investors may consent to electronic

delivery telephonically;

—intermediaries may request consent to

electronic delivery on a ‘‘global,’’

multiple-issuer basis;

—issuers and intermediaries may

deliver documents in portable

document format, or PDF, with

appropriate measures to assure that

investors can easily access the

documents;

—an embedded hyperlink 7 within a

Section 10 prospectus 8 or any other

document required to be filed or

delivered under the federal securities

laws causes the hyperlinked

information to be a part of that

document;

—the close proximity of information on

a web site to a Section 10 prospectus

does not, by itself, make that

information an ‘‘offer to sell,’’ ‘‘offer

for sale’’ or ‘‘offer’’ within the

meaning of Section 2(a)(3) of the

Securities Act 9; and

—municipal securities underwriters

may rely on a municipal securities

issuer to identify the documents on

the issuer’s web site that comprise the

preliminary, deemed final and final

official statements.

• Reduce uncertainty regarding

permissible web site content to

encourage more widespread information

dissemination to all investors by

clarifying

—some of the facts and circumstances

that may result in an issuer having

adopted information on a third-party

web site to which the issuer has

established a hyperlink for purposes

of the anti-fraud provisions of the

federal securities laws; and

—general legal principles that govern

permissible web site communications

by issuers when in registration.10

• Facilitate online offerings by

clarifying

—general legal principles that brokerdealers should consider when

developing and implementing

procedures for online public offerings;

and

—circumstances under which a thirdparty service provider may establish a

web site to facilitate online private

offerings.

II. Interpretive Guidance

A. Electronic Delivery

We first published our views on the

use of electronic media to deliver

information to investors in 1995.11 The

1995 Release focused on electronic

delivery of prospectuses, annual reports

to security holders and proxy

solicitation materials under the

Securities Act of 1933,12 the Securities

Exchange Act of 1934 13 and the

Investment Company Act of 1940.14 Our

1996 electronic media release 15 focused

on electronic delivery of required

information by broker-dealers

(including municipal securities dealers)

and transfer agents under the Exchange

Act and investment advisers under the

Investment Advisers Act of 1940.16

We believe that the framework for

electronic delivery established in these

releases continues to work well in

today’s technological environment.

Issuers and market intermediaries

therefore must continue to assess their

compliance with legal requirements in

terms of the three areas identified in the

releases—notice, access and evidence of

delivery. Although we believe that this

framework continues to be appropriate,

we provide below guidance that will

clarify some regulatory issues relating to

electronic delivery.17

1. Telephonic Consent

As noted above, one of the three

elements of satisfactory electronic

delivery is obtaining evidence of

delivery. The 1995 Release provided

that one method for satisfying the

evidence-of-delivery element is to

obtain an informed consent from an

investor to receive information through

a particular electronic medium.18 The

1996 Release stated that informed

consent should be made by written or

electronic means.19 Some securities

lawyers have concluded that, based on

the 1996 Release, telephonic consent

generally is not permitted. Others have

opined that telephonic consent may be

permissible if an issuer or intermediary

retains a record of the consent.20

In today’s markets, where speed is a

priority, significant matters often are

communicated telephonically. It is

common (and increasingly popular), for

instance, for security holders to vote

proxies and even transfer assets over the

telephone where permitted under

applicable state law.21 In addition,

investors can place orders to trade

securities over the telephone. We

believe these practices have developed

because business can be transacted as

effectively over the telephone today as

it can in paper. We are of the view,

therefore, that an issuer or market

25846 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

22The record of telephonic consent should

contain as much detail as any written consent,

including whether the consent obtained is global

and what electronic media will be used.

23See, for example, Ex. 1 and Ex. 2 in Section E

below.

24See the 1995 Release, n. 11 above, at Ex. 3

(consent by investor John Doe to delivery of all

future documents by electronic mail) and Ex. 26

(consent by record holder Jane Doe to delivery of

all documents via Company XYZ’s web site).

25 Id. at Ex. 6. Under this interpretation, we also

believe, and we further clarify today, that an issuer

or broker-dealer may rely on a consent obtained by

a third-party document delivery service, but the

issuer or broker-dealer retains the ultimate

responsibility for assuring that the consent is

authentic and for the delivery of required

documents.

26 Generally, a consent is considered to be

informed when an investor is apprised that the

document to be provided will be available through

a specific electronic medium or source (for

example, through a limited proprietary system or at

an Internet web site) and that there may be costs

associated with delivery (for example, in

connection with online time). In addition, for a

consent to be informed an investor must be

apprised of the time and scope parameters of the

consent. For example, an investor should be made

aware of whether the consent is indefinite and

extends to more than one type of document. See

note 29 of the 1995 Release, n. 11 above, for a

discussion of the information that must be

disclosed in an informed consent.

27We recognize that some brokerage firms require

accounts to be opened online and all account

transactions to be initiated and conducted online.

In these instances only, the opening of a brokerage

account may be conditioned upon providing global

consent to electronic delivery.

28See the 1995 Release, n. 11 above, at Section

II.C.

29See n. 18 above.

30See, for example, Ex. 3 in Section E below.

31See, for example, Ex. 4 in Section E below.

32See the 1995 Release, n. 11 above, at n. 24 and

the accompanying text.

33 In 1999, we began modernizing the Electronic

Data Gathering, Analysis and Retrieval, or EDGAR,

system. See Securities Act Release No. 7684 (May

17, 1999) [64 FR 27888]. One effect of the

modernization was to allow filings to be submitted

in HTML. Filers also were given the option of

accompanying their required filings with unofficial

copies in PDF.

34See, for example, Ex. 5 in Section E below. We

remind issuers and intermediaries that we will not

consider an electronically delivered document to

have been preceded or accompanied by another

electronic document unless investors are provided

with reasonably comparable access to both

documents. See the 1996 Release, n. 15 above, at

Ex. 4.

35See the 1995 Release, n. 11 above, at Ex. 14.

36 Id. at Ex. 15 and Ex. 16.

intermediary may obtain an informed

consent telephonically, as long as a

record of that consent is retained.22 As

with written or electronic consent,

telephonic consent must be obtained in

a manner that assures its authenticity.23

2. Global Consent

The 1995 Release stated that consent

to electronic delivery could relate to all

documents to be delivered by or on

behalf of a single issuer.24 The 1995

Release also stated that an issuer could

rely on consent obtained by a brokerdealer or other market intermediary.25

Some securities lawyers have

questioned the permissible scope of

consents that are obtained by brokerdealers or banks (or their agents) from

investors who hold securities of

multiple issuers in their brokerage, trust

or other accounts. Specifically, they

have asked whether an investor can

consent to electronic delivery of all

documents of any issuer in which that

investor buys or owns securities through

a particular intermediary.

We believe that an investor may give

a global consent to electronic delivery—

relating to all documents of any issuer—

so long as the consent is informed.26

Given the broad scope of a global

consent and its effect on an investor’s

ability to receive important documents,

we believe intermediaries should take

particular care to ensure that the

investor understands that he or she is

providing a global consent to electronic

delivery. For example, a global consent

that is merely a provision of an

agreement that an investor is required to

execute to receive other services may

not fully inform the investor. To best

inform investors, broker-dealers could

obtain consent from a new customer

through an account-opening agreement

that contains a separate section with a

separate electronic delivery

authorization, or through a separate

document altogether. We believe that a

global consent to electronic delivery

would not be an informed consent if the

opening of a brokerage account were

conditioned upon providing the

consent.27 Therefore, absent other

evidence of delivery,28 we believe that

if the opening of an account were

conditioned upon providing a global

consent, evidence of delivery would not

be established.

Similarly, because of the broad scope

of a global consent, an investor should

be advised of his or her right to revoke

the consent at any time and receive all

covered documents in paper format. We

recognize that a system allowing an

investor to revoke consent to electronic

delivery with respect to some issuers’

documents, but not others, may be

difficult to administer. An intermediary

might be uncertain about whether or not

it has complied with its delivery

obligations. Thus, intermediaries, if they

wish, may require revocation on an ‘‘allor-none’’ basis, provided that this policy

is adequately disclosed when the

consent is obtained.

As noted in the 1995 Release, an

informed consent must specify the type

of electronic media to be used (for

example, a limited proprietary system or

an Internet web site).29 This is

particularly true for global consents

where multiple documents may be

delivered through different media. An

investor should not be disadvantaged by

inadvertently consenting to electronic

delivery through a medium that is not

compatible with the investor’s computer

hardware and software.30

Although a global consent must

identify the various types of electronic

media that may be used to constitute an

informed consent, it need not specify

the medium to be used by any particular

issuer. Additionally, the consent need

not identify the issuers covered by the

consent. If the consent does identify the

covered issuers, it also may provide that

additional issuers can be added at a

later time without further consent.

Investors cannot be required to accept

delivery via additional media at a later

time without further informed

consent.31

3. Use of Portable Document Format

The 1995 Release stated that ‘‘the use

of a particular medium should not be so

burdensome that intended recipients

cannot effectively access the

information provided.’’ 32 Many issuers

have interpreted this statement to

preclude delivery of PDF documents

which cannot be accessed without

special software. Instead, those issuers

use hypertext markup language, or

HTML, which may be viewed without

the need for additional software.33 We

believe that issuers and market

intermediaries delivering documents

electronically may use PDF if it is not

so burdensome as effectively to prevent

access. For example, PDF could be used

if issuers and intermediaries

• inform investors of the

requirements necessary to download

PDF when obtaining consent to

electronic delivery; and

• provide investors with any

necessary software and technical

assistance at no cost.34

4. Clarification of the ‘‘Envelope

Theory’’

The 1995 Release provided a number

of examples designed to assist issuers

and market intermediaries in meeting

their delivery obligations through

electronic media. One example

provided that documents in close

proximity on the same web site menu

are considered delivered together.35

Other examples confirmed the

proposition that documents hyperlinked

to each other are considered delivered

together as if they were in the same

paper envelope.36 The premise

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25847

37See Sections 2(a)(10) and 5(b) of the Securities

Act, 15 U.S.C.§§ 77b(a)(10) and 77e(b).

38Some securities lawyers have raised similar

issues concerning the use of a web site in

connection with proxy solicitations, tender offers

and other transactions that require documents to be

filed or delivered under the federal securities laws.

Although the guidance in this section focuses on

issues relating to the registration process, it applies

by analogy to all documents required to be filed or

delivered under the federal securities laws.

39 In Example 14 of the 1995 Release, see n. 11

above, we stated that documents that appear in

close proximity to each other on the same web site

menu are considered delivered together. Given the

layout of a typical web page, which often includes

multiple ‘‘buttons’’ spread throughout the page

rather than in menu format, issuers may be

confused by our reference in the 1995 Release to

‘‘menu.’’ Two or more documents will be

considered to be delivered together if the buttons

are in proximity to each other on the same screen,

whether or not they are on the same ‘‘menu.’’

40By ‘‘free writing,’’ we mean communications

that would constitute an ‘‘offer to sell,’’ ‘‘offer for

sale’’ or ‘‘offer,’’ including every attempt or offer to

dispose of, or solicitation of an offer to buy, a

security or interest in a security, for value under

Section 2(a)(3) of the Securities Act made by means

other than a prospectus satisfying the requirements

of Section 10 of the Securities Act, 15 U.S.C. 77j.

