Securities Act Release No. 33-5101

Exchange Act Release No. 34-9010

November 19, 1970

Adoption of Rules Relating to Publication of Information and Delivery of Prospects by Broker-Dealers Prior to or After the Fling of a Registration Statement

The Securities and Exchange Commission has adopted rules under the Securities Act of 1933 and the Securities Exchange Act of 1934 designed to establish standards for determining circumstances under which broker-dealers may publish certain information about an issuer which proposes to or has registered securities under the 1933 Act, and also to clarify a dealer's obligation to deliver prospectuses under Section 4(3) of that Act, and the antifraud provisions of the 1934 Act. The Commission gave notice it proposed to adopt such rules on October 7, 1969, in Securities Act Release No. 5010.

Information, opinions or recommendations by a broker-dealer about securities of an issuer proposing to register securities under the Securities Act of 1933 for a public offering or having securities so registered, may constitute an offer to sell such securities within the meaning of Sections 2(3) and 5 of that Act, particularly when the broker-dealer is to participate in the distribution as an underwriter or selling group member. Publishing such information may result in a violation of Section 5 of the Act.

It is the purpose of the adopted rules to provide guidance to broker-dealers and to alleviate such requirements where it appears that the purposes and policies of the Act will not be prejudiced while assuring that persons engaged in the distribution of a registered offering and their customers will be supplied with the disclosure afforded by the statutory prospectus.

Summary of Rules Adopted under the Securities Act of 1933

Rule 135.  Amendments to this rule permit publishing a notice that an issuer proposes to make a cash offering of securities to be registered under the 1933 Act. The requirement that such notices be sent 60 days prior to the record date or the proposed date of the initial offering has been deleted. The language of the rule has been revised and simplified.

Rule 137.  This new rule is designed to clarify the status of dealers not participating in a distribution. It permits publication and distribution by a dealer in the regular course of business of information, opinions, or recommendations regarding securities of a reporting company which has filed or proposes to file a registration statement under the Act.

Rule 138.  New Rule 138 permits a broker-dealer participating in an offering of nonconvertible senior securities registered on Form S-7 or S-9 to publish opinions or recommendations concerning the issuer's common stock, and vice versa.

Rule 139.  New Rule 139 permits a broker-dealer participating in an offering to publish at regular intervals, as part of a comprehensive list of securities, opinions or recommendations concerning the issuer provided it is a reporting company. The opinion or recommendation, however, must not be given special prominence, and must not be more favorable than the last previous opinion distributed before the broker-dealer became a participant.

Rule 174.  The amendments to this rule eliminate the prospectus delivery requirement for dealers, other than participating dealers selling any unsold participation, during the 40 or 90 day period after the effective date of the registration statement or the commencement of the offering, whichever is later, with respect to sales of securities of issuers required to file reports under the Securities Exchange Act of 1934.

Summary of Rule Adopted under the Securities Exchange Act of 1934

Rule 15c2-8.  This is a new rule under the Securities Exchange Act of 1934 relating to the distribution of preliminary and final prospectuses. The rule provides that a broker-dealer participating in a distribution must take reasonable steps to see to it that any person desiring a copy of a preliminary or final prospectus receives a copy. Each salesman who is expected to offer the securities must receive a copy of the preliminary prospectus and, if he is expected to offer the securities after the effective date of the registration statement, he must receive a copy of the final prospectus. The managing underwriter must take reasonable steps to see that broker-dealers participating in the distribution receive a sufficient number of copies of the prospectus to comply with the rule and with Section 5(b) of the Securities Act of 1933.

The text of the new and amended rules follows:

Rule 135. Notice of Certain Proposed Offerings.

(a)  For the purpose only of Section 5 of the Act, a notice given by an issuer that it proposes to make a public offering of securities to be registered under the Act shall not be deemed to offer any securities for sale if such notice states that the offering will be made only by means of a prospectus and contains no more than the following additional information:

(1)  The name of the issuer;

(2)  The title, amount and basic terms of the securities proposed to be offered, the amount of the offering, if any, to be made by selling security holders, the anticipated time of the offering and a brief statement of the manner and purpose of the offering without naming the underwriters;

(3)  In the case of a rights offering to security holders of the issuer, the class of securities the holders of which will be entitled to subscribe to the securities proposed to be offered, the subscription ratio, the proposed record date, the approximate date upon which the rights are proposed to be issued, the proposed term or expiration date of the rights and the approximate subscription price, or any of the foregoing;

(4)  In the case of an offering of securities in exchange for other securities of the issuer or of another issuer, the name of the issuer and the title of the securities to be surrendered in exchange for the securities to be offered, the basis upon which the exchange may be made, or any of the foregoing;

(5)  In the case of an offering to employees of the issuer or to employees of any affiliate of the issuer, the name of the employer and class or classes of employees to whom the securities are proposed to be offered, the offering price or basis of the offering and the period during which the offering is to be made, or any of the foregoing; and

(6)  Any statement or legend required by State law or administrative authority.

