[Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31038]
[[Page Unknown]]
[Federal Register: December 20, 1994]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230
[Release No. 33-7120; International Series Release No. 760; File No.
S7-36-94]
RIN 3235-AG26
Amendments To Clarify Safe Harbors for Broker-Dealer Research
Reports
AGENCY: Securities and Exchange Commission.
ACTION: Notice of Proposed Rulemaking.
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SUMMARY: The Commission is proposing today amendments relating to the
safe harbor provisions of Rules 138 and 139 under the Securities Act of
1933. The proposed amendments are intended to clarify the availability
of the safe harbor provisions of Rule 138 relating to broker-dealer
research reports on individual companies and the availability of the
safe harbor provisions of Rule 139 for broker-dealer industry research
reports which include sizable, first-time foreign registrants.
DATES: Comments should be received on or before January 19, 1995.
ADDRESSES: Comment letters should refer to File Number S7-36-94 and be
submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities
and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549.
The Commission will make all comments available for public inspection
and copying in its Public Reference Room at the same address.
FOR FURTHER INFORMATION CONTACT: Annemarie Tierney, (202) 942-2990,
Office of International Corporate Finance, Division of Corporation
Finance, U.S. Securities and Exchange Commission, 450 Fifth Street NW.,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: As described in detail below, the
Commission is proposing amendments to Rule 138\1\ and Rule 139\2\
under the Securities Act of 1933 (the ``Securities Act'').\3\
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\1\17 CFR 230.138.
\2\17 CFR 230.139.
\3\15 U.S.C. 77a et seq.
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I. Availability of Research Report Safe Harbors
A. Rule 139 Safe Harbor
Rule 139 under the Securities Act provides safe harbor protection
from the registration requirements of that Act for the distribution by
broker-dealers of information, opinions or recommendations concerning
issuers in the process of registering securities under the Securities
Act.
Prior to April 1994, reliance on the safe harbor for research
reports concerning a foreign private issuer were conditioned on
eligibility of the foreign private issuer for use of Form F-3.4 On
April 19, 1994, the Commission adopted amendments to Rule 139 that make
the rule available for offerings by foreign private issuers that would
be eligible to use Form F-3 but for the 12-month reporting requirement
if the issuer meets an alternative offshore trading history test.5
Under the alternative test, a foreign private issuer must have been
listed or quoted on a designated offshore securities market6 for a
period of at least 12 months.
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\4\17 CFR 239.33.
\5\Release No. 33-7053 (Apr. 19, 1994), 59 FR 21644.
\6\``Designated offshore securities market'' is defined in Rule
902(a) of Regulation S (17 CFR 230.902(a)).
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In adopting these amendments, the Commission intended that broker-
dealers would be able to rely upon Rule 139 for sizable foreign private
issuers with respect to which there is a stream of corporate
information available in the marketplace, including qualifying foreign
issuers registering securities with the Commission for the first time.
As drafted, however, the amendments did not make clear that the
elimination of the reporting history requirement included the
elimination of the requirement that a foreign issuer be previously
reporting pursuant to the Securities Exchange Act of 1934 (the
``Exchange Act'')7 and have filed at least one annual report.
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\7\15 U.S.C. 78a et seq.
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The amendments proposed today revise Rule 139 to make clear that
the special provisions adopted last year for sizable foreign issuers
are also available for those issuers' initial public offerings in the
United States.8
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\8\In order to make the rule available to first-time sizable
foreign registrants, the Commission is proposing to amend the first
sentence of the rule to provide that a foreign private issuer that
meets the requirements of paragraph (a)(2) of the Rule need not
previously have been reporting pursuant to the Exchange Act. In
addition, language would be added to paragraph (a)(2) to provide
that such foreign private issuer need not have filed an annual
report as a condition of eligibility for the rule.
