Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices 17653

5At its November 1996 meeting, OPRA

determined that the development costs associated

with the implementation of the Common Software

and Internet Protocol projects, which are the only

pending facilities development projects applicable

to the FCO accounting center, will be allocated

between the basic/index and the FCO accounting

centers on the basis of the output line capacity

availability to those accounting centers. This results

in 6⁄7 of such costs being allocated to the basic/

index accounting centers and 1⁄7 to the FCO

accounting center. OPRA also determined that the

share of these costs allocated to the basic/index

accounting centers shall be further allocated (75%

to the basic accounting center and 25% to the index

accounting center). 6 17 CFR 200.30–3(a)(29). 1 15 U.S.C. 77a et seq.

facilities development. Currently, this

category of costs is allocated equally

among OPRA’s accounting centers.

Based on experience to date, OPRA

determined that, depending on the

nature of the facility in question, this

allocation may result in too large a share

of development costs being allocated to

the relatively small FCO accounting

center. OPRA believes that greater

flexibility is called for so that the

allocation of facilities development

costs may bear a closer relationship to

the nature and functionality of the

particular facility being developed.

Accordingly, the amendment provides

that facilities development expenses

shall be allocated among the accounting

centers as OPRA may determine for the

particular facility in question, and only

if no specific allocation is determined

for a particular facility will the

allocation be made equally among the

accounting centers that are expected to

make use of the facility. OPRA will

determine the allocation of facilities

development costs and expenses prior

to the commencement of each facilities

development project.5

Moreover, OPRA proposes to simplify

and make more flexible the provision of

the Plan governing the allocation of

facilities development costs to an

accounting center based on that center’s

use of a facility that was not

contemplated at the time the facility’s

development costs were first allocated.

Therefore, OPRA proposes to eliminate

the fixed allocation formula that

depends upon whether the use of the

facility commences in the first or second

year after the facility becomes

operational. Instead, OPRA will provide

that the allocation of a share of facilities

development costs to such an

accounting center will be as determined

by OPRA where such use commences

within 24 months of the time the facility

first became operational. Further, OPRA

believes that all categories of cost

allocations will be specifically provided

for and, therefore, proposes to eliminate

the ‘‘catch-all’’ provision in the Plan.

Finally, OPRA proposes to make

several non-substantive amendments.

OPRA intends to remove the references

to January 1, 1996, as such date no

longer has any relevance in the Plan.

II. Solicitation of Comments

Pursuant to Rule 11Aa3–2(c)(3), the

amendment is effective upon filing with

the Commission. The Commission may

summarily abrogate the amendment

within 60 days of its filing and require

refiling and approval of the amendment

by Commission order pursuant to Rule

11Aa3–2(c)(2), if it appears to the

Commission that such action is

necessary or appropriate in the public

interest; for the protection of investors

and the maintenance of fair and orderly

markets; to remove impediments to, and

perfect the mechanisms of, a National

Market System; or otherwise in

furtherance of the purposes of the

Exchange Act.

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, and all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those withheld from the public in

accordance with the provisions of 5

U.S.C. 552, will be available for

inspection and copying in the

Commission’s Public Reference Room.

Copies of the filing also will be available

at the principal offices of OPRA. All

submissions should refer to file number

SR–OPRA–97–2 and should be

submitted by April 30, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–9174 Filed 4–9–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 33–7413, File No. S7–15–97]

Securities Uniformity; Annual

Conference on Uniformity of Securities

Laws

AGENCY: Securities and Exchange

Commission.

ACTION: Publication of release

announcing issues to be considered at a

conference on uniformity of securities

laws and requesting written comments.

SUMMARY: In conjunction with a

conference to be held on April 28, 1997,

the Commission and the North

American Securities Administrators

Association, Inc. today announced a

request for comments on the proposed

agenda for the conference. This meeting

is intended to carry out the policies and

purposes of section 19(c) of the

Securities Act of 1933, adopted as part

of the Small Business Investment

Incentive Act of 1980, to increase

uniformity in matters concerning state

and federal regulation of securities, to

maximize the effectiveness of securities

regulation in promoting investor

protection, and to reduce burdens on

capital formation through increased

cooperation between the Commission

and the state securities regulatory

authorities.

DATES: The conference will be held on

April 28, 1997. Written comments must

be received on or before April 23, 1997

in order to be considered by the

conference participants.

ADDRESSES: Written comments should

be submitted in triplicate by April 23,

1997 to Jonathan G. Katz, Secretary,

Securities and Exchange Commission,

450 5th Street, N.W., Washington, D.C.

20549. Comments also may be

submitted electronically at the following

E-mail address: rule-comments@sec.gov.

Comments should refer to File No. S7–

15–97; this file number should be

included on the subject line if E-mail is

used. Comment letters will be available

for public inspection at the

Commission’s Public Reference Room,

450 5th Street, N.W., Washington, D.C.

20549. Electronically submitted

comment letters will be posted on the

Commission’s internet web site (http://

www.sec.gov).

FOR FURTHER INFORMATION CONTACT:

John D. Reynolds or Richard K. Wulff,

Office of Small Business Review,

Division of Corporation Finance,

Securities and Exchange Commission,

450 5th Street, N.W., Washington, D.C.

