94-31038. Amendments To Clarify Safe Harbors for Broker-Dealer Research Reports  

  • [Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
    [Unknown Section]
    [Page 0]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-31038]
    
    
    [[Page Unknown]]
    
    [Federal Register: December 20, 1994]
    
    
    SECURITIES AND EXCHANGE COMMISSION
    
    17 CFR Part 230
    
    [Release No. 33-7120; International Series Release No. 760; File No. 
    S7-36-94]
    RIN 3235-AG26
    
     
    
    Amendments To Clarify Safe Harbors for Broker-Dealer Research 
    Reports
    
    AGENCY: Securities and Exchange Commission.
    
    ACTION: Notice of Proposed Rulemaking.
    
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    SUMMARY: The Commission is proposing today amendments relating to the 
    safe harbor provisions of Rules 138 and 139 under the Securities Act of 
    1933. The proposed amendments are intended to clarify the availability 
    of the safe harbor provisions of Rule 138 relating to broker-dealer 
    research reports on individual companies and the availability of the 
    safe harbor provisions of Rule 139 for broker-dealer industry research 
    reports which include sizable, first-time foreign registrants.
    
    DATES: Comments should be received on or before January 19, 1995.
    
    ADDRESSES: Comment letters should refer to File Number S7-36-94 and be 
    submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities 
    and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. 
    The Commission will make all comments available for public inspection 
    and copying in its Public Reference Room at the same address.
    
    FOR FURTHER INFORMATION CONTACT: Annemarie Tierney, (202) 942-2990, 
    Office of International Corporate Finance, Division of Corporation 
    Finance, U.S. Securities and Exchange Commission, 450 Fifth Street NW., 
    Washington, DC 20549.
    
    SUPPLEMENTARY INFORMATION: As described in detail below, the 
    Commission is proposing amendments to Rule 138\1\ and Rule 139\2\ 
    under the Securities Act of 1933 (the ``Securities Act'').\3\
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        \1\17 CFR 230.138.
        \2\17 CFR 230.139.
        \3\15 U.S.C. 77a et seq.
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    I. Availability of Research Report Safe Harbors
    
    A. Rule 139 Safe Harbor
    
        Rule 139 under the Securities Act provides safe harbor protection 
    from the registration requirements of that Act for the distribution by 
    broker-dealers of information, opinions or recommendations concerning 
    issuers in the process of registering securities under the Securities 
    Act.
        Prior to April 1994, reliance on the safe harbor for research 
    reports concerning a foreign private issuer were conditioned on 
    eligibility of the foreign private issuer for use of Form F-3.4 On 
    April 19, 1994, the Commission adopted amendments to Rule 139 that make 
    the rule available for offerings by foreign private issuers that would 
    be eligible to use Form F-3 but for the 12-month reporting requirement 
    if the issuer meets an alternative offshore trading history test.5 
    Under the alternative test, a foreign private issuer must have been 
    listed or quoted on a designated offshore securities market6 for a 
    period of at least 12 months.
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        \4\17 CFR 239.33.
        \5\Release No. 33-7053 (Apr. 19, 1994), 59 FR 21644.
        \6\``Designated offshore securities market'' is defined in Rule 
    902(a) of Regulation S (17 CFR 230.902(a)).
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        In adopting these amendments, the Commission intended that broker-
    dealers would be able to rely upon Rule 139 for sizable foreign private 
    issuers with respect to which there is a stream of corporate 
    information available in the marketplace, including qualifying foreign 
    issuers registering securities with the Commission for the first time. 
    As drafted, however, the amendments did not make clear that the 
    elimination of the reporting history requirement included the 
    elimination of the requirement that a foreign issuer be previously 
    reporting pursuant to the Securities Exchange Act of 1934 (the 
    ``Exchange Act'')7 and have filed at least one annual report.
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        \7\15 U.S.C. 78a et seq.
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        The amendments proposed today revise Rule 139 to make clear that 
    the special provisions adopted last year for sizable foreign issuers 
    are also available for those issuers' initial public offerings in the 
    United States.8
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        \8\In order to make the rule available to first-time sizable 
    foreign registrants, the Commission is proposing to amend the first 
    sentence of the rule to provide that a foreign private issuer that 
    meets the requirements of paragraph (a)(2) of the Rule need not 
    previously have been reporting pursuant to the Exchange Act. In 
    addition, language would be added to paragraph (a)(2) to provide 
    that such foreign private issuer need not have filed an annual 
    report as a condition of eligibility for the rule.
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    B. Rule 138 Safe Harbor
    
