[Federal Register Volume 61, Number 69 (Tuesday, April 9, 1996)]
[Notices]
[Pages 15847-15853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8788]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 33-7277, File No. S7-9-96]
Securities Uniformity; Annual Conference on Uniformity of
Securities Law
AGENCY: Securities and Exchange Commission.
ACTION: Publication of release announcing issues to be considered at a
conference on uniformity of securities laws and requesting written
comments.
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SUMMARY: In conjunction with a conference to be held on April 29, 1996,
the Commission and the North American Securities Administrators
Association, Inc. today announced a request for comments on the
proposed agenda for the conference. This meeting is intended to carry
out the policies and purposes of section 19(c) of the Securities Act of
1933, adopted as part of the Small Business Investment Incentive Act of
1980, to increase uniformity in matters concerning state and federal
regulation of securities, to maximize the effectiveness of securities
regulation in promoting investor protection, and to reduce burdens on
[[Page 15848]]
capital formation through increased cooperation between the Commission
and the state securities regulatory authorities.
DATES: The conference will be held on April 29, 1996. Written comments
must be received on or before April 25, 1996 in order to be considered
by the conference participants.
ADDRESSES: Written comments should be submitted in triplicate by April
25, 1996 to Jonathan G. Katz, Secretary, Securities and Exchange
Commission, 450 5th Street, N.W., Washington, D.C. 20549. Comments also
may be submitted electronically at the following E-mail address: comments@sec.gov. Comments should refer to File No. S7-9-96; this file
number should be included on the subject line if E-mail is used.
Comment letters will be available for public inspection at the
Commission's Public Reference Room, 450 5th Street, N.W., Washington,
D.C. 20549. Electronically submitted comment letters will be posted on
the Commission's internet web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: William E. Toomey or Richard K. Wulff,
Office of Small Business Policy, Division of Corporation Finance,
Securities and Exchange Commission, 450 5th Street, N.W., Washington,
D.C. 20549, (202) 942-2950.
SUPPLEMENTARY INFORMATION:
I. Discussion
A dual system of federal-state securities regulation has existed
since the adoption of the federal regulatory structure in the
Securities Act of 1933 (the ``Securities Act'').1 Issuers
attempting to raise capital through securities offerings, as well as
participants in the secondary trading markets, are responsible for
complying with the federal securities laws as well as all applicable
state laws and regulations. It has long been recognized that there is a
need to increase uniformity between federal and state regulatory
systems, and to improve cooperation among those regulatory bodies so
that capital formation can be made easier while investor protections
are retained.
\1\ 15 U.S.C. 77a et seq.
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The importance of facilitating greater uniformity in securities
regulation was endorsed by Congress with the enactment of section 19(c)
of the Securities Act in the Small Business Investment Incentive Act of
1980.2 Section 19(c) authorizes the Commission to cooperate with
any association of state securities regulators which can assist in
carrying out the declared policy and purpose of section 19(c). The
policy of that section is that there should be greater federal and
state cooperation in securities matters, including: (1) maximum
effectiveness of regulation; (2) maximum uniformity in federal and
state standards; (3) minimum interference with the business of capital
formation; and (4) a substantial reduction in costs and paperwork to
diminish the burdens of raising investment capital, particularly by
small business, and a reduction in the costs of the administration of
the government programs involved. In order to establish methods to
accomplish these goals, the Commission is required to conduct an annual
conference. The 1996 meeting will be the thirteenth such conference.
\2\ Pub. L. 96-477, 94 Stat. 2275 (October 21, 1980).
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II. 1996 Conference
The Commission and the North American Securities Administrators
Association, Inc. (``NASAA'') 3 are planning the 1996 Conference
on Federal-State Securities Regulation (the ``Conference'') to be held
April 29, 1996 in Washington, D.C. At the Conference, representatives
from the Commission and NASAA will form into working groups in the
areas of corporation finance, market regulation, investment management,
and enforcement, to discuss methods of enhancing cooperation in
securities matters in order to improve the efficiency and effectiveness
of federal and state securities regulation. Generally, attendance will
be limited to representatives of the Commission and NASAA in an effort
to promote frank discussion. However, each working group in its
discretion may invite certain self-regulatory organizations to attend
and participate in certain sessions.