Section 2(a)(10) of the Securities Act defines the

term ‘‘prospectus.’’

41When an issuer includes a hyperlink within a

document required to be filed or delivered under

the federal securities laws, we believe it is

appropriate for the issuer to assume responsibility

for the hyperlinked information as if it were part

of the document. We believe that the inclusion of

a hyperlink to an external web site or document

demonstrates the hyperlinking party’s intent to

make the information part of its communication

with investors, security holders and the markets.

Additionally, because written offers must be made

exclusively through a Section 10 prospectus, when

an issuer includes a hyperlink to an external web

site or document within a Section 10 prospectus,

the issuer expresses its intent to have the

hyperlinked information treated as part of this

exclusive means of offering its securities. An issuer

(or person acting on behalf of the issuer, including

an intermediary with delivery obligations) must

make it clear to investors where the document from

which it is hyperlinking begins and where it ends.

We are aware that today many standard software

programs can automatically convert an inactive

uniform resource locator, or URL, into an active

hyperlink, either at the time the document

including the URL is created or when the document

is later accessed. Consequently, as with an

embedded hyperlink, an issuer that includes a URL

to a web site in a Section 10 prospectus or other

document required to be filed or delivered under

the federal securities laws is responsible for

information on the site that is accessible through

the resulting hyperlink. To the extent that the

document is required to be filed with the

Commission, the hyperlinked information must be

filed as part of the document. Inclusion of the URL

to the Commission’s Internet web site is mandated

by some of our disclosure requirements. See, for

example, Item 502(a)(2) of Regulation S–K, 17 CFR

229.502(a)(2); Item 12(c)(2)(ii) of Form S–3, 17 CFR

239.13. Additionally, the Division of Corporation

Finance has previously indicated that the inclusion

of the URL for an issuer’s web site in a registration

statement, along with the statement ‘‘[O]ur SEC

filings are also available to the public from our web

site,’’ will not, by itself, include or incorporate by

reference the information on the site into the

registration statement (unless the issuer otherwise

acts to incorporate the information by reference).

See Division of Corporation Finance interpretive

letters Baltimore Gas and Electric Company (Jan. 6,

1997); ITT Corporation (Dec. 6, 1996). In these two

situations, we would not consider the presence of

the URL to make our web site, or an issuer’s web

site, as the case may be, part of a document if the

party presenting the URL takes reasonable steps to

ensure that the URL is inactive (for example, by

removing ‘‘a>href’’ tagging) and includes a

statement to denote that the URL is an inactive

textual reference only.

42An issuer may not use embedded hyperlinks

exclusively to satisfy the line item disclosure

requirements of its filings under the federal

securities laws. For example, an issuer filing a

registration statement on Form S–1, 17 CFR 239.11,

could include embedded hyperlinks to its Exchange

Act reports so that they are readily available, but

only if the issuer otherwise includes full disclosure

of all required issuer information within the body

of the Section 10 prospectus. This is because the

Commission’s rules and forms contemplate a single

comprehensive, integrated document so that readers

can understand the document’s content without

having to access numerous other documents.

We also note that simply embedding a hyperlink

within a document does not satisfy the line item

disclosure requirement for the incorporation of

certain information by reference as provided under

the Commission’s rules and forms. In order for a

document to be incorporated by reference in a filed

document, an issuer must include a statement to

that effect in the document listing the incorporated

documents. See, for example, Item 12(a) of Part I

of Form S–3; General Instruction G(4) of Form 10–

K, 17 CFR 249.310; Exchange Act Rule 12b–23(b),

17 CFR 240.12b–23(b).

43 15 U.S.C. 77k. See, for example, Ex. 6 in

Section E below. Of course, other Securities Act and

Exchange Act liability provisions also may apply.

See, for example, Sections 12(a)(2) and 17(a) of the

Securities Act, 15 U.S.C. 77l(a)(2) and 77q(a),

Section 10(b) of the Exchange Act, 15 U.S.C 78j(b),

and Rule 10b–5, 17 CFR 240.10b–5. Although a

prospectus or other disclosure document on an

issuer’s web site may contain a hyperlink to an

external web site or document under the

circumstances described in this section, a hyperlink

to an external site or document (including exhibits)

currently may not be embedded in any filed EDGAR

document. See Rule 105 of Regulation S–T, 17 CFR

232.105; Securities Act Release No. 7684 (May 17,

1999) [64 FR 27888]. However, filers may include

hyperlinks to different sections within a single

HTML document. Under our recently adopted rules

implementing the next phase of EDGAR

modernization, the system now permits hyperlinks

from an EDGAR filing to its exhibits and to other

filings in the EDGAR database on our Internet web

site at <http://www.sec.gov>. See Securities Act

Release No. 7855 (Apr. 24, 2000) [65 FR 24788]. The

new rules address the liability treatment of material

hyperlinked from the EDGAR database into EDGAR

filings, but do not address broader issues of

hyperlinks on issuers’ web sites.

44 15 U.S.C. 77l.

45See n. 40 above. While the proximity of

information on an issuer’s web site to a Section 10

prospectus posted on the same site will determine

whether multiple documents are delivered together,

it does not dispose of the issue of whether the

information would constitute an ‘‘offer to sell,’’

‘‘offer for sale’’ or ‘‘offer’’ under Section 2(a)(3) of

the Securities Act. We provide guidance in Section

Continued

underlying these examples has come to

be called the ‘‘envelope theory.’’

The purpose of these examples was to

provide assurance to issuers and

intermediaries that they are delivering

multiple documents simultaneously to

investors when so required by the

federal securities laws. For example, in

a registered offering, sales literature

cannot be delivered to an investor

unless the registration statement has

been declared effective and a final

prospectus accompanies or precedes the

sales literature.37 It is easy to establish

concurrent delivery when multiple

documents are included in one paper

envelope that is delivered by U.S. postal

mail or a private delivery service. When

electronic delivery is used, however, it

is somewhat more difficult to establish

whether multiple documents may be

considered delivered together. The

guidance provided in the 1995 Release

about the use of ‘‘virtual’’ envelopes was

intended to alleviate this difficulty.

Nevertheless, some issuers and

intermediaries believe that the envelope

theory has created ambiguities as to

appropriate web site content when an

issuer is in registration.38 Some

securities lawyers have expressed

concern that if a Section 10 prospectus

is posted on a web site, the operation of

the envelope theory causes everything

on the web site to become part of that

prospectus. They also have raised

concerns that information on a web site

that is outside of the four corners of the

Section 10 prospectus, but in close

proximity 39 to it, would be considered

free writing.40

Information on a web site would be

part of a Section 10 prospectus only if

an issuer (or person acting on behalf of

the issuer, including an intermediary

with delivery obligations) acts to make

it part of the prospectus. For example,

if an issuer includes a hyperlink within

a Section 10 prospectus, the

hyperlinked information would become

a part of that prospectus.41 When

embedded hyperlinks are used,42 the

hyperlinked information must be filed

as part of the prospectus in the effective

registration statement and will be

subject to liability under Section 11 of

the Securities Act.43 In contrast, a

hyperlink from an external document to

a Section 10 prospectus would result in

both documents being delivered

together, but would not result in the

non-prospectus document being deemed

part of the prospectus. Issuers

nevertheless may be subject to liability

under Section 12 of the Securities Act 44

for the external document depending on

whether the external document is itself

a prospectus or part of one.

With respect to the free writing

concern, the focus on the location of the

posted prospectus is misplaced.

Regardless of whether or where the

Section 10 prospectus is posted, the web

site content must be reviewed in its

entirety to determine whether it

contains impermissible free writing.45

25848 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

B below about permissible communications on an

issuer’s web site when the issuer is in registration. 46 17 CFR 240.15c2–12. 47See Exchange Act Release No. 7049 (Mar. 9,

1994) [59 FR 12748]. All issuers, whether offering

and selling securities in registered or exempt

offerings, are subject to anti-fraud liability. See

Section 17(a) of the Securities Act, Section 10(b) of

the Exchange Act and Rule 10b–5.

48While our guidance in this section addresses

the responsibilities of issuers, broker-dealers and

investment advisers also should carefully consider

their responsibilities for hyperlinked information.

49See Securities Act Release No. 6504 (Jan. 20,

1984) [49 FR 2468]. Where a statement is materially

misleading, an issuer and any persons responsible

for the statement would be liable under the antifraud provisions of the federal securities laws. See,

for example, SEC v. Texas Gulf Sulphur Co., 401

F.2d 833 (2d Cir. 1968) (en banc), cert. denied sub

nom., Coates v. SEC, 394 U.S. 976 (1969).

50When an issuer is offering or selling securities,

similar questions arise under Section 17(a) of the

Securities Act. Although our discussion is framed

in terms of Section 10(b) of the Exchange Act and

Rule 10b–5, it applies equally to questions arising

under Section 17(a).

51See n. 54 below.

52See In the Matter of Presstek, Inc., Exchange

Act Release No. 39472 (Dec. 22, 1997), n. 54 below.

53See, for example, Elkind v. Liggett & Myers,

Inc., 635 F.2d 156 (2d Cir. 1980); In the Matter of

Syntex Corp. Sec. Litig., 855 F.Supp. 1086 (N.D. Cal.

1993); In the Matter of Caere Corp. Sec. Litig., 837

F. Supp. 1054 (N.D. Cal. 1993).

54See, for example, In the Matter of Cypress

Semiconductor Sec. Litig., 891 F. Supp. 1369, 1377

(N.D. Cal. 1995), aff’d sub nom. Eisenstadt v. Allen,

113 F.3d 1240 (9th Cir. 1997) (‘‘distributing

analysts’ reports to potential investors may,

depending on the circumstances, amount to an

implied representation that the reports are

accurate’’); In the Matter of RasterOps Corporation

Sec. Litig., [1994–95 Tr. Binder] Fed.Sec.L.Rep.

(CCH) ¶ 98,467 (N.D. Cal. 1994) (‘‘act of circulating

the reports amounts to an implied representation

that the information contained in the reports is

accurate or reflects the company’s views’’). See also

Presstek, n. 52 above. In Presstek, we stated that ‘‘in

the Commission’s view, under certain

circumstances, an issuer that disseminates false

third-party reports may adopt the contents of those

reports and be fully liable for the misstatements

contained in them, even if it had no role whatsoever

in the preparation of the report.’’ Id. at 32.

55We do not discuss the application of the

‘‘entanglement’’ theory to hyperlinked information

on third-party web sites. We recognize that the

‘‘entanglement’’ and ‘‘adoption’’ theories often

overlap and that some of the factors relating to an

adoption analysis also may apply to an

entanglement analysis. Once the threshold issue of

whether hyperlinked third-party information has

been adopted by an issuer has been answered, a

trier of fact would then turn to the issue of whether

a claim has been established under Section 10(b) of

the Exchange Act and Rule 10b–5. A claim under

Section 10(b) and Rule 10b–5 generally includes the

following elements:

—misrepresentation of a material fact or omission

of a material fact necessary to make a statement, in

light of the circumstances under which it was

made, not misleading,

—in the sale, or in connection with the purchase

or sale, of a security,

—with the requisite state of mind, or scienter.