        Rule 138 under the Securities Act permits publication of 
    information, opinions and recommendations concerning qualifying issuers 
    by broker-dealers that are participants in a distribution, so long as 
    the reports contain information, opinions or recommendations regarding 
    a specified class of the issuer's securities which is not the subject 
    of the offering in which the broker-dealer is a participant. The rule 
    defines eligible issuers as those that may register securities on Forms 
    S-29 or F-2.10 The reference to Forms S-2 and F-2 is intended 
    to include issuers eligible to register on Forms S-3 and F-3 as well. 
    Questions have arisen as to the availability of the Rule 138 safe 
    harbor for offerings registered on Form S-3 where issuers have not been 
    subject to reporting requirements for 36 months. The Commission did not 
    intend to change the availability of Rule 138 for those offerings when 
    it reduced the reporting history requirements for Form S-311 and 
    is of the view that Rule 138 is still available for offerings 
    registered on Form S-3. Rule 138 is proposed to be amended to clarify 
    this point. The Commission is also proposing to amend the rule to 
    clarify that Form F-3 eligible issuers would qualify for the rule, as 
    would qualifying first-time foreign issuers that meet the alternative 
    offshore trading history test proposed for Rule 139.12
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        \9\17 CFR 239.12.
        \1\017 CFR 239.32.
        \1\117 CFR 239.13 as amended by Release No. 33-6964 (Oct. 22, 
    1992) 57 FR 48970.
        \1\2In Release No. 33-6550 (Sept. 19, 1984) 49 FR 37569 at 
    footnote 26, the Commission stated that ``[b]ecause the markets for 
    nonconvertible senior securities and common stock differ, Rule 138 
    provides a somewhat broader safe harbor [than Rule 139] in 
    circumstances where the opportunity to condition the market is 
    lessened.''
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        In addition, in light of the fact that shelf registration 
    statements often register both debt and equity securities (on an either 
    allocated or unallocated basis), the Commission is proposing to add an 
    instruction to Rule 138 to codify the staff interpretation that the 
    rule should be applied on an offering-by-offering basis for issuers 
    which are eligible to use Forms S-3 or F-3 and are using the 
    Commission's shelf registration procedures.
    
    II. Cost-Benefit Analysis
    
        To fully evaluate the costs and benefits associated with the 
    proposed amendments to Rule 138 and Rule 139, the Commission requests 
    commenters to provide views and empirical data as to the costs and 
    benefits associated with such proposals.
    
    III. Regulatory Flexibility Act Certification
    
        Pursuant to the Regulatory Flexibility Act (5 U.S.C. 605(b)), the 
    Chairman of the Commission has certified that the proposed amendments 
    to Securities Act Rules 138 and 139 relating to broker-dealer research 
    reports (17 CFR 230.138 and 17 CFR 230.139) will not, if adopted, have 
    a significant impact on a substantial number of small entities. This 
    certification, including the reasons therefor, is attached as Appendix 
    A to this release.
    
    IV. General Request for Comments
    
        Any interested person wishing to submit written comments on any 
    aspect of the amendments to the rules that are subject to this release 
    are requested to do so. Comments should be submitted in triplicate to 
    Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 
    450 Fifth Street, NW., Washington, DC 20549 and should refer to file 
    number S7-36-94.
    
    V. Statutory Bases
    
        The amendments to the Commission's rule are being proposed pursuant 
    to sections 6, 7, 8, 10 and 19(a) of the Securities Act of 1933, as 
    amended.
    
    List of Subjects in 17 CFR Part 230
    
        Reporting and recordkeeping requirements, securities
    
    Text of Proposed Amendments
    
        In accordance with the foregoing, Title 17, chapter II of the Code 
    of Federal Regulations is proposed to be amended as follows:
    
    PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
    
        1. The general authority citation for Part 230 continues to read in 
    part 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. By revising Sec. 230.138 to read as follows:
    
    
    Sec. 230.138  Definition of ``offer for sale'' and ``offer to sell'' in 
    sections 2(10) and 5(c) in relation to certain publications.
    
        (a) Where a registrant which meets the requirements of paragraph 
    (c)(1), (c)(2) or (c)(3) of this section proposes to file, has filed or 
    has an effective registration statement under the Act relating solely 
    to a nonconvertible debt security or to a nonconvertible, 
    nonparticipating preferred stock, publication or distribution in the 
    regular course of its business by a broker or dealer of information, 
    opinions or recommendations relating solely to common stock or to debt 
    or preferred stock convertible into common stock of such registrant 
    shall not be deemed to constitute an offer for sale or offer to sell 
    the security to which such registration statement relates for purposes 
    of sections 2(10) and 5(c) of the Act (15 U.S.C. 77a et seq.) even 
    though such broker or dealer is or will be a participant in the 
    distribution of the security to which such registration statement 
    relates.
        (b) Where a registrant which meets the requirements of paragraph 
    (c)(1), (c)(2) or (c)(3) of this section proposes to file, has filed or 
    has an effective registration statement under the Act relating solely 
    to common stock or to debt or preferred stock convertible into common 
    stock, the publication or distribution in the regular course of its 
    business by a broker or dealer of information, opinions or 
    recommendations relating solely to a nonconvertible debt security, or 
    to a nonconvertible nonparticipating preferred stock shall not be 
    deemed to constitute an offer for sale or offer to sell the security to 
    which such registration statement relates for purposes of sections 
    2(10) and 5(c) of the Act (15 U.S.C. 77a et seq.), even though such 
    broker or dealer is or will be a participant in the distribution of the 
    security to which such registration statement relates.
        (c)(1) The registrant meets all of the conditions for the use of 
    Form S-2 (Sec. 239.12 of this chapter) or Form F-2 (Sec. 239.32 of this 
    chapter);
        (2) The registrant meets the registrant requirements of Form S-3 
    (Sec. 239.13 of this chapter) or Form F-3 (Sec. 239.33 of this 
    chapter); or
        (3) The registrant is a foreign private issuer which meets all the 
    registrant requirements of Form F-3 (Sec. 239.33 of this chapter), 
    other than the reporting history provisions of paragraph A.1. and 
    A.2.(a) of General Instruction I of such form, and meets the minimum 
    float or investment grade securities provisions of either paragraph 
    B.1. or B.2. of General Instruction I. of such form and the 
    registrant's securities have been traded for a period of at least 12 
    months on a designated offshore securities market, as defined in 
    Sec. 230.902(a).
    