20549, (202) 942–2950.

SUPPLEMENTARY INFORMATION:

I. Discussion

A dual system of federal-state

securities regulation has existed since

the adoption of the federal regulatory

structure in the Securities Act of 1933

(the ‘‘Securities Act’’).1 Issuers

attempting to raise capital through
17654 Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices

2Pub. L. 96–477, 94 Stat. 2275 (October 21, 1980).

3Pub. L. 104–290, 110 Stat. 3416 (October 11,

1996).

4NASAA is an association of securities

administrators from each of the 50 states, the

District of Columbia, Puerto Rico, Mexico and

twelve Canadian Provinces and Territories.

5 15 U.S.C. 77r.

6 15 U.S.C. 77r(b). ‘‘Covered securities’’ are

defined in Section 18. The term generally includes

New York Stock Exchange, Inc. (‘‘NYSE’’),

American Stock Exchange, Inc. (‘‘AMEX’’) and

Nasdaq National Market System (‘‘Nasdaq/NMS’’)

securities, registered investment company securities

and specified exempt securities and offerings.

7 15 U.S.C. 77r(a).

8 17 CFR 230.501 through 230.508.

9 17 CFR 230.251 through 230.263.

10Section 102(b) of 1996 Act.

securities offerings, as well as

participants in the secondary trading

markets, are responsible for complying

with the federal securities laws as well

as all applicable state laws and

regulations. It has long been recognized

that there is a need to increase

uniformity between federal and state

regulatory systems, and to improve

cooperation among those regulatory

bodies so that capital formation can be

made easier while investor protections

are retained.

The importance of facilitating greater

uniformity in securities regulation was

endorsed by Congress with the

enactment of section 19(c) of the

Securities Act in the Small Business

Investment Incentive Act of 1980.2

Section 19(c) authorizes the

Commission to cooperate with any

association of state securities regulators

which can assist in carrying out the

declared policy and purpose of section

19(c). The policy of that section is that

there should be greater federal and state

cooperation in securities matters,

including: (1) Maximum effectiveness of

regulation; (2) maximum uniformity in

federal and state standards; (3)

minimum interference with the business

of capital formation; and (4) a

substantial reduction in costs and

paperwork to diminish the burdens of

raising investment capital, particularly

by small business, and a reduction in

the costs of the administration of the

government programs involved. In order

to establish methods to accomplish

these goals, the Commission is required

to conduct an annual conference. The

1997 meeting will be the fourteenth

such conference.

Recently, Congress has examined the

system of dual federal and state

securities regulation and the effects of

such dual regulation on the nation’s

securities markets. During this process,

Congress considered the need for

regulatory changes to promote capital

formation, eliminate duplicative

regulation, decrease the cost of capital

and encourage competition, while at the

same time promoting investor

protection. These efforts resulted in

passage of The National Securities

Markets Improvement Act of 1996 3 (the

‘‘1996 Act’’), which was signed by

President Clinton on October 11, 1996.

The 1996 Act contains significant

provisions that realign the regulatory

partnership between federal and state

regulators. The legislation reallocates

responsibility for regulation of the

nation’s securities markets between the

federal government and the states in

order to eliminate duplicative costs and

burdens and improve efficiency, while

preserving investor protections. The

1996 Act addresses regulation

applicable to securities offerings,

investment companies and advisers and

broker-dealers.

II. 1997 Conference

The Commission and the North

American Securities Administrators

Association, Inc. (‘‘NASAA’’) 4 are

planning the 1997 Conference on

Federal-State Securities Regulation (the

‘‘Conference’’) to be held April 28, 1997

in Washington, D.C. At the Conference,

representatives from the Commission

and NASAA will form into working

groups in the areas of corporation

finance, market regulation and

oversight, investment management, and

enforcement, to discuss methods of

enhancing cooperation in securities

matters in order to improve the

efficiency and effectiveness of federal

and state securities regulation.

Generally, attendance will be limited to

representatives of the Commission and

NASAA in an effort to promote frank

discussion. However, each working

group in its discretion may invite

certain self-regulatory organizations to

attend and participate in certain

sessions.

Representatives of the Commission

and NASAA currently are formulating

an agenda for the Conference. As part of

that process the public, securities

associations, self-regulatory

organizations, agencies, and private

organizations are invited to participate

through the submission of written

comments on the issues set forth below.

In addition, comment is requested on

other appropriate subjects sought to be

included in the Conference agenda. All

comments will be considered by the

Conference attendees.

III. Tentative Agenda and Request for

Comments

The tentative agenda for the

Conference consists of the following

topics in the areas of corporation

finance, investment management,

market regulation and oversight, and

enforcement.

