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Securities Act Release No. 33-5307 Exchange Act Release No. 34-9786 September 26, 1972
NOTICE OF PROPOSAL TO AMEND
RULE 144(g)(2) RELATING TO THE DEFINITION OF THE TERM "BROKERS' TRANSACTIONS"
FOR THE PURPOSES OF RULE 144 UNDER THE SECURITIES ACT OF 1933 AND SECTION 4(4)
OF THAT ACT (FILE NO. S7-454): AND OF ADOPTION OF AMENDMENTS TO RULE 144(h)
UNDER THAT ACT AND TO FORMS 10-Q AND 10-K UNDER THE SECURITIES EXCHANGE ACT OF
1934.
The
Securities and Exchange Commission announced today that it has proposed for
comment an amendment to subparagraph (g)(2) of Rule 144 under the Securities Act
of 1933 (Act), and has adopted amendments to subparagraph (h) of that Rule
effective November 1, 1972. Rule 144, which relates to the resale of securities
acquired directly or indirectly in transactions not involving any public
offerings and securities held by persons in a control relationship with an
issuer, was adopted on January 11, 1972, effective April 15, 1972 (Securities
Act of 1933 Release No. 5223).
The
proposed amendment to Rule 144 would revise subparagraph (g)(2) of the Rule to
permit brokers to continue their quotations in an inter-dealer quotation service
while selling securities pursuant to the Rule subject to certain conditions.
Also, Rule 144(h) has been amended to require transmittal of the required notice
of proposed sale on Form 144 to the principal stock exchange on which the
securities to be sold are listed for trading as well as to the Commission.
The
Commission also has adopted clarifying amendments to Forms 10-K and 10-Q with
respect to the existing requirement that a statement by the issuer be made in
reports on those forms to the effect that all reports required by Section 13 or
15(d) of the Exchange Act have been filed.
Proposed Amendment to
Rule 144(9)(2)--Brokers' Transactions Rule
144(g)(2) presently prohibits the solicitation of customers' orders to buy the
securities with the proviso that "this shall not preclude inquiries by the
broker of other brokers or dealers who have indicated an interest in the
securities within the preceding 60 day . . ."
In a
previously proposed version of Rule 144 (Securities Act of 1933 Release No.
5087) and in a predecessor group of proposals, the so-called "160 series"
(Securities Act of 1933 Release No. 4997), the Commission indicated that it was
considering a provision permitting the broker to continue to insert quotations
in an inter-dealer quotation service on a class of securities to be sold by the
broker pursuant to the then proposed rule (i.e. "remain in the sheets") while
selling securities pursuant to that rule.
1 The Commission, however,
did not include such a provision when it announced it was considering a revised
version of Rule 144 or in adopting Rule 144 because of the questions of conflict
with the anti-manipulative provisions of Rule 10b-6 under the Securities
Exchange Act of 1934.
2
The
Commission having observed the operation of Rule 144, now believes that
prohibiting brokers from continuing to enter quotations in an inter-dealer
quotation service on securities he wants to sell pursuant to Rule 144, may
operate to limit the liquidity of the investments both of persons desiring to
resell securities pursuant to Rule 144 through the broker and of other persons
if the broker is not permitted to remain in the sheets in situations where a
distribution may not be taking place and the purposes underlying the
anti-manipulative provisions of Rule 10b-6 do not apply. Moreover, the
Commission also has observed that the absence of standards applicable to dealers
who receive brokerage orders to sell securities pursuant to Rule 144 in which
they are making markets may be resulting in competitive disadvantages for
dealers who, in good faith, are attempting to comply with the provisions of Rule
144(g)(2).
Thus, the
Commission has been giving careful consideration of amending Rule 144(g)(2), to
allow brokers selling securities pursuant to Rule 144 to continue to insert
quotations in an inter-dealer quotation service under certain circumstances.
However, inasmuch as Section 4(4) of the Act and Rule 144 prohibit a broker from
soliciting buy orders, the problem remains how to provide assurance that
entering such quotations will not be a solicitation.
The
Commission's proposed amendment to subparagraph (g)(2) of Rule 144 would permit
a broker to continue to insert bid and offer quotations for a security in an
inter-dealer quotation service provided that the quotations are incident to the
maintenance of a bona fide inter-dealer market for the broker's own account and
the broker has published such bona fide bid and offer quotations on at least 15
out of the last 20 trading days and 4 out of the last 5 trading days before
receipt of the order. One question that arises concerning this proposal is what
constitutes a bona fide inter-dealer market and bona fide bid and offer
quotations. Accordingly, the Commission is considering an additional condition
to the proposed amendment to Rule 144(g)(2). This condition would provide
limitations on the amount of securities that could be sold pursuant to Rule 144
by a market maker acting as agent. It has been suggested that such limitation
be a percentage of the dealer's average daily trading volume over a prior period
of time. This is designed to assure that the predominant percentage of the
market maker's transactions on a given day in the particular security will be
unrelated to Rule 144 transactions. The Commission invites comments from
interested persons on the proposal as well as the foregoing alternative.
The
Commission believes that the amendment to Rule 144(g)(2) would relieve
restrictions in the public interest without sacrificing the protection of
investors and thus an extensive period of comment need not be provided pursuant
to the Administrative Procedure Act. Moreover, as discussed above, similar
proposals have previously been published for comment. Accordingly, the comment
period will expire October 15, 1972.