    Instruction to Rule 138
    
        When a registration statement relates to securities which are being 
    registered for an offering to be made on a continuous or delayed basis 
    pursuant to Rule 415(a)(1)(x) under the Act (Sec. 230.415(a)(1)(x)) and 
    the securities which are being registered include classes of securities 
    which are specified in both paragraph (a) and (b) of this section on 
    either an allocated or unallocated basis, a broker or dealer may 
    nonetheless rely on:
        (1) Paragraph (a) of this section when the offering in which such 
    broker or dealer is or will be a participant relates solely to classes 
    of securities specified in paragraph (a) of this section, and
        (2) Paragraph (b) of this section when the offering in which such 
    broker or dealer is or will be a participant relates solely to classes 
    of securities specified in paragraph (b) of this section.
        3. By revising the introductory text to Sec. 230.139 and paragraph 
    (a)(2) to read as follows:
    
    
    Sec. 230.139  Definition of ``offer for sale'' and ``offer to sell'' in 
    sections 2(10) and 5(c) in relation to certain publications.
    
        Where a registrant which is required to file reports pursuant to 
    section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
    78a et seq.) or which is a foreign private issuer meeting the 
    conditions of paragraph (a)(2) of this section proposes to file, has 
    filed or has an effective registration statement under the Securities 
    Act of 1933 (15 U.S.C. 77a et seq.) relating to its securities, the 
    publication or distribution by a broker or dealer of information, an 
    opinion or a recommendation with respect to the registrant or any class 
    of its securities shall not be deemed to constitute an offer for sale 
    or offer to sell the securities registered or proposed to be registered 
    for purposes of sections 2(10) and 5(c) of the Act (15 U.S.C. 77a et 
    seq.), even though such broker or dealer is or will be a participant in 
    the distribution of such securities, if the conditions of paragraph (a) 
    or (b) of this section have been met:
        (a)(1) * * *
        (2) The registrant is a foreign private issuer that meets all the 
    registrant requirements of Form F-3 (Sec. 239.33 of this chapter), 
    other than the reporting history provisions of paragraphs A.1. and 
    A.2.(a) of General Instruction I of such form, and meets the minimum 
    float or investment grade securities provisions of either paragraph 
    B.1. or B.2. of General Instruction I of such form, and the 
    registrant's securities have been traded for a period of at least 12 
    months on a designated offshore securities market, as defined in 
    Sec. 230.902(a), and such information, opinion or recommendation is 
    contained in a publication which is distributed with reasonable 
    regularity in the normal course of business.
    * * * * *
        By the Commission.
    
        Dated: December 13, 1994.
    Margaret H. McFarland,
    Deputy Secretary.
    
        Note: This Appendix to the Preamble will not appear in the Code 
    of Federal Regulations.
    
    Appendix A
    
    Securities and Exchange Commission Regulatory Flexibility Act 
    Certification
    
        I, Arthur Levitt, Chairman of the United States Securities and 
    Exchange Commission (the ``Commission''), hereby certify pursuant to 
    5 U.S.C. 605(b) that proposed revisions to Rules 138 and 139 under 
    the Securities Act of 1933 (the ``Securities Act''), if promulgated, 
    will not have a significant economic impact on a substantial number 
    of small entities. The reason for this certification is that the 
    proposed revisions to the rules are intended to clarify the 
    availability of the safe harbor provisions of the rules with respect 
    to large domestic and foreign issuers. Any incidental impact on 
    small U.S. entities is not expected to be significant.
    
        Dated: December 12, 1994.
    Arthur Levitt,
    Chairman.
    [FR Doc. 94-31038 Filed 12-19-94; 8:45 am]
    BILLING CODE 8010-01-P
    
    
    

Document Information

Published:
12/20/1994
Department:
Securities and Exchange Commission
Entry Type:
Uncategorized Document
Action:
Notice of Proposed Rulemaking.
Document Number:
94-31038
Dates:
Comments should be received on or before January 19, 1995.
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: December 20, 1994, Release No. 33-7120, International Series Release No. 760, File No. S7-36-94
RINs:
3235-AG26
CFR: (3)
17 CFR 230.902(a)
17 CFR 230.138
17 CFR 230.139