(1) Corporation Finance Issues

A. Uniformity of Regulation

The 1996 Act amended Section 18 of

the Securities Act 5 to preempt state

blue-sky registration of securities

offerings of ‘‘covered securities’’ 6 and

prohibit state reviews of offerings of

covered securities.7 The definition of

covered securities does not include the

following which, therefore, remain

subject to state registration

requirements:

• Securities quoted on the Nasdaq

SmallCap market;

• Securities quoted on the Nasdaq

over-the-counter Electronic Bulletin

Board;

• Securities quoted on the over-thecounter ‘‘pink sheets;’’

• Securities listed on national

securities exchanges other than the

NYSE or AMEX (unless the Commission

determines by rule that the listing

standards of such exchanges are

substantially similar to the listing

standards of the NYSE, AMEX, or

Nasdaq/NMS);

• Various investment grade securities,

such as asset-backed and mortgagebacked securities, since these securities

usually are not listed on a national

exchange or Nasdaq/NMS;

• Private placements of securities

under Section 4(2) of the Securities Act

that do not meet the requirements of

Rule 506 of Regulation D; 8 and

• Securities offered in reliance upon

Commission rules adopted under

Section 3(b) of the Securities Act, e.g.,

offerings that are exempt from

registration with the Commission under

Regulation A 9 and Rules 504 and 505 of

Regulation D.

In addition, with respect to offerings of

covered securities (other than listed

securities), the states retain the

authority to require specified fee

payments and/or notice filings. The

states’ continuing authority to regulate

certain offerings and to require other

filings and fees continues the need for

uniformity between the federal and state

registration systems where consistent

with investor protection.

The 1996 Act requires the

Commission to conduct a study as to the

extent to which uniformity of state

regulatory requirements for securities

and securities transactions that are not

covered securities has been achieved.10

The Commission is instructed to consult

with the states as well as issuers,
Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices 17655

11 15 U.S.C. 77r(b)(3).

12 15 U.S.C. 77z–3.

13Securities Act Release No. 7285 (May 1, 1996)

[61 FR 21356].

14 15 U.S.C. 78a et seq.

15Securities Exchange Act Release No. 37157

(May 1, 1996) [61 FR 21354].

16Securities Act Release No. 7390 (February 20,

1997) [62 FR 9242].

17Securities Act Release No. 7391 (February 20,

1997) [62 FR 9246].

18Securities Act Release No. 7393 (February 20,

1997) [62 FR 9276].

19Securities Act Release No. 7314 (July 25, 1996)

[61 FR 40044].

brokers and dealers in conducting this

study. The results of the study are to be

reported to Congress within a year

following the enactment of the 1996

Act. The Commission and NASAA will

discuss the nature and extent of

uniformity at present and discuss steps

to increase uniformity in light of the

1996 Act.

B. Sales to Qualified Purchasers under

the 1996 Act

Section 18 of the Securities Act, as

amended by the 1996 Act, excludes

from state regulation and review

securities offerings to purchasers who

are defined by Commission rules to be

‘‘qualified purchasers.’’ 11 A security

sold to a ‘‘qualified purchaser’’ is a

‘‘covered security’’ subject to the same

new regulatory approach as other

covered securities as described above.

The Commission will be undertaking

rulemaking to define ‘‘qualified

purchaser’’ for this purpose, and will

discuss with NASAA the appropriate

criteria for this definition.

C. Commission Exemptive Authority

The 1996 Act added new Section 28

to the Securities Act granting the

Commission extensive general authority

to craft exemptions from the Securities

Act to the extent that such exemptions

are necessary or appropriate in the

public interest and consistent with the

protection of investors.12 This new

authority permits the Commission to

adopt rules which exempt any person,

security or transaction, or any classes

thereof, from one or more of the

provisions of the Securities Act. The

Commission is authorized to adopt

conditions for the availability of such

exemptions or, if deemed appropriate,

adopt unconditional exemptions. The

Commission and NASAA will discuss

the nature and extent of appropriate

exemptions that may be adopted under

the Commission’s new authority and the

appropriate criteria of and conditions to

such exemptions. In this regard, the

definition of covered securities does not

encompass securities issued pursuant to

exemptions under new Section 28.

Accordingly, securities or transactions

determined to be exempt under

Commission rules adopted pursuant to

new section 28 may be subject to state

regulation and review. The conferees

will discuss how offerings exempted

under new Section 28 may be regulated

in a uniform manner under state

securities laws to the greatest possible

extent, consistent with investor

protection.

D. Small Business Initiatives

During 1996 the Commission adopted

and revised rules to provide additional

assistance to small business. On May 1,

1996, the Commission adopted Rule

1001, a new Securities Act Section 3(b)

