Evening star., 1963-04-03
SEC
Dealer Standards
Called Inadequate

Potential conflicts of interest |
arise when broker-dealers serve
as directors of corporations, the |
report said, but elimination of
such dual interests was called |
impractical. Further study and
establishment of codes of ethics
was recommended.
A major chapter Of the re-
port dealt with new issues
marketed from 1859 through
1861. Many of these issues, de-
scribed as hot" jumped sharply |
in price within days or hours
of the original offering.
The report recalled that "the |
public eagerly sought unsea-
soned, speculative securities in
certain glamour industries"
but also blamed the specula-
tive fervor on the mechanics Of |
the market and the practices of
some broker-dealers.
Many of these hot issues
quickly plummeted in price
after initial upsurges. and some
Of them no longer are in exist
ence.
Some underwriters, the re-
port said, lowered their stand
ards for offering new stocks.
Some underwriters withheld
portions Of the new issues for
insiders and then sold them
to the public at big gains, the
report continued, charging that
"manipulative" practices were
used.
In addition to a recon-
for minimum cap
ital requirements for under
writing firms. the report rec
prompt disclosure Of
facts on new issues, limitations
on soliciting purchases at pre-
MUM prices. brief delays in
trading after new stocks are
issued. and reports by under
writer's on options they have
obtained.
The report also recommended
that the prospectus on a new
stock be delivered 80 days be-
fore the issue date, instead Of
40 days.
Broker dealers distributing
unregistered stocks should be
required to notify the SEC in
advance and provide some
limited information, the report
said.
Real Estate Syndicates
Criticizing real estate syndi-
Gates for initiating prices, the
report said some zeal estate
stocks are sold on the basis of
misleading promises about tax
free returns on investment.
The report recommended
that all distributors and deal
ers in real estate securities in
interstate commerce be re-
quired to Join a sclf-regulatory
securities organization, and
that statesmen in this field also
be subjected to high qualifica-
tons standards. .He
One Of the reports major
sets Of recommendations covers
securities traded over-the-
counter, rather than on organ
lied stock exchanges.
Many companies with stocks
traded over-the-counter fail to
provide financial reports or
adequate proxy information,
the report said, and insiders
have the opportunity to use
confidential information for
personal gain.
Over-the- Counter Rules
The report recommended |
legislation extending to over
the-counter issues key regula-
tions now applicable to stocks
traded on exchanges.
These regulations require
financial reporting. proxy rules
and controls on trading by
insiders-officers of the COR
porations involved.
Disclosure of facts on over
the-counter issues would help
curb abuses, the report said,
adding that such issues also
should be regulated in the areas
OF investor advice and corporate
publicity.
The propose d regulations
would take effect gradually. For
two years, they would apply to
companies with at least 750
shareholders. After four years,
the regulations would cover
companies with 800 or more
shareholders.
Stocks in banks and insurance
companies should be regulated
in a similar manner. the report
recommended.
Publicity Efforts Hit
In criticizing corporate public
and some elements of |
the financial press. the report
said some publicity efforts are
deliberate attempts to falsify |
a company's financial position
and prospects"
Some misleading publicity,