Federal Register / Vol. 70, No. 179 / Friday, September 16, 2005 / Rules and Regulations 54629 

1American Council of Life Insurers, Petition for 

Rulemaking Under Rule 192 of the SEC’s Rules of 

Practice Concerning Extended Implementation Date 

in Rule 202(a)(11)–1(b)(2) Under the Investment 

Advisers Act of 1940, July 27, 2005, File No. 4–507 

(available at: http://www.sec.gov/rules/petitions/4– 

507a.pdf) (The ACLI is seeking an extension of the 

compliance date for rule 202(a)(11)–1(b)(2) until 

April 24, 2006.); Securities Industry Association, 

Petition for Rulemaking; Request for Extension of 

Certain Compliance Dates for Rule 202(a)(11)–1 

(S7–25–99), July 28, 2005, File No. 4–507 (available 

at: http://www.sec.gov/rules/petitions/petn4– 

507.pdf) (The SIA is seeking an extension of 

compliance dates for rule 202(a)(11)–1(b)(2) and 

(b)(3) until April 1, 2006.); Securities Industry 

Association, Request for Extension of Certain 

Compliance Dates for Rule 202(a)(11)–1 (S7–25–99), 

August 25, 2005, File No. 4–507 (supplementing the 

SIA’s petition for rulemaking) (available at: http:// 

www.sec.gov/rules/petitions/4–507b.pdf); Financial 

Continued 

SUPPLEMENT NO. 4 TO PART 744.—ENTITY LIST

Country Entity License requirement License review policy Federal Register citation 

* * * * * * * 

China, People’s Republic of.Beijing University of Aeronautics and Astronautics (BUAA), a.k.a. Beihang University.For all items subject 

to the EAR.

See § 744.3(d) of this 

part.

66 FR 24266 5/14/01 

70 FR [Insert FR 

Page Number] 9/16/ 

05. 

* * * * * * * 

PART 748—[AMENDED] 

■ 10. The authority citation for part 748 

is revised to read as follows: 

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13026, 61 FR 58767, 

3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 

FR 44025, 3 CFR, 2001 Comp., p. 783; Notice 

of August 2, 2005, 70 FR 45273 (August 5, 

2005). 

■ 11. Section 748.8 is amended by 

adding new paragraph (v), to read as 

follows: 

§ 748.8 Unique application and 

submission requirements. 

* * * * * 

(v) In-country transfers. 

■ 12. Supplement No. 2 to part 748 is 

amended by adding new paragraph (v), 

to read as follows: 

Supplement No. 2 to Part 748—Unique 

Application and Submission 

Requirements 

* * * * * 

(v) In-country transfers. To request an 

in-country transfer, you must specify 

‘‘in-country transfer’’ in Block 9 (Special 

Purpose) and mark ‘‘Reexport’’ in Block 

5 (Type of Application) of the BIS–748P 

‘‘Multipurpose Application’’ form. The 

application also must specify the same 

foreign country for both the original 

ultimate consignee and the new 

ultimate consignee. 

Dated: September 9, 2005. 

Matthew S. Borman, 

Deputy Assistant Secretary for Export 

Administration. 

[FR Doc. 05–18373 Filed 9–15–05; 8:45 am] 

BILLING CODE 3510–33–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 275 

[Release Nos. 34–52407; IA–2426; File No. 

S7–25–99] 

RIN 3235–AH78 

Certain Broker-Dealers Deemed Not To 

Be Investment Advisers, Extension of 

Compliance Date 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule; extension of 

compliance date. 

SUMMARY: The Securities and Exchange 

Commission is extending the 

compliance date for the rule that 

identifies circumstances under which a 

broker-dealer’s advice is not ‘‘solely 

incidental to’’ its brokerage business or 

to brokerage services provided to certain 

accounts and thus subjects the brokerdealer to the Investment Advisers Act of 

1940. 

