[Federal Register Volume 61, Number 95 (Wednesday, May 15, 1996)]
[Rules and Regulations]
[Pages 24644-24651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12176]
[[Page 24643]]
_______________________________________________________________________
Part VI
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Part 231, et al.
Use of Electronic Media by Broker-Dealers, Transfer Agents, and
Investment Advisers for Delivery of Information; Final Rules
Federal Register / Vol. 61, No. 95 / Wednesday, May 15, 1996 / Rules
and Regulations
[[Page 24644]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 231, 241, 271, and 276
[Release No. 33-7288; 34-37182; IC-21945; IA-1562; File No. S7-13-96]
Use of Electronic Media by Broker-Dealers, Transfer Agents, and
Investment Advisers for Delivery of Information; Additional Examples
Under the Securities Act of 1933, Securities Exchange Act of 1934, and
Investment Company Act of 1940
AGENCY: Securities and Exchange Commission.
ACTION: Interpretation; solicitation of comments.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing its views with respect to the use of electronic media by
broker-dealers, transfer agents, and investment advisers to deliver
information as required under the Securities Exchange Act of 1934 and
the Investment Advisers Act of 1940. This interpretation is intended to
provide guidance in using electronic media to fulfill broker-dealers'
obligations to deliver information to customers, transfer agents'
obligations to deliver information upon written request, and investment
advisers' disclosure delivery obligations. The Commission also is
supplementing its interpretive release published on October 6, 1995,
with seven additional examples illustrating the application of that
earlier release to information delivery under the Securities Act of
1933, the Securities Exchange Act of 1934, and the Investment Company
Act of 1940. Finally, the Commission is seeking comment on the issues
discussed in this release.
DATES: This interpretation is effective on May 15, 1996.
Comments must be received on or before July 1, 1996.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street
NW., Mail Stop 6-9, Washington, DC 20549. Comments also may be
submitted electronically at the following electronic mail address:
rule-comments@sec.gov. All comment letters should refer to File Number
S7-13-96. This file number should be included on the subject line if
comments are submitted using electronic mail. Comment letters will be
available for public inspection and copying at the Commission's Public
Reference Room, 450 Fifth Street NW., Washington, DC 20549.
Electronically submitted comment letters will be posted on the
Commission's Internet web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Chief Counsel, or
Elizabeth King, Special Counsel, or Jack Drogin, Special Counsel
(concerning Rules 10b-10, 10b-16, 15c1-5, 15c1-6, 15c2-12, and 15g-2
through 15g-9 under the Securities Exchange Act of 1934, and the
release generally), 202/942-0073, Office of Chief Counsel, Mail Stop 5-
10; Sheila Slevin, Assistant Director (concerning information about
technology generally), 202/942-0796, Mail Stop 5-1; Michael Walinskas,
Special Counsel (concerning Rule 9b-1 under the Securities Exchange Act
of 1934), 202/942-0188, Mail Stop 5-1; Elizabeth MacGregor, Special
Counsel (concerning Rule 11Ac1-3 under the Securities Exchange Act of
1934), 202/942-0158, Mail Stop 5-1; Alan Reed, Attorney (concerning
Rules 15c2-8 and 15c2-11 under the Securities Exchange Act of 1934),
202/942-0772, Mail Stop 5-1; Michael A. Macchiaroli, Associate Director
(concerning Exchange Act Rules 8c-1, 15c2-5, 15c3-2, 15c3-3, and 17a-
5), 202/942-0132, Mail Stop 5-1; Jerry Carpenter, Assistant Director
(concerning Exchange Act Rule 17Ad-5), 202/942-4187, Mail Stop 5-1,
Division of Market Regulation; Jack W. Murphy, Chief Counsel or Amy
Doberman, Assistant Chief Counsel (concerning the Investment Advisers
Act of 1940 and the examples illustrating application of electronic
delivery to mutual funds), 202/942-0660, Mail Stop 10-6, Division of
Investment Management; Joseph Babits, Special Counsel (concerning the
examples regarding application of electronic delivery to issuers other
than mutual funds), 202/942-2910, Mail Stop 3-7, Division of
Corporation Finance, Securities and Exchange Commission, 450 Fifth
Street NW., Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. Introduction
On October 6, 1995, the Commission published an interpretive
release expressing its views on the electronic delivery of documents,
such as prospectuses, annual reports to shareholders, and proxy
solicitation materials under the Securities Act of 1933 (``Securities
Act''), the Securities Exchange Act of 1934 (``Exchange Act''), and the
Investment Company Act of 1940 (``October Interpretive
Release'').1 In the October Interpretive Release, the Commission
directed the Division of Market Regulation (``Division'') to review
Rule 10b-10 and other rules it administers under the Exchange Act to
determine if and under what conditions electronic delivery of
information required by those rules is feasible.2 Accordingly, the
Division conducted a review of the rules it administers under the
Exchange Act. Based on that review, the Commission is issuing this
release, which expresses its views with respect to the delivery of
information through electronic media in satisfaction of broker-dealer
and transfer agent requirements to deliver information under the
Exchange Act and the rules thereunder. In conjunction with the results
of that review, the Commission is publishing its views on the use of
electronic media with respect to the disclosure delivery obligations of
investment advisers and persons acting on their behalf 3 under the
Investment Advisers Act of 1940 (``Advisers Act'').
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\1\ Securities Act Release No. 7233 (Oct. 6, 1995), 60 FR 53458
(Oct. 13, 1995) (hereinafter ``October Interpretive Release''). In a
companion release, the Commission proposed technical amendments to
certain of its rules that currently are premised on the distribution
of paper documents. Securities Act Release No. 7234 (Oct. 6, 1995),
60 FR 53467 (Oct. 13, 1995). Today the Commission is adopting these
technical amendments substantially as proposed. Securities Act
Release No. 7289 (May 9, 1996).
\2\ October Interpretive Release, supra note 1, at 53459, n.12.
\3\ The term investment adviser is used in the rest of this
release to refer to both investment advisers and persons acting on
their behalf (including any solicitor receiving cash compensation
from an adviser in accordance with Advisers Act Rule 206(4)-3, 17
CFR 275.206(4)-3).