\3\ NASAA is an association of securities administrators from
each of the 50 states, the District of Columbia, Puerto Rico, Mexico
and twelve Canadian Provinces and Territories.
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Representatives of the Commission and NASAA currently are
formulating an agenda for the Conference. As part of that process the
public, securities associations, self-regulatory organizations,
agencies, and private organizations are invited to participate through
the submission of written comments on the issues set forth below. In
addition, comment is requested on other appropriate subjects sought to
be included in the Conference agenda. All comments will be considered
by the Conference attendees.
III. Tentative Agenda and Request for Comments
The tentative agenda for the Conference consists of the following
topics in the areas of corporation finance, investment management,
market regulation and oversight, and enforcement.
(1) Corporation Finance Issues
A. Uniform Limited Offering Exemption
Congress specifically acknowledged the need for a uniform limited
offering exemption in enacting section 19(c) of the Securities Act and
authorized the Commission to cooperate with NASAA in its development.
The Commission working with the states toward this goal, developed Rule
505 of Regulation D, the federal exemption for certain limited
offerings, while NASAA crafted the complementary Uniform Limited
Offering Exemption (``ULOE'').
ULOE provides the framework for a uniform exemption from state
registration for certain issues of securities which would be exempt
from federal registration by virtue of Regulation D. To date, more than
half the states have adopted some form of ULOE. Both the Commission and
NASAA continue to make a concerted effort toward its universal
adoption.
A Bill pending in the Congress (H.R.3005) would add a new Section
18 to the Securities Act of 1933 and prohibit state blue sky regulation
of most securities offerings. Section 18(a) of this proposed
legislation would, with specified exceptions, preempt state blue sky
regulation over any securities registered under the Securities Act or,
subject to a ``uniform scheme'' approach, exempt from Securities Act
registration pursuant to Sections 3(b) or 4(2).
The conferees will discuss the possible impact of this Bill on
ULOE, and on state-federal cooperation in general. Further,
consideration will be given to whether there are alternative exemptive
methods which might be suitable for coordination among the states and
the federal system, either within or outside of the ULOE framework.
B. Small Business Initiative
On July 30, 1992, and April 28, 1993 the Commission adopted a
number of rulemaking changes, often described as the Small Business
Initiative, which were designed to streamline and simplify the
Commission's regulatory system applicable to the public sale of
securities by small businesses, and to provide new opportunities for
investors, consistent with the Commission's
[[Page 15849]]
obligations to protect such investors.4 Among other things, the
ceiling for the Regulation A exemption was raised from $1,500,000 to
$5,000,000, and issuers contemplating a Regulation A offering were, for
the first time, permitted to use a written document to ``test the
waters'' for investor interest prior to assuming the expense of an
offering.
\4\ Securities Act Release Nos. 6949 (July 30, 1992) [57 FR
36442]; 6996 (April 28, 1993) [58 FR 26509].
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The participants will discuss the impact of these changes, and the
need for any additional exemptive relief in the small business area.
The participants will also review their experience with amended
Regulation A and the use of ``test the waters'' documents.
On June 27, 1995, the Commission issued three releases that, if
adopted, could provide additional assistance to small business: a new
section 3(b) exemption for certain California limited issues,5
relief from Section 12(g) registration for small issuers 6 and
revision of the Rule 144 holding periods.7 The participants will
consider these proposals and discuss whether they will have a
beneficial effect on small business.
\5\ Securities Act Release No. 7185 California (June 27, 1995)
[60 FR 35638].
\6\ Securities Act Release No. 7186 (June 27, 1995) [60 FR
35642].
\7\ Securities Act Release No. 7187 (June 27, 1995) [60 FR
35645].