DATES: The effective date for 

§ 275.202(a)(11)–1, issued on April 12, 

2005 (70 FR 20424, Apr. 19, 2005), 

remains April 15, 2005 (except for 

§ 275.202(a)(11)–1(a)(1)(ii), which was 

effective May 23, 2005). Effective on 

September 19, 2005, the compliance 

date for § 275.202(a)(11)–1(b)(2) and 

§ 275.202(a)(11)–1(b)(3) is extended 

from October 24, 2005 to January 31, 

2006. 

FOR FURTHER INFORMATION CONTACT: 

Catherine E. Marshall, Senior Counsel, 

or Nancy M. Morris, Attorney-Fellow, at 

(202–551–6787), or Iarules@sec.gov, 

Office of Investment Adviser 

Regulation, Division of Investment 

Management, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–0506. 

SUPPLEMENTARY INFORMATION: On April 

12, 2005, the Securities and Exchange 

Commission (‘‘Commission’’) issued its 

release adopting rule 202(a)(11)–1 under 

the Investment Advisers Act of 1940 

(‘‘Advisers Act’’) regarding the 

application of the Advisers Act to 

certain broker-dealers. Paragraph (b)(2) 

of the rule provides that when a brokerdealer provides advice as part of a 

financial plan or in connection with 

providing financial planning services, a 

broker-dealer provides investment 

advice that is not ‘‘solely incidental to’’

(a) the business of a broker or dealer 

within the meaning of the Advisers Act 

or (b) brokerage services within the 

meaning of the rule if it: (i) Holds itself 

out to the public as a financial planner 

or as providing financial planning 

services; or (ii) delivers to its customer 

a financial plan; or (iii) represents to the 

customer that the advice is provided as 

part of a financial plan or in connection 

with financial planning services. 

Paragraph (b)(3) provides that exercising 

investment discretion is not ‘‘solely 

incidental to’’ (a) the business of a 

broker or dealer within the meaning of 

the Advisers Act or (b) brokerage 

services within the meaning of the rule 

(except for investment discretion 

granted by a customer on a temporary or 

limited basis). 

The American Council of Life Insurers 

(‘‘ACLI’’), the Securities Industry 

Association (‘‘SIA’’) and the Financial 

Services Institute (‘‘FSI’’) each filed a 

petition for rulemaking under rule 192 

of our Rules of Practice seeking an 

extension of certain compliance dates in 

rule 202(a)(11)–1.1 The ACLI expressed 

54630 Federal Register / Vol. 70, No. 179 / Friday, September 16, 2005 / Rules and Regulations 

Services Institute Inc., Request for Extension of 

Compliance Dates for Certain Aspects of Rule 

202(a)(11)–1 (S7–25–99), Aug. 25, 2005, File No. 4–

507 (available at: http://www.sec.gov/rules/ 

petitions/4–507c.pdf) (The FSI is seeking an 

extension of the compliance dates for rule 

202(a)(11)–1(b)(2) and (b)(3) until April 24, 2006.) 

Although the FSI did not expressly petition for 

rulemaking, we so construe its extension request. 

2Letter of Investment Adviser Association to 

Jonathan G. Katz (Aug. 4, 2005), File No. 4–507 

(available at: http://www.sec.gov/rules/petitions/4–

507/dgtittsworth080405.pdf). 

3Letter from Barbara Roper, Director of Investor 

Protection, Consumer Federation of America; 

Mercer Bullard, Founder and President, Fund 

Democracy; Kenneth McEldowney, Executive 

Director, Consumer Action; and Sally Greenberg, 

Senior Counsel, Consumers Union, to Jonathan G. 

Katz, Secretary, Commission (Aug. 11, 2005), File 

No. 4–507 (available at: http://www.sec.gov/rules/ 

petitions/4–507/4507–2.pdf); Letter from Ron A. 

Rhoades, Chief Compliance Officer, Joseph Capital 

Management, LLC, to Jonathan G. Katz, Secretary, 

Commission (Aug. 18, 2005), File No. 4–507 

(available at: http://www.sec.gov/rules/petitions/4–

507/4507–3.pdf). 

4 JCM cites our staff’s interpretive release on 

financial planning. Applicability of the Investment 

Advisers Act to Financial Planners, Pension 

Consultants, and Other Persons Who Provide 

Investment Advisory Services as a Component of 

Other Financial Services, Investment Advisers Act 

Release No. 1092 (Oct. 8, 1987) [52 FR 38400 (Oct. 