The Commission staff will continue to

raise questions about information on an

issuer’s web site that is either

inconsistent with the issuer’s Section 10

prospectus or that would constitute an

‘‘offer to sell,’’ ‘‘offer for sale’’ or ‘‘offer’’

under Section 2(a)(3) of the Securities

Act.

Municipal securities market

participants involved in offering and

selling municipal securities face similar

issues under Exchange Act Rule 15c2–

12 46 in connection with their use of

electronic media. Rule 15c2–12 requires

municipal securities underwriters of

primary offerings to, among other

things,

• obtain and review an official

statement that the municipal securities

issuer deems final;

• send the final official statement to

any potential customer; and

• in negotiated sales, send the most

recent preliminary official statement, if

one exists, to any potential customer.

Under Rule 15c2–12, a final official

statement can be a single document or

set of documents. In a municipal

securities offering, if a municipal

securities issuer puts its official

statement on its web site and also

establishes hyperlinks to other web

sites, a question arises as to what

constitutes the final official statement

that a municipal securities underwriter

has an obligation to obtain and send to

potential customers. For purposes of

satisfying its obligations under Rule

15c2–12, a municipal securities

underwriter may rely on the municipal

securities issuer to identify which of the

documents on, or hyperlinked from, the

issuer’s web site comprise the

preliminary, deemed final and final

official statements, even if the issuer’s

web site contains other documents or

hyperlinks to other web sites.

Hyperlinks embedded within an official

statement itself, however, will be

considered part of the official statement,

even if a municipal securities issuer has

not specifically identified the embedded

hyperlinked information. For any

municipal securities offering subject to

Rule 15c2–12, the paper and electronic

versions of each of the preliminary,

deemed final and final official

statements must be the same. Municipal

securities issuers are reminded that,

whether or not the offering of their

securities is exempt from Rule 15c2–12,

the anti-fraud provisions of the federal

securities laws apply to their official

statements and other disclosures. 47

B. Web Site Content

Issuers have raised a number of

questions about their responsibility for

the content of their web sites, both

when they are in registration and when

they are not. It is important for issuers,

including municipal securities issuers,

to keep in mind that the federal

securities laws apply in the same

manner to the content of their web sites

as to any other statements made by or

attributable to them. While many of

these questions may be resolved by

reference to current law, we recognize

that further guidance would be helpful

on two fundamental issues affecting

web site content. We first consider

issuer responsibility for hyperlinked

information under the anti-fraud

provisions of the federal securities laws.

We then discuss the regulation of

issuers’ web site communications

during registered offerings.

1. Issuer Responsibility for Hyperlinked

Information

Issuers 48 are responsible for the

accuracy of their statements that

reasonably can be expected to reach

investors or the securities markets 49

regardless of the medium through which

the statements are made, including the

Internet. Some issuers have asked

whether they can be held liable under

Section 10(b) of the Exchange Act and

Rule 10b–5 for third-party information

to which they have hyperlinked from

their web sites.50 This concern stems

largely from case law 51 and our findings

in the 1997 settlement of an

enforcement action.52 These questions

focus on the consequences of issuer

hyperlinks to analyst research reports,

although issuers also have expressed

concern about their potential liability

for hyperlinks to other information as

well.

Whether third-party information is

attributable to an issuer depends upon

whether the issuer has involved itself in

the preparation of the information or

explicitly or implicitly endorsed or

approved the information. In the case of

issuer liability for statements by third

parties such as analysts, the courts and

we have referred to the first line of

inquiry as the ‘‘entanglement’’ theory

and the second as the ‘‘adoption’’

theory.

In the case of hyperlinked

information, liability under the

‘‘entanglement’’ theory would depend

upon an issuer’s level of pre-publication

involvement in the preparation of the

information.53 In contrast, liability

under the ‘‘adoption’’ theory would

depend upon whether, after its

publication, an issuer, explicitly or

implicitly, endorses or approves the

hyperlinked information.54

Below we discuss factors that we

believe are relevant in deciding whether

an issuer has adopted information on a

third-party web site to which it has

established a hyperlink.55 While the

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25849

Liability to a private plaintiff also requires proof

that the plaintiff justifiably relied on the statement

containing the material misrepresentation or

omission and was injured as a result. See, for

example, Robbins v. Koger Properties, Inc., 116 F.3d

1441, 1447 (11th Cir. 1997). Investor reliance on a

material misrepresentation or omission need not be

shown in a Commission enforcement action. See

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).

Under certain circumstances, there may be a

rebuttable presumption of reliance. See, for

example, Basic, Inc. v. Levinson, 485 U.S. 224

(1988) (discussing the ‘‘fraud on the market’’

theory). Similarly, where materiality is established,

reliance in an omissions case is presumed. See

Affiliated Ute Citizens of Utah v. United States, 406

U.S. 128 (1972).

56See Section B.1.c below.

57See Section A.4 above.

58See Section B.2 below for a discussion of the

effect of an issuer hyperlink to information on a

third-party web site for purposes of Section 5 of the

Securities Act.

59 ‘‘Framing’’ involves a form of hyperlinking.

Upon clicking highlighted text, graphics or a

button, information from a separate web site is

imported into the web site that is being used and

is displayed within a constant on-screen border, or

frame. In this case, information from an issuer’s

web site and the hyperlinked web site would be

visible at the same time. The user may not be aware

that the displayed material is actually from a

different web site.

60 ‘‘Inlining’’ is similar to framing but does not

result in a visible border. As with framing,

information from an issuer’s web site and the

hyperlinked web site would be visible at the same

time. Also, as with framing, a web site user may not

be aware that the displayed material is actually

from a different web site.

61Some of our prior statements may have created

the erroneous impression that the use of a

disclaimer, in and of itself, may be effective to

shield an issuer from adoption of, and liability

under Section 10(b) of the Exchange Act and Rule

10b–5 in connection with, information on a thirdparty web site to which the issuer has established

a hyperlink. See, for example, the 1998 Release, n.

15 above, in which we addressed when the posting

of offering or solicitation materials on a web site

would not be considered activity taking place in the

United States. The 1998 Release did not address the

anti-fraud provisions of the federal securities laws,

however, which continue to reach all Internet

activities that satisfy the relevant jurisdictional

tests. We do not view a disclaimer alone as

sufficient to insulate an issuer from responsibility

for information that it makes available to investors

whether through a hyperlink or otherwise. To

conclude otherwise would permit unscrupulous

issuers to make false or misleading statements

available to investors without fear of liability as

long as the information is accompanied by a

disclaimer. Further, we remind issuers that specific

disclaimers of anti-fraud liability are contrary to the

policies underpinning the federal securities laws.

See Section 14 of the Securities Act, 15 U.S.C. 77n,

Section 29(a) of the Exchange Act, 15 U.S.C.

78cc(a), Section 47(a) of the Investment Company

Act, 15 U.S.C. 80a–46(a), and Section 215(a) of the

Investment Advisers Act, 15 U.S.C. 80b–15(a).

factors we discuss below form a useful

framework of analysis, we caution that

they are neither exclusive nor

exhaustive. We are not establishing a

‘‘bright line’’ mechanical test. We do not

mean to suggest that any single factor,

standing alone, would or would not

dictate the outcome of the analysis.

a. Context of the Hyperlink

Whether third-party information to

which an issuer has established a

hyperlink is attributable to the issuer is

likely to be influenced by what the

issuer says about the hyperlink or what

is implied by the context in which the

issuer places the hyperlink. An issuer

might explicitly endorse the

hyperlinked information. For example, a

hyperlink might be incorporated in or

accompany a statement such as ‘‘XYZ’s

web site contains the best description of

our business that is currently available.’’

Likewise, a hyperlink might be used to

suggest that the hyperlinked

information supports a particular

assertion on an issuer’s web site. For

example, the hyperlink may be

incorporated in or accompany a

statement such as, ‘‘As reported in

Today’s Widget, our company is the

leading producer of widgets

worldwide.’’ Moreover, even when an

issuer remains silent about the

hyperlink, the context nevertheless may

imply that the hyperlinked information

is attributable to the issuer.56

In the context of a document required

to be filed or delivered under the federal

securities laws, we believe that when an

issuer embeds a hyperlink to a web site

within the document, the issuer should

always be deemed to be adopting the

hyperlinked information.57 In addition,

when an issuer is in registration, if the

issuer establishes a hyperlink (that is

not embedded within a disclosure

document) from its web site to

information that meets the definition of

an ‘‘offer to sell,’’ ‘‘offer for sale’’ or

‘‘offer’’ under Section 2(a)(3) of the

Securities Act, a strong inference arises

that the issuer has adopted that

information for purposes of Section

10(b) of the Exchange Act and Rule 10b–

5.58

b. Risk of Confusion

Another factor we would consider in

determining whether an issuer has

adopted hyperlinked information is the

presence or absence of precautions

against investor confusion about the

source of the information. Hyperlinked

information on a third-party web site

may be less likely to be attributed to an

issuer if the issuer makes the

information accessible only after a

visitor to its web site has been presented

with an intermediate screen that clearly

and prominently indicates that the

visitor is leaving the issuer’s web site

and that the information subsequently

viewed is not the issuer’s. Similarly,

there may be less likelihood of

confusion about whether an issuer has

adopted hyperlinked information if the

issuer ensures that access to the

information is preceded or accompanied

by a clear and prominent statement from

the issuer disclaiming responsibility for,

or endorsement of, the information. In

contrast, the risk of investor confusion

is higher when information on a thirdparty web site is framed 59 or inlined.60

We are not suggesting, however, that

statements and disclaimers will insulate

an issuer from liability for hyperlinked

information when the relevant facts and

circumstances otherwise indicate that

the issuer has adopted the

information.61

c. Presentation of the Hyperlinked

Information

The presentation of the hyperlinked

information by an issuer is relevant in

determining whether the issuer has

adopted the information. For example,

an issuer’s efforts to direct an investor’s

attention to particular information by

selectively providing hyperlinks is a

relevant consideration in determining

whether the information so hyperlinked

has been adopted by the issuer. Where

a wealth of information as to a

particular matter is available, and where

the information accessed by the

hyperlink is not representative of the

available information, an issuer’s

creation and maintenance of the

hyperlink could be an endorsement of

the selected information. Similarly, an

issuer that selectively establishes and

terminates hyperlinks to third-party web

sites depending upon the nature of the

information about the issuer on a

particular site or sites may be viewed as

attempting to control the flow of

information to investors. Again, this

suggests that the issuer has adopted the

information during the periods that the

hyperlink is operative.

Finally, the layout of the screen

containing a hyperlink is relevant in

determining whether an issuer will be

deemed to have adopted hyperlinked

information. Any action to differentiate

a particular hyperlink from other

hyperlinks on an issuer’s web site,

through its prominence, size or location,

or to draw an investor’s attention to the

hyperlink, may suggest that the issuer

favors the hyperlinked information over

other information available to the

investor on or through the site. For

example, a particular hyperlink might

be presented in a different color, type

font or size from other hyperlinks on an

issuer’s web site. Where the method of

presenting the hyperlink influences

disproportionately an investor’s

decision to view third-party

information, the hyperlinked

information is more likely attributable

to an issuer.