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This release addresses only the procedural aspects under the
federal securities laws of the delivery of information by broker-
dealers, transfer agents, and investment advisers. It does not affect
the rights and responsibilities of any party under the federal
securities laws.4 This release also does not address
[[Page 24645]]
or affect the applicability of any self-regulatory organization
(``SRO'') rules,5 or of any state laws. Broker-dealers, transfer
agents, and investment advisers, therefore, are reminded to consider
the applicability of SRO rules and state laws in connection with
delivering information electronically.6 The release further does
not affect any rules promulgated under the Exchange Act by agencies
other than the Commission.\7\
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\4\ The substantive requirements and liability provisions of the
federal securities laws apply equally to electronic and paper-based
media. For example, the antifraud provisions of the Exchange Act and
Rule 10b-5 thereunder, as well as section 206 of the Advisers Act
and the rules thereunder, apply to information delivered and
communications transmitted electronically, to the same extent as
they apply to information delivered in paper form. See October
Interpretive Release, supra note 1, at 53459, n.11. In addition,
broker-dealers, transfer agents, and investment advisers continue to
be subject to their respective recordkeeping requirements under
Exchange Act Rules 17a-3 and 17a-4, 17 CFR 240.17a-3 and 240.17a-4,
Exchange Act Rules 17Ad-6 and 16Ad-7, 17 CFR 240.17Ad-6 and
240.17Ad-7, and Advisers Act Rule 204-2, 17 CFR 275.204-2.
The Commission proposed for comment amendments to the broker-
dealer record preservation rule, which would permit broker-dealers
to employ, under certain conditions, optical storage technology to
maintain required records. See Exchange Act Release No. 32609 (July
9, 1993), 58 FR 38092 (July 15, 1993) (``Proposing Release''). At
the time these amendments were proposed, concerns were expressed
that optical disk images would make it difficult, from an
examination and discovery perspective, to detect alterations made to
handwritten records and to records containing handwritten text. To
address these concerns, the Proposing Release solicited comments on
the adequacy of optical disk technology to preserve handwritten
records or records that contain handwritten text.
Simultaneous with the issuance of the Proposing Release, the
Division of Market Regulation, with the Commission's concurrence,
issued a no-action letter permitting broker-dealers to use optical
disk technology immediately. See Letter from Michael A. Macchiaroli,
Associate Director, Division of Market Regulation, SEC to Mr.
Michael D. Udoff, Chairman, Ad Hoc Record Retention Committee,
Securities Industry Association, Inc., (June 18, 1993). The no-
action letter permits the optical storage of all paper records,
including handwritten records, except those records required to be
made under paragraphs (a)(6) and (a)(7) of Rule 17a-3 (proprietary
and customer order tickets).
The Commission's request for comment in the Proposing Release
regarding handwritten records was in no way intended to limit
reliance on the no-action letter. In addition, the Commission notes
that paperless order tickets (i.e., those generated by computers)
may, under the no-action letter, be stored on optical disks. The
Commission understands that most of the large firms generate
paperless order tickets rather than handwritten order tickets.
Finally, the Commission is aware that questions have been raised
regarding the application of the optical storage no-action letter.
The staff of the Division of Market Regulation is prepared to
discuss with interested persons any issues in connection with this
letter, as well as with the Proposing Release.
\5\ See, e.g., National Association of Securities Dealers, Inc.
(``NASD'') Notice to Members 95-80 (Sept. 26, 1995), NASD Rules of
Fair Practice Sec. 35, and New York Stock Exchange, Inc. (``NYSE'')
Rule 472, which govern member firm responsibilities relating to
communications with the public, including electronic communications.
In order to determine whether new guidelines are needed for the
use of electronic communications, on January 12, 1996, the NYSE sent
a survey to its members and member organizations regarding the use
of electronic systems to communicate with customers. The NYSE asked
its members to return the survey by February 15, 1996. NYSE
Information Memorandum (Jan. 12, 1996). The Commission understands
that the NASD intends to send a similar survey to its members.
The Commission strongly encourages the SROs to continue to work
with broker-dealers to adapt SRO supervisory review requirements
governing communications with customers to accommodate the use of
electronic communications by broker-dealers. Because electronic
delivery systems allow broker-dealers and their associated persons
to freely contact the general public, as well as their clients,
firms should maintain effective supervision and records of
associated persons' communications to avoid potential sales practice
problems. The Commission believes, however, that the SROs' rules
concerning the supervisory requirements for electronic
communications should be based on the content and audience of the
message, and not merely the electronic form of the communication.
For example, the SROs should consider whether electronic mail
communications, that, as a practical matter, replace or substitute
for telephone conversations, in many cases would not require advance
authorization or prior supervisory review.
The Commission also recognizes that broker-dealers are concerned
about the costs of maintaining electronic communications as records
on a long term basis, and it intends to discuss these concerns
further with the securities industry.
\6\ Article 8 of the UCC was revised substantially in 1994, and
the revisions were endorsed by both the American Law Institute and
the National Conference of Commissioners on Uniform State Laws. This
revised version has been adopted by 13 states. Under Revised Article
8 Section 8-102(6), parties to a transaction may ``transmit
information by any mechanism agreed upon by the persons transmitting
and receiving the information.'' Revised Article 8 eliminates the
current Section 8-319 requirement for a signed writing evidencing
the terms of a securities transaction.
In states that have not yet codified the 1994 amendments, a
confirmation bearing the broker-dealer's letterhead or some other
identifying marking, generally, fulfills that requirement. See e.g.,
Kohlmeyer and Co. v. Bowen, 192 S.E.2d 400, 126 Ga. App. 700 (Ga.
Ct. App. 1972); See also Bains v. Piper, Jaffray & Hopwood, 497
N.W.2d 263 (Minn. Ct. App. 1993) (computer generated confirmation
held to satisfy the UCC requirement for a writing).
\7\ See, e.g., Treas. Reg. Secs. 404.4(e) and 403.5(d) (rules
regarding hold in custody repurchase agreements applicable to
government securities brokers and dealers that are financial
institutions).
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Finally, this interpretation does not address the existing paper
filing requirements with the Commission,\8\ other regulatory
authorities,\9\ and other third parties.\10\
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\8\ For example, this interpretation does not apply to any
requirements to file information with the Commission in connection
with registering under sections 15, 15A, 15B, or 15C of the Exchange
Act as a broker-dealer, national securities association, municipal
securities dealer, or government securities broker-dealer. Broker-
dealers currently register with the Commission, the SROs, and the
states through the Central Registration Depository (``CRD'') system
operated by the NASD. A redesign of the CRD system will allow
broker-dealers to file uniform registration forms electronically. In
connection with the CRD redesign the Commission intends to adopt
amendments to Form BD, the uniform application for broker-dealer
registration under the Exchange Act. See Exchange Act Release No.
35224 (Jan. 12, 1995), 60 FR 4040 (Jan. 19, 1995) (proposing
amendments to Form BD).
Because, at the present time, the Commission does not have the
technological capacity to receive electronic transmissions of
information from broker-dealers, transfer agents, or investment
advisers, this interpretation also does not apply to other
requirements to file information with the Commission under the
Exchange and Advisers Acts. See, e.g., Exchange Act Rule 9b-1, 17
CFR 240.9b-1 (options markets' obligation to file with the
Commission any revisions to an options disclosure document);
Advisers Act Form ADV, 17 CFR 279.1 (application for registration of
investment advisers). The Commission, nevertheless, recognizes the
desirability of electronic filing and is examining the feasibility
of establishing systems capable of receiving information
electronically.
