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sale of stock. Such puts, calls, and straddles are clearly manipulative options.

It seems to us that for the sake of clarity and sharper distinction that this paragraph should be drawn so as to leave no doubt as to the intention of allowing dealings in and the guarantee of legitimate puts, calls, straddles, etc., eliminating puts, calls, straddles, etc., used for manipulative purposes.

We also call your attention to the last part of section 8, paragraph 9, third subdivision, reading as follows:

“Or if a member, directly or indirectly, to indorse or guarantee the performance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange. The terms put, call, straddle, option, or privilege as used in this paragraph shall not include any registered warrant, right, or convertible security.”

We submit that this wording should be claritied so that there can be no doubt that the foregoing subdivision was meant to refer to manipulative options only.

We further recommend that the National Securities Exchange Act of 1934 shall provide that the Federal Trade Commission will have the power to require, after an appropriate hearing, that all put-and-call dealers and brokers conform with rules and regulations adopted by the Commission, and that the

ctiv date section 8, paragraph 9, be changed from August 1, 1934, to some later date. We therefore respectfully request that such changes be made. Very truly yours,

THE COMMITTEE OF PUT AND CALL BROKERS

AND DEALERS IN THE CITY OF NEW YORK, GEO. A. LAMBELL, Chairman.

MEMORANDUM OF PROPOSED AMENDMENTS TO H.R. 8720

Section 1: No change.
Section 2: No change.
Section 3: Amend subsection (a) (6) to read :

“(6) The term 'bank' means (a) a banking institution organized under the laws of the United States, (b) a person engaged in the business of banking pursuant to the laws of any State, who is subject to examination or regulation by Federal or State banking authorities, (c) a banking institution organized under the laws of a foreign country or any agency or branch thereof authorized to engage in business in a State and which is subject to the supervision of State banking authorities, or (d) a receiver, conservator, or other liquidating agent of any institution included in clause (a), (b), or (c) of this paragraph.

Amend subsection (a) (12) so as to read :

“(12 The term 'equity security' means any stock or similar security, other than a preferred or guaranteed stock which is entitled to receive only a fixed or limited dividend; or any security convertible with or without consideration into such a security and any warrant or right to subscribe to or purchase such a security; or any other security which the Commission shall deem to be of similar nature and consider necessary or appropriate by rules and regulations to treat as an equity security."

Amend subsection (a) (13) to read :

“(13) The term 'exempted security' or 'exempted securities' shall include securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, such securities issued or guaranteed by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury, securities which are direct obligations of or obligations guaranteed as to principal or interest by a State or any political subdivision thereof or any agency or instrumentality of a State or any political subdivision thereof, and such other securities and instruments as the Commission may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods exempt from the operation of any one or more of the provisions of this Act, which by their terms are inapplicable to an exempted security' or to 'exempted securities ?."

Omit subsection (c) of section 3 in toto.
Section 4. No change.

Section 5. Amend section 5 so as to read:

SEC. 5. (a) Any exchange may be registered as a national securitics exchange by filing with the Commission an application in such form as the Commission may prescribe, containing all relevant information in regard to the history, organization, membership, and the rules and regulations of such exchange and a list of the securities in which dealings are permitted on such exchange.

“(b) Unless such application shall be withdrawn by such exchange, the Commission shall within thirty days after the filing thereof or within such further period as may be agreed upon, either register such exchange as a national securities exchange hereunder if the Commission shall be satisfied that the rules and regulations of such exchange are adequate to insure fair dealing and to protect investors, or enter an order, after appropriate notice and opportunity for hearing, denying such registration and stating the reasons therefor. Any order denying such registration may be reviewed as hereinafter provided in section 22 hereof.

"(c) Any national securities exchange may by appropriate notice to the Commission withdraw its registration."