25850 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

62 In Securities Act Release No. 7606A (Nov. 13,

1998) [63 FR 67174], we proposed exemptions to

address many of the issues in this area. We will

continue to consider these proposals as part of a

broader regulatory review of restrictions on

communications. We also have adopted rules

relaxing restrictions on communications in the

business combination context. If a registered

offering involves a merger or other business

combination, new Securities Act Rules 165 and 166,

17 CFR 230.165 and 230.166, enable the parties to

the transaction or persons acting on their behalf to

communicate information about the transaction and

the parties to it outside of the Section 10

prospectus. See Securities Act Release No. 7760

(Oct. 22, 1999) [64 FR 61408]. Thus, information

relating to a business combination may remain on

an issuer’s web site provided it is filed in

accordance with Securities Act Rule 425, 17 CFR

230.425.

63 15 U.S.C. 77e.

64Except with respect to business combinations,

no offers of any kind may be made before filing a

registration statement. Section 5(c) of the Securities

Act, 15 U.S.C. 77e(c). During the period between

filing and delivery of the final prospectus, written

offers and offers transmitted by radio or television

must conform to the requirements of Section 10 of

the Securities Act. See Sections 2(a)(10) and 5(b) of

the Securities Act.

65See n. 68 below. From a policy standpoint,

regulating communications during the offering

process can be justified as a reasonable balancing

of the incentives that the process creates for

participants to stimulate interest in an issuer’s

securities. During the offering process ‘‘the

increased compensation to distributors and the

compressed period of the selling effort, as well as

the issuer’s interest in obtaining funds, set up a

situation in which potential conflicts of interest

between investors and sellers are enhanced.’’ See

Reforming the Securities Act of 1933—A

Conceptual Framework, an Address by Linda C.

Quinn, Director, Division of Corporation Finance,

Securities and Exchange Commission, to the

American Bar Association, Section of Business Law,

Committee on Federal Regulation of Securities, Fall

Meeting, Nov. 11, 1995, at 6.

66See Section B.1.a above for a discussion of the

effect of an issuer hyperlink to information on a

third-party web site for purposes of the anti-fraud

provisions of the federal securities laws. We note

that the ‘‘safe harbor’’ from Section 5 of the

Securities Act contained in Securities Act Rule 137,

17 CFR 230.137, that permits broker-dealers not

participating in a distribution to publish or

distribute research without the research being

deemed to be an ‘‘offer’’ for purposes of Sections

2(a)(11) of the Securities Act, 15 U.S.C. 77b(a)(11),

and the ‘‘safe harbors’’ from Section 5 contained in

Securities Act Rules 138 and 139, 17 CFR 230.138

and 230.139, that permit broker-dealers to publish

or distribute research without the research being

deemed to be an ‘‘offer to sell’’ or ‘‘offer for sale’’

for purposes of Sections 2(a)(10) and 5(c) of the

Securities Act, do not extend to permit issuers to

publish or distribute the same information. See the

1995 Release, n. 11 above, at Ex. 16.

67See, for example, the information guidelines

contained in Securities Act Release No. 5180 (Aug.

16, 1971) [36 FR 16506]; Securities Act Release No.

5009 (Oct. 7, 1969) [34 FR 16870]; Securities Act

Release No. 4697 (May 28, 1964) [29 FR 7317]; and

Securities Act Release No. 3844 (Oct. 8, 1957) [22

FR 8359].

68Limited issuer statements about an offering

may be made (electronically or otherwise) before

the filing of a registration statement. Securities Act

Rule 135, 17 CFR 230.135, permits an issuer to

notify the public of a proposed offering of securities

during the pre-filing period as long as the contents

of the notice do not exceed the items specified in

the rule. Securities Act Rule 135c, 17 CFR 230.135c,

permits issuers subject to the reporting

requirements of the Exchange Act, and certain

exempt foreign issuers, to make public

announcements of proposed private offerings of

securities without any such announcement being

deemed an ‘‘offer’’ for purposes of Section 5 of

Securities Act, as long as it is not used to condition

the market and is limited to the factual items

specified in the rule. These safe harbors also may

be invoked after the filing of a registration

statement. Once a registration statement has been

filed, an issuer may publish (electronically or

otherwise) a brief description of its business and

limited additional information on the securities

being offered. Securities Act Rule 134, 17 CFR

230.134, permits an issuer to make limited offering

communications following the filing of a

registration statement as long as the contents of the

communications are limited to the items specified

in the rule and the other conditions of the rule are

met.

Securities Act Rule 135e, 17 CFR 230.135e,

permits a foreign private issuer and other offering

participants to provide journalists with access to

offshore press activities that discuss a present or

proposed offering of securities. Rule 135e requires

that press-related materials be released only outside

the United States and that press conferences be held

outside the United States. As a result, we believe

that dissemination through the Internet by the

issuer or other person covered by Rule 135e of these

materials or press conferences will not comply with

Rule 135e unless procedures are implemented to

assure that only permitted recipients under the

rules are able to access the information.

We also have adopted special safe harbor rules for

mutual funds, which, unlike typical corporate

issuers, continuously offer and sell their shares to

the public and, therefore, are continuously subject

to the limitations on issuer communications under

the Securities Act. Securities Act Rule 482, 17 CFR

230.482, permits a mutual fund to advertise

performance and other information about the fund,

provided that the advertisement contains only

information the substance of which is included in

the fund’s prospectus. Securities Act Rule 134

contains special provisions for mutual funds,

permitting funds to advertise a broad range of

information, other than performance information.

2. Issuer Communications During a

Registered Offering

Because of the increasing use by

issuers of web sites to communicate in

the ordinary course of business with

their security holders, customers,

suppliers and others, issuers have asked

us for guidance on the permissible

content of their Internet

communications when they are in

registration.62 An issuer in registration

must consider the application of Section

5 of the Securities Act 63 to all of its

communications with the public.64 In

our view, this includes information on

an issuer’s web site as well as

information on a third-party web site to

which the issuer has established a

hyperlink. The Securities Act and

accompanying regulations currently

limit information about an offering that

issuers and persons acting on their

behalf may provide to investors to the

content of the Section 10 prospectus

and any permissible communications

under available Securities Act safe

harbors.65 Thus, information on a thirdparty web site to which an issuer has

established a hyperlink that meets the

definition of an ‘‘offer to sell,’’ ‘‘offer for

sale’’ or ‘‘offer’’ under Section 2(a)(3) of

the Securities Act raises a strong

inference that the hyperlinked

information is attributable to the issuer

for purposes of a Section 5 analysis.66

To ensure compliance with Section 5,

an issuer in registration should carefully

review its web site and any information

on third-party web sites to which it

hyperlinks.

An issuer that is in registration should

maintain communications with the

public as long as the subject matter of

the communications is limited to

ordinary-course business and financial

information, which may include the

following:

• advertisements concerning the

issuer’s products and services;

• Exchange Act reports required to be

filed with the Commission;

• proxy statements, annual reports to

security holders and dividend notices;

• press announcements concerning

business and financial developments;

• answers to unsolicited telephone

inquiries concerning business matters

from securities analysts, financial

analysts, security holders and

participants in the communications

field who have a legitimate interest in

the issuer’s affairs; and

• security holders’ meetings and

responses to security holder inquiries

relating to these matters.67

Statements containing information

falling within any of the foregoing

categories, or an available Securities Act

safe harbor,68 may be posted on an

issuer’s web site when in registration,

either directly or indirectly through a

hyperlink to a third-party web site,

including the web site of a broker-dealer

that is participating in the registered

offering.

Although our original guidance was

directed at communications by

reporting issuers when in registration, it

also should be observed by nonreporting issuers preparing to offer

securities to the public for the first time.

A non-reporting issuer that has

established a history of ordinary course

business communications through its

web site should be able to continue to

provide business and financial

information on its site consistent with

our original guidance. A non-reporting

issuer preparing for its first registered

public offering that contemporaneously

establishes a web site, however, may

need to apply this guidance more

strictly when evaluating its web site

content because it may not have

established a history of ordinary-course

business communications with the

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25851

69See Division of Corporation Finance no-action

letter Wit Capital Corporation (July 14, 1999).

70We are aware that municipal securities issuers

and municipal securities underwriters have begun

to evaluate the online offering process and that a

limited number of offerings have been conducted

over the Internet. At this time, we are not

addressing the implications of online municipal

securities offerings, but we encourage comment on

this topic. We remind municipal securities issuers

and other municipal securities market participants,

however, of the potential issue that arises if the

municipal securities offering also involves an

offering of a separate security that is not being sold

pursuant to the exemption from registration

contained in Section 3(a)(2) of the Securities Act,

15 U.S.C. 77c(a)(2). If the municipal securities

offering involves an offering of a separate security

that is being sold in reliance on an exemption from

registration contained in Section 4(2) of the

Securities Act, 15 U.S.C. 77d(2), or Regulation D,

17 CFR 230.501, et seq., or in a registered offering,

our discussion in Section C.2 below applies. We,

therefore, caution municipal securities offering

participants wishing to offer municipal securities

online to evaluate carefully whether any separate

security is being sold.

71See Joseph Weber & Peter Elstrom,

Transforming the Art of the Deal, Bus. Wk., July 26,

1999, at 96; Shawn Tully, Will the Web Eat Wall

Street?, Fortune, Aug. 2, 1999, at 112.

72There also have been numerous reports where

investors complained that they did not receive

shares in an online IPO. See Randall Smith, So Far,

‘‘E-Underwriting’’ Gets a Slow Start, Wall St. J.,

Aug. 16, 1999, at C1. See also Randall Smith,

Online Brokers to Form Bank in Bid for IPOs, Wall

St. J., Nov. 15, 1999, at C1; Randall Smith & Lee

Gomes, How Get Rich Hopes of Linux Techies Went

Up in Flames, Wall St. J., Aug. 18, 1999, at A1.

73Section 5(a) of the Securities Act, 15 U.S.C.

77e(a).

74Securities Act Rule 134(d), 17 CFR 230.134(d).

75See Sections 2(a)(10) and 5(b) of the Securities

Act. Section 5(c) of the Securities Act also

proscribes both oral and written offers before the

filing of a registration statement or while the

registration statement is subject to a refusal order,

stop order or, before effectiveness, any other public

proceeding or examination under Section 8 of the

Securities Act, 15 U.S.C. 77h. For a description of

the new rules regarding communications in a

business combination context, see n. 62 above.

Mutual funds are permitted to make written offers

before delivery of the final prospectus under

Securities Act Rule 482 (permitting advertisements

containing only information ‘‘the substance of

which’’ is included in the fund’s prospectus) and

Securities Act Rule 498, 17 CFR 230.498 (permitting

the use of a ‘‘profile,’’ a summary disclosure

document). Both Rule 482 advertisements and fund

profiles are prospectuses under Section 10(b) of the

Securities Act, which permits a prospectus that

omits in part or summarizes information to be used

to make offers before delivery of the final

prospectus.