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Public comment is invited on the efficacy of the Small Business
Initiative as a whole. Comment is also sought with respect to any other
exemptions that might be developed to enhance the ability of small
issuers to raise capital, while protecting legitimate interests of
investors.
C. Disclosure Policy and Standards
a. Electronic Delivery of Disclosure Documents
On October 6, 1995, the Commission issued an interpretive release
8 and related rule proposals 9 addressing the use of
electronic media to deliver or transmit information under the federal
securities laws. These initiatives reflect the Commission's continuing
recognition of the benefits that electronic technology provides to the
financial markets. These releases are premised on the belief that the
use of electronic media should be at least an equal alternative to the
use of paper delivery. However, until such time as electronic media
becomes more universally accessible and accepted, the Commission
expects that paper delivery of information will continue to be
available. Conference participants will consider these matters.
\8\ Securities Act Release No. 7233 (October 13, 1995) [60 FR
53458].
\9\ Securities Act Release No. 7234 (October 13, 1995) [60 FR
53468].
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b. June 1995 Initiatives
On June 27, 1995, the Commission issued an additional five
releases, four proposing rule changes and one stating interpretive
positions, to streamline disclosure, facilitate capital raising and
deter abusive practices.10 The releases related to executive
compensation disclosure,11 accepting abbreviated financial
statements 12, and permitting solicitations of interest prior to
initial public offerings 13. The Commission also issued a release
14 proposing amendments to the financial statement requirements
for significant acquisitions and proposing to require reporting of
unregistered equity sales. The conferees will discuss the releases as
well as the public comments received by the Commission.
\10\ The Commission issued a release proposing to amend the
financial statement requirements for significant acquisitions and
require reporting of unregistered equity sales. These issues arose
out of a review of offshore capital-raising practices. See
Securities Act Release No. 7189 (June 28, 1995) [60 FR 35656]. In
connection with this review, the Commission also issued an
interpretive release regarding problematic practices under
Regulation S, as discussed below. See Securities Act Release No.
7190 (June 28, 1995) [60 FR 35663].
\11\ Securities Act Release No. 7184 (June 27, 1995) [60 FR
35633].
\12\ Securities Act Release No. 7183 (June 27, 1995) [60 FR
35604].
\13\ Securities Act Release No. 7188 (June 28, 1995) [60 FR
35648].
\14\ Securities Act Release No. 7189 (June 28, 1995) [60 FR
35656].
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D. Multinational Securities Offerings
The Commission's recent interpretation of Regulation S, contained
in a release stating its views with respect to certain practices in
connection with offers, sales and resales of securities purportedly
made in offshore transactions pursuant to Regulation S,15 also
will be considered by the conferees. Comment is specifically requested
on ways to coordinate federal and state treatment of multinational
offerings.
\15\ Securities Act Release No. 7190 (June 28, 1995) [60 FR
35663].
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E. Advisory Committee on the Capital Formation and Regulatory Processes
In February 1995, the Commission created an Advisory Committee on
the Capital Formation and Regulatory Processes. The objective of the
Committee is to assist the Commission in evaluating the efficiency of
the regulatory process relating to public offerings of securities,
secondary market trading and corporate reporting. Its deliberations
have focused on the development of a company registration system for
adoption by the Commission. Under the model of a company registration
system developed by the Committee, eligible companies would be able to
issue securities relying on a more company-focused, as opposed to a
transaction-focused system.
Companies would register with the Commission and file periodic
reports. Thereafter, routine securities issuances, such as financings,
as well as sales by affiliates and sales of what are currently known as
restricted shares, could be consummated without significant additional
registration procedures.
The Committee has developed three basic goals in connection with
its consideration of a company registration system. The first goal is
to eliminate unnecessary regulatory costs and uncertainties that impede
a company's access to capital, without impairing investor protection.
The second goal is to eliminate the many complexities resulting
from the current registration system, including the need for issuers
and investors to monitor and maintain the lines between the public
registered market and the offshore or private unregistered markets.
