Release No. 34-7492 

January 5, 1965

Adoption of Reg. §§ 240.12g5-1 and 240.12g5-2.

 On September 15, 1964, in Securities Exchange Act Release No. 7426, the Securities and Exchange Commission published its proposal to adopt Rule 12g5-1 defining "held of record" and Rule 12g5-2 defining "total assets" for the purpose of assisting in making the required computations of the number of record holders of securities and the amount of total assets under new Section 12(g) and under Section 15(d) of the Securities Exchange Act of 1934.

New Section 12(g)(1) requires an issuer with total assets in excess of $1,000,000 to register each class of non-exempt equity security which is held of record by 750 or more persons at a fiscal year end after July 1, 1964 and each such class held of record by 500 or more persons at a fiscal year end after July 1, 1966. ¹  Section 12(g)(4) provides for termination of registration of a class of equity security 90 days, or such shorter period as the Commission may determinate, after the issuer files a certification with the Commission that such class of equity security is held of record by less than 300 persons.  A similar provision is contained in amended Section 15(d) of the Act which suspends the obligation to file reports thereunder when each class of securities to which a registration statement under the Securities Act of 1933 relates is held of record by less than 300 people.

A number of helpful comments were received in response to the above release.  After further consideration of the matter and consideration of all of the comments received, the Commission has adopted the rules with certain additions and modifications.

HELD OF RECORD

As adopted, Rule 12g5-1 includes as a separate holder each person identified on records maintained in accordance with accepted practice as the owner of the security.  Securities held of record by a corporation, partnership, trust or other organization, as well as securities held by one or more fiduciaries for a single trust, estate or account shall be counted as a single record holder.  In order to facilitate the count of record owners the Commission has revised the rule as proposed to provide that securities held of record by two or more persons as co-owners shall also be deemed to be held by one person.  In order to avoid duplication of record holders a provision has been added to the rule that securities registered in substantially similar names may be treated as held of record by one person where the issuer has reason to believe because of the address or other indications that such names represent the same person.

Each outstanding certificate for an unregistered or bearer security is deemed to be held of record by a separate person unless an issuer can establish that if they were registered they would be held of record under the provisions of the rule by a lesser number of persons.

Notwithstanding the foregoing, securities held, to the knowledge of the issuer, subject to a voting trust, deposit agreement or similar arrangement are deemed to be held of record by the record holders of the certificates or other evidences of interest issued under such arrangements.  The rule as proposed has been revised also to provide that the issuer may rely in good faith on such information as is received in response to its request, for the number of such record holders from a non-affiliated issuer of the certificates or other evidences of interest.

The Commission has determined not to adopt at this time the provision that securities registered in the name of a broker, dealer, or bank or nominee for any of them, and held in customers' accounts, shall be counted as held of record by the number of separate accounts for which the securities are held.  This will have the effect of simplifying the process by which companies determine whether or not they are covered by the new provisions.  The Commission will determine in the light of experience whether inclusion of these accounts at a future date is necessary or appropriate to prevent circumvention of the Act and to achieve the intended coverage on a uniform and acceptable basis.

Similar considerations underlie the Commission's determination not to include at this time the proposed provision which would have included as record holders employees who have a direct beneficial interest in securities held by an employee plan.  The extent to which employees having an interest under plans of particular types should be treated as record holders can best be determined in the light of experience.

A new provision has been added to the rule as adopted which provides that whole or fractional securities issued by a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution for the sole purpose of qualifying a borrower for membership in the issuer, and which are to be redeemed or repurchased by the issuer when the loan is terminated, shall not be included as held of record by any person.

Finally, the rule as adopted provides that if the issuer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of the Exchange Act, the beneficial owners shall be deemed to be the record holders thereof.

[Text of rule omitted]

TOTAL ASSETS

As adopted Rule 12g5-2 defines "total assets" to mean the total assets as shown on the issuer's balance sheet or as shown in the balance sheet of the issuer and its subsidiaries consolidated, whichever is larger.  Such balance sheet is to be prepared as required by the appropriate registration form and the pertinent provisions of Regulation S-X, which requires the deduction of valuation and qualifying reserves from the specific assets to which they apply.  The proposed rule has been expanded to provide that where the security is a certificate of deposit, or voting trust certificate, or certificate or other evidence of interest in a similar arrangement, the total assets of the issuer of the underlying security shall be deemed to be the total assets of the issuer of such certificate or evidence of interest.

[Text of rule omitted]

In view of the fact that the definitions contained in Rules 12g5-1 and 12g5-2 are needed by issuers to determine whether they are subject to Section 12(g) of the Act, it is necessary that the rules be made effective upon publication on January 5, 1965.  The foregoing action is taken pursuant to Sections 3(b), 12(g)(15) and 23(a) of the Securities Exchange Act of 1934.

By the Commission.

¹  The provisions of Section 12(g) were added to the Act and Section 15(d) was amended by the Securities Acts Amendments of 1964 which were signed by President Johnson on August 20, 1964.  These amendments are more fully described in Securities Exchange Act Release No. 7425.