\9\ For example, the notice requirements to the National
Association of Securities Dealers, Inc. under Exchange Act Rule 10b-
17, also are not within the scope of this interpretation. 17 CFR
240.10b-17.
\10\ For example, Rule 15a-6 requires U.S. registered broker-
dealers, under certain circumstances, to obtain certain foreign
persons' consent to service of process. 17 CFR 240.15a-
6(a)(3)(iii)(D). The Commission has never taken a position as to the
specific means by which the U.S. broker-dealer may meet this
obligation, but believes that a consent to service of process may be
obtained through the use of a facsimile.
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II. Use of Electronic Media
In the October Interpretive Release, the Commission noted that the
electronic distribution of information provides numerous benefits and
that the use of this type of medium is growing among all participants
in the securities industry. The Commission concluded that issuers,
third parties (such as persons making tender offers or soliciting
proxies), and persons acting on behalf of such third parties may use
electronic media, in accordance with the guidance provided in the
October Interpretive Release, to deliver information. In addition, the
Commission believes that broker-dealers, transfer agents, and
investment advisers may satisfy their delivery obligations under the
Exchange Act and the Advisers Act by using electronic media as an
alternative to paper-based media.11
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\11\ The exact nature of the broker-dealer's, transfer agent's,
and investment adviser's delivery obligations is defined broadly and
includes such terms as ``give,'' ``furnish,'' ``send,'' and
``deliver.'' The Commission believes that, in general, these terms
are sufficiently broad to accommodate the contemplated electronic
transmission of documents by or on behalf of the broker-dealer,
transfer agent, or investment adviser and, when called for, from a
customer to a broker-dealer, transfer agent, or investment adviser.
But see infra notes 12 and 50.
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This interpretation is intended to provide broker-dealers, transfer
agents, and investment advisers with guidance in using electronic media
to satisfy delivery requirements under the federal securities laws.
This release generally covers those requirements that obligate broker-
dealers to deliver information to customers, obligate transfer agents
to deliver information upon written request, and obligate investment
advisers to deliver information to their clients or prospective
clients. Broker-dealers and investment advisers also may rely on this
interpretation in obtaining customers' and clients' consents as
required under certain provisions of the Exchange and Advisers Acts and
the rules
[[Page 24646]]
thereunder.12 A discussion of the information delivery
requirements covered by this interpretation is provided in section III
of this release (``Covered Delivery Requirements''). Unless the
Commission indicates otherwise, this interpretive release also is
intended to apply to all rules promulgated under the Exchange and
Advisers Acts, including rules promulgated subsequent to the issuance
of this release, requiring broker-dealers or investment advisers to
deliver information to customers or clients, and to rules requiring
transfer agents to deliver information in response to written requests.
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\12\ In connection with transactions in penny stocks, however,
the Commission believes that in order to fulfill the purposes of the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990,
broker-dealers should continue to have customers manually sign and
return in paper form any documents that require a customer's
signature or written agreement. See infra note 50.
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A. General
This discussion is intended to complement the discussion in the
October Interpretive Release and to provide general guidance concerning
issues under the Exchange and Advisers Acts. The Commission believes
that broker-dealers, transfer agents, and investment advisers should be
able to satisfy their obligations under the federal securities laws to
deliver information required under the Covered Delivery Requirements by
electronic distribution. The framework set forth in the October
Interpretive Release is applicable to such electronic distribution.
In the October Interpretive Release, the Commission stated that it
would view information distributed through electronic means as
satisfying the delivery or transmission requirements of the federal
securities laws if such distribution results in the delivery to the
intended recipients of substantially equivalent information as such
recipients would have if the required information were delivered to
them in paper form.13 The Commission is not specifying the
electronic medium or source that broker-dealers, transfer agents, and
investment advisers may use.
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\13\ October Interpretive Release, supra note 1, at 53460. See
also supra example 7.
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Like paper documents, electronically delivered documents must be
prepared and delivered in a manner consistent with the federal
securities laws. Regardless of whether information is delivered in
paper form or by electronic means, it should convey all material and
required information. If a paper document is required to present
information in a certain order, for instance, then the information
delivered electronically should be in substantially the same
order.14
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\14\ For a discussion of how requirements to present information
in a certain order may be applied to documents containing
hyperlinks, see example 51 in the October Interpretive Release. Id.
53466.
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Moreover, regardless of whether information is delivered in paper
or electronic form, broker-dealers and investment advisers must
reasonably supervise firm personnel with a view to preventing
violations.15 Thus, broker-dealers and investment advisers should
consider the need for systems and procedures to deter or detect
misconduct by firm personnel in connection with the delivery of
information, whether by electronic or paper means.16
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\15\ See Exchange Act Sec. 15(b)(4)(E); Advisers Act
Sec. 203(e)(5). See also NASD Rules of Fair Practice Sec. 27; NYSE
Rule 342.
\16\ See, e.g., In re: Bryant, Securities Exchange Act Release
No. 32357 (May 24, 1993), (Commission upheld a finding of the
National Association of Securities Dealers, Inc. that, among other
things, the failure to develop procedures to supervise a registered
representative, who sent a false confirmation statement on behalf of
the broker-dealer, and to enforce existing procedures constituted a
failure to supervise on the part of the president of the firm).
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The Commission believes that, as a matter of policy, a person who
has a right to receive a document under the federal securities laws and
chooses to receive it electronically, should be provided with the
information in paper form whenever specifically requesting
paper.17
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\17\ For example if a person revokes consent to receiving
information electronically, even following delivery of the
information, a paper copy should be delivered upon request.
Revocation, however, is not a prerequisite to requesting a paper
copy.
The Commission understands that it can be very costly for
broker-dealers to maintain records for long periods of time. This is
particularly true with respect to information that is specific to a
customer's account or to a transaction, such as the type of
information defined below as Personal Financial Information. See
infra section II.B. For this reason, the Commission has limited the
time period that broker-dealers must preserve records required to be
made under Exchange Act Rules 17a-3. 17 CFR 240.17a-3. Specifically,
Exchange Act Rule 17a-4 requires broker-dealers to preserve records
for a period of six years (3 years in the case of certain types of
information), the first two years in an easily accessible place. 17
CFR 240.17a-4. For these same reasons, the Commission believes it is
reasonable to expect that broker-dealers would provide customers
with information in paper form upon request for a period of two
years. Transfer agents and investment advisers are subject to
similar recordkeeping requirements. 17 CFR 250.17Ad-6 and 240.17Ad-
7; 17 CFR 275.204-2.