(b)  Any notice contemplated by this rule may take the form of a news release or a written communication directed to security holders or employees, as the case may be, or other published statement.

 Rule 137. Definition of "offers", "participates", or "participation" in Section 2(11) in relation to certain publications by persons independent of participants in a distribution.

The terms "offers", "participates", or "participation" in Section 2(11) shall not be deemed to apply to the publication or distribution of information, opinions or recommendations with respect to the securities of an issuer which is required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed or proposes to file a registration statement under the Securities Act of 1933 if--

(a)  such information, opinions and recommendations are published and distributed in the regular course of its business by a dealer which is not and does not propose to be a member of the underwriting syndicate or dealer group in connection with the distribution of the security to which the registration statement relates; and

(b)  such dealer receives no consideration, directly or indirectly, in connection with the publication and distribution of such information, opinions or recommendations from the issuer, a selling security holder or any member of the underwriting syndicate or dealer group or any other person interested in the securities to which the registration statement relates, and such information, opinions or recommendations are not published or distributed pursuant to any arrangement or understanding, direct or indirect, with such issuer, underwriter, dealer or selling security holder; provided, however, that nothing herein shall forbid payment of the regular subscription or purchase price of the document or other written communication in which such information, opinions or recommendations appear.

Rule 138. Definition of "offer for sale" and "offer to sell" in Sections 2(10) and 5(c) in relation to certain publications.

(a)  Where an issuer which meets all of the conditions for the use of Form S-7 or S-9 has filed or proposes to file a registration statement under the Act relating solely to a non-convertible debt security or to a non-convertible, non-participating preferred stock, publication or distribution in the regular course of its business by a dealer of information, opinions or recommendations relating solely to common stock or to debt or preferred stock convertible into common stock of such issuer shall not be deemed to constitute an offer for sale or offer to sell the security to which such registration statement relates for purposes of Sections 2(10) and 5(c) of the Act, even though such dealer is or will be a member of the underwriting syndicate or dealer group in connection with the distribution of the security to which such registration statement relates.

(b)  Where an issuer which meets all of the conditions for the use of Form S-7 has filed or proposes to file a registration statement under the Act relating solely to common stock or to debt or preferred stock convertible into common stock, the publication or distribution in the regular course of its business by a dealer of information, opinions or recommendations relating solely to a non-convertible debt security, or to a non-convertible, non-participating preferred stock, shall not be deemed to constitute an offer for sale or offer to sell the security to which such registration statement relates for purposes of Sections 2(10) and 5(c) of the Act, even though such dealer is or will be a member of the underwriting syndicate or dealer group in connection with the distribution of the security to which such registration statement relates.

Rule 139. Definition of "offer for sale" and "offer to sell" in Sections 2(10) and 5(c) in relation to certain publications.

Where an issuer which is required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 has filed or proposes to file a registration statement under the Securities Act of 1933 relating to its securities, the publication or distribution by a dealer, in the regular course of its business, of information, an opinion or a recommendation with respect to the securities so registered or proposed to be registered shall not be deemed to constitute an offer for sale or offer to sell such securities for the purposes of Sections 2(10) and 5(c) of the Act, even though such dealer is or will be a member of the underwriting syndicate or dealer group in connection with the distribution of such securities if all of the following conditions exist:

(a)  such information, opinion or recommendation is contained in a publication which has for at least the past 2 years been distributed with reasonable regularity on an annual or other more frequent basis and each issue of which contains a comprehensive list of securities currently recommended by such dealer;

(b)  such information, opinion or recommendation is given no greater space or prominence in such publication than that given to other securities, and does not include projections of sales or earnings beyond the issuer's current fiscal year or following fiscal year if within the last six months of the current fiscal year; and

(c)  an opinion or recommendation at least as favorable as to the security was published by the dealer in either the last publication of the same character or in a subsequent publication of a different character, which was previously distributed by such dealer.

Rule 174. Delivery of Prospectus by Dealers; Exemptions under Section 4(3) of the Act.

The obligations of a dealer (including an underwriter no longer acting as an underwriter in respect of the security involved in such transactions) to deliver a prospectus in transactions in a security as to which a registration statement has been filed taking place prior to the expiration of the 40 or 90 day period specified in Section 4(3) of the Act after the effective date of such registration statement or prior to the expiration of such period after the first date upon which the security was bona fide offered to the public by the issuer or by or through an underwriter after such effective date, whichever is later, shall be subject to the following provisions:

(a)  No prospectus need be delivered if the registration statement is on Form S-12 or S-13 unless registration of the deposited security is also required.