Amend section 6 so as to read :

“ SEC. 6. It shall be unlawful for any member of national securities exchange or for any broker or dealer transacting a business in securities through any such member, directly or indirectly, to extend or maintain credit to or for any person in contravention of such rules as may be adopted from time to time by the Federal Reserve Board for the purpose of preventing the excessive use of credit for speculation.”

Amend section 7 so as to read :

“ SEC. 7. It shall be unlawful for any member of a national securities exchange or for any broker or dealer who transacts a business in securities through the medium of any such member, directly or indirectly, to borrow any money, the repayment of which is secured by the pledge or hypothecation of any security (other than an exempted security) registered on a national securities exchange, in contravention of such rules and regulations as may be adopted from time to time by the Federal Reserve Board for the purpose of preventing the excessive use of credit for speculation.”

Section 8 (a) (1): No change.
Amend section 8 (a) (2) to read as follows:

" (2) To enter orders by prearrangement with any other person or persons, for the purchase and sale of any security at substantially the same time at substantially the same price for the purpose of creating a false or misleading appearance of the volume of trading in such security or of establishing price quotations therefor which do not truly reflect the market value of such security.” Amend section 8 (a) (3) to read as follows:

(3) To effect, either alone or in conjunction with one or more other persons, a series of transactions for the purchase and sale of any security, for the purpose of creating a false or misleading appearance of the volume of trading in such security or of establishing price quotations therefor which do not truly reflect the market value of such security.”

Amend section 8 (a) (4), (5), (6), and (7) to read as follows:

(4) To circulate or disseminate, with intent to deceive, any false or misleading information in regard to any security, for the purpose of inducing the purchase or sale of such security."

“(5) To pay or cause to be paid, in connection with any attempt to purchase or sell, at prices which do not truly reflect the market value, any security in which the person making such payment or causing the same to be made is directly or indirectly interested, any consideration to any person to circulate or disseminate, as news or disinterested opinion, any information intended or likely to induce the purchase or sale of such security at such prices, or to receive knowingly any consideration for such circulation or dissemination."

Amend section 8 (a) (8) to read as follows:

“(6) To engage in any series of transactions for the purchase and sale of any security registered on a national securities exchange or any security not so registered for the purpose of pegging, fixing, or stabilizing the price of such security in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate to prevent unfair practices."

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Section 8 (a) (9): Amend. last six lines to read as follows: Or if a member, directly, or indirectly, to endorse or guarantee in contravention of any such rules or regulations the performance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange. The terms “put”, “ call”, “straddle”, “option”,

privilege as used in this paragraph shall not include any warrant, right or convertible security registered on a national securities exchange.”

Amend section 8 (b) so as to read :

"(b) Any person who willfully violates any provisions of subsection (a) of this section and any person who knowingly participates in any such violation shall be liable to any person who shall purchase or sell any security, the price of which was affected by such violation, and the person so injured may sue in law or in equity in any court of competent jurisdiction to recover the damages sustained as a result of such violation."

Section 8 (c): No change.
Amend section 8 (d) to read as follows:

"(d) No action shall be maintained to enforce any liability created under this section unless brought within 2 years after the violation upon which it is based."

Omit subsection 8 (e).

Section 9: Omit entire section. The substance of subsections (a) and (b) will be included in section 16, formerly section 18.

Amend section 10 to read as follows:

“SEC. 9. (a) It shall be unlawful for an individual member of a national securities exchange while on the trading premises of such exchange to act as a dealer and broker in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

"(b) Subject to such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors to ensure compliance with the provisions of this subsection, the rules of a national securities exchange may provide for the registration of members with the privilege of acting as dealers, and any member so registered shall have the privilege of acting as a dealer and as a broker within the limitations of this subsection. It shall be unlawful for a member without such privilege to act as a broker and as a dealer or for a member with such privilege who acts as a broker to act as a dealer to effect any transaction in a security by use of any facility of a national securities exchange or otherwise, (1) if in connection with any such transaction he directly or indirectly extends or maintains or arranges for the extension or maintenance of credit for a customer on any security (other than an exempted security) which was a part of a new issue offered to the public by him as a dealer or distributor within six months prior to such transaction or (2) unless, if the transaction is with a customer, he discloses to such customer in writing at or before the completion of the transaction whether he is acting as broker for such customer or is acting as a dealer for his own account or as broker for some other person."