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In the October Interpretive Release, the Commission discussed
issues of notice and access that should be considered in determining
whether the legal requirements pertaining to delivery or transmission
of documents have been satisfied,18 and stated that persons using
electronic delivery of information should have reason to believe that
any electronic means so selected will result in the satisfaction of the
delivery requirements.19 The Commission believes that broker-
dealers, transfer agents, and investment advisers should apply the same
considerations in using electronic media to satisfy their delivery
obligations under the Covered Delivery Requirements.
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\18\ October Interpretive Release, supra note 1, at 53460-61.
\19\ Id. at 53461.
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1. Notice
Broker-dealers, transfer agents, and investment advisers providing
information electronically should consider the extent to which
electronic communication provides timely and adequate notice that such
information is available electronically.20 When information is
delivered on paper through the postal mail, recipients most likely will
be made aware that they have received information that they may wish to
review and, therefore, separate notice is not necessary. Information
transmitted through electronic media, however, may not always provide a
similar likelihood of notice that information has been sent that the
recipient may wish to review.21 Broker-dealers, transfer agents,
and investment advisers, therefore, should consider whether it is
necessary to supplement the electronic communication with another
communication that would provide notice similar to that provided by
delivery in paper through the postal mail.
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\20\ See id. at 53460. See also infra section II.B.2. regarding
additional requirements when broker-dealers, transfer agents, and
investment advisers send certain types of information (defined as
Personal Financial Information) to customers.
\21\ For example, if information is provided by physically
delivered material (such as a computer diskette or CD-ROM) or by
electronic mail, that communication itself generally should be
sufficient notice. If information is made available electronically
through a passive delivery system, such as an Internet Web Site,
however, separate notice would be necessary to satisfy the delivery
requirements unless the broker-dealer, transfer agent, or investment
adviser can otherwise evidence that delivery to the customer or
client has been satisfied.
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2. Access
The Commission believes that customers, securities holders, and
clients who are provided information through electronic delivery from
broker-dealers, transfer agents, and investment advisers should have
access to that information comparable to that which would be provided
if the information
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were delivered in paper form. Thus, the use of a particular medium
should not be so burdensome that intended recipients cannot effectively
access the information provided. Also, persons to whom information is
sent electronically should have an opportunity to retain the
information through the selected medium or have ongoing access
equivalent to personal retention.22
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\22\ For example, the intended recipient's ability to download
or print information delivered electronically would enable a
recipient to retain a permanent record. See October Interpretive
Release, supra note 1, at 53460.
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3. Evidence to Show Delivery
Providing information through postal mail provides reasonable
assurance that the delivery requirements of the federal securities laws
have been satisfied. The Commission believes that broker-dealers,
transfer agents, and investment advisers similarly should have reason
to believe that electronically delivered information will result in the
satisfaction of the delivery requirements under the federal securities
laws. Thus, whether using paper or electronic media, broker-dealers,
transfer agents, and investment advisers should consider the need to
establish procedures to ensure that applicable delivery obligations are
met.
Broker-dealers, transfer agents, and investment advisers may be
able to evidence satisfaction of delivery obligations, for example, by:
(1) obtaining the intended recipient's informed consent 23 to
delivery through a specified electronic medium, and ensuring that the
recipient has appropriate notice and access, as discussed above; (2)
obtaining evidence that the intended recipient actually received the
information, such as by an electronic mail return-receipt or by
confirmation that the information was accessed, downloaded, or printed;
24 or (3) disseminating information through certain facsimile
methods. In order to ensure that information is delivered as intended,
broker-dealers, transfer agents, and investment advisers delivering
information using either electronic or paper-media should take
reasonable precautions to ensure the integrity and security of that
information.25
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\23\ See id. at 53460. If a consent is used, the consent should
be an informed consent. An informed consent should specify the
electronic medium or source through which the information will be
delivered and the period during which the consent will be effective,
and should describe the information that will be delivered using
such means. The broker-dealer, transfer agent, or investment adviser
also should inform the customer that there may be potential costs
associated with electronic delivery, such as on-line charges. Except
where a manual signature is required under the penny stock rules,
see infra note 50, broker-dealers may obtain consents either
manually or electronically. In most cases in which a request for
information is made through an electronic medium, consent to receive
the requested information by means of electronic delivery may be
presumed.
In addition, if the broker-dealer, transfer agent, or investment
adviser is relying on the consent to ensure effective delivery and
the intended recipient revokes the consent, future documents should
be delivered in paper.
\24\ For example, depending on the circumstances and the
procedures used, customers' and clients' written consent or
acknowledgement, as required under certain Exchange and Advisers
Acts rules and discussed infra notes 28-29 and accompanying text,
may serve as sufficient evidence to show delivery.
\25\ October Interpretive Release, supra note 1, at 53460, n.22.
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B. Personal Financial Information
Certain information that broker-dealers, transfer agents, and
investment advisers deliver is specific to a particular person's
personal financial matters (``Personal Financial Information''). For
example, the information reported to customers under Exchange Act Rule
10b-10 relates to specific securities transactions and includes the
identity and number of shares bought or sold and the net dollar price
for the shares. Under Exchange Act Rule 10b-16, a broker-dealer that
imposes finance charges on a customer's account during a quarterly
period must deliver a quarterly statement disclosing, among other
things, the account's beginning and closing balances, debits and
credits entered during the period, the interest charged, and the rate
or rates of interest. Similarly, under Advisers Act Rule 206(3)-2,
investment advisers engaging in agency cross transactions involving
clients are required to send the clients disclosure about those
transactions.26
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\26\ 17 CFR 275.206(3)-2(a)(2) (written confirmation of each
transaction ``at or before the completion of each such
transaction''); 17 CFR 275.206(3)-2(a)(3) (annual written disclosure
statement identifying transactions). In addition, investment
advisers having custody of client assets are required to send an
itemized statement to each client at least quarterly showing assets
in custody of the adviser. 17 CFR 275.206(4)-2(a)(4).
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1. Confidentiality and Security
Broker-dealers, transfer agents, and investment advisers sending
Personal Financial Information should take reasonable precautions to
ensure the integrity, confidentiality, and security of that
information, regardless of whether it is delivered through electronic
means or in paper form. The Commission believes that broker-dealers,
transfer agents, and investment advisers transmitting Personal
Financial Information electronically must tailor those precautions to
the medium used in order to ensure that the information is reasonably
secure from tampering or alteration.