76See Securities Act Rules 134 and 135, n. 68

above.

77See Sections 2(a)(10) and 5(b) of the Securities

Act. A confirmation of sale is not deemed a nonconforming prospectus when sent or given after the

effective date of a registration statement if a

prospectus satisfying the requirements of Section

10(a) of the Securities Act is sent or given before

or with the confirmation.

78See Wit Capital Corporation, n. 69 above.

79See Rule 502(c) of Regulation D, 17 CFR

230.502(c). General solicitation or advertising is

prohibited in offerings under Rules 504, 505 and

506 of Regulation D, 17 CFR 230.504, 230.505 and

230.506. An exception to the prohibition against

general solicitation applies to some limited

offerings under Rule 504(b)(1), 17 CFR

230.504(b)(1), when an issuer has satisfied state

Continued

marketplace. Thus, its web site content

may condition the market for the

offering and, due to the unfamiliarity of

the marketplace with the issuer or its

business, investors may be unable to

view the issuer’s communications in an

appropriate context while the issuer is

in registration. In other words, investors

may be less able to distinguish offers to

sell an issuer’s securities in a registered

offering from product or service

promotional activities or other business

or financial information.

C. Online Offerings

1. Online Public Offerings

Increasingly, issuers and brokerdealers are conducting public securities

offerings online, using the Internet,

electronic mail and other electronic

media to solicit prospective investors.

Examples of these electronic

communications include investor

questionnaires on investment

qualifications, broker-dealer accountopening procedures and directives on

how to submit indications of interest or

offers to buy in the context of a specific

public offering.69 These developments

present both potential benefits and

dangers to investors.70 On the positive

side, numerous ‘‘online brokers’’ appear

to have begun to give individual

investors more access to public

offerings, including initial public

offerings, or IPOs.71 Still, dangers

accompany these expanded online

investment opportunities. Retail

investors often are unfamiliar with the

public offering process generally, and,

in particular, with new marketing

practices that have evolved in

connection with online public offerings.

We are concerned that there may be

insufficient information available to

investors to enable them to understand

fully the online public offering process.

We also are concerned that investors are

being solicited to make hasty, and

perhaps uninformed, investment

decisions.72

Two fundamental legal principles

should guide issuers, underwriters and

other offering participants in online

public offerings. First, offering

participants can neither sell, nor make

contracts to sell, a security before

effectiveness of the related Securities

Act registration statement.73 A corollary

to this principle dictates that ‘‘[n]o offer

to buy * * * can be accepted and no

part of the purchase price can be

received until the registration statement

has become effective.’’ 74

Second, until delivery of the final

prospectus has been completed, written

offers and offers transmitted by radio

and television cannot be made outside

of a Section 10 prospectus except in

connection with business

combinations. 75 After filing the

registration statement, two limited

exceptions provide some flexibility to

offering participants to publish notices

of the offering.76 Following

effectiveness, offering participants may

disseminate sales literature and other

writings so long as these materials are

accompanied or preceded by a final

prospectus.77 Oral offers, in contrast, are

permissible as soon as the registration

statement has been filed. Offering

participants may use any combination

of electronic and more traditional

media, such as paper or the telephone,

to communicate with prospective

investors, provided that use of these

media is in compliance with the

Securities Act.

These key legal principles must

underpin the development of

appropriate procedures for online

offerings. To date, the Division of

Corporation Finance has reviewed

numerous procedures in connection

with online distributions of IPOs. The

Division also has issued a no-action

letter regarding permissible procedures

for the use of the Internet in IPOs.78 We

understand, however, that a number of

online brokers have urged that we make

additional regulatory accommodations

to facilitate online offerings. We

appreciate the benefits that technology

brings to the offering process and fully

support the need to craft a regulatory

system that maximizes these benefits.

We also are mindful of our investor

protection mandate and the

fundamental principles established by

the Securities Act for the offer and sale

of securities. Many of the procedures

urged upon us by online brokers may be

properly the subject of regulatory action.

Accordingly, in this release, we do not

prescribe any specific procedures that

must be followed. Instead, we will

continue to analyze this area as practice,

procedures and technology evolve, with

a view to possible regulatory action in

the future. Additionally, the

Commission staff will continue to

review procedures submitted in

connection with online offerings.

2. Online Private Offerings under

Regulation D

Broad use of the Internet for exempt

securities offerings under Regulation D

is problematic because of the

requirement that these offerings not

involve a general solicitation or

advertising.79 When we first considered

25852 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

securities laws of specified types. See Securities Act

Release No. 7644 (Feb. 25, 1999) [64 FR 11090]. The

discussion in this section presumably also would

apply to private offerings conducted in reliance on

the exemption from registration contained in

Section 4(2) of the Securities Act.

80See the 1995 Release, n. 11 above, at Ex. 20.

Municipal securities issuers and other municipal

securities market participants conducting online

offerings are directed to our discussion in n. 70

above of the issue that arises if the municipal

securities offering also involves an offering of a

separate security that is not being sold pursuant to

the exemption from registration contained in

Section 3(a)(2) of the Securities Act.

81 Divisions of Corporation Finance and Market

Regulation interpretive letter IPONET (July 26,

1996).

82 Id.

83See Rules 501(a) and 506(b)(2)(ii) of Regulation

D, 17 CFR 230.501(a) and 230.506(b)(2)(ii).

84See Division of Corporation Finance

interpretive letters Woodtrails-Seattle, Ltd. (Aug. 9,

1982) (providing that no general solicitation exists

when an issuer or any person acting on its behalf

made offers to investors in prior limited

partnerships sponsored by the general partner of the

issuer); E.F. Hutton Co. (Dec. 3, 1985) (providing

that no general solicitation exists when an offer is

made to customers of a broker-dealer because of the

broker’s pre-existing, substantive relationship with

its customers; further, providing that the requisite

relationship could be established through a

questionnaire providing the broker-dealer with

sufficient information to evaluate the offeree’s

sophistication and financial situation). See also

Division of Corporation Finance interpretive letters

H.B. Shaine & Co., Inc. (May 1, 1987); Bateman

Eichler, Hill Richards, Inc. (Dec. 3, 1985).

85These web sites would also call into question

the ability of an issuer to form a reasonable belief,

before sale, as to the qualification of the purchaser,

which may be necessary depending on the nature

of the exemption. See, for example, Rule

506(b)(2)(ii) of Regulation D. See also Section

3(c)(7) of the Investment Company Act, 15 U.S.C.

80a–3(c)(7).

86See Securities Act Release No. 6825 (Mar. 15,

1989) [54 FR 11369] at n. 12 (‘‘the staff has never

suggested, and it is not the case, that prior

relationship is the only way to show the absence

of a general solicitation’’).

87 Id.

88We encourage web site operators offering these

services to work with the Commission staff to

resolve any securities law issues raised by their

activities. We understand that securities lawyers

may have interpreted staff responses to Lamp

Technologies, Inc. as extending the ‘‘pre-existing,

substantive relationship’’ doctrine to solicitations

conducted by third parties other than a registered

broker-dealer. See Divisions of Investment

Management and Corporation Finance no-action

letters Lamp Technologies, Inc. (May 29, 1998) and

Lamp Technologies, Inc. (May 29, 1997). We

disagree. In the Lamp Technologies no-action

letters, the staff of the Divisions of Investment

Management and Corporation Finance recognized a

separate means to satisfy the ‘‘no general

solicitation’’ requirement solely in the context of

offerings by private hedge funds that are excluded

from regulation as investment companies pursuant

to Sections 3(c)(1) and 3(c)(7) of the Investment

Company Act, 15 U.S.C. 80a–3(c)(1) and 80a–

3(c)(7).

89 15 U.S.C. 78o.

90See Section 15(a)(1) of the Exchange Act, 15

U.S.C. 78o(a)(1).

91See Section 3(a)(12) of the Exchange Act, 15

U.S.C. 78c(a)(12). These ‘‘exempted securities’’

include instruments such as interests or

participations in any common trust fund or similar

fund maintained by a bank, or certain interests or

participations in a single or collective trust fund or

securities arising out of a contract issued by an

insurance company issued in connection with

qualified plans (see Section 3(a)(12)(A)(iii) and (iv)

of the Exchange Act, 15 U.S.C. §§ 78c(a)(12)(A)(iii)

and (iv)), as well as mortgage securities (see

Exchange Act Rule 3a12–4, 17 CFR 240.3a12–4) and

certain designated foreign government securities

(see Exchange Act Rule 3a12–8, 17 CFR 240.3a12–

8).

92 17 CFR 230.251, et seq., 230.501, et seq. and

230.901, et seq.

whether exempt offerings could be

conducted over the Internet, we

concluded that an issuer’s unrestricted,

and therefore publicly available,

Internet web site would not be

consistent with the restriction on

general solicitation and advertising.

Specifically, the 1995 Release included

an example indicating that an issuer’s

use of an Internet web site in connection

with a purported private offering would

constitute a ‘‘general solicitation’’ and

therefore disqualify the offering as

‘‘private.’’ 80

Subsequently, the Divisions of

Corporation Finance and Market

Regulation issued interpretive guidance

to a registered broker-dealer and its

affiliate, IPONET,81 that planned to

invite previously unknown prospective

investors to complete a questionnaire

posted on the affiliate’s Internet web site

‘‘as a means of building a customer base

and database of accredited and

sophisticated investors’’ for the brokerdealer.82 A password-restricted web

page permitting access to private

offerings would become available to a

prospective investor only after the

affiliated broker-dealer determined that

the investor was ‘‘accredited’’ or

‘‘sophisticated’’ within the meaning of

Regulation D.83 Additionally, a

prospective investor could purchase

securities only in offerings that were

posted on the restricted web site after

the investor had been qualified by the

affiliated broker-dealer as an accredited

or sophisticated investor and had

opened an account with the brokerdealer. The Divisions’ interpretive letter

was based on an important and wellknown principle established over a

decade ago: a general solicitation is not

present when there is a pre-existing,

substantive relationship between an

issuer, or its broker-dealer, and the

offerees.84

We understand that some entities

have engaged in practices that deviate

substantially from the facts in the

IPONET interpretive letter. Specifically,

third-party service providers who are

neither registered broker-dealers nor

affiliated with registered broker-dealers

have established web sites that generally

invite prospective investors to qualify as

accredited or sophisticated as a prelude

to participation, on an access-restricted

basis, in limited or private offerings

transmitted on those web sites.

Moreover, some non-broker-dealer web

site operators are not even requiring

prospective investors to complete

questionnaires providing information

needed to form a reasonable belief

regarding their accreditation or

sophistication. Instead, these web sites

permit interested persons to certify

themselves as accredited or

sophisticated merely by checking a box.