Amend section 11 so as to read :

“ SEC. 10 (a) It shall be unlawful for any person to effect any transaction on a national securities exchange in any security, other than an exempted security, unless a registration is effective as to such security in accordance with the provisions of this Act and the rules and regulations thereunder.

(b) A security may be registered with a national securities exchange upon application by the issuer, by filing with such exchange and with the Commission

(1) A listing application in such form as the exchange, with the approval or upon the order of the Commission, may require as necessary or appropriate for the protection of investors;

(II) Such information as to the issuer and affiliates as the exchange, with the approval or upon the order of the Commission, may require as necessary or appropriate for the protection of investors in respect of

(1) The organization, financial structure, nature, and operation of the business;

(2) The terms, position, rights, and privileges of the different classes of securities outstanding;

(3) Terms on which securities have been or are to be offered to the public;

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(4) The names of directors, principal officers and underwriters and the remuneration paid or to be paid underwriters in connection with the issuance of the security to be registered and a statement of any contracts, other than contracts of employment, between directors or officers on the one hand and the issuer or its affiliates on the other;

(5) A statement of the terms and provisions of all bonus and profit-sharing plans and the aggregate amount of payments made thereunder during the last three fiscal years of the issuer ;

(6) Options in respect of securities existing or to be created;

(7) Balance sheets for the three preceding fiscal years or for such portion of that period as the issuer shall have been in existence, certified, if required by the exchange or by order of the Commission, by independent public accountants. If the balance sheets for preceding fiscal years have not been certified by independent public accountants, only the balance sheet for the last preceding fiscal year shall be so certified ;

(8) Profit and loss statements for the three preceding fiscal years or for such portion of that period as the issuer shall have been in existence, certified, if required by the exchange or by order of the Commission, by independent public accountants. If the profit and loss statements for preceding fiscal years have not been certified by independent public accountants, only the statement for the last preceding fiscal year shall be so certified ;

(9) Any further financial statements which the exchange, with the approval or upon the order of the Commission, may deem necessary or appropriate for the protection of investors.

(III) Copies of articles of incorporation, bylaws, trust indentures, or corresponding documents, whatever the names, underwriting arrangements, and other documents of the issuer and affiliates which the exchange, with the approval or upon the order of the Commission, may require as necessary or appropriate for the protection of investors.

(c) If the exchange shall determine that any report or reports required under subsection (b) are inapplicable to any specified issuer or class of issuers or unnecessary for the protection of investors, it may require, in lieu thereof, the submission of such reports, if any, as it may deem appropriate. The exchange may receive and act upon listing applications, subject to the right of the Commission to enter an order requiring such additional statement or ins formation from the issuer as the Commissioner shall determine is necessary or appropriate for the protection of investors.

(d) If the exchange shall certify to the Commission that the security has been approved for listing, the registration shall become effective upon the filing with the Commission of such certification. The Commission may, however, suspend dealing in such security or, after appropriate notice and opportunity for hearing, enter an order revoking the registration thereof if it shall determine that such security is not suitable for registration, or if the issuer shall have failed to comply with the registration requirements of this Act. Securities representing an interest in registered securities or growing out of registered securities may be listed by an exchange or admitted to dealing in advance of registration upon request in writing from the issuer accompanied by assurance that a listing application in form required by the exchange will be made within a reasonable time.