2. Consent
Because of the need to maintain the confidentiality and security of
Personal Financial Information, it is important that the intended
recipient is willing to accept the delivery of such information through
electronic media and has actual notice that the Personal Financial
Information will be delivered electronically. Therefore, in order to
ensure that Personal Financial Information can be delivered in a manner
that maintains the information's confidentiality, unless a broker-
dealer, transfer agent, or investment adviser is responding to a
request for information that is made through electronic media or the
person making the request specifies delivery through a particular
electronic medium, the broker-dealer, transfer agent, or investment
adviser should obtain the intended recipient's informed consent prior
to delivering Personal Financial Information electronically.27
This consent will ensure that the intended recipient is willing to
accept the delivery of Personal Financial Information through
electronic media and has actual notice that the Personal Financial
Information will be delivered electronically. The Commission believes
that such consent by the customer or client to the delivery of Personal
Financial Information may be made either by a manual signature or by
electronic means.
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\27\ See discussion supra note 23 regarding informed consent.
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C. Communications From Broker-Dealers' Customers and Investment
Advisers' Clients
In addition to requirements to deliver information, the Exchange
Act and the Advisers Act provide for broker-dealers and investment
advisers to ``receive'' or ``obtain'' responses from their customers or
clients. For example, Exchange Act Rules 8c-1 and 15c2-1 require, under
certain circumstances, broker-dealers to obtain a customer's written
consent in order to hypothecate securities. Similarly, under the
Advisers Act, certain provisions call for clients to consent to a
transaction or acknowledge receipt of certain disclosures.28 The
Commission generally views an electronic communication from a customer
to a broker-dealer or from a client to an investment adviser as
[[Page 24648]]
satisfying the requirements for such written consent or
acknowledgement.29
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\28\ See, e.g. Advisers Act Secs. 205(a)(2) and 206(3); 17 CFR
275.206(3)-2(a)(1); 17 CFR 275.206(4)-3(a)(2)(iii).
\29\ Of course, broker-dealers and investment advisers should be
cognizant of their responsibilities to prevent, and the potential
liability associated with, unauthorized transactions. See, e.g.,
supra note 16. In this regard, the Commission believes that broker-
dealers and investment advisers should have reasonable assurance
that the response received from a customer or client is authentic.
In addition, for policy reason discussed infra note 50, the
Commission will continue to require broker-dealers to obtain the
manual signature of customers on certain disclosure documents
required under Exchange Act Rules 15g-2 and 15g-9.
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D. Electronic Transmission of Non-Required Disclosure
The guidance provided above is intended to permit broker-dealers,
transfer agents, and investment advisers to comply with their delivery
obligations under the federal securities laws when using electronic
media. This interpretation does not apply to the electronic delivery of
non-required information that in some cases is being provided
voluntarily to customers, securities holders, and clients 30 in
that it is not necessary (although it is, of course, permitted) to
conform the electronic delivery of such information to the guidance in
this release. Nevertheless, the Commission urges broker-dealers,
transfer agents, and investment advisers to take into consideration the
need to implement security measures when using electronic media to
provide personal financial information.
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\30\ See, e.g., Kimberly Weisul, Calvert Becomes First Fund to
Offer Info On-Line; Mutual Fund Company Dodges the Security Issue,
Investment Dealers' Digest, Jan. 22, 1996, at 9; Jon Birger,
Prudential Web Site to Let Clients Track Their Accounts Daily, Bond
Buyer, Oct. 18, 1995, at 10.
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The staff also has received inquiries about the permissibility of
using various electronic media to disseminate advertisements for an
investment adviser's services or other information that is not subject
to a delivery requirement. Such communications are permissible, subject
to the same requirements and restrictions that apply to such
communications in paper. For example, electronically disseminated
advertisements are subject to the same prohibitions against misleading
disclosure as advertisements in paper.31 Materials concerning an
adviser that are potentially available to ten or more persons through
an electronic system would be considered subject to the recordkeeping
requirements applicable to such communications.32 Similarly, if an
adviser uses a publicly available electronic medium such as a World
Wide Web site to provide information about its services, the adviser
would not qualify for the exemption from registration in section
203(b)(3) of the Advisers Act. That exemption is available only if,
among other things, an adviser does not hold itself out generally to
the public as an investment adviser.
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\31\ See 17 CFR 275.206(4)-1. Broker-dealers' advertisements and
sales literature are subject to NASD rules, which have recently been
amended specifically to include electronic communications. NASD,
Notice to Members 95-74 (Sept. 1995); NASD, Notice to Members 95-80
(Sept. 26, 1995).
\32\ 17 CFR 275.204-2(a)(11). Broker-dealers also are subject to
recordkeeping requirements that would be applicable to all
electronic communications received and sent by the firm relating to
its business. 17 CFR 17a-4(a)(4).
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III. Covered Delivery Requirements
For clarity, below is a list of current rules under the Exchange
Act and requirements under the Advisers Act to which broker-dealers,
transfer agents, and investment advisers may apply the guidance
provided in this interpretation. The Commission believes that the list
sets forth all of the rules that require or permit communications
between broker-dealers, transfer agents, investment advisers and
customers, securities holders, and clients under the Exchange and
Advisers Acts.33 The interpretation in this release is intended to
cover all optional and required communications under the Exchange and
Advisers Acts between broker-dealers, transfer agents, and investment
advisers, and customers, securities holders, and clients.34
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\33\ The summary provided of the delivery obligations under the
Covered Delivery Requirements is intended for ease of reference
only. It is not intended to be a statement of all the requirements
under the rules and provisions listed, and has no legal force or
effect. Reference should be made to the full text of the rules,
which is published in the Code of Federal Regulations, as well as to
relevant releases, interpretations, and no-action letters, and to
the full text of the Exchange and Advisers Acts, 15 U.S.C. Secs. 77
and 78, et seq.
\34\ But see supra notes 4-10 and accompanying text. See also
infra notes 35 and 50.
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A. Exchange Act
Subject to the guidelines in this release, broker-dealers and
transfer agents may fulfill their requirements to deliver information
to customers and securities holders under the following Exchange Act
rules: 35
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\35\ This release does not address the prospectus delivery
requirements under Exchange Act Rule 15c2-8. 17 CFR 240.15c2-8.
Broker-dealer requirements to deliver a preliminary prospectus in
connection with the issuance of securities by an issuer that has not
previously been required to file reports pursuant to Exchange Act
Section 13(a), 15 U.S.C. 78m(a), or 15(d), 15 U.S.C. 78o(d), were
addressed in the October Interpretive Release. See October
Interpretive Release, supra note 1, at 53462, n. 31.
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Rule 8c-1, which requires broker-dealers to obtain
customers' written consent in order to hypothecate securities under
circumstances that would permit the commingling of customers'
securities and to give written notice to a pledgee that, among other
things, a security pledged is carried for the account of a
customer.36
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\36\ 17 CFR 240.8c-1(a)(1) and (f).
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Rule 9b-1, which, among other things, requires a broker-
dealer to furnish to each customer, and keep current, an options
disclosure document, prior to accepting an order to purchase or sell an
option on behalf of that customer.37
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\37\ 17 CFR 240.9b-1(d).