These web sites, particularly those

allowing for self-accreditation, raise

significant concerns as to whether the

offerings that they facilitate involve

general solicitations.85 In these

instances, one method of ensuring that

a general solicitation is not involved is

to establish the existence of a ‘‘preexisting, substantive relationship.’’ 86

Generally, staff interpretations of

whether a ‘‘pre-existing, substantive

relationship’’ exists have been limited to

procedures established by brokerdealers in connection with their

customers. This is because traditional

broker-dealer relationships require that

a broker-dealer deal fairly with, and

make suitable recommendations to,

customers, and, thus, implies that a

substantive relationship exists between

the broker-dealer and its customers. We

have long stated, however, that the

presence or absence of a general

solicitation is always dependent on the

facts and circumstances of each

particular case.87 Thus, there may be

facts and circumstances in which a third

party, other than a registered brokerdealer, could establish a ‘‘pre-existing,

substantive relationship’’ sufficient to

avoid a ‘‘general solicitation.’’ 88

Notwithstanding the analysis for

purposes of Section 5 of the Securities

Act, web site operators need to consider

whether the activities that they are

undertaking require them to register as

broker-dealers. Section 15 of the

Exchange Act 89 essentially makes it

unlawful for a broker or dealer ‘‘to effect

any transactions in, or to induce or

attempt to induce the purchase or sale

of, any security (other than an exempted

security or commercial paper, bankers’

acceptances, or commercial bills)’’

unless the broker or dealer is registered

with the Commission.90 The ‘‘exempted

securities’’ for which broker-dealer

registration is not required under

Section 15 are strictly limited.91 They

do not include, for example, securities

issued under Regulations A, D or S 92 or

privately placed securities that would

be ‘‘restricted’’ securities under

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25853

93 17 CFR 230.144. The term ‘‘exempted

securities’’ for broker-dealer registration purposes

under the Exchange Act also does not include

securities issued by religious, educational or

charitable organizations that are exempt from

registration under Section 3(a)(4) of the Securities

Act, 15 U.S.C. 77c(a)(4), or securities that are

exempted from registration by means of one of the

transactional exemptions found in Section 4 of the

Securities Act, 15 U.S.C. 77d.

94See the IPONET interpretive letter, n. 81 above.

The Division of Market Regulation’s response in

this interpretive letter required that a registered

broker-dealer maintain overall supervision of

IPONET’s activities; otherwise, IPONET would have

been required to registered as a broker-dealer under

Section 15(a) of the Exchange Act. The Commission

requests the Division of Market Regulation to

consider whether the activities of a web site

operator, such as described in the no-action letters

to Lamp Technologies, Inc., see n. 88 above, require

the web site operator to register with the

Commission as a broker-dealer.

95Staff guidance is available regarding whether a

person is a broker-dealer subject to registration with

the Commission. Questions on this subject should

be addressed to the Office of Chief Counsel,

Division of Market Regulation, Securities and

Exchange Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–1001, (202) 942–0073.

96See Exchange Act Release No. 8363 (July 29,

1968) [33 FR 11150]. See also Exchange Act Release

No. 15194 (Sept. 28, 1978) [43 FR 46397]; Exchange

Act Release No. 6778 (Apr. 16, 1962) [27 FR 3991].

97See In the Matter of Lowell H. Listrom, 50 SEC

883, 887 n. 7 (1992).

98See Division of Market Regulation Staff Legal

Bulletin No. 8 (Sept. 9, 1998), available on our

Internet web site at <http://www.sec.gov/rules/

othern/slbmr8.htm>.

99See the 1995 Release, n. 11 above, at n. 16 and

the accompanying text.

100See, for example, Richard S. Dunham, Across

America, A Troubling ‘‘Digital Divide,’’ Bus. Wk.,

Aug. 2, 1999, at 40; Michelle Singletary, ‘‘Digital

Divide’’ Isn’t Just about Internet Access, The Wash.

Post, Aug. 22, 1999, at H–1.

101See Andy Serwer, A Nation of Traders,

Fortune, Oct. 11, 1999, at 116, 120 (quoting Charles

Schwab CEO David S. Pottruck as saying

‘‘ ‘[c]ustomers want a variety of [information]

distribution channels * * * face to face, the mail,

the telephone and the Web.’ ’’). Additionally, the

National Association of Securities Dealers, Inc. has

recognized that the Internet is not sufficient to serve

as the sole means of disseminating material

corporate information. In January 1999, we issued

an order granting approval of a rule change by the

NASD that stipulated that the Internet may not be

a substitute for the dissemination of corporate news

to security holders through traditional news

services. See Exchange Act Release No. 40988 (Jan.

28, 1999) [64 FR 5331]. In that release, we

explained that ‘‘[w]hile Nasdaq believes that it is

generally in the public interest to encourage

widespread dissemination of information to

investors through the Internet, it also believes that

it must maintain a level playing field for all

investors, including those who do not have Internet

access or who may not generally rely on the Internet

as their primary source of material corporate news.’’

102See the 1995 Release, n. 11 above, at Ex. 24.

Securities Act Rule 144.93 Thus, brokerdealer registration generally is required

to effect transactions in securities that

are exempt from registration under the

Securities Act.94 In other words, thirdparty service providers that act as

brokers in connection with securities

offerings are required to register as

broker-dealers, even when the securities

are exempt from registration under the

Securities Act.95

3. Broker-Dealer Capacity

We have noted before that brokerdealers must have adequate facilities

and personnel to promptly execute and

consummate all of their securities

transactions.96 As broker-dealers

increasingly rely on electronic facilities,

such as electronic mail and Internet web

sites, to handle communications and

transactions with their customers, they

must have the facilities to handle the

expected user volume.97 Broker-dealers

should consider taking steps to maintain

their operational capability during highvolume usage (such as when investors

transmit electronic indications of

interest to purchase securities in online

IPOs), and high-volume and highvolatility trading days (such as the

immediate aftermarket trading following

an IPO).98

D. Technology Concepts

Each technological advance brings

changes to the structure of the capital

markets and the securities industry.

While we believe that the guidance

provided in this release will be useful

in the near term, we also recognize that

we will need to reexamine our

regulatory system and interpretive

guidance as technology evolves. We will

continue to examine and consider the

removal of regulations that pose

unnecessary barriers to electronic

commerce and maintain those

regulations that are essential to protect

investors. In that regard, we request

comment below on specific issues that

may arise in the future in several areas.

We also solicit comment on whether

there are issues involving electronic

media under the federal securities laws

that we have not identified.

1. Access Equals Delivery

Various commentators have suggested

that additional regulatory changes may

be warranted in the use of electronic

media for delivery purposes. The 1995

Release stated that issuers and market

intermediaries with delivery obligations

would need to continue to make

information available in paper form

until such time as electronic media

became more universally accessible and

accepted.99 Some believe that this time

has come and, therefore, that we should

shift from the present delivery model to

an ‘‘access-equals-delivery’’ model.

Under the latter model, investors would

be assumed to have access to the

Internet, thereby allowing delivery to be

accomplished solely by an issuer

posting a document on the issuer’s or a

third-party’s web site.

We believe that the time for an

‘‘access-equals-delivery’’ model has not

arrived yet. Internet access is more

prevalent than in 1995, but many people

in this country still do not enjoy the

benefits of ready access to electronic

media.100 Moreover, even investors who

are online are unlikely to rely on the

Internet as their sole means of obtaining

information from issuers or

intermediaries with delivery

obligations.101 Some investors decline

electronic delivery because they do not

wish to review a large document on

their computer screens. Others decline

electronic delivery because of the time

that it takes to download and print a

document.

We request comment, however, as to

whether there are circumstances in

which, consistent with investor

protection, an ‘‘access-equals-delivery’’

model might be appropriate. How many

U.S. households currently have Internet

access? Is there data supporting the

conclusion that most investors have

access to the Internet? Similarly, is there

data supporting the belief that investors

who are online will rely on the Internet

as their sole means of obtaining

information from issuers or

intermediaries? Assuming that this data

exists, how will investors know when

disclosure information has been posted

on an issuer’s web site? If we were to

adopt an ‘‘access-equals-delivery’’

model, would we be creating a system

that requires ownership of a late-model,

sophisticated computer to participate in

the securities markets?

We also request comment on whether

the disadvantages of electronic delivery,

such as lengthy downloading time and

system capacity limitations, are likely to

be reduced or eliminated in the near

future. Also, will documents delivered

online be more readable in the future?

2. Electronic Notice

The 1995 and 1996 Releases stated

that notice of the availability of

electronically delivered disclosure

documents must be delivered directly to

each investor. The 1995 Release further

stated that notice on an Internet web site

and otherwise by publication in a

newspaper is insufficient to alert a

consenting investor of the availability

on a web site of a disclosure

document.102

We continue to believe that direct

notice of the availability of electronic

disclosure documents is necessary

unless an issuer or market intermediary

can otherwise establish that delivery has

25854 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

103 17 CFR 240.10b–10. 104See Alexander C. Gavis & Scott Maylander,

Mutual Funds and Electronic Delivery: Promise

Versus Reality, wallstreetlawyer.com, Feb. 1999, at

1.

105For a discussion of the impediments to

electronic delivery, see n. 101 above and the

accompanying text.

106We set forth alternative procedures in the 1995

Release enabling an issuer to satisfy the evidenceof-delivery element without obtaining informed

consent, but only where there is some other

indication that the document was in fact received.

See the 1995 Release, n. 11 above. None of these

procedures, however, permits an issuer or

intermediary with delivery obligations to assume

consent based upon an investor’s inaction. In

contrast, the 1996 Release provided that an issuer

could presume consent to electronic delivery by

employee-security holders who use the electronic

mail system ‘‘in the ordinary course of performing

their duties and ordinarily are expected to log-on

to electronic mail routinely to receive mail and

communications.’’ See the 1996 Release, n. 15

above, Ex. 1. This interpretation still stands, but we

do not extend it to other situations.

107We recently adopted rules that allow issuers

and broker-dealers to rely on implied consent to

‘‘householding’’ of prospectuses and security holder

reports; that is, delivery of a single prospectus or

report to two or more investors that are members

of the same family and share the same residential

address. See Securities Act Release No. 7766 (Nov.

4, 1999) [64 FR 62540]. Under these rules, consent

to householding can be implied only if adequate

advance notice is given to the investors and they

do not object. Due to concerns expressed by

commentators, our rules permit householding to a

shared electronic address only if the investors

consent in writing. Id. We have proposed similar

rules for delivery of proxy and information

statements to households. See Securities Act

Release No. 7767 (Nov. 4, 1999) [64 FR 62548].

108See the 1995 Release, n. 11 above, at n. 16 and

the accompanying text.

109 Id. at n. 27. Companies conducting public

offerings must consider prospectus delivery

requirements for secondary market trading under

Securities Act Rule 174, 17 CFR 230.174. Id.

110See the 1995 Release, n. 11 above, at n. 27 and

the accompanying text and the 1996 Release, n. 15

above, at n. 17 and the accompanying text.

111This could arise either when an issuer is

conducting an electronic-only offering, or when an

issuer is conducting a traditional offering, but

certain members of the underwriting syndicate that

are online brokers offer only electronic delivery.

112See Securities Act Rule 174.

been made. For example, a broker-dealer

cannot meet its confirmation obligation

under Exchange Act Rule 10b–10 103 by

simply placing a notice on its web site

that a customer must ‘‘pull’’ down to

access. Rather, a Rule 10b–10

confirmation must be sent directly to

the broker-dealer’s customer.