(b)  No prospectus need be delivered if the issuer is subject, immediately prior to the time of filing the registration statement, to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.

(c)  Where a registration statement relates to offerings to be made from time to time no prospectus need be delivered after the expiration of the initial prospectus delivery period specified in Section 4(3) of the Act following the first bona fide offering of securities under such registration statement.

(d)  Notwithstanding the foregoing, the period during which a prospectus must be delivered by a dealer shall be:

(1)  As specified in Section 4(3) of the Act if the registration statement was the subject of a stop order issued under Section 8 of the Act; or

(2)  As the Commission may provide upon application or on its own motion in a particular case.

(e)  Nothing in this rule shall affect the obligation to deliver a prospectus pursuant to the provisions of Section 5 of the Act by a dealer who is acting as an underwriter with respect to the securities involved or who is engaged in a transaction as to securities constituting the whole or a part of an unsold allotment to or subscription by such dealer as a participant in the distribution of such securities by the issuer or by or through an underwriter.

Rule 15c2-8. Delivery of Prospectus.

(a)  It shall constitute a deceptive act or practice, as those terms are used in Section 15(c)(2) of the Act, for a broker or dealer to participate in a distribution of securities with respect to which a registration statement has been filed under the Securities Act of 1933 unless he complies with the requirements set forth in paragraphs (b) through (g) below. For the purposes of this rule a broker or dealer participating in the distribution shall mean any underwriter and any member or proposed member of the selling group.

(b)  Such broker or dealer shall take reasonable steps to furnish to any person who makes written request for a preliminary prospectus between the filing date and a reasonable time prior to the effective date of the registration statement to which such prospectus relates, a copy of the latest preliminary prospectus on file with the Commission. Reasonable steps shall include receiving an undertaking by the managing underwriter or underwriters to mail such copy to the address given in the requests.

(c)  Such broker or dealer shall take reasonable steps to comply promptly with the written request of any person for a copy of the final prospectus relating to such securities during the period between the effective date of the registration statement and the later of either the termination of such distribution, or the expiration of the applicable 40 or 90 day period under Section 4(3) of the Securities Act of 1933. Reasonable steps shall include receiving an undertaking by the managing underwriter or underwriters to mail such copy to the address given in the requests. (The 40-day period referred to above shall be deemed to apply for purposes of this rule irrespective of the provisions of paragraph (b) of Rule 174 under the Securities Act of 1933).

(d)  Such broker or dealer shall take reasonable steps (i) to make available a copy of the preliminary prospectus relating to such securities to each of his associated persons who is expected, prior to the effective date, to solicit customers' orders for such securities before the making of any such solicitation by such associated persons and (ii) to make available to each such associated person a copy of any amended preliminary prospectus promptly after the filing thereof.

(e)  Such broker or dealer shall take reasonable steps to make available a copy of the final prospectus relating to such securities to each of his associated persons who is expected, after the effective date, to solicit customers orders for such securities prior to the making of any such solicitation by such associated persons, unless a preliminary prospectus which is substantially the same as the final prospectus except for matters relating to the price of the stock has been so made available.

(f)  If the broker or dealer is a managing underwriter of such distribution, he shall take reasonable steps to see to it that all other brokers or dealers participating in such distribution are promptly furnished with sufficient copies, as requested by them, of each preliminary prospectus, each amended preliminary prospectus and the final prospectus to enable them to comply with paragraphs (b), (c), (d) and (e) above.

(g)  If the broker or dealer is a managing underwriter of such distribution, he shall take reasonable steps to see that any broker or dealer participating in the distribution or trading in the registered security is furnished reasonable quantities of the final prospectus relating to such securities, as requested by him, in order to enable him to comply with the prospectus delivery requirements of Section 5(b)(1) and (2) of the Securities Act of 1933.

(h)  This rule shall not require the furnishing of prospectuses in any state where such furnishing would be unlawful under the laws of such state; provided, however, that this provision is not to be construed to relieve a broker or dealer from complying with the requirements of Section 5(b)(1) and (2) of the Securities Act of 1933. Prospectuses shall not be furnished pursuant to this rule while the registration statement is subject to an examination, proceeding, or stop order pursuant to Section 8 of the Securities Act of 1933.

* * * *

The foregoing action was taken pursuant to the Securities Act of 1933, particularly Sections 4 and 19(a) thereof, and the Securities Exchange Act of 1934, particularly Sections 15(c)(2) and 23(a) thereof. Such action shall become effective November 19, 1970, except that Rule 15c2-8 shall be effective with respect to registration statements under the Securities Act of 1933 which become effective after December 31, 1970.

By the Commission.