exemption from the registration

requirements of the federal securities

laws.13 Under the exemption, offers and

sales of securities, in amounts of up to

$5 million, that satisfy the conditions of

a 1994 exemption from California state

qualification requirements (Section

25102(n) of the California Corporations

Code) are exempt from federal

registration. Also on May 1, 1996, the

Commission adopted amendments to

certain rules under the Securities

Exchange Act of 1934 14 (‘‘Exchange

Act’’) that raised the asset threshold for

when a company must become a

‘‘public’’ reporting company from $5

million to $10 million.15

On February 20, 1997, the

Commission adopted amendments to

the holding period requirements

contained in Rule 144 under the

Securities Act.16 Rule 144 provides a

Securities Act registration safe harbor

for resales of securities by persons who

hold either ‘‘restricted’’ securities or

securities of a company of which they

are affiliates. ‘‘Restricted’’ securities

generally include securities issued in

offerings under certain exemptions from

federal registration. The amendments

permit the resale of limited amounts of

restricted securities after a one-year,

rather than the previous two-year,

holding period. In addition, the

amendments permit unlimited resales of

restricted securities by non-affiliates

after a holding period of two years,

rather than the previous three-year

period. The Commission believes that

these changes will reduce the cost of

private capital formation and especially

benefit small businesses, without

reducing investor protections. In a

companion release, the Commission

proposed certain changes to Rule 144 to

simplify the rule’s operation and

solicited comments on additional

changes to Rule 144.17

Also on February 20, 1997, the

Commission proposed amendments to

Rule 430A to permit certain smaller or

less seasoned reporting companies to

price securities on a delayed basis after

effectiveness of a registration statement,

if they meet specified conditions.18 The

proposals are intended to provide

flexibility and efficiency to qualified

registrants, enabling them to time their

offerings to advantageous market

conditions, consistent with investor

protection.

The participants will discuss the

impact of the recent Commission rule

changes and the need for any additional

exemptive relief in the small business

area. Conferees will consider the recent

proposals and discuss the effects of such

proposals, if adopted, on small business

and public investors.

During the fall of 1996, the

Commission began meeting with small

businesses in town hall meetings

conducted throughout the United States.

These town hall meetings are intended

to provide basic information to small

businesses about fundamental

requirements that must be addressed

when they wish to raise capital through

the public sale of securities. In addition,

the Commission has learned and will

continue to learn more about the

concerns and problems facing small

businesses in raising capital so that

initiatives and programs can be

designed to meet their needs, consistent

with the protection of investors. To

date, the Commission has held six town

hall meetings attended by more than

1,000 small business persons. The

Commission representatives will share

information and ideas obtained from

these meetings with conference

participants.

E. Securities Act Concept Release

The Commission issued a concept

release during 1996 to solicit comment

on the best means of improving the

regulation of the capital formation

process while maintaining or enhancing

investor protection.19 The Commission

has been engaged in a broad

reexamination of the regulatory

framework for the offer and sale of

securities under the Securities Act.

The concept release solicited

comment on different approaches, such

as: the recommendation of the Advisory

Committee on the Capital Formation

and Regulatory Processes that a

‘‘company registration’’ approach be

adopted; modifications to the existing

shelf registration system (many of which

were recommended by the

Commission’s Task Force on Disclosure
17656 Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices

20Securities Act Release No. 7300 (May 31, 1996)

[61 FR 30397].

21Securities Act Release No. 7301 (May 31, 1996)

[61 FR 30405].

22Securities Act Release No. 7380 (January 14,

1997) [62 FR 3152].

23Securities Act Release No. 7233 (October 6,

1995) [60 FR 53458], Securities Act Release No.

7289 (May 9, 1996) [61 FR 24652].

24 17 CFR 230.901 through 230.904 and

Preliminary Notes.

Simplification); reforms that would

liberalize the treatment of unregistered

securities; and an approach that would

involve deregulation of offers. Comment

also was requested with regard to any

other approaches that should be

considered. The comment period ended

October 31, 1996. The participants will

discuss the conceptual issues raised by

the release and the comments received

in response to such release and consider

the changes that should be made in the

regulation of securities offerings.

F. Report of the Advisory Committee on

the Capital Formation and Regulatory

Processes

On July 24, 1996, the Advisory

Committee on the Capital Formation

and Regulatory Processes (the

‘‘Advisory Committee’’) presented its

report to the Commission

recommending the adoption of a

company registration system. The

Advisory Committee recommended a

fundamental conceptual change in the

scheme of regulation governing offerings

by public companies. The Advisory

Committee advised the Commission to

shift the focus of the regulatory process

for public offerings of securities by these

companies from a transactional

registration system to a company

registration system, beginning with a

pilot program. As a part of this new

approach, the Advisory Committee

recommended enhancements to the

Exchange Act periodic reporting

requirements. The participants will

consider the recommendations

proposed by the Advisory Committee,

including the impact of such conceptual

changes on the coordination of federal

and state securities regulation.

G. Disclosure Simplification

On March 5, 1996, the Commission

published the Report of the Task Force

on Disclosure Simplification (the ‘‘Task

Force Report’’). The Task Force Report

includes several recommendations

intended to reduce the costs of raising

capital by both smaller and seasoned

companies. In addition, the Task Force

Report includes a discussion on the

ongoing debate regarding the need to

adapt existing Securities Act

requirements and related concepts to

current market conditions. Since

publication of the Task Force Report,

the Commission initiated

implementation of certain of the

recommendations by eliminating 45

rules and four forms that were viewed

as redundant or otherwise no longer

necessary 20 and published proposals to

implement additional recommendations

to eliminate unnecessary requirements

and streamline the disclosure process.21

The conference participants will

discuss the findings and

recommendations of the Task Force

Report and consider the Commission’s

proposals that would implement certain

recommendations. Conferees will

consider how the Commission’s

proposals, if adopted, would impact the

system of dual federal and state

regulation.