Additionally, messages posted to an

investor’s account at his or her brokerdealer’s web site regarding the

availability of electronic disclosure

documents are insufficient, unless they

are promptly forwarded directly to the

investor. We request comment,

however, as to whether changes in the

sophistication and expectations of

Internet users as well as advances in

Internet technology warrant reevaluation of our position on whether

account messages on an Internet web

site provide sufficient notice. Were we

to adopt such an approach, would it

result in shifting the burden from

issuers to notify security holders of the

availability of electronic disclosure

documents to security holders to search

for material information? Would a

burden shift be consistent with our

investor protection mandate?

3. Implied Consent

In lieu of ‘‘access-equals-delivery,’’

some commentators have argued for

changes to our electronic delivery

scheme, particularly with respect to

investor consent to electronic delivery.

We understand that obtaining investor

consent poses the most significant

barrier to the use of electronic delivery

by issuers and market intermediaries.104

Some have suggested that electronic

delivery would be more common if

issuers and intermediaries with delivery

obligations were permitted to use a form

of implied consent to evidence

satisfaction of delivery. Under an

implied consent model, an issuer could

rely on electronic delivery if investors

do not affirmatively object when

notified of the issuer’s or intermediary’s

intention to deliver documents in an

electronic format. Proponents of implied

consent argue that the difficulties in

obtaining investors’ consents to

electronic delivery result not from the

unwillingness of investors to use an

electronic medium, but rather from

investors’ inattention to requests for

affirmative consent.

We are concerned that investors

would be significantly and adversely

affected by implied consent through

their inadvertent failure to object. We

understand that in many circumstances

investors are not inattentive to requests

for consent to electronic delivery, but

rather, purposely do not consent.105

Thus, we generally believe that it would

not be appropriate for issuers or

intermediaries to rely on implied

consent.106 We request comment,

however, as to whether there are

particular circumstances under which

an implied consent model would be

appropriate.107 For example, would it be

appropriate where investors previously

have provided an electronic mail

address to an issuer or intermediary and

have indicated that electronic mail is

one of their methods of communication

for investing purposes? How would the

fact that investors sometimes change

their electronic mail addresses affect an

implied consent model?

4. Electronic-Only Offerings

The 1995 Release stated that, as a

matter of policy, issuers and market

intermediaries with delivery obligations

would need to continue to deliver paper

copies of documents that are required to

be delivered until such time as

electronic media becomes more

universally accessible and accepted.108

This policy, however, does not preclude

‘‘electronic-only’’ offerings. In an

‘‘electronic-only’’ offering, investors are

permitted to participate only if they

agree to accept electronic delivery of all

documents in connection with the

offering. The 1995 Release provided that

an issuer could structure its offering as

one that would be effected entirely

through electronic media.109 Even in

these offerings, however, an issuer or

intermediary must provide the required

documents in paper form if an investor

revokes his or her consent before valid

delivery is made. Additionally, the 1995

and 1996 Releases both provided that a

paper copy of information previously

delivered electronically should be

delivered whenever an investor so

requests, even when the revocation is

made after electronic delivery or there

has been no revocation at all.110

Should the paper back-up system be

required for offerings where

participation is conditioned upon

consent to electronic-only delivery? 111

If not, would there be any adverse

effects? Would we be creating a twotiered system with access to some

offerings available only to investors

with Internet access? Should an issuer

be permitted to require investors to pay

for paper delivery when they have

consented to electronic-only delivery? If

the paper back-up system were no

longer required, how should investors

be advised of any payment requirement

and any attendant risks? In the event of

technical difficulties, how would

issuers and intermediaries comply with

their delivery obligations, other than by

providing paper delivery? Should there

be an exception to paper delivery where

technological difficulties would prevent

electronic delivery in a timely manner?

What disclosures should be included in

the notice to investors? If the paper

back-up system were no longer required

generally, are there any particular types

of offerings, such as dividend

reinvestment and direct stock purchase

plans, or DRSPPs, where the paper backup system should be retained?

If the paper back-up system were no

longer required for public offerings, how

would issuers meet their prospectus

delivery requirements for secondary

market trading? 112 Should an issuer be

permitted to condition participation in

offerings upon consent to electronic

delivery of all required Exchange Act

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25855

113See, for example, Mary Lou Peters, Avoiding

Securities Law Liability for a Company’s Web Site,

Insights, April 1999, at 16; Steven E. Bochner &

Anita S. Presser, Corporate Disclosure in the

Electronic Age: The Web Site—Opportunities and

Pitfalls, wallstreetlawyer.com, Apr. 1998, at 1.

114See n. 66 above and the accompanying text.

115See the Unger Report, n. 2 above, at 75.

116This example and Example 2 represent

alternative ways of recording a telephonic consent.

These examples are not the only ways to comply

with the interpretation.

reports? If not, should an issuer be

required to obtain a separate consent

from security holders in the newly

public issuer in order to permit

electronic-only delivery of required

Exchange Act reports?

For a mutual fund, would there be

any potential adverse effects of limiting

electronic-only offerings to investors

who provide an irrevocable consent to

electronic delivery of all future

disclosure documents, including

shareholder reports, proxy solicitation

materials and prospectuses provided in

connection with the purchase of

additional fund shares?

5. Access to Historical Information

One of the unique characteristics of

the Internet is the continuous

availability of information once it is

posted on a web site. For example, a

press release disseminated over a wire

service or through other customary

means is considered to have been

‘‘issued’’ once, and thereafter is not

recirculated to the marketplace. The

same press release posted on an issuer’s

web site potentially has a longer life

because it provides a record that can be

accessed by investors at any time and

upon which investors potentially could

rely when making an investment

decision without independent

verification. In effect, a statement may

be considered to be ‘‘republished’’ each

time that it is accessed by an investor or,

for that matter, each day that it appears

on the web site.

Commentators have suggested that if

a statement is deemed to be

republished, it may potentially give rise

to liability under Section 10(b) of the

Exchange Act and Rule 10b–5.113 We

request comment on how to facilitate

the availability of historical information

on the Internet consistent with the

federal securities laws. Additionally,

how can technology help minimize

investor confusion while providing for

the accessibility of potentially useful

information?

6. Communications When in

Registration

Although we believe that our longstanding guidance on permissible

communications is adequate to address

many of the questions applicable to an

issuer’s web site content when in

registration, we recognize that the

Internet has spawned new types of

businesses that do not easily fit within

the existing disclosure framework. For

example, many issuers not only use

their web sites to conduct business

through the Internet, their web sites are

their businesses. In this instance, when

an issuer is in registration, how should

the issuer segregate its business

activities from its offering activities? In

other words, how can an issuer comply

with its obligations under Section 5 of

the Securities Act while maintaining

communications to the marketplace

related solely to its legitimate business

activities?

Are there special considerations for

mutual funds because they continuously

offer and sell their shares to the public

and, therefore, always maintain effective

registration statements? For a mutual

fund that continuously offers its shares,

what, if any, facts and circumstances

should overcome the strong

inference 114 that hyperlinked

information on a third-party web site

that meets the definition of an ‘‘offer to

sell,’’ ‘‘offer for sale’’ or ‘‘offer’’ under

Section 2(a)(3) of the Securities Act is

attributable to an issuer for purposes of

anti-fraud liability?

7. Internet Discussion Forums

Another distinguishing characteristic

of the Internet is its facility for

interactive discussion. This discussion

can, and does, cover virtually any

subject, including issuers and their

securities. In the corporate context, at

least three different means of Internet

‘‘discussions’’ have evolved. First, many

web sites offer moderated discussion

forums, typically led by a real-time

moderator and featuring a guest

‘‘expert.’’ Other web sites contain

‘‘bulletin boards,’’ cyberspace message

centers where comments concerning

issuers, securities or industries can be

posted and saved for viewing over an

extended period of time. Finally,

numerous web sites host discussion

groups, or ‘‘chat rooms,’’ with real-time

postings and viewing by participants on

a wide variety of topics.

These discussion forums present

unique and often difficult problems for

issuers.115 We request comment on any

issues relating to Internet discussion

forums. In particular, what effect, if any,

do discussion group communications

have on an issuer’s stock price? In

addition, should issuers or brokerdealers that host online discussion

forums adopt and maintain ‘‘best

practices’’ for participation in these

forums? If so, who should establish

these best practices, and what should be

included in them?

Another area of significant concern

involves the use of Internet discussion

forums by an issuer’s employees. Are

issuers currently using specific

procedures covering the use of

electronic forms of communications by

their employees? If so, what are these

‘‘best practices’’?

E. Examples

A series of examples is provided

below to illustrate various applications

of the interpretations outlined in this

release and to provide guidance in

applying them to specific facts and

circumstances. We note, however, that

these examples are non-exclusive

methods of ways to comply with the

above interpretations. Additionally, the

analysis required to determine

compliance with the federal securities

laws is fact-specific, and any different or

additional facts might require a different

conclusion. We request comment on

whether other examples might be

appropriate for publication.

(1) Investor John Doe gives XYZ

Delivery Service his informed consent

over the telephone using automated

touch tone instructions (after accessing

the service using a personal

identification number).116 The

automated instructions informed John

Doe of the manner, costs and risks of

electronic delivery. The consent related

to electronic delivery of documents.

Before delivering any electronic

documents to Investor John Doe, XYZ

Delivery Service sends Investor John

Doe a letter confirming that he had

consented to electronic delivery.

The confirming letter sent by XYZ

Delivery Service provides assurance that

John Doe consented to the same extent

as if he had provided a written or

electronic consent. Thus, XYZ Delivery

Service’s procedures would evidence

satisfaction of delivery. We also note

that XYZ Delivery Service has reason to

be assured of the authenticity of John

Doe’s telephonic consent because of his

use of a personal identification number.

(2) In speaking with Broker DEF over

the telephone, Investor Jane Doe (a longterm customer of Broker DEF) consents

to electronic delivery to all future

documents of Company XYZ on

Company XYZ’s Internet web site.

Broker DEF agrees to notify Jane Doe by

electronic mail (or other acceptable

means of notification) that Company

XYZ has posted the documents on its

25856 Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations

web site when the posting occurs.

Before obtaining Jane Doe’s consent,

Broker DEF advises Jane Doe that she

may incur certain costs associated with

delivery in this manner (for example,

online time and printing) and possible

risks (for example, system outages).

Broker DEF also advises Jane Doe that

the term of the consent is indefinite but

that the consent can be revoked at any

time. Broker DEF maintains a signed

and dated memorandum in its files

regarding the details of the

conversation.

In this situation, Jane Doe’s consent

would be informed regarding the

manner, costs and risks of electronic

delivery. We also note that Broker DEF

has reason to be assured of the

authenticity of Jane Doe’s telephonic

consent because Jane Doe is well known

to Broker DEF.

(3) In seeking a global consent to

electronic delivery from Investor John

Doe, Broker DEF specifies that the

electronic media that may be used to

deliver documents will be CD–ROM, an

Internet web site, electronic mail or

facsimile transmission, and further

advises John Doe that if he does not

have access to all of these media he

should not consent to electronic

delivery. John Doe consents to

electronic delivery from Broker DEF.