The final goal is to enhance the level and reliability of
disclosure provided to the markets by all issuers on a continuous
basis, not just when the issuer episodically conducts a securities
offering.
The Committee plans to issue a report containing its
recommendations in the near future. The Commission would then consider
the recommendations and either propose rulemaking or legislation, or
seek further public comment with respect to the Committee's
recommendations. The conferees will consider issues developed by the
Advisory Committee with a view to coordinating the federal and state
systems of securities regulation.
F. Task Force on Disclosure Simplification
Chairman Arthur Levitt organized the Task Force on Disclosure
Simplification in August 1995 to review forms and rules relating to
capital-raising transactions, periodic reporting pursuant to the
Exchange Act, proxy solicitations, and tender offers and beneficial
ownership reports under the Williams Act. The goal was to simplify the
disclosure process and, consistent with investor protection, to make
regulation of capital formation more efficient.
To aid its review, the Task Force met over a seven-month period
with issuing
[[Page 15850]]
companies, investor groups, underwriters, accounting firms, lawyers and
others who participate daily in the capital markets. These participants
helped the Task Force to identify and formulate reforms that reduce
costs and regulatory burdens without impairing the transparency and
integrity of our capital markets. None suggested wholesale
deregulation, and virtually all emphasized the importance of basic
regulatory goals to preserve orderly markets.
The Task Force recommendations fall into three broad categories:
(1) Weeding out forms and regulations that are duplicative of other
requirements or have outlived their usefulness;
(2) Requiring more readable and informative disclosure documents; and
(3) Reducing the cost of securities offerings and increasing access of
smaller companies to the securities markets.
The Conference participants will consider the general
recommendations of the Task Force.
G. Derivatives
During the last several years, there has been substantial growth in
the use of derivative financial instruments, other financial
instruments, and commodity instruments. The Commission recognizes that
these instruments can be effective tools for managing exposures to
market risk. During 1994, however, some Commission registrant's
experienced significant, and sometimes unexpected, losses in market
risk sensitive instruments. In light of these losses and the
substantial growth in the use of market risk sensitive instruments, the
Commission continued its derivatives initiatives in 1995. Included in
these initiatives was the release of proposed amendments that would
supplement disclosures currently required by generally accepted
accounting principles and Commission rules and make information about
derivative financial instruments, other financial instruments, and
derivative commodity instruments more useful to readers assessing the
market risk associated with these instruments. Conferees will discuss
this latest Commission initiative, as well as, the application of
federal and state securities laws to derivatives and other market
sensitive instruments.
(2) Market Regulation Issues
A. Central Registration Depository (``CRD'') Redesign
a. Implementation
The CRD system is a computer system operated by the National
Association of Securities Dealers, Inc. (``NASD'') that allows ``one-
stop'' filing for registration and that maintains information regarding
broker-dealers and their associated persons for regulatory purposes.
The NASD is in the process of implementing a comprehensive plan to
redesign the CRD and to expand its use by federal and state securities
regulators as a tool for broker-dealer regulation. As a result of the
NASD's efforts, the redesigned CRD system ultimately is expected to
provide the Commission, self-regulatory organizations (``SROs''), and
state securities regulators with: (i) streamlined capture and display
of data; (ii) better access to registration and disciplinary
information through the use of standardized and specialized computer
searches; and (iii) electronic filing of uniform registration and
licensing forms, including Forms U-4, U-5, BD and BDW, discussed below.
The NASD plans to implement the redesigned CRD in phases. The NASD
plans to begin conducting a two-month pilot test of the redesigned CRD.
Following completion of the pilot test, the NASD will begin Phase I of
the implementation of the redesigned CRD. During Phase I, the NASD will
convert broker-dealer registration information contained in the old CRD
system to the redesigned CRD format. During Phase II of the
implementation process, the Commission, the SROs, and state securities
regulators will be provided direct access to broker-dealer registration
information (including information filed by applicants for broker-
dealer registration) contained in the redesigned CRD system. Among
other things, federal and state securities regulators and the SROs will
be provided with the ability to search through hundreds of thousands of
records to: identify problem brokers, flag problem brokers who have
left the industry so that they can be reviewed should they attempt to
return to the business, and target firms and branches for examination
in a more effective way.