H. Plain English

One of major concerns of the Task

Force on Disclosure Simplification was

the lack of readability of prospectuses

and other disclosure documents. The

Task Force Report criticized

prospectuses for their dense writing,

legal boilerplate and repetitive

disclosures and recommended using

plain English disclosure to improve the

readability of prospectuses. The

Commission on January 14, 1997

proposed several rule amendments that

would be a first step in implementing

the Task Force’s recommendation.22

The proposals require the use of plain

English writing principles when

drafting the front part of prospectuses—

the cover page, summary and risk

factors sections of these documents.

Concurrently with the issuance of the

plain English proposal, the

Commission’s Office of Investor

Education and Assistance issued a draft

copy of a handbook to help issuers write

plain English documents.

The Division of Corporation Finance

is operating a pilot program for

companies that want to draft their

documents in plain English. The

Division’s staff works with volunteers

on the techniques for designing and

writing plain English documents filed

under either the Securities Act or the

Exchange Act. The company

participants can draft plain English

documents and submit them to the staff

for suggestions and comments in a

nonpublic forum.

Conferees will discuss the Plain

English initiative, including federal and

state coordination needed to facilitate

implementation of the initiative.

I. Electronic Delivery of Disclosure

Documents

The Commission has issued

interpretive releases and rules

addressing the use of electronic media

to deliver or transmit information under

the federal securities laws.23 These

initiatives reflect the Commission’s

continuing recognition of the benefits

that electronic technology provides to

the financial markets. These releases are

premised on the belief that the use of

electronic media should be at least an

equal alternative to the use of paper

delivery.

The participants will discuss the

impact of electronic technology on the

capital formation process and consider

the nature and extent of regulatory

changes to accommodate the use of such

technology in securities offerings. In

particular, conferees will consider the

various approaches that have been taken

by states and the Commission relative to

securities offerings on the Internet.

J. Internationalization of the Securities

Markets

1. Foreign Issuers in the U.S. Market.

Foreign companies raising funds from

the public or having their securities

traded on a national exchange or the

Nasdaq Stock Market are generally

subject to the registration requirements

of the Securities Act and the registration

and reporting requirements of the

Exchange Act. The Commission has

provided a separate integrated

disclosure system for foreign private

issuers that provides a number of

accommodations to foreign practices

and policies. Foreign companies

conducting securities offerings in the

U.S. continue to be subject to state

regulation and review unless the

securities being offered are ‘‘covered

securities’’ within the meaning of the

1996 Act. The participants will discuss

steps to increase coordination of federal

and state treatment of multinational

offerings.

2. Regulation S. In 1990, the

Commission adopted Regulation S 24 to

clarify the extraterritorial application of

the registration requirements of the

Securities Act. The Commission

intended for Regulation S to make clear

that registration of an offering of

securities under the Securities Act

would not be required where the

offering takes place outside the United

States and the securities offered come to

rest offshore. Following the adoption of

Regulation S, the Commission became

aware of certain abusive practices under

the regulation. The Commission issued

a release on February 20, 1997

proposing revisions to Regulation S to
Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices 17657

25Securities Act Release No. 7392 (February 20,

1997) [62 FR 9258].

26 17 CFR 240.17a–3 and 17a–4.

27Securities Exchange Act Release No. 37850

(October 22, 1996) [61 FR 55593].

prevent those abusive practices.25 The

proposals include lengthening the

restricted period during which persons

relying on the Regulation S safe harbor

may not sell equity securities into the

United States from 40 days to two years

(absent registration or a valid

exemption) and classifying equity

securities placed offshore pursuant to

Regulation S as ‘‘restricted securities’’

under Rule 144. The proposals would

apply to offshore sales of equity

securities of domestic issuers and of

foreign issuers where the principal

market for those securities is the United

States.

Conferees will discuss the proposed

changes to Regulation S, share their

experiences with Regulation S offerings

and discuss steps to increase

coordination of federal and state

regulation of such offerings.

(2) Market Regulation Issues

A. National Securities Markets

Improvement Act of 1996

1. State Licensing Requirements. The

1996 Act directed the Commission to

conduct a study of the impact of

disparate state licensing requirements

on associated persons of registered

broker-dealers and the methods for

states to attain uniform licensing

requirements for such persons. The

Commission is required to consult with

the self-regulatory organizations

(‘‘SROs’’) and the states, and to prepare

and submit a report to Congress by

October 11, 1997. To this end,

Commission staff have been consulting

with the SROs, NASAA, and members

of the securities industry. The initial

goal is to determine the extent to which

state licensing requirements differ and

the effect of different state requirements

and procedures upon associated persons

and broker-dealers. The next phase of

the study will be to analyze the need for

and feasibility of requiring uniform state

requirements (through legislation or

other means). The participants will

discuss the status of the study at the

conference.

2. State Requirements for ExchangeListed Securities. As noted above, the

1996 Act amended Section 18 of the

Securities Act to provide an exemption

from state blue sky laws and regulations

for securities that are listed on the

NYSE, the AMEX, and the Nasdaq/

NMS. The amendments to Section 18

also allow the Commission by rule to

designate securities listed on other

national securities exchanges as exempt

from state blue sky laws and regulations

if the applicable listing standards are

substantially similar to those of the

NYSE, AMEX, or Nasdaq/NMS. Section

18 allows the Commission to adopt such

a rule on its own initiative or in

response to a rulemaking petition. The

Commission has received rulemaking

petitions from the Pacific Stock

Exchange, Inc., the Chicago Board

Options Exchange, Inc., and the Chicago

Stock Exchange, Inc. The participants

will discuss these proposals and their

potential impact on NASAA members.