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Rule 10b-10, which requires a broker-dealer to give or
send confirmation information to customers.38 In addition, broker-
dealers must furnish to customers upon written request information such
as the factors that affect the yield calculation related to asset-based
securities.39
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\38\ 17 CFR 240.10b-10. This release, therefore, resolves the
issues in the October Interpretive Release with respect to Exchange
Act Rule 10b-10, which requires broker-dealers to send confirmations
at or before completion of the transaction by permitting electronic
delivery of the confirmation. 17 CFR 240.10b-10. See October
Interpretive Release, supra note 1, at 53459, n.12.
In a release adopting certain amendments to Rule 10b-10, the
Commission recognized the use of a facsimile machine to send
customer confirmation statements. At that time, however, the
Commission believed that the use of other electronic means to send
confirmations should be viewed on a case-by-case basis. See Exchange
Act Release No. 34962 (Nov. 10, 1994); 59 FR 59612 (Nov. 17, 1994).
This interpretation supersedes the view expressed in the 1994
release.
Broker-dealers are reminded that, when a prospectus is required
to be delivered, it should be delivered prior to, or concurrent
with, delivery of the confirmation. Thus, if a confirmation is sent
by facsimile, the prospectus also should be sent by facsimile or
equally prompt means.
\39\ 17 CFR 240.10b-10(a)(7).
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Rule 10b-16, which requires both initial and periodic
written disclosure of the credit terms of margin loans.40
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\40\ 17 CFR 240.10b-16.
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Rule 11Ac1-3, which requires a broker-dealer to deliver to
each customer, upon opening a new account and on an annual basis
thereafter, an account statement disclosing the broker-dealer's
policies relating to payment for order flow and its order routing
policies.41
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\41\ 17 CFR 240.11Ac1-3.
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Rule 15c1-5, which requires, under specified
circumstances, written disclosure of control if a broker-dealer or
municipal securities dealer is controlled by, controlling, or under
common control with the issuer of a security.42
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\42\ 17 CFR 240.15c1-5.
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Rule 15c1-6, which requires a broker-dealer or municipal
securities dealer receiving advisory fees to
[[Page 24649]]
disclose any participation or financial interest in the distribution of
a security at or before the completion of a transaction in such
security for the account of a customer.43
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\43\ 17 CFR 240.15c1-6.
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Rule 15c2-1, which requires broker-dealers to obtain
customers' written consent in order to hypothecate securities under
circumstances that would permit the commingling of customers'
securities.44
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\44\ 17 CFR 240.15c2-1(a)(1).
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Rule 15c2-5, which requires a written statement making
disclosures prior to effecting transactions in special insurance
premium funding accounts that would involve an extension or arrangement
of credit, as well as retaining for its files, a written statement
setting forth the basis for making a determination that the arrangement
is suitable for the customer.45
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\45\ 17 CFR 240.15c2-5.
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Rule 15c2-11, with regard to the requirement that broker-
dealers make certain information enumerated in the rule reasonably
available upon request.46
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\46\ 17 CFR 240.15c2-11(a)(4) and (a)(5).
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Rule 15c2-12, with regard to the requirements that
municipal securities underwriters provide, upon request, a preliminary
official statement (if one exists) and a final official
statement.47
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\47\ 17 CFR 240.15c2-12.
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Rule 15c3-2, which requires a broker-dealer to give or
send to its customers a written notification of a free credit balance,
that the broker-dealer may use that free credit balance in its business
operations, and that the funds are payable upon demand of the
customer.48
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\48\ 17 CFR 240.15c3-2.
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Rule 15c3-3, which requires that broker-dealers obtain
repurchase agreements in writing and confirm in writing the specific
securities that are the subject of hold in custody repurchase
agreements.49
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\49\ 17 CFR 240.15c3-3(b)(4).
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Rules 15g-3 through 15g-8, which require a broker-dealer,
among other things, to disclose to its customers, both prior to
effecting a transaction in a penny stock and on the written
confirmation, bid and ask quotations and broker-dealer and associated
person compensation.50
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\50\ 17 CFR 240.15g-3 through 15g-8.
The Commission believes that the requirements under Exchange Act
Rules 15g-2 and 15g-9, which require broker-dealers to obtain from a
customer prior to effecting transactions in penny stocks (1) a
manually signed acknowledgement of the receipt of a risk disclosure
document, (2) a written agreement to transactions involving penny
stocks, and (3) a manually signed and dated copy of a written
suitability statement, should not be met by means of electronic
media. In adopting these provisions pursuant to the Securities
Enforcement Remedies and Penny Stock Reform Act of 1990, the
Commission intended to provide customers with an opportunity to make
an informed, deliberate decision without the high pressure sales
practices that sometimes are characteristic of transactions in these
securities. For similar reasons, a facsimile copy of a customer's
signature has not been sufficient to satisfy the requirements under
Rules 15g-2 and 15g-9 that certain documents be manually signed and
dated. See Exchange Act Release No. 32576 (July 2, 1993); NASD
Notice to Members 90-65 (Oct. 1990); NASD Notice to Members 90-18
(Mar. 1990).
While broker-dealers may not meet the signature requirement
under Rule 15g-9 by electronic means, the Commission believes that,
consistent with the guidance set forth in this interpretation, they
may meet their delivery obligations to their customers under this
rule by electronic means. The ``risk disclosure document'' that
broker-dealers are required to furnish to their customers under Rule
15g-2 is subject to strict formatting and typefacing restrictions.
In order to comply with the requirements set forth in the
instructions to Schedule 15G, a risk disclosure document delivered
electronically, when printed, would have to result in a document
that meets the requirements and contains the exact text of Schedule
15G.
When the Commission next reviews the penny stock rules, it may
be willing to consider a ``cooling-off'' period as an alternative to
the requirement of a manual signature under Rules 15g-2 and 15g-9.
The Commission requests comment on this approach.
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Rule 17a-5, which requires a broker-dealer to send to its
customers audited and unaudited financial statements.\51\
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\51\ 17 CFR 240.17a-5(c).
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Rule 17Ad-5, which requires a transfer agent to respond
within certain time frames to written requests for the status of items
presented for transfer, for acknowledgement of transfer instructions,
for confirmation of a transfer agent's possession of a certificate, for
a transcript of a person's account, or for dividend and interest
payments.\52\
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\52\ 17 CFR 17Ad-5. Under certain circumstances, transfer agents
currently are permitted to respond to requests by telephone.
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B. Advisers Act
Section 205(a)(2) of the Advisers Act, which requires an
investment adviser to obtain its client's consent to the assignment of
an advisory contract.\53\
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\53\ 15 U.S.C. 80b-5(a)(2).