Among other things, the participants will discuss the status of the
CRD implementation process, and issues relating to the conversion of
existing registration information to the redesigned CRD and electronic
filing of uniform forms.
b. Forms Disclosure
In connection with the CRD redesign, NASAA adopted amendments to
certain aspects of Form U-4, the uniform form for registration of
associated persons of a broker-dealer.16 These amendments did not
include amendments to new Item 22-I, which requires disclosure of
certain customer complaints and proceedings. The appropriate level of
disclosure of customer complaints, as well as settlements, arbitration
awards, and civil judgments, has been the subject of extensive
discussions among the securities industry, NASAA, the NASD, and the
Commission. The participants will discuss the status of these
discussions at the Conference.
\16\ See NASAA Reports (CCH) para. 4161 (1994). NASAA also
adopted similar amendments to Form BD. NASAA Reports (CCH) para.
5061 (1995).
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B. Books and Records Revisions
The Commission has been working with representatives of NASAA to
develop proposed amendments to the books and records requirements of
Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934
(``Exchange Act'') to reflect the concerns of the states. These
proposed amendments will include requirements that broker-dealers
maintain additional records relating to such matters as sales
practices, licensing and compensation of registered representatives,
investor suitability, customer complaints, exceptional or unusual
commissions or trading frequency, due diligence with respect to
recommended securities, correspondence, and marketing materials.
The Commission intends to publish the proposed amendments prior to
the Conference and anticipates that the participants will discuss the
proposed amendments and related issues at the Conference.
C. Bank Securities Activities
In December 1994, the NASD proposed rules that would govern the
conduct of member broker-dealers operating on financial institution
premises.17 The proposed rules are intended to provide guidance
with respect to the activities of bank-affiliated broker-dealers and
third-party broker-dealers operating on the premises of financial
institutions pursuant to a networking arrangement. The NASD recently
submitted to the Commission a revised rule proposal designed to address
a number of issues
[[Page 15851]]
raised by commenters with respect to the original NASD proposal.
\17\ See NASD Notice To Members 94-94 (December 1994).
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The proposed rule change sets forth specific requirements for
members doing business on the premises of financial institutions as
they relate to: (1) setting; (2) networking and brokerage affiliate
arrangements; (3) compensation of registered and unregistered persons;
(4) customer disclosure and written acknowledgments; (5) use of
confidential financial information; and (6) communications with the
public. The Commission anticipates that the Conference participants
will discuss the NASD's proposed rule change.
D. Regulation of Foreign Broker-Dealers
In October 1995, NASAA adopted amendments to the Uniform Securities
Act to permit Canadian broker-dealers, subject to certain conditions,
to effect transactions for Canadian citizens temporarily residing in
the United States with whom Canadian broker-dealers have a bona fide
pre-existing relationship as well as in the Canadian retirement
accounts of Canadian citizens residing permanently in the United
States, without registering as broker-dealers with the states.18
Such Canadian broker-dealers also are exempt from all the requirements
of the Uniform Securities Act, except the antifraud provisions and the
requirements set forth in Section 201-A of the Act. The participants
will discuss the NASAA amendments, particularly in light of Rule 15a-6
under the Exchange Act, the federal exemption from broker-dealer
registration for foreign broker-dealers effecting transactions
primarily with U.S. institutional customers. Rule 15a-6(a)(4)(iii)
includes a similar, but not identical, exemption from broker-dealer
registration for foreign broker-dealers effecting transactions with
foreign persons temporarily present in the United States with whom the
foreign broker-dealer has a bona fide, pre-existing relationship.
Participants also will discuss the Uniform Securities Act provision in
relation to the registration requirements imposed by the Securities
Act.
\18\ See NASAA Reports (CCH) para. 4861A (1995).