3. Broker-Dealer Books and Records.

Section 103 of the 1996 Act prohibits

any state from imposing broker-dealer

books and records requirements that are

different from or in addition to the

Commission’s requirements. In

addition, the same section directs the

Commission to consult periodically

with state securities authorities

concerning the adequacy of the

Commission’s requirements. The

Commission’s current proposal to

amend Rules 17a–3 and 17a–4 26

originated in discussions between

NASAA representatives and the

Commission about the adequacy of the

existing broker-dealer books and records

requirements.27 The proposed

amendments clarify, modify, and

expand the Commission’s recordkeeping requirements with respect to

purchase and sale documents, customer

records, associated person records,

customer complaints, and certain other

matters. In addition, the proposed

amendments specify certain types of

books and records that broker-dealers

must make available in their local

offices. In consideration of the

substantial number of organizations that

have expressed interest in commenting

on the proposed amendments, the

Commission extended the comment

period until March 31, 1997. The

participants at the Conference will

discuss the proposed amendments and

the comments received.

B. Central Registration Depository

(‘‘CRD’’) Redesign

The CRD system is a computer system

operated by the National Association of

Securities Dealers, Inc. (‘‘NASD’’) that is

used by the Commission, the states and

the SROs primarily as a means to

facilitate registration of broker-dealers

and their associated persons. The NASD

is in the process of implementing a

comprehensive plan to redesign the

CRD and to expand its use by federal

and state securities regulators as a tool

for broker-dealer regulation. As a result

of the NASD’s efforts, the redesigned

CRD system ultimately is expected to

provide the Commission, SROs, and

state securities regulators with: (i)

Streamlined capture and display of data;

(ii) better access to registration and

disciplinary information through the

use of standardized and specialized

computer searches; and (iii) electronic

filing of uniform registration and

licensing forms, including Forms U–4,

U–5, BD and BDW.

The NASD has been testing the pilot

version of the redesigned CRD since

mid-1996, and this version is now in

use on a trial basis at approximately 800

broker-dealers nationwide. Among other

things, the participants will discuss the

status of the CRD implementation

process, and issues relating to the

conversion of existing registration

information to the redesigned CRD and

electronic filing of uniform forms.

C. Broker-Dealer Examinations

In December 1995, regulators

responsible for examining brokerdealers (NASAA on behalf of state

regulators, the AMEX, the CBOE, the

NYSE, the NASD and the Commission)

signed a Memorandum of

Understanding (‘‘MOU’’) in which they

committed to undertake their regulatory

responsibilities in the most efficient and

effective manner possible by sharing

information, coordinating examinations

and identifying regulatory priorities. As

part of the MOU, NASAA, the SROs and

the Commission agreed to meet yearly

for a national planning summit and each

state securities regulator, NASD district

office and Commission regional office

agreed to meet at least annually for a

regional planning summit, to discuss

examination schedules and priorities,

review broker-dealers’ examination

histories, and discuss other areas of

related interest, with the goal of

encouraging information-sharing to

avoid unnecessary duplication of

examinations. Common regulatory

findings and the status of this

coordination and of the implementation

of the MOU will be discussed.

In March 1996, the Commission,

NASAA, the NASD and the NYSE

released a report on the findings of a

joint regulatory effort—‘‘The Joint

Regulatory Sales Practice Sweep: A

Review of the Sales Practice Activities

of Selected Registered Representatives

and the Hiring, Retention, and

Supervisory Practices of the Brokerage

Firms Employing Them.’’ The objectives

of this joint initiative were to identify

possible problem registered

representatives, to review their sales

practices, and to assess whether

adequate hiring, retention, and

supervisory mechanisms were in place.
17658 Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices

28Spring Street Brewing Co. (April 17, 1996); Real

Goods Trading Corp. (June 24, 1996); PerfectData

Corp. (August 5, 1996); and Flamemaster Corp.

(November 6, 1996).

29Angel Capital Electronic Network (October 25,

1996).

30Charles Schwab & Co., Inc. (November 27,

1996).

31Securities Exchange Act Release No. 37182

(May 9, 1996) [61 FR 24644].

32See related discussion under Corporation

Finance Issues, supra page 13.

33Securities Exchange Act Release No. 38067

(December 20, 1996) [62 FR 520].

34 17 CFR 240.11Ac1–4.

35 17 CFR 240.11Ac1–1.

36Securities Exchange Act Release No. 37619A

(September 6, 1996) [61 FR 48290].

The findings of the report suggested

generally that, while many firms

maintain satisfactory supervisory

mechanisms, firms can and should

improve and strengthen their hiring,

retention, and supervisory practices.

Consequently, the report contained

specific recommendations aimed at

improving brokerage firms’ hiring,

retention, and supervisory practices.

The attendees will discuss

implementation of the

recommendations.

D. Arbitration

The NASD and other members of the

Securities Industry Conference on

Arbitration have been developing new

approaches to important issues affecting

the administration of securities

arbitration over the past year. Much of

their work was prompted by the 1996

report of the NASD’s Arbitration Policy

Task Force. The participants will

discuss the status of some of the

important developments in their area.