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Section 205(a)(3) of the Advisers Act, which requires an
investment adviser to notify its clients, if the adviser is organized
as a partnership and there is a change in members of partnership.\54\
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\54\ 15 U.S.C. 80b-5(a)(3).
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Section 206(3) of the Advisers Act, which prohibits
certain principal and agency transactions with a client without prior
written disclosure about the transaction and consent of the client.\55\
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\55\ 15 U.S.C. 80b-6(3).
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Rule 204-3, which requires investment advisers to deliver
a written disclosure statement, or ``brochure,'' to clients at least 48
hours before entering into an advisory contract, unless the client has
the right to terminate the contract without penalty within five
business days.\56\ In addition, investment advisers are required,
except in certain cases, to make available ``without charge'' updates
to its brochure.\57\
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\56\ 17 CFR 275.204-3(b). To the extent an adviser relies on 48-
hour advance delivery rather than the five-day cancellation period,
the 48-hour period would be measured from the time at which notice
is given to the client that the statement is available through a
specified electronic medium or source. Investment advisers should
have reason to believe that the nature of the system or any
limitations on the client's access to that system will not result in
any material delay in the client's access to the information
following receipt of the notice.
\57\ 17 CFR 275.204-3(c). If a client has elected to receive the
disclosure statement electronically, and neither the adviser nor any
system used by the adviser to disseminate updates electronically
imposes a charge upon the client specifically for the receipt of
this information, the Commission would consider this requirement
satisfied, even though a system selected by a client to gain access
to the adviser's system may impose charges for access, printing or
downloading. Alternatively, the Commission would consider the
requirement satisfied so long as a paper version of the update is
available without charge, notwithstanding any charges that may be
imposed upon a client for access, printing or downloading by the
system used by an adviser to disseminate updates electronically.
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Rule 205-3(d), which requires disclosure regarding
advisory arrangements involving performance fees.\58\
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\58\ 17 CFR 275.205-3(d).
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Rule 206(3)-2, which permits agency cross transactions,
provided that the investment adviser provides general written
disclosure about its role in the transactions, receives from clients
consent to agency cross transactions, and sends both written
confirmation of each transaction and an annual written disclosure
statement.\59\
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\59\ 17 CFR 275.206(3)-2.
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Rule 206(4)-2, which requires certain disclosure relating
to adviser custody of client assets.\60\
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\60\ 17 CFR 275.206(4)-2.
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Rule 206(4)-3, which requires certain disclosures to be
made by solicitors who receive cash solicitation fees from advisers and
a signed and dated acknowledgement from clients of the receipt of the
investment advisers and solicitors written disclosure statements.\61\
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\61\ 17 CFR 275.206(4)-3. Cf. Investment Company Act Release No.
21260 at n. 38 (July 27, 1995), 60 FR 39574 (contemplating that
notification required under proposed Investment Company Act Rule 3a-
4 could be provided electronically by investment advisers and other
sponsors of investment advisory programs).
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[[Page 24650]]
IV. Additional Securities Act, Exchange Act, and Investment Company Act
Examples
The October Interpretive Release included a series of examples
illustrating the general concepts set forth earlier in that release in
order to provide guidance in applying those concepts to specific facts
and circumstances. The Commission is publishing here the following,
additional examples to provide further guidance and illustration. These
examples are based on questions that have been raised with the staff by
industry representatives since the publication of the October
Interpretive Release. Any party (whether or not a registered investment
company) may look to these examples for guidance.
(1) Company XYZ places a prospectus for any securities offering on
its electronic mail system. Company XYZ also uses its electronic mail
system to disseminate documents required under the Exchange Act.
Employees use the company's electronic mail in the ordinary course of
performing their duties as employees and ordinarily are expected to
log-on to electronic mail routinely to receive mail and communications.
Those employees who do not log-on have alternative means of receiving
electronic mail messages, such as having them sent to secretaries or
co-workers who then deliver them to the employee. The electronic mail
either includes the actual document or announces the availability of
the document and provides information as to how to access the document
through the local area network. The electronic mail also prominently
states that a paper version of the document is available upon request.
This would satisfy delivery obligations with respect to employees
who use the company's electronic mail system in the course of
performing their duties or who are expected to have alternative means
made available to receive electronic mail messages.
(2) Company XYZ places a notice announcing its unregistered
Dividend Reinvestment Plan \62\ on its Internet Web site under a menu
heading ``Dividend Reinvestment Plan.'' The announcement also contains
the phone number of the Company's agent (which is independent from the
Company) from whom additional information regarding the operation of
the Dividend Reinvestment Plan can be obtained. Additionally, the
Company's Internet Web site contains a hypertext link to the
independent agent's Internet Web site where a brochure describing the
operation of the Dividend Reinvestment Plan and an enrollment card can
be obtained.
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\62\ A company need not register its dividend reinvestment plan
under the Securities Act where its involvement in the plan is
limited to administrative or ministerial functions. For additional
information, including a listing of permitted functions, see
Securities Act Release No. 4790 (July 13, 1965), 30 FR 9059 (July
20, 1965); Securities Act Release No. 5515 (July 22, 1974), 39 FR
28520 (August 8, 1974); Securities Act Release No. 6188 (February 1,
1980), 45 FR 8960 (February 11, 1980).
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This would be permissible, so long as the information on the
Company's Internet Web site is limited to the announcement of the
unregistered Dividend Reinvestment Plan and the name and address of the
independent agent from whom additional information can be obtained.
(This would be analogous to the communications that an issuer of an
unregistered plan could make in paper format.) As with communications
in paper format, the Company may not use its Internet Web site to
advertise the Dividend Reinvestment Plan or its benefits. Further, the
use of a hypertext link to the home page of the independent agent would
be permitted; however, the Company could not provide a hypertext link
directly to the Dividend Reinvestment Plan materials.
(3) Brokerage firm ABC, a recordholder of Company XYZ's common
stock, received consents from beneficial holders of Company XYZ's
common stock for electronic delivery of Company XYZ's annual report and
proxy materials and for electronic processing of voting instructions.
These customers are provided with the Internet Web site address where
Company XYZ's annual report and proxy materials are located and the
Internet Web site address where they can provide their voting
instructions electronically to the brokerage firm.
The electronic processing of voting instructions from beneficial
holders and the electronic voting of proxies would be consistent with
the proxy rules. Issuers and others are reminded to consider any
applicable state laws or self-regulatory organization rules.
(4) A fund makes supplemental sales literature and its prospectus
available through a commercial on-line service. Under section 5(b) of
the Securities Act, sales literature, whether in paper or electronic
form is required to be preceded or accompanied by a final prospectus
meeting the requirements of section 10(a) of the Securities Act. By
contrast, an advertisement satisfying the requirements of Securities
Act Rule 134 or 482 need not be preceded or accompanied by a
prospectus. Users could click on a box in the supplemental sales
literature to have the prospectus downloaded or to request that a
prospectus be mailed. While the system permits the sales literature to
be viewed on-line, it does not allow users to view the prospectus.