16, 1987)]. We note, however, that the release 

expressly contemplated that, under appropriate 

circumstances, broker-dealers who provide 

financial planning services may have been able to 

avail themselves of the statutory exception set out 

in section 202(a)(11)(C). 

concerns about its members’ ability to 

fulfill the enterprise-wide 

transformation necessary to comply 

with the financial planning provision of 

rule 202(a)(11)–1(b)(2) by the October 

24, 2005, compliance date. The SIA and 

the FSI expressed concerns about their 

members’ ability to comply with the 

financial planning and investment 

discretion provisions of rule 202(a)(11)–

1(b)(2) and (b)(3) by the October 24, 

2005, compliance date. All three 

organizations state that, to comply with 

the rule, many of their members face 

requirements that will make it difficult 

to complete their compliance efforts by 

the October compliance date. 

Specifically, with respect to 

subparagraph (b)(2), the ACLI and the 

SIA note that, among other things, the 

detailed personnel training and system 

enhancements (which need to be coded 

and tested) required by the rule will add 

to compliance complexities. The ACLI 

states, for example, that its members 

need time to ascertain the application of 

the rule to their activities, train their 

employees to fulfill their Advisers Act 

obligations, and license their employees 

as investment adviser representatives 

under state law. The SIA and the FSI 

state that their member firms need time 

to make judgments about their activities, 

products and services that are, and are 

not, subject to the Advisers Act and to 

develop and disseminate meaningful 

disclosures about brokerage and 

advisory relationships which, they state, 

will require substantial computer 

programming changes. 

With respect to subparagraph (b)(3), 

the SIA and the FSI state that brokerdealers must evaluate each account 

currently classified as ‘‘discretionary’’ to 

determine whether it is discretionary 

within the meaning of the rule, to 

discuss with each affected client the 

investment options available for each 

account and to provide those clients 

with time to choose whether they want 

to maintain their accounts as nondiscretionary brokerage accounts or 

investment discretion advisory 

accounts. According to the SIA, the 

volume of accounts, coupled with 

associated recordkeeping requirements 

and time spent waiting for customer 

responses, will cause the process to take 

a longer time to complete than currently 

permitted by the rule. In this regard, the 

SIA notes that this process will be labor 

intensive and time-consuming and will 

involve functions other than merely 

categorizing accounts. For example, for 

those clients who elect to have their 

accounts be advisory accounts, the SIA 

states that the broker-dealers will need 

time to create and finalize advisory 

agreements, prepare ADV filings and 

related adviser disclosures, adopt 

internal policies and procedures, and 

implement internal system 

infrastructure and trade processing so 

that the accounts comply with the 

Advisers Act. For accounts that will 

become non-discretionary brokerage 

accounts, the SIA states that its 

members likewise will need to consult 

with clients about the clients’ options, 

document the new brokerage services, 

and develop systems to document that 

the account is a non-discretionary 

brokerage account. Further complicating 

the compliance process, according to 

the SIA, due to year-end reporting 

requirements, many member firms 

‘‘black-out’’ their systems to changes 

from late-November through the end of 

the year. Finally, the SIA states that 

some broker-dealers who provide 

services that will be deemed to be 

investment advice under the rule are not 

currently registered as investment 

advisers and will need time to register 

as advisers and comply with the 

Advisers Act. The FSI similarly states 

that its members need additional time to 

review accounts and to consult with 

their clients about the clients’ options 

and choices. 

The ACLI, the SIA, and the FSI thus 

seek an extension of the compliance 

date so that their members have more 

time to take the actions necessary to 

bring them into compliance with the 

rule. 

We have received three letters in 

opposition to the rulemaking petitions 

filed by the ACLI and the SIA. We have 

not received any letters that directly 

oppose the FSI’s rulemaking petition. 