For example, proposed changes related

to the variations in administering claims

of different dollar amounts, the

administration of older claims, and

punitive damages are likely to be

discussed.

E. Internet Fraud/Electronic Delivery

A leadership area of mutual interest to

both the Commission staff and NASAA

is the impact of developments in

technology. This year there were

ongoing discussions concerning a

variety of new issues. Areas of concern

include: industry retention of electronic

records and communications; computer

security; unregistered brokerage,

investment advisory and other regulated

financial business conducted through

the internet; foreign exchange and

foreign financial sector access to the

U.S. through electronic media; and

industry and investor education about

the use of electronic media for the

securities business. In 1996, the

Division issued no-action or information

letters with respect to certain financial

business activities on the Internet,

including issuer-based bulletin board

services,28 non-profit matching

services,29 and activities of on-line

service providers (America Online,

Compuserve, and Microsoft).30 The

Commission staff and NASAA also have

ongoing consultations on state securities

law issues.

On May 9, 1996, the Commission

published an interpretive release

expressing its views on the electronic

delivery of documents that brokerdealers, transfer agents, and investment

advisers are required to send to their

customers.31 The conference

participants will discuss these and other

matters concerning the Internet and the

use of electronic media.32

F. Regulation M

On December 18, 1996, the

Commission approved Regulation M,

representing the most sweeping changes

in the way the Commission seeks to

prevent the manipulation of securities

offerings since the Commission adopted

Rules 10b–6, 10b–7, and 10b–8 (also

known as the ‘‘trading practices rules’’)

over 40 years ago.33 Regulation M,

which became effective March 4, 1997,

differs from the former trading practices

rules by focusing the restrictions on

securities that are more susceptible to

manipulation; using better measures for

manipulative potential; recognizing the

global nature of securities markets;

assimilating the changes in market

transparency and surveillance; and

codifying a variety of earlier actions by

the Commission to adapt the former

rules to current market conditions.

Regulation M addresses the concern that

persons with a stake in a securities

offering, such as issuers, selling

securityholders and underwriters, might

artificially influence the market price of

the security in distribution, thereby

boosting its offering price. The

regulation seeks to prevent this result by

restricting the activities of these

persons. In particular, Regulation M

requires offering participants to cease

their market activities, such as

proprietary trading, during a restricted

period that begins one or five business

days prior to the offering’s pricing and

ends when the offering is over. A

notable change from the trading

practices rules, and one which reflects

the more focused approach of

Regulation M, is that underwriters of an

actively-traded security of a larger issuer

would not be subject to these

restrictions. Participants will discuss

issues raised by the new regulation.

G. Order Execution Rules

In August of 1996, the Commission

adopted Rule 11Ac1–4 34 (‘‘Limit Order

Display Rule’’) and amendments to Rule

11Ac1–1 35 (‘‘Quote Rule’’) (collectively

‘‘Order Execution Rules’’).36 The Limit

Order Display Rule requires, under

certain circumstances, the public

display of customer limit orders priced

better than an exchange specialist’s or

market maker’s quote. The Limit Order

Display Rule also requires that

specialists and market makers add limit

orders priced at their quote to the size

associated with their quote when the

quote represents the best market-wide

price. The rule establishes standard

display requirements for limit orders in

all markets. The Quote Rule was

amended to require specialists and

market makers to reflect in their quote

any better priced order that they enter

into an electronic communication

network, or in the alternative, the

electronic communication network may

route the best specialists’ or market

makers’ orders entered therein into the

public quotation stream. In addition, the

Quote Rule was amended to require that

substantial market makers for any

security listed on an exchange publish

their quotations for such security. The

Order Execution Rules enhance the

quality of public quotations for equity

securities and improve investor access

to the best prices available. The new

rules also present investors with

improved execution opportunities and

improved access to best prices when

they buy and sell securities. The

participants will discuss the new rules

and their implementation.

H. Bank Securities Activities

Last year, the NASD submitted a rule

proposal to the Commission that would

govern the conduct of member brokerdealers operating on the premises of

financial institutions. The NASD has

since substantially revised its rule

proposal to address a number of issues

raised by the commenters, and expects

to submit a revised rule proposal to the

Commission shortly. The participants

will discuss the proposed rule revisions,

as well as other developments in this

area, including a proposal by the federal

banking regulators to require bank

employees that sell securities directly to

take certain qualification examinations

currently required of broker-dealer

employees.
Federal Register / Vol. 62, No. 69 / Thursday, April 10, 1997 / Notices 17659

37 15 U.S.C. 80b–1 et seq.

38 15 U.S.C. 80a–1 et seq.

39 Investment Advisers Act Release No. 1601

(December 20, 1996) [61 FR 68480].

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 38383

(March 11, 1997); 62 FR 13203.

4Letter from Nandita Yagnik, Attorney, New

Product Development, Phlx to Marianne H. Khawly,

Staff Attorney, Division of Market Regulation

(‘‘Division’’), Commission, dated April 2, 1997.