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E. Amendments to The Trading Practices Rules
On April 19, 1994, the Commission published a concept release
soliciting comment on anti-manipulation regulation of securities
offerings. Since these rules were adopted and last significantly
amended, there have been substantial changes in the structure of the
securities markets, new kinds of trading instruments and strategies,
enhanced transparency of securities transactions, expanded surveillance
capabilities, and transformation of the capital raising process. In
particular, the rise in the number of, and demand for, multinational
offerings has required careful coordination of the interaction of the
anti-manipulation rules with foreign distribution practices and
regulatory requirements. The dominant themes in the comment letters
were: (i) restructuring anti-manipulation regulation as non-exclusive
safe-harbors; (ii) shortening the cooling-off periods; (iii) easing the
application of anti-manipulation regulation in multinational
distributions; (iv) allowing investors greater flexibility in
conducting non-shareholder dividend reinvestment and stock purchase
plans; and (v) providing greater flexibility under Rules 10b-7 and 10b-
8. With respect to Rule 10b-6, commenters also recommended: (i)
narrowing the definition of ``affiliated purchasers;'' (ii) eliminating
the ``same class and series'' analysis for purposes of debt securities;
(iii) expanding the exclusion for certain Rule 144A transactions; (iv)
permitting the distribution of research reports in the ordinary course
of business; and (v) providing greater relief for basket transactions.
Participants will discuss issues relating to revision of the trading
practices rules.
F. Arbitration
On January 22, 1996, the NASD's Arbitration Policy Task Force
(``Task Force'') released its report on securities arbitration. In
particular, the report makes recommendations to improve the arbitration
of disputes between securities firms and their customers. The
participants will discuss the recommendations made by the Task sForce.
G. Municipal Securities Disclosure
In November 1994 the Commission adopted amendments to Rule 15c2-12
in order to further deter fraud in the municipal securities market. The
amendments prohibit a broker, dealer, or municipal securities dealer
from underwriting a primary offering of municipal securities unless it
has reasonably determined that an issuer of municipal securities or an
obligated person has undertaken to provide certain annual financial
information and event notices to nationally recognized municipal
securities information repositories (``NRMSIRs'') and/or the Municipal
Securities Rulemaking Board (``MSRB'') and state information
depositories.19 The amendments also prohibit those same entities
from recommending the purchase or sale of a municipal security in the
secondary market unless they have procedures in place that provide
reasonable assurance that they will receive promptly any event notices
with respect to that security. The amendments provide certain
exemptions, including one for small and infrequent issuers of municipal
securities.
\19\ The Division issued six no-action letters recognizing
applicants as NRMSIRs for purposes of Rule 15c2-12 under the
Exchange Act. NRMSIRs will receive official statements, annual
financial information, notices of material events, and notices of a
failure to provide annual financial information undertaken to be
provided in accordance with Rule 15c2-12. NRMSIRs will make this
information available to the public. The entities that received
recognition as NRMSIRs are: 1) Bloomberg, L.P. of Princeton, NJ; 2)
Thomson Municipal Services, Inc. (a/k/a The Bond Buyer) of New York,
NY; 3) Disclosure, Inc. of Bethesda, MD; 4) Kenny Information
Systems of New York, NY; 5) Moody's Investors Service of New York,
NY; and 6) R.R. Donnelley & Sons Company of Hudson, MA. In addition,
the Division has recognized state information depositories in Texas,
Idaho, and Michigan.
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The Division of Market Regulation (``Division'') has issued several
letters regarding the application of the amendments. The Conference
participants will discuss these developments and other matters with
respect to municipal securities.
H. Internet Fraud/Electronic Delivery
On October 23, 1995, NASAA announced the formation of a Blue Ribbon
panel from industry, academia, and regulatory agencies, including the
Commission, to consider key areas of federal-state regulation,
including issues relating to the Internet. NASAA also recently adopted
a resolution on the development of a uniform policy concerning
securities offerings through the Internet. This resolution follows
initiatives by various states to exempt Internet offerings from state
registration under certain conditions. The Commission staff similarly
has established programs to address a wide range of Internet issues.