The Investment Adviser Association 

(‘‘IAA’’) filed a letter in opposition to 

the SIA’s petition to extend the 

compliance date for paragraph (b)(3) of 

rule 202(a)(11)–1 concerning investment 

discretion advisory accounts.2 The 

Consumer Federation of America, Fund 

Democracy, Consumer Action, and 

Consumers Union (collectively, ‘‘CFA’’) 

and Joseph Capital Management, LLC 

(‘‘JCM’’) each filed a letter in opposition 

to the ACLI’s and the SIA’s petitions to 

extend the compliance dates for the 

financial planning and investment 

discretion provisions of rule 202(a)(11)–

1.3

The IAA and CFA assert that 

determining whether a broker-dealer 

exercises investment discretion over an 

account is neither difficult nor timeconsuming and that the SIA never 

indicated in its comment letter to this 

rulemaking that this determination 

would be difficult or time consuming. In 

a similar vein, JCM asserts that the final 

rule was ‘‘liberal’’ in the time 

constraints originally imposed and that 

the petitioners have not adequately 

justified their extension requests. The 

IAA and the CFA further assert that the 

SIA and its members have long been 

aware that the final rule would require 

broker-dealers to treat investment 

discretion accounts as advisory 

accounts. With respect to financial 

planning, while the CFA acknowledges 

that ‘‘brokers and insurance agents will 

be required to undertake a significant 

effort to come into compliance with the 

rule in the allotted time,’’ the CFA 

further states that investor protection 

concerns ‘‘justify that effort.’’ JCM 

challenges the SIA’s assertion that its 

members will be required to develop 

and disseminate disclosure once they 

determine whether a given activity is 

financial planning within the meaning 

of the rule. JCM asserts that financial 

planning activities have always 

triggered application of the Advisers 

Act.4 According to JCM, the SIA’s and 

ACLI’s requests thus are inconsistent 

with our emphasis on compliance with 

the federal securities laws. 

The Commission is persuaded that 

extending the compliance date for rule 

202(a)(11)–1(b)(2) and (b)(3) for a short 

period of time is appropriate. While we 

have concerns about the effect of the 

Federal Register / Vol. 70, No. 179 / Friday, September 16, 2005 / Rules and Regulations 54631 

5 JCM asserts that providing the requested relief 

will exacerbate and extend investor confusion with 

respect to fee-based accounts. We disagree. Brokerdealers already are required to comply with the 

specific disclosure provisions of rule 202(a)(11)–

1(a)(1)(ii). 

6See section 553(b)(3)(B) of the Administrative 

Procedure Act (5 U.S.C. 553(b)(3)(B)) (‘‘APA’’) (an 

agency may dispense with prior notice and 

comment when it finds, for good cause, that notice 

and comment are ‘‘impracticable, unnecessary, or 

contrary to the public interest). The change to the 

compliance date is effective upon publication in the 

Federal Register, which is less than 30 days after 

publication. The APA allows effective dates less 

than 30 days after publication in the Federal 

Register for ‘‘a substantive rule which grants or 

recognizes an exemption or relieves a restriction.’’

See section 553(d)(1) of the APA. 

extension in delaying the anticipated 

benefits of the rule, in our judgment a 

limited extension of the compliance 

date is, on balance, appropriate. Our 

judgment is based on the 

representations made by the SIA, the 

ACLI, and the FSI (whose members are 

required to comply with the rule and 

thus are in a position to assess the level 

of difficulty and time involved in their 

complying with the rule) and our 

experience in overseeing the industry. 

We are not, however, persuaded that a 

delay of up to an additional six months 

is necessary given that we already 

afforded broker-dealers approximately a 

six-month compliance period, and that 

these provisions will provide investors 

with important protections.5

Accordingly, the Commission believes it 

is appropriate to extend the compliance 

date for rule 202(a)(11)–1(b)(2) and 

(b)(3) until January 31, 2006. The rule’s 

effective date of April 15, 2005 remains 

unchanged. 

The Commission for good cause finds 

that, for the reasons cited above, 

including the brief length of the 

extension we are granting, notice and 

solicitation of comment regarding the 

extension of the compliance date for 

rule 202(a)(11)–1(b)(2) and (b)(3) are 

impracticable, unnecessary, or contrary 

to the public interest.6 In this regard, the 

Commission notes that broker-dealers 

need to be informed as soon as possible 

of the extension and its length in order 

to plan and adjust their implementation 

processes accordingly. 

