Company Name: Goldman, Sachs & Co.
Public Availability Date: 12-16-1993
INQUIRY LETTER
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK 10004-2498 June 22, 1993 Office of the Chief Counsel,
Division of Corporation Finance,
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549 Attention: Darrell N. Braman, Jr. Re: Securities Act of 1933 - Rule 144(f) and (g) Dear Sirs: On behalf of our client, Goldman, Sachs & Co. ("GS&Co."), we respectfully
request interpretive advice from the staff of the Securities and Exchange
Commission (the "Commission") concerning the treatment of riskless principal
transactions for the purposes of paragraphs (f) and (g) of Rule 144 under the
Securities Act of 1933 (the "Securities Act"). Proposed Transactions In connection with its resales of "restricted" and "control" securities pursuant
to Rule 144, GS&Co. has been requested by certain purchasers to sell the
securities in riskless principal transactions, rather than in agency
transactions. These purchasers apparently prefer doing business on a principal
basis. In order to comply with these requests, GS&Co. proposes to effect sales
of "restricted" and "control" securities pursuant to Rule 144 in riskless
principal transactions. 1 In such a transaction GS&Co. would purchase a
"restricted" or "control" security and make a simultaneous offsetting sale of
such security to a third party. These transactions will constitute riskless
principal transactions for purposes of Rule 10b-10 under the Securities Exchange
Act of 1934 (the "Exchange Act"), and, accordingly, will be confirmed as a
riskless principal transaction. The confirmation, as required by Rule 10b-10,
will disclose the amount of any mark-up, mark-down or similar remuneration
received by GS&Co. Discussion Paragraph (f) of Rule 144 requires that securities sold in reliance on Rule 144
be sold in `brokers' transactions' within the meaning of Section 4(4) of the
Securities Act". Paragraph (g) of Rule 144 provides that the term brokers'
transaction in Section 4(4) of the Securities Act includes "transactions by a
broker in which such broker does no more than execute the order or orders to
sell the securities as agent for the person for whose account the securities are
sold; and receives no more than the usual and customary broker's commission".
For the following reasons, we believe, and request the staff's concurrence in
our view, that a riskless principal transaction should be treated as at brokers'
transaction for purposes of Rule 144. As an initial matter, we believe that riskless principal transactions are for
all practical purposes equivalent to transactions effected on an agency basis.
The Commission in adopting Rule 10b-10 under the Exchange Act noted that
riskless principal transactions "are in many respects equivalent to transactions
effected on an agency basis". Securities Exchange Act Release No. 15219, 1978
Transfer Binder Fed. Sec. L. Rep. (CCH) 81,746, at 80,970 (October 6, 1978)
(footnote omitted). According to the Commission, "two back-to-back principal
transactions are in economic substance an agency transaction". Id., at 80,972. This view is further supported by the Commission's position that a broker may
act as agent for both the seller and the buyer in a transaction. Securities Act
Release No. 6099, 1 Fed. Sec. L. Rep. (CCH) 2705H, Question 59 (August 2,
1979). If a broker can act as an agent for both the seller and the purchaser, it
appears to follow that a broker should be able to buy as principal and resell as
principal in a transaction that is from both the seller's and purchaser's
viewpoint an agency transaction. Finally, permitting riskless principal transactions to be treated as broker's
transactions would be consistent with the policies behind the brokers'
transaction requirement of Rule 144. The brokers' transaction requirement is
intended to ensure that transactions pursuant to Rule 144 occur in routine
trading transactions. Securities Act Release No. 5223, 1971-72 Transfer Binder
Fed. Sec. L. Rep (CCH) 78,487, at 81,054 (January 11, 1972). Clearly, the
riskless principal transactions described in this letter are routine trading
transactions. Further, the decision to effect a Rule 144 transaction on a
riskless principal basis rather than on an agency basis would not appear to be
significant from the perspective of the trading market in the issuer's common
stock. Similar considerations persuaded the staff in Jefferies & Company, Inc., SEC
No-Action Letter, 1982-83 Transfer Binder Fed. Sec. L. Rep. (CCH) 77,366
(Available November 30, 1982), to take the position that the riskless principal
transactions at issue in that letter would be considered brokers' transactions
within the meaning of paragraph (f) of Rule 144. While the staff's position in
the Jefferies letter was limited to "installment sales transactions," we can
perceive no basis for this limitation. At least one noted commentator on Rule
144 has also indicated that there is no basis to limit the Jefferies letter to
installment sales transactions. J. William Hicks, Resales of Restricted Securities, 420-23 (1992). On the basis of the foregoing, we respectfully request that the staff concur
with our view that riskless principal transactions of the type described in this
letter may be effected as brokers' transactions within the meaning of paragraphs
(f) and (g) of Rule 144. If you have any questions concerning the foregoing or desire additional
information, please do not hesitate to contact the undersigned at (212) 558-3755
or, in my absence, Mark V. Wilson at (212) 558-4306. Very truly yours, Robert W. Reeder cc: Patricia A. Maher
(Goldman, Sachs & Co.)
[STAFF REPLY LETTER]
December 16, 1993 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE Re: Goldman, Sachs & Co.
Incoming letter dated June 22, 1993 Based on the facts presented, the Division is unable to concur with your view
that the described riskless principal transactions (to the extent they are not
the "installment sales transactions" addressed in Jefferies & Company, Inc.
(avail. Nov. 30, 1982)) may be effected as "brokers' transactions" within the
meaning of paragraphs (f) and (g) of Rule 144 under the Securities Act of 1933
("Securities Act"). In reaching this position, the Division notes in particular
that Rule 144(f) refers to brokers' transactions "within the meaning of Section
4(4) of the Securities Act" and that principal transactions are not contemplated
by the Section 4(4) brokers' exemption. Because this position is based on the representations made to the Division in
your letter, it should be noted that different facts or conditions might require
a different conclusion. Sincerely, Mark W. Green
Special Counsel
1 For purposes of this letter you may assume that all of the requirements of Rule
144, other than the brokers' transaction requirement, have been complied with.
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