The Commission staff and NASAA have consulted on these and other issues
as part of the regular communication concerning the Internet and the
use of electronic media.
A leading area of mutual interest to both the Commission staff and
NASAA is cyberfraud, and the Commission staff and NASAA have ongoing
consultations concerning new issues raised. Other areas of concern
include securities offerings through the Internet; industry retention
of electronic records and communications; computer security;
[[Page 15852]]
unregistered brokerage, investment advisory and other regulated
financial business conducted through the Internet; foreign exchange and
foreign financial sector access to the U.S. through electronic media;
and industry and investor education about the use of electronic media
for securities business.
In addition, on October 6, 1995, the Commission published an
interpretive release expressing its views on the electronic delivery of
certain documents, such as prospectuses, annual reports, and proxy
solicitation materials.20 As directed by the Commission in this
release, the Division is studying the feasibility of electronic
delivery of confirmation statements, as well as other information
required under the Exchange Act. The Conference participants will
discuss these and other matters concerning the Internet and the use of
electronic media.
\20\ Securities Act Release No. 7233 (Oct. 6, 1995), 60 FR 53458
(Oct. 13, 1995).
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I. Continuing Education
On February 8, 1995, the Commission approved uniform proposals by
the MSRB, NASD, American Stock Exchange, Inc. (``Amex''), Chicago Board
Options Exchange, Inc. (``CBOE''), Chicago Stock Exchange, Inc.,
Pacific Stock Exchange, Inc., and Philadelphia Stock Exchange, Inc. to
implement a continuing education program for registered persons. This
program includes a Regulatory Element requiring uniform, periodic
training in regulatory matters, and a Firm Element requiring broker-
dealers to maintain ongoing programs to keep their registered persons
up-to-date on job and product related subjects.
A permanent Council on Continuing Education (``Council''), composed
of broker-dealer and SRO representatives, is charged with the
responsibility of providing ongoing input to the continuing education
program. The Council currently is working on substantial revisions to
the Regulatory Element to incorporate into the program new and more
challenging learning exercises. The Council also is considering the
development of a ``sales supervisor'' training module. The participants
will discuss issues involving the maintenance and refinement of the
program.
J. Compliance Inspections and Examinations Issues
a. Sales Practice Activities/Joint Regulatory Examination Sweep
In November 1995, the Commission completed a joint regulatory sales
practice examination sweep (``Sweep'') in cooperation with the NASD,
the New York Stock Exchange (``NYSE''), and NASAA (collectively the
``Working Group''). The objective of the Sweep was to identify possible
problem registered representatives and to ensure that appropriate
supervisory mechanisms are in place or, where necessary, to take
appropriate enforcement action against those individuals. The
participants will discuss the results of the Sweep, as well as
recommendations made by the Working Group as a result of the findings.
b. Coordinated Examinations
On November 28, 1995, the Commission entered into a Memorandum of
Understanding (``MOU'') with the examining SROs and NASAA to promote
cooperation and coordination among the examining authorities, as well
as to eliminate unnecessary and burdensome duplication in the broker-
dealer examination process. The key provisions of the MOU provide for:
(1) Annual National and Regional Planning Summits among the Commission,
Amex, CBOE, the NASD, the NYSE, and NASAA; (2) coordination of broker-
dealer examinations by the Amex, CBOE, the NASD, and the NYSE; (3) a
computerized tracking system for all broker-dealer examinations; and
(4) use of state resources in those areas where they are most needed.
On February 9, 1996, the National Planning Summit was held at the
Commission's headquarters in Washington, D.C. The goal was to discuss
the coordination of examination schedules and examination priorities,
as well as other areas of related interest. The participants will
discuss the provisions of the MOU and the actions that need to be taken
to fulfill its objectives.
