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Release No. 34-9192 June 7, 1971
Adoption of Rule 10b-17 under the Exchange Act
Relating to Untimely Announcements of Record Dates.
On February 17, 1971, in Securities Exchange Act
Release No. 9076, the Securities and Exchange Commission published a proposal to
adopt Rule 10b-17 under the Securities Exchange Act of 1934 (the "Act"). The
Commission has considered the comments and suggestions received and has adopted
the rule as stated below effective July 12, 1971.
The new rule will require issuers of publicly traded
securities to furnish specified advance information concerning impending
dividends or other distributions in cash or in kind; planned splits or reverse
splits; and rights or other subscription offerings (hereinafter collectively
referred to as distributions) to the National Association of Securities Dealers,
Inc. (NASD) or an exchange on which the securities are registered and which has
substantially comparable procedures to those set forth herein.
1
The reports for issuers of over-the-counter securities
will be required at least ten days prior to the record date set by the issuer
for determining the identity of the security holders to whom the rights to these
distributions accrue. In the case of a rights offering or other offerings
requiring a registration statement under the Securities Act of 1933, where such
10 days advance notice of the record date may not be practicable, the
information will be required on or before the record date and in no event later
than the day on which the registration statement to which the offering relates
becomes or is declared effective by the Commission.
2 In those
situations where the issuer would report to the NASD the rule will also provide
that exemptions from these requirements could be granted by the Commission. It
is contemplated, however, that such an exemption will be granted only in special
circumstances where the purposes of the rule are not applicable and where the
NASD does not need the report to enable it to adequately disseminate the
information to its members and the investing public.
The rule has been revised to specifically exempt
redeemable securities issued by open-end investment companies and ordinary
interest payments on debt securities since these types of securities generally
do not present any of the problems which the rule is designed to meet. In
addition, the rule will indicate that if exact per share cash distributions
cannot be given to the NASD because of existing conversion rights which may
affect the per share distribution, then a reasonable approximation of the per
share distribution may be given so long as the actual per share data is
subsequently provided on the record date.
As indicated in Release No. 9076, it has been the
experience of the Commission and the securities industry that the failure of a
publicly held company to provide a timely announcement of the record date with
respect to these types of distributions has had a misleading and deceptive
effect on both the broker-dealer community and the investing public. As a
direct result of such failure, purchasers and their brokers may have entered
into and settled securities transactions without knowledge of the accrual of
rights to these distributions and were thus unable to take necessary steps to
protect their interests. Further, sellers who have received the distributions
as recordholders on the specified record date, after having disposed of their
securities, have also disposed of the cash or stock dividends or other rights
received as such recordholders without knowledge of possible claims of
purchasers of the underlying security to those rights. In some instances, the
broker-dealers who have acted for such buyers or sellers have settled resulting
disputes at their own expense, while, in others, the disputes have led to
arbitration and to litigation. In many instances, innocent buyers and sellers
have suffered losses. In addition, some issuers have made belated declarations
of stock splits or dividends with the apparent knowledge that this action would
have a manipulative effect on the market for their securities. In these cases,
"buy-in" transactions effected by purchasers to liquidate the sellers'
obligations have had the effect of raising the price of the security. This
effect has been particularly significant when the existing floating supply of
the security is limited.
The NASD and securities exchanges have long had
procedures for obtaining and disseminating information of the character called
for by this rule. Based on this information, these organizations are then able
to disseminate news of impending distributions and to set "ex" dates for trading
purposes through various media, including the standard financial services and
membership bulletins, to the brokerage community and investing public. The
advance publication of an ex-date is thus designed to provide an appropriate
cut-off date which will not only enable the broker-dealer community to settle
transactions in the normal course of business with a minimum of additional paper
work but will also provide adequate notice of the steps that must be taken by
their members at settlement (e.g. request settlement with due-bills) so as to
protect public customers.
3 It has been the experience of the
securities industry that generally 10 days advance notice of a record date is
sufficient to enable the self-regulatory organizations to reasonably accomplish
these objectives. However, in such cases as the issuance of rights or warrants
or other distributions where a registration statement under the Securities Act
of 1933 is required, ten days advance notice is not always practicable because
the issuer must await affirmative Commission action before the distribution can
occur. Thus, notice of the latter types of distribution, if such 10 days
advance notice is not practicable, must be given by the issuer on or before the
record date and in no event later than the date the registration statement
becomes effective.
STATUTORY BASIS
The Securities and Exchange Commission acting pursuant
to the provisions of the Act and particularly the power conferred by Sections
10(b) and 23(a) and deeming it necessary and appropriate in the public interest
and for the protection of investors, hereby adopts Rule 10b-17 effective July
12, 1971.
[Text of Rule omitted]
By the Commission.
1
Presently the New York, American, Philadelphia--Baltimore--Washington,
Midwest, Pacific Coast, Boston, Cincinnati, Detroit, and National Stock
Exchanges have substantially comparable requirements. Of course, this
does not mean that these exchanges must have identical procedures.
Indeed, these exchanges may (as at present) have different advance
reporting periods and special procedures if such requirements enable
these organizations to adequately disseminate the news of impending
distributions, to set "ex" dates for trading purposes, and to otherwise
properly execute their self-regulatory responsibilities.
2
Of course, in order to avoid unnecessary and burdensome settlement
problems, where a distribution is dependent on action of the Commission
or other governmental authority, the record date should not be set until
such action is taken.
3
For a further explanation of the "ex" date and due-bill procedure see
Securities Exchange Act Release No. 9076.
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