Release No. 33-6963

Release No. IS-476

October 22, 1992

Private Resales of Securities to Institutions

ACTION: Final rule amendments.

SUMMARY: The Securities and Exchange Commission (Commission) is adopting amendments to Rule 144A under the Securities Act of 1933 (Securities Act). Rule 144A provides a safe-harbor exemption from the registration requirements of the Securities Act for resales of restricted securities to qualified institutional buyers (QIBs). The amendments expand the categories of QIBs to include collective and master trusts, legal forms commonly used for the collective investment of the funds of employee benefit plans. The amendments also recognize purchases by an insurance company for separate accounts not required to be registered under the Investment Company Act of 1940 (Investment Company Act) as purchases for the account of the insurance company. Finally, the amendments allow the inclusion of U.S. government and similar securities in calculating the amount of securities owned or invested by a particular institutional investor.

EFFECTIVE DATE: (Insert date of publication in Federal Register.)

FOR FURTHER INFORMATION CONTACT: Brent H. Taylor or Michael Hyatte, Office of International Corporate Finance, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, (202) 272-3246.

SUPPLEMENTARY INFORMATION

I. AMENDMENTS TO RULE 144A

Rule 144A, ¹ adopted by the Commission on April 23, 1990, ² provides a safe harbor from the registration requirements of the Securities Act for specified resales of securities to qualified institutional buyers, a term defined by the Rule. On July 16, 1992, the Commission published for comment proposals to amend the Rule. ³ The proposed amendments would add collective and master trusts ⁴ used for the investment of employee benefit plan funds as types of entities that can qualify as a QIB; specify that purchases by a QIB insurance company for its unregistered separate accounts are deemed to be purchases for the account of the insurance company ⁵; and permit institutions to include U.S. government securities in the amount of securities owned or invested. The amendments, with minor changes in response to comments, are adopted today.

The commenters were virtually unanimous in their support of the Commissions proposals. Several recommended modifications to the proposed terms of new subparagraph (F) of Rule 144A(a)(1), intended to recognize collective and master trusts investing the funds of ERISA plans or government plans for the benefit of employees. Specifically, commenters noted that the phrase, maintained by a bank, which was included in the text of proposed subparagraph (F) of Rule 144A(a)(1)(i), has historically been construed under section 3(a)(2) ⁶ of the Securities Act and section 3(c)(11) of the Investment Company Act ⁷ to require that the trustee bank exercise ultimate investment authority over the funds it administers. ⁸ Such a maintenance requirement would exclude trusts where, for example, investment discretion has been ceded to professional investment managers. These commenters suggested that this was not necessary with respect to Rule 144A. The Commission agrees. Accordingly, new subparagraph (F) as adopted does not include the maintained by a bank condition.

Commenters also noted that, in addition to banks, trust companies also serve as trustees of trusts consisting of funds of employee benefit plans. In recognition of this practice, the amendments have been modified to include such trusts.

II. AVAILABILITY OF FINAL REGULATORY FLEXIBILITY ANALYSIS

A Final Regulatory Flexibility Analysis in accordance with the Regulatory Flexibility Act regarding the amendments to Rule 144A has been prepared. A summary of the corresponding Initial Regulatory Flexibility Analysis was included in the proposing release. Members of the public who wish to obtain a copy of the Final Regulatory Flexibility Analysis should contact Michael Hyatte, Office of International Corporate Finance, Division of Corporation Finance, U.S. Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 20549.

III. COST-BENEFIT ANALYSIS

No specific data were provided in response to the Commissions request regarding the costs and benefits of the amendments to Rule 144A. It appears, however, that the amendments will provide benefits, including increased liquidity of restricted securities through the recognition of additional entities to which securities may be sold in reliance on the Rule. As Rule 144A recognizes certain existing practices, is non-exclusive, and does not impose any recordkeeping or reporting requirements, and the amendments do not require any different procedures for resales under the Rule, the Commission is not aware of any additional costs that will result from adoption of the amendments.

IV. EFFECTIVE DATE

The amendments to Rule 144A shall be effective immediately upon publication in the Federal Register, in accordance with the Administrative Procedure Act, which allows effectiveness in less than 30 days after publication for a substantive rule which grants or recognizes an exemption or relieves a restriction, 5 U.S.C. 553(d)(1).

V. STATUTORY BASIS FOR RULE AMENDMENTS

Rule 144A is being amended by the Commission pursuant to Sections 2(11), 4(1), 4(3), and 19(a) of the Securities Act of 1933.

List of Subjects in 17 CFR Part 230

Reporting and recordkeeping requirements, Securities.

VI. TEXT OF RULE AMENDMENTS

In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows:

Part 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for Part 230 continues to read as follows:

AUTHORITY: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 80a-37, unless otherwise noted.

2. §230.144A is amended by adding a Note following paragraph (a)(1)(i)(A); removing the words of 1940 (the Investment Company Act) in paragraph (a)(1)(i)(B); redesignating paragraphs (a)(1)(i)(F) through (a)(1)(i)(H) as paragraphs (a)(1)(i)(G) through (a)(1)(i)(I); adding paragraph (a)(1)(i)(F); and removing the phrase securities issued or guaranteed by the United States or by any person controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States; following the colon in paragraph (a)(2) to read as follows:

230.144A

Private resales of securities to institutions.

*       *       *       *       *      

(a)(1)(i)(A) * * *

NOTE: A purchase by an insurance company for one or more of its separate accounts, as defined by section 2(a)(37) of the Investment Company Act of 1940 (the Investment Company Act), which are neither registered under section 8 of the Investment Company Act nor required to be so registered, shall be deemed to be a purchase for the account of such insurance company.

*       *       *       *       *      

(F) Any trust fund whose trustee is a bank or trust company and whose participants are exclusively plans of the types identified in paragraph (a)(1)(i)(D) or (E) of this section, except trust funds that include as participants individual retirement accounts or H.R. 10 plans.

*       *       *       *       *      

By the Commission.

¹ 17 CFR 230.144A.

²Securities Act Release No. 6862, 55 FR 17933 (April 30, 1990).

³ Securities Act Release No. 6942, 57 FR 32458 (July 22, 1992). Twenty-two comment letters were received by the Commission, all of which expressed support for the objectives of the proposals. The letters and a summary of their contents are available for public inspection at the Commissions Public Reference Room in Washington, D.C. [File No. S7-19-92].

⁴ Master trusts allow for the collective administration of numerous and diverse individual plans sponsored by a single employer. For this purpose, single employer includes controlling or controlled parties, such as parents, subsidiaries, and other affiliates.

⁵ This treatment of unregistered separate accounts is amended Rule 144A is consistent with the treatment of separate accounts generally under state law, and under the Investment Company Act (with respect to registered separate accounts), under which the sponsoring insurance company is considered to be the owner of the assets of the separate account, although such assets in unregistered separate accounts generally are insulated from the claims of the insurance companys general creditors. See generally K. Black and H. Skipper, Life Insurance (11th ed., 1987); Roth, Krawczyk and Goldstein, Reorganizing Insurance Company Separate Accounts, 46 Bus. Law. 537 (1991). Assets in registered separate accounts are insulated from the claims of the insurance companys general creditors pursuant to rules promulgated under the Investment Company Act.

⁶ 15 U.S.C. 77c(a)(2).

⁷ 15 U.S.C. 80c(c)(11).

⁸Securities Act Release No. 6188 (February 1, 1980), 45 FR 8962, 8973-4 (February 11, 1980).