(3) Investment Management Issues
A. Investment Company Disclosure
In recent years, the Commission has launched several initiatives
designed to improve the usefulness of the information received by
mutual fund investors while at the same time minimizing the regulatory
cost and burdens imposed on mutual funds. The conferees will discuss
ways to improve the quality of information regarding mutual funds
available to investors, as well as federal and state efforts toward
more uniform federal and state investment company disclosure
requirements.
In March 1995, the Commission issued for public comment a concept
release discussing the ways in which investment company risk disclosure
can be improved so that investors better understand the risks presented
by funds. The Commission received approximately 3700 comment letters
from individual investors and others in response to the concept
release. The conferees are expected to discuss issues relating to
investment company risk disclosure and the comments the Commission has
received.
The Commission has worked with the investment company industry and
NASAA to develop the concept of a ``profile prospectus.'' The key
element of the profile prospectus is a standardized, short form summary
that accompanies the full length prospectus and is designed to enable
mutual fund investors to better understand what they are buying. Pilot
``profiles'' developed by eight fund groups have been available to
investors starting August 1995. The conferees are expected to discuss
this initiative.
The Commission recently approved the delivery of electronic
prospectuses to potential investors as a method of complying with
Securities Act prospectus delivery requirements. The conferees are
expected to discuss the development of various means of electronic
delivery of information to investors in this rapidly developing area.
The Division of Investment Management has encouraged funds to write
prospectuses in simpler, more concise formats that are easier for
investors to understand. A number of fund complexes have responded to
the Division's initiative and have developed ``prototype'' prospectuses
for the Division's review. These prospectuses are designed to be
consistent with current Form N-1A disclosure requirements and to
provide investors with straight-forward descriptions of essential
information about funds. The conferees are expected to discuss this
initiative.
B. Investment Advisers
The Commission has sought to develop alternative approaches to
shortening the inspection cycles for investment advisers. In a speech
at the NASAA annual meeting in October 1995, Chairman Levitt suggested
one such approach would be for Congress to change the existing
regulatory scheme through legislative action.\21\ Under this
[[Page 15853]]
approach, Congress would delegate certain registration and examination
responsibilities to state regulators, while the Commission would retain
exclusive responsibility for larger investment advisers, whose
activities tend to be more complicated and have an effect on national
markets. The states would regulate and examine smaller advisers who
tend to operate locally. The conferees are expected to discuss
legislative proposals in this area and other approaches to improving
the efficiency of investment adviser regulation and examinations.
\21\ ''The SEC and the States: Toward a More Perfect Union,''
Remarks by Arthur Levitt, Chairman, U.S. Securities and Exchange
Commission, before the North American Securities Administrators
Association, Vancouver, British Columbia (Oct. 23, 1995).
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Toward the same end, the Commission in July 1995 proposed improved
disclosure requirements for money market funds. The revised standards
would simplify money market fund prospectuses considerably, making them
less costly to prepare and allowing investors to focus on a short
document that contains the most essential information about the fund.
The conferees are expected to discuss this proposal and the comments
the Commission has received.
(4) Enforcement Issues
In addition to the above-stated topics, the state and federal
regulators will discuss various enforcement-related issues which are of
mutual interest.
(5) Investor Education
The Commission is pursuing a number of programs for investors on
how to invest wisely and to protect themselves from fraud and abuse.
The States and NASAA have a longstanding commitment to investor
education and the Commission is intent on coordinating and
complementing those efforts to the greatest extent possible. The
participants at the conference will discuss investor education and
potential joint projects in some of the working group sessions.
(6) General
There are a number of matters which are applicable to all, or a
number, of the areas noted above. These include EDGAR, the Commission's
electronic disclosure system, rulemaking procedures, training and
education of staff examiners and analysts and sharing of information.
The Commission and NASAA request specific public comments and
recommendations on the above-mentioned topics. Commenters should focus
on the agenda but may also discuss or comment on other proposals which
would enhance uniformity in the existing scheme of state and federal
regulation, while helping to maintain high standards of investor
protection.
Dated: April 3, 1996.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8788 Filed 4-8-96; 8:45 am]
BILLING CODE 8010-01-P