Dated: September 12, 2005. 

By the Commission. 

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18384 Filed 9–15–05; 8:45 am] 

BILLING CODE 8010–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9225] 

RIN 1545–BD53 

Corporate Reorganizations; Guidance 

on the Measurement of Continuity of 

Interest 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulation. 

SUMMARY: This document contains final 

regulations that provide guidance 

regarding the satisfaction of the 

continuity of interest requirement for 

corporate reorganizations. The final 

regulations affect corporations and their 

shareholders. 

DATES: Effective Date: These regulations 

are effective September 16, 2005. 

FOR FURTHER INFORMATION CONTACT: 

Jeffrey B. Fienberg, at (202) 622–7770 

(not a toll free number). 

SUPPLEMENTARY INFORMATION: 

Background 

The Internal Revenue Code of 1986 

(Code) provides for general 

nonrecognition treatment for 

reorganizations described in section 368 

of the Code. In addition to complying 

with the statutory and certain other 

requirements, to qualify as a 

reorganization, a transaction generally 

must satisfy the continuity of interest 

(COI) requirement. COI requires that, in 

substance, a substantial part of the value 

of the proprietary interests in the target 

corporation be preserved in the 

reorganization. 

On August 10, 2004, the IRS and 

Treasury Department published a notice 

of proposed rulemaking (REG–129706–

04) in the Federal Register (69 FR 

48429) (hereinafter the proposed 

regulations) identifying certain 

circumstances in which the 

determination of whether a proprietary 

interest in the target corporation is 

preserved would be made by reference 

to the value of the issuing corporation’s 

stock on the day before there is an 

agreement to effect the potential 

reorganization. In particular, in cases in 

which the consideration to be tendered 

to the target corporation’s shareholders 

is fixed in a binding contract and 

includes only stock of the issuing 

corporation and money, the issuing 

corporation stock to be exchanged for 

the proprietary interests in the target 

corporation would be valued as of the 

end of the last business day before the 

first date there is a binding contract to 

effect the potential reorganization (the 

signing date rule). Under the proposed 

regulations, consideration is fixed in a 

contract if the contract states the 

number of shares of the issuing 

corporation and the amount of money, 

if any, to be exchanged for the 

proprietary interests in the target 

corporation. The signing date rule is 

based on the principle that, in cases in 

which a binding contract provides for 

fixed consideration, the target 

corporation shareholders generally can 

be viewed as being subject to the 

economic fortunes of the issuing 

corporation as of the signing date. 

No public hearing regarding the 

proposed regulations was requested or 

held. However, several written and 

electronic comments regarding the 

notice of proposed rulemaking were 

received. After consideration of the 

comments, the proposed regulations are 

adopted as revised by this Treasury 

decision. 

Explanation of Provisions 

These final regulations retain the 

general framework of the proposed 

regulations but make several 

modifications in response to the 

comments received. The following 

sections describe the most significant 

comments and the extent to which they 

have been incorporated into these final 

regulations. 

A. Fixed Consideration 

As stated above, the proposed 

regulations require that the 

consideration in a contract be fixed in 

order for the signing date rule to apply. 

One commentator identified a number 

of contractual arrangements that do not 

provide for fixed consideration within 

the meaning of the proposed 

regulations, but, nevertheless, are 

arrangements in which the 

consideration should be treated as fixed 

and, therefore, eligible for the signing 

date rule. In particular, the commentator 

identified a number of circumstances in 

which, rather than stating the number of 

shares and money to be exchanged for 

target corporation shares, a contract may 

provide that a certain percentage of 

target corporation shares will be 

exchanged for stock of the issuing 

corporation. One such circumstance is 

where a merger agreement permits the 

target corporation some flexibility in 

issuing its shares between the signing 

date and effective date of the potential 

reorganization. Such an issuance may 

occur, for example, upon the exercise of 

employee stock options. As a result, the 

total number of outstanding target 

corporation shares at the effective time