Unlike the system in example 36 in the October Interpretive Release,
this system would not require that a user have downloaded or printed
the prospectus before viewing the supplemental sales literature. Users
accessing the supplemental sales literature would give specific consent
to electronic delivery of the prospectus.
This would not satisfy the prospectus delivery requirement because
there would not be sufficient access to the prospectus. Because the
system does not give users the opportunity to view the prospectus, it
would lack the sort of reasonably comparable access to the prospectus
and the sales literature present in examples 14, 15, and 35 in the
October Interpretive Release. The opportunity to request that a
prospectus be mailed or downloaded would not, under current technology,
be considered to give investors sufficient access to the prospectus.
Instead, it would be analogous to giving investors sales literature in
paper with a toll-free telephone number for requesting the prospectus:
under those circumstances the prospectus would be received later and
would not be considered to have preceded or accompanied the sales
literature.\63\
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\63\ As technology develops, some users may have the capacity to
download and view a prospectus in no more time than it takes to jump
via hyperlink from the sales literature to the prospectus. Under
those circumstances, the capacity to download would be considered to
give those users reasonably comparable access to the prospectus that
would provide sufficient access.
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(5) A fund places its prospectus on its site on the World Wide Web
or some other electronic system. Shareholders provide a written,
revocable consent to receive prospectuses electronically through the
system. The consent informs shareholders that the current version of
each prospectus will be available continuously on the system and that
the fund will use the quarterly account statement or quarterly
newsletter as the means of notification of prospectus amendments. It
also states that another means of notification may be used, but only
after shareholders have been notified of the change by the then current
means of notification.\64\ The fund replaces its prospectus with an
annual amendment updating the
[[Page 24651]]
fund's financial information and making other changes.\65\ The fund has
provided notification that the prospectus will be updated by including
notification in the preceding account statement or shareholder
newsletter; the notification provides the approximate date on which the
amendment will be available. A subsequent amendment to the fund's
prospectus reflects the addition of a redemption fee. Notification of
the prospectus amendment has been included in the preceding statement
or newsletter.\66\
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\64\ A change in means of notification under such circumstances
would also be effective in the case of notification of the
availability of shareholder reports discussed in example 46 in the
October Interpretive Release. October Interpretive Release, supra
note 1.
\65\ Under section 10(a)(3) of the Securities Act, a fund that
continuously offers its shares would have to amend its prospectus no
less frequently than every 16 months in order to include updated
financial statements.
\66\ With unscheduled material prospectus amendments for which
such advance notice would not be feasible, the fund would need to
use other forms of notification such as a postcard or e-mail
message. See October Interpretive Release, supra note 1, example 43.
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Just as the use of a newsletter or statement in example 46 in the
October Interpretive Release constituted sufficient notice for
effective delivery of the semi-annual reports required under the
Investment Company Act of 1940, the use of a newsletter or statement
here would constitute sufficient notice for effective delivery with
respect to the scheduled prospectus update.
(6) A fund's on-line prospectus has the same text as the paper
version, but the text appears in a different format. For example, text
that appears as a block in the margin of a page in the paper prospectus
appears in a box in the flow of the text in the electronic version. The
fund does not make a separate filing under Securities Act Rule 497 with
respect to the electronic version.
The mere difference in format without any difference in text would
not qualify the electronic version as a different ``form of
prospectus'' for which filing is required.
(7) An investment company produces both an electronic version (such
as a CD-ROM) and a paper version of its prospectus. Each version
contains all information required by, and otherwise complies with, the
applicable form and all other applicable provisions of the federal
securities laws. The electronic version contains a movie that does not
appear in the paper version. Each version of the prospectus indicates
that there may be other versions of the prospectus and, if the issuer
determines to make such other versions available, provides information
on how to obtain such other versions.\67\ The paper version does not
include a summary or transcript of the movie in the electronic version.
Both versions of the prospectus are filed with the Commission as part
of the company's registration statement, or separately pursuant to Rule
497.\68\
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\67\ The facts of this example should not be read as imposing
any obligation on the issuer to make such other versions of its
prospectus available to any person.
\68\ Alternatively, the company may file with the Commission as
an appendix to the prospectus the script of the movie and a fair and
accurate narrative description of the graphic or image material. See
October Interpretive Release, supra note 1, example 13.
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The use of either version of the prospectus to satisfy delivery
requirements would be permissible.\69\ The issuer (or other party to
whom the law assigns the responsibility) remains responsible for
ensuring that each version satisfies applicable statutory
requirements.\70\
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\69\ Of course, the general principles concerning electronic
delivery, as described in the October Interpretive Release, supra
note 1, would apply.
\70\ See id. at 53460.
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V. Solicitation of Comments
Any interested person wishing to submit written comments relating
to the views expressed in this release are invited to do so by
submitting them in triplicate to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop
6-9, Washington, D.C. 20549. Comments also may be submitted
electronically at the following electronic mail address: comments@sec.gov. All comment letters should refer to File Number S7-
13-96. This file number should be included on the subject line if
comments are submitted using electronic mail. Comment is requested not
only on the specific issues discussed in detail in the release, but on
any other issues that should be considered in connection with
facilitating the use of electronic media by broker-dealers, transfer
agents, and investment advisers. Comment is sought from both the point
of view of the sender and the intended recipient. The Commission
further requests comment on any competitive burdens that may result
from this interpretation. Comments must be received on or before July
1, 1996. Comments received will be available for public inspection and
copying in the Commission's public reading room, 450 Fifth 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).
List of Subjects
17 CFR Parts 231 and 241
Securities.
17 CFR Parts 271 and 276
Investment companies, Securities.
Amendment to the Code of Federal Regulations
The Commission is amending Title 17, Chapter II of the Code of
Federal Regulations in the manner set forth below:
PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER
Part 231 is amended by adding Release No. 33-7288 and the release
date of May 9, 1996 to the list of interpretive releases.
PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER
Part 241 is amended by adding Release No. 34-37182 and the release
date of May 9, 1996 to the list of interpretive releases.
PART 271--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT
COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER
Part 271 is amended by adding Release No. IC-21945 and the release
date of May 9, 1996 to the list of interpretive releases.
PART 276--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT
ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER
Part 276 is amended by adding Release No. IA-1562 and the release
date of May 9, 1996 to the list of interpretive releases.
By the Commission.
Dated: May 9, 1996.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12176 Filed 5-14-96; 8:45 am]
BILLING CODE 8010-01-P