In this situation, John Doe’s consent

would be informed regarding the

manner of electronic delivery. The

consent need not specify which form of

media a specific issuer may use.

(4) Investor Jane Doe consents to

delivery via a third-party delivery

service’s Internet web site of all future

documents of Company ABC, Company

XYZ and any additional companies in

which she invests in the future. Jane

Doe subsequently purchases securities

of Company DEF. Thereafter, Company

XYZ and Company DEF post their final

prospectuses on the third-party web site

and notify Jane Doe by electronic mail

(or other acceptable means of

notification) of the availability of the

prospectuses. Company ABC does not

post its prospectus on the third-party

web site but delivers a CD–ROM version

of its prospectus.

Company XYZ has satisfied its

delivery obligations. Additionally,

although not specifically identified in

the consent, Company DEF has satisfied

its delivery obligations because the

consent covered delivery by companies

added at a later date. Absent other

factors indicating that Jane Doe actually

accessed Company ABC’s CD–ROM

prospectus, however, Company ABC’s

procedure would not satisfy its delivery

obligations because Jane Doe consented

to delivery only by an Internet web site.

If consent is to be relied upon, the

consent must cover the specific

electronic medium or media that may be

used for delivery.

(5) Investor John Doe consents to

delivery of all future documents of

Company XYZ electronically via

Company XYZ’s Internet web site,

including documents delivered in PDF.

The form of consent advises John Doe of

the system requirements necessary for

receipt of documents in PDF and

cautions that downloading time may be

slow. Company XYZ places its proxy

soliciting materials and annual report to

security holders in PDF on its Internet

web site, with a hyperlink on the same

screen enabling users to download a free

copy of Adobe Acrobat (software

permitting PDF viewing) and a toll-free

telephone number that investors can use

to contact someone during Company

XYZ’s business hours for technical

assistance or to request a paper copy of

a document.

Company XYZ has satisfied its

delivery obligations. Under these

circumstances, John Doe can effectively

access the information provided.

(6) Company XYZ, which is engaged

in a public offering of its securities,

places its preliminary prospectus on its

Internet web site. In the Business

section of the prospectus, Company

XYZ has placed a hyperlink to a report

by a marketing research firm located on

a third-party web site regarding

Company XYZ’s industry.

Because the hyperlink is embedded

within the prospectus, the report

becomes a part of the prospectus and

must be filed with the Commission. In

addition, Company XYZ must obtain a

written consent from the person

preparing the report in accordance with

Securities Act Rule 436, 17 CFR

230.436. This consent also must be filed

with the Commission. Moreover, the

report will be subject to liability under

Section 11 of the Securities Act, as well

as other anti-fraud provisions of the

federal securities laws.

(7) Company XYZ, which is engaged

in a public offering of its securities,

places its preliminary prospectus on its

Internet web site. Each of the topics in

the Table of Contents is a hyperlink,

allowing investors to pick a topic and

immediately be hyperlinked to the

section in the prospectus relating to that

topic.

The hyperlinks present no federal

securities law issues. The hyperlinks do

no more than allow investors to turn

electronically to a specific page in the

prospectus.

(8) Company XYZ, which is engaged

in a public offering of its securities,

places its preliminary prospectus on its

Internet web site. Immediately following

the button for the prospectus on the web

site, Company XYZ offers investors the

ability to download its financial

statements in spreadsheet format. This

financial information is not modified in

any way from that contained in the filed

document.

The provision of financial statements

in spreadsheet format would be

permissible when the download results

only in a mere difference in format

without any difference in text. The

completeness of the financial statements

must not be compromised by any

difference in the electronic version from

the paper version.

III. Solicitation of Comment

We invite anyone who is interested to

submit written comments on this

release. We request comment not only

on the specific issues discussed in this

release, but also on any other

approaches or issues involved in

facilitating the use of electronic media

to further the disclosure purposes of the

federal securities laws. We request

comment from the point of view of both

parties providing the disclosure, such as

issuers and those acting on behalf of

issuers, and parties receiving and using

the disclosure, such as investors and

security holders.

List of Subjects in 17 CFR Parts 231,

241 and 271

Securities.

Amendment of the Code of Federal

Regulations

For the reasons set out in the

preamble, Title 17 Chapter II of the

Code of Federal Regulations is amended

as set forth below:

PART 231—INTERPRETATIVE

RELEASES RELATING TO THE

SECURITIES ACT OF 1933 AND

GENERAL RULES AND REGULATIONS

THEREUNDER

1. Part 231 is amended by adding

Release No. 33–7856 and the release

date of April 28, 2000, to the list of

interpretive releases.

PART 241—INTERPRETATIVE

RELEASES RELATING TO THE

SECURITIES EXCHANGE ACT OF 1934

AND GENERAL RULES AND

REGULATIONS THEREUNDER

2. Part 241 is amended by adding

Release No. 34–42728 and the release

date of April 28, 2000, to the list of

interpretive releases.

Federal Register / Vol. 65, No. 87 / Thursday, May 4, 2000 / Rules and Regulations 25857

PART 271—INTERPRETATIVE

RELEASES RELATING TO THE

INVESTMENT COMPANY ACT OF 1940

AND GENERAL RULES AND

REGULATIONS THEREUNDER

3. Part 271 is amended by adding

Release No. IC–24426 and the release

date of April 28, 2000, to the list of

interpretive releases.

Dated: April 28, 2000.

By the Commission.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–11079 Filed 5–3–00; 8:45 am]

BILLING CODE 8010–01–P

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 180

[OPP–300913A; FRL–6556–3]

RIN 2070–AB78

Cyromazine; Pesticide Tolerance

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Final rule.

SUMMARY: This final rule establishes

permanent tolerances for residues of

cyromazine (CAS No. 66215–27–8) in or

on mango at 0.3 parts per million (ppm);

onion, green at 2.0 ppm; onions, dry

bulb at 0.1 ppm; potato at 0.8 ppm;

corn, sweet, (kernels plus cob with

husks removed) at 0.5 ppm; corn, sweet,

forage at 0.5 ppm; corn, sweet, stover at

0.5 ppm; radishes, root at 0.5 ppm;

radishes, tops at 0.5 ppm; lima beans at

1.0 ppm; cotton, undelinted seed at 0.1

ppm; milk at 0.05 ppm; and meat, fat

and meat byproducts (of cattle, goat,

hogs, horses and sheep) at 0.05 ppm.

This final rule also removes melamine,

a metabolite of cyromazine from the

tolerance expression since it is no

longer considered a residue of concern.

The Interregional Research Project (IR–

4) and Novartis Crop Protection, Inc.

requested these tolerances under the

Federal Food, Drug, and Cosmetic Act,

as amended by the Food Quality

Protection Act of 1996.

DATES: This regulation is effective May

4, 2000. Objections and requests for

hearings, identified by docket control

number OPP–300913A, must be

received by EPA on or before July 3,

2000.

ADDRESSES: Written objections and

hearing requests may be submitted by

mail, in person, or by courier. Please

follow the detailed instructions for each

method as provided in Unit VI. of the

SUPPLEMENTARY INFORMATION. To ensure

proper receipt by EPA, your objections

and hearing requests must identify

docket control number OPP–300913A in

the subject line on the first page of your

response.

FOR FURTHER INFORMATION CONTACT: By

mail: Linda DeLuise, Registration

Division (7505C), Office of Pesticide

Programs, Environmental Protection

Agency, Ariel Rios Bldg., 1200

Pennsylvania Ave., NW., Washington,

DC 20460; telephone number: (703)

305–5428; e-mail address:

deluise.linda@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

You may be affected by this action if

you are an agricultural producer, food

manufacturer, or pesticide

manufacturer. Potentially affected

categories and entities may include, but

are not limited to:

Categories NAICS codes

Examples of

potentially affected entities

Industry 111 ............... Crop production

112 ............... Animal production

311 ............... Food manufacturing

32532 ........... Pesticide

manufacturing

This listing is not intended to be

exhaustive, but rather provides a guide

for readers regarding entities likely to be

affected by this action. Other types of

entities not listed in the table could also

be affected. The North American

Industrial Classification System

(NAICS) codes have been provided to

assist you and others in determining

whether or not this action might apply

to certain entities. If you have questions

regarding the applicability of this action

to a particular entity, consult the person

listed under FOR FURTHER INFORMATION

CONTACT.

B. How Can I Get Additional

Information, Including Copies of this

Document and Other Related

Documents?

1. Electronically. You may obtain

electronic copies of this document, and

certain other related documents that

might be available electronically, from

the EPA Internet Home Page at http://

www.epa.gov/. To access this

document, on the Home Page select

‘‘Laws and Regulations’’ and then look

up the entry for this document under

the ‘‘Federal Register—Environmental

Documents.’’ You can also go directly to

the Federal Register listings at http://

www.epa.gov/fedrgstr/.

2. In person. The Agency has

established an official record for this

action under docket control number

OPP–300913A. The official record

consists of the documents specifically

referenced in this action, and other

information related to this action,

including any information claimed as

Confidential Business Information (CBI).

This official record includes the

documents that are physically located in

the docket, as well as the documents

that are referenced in those documents.

The public version of the official record

does not include any information

claimed as CBI. The public version of

the official record, which includes

printed, paper versions of any electronic

comments submitted during an

applicable comment period is available

for inspection in the Public Information

and Records Integrity Branch (PIRIB),

Rm. 119, Crystal Mall #2, 1921 Jefferson

Davis Hwy., Arlington, VA, from 8:30

a.m. to 4 p.m., Monday through Friday,

excluding legal holidays. The PIRIB

telephone number is (703) 305–5805.

II. Background and Statutory Findings

In the Federal Register of September

15, 1999 (64 FR 50043) (FRL–6098–7),

EPA issued a proposed rule which

announced that Novartis Crop

Protection, Inc., 410 Swing Road,

Greensboro, NC 27419 and the

Interregional Research Project (IR-4) had

submitted pesticide petitions (PP)

5E4450, 5F4574, 6F4613, 5F4546,

6F3332, and 7E4905 pursuant to section

408 of the Federal Food, Drug, and

Cosmetic Act (FFDCA), 21 U.S.C. 346a

as amended by the Food Quality

Protection Act of 1996 (FQPA) (Public

Law 104–170) proposing that 40 CFR

part 180 be amended by establishing a

tolerance for cyromazine in or on mango

at 0.3 parts per million (ppm); onion,

green at 2.0 ppm; onions, dry bulb at 0.1

ppm; potato at 0.8 ppm; corn, sweet,

(kernels plus cob with husks removed)

at 0.5 ppm; corn, sweet, forage at 0.5

ppm; corn, sweet, stover at 0.5 ppm;

radishes, root at 0.5 ppm; radishes, tops

at 0.5 ppm; lima beans at 1.0 ppm;

cotton, undelinted seed at 0.1 ppm; milk

at 0.05 ppm; and meat, fat and meat

byproducts (of cattle, goat, hogs, horses

and sheep) at 0.05 ppm. EPA received

one comment from a private citizen of

Australia alleging that the poor health of

a dog was due to cyromazine and stating

that long-term implications and studies