Amended Rule
144(h)--Notice of Proposed Sales In order
to facilitate the dissemination to the market place of information concerning
proposed resales pursuant to Rule 144, the Commission has adopted an amendment
to Rule 144(h) requiring transmittal of one copy of the notice on Form 144 to
the principal national securities exchange on which the security to be sold is
traded. The Commission finds that the amendment to Rule 144(h) is minor and not
of material substance and, therefore, publication for comment pursuant to the
Administrative Procedure Act is unnecessary.
Amendments to Forms 10-Q
and 10-K Rule
144(c) requires that there be available current public information concerning
the issuer of securities to be sold pursuant to the Rule. In determining
whether such information is available, Rule 144(c)(1) permits the person selling
the securities to rely on a statement in the most recent report filed by the
issuer that the issuer has complied with the reporting requirements of Section
13 or 15(d) of the Exchange Act. A requirement for such a statement was
provided by amendment to Forms 10-Q and 10-K (Securities Exchange Act of 1934
Release No. 9442). The purpose of this requirement was that the issuer would
thereby indicate: (1) whether or not it had filed all reports required to be
filed by those Sections of the Exchange Act and (2) whether or not it had been
subject to those requirements for the 90 days prior to the filing of the
report. The present language of the required statement apparently has caused
confusion in this regard, and the Commission has adopted a clarifying amendment
which codifies the appropriate interpretation. Since this is a minor
interpretative amendment for purposes of clarification the Commission does not
find it is necessary to publish the amendment for comment pursuant to the
Administrative Procedure Act.
Text of the Proposed
Amendment to Rule 144. Rule 144. Persons Deemed Not to Be Engaged in a Distribution and Therefore Not Underwriters. (a)-(f)
No change.
(g)
Brokers' Transactions. The term "brokers' transaction" in Section 4(4) of the
Act shall for the purposes of this Rule be deemed to include transactions by a
broker in the broker--
(1) No
change.
(2)
Neither solicits nor arranges for the solicitation of customers' orders to buy
the securities in anticipation of or in connection with the transaction;
provided, that the foregoing shall not preclude inquiries by the broker or other
brokers or dealers who have indicated an interest in the securities within the
preceding 60 days, nor shall it preclude the publication by the broker of bid
and order quotations for the security in an inter-dealer quotation service,
provided (i) that such quotations are incident to the maintenance of a bona fide
inter-dealer market for the security for the broker's own account; and (ii) the
broker has published bona fide bid and offer quotations for the security in an
inter-dealer quotation service on at least fifteen of the last twenty trading
days and on at least four out of the last five trading days before receipt of
the order; and
(3) No
change.
Text of Amendment to Rule 144(h) and Forms 10-Q and 10-K (h)
Notice of Proposed Sale. Concurrently with the placing with a broker of an
order to execute a sale of any securities in reliance upon this rule, there
shall be transmitted to the Commission, at its principal office in Washington,
D. C., for filing three copies of a notice on Form 144 which shall be signed by
the person for whose account the securities are to be sold; and, if such
securities are admitted to trading on any national exchange, one copy of such
notice shall be transmitted to the principal national securities exchange on
which such securities are so admitted; provided, that such a notice need not be
filed if the amount of securities to be sold during any period of six months
does not exceed 500 shares or other units and the aggregate sale price thereof
does not exceed $10,000. If all of the securities for which a notice is filed
are not sold within 90 days after the filing of such notice, an amended notice
shall be transmitted to the Commission concurrently with the commencement of any
further sales of such securities. Neither the filing of such notice nor the
failure of the Commission to comment thereon shall be deemed to preclude the
Commission from taking any action it deems necessary or appropriate with respect
to the sale of the securities referred to in such notice.
* * * *
Form
10-Q and 10-K
The
following amendment would be made to the clause at the end of the facing sheet
of each of the forms:
Indicate
by check mark whether the registrant (1) has filed all annual, quarterly and
other reports required to be filed with the Commission and (2) has been subject
to the filing requirements for at least the past 90 days. Yes No
The
amendment to Rule 144(h) is adopted effective November 1, 1972 pursuant to the
Securities Act of 1933, particularly Sections 2(11), 4(1), 4(2), 4(4) and 19(a)
thereof.
The
amendments to Forms 10-Q and 10-K are adopted effective November 1, 1972
pursuant to the Securities Exchange Act of 1934, particularly Sections 13, 15(d)
and 23(a) thereof.
The
Commission finds that the amendment to Rule 144(h) and Forms 10-Q and 10-K are
interpretative rules and minor and not of material substance, are in the public
interest and should not impose burdens on issuers or others or sacrifice the
protection of investors, and thus, further notice and rule making procedures
pursuant to the Administrative Procedure Act are unnecessary.
All
interested persons are invited to submit their views and comments on the
proposed amendment to Rule 144(g)(2) in writing (3 copies) to Alan B. Levenson,
Director, Division of Corporation Finance on or before October 15, *
1972. All communications with respect to the proposed amendments should refer
to File No. S7-454. All such comments will be considered available for public
inspection.
By the
Commission.
1
A similar proposal had been made in the report of the Commission's
Disclosure Policy Study. Disclosure to Investors, A Reappraisal of
Federal Administrative Policies Under the '33 and '34 Acts, April 1969
("Wheat Report"), 197.
2
Securities Act of 1933 Release No. 5186 (September 10, 1971) note 7; and
Securities Act of 1933 Release No. 5223 (January 11, 1972), note 6.
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