5Securities Exchange Act Release No. 34345 (July

11, 1994), 59 FR 36245 (approval for index options

on the Phone Index).

(3) Investment Management Issues

Title III of the 1996 Act (the

‘‘Investment Advisers Supervision

Coordination Act’’ (‘‘Coordination

Act’’)) made several amendments to the

Investment Advisers Act of 1940, 37 the

most significant of which reallocates

federal and state responsibilities over

investment advisers. Under the new

scheme larger advisers will principally

be regulated by the Commission, while

smaller advisers the businesses of which

tend to be more local will be primarily

regulated by the states.

Upon the effective date of the

Coordination Act, an investment adviser

that is regulated or required to be

regulated as an investment adviser in a

state in which it maintains its principal

office and place of business is

prohibited from registering with the

Commission unless the adviser (i) has

assets under management of not less

than $25 million (or such higher amount

as the Commission may, by rule, deem

appropriate), or (ii) is an adviser to an

investment company registered under

the Investment Company Act of 1940. 38

The Commission is authorized to deny

registration to any applicant that does

not meet the criteria for Commission

registration and is directed to cancel the

registration of any adviser that no longer

meets the criteria for registration.

The Coordination Act preempts state

investment adviser statutes as they

apply to investment advisers registered

with the Commission. The Coordination

Act preserves, however, the ability of

state regulators to: (i) Investigate and

bring enforcement actions against

Commission-registered advisers with

respect to fraud and deceit, (ii) require

Commission-registered advisers to file

notice documents with the state, and

(iii) require Commission-registered

advisers to pay state registration and

other fees. State law is also preempted

as to certain ‘‘supervised persons’’ of

Commission-registered advisers, except

that a state retains the authority to

register an investment adviser

representative that has a place of

business in the state.

On December 20, 1996 the

Commission proposed rules designed to

implement the provisions of the

Coordination Act.39 The proposed rules:

(i) Address the procedures by which

advisers not eligible to register will

identify themselves to the Commission

and withdraw from registration, (ii)

exempt certain advisers that do not meet

the criteria from Commission

registration from the new prohibition,

and (iii) define certain terms used in the

statute. The comment period on the

proposed rules closed on February 10,

1997.

The conferees will discuss the

Commission’s rules as they affect the

allocation of regulatory responsibilities

between the states and the Commission.

In addition, the conferees will discuss

mutual concerns regarding the

implementation of the Coordination

Act, including the transition to the new

regulatory scheme, the sharing of

information regarding the status of

registrants, and arrangements for the

provision of technical assistance by the

Commission including training,

conducting joint exams and sharing of

information with respect to investment

advisers. In addition, state and federal

regulators will discuss the coordination

of regulatory, examination and

enforcement activities subsequent to the

effective date of the Coordination Act.

The conferees will also discuss progress

with regards to the development of a

one-stop electronic filing system for

investment advisers, and the

development of a system for investors to

obtain information regarding the

disciplinary history of investment

advisers.

(4) Enforcement Issues

In addition to the above-stated topics,

the state and federal regulators will

discuss various enforcement-related

issues which are of mutual interest.

(5) Investor Education

The Commission is pursuing a

number of programs for investors on

how to invest wisely and to protect

themselves from fraud and abuse. The

states and NASAA have a longstanding

commitment to investor education and

the Commission is intent on

coordinating and complementing those

efforts to the greatest extent possible.

The participants at the conference will

discuss investor education and potential

joint projects in some of the working

group sessions.

(6) General

There are a number of matters which

are applicable to all, or a number, of the

areas noted above. These include

EDGAR, the Commission’s electronic

disclosure system, rulemaking

procedures, training and education of

staff examiners and analysts and sharing

of information.

The Commission and NASAA request

specific public comments and

recommendations on the abovementioned topics. Commenters should

focus on the agenda but may also

discuss or comment on other proposals

which would enhance uniformity in the

existing scheme of state and federal

regulation, while helping to maintain

high standards of investor protection.

Dated: April 4, 1997.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–9204 Filed 4–9–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38479; File No. SR–Phlx–

97–12]

Self-Regulatory Organizations; Order

Granting Accelerated Approval of

Proposed Rule Change and Notice of

Filing and Order Granting Accelerated

Approval of Amendment No. 1 Thereto

by the Philadelphia Stock Exchange,

Inc. Relating to the Maintenance

Criteria for the Phlx Phone Index

April 3, 1997.

On March 5, 1997, the Philadelphia

Stock Exchange Inc. (‘‘Phlx’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b) of the Securities Exchange Act of

1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend the maintenance standards

applicable to the Phlx Phone Index

(‘‘Index’’) to allow the number of stocks

in the Index to decline to six without

having to delist the Index. Notice of the

proposed rule change appeared in the

Federal Register on March 19, 1997.3

No comments were received on the

proposal. On April 2, 1997, the Phlx

filed Amendment No. 1 to the proposal

to address issues related to Index

concentration and to request accelerated

approval of its proposal.4 This order

approves the proposal, as amended, on

an accelerated basis.

I. Description of the Proposal

On July 11, 1994, the Commission

approved a proposal by the Phlx to list

and trade options on the Index.5 The

Index is a capitalization-weighted index

composed of eight widely held U.S.