(e) Notwithstanding the foregoing provisions of this section, all securities listed on a national securities exchange at the time the registration of such exchange as a national securities exchange becomes effective shall be considered securities “registered on a national securities exchange" within the meaning of all the sections of this Act, and all securities admitted to dealing on such national securities exchange prior to April 1, 1934, shall be considered securities

registered on a national securities exchange ” within the meaning of all the sections of this Act, other than sections 10 and 11. The Commission may, however, require any national securities exchange to suspend dealing in any such security or securities, or may, after appropriate notice and opportunity for hearing, enter an order requiring any national securities exchange to remove the same from the list of securities listed or admitted to dealing thereon whenever it shall determine that such action is necessary or appropriate for the protection of investors.

“(f) The Commission is directed to make a study of trading in unlisted securities upon exchanges and to report the results of its study and its recommendations to Congress on or before January 3, 1935. If the Commission deems such action necessary or appropriate for the protection of investors it

may by rules and regulations prescribe the terms and conditions on which a national securities exchange may admit to dealing unlisted securities. An unlisted security admitted to dealing pursuant to any such rules and regulations shall be considered a security registered on a national securities exchange within the meaning of all the sections of this Act, other than sections 10 and 11.

“(g) Any national securities exchange may, and upon the order of the Commission shall, suspend dealing in or, after appropriate notice and oppor. tunity for hearing, remove from the list of securities dealt in thereon, any registered security or any securitiy admitted to dealing thereon.”

Amend section 12 to read as follows:

* SEC. 11. (a) Any national securities exchange may require the issuer of a security registered thereon to file with the exchange, in such form and detail and at such times as may be prescribed by such exchange, with the approval or upon the order of the Commission :

“(1) Such information and documents as may be required to keep reasonably current the information filed pursuant to section 10;

“(2) Such annual reports, certified if required by the exchange or the Commission by independent public accountants, and such quarterly or other reports as may be necessary or appropriate for the protection of investors; and

“(3) Such separate and/or consolidated balance sheets or income accounts as shall be necessary to truly reflect the financial condition of the issuer,

“(b) The methods to be followed in the preparation of accounts and financial statements to be filed pursuant to this section and sec. 11 in the appraisal or valuation of assets and liabilities, in the determination of depreciation and depletion, in the differentiation of recurring and nonrecurring income, and in the differentiation of investment and operating income shall be in accordance with any principles of accounting which are generally accepted as proper by the accounting profession at the time of the preparation of such accounts or financial statements; and each issuer shall adopt and make binding upon its officers and employees the accounting and reporting methods to be employed by it in the preparation of its accounts and financial statements. If any change is made in such methods the first accounts presented thereafter shall contain a statement of the nature of such change.

"(c) If the issuer of any security registered on a national securities exchange fails to file information, documents, or reports as required by this section such exchange may, and upon the order of the Commission shall, after notice and opportunity for hearing, remove the securities of such issuer from the list of securities admitted to dealing on such exchange.”

SEC. 13: This section should be omitted. It has no proper place in a stock exchange regulatory bill. However, if it is decided that some provision with regard to the solicitation of proxies is necessary, we believe the section should be amended so as to read :

“SEC. 12. (a) It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of any national securities exchange or otherwise to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered on any national securities exchange in contravention of such rules and regulations as the Commission may adopt for the protection of investors.

"(b) It shall be unlawful for any member of a national securities exchange or any broker or dealer who transacts a business in securities through the medium of any such member to give a proxy, consent, or authorization in respect of any security registered on a national securities exchange and carried for the account of a customer in contravention of such rules and regulations as the Commission may adopt for the protection of investors.”

Section 14: We believe this section will, as a practical matter, be unenforceable. In any event, it should be restricted so as not to apply to commercial paper, or to bankers' acceptances, or commercial bills, although of a longer maturity than nine months, and other similar obligations incident to commercial or industrial activities, all of which are included in the very sweeping definition of the term “ security”, contained in section 3 (11). The number should be changed to section 13.

Section 15: Subject to reservations contained in comment below. No change except to amend section number to read “ Sec. 14 " and to add the fullowing:

"(d) The provisions of this section shall not apply to foreign or domestic arbitrage transactions unless made in contravention of such rules and regula

175541-34-PT 16—12

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