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B. Rule 138 Safe Harbor
Rule 138 under the Securities Act permits publication of
information, opinions and recommendations concerning qualifying issuers
by broker-dealers that are participants in a distribution, so long as
the reports contain information, opinions or recommendations regarding
a specified class of the issuer's securities which is not the subject
of the offering in which the broker-dealer is a participant. The rule
defines eligible issuers as those that may register securities on Forms
S-29 or F-2.10 The reference to Forms S-2 and F-2 is intended
to include issuers eligible to register on Forms S-3 and F-3 as well.
Questions have arisen as to the availability of the Rule 138 safe
harbor for offerings registered on Form S-3 where issuers have not been
subject to reporting requirements for 36 months. The Commission did not
intend to change the availability of Rule 138 for those offerings when
it reduced the reporting history requirements for Form S-311 and
is of the view that Rule 138 is still available for offerings
registered on Form S-3. Rule 138 is proposed to be amended to clarify
this point. The Commission is also proposing to amend the rule to
clarify that Form F-3 eligible issuers would qualify for the rule, as
would qualifying first-time foreign issuers that meet the alternative
offshore trading history test proposed for Rule 139.12
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\9\17 CFR 239.12.
\1\017 CFR 239.32.
\1\117 CFR 239.13 as amended by Release No. 33-6964 (Oct. 22,
1992) 57 FR 48970.
\1\2In Release No. 33-6550 (Sept. 19, 1984) 49 FR 37569 at
footnote 26, the Commission stated that ``[b]ecause the markets for
nonconvertible senior securities and common stock differ, Rule 138
provides a somewhat broader safe harbor [than Rule 139] in
circumstances where the opportunity to condition the market is
lessened.''
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In addition, in light of the fact that shelf registration
statements often register both debt and equity securities (on an either
allocated or unallocated basis), the Commission is proposing to add an
instruction to Rule 138 to codify the staff interpretation that the
rule should be applied on an offering-by-offering basis for issuers
which are eligible to use Forms S-3 or F-3 and are using the
Commission's shelf registration procedures.
II. Cost-Benefit Analysis
To fully evaluate the costs and benefits associated with the
proposed amendments to Rule 138 and Rule 139, the Commission requests
commenters to provide views and empirical data as to the costs and
benefits associated with such proposals.
III. Regulatory Flexibility Act Certification
Pursuant to the Regulatory Flexibility Act (5 U.S.C. 605(b)), the
Chairman of the Commission has certified that the proposed amendments
to Securities Act Rules 138 and 139 relating to broker-dealer research
reports (17 CFR 230.138 and 17 CFR 230.139) will not, if adopted, have
a significant impact on a substantial number of small entities. This
certification, including the reasons therefor, is attached as Appendix
A to this release.
IV. General Request for Comments
Any interested person wishing to submit written comments on any
aspect of the amendments to the rules that are subject to this release
are requested to do so. Comments should be submitted in triplicate to
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC 20549 and should refer to file
number S7-36-94.
V. Statutory Bases
The amendments to the Commission's rule are being proposed pursuant
to sections 6, 7, 8, 10 and 19(a) of the Securities Act of 1933, as
amended.
List of Subjects in 17 CFR Part 230
Reporting and recordkeeping requirements, securities
Text of Proposed Amendments
In accordance with the foregoing, Title 17, chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The general authority citation for Part 230 continues to read in
part as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and
80a-37, unless otherwise noted.
* * * * *
2. By revising Sec. 230.138 to read as follows:
Sec. 230.138 Definition of ``offer for sale'' and ``offer to sell'' in
sections 2(10) and 5(c) in relation to certain publications.
(a) Where a registrant which meets the requirements of paragraph
(c)(1), (c)(2) or (c)(3) of this section proposes to file, has filed or
has an effective registration statement under the Act relating solely
to a nonconvertible debt security or to a nonconvertible,
nonparticipating preferred stock, publication or distribution in the
regular course of its business by a broker or dealer of information,
opinions or recommendations relating solely to common stock or to debt
or preferred stock convertible into common stock of such registrant
shall not be deemed to constitute an offer for sale or offer to sell
the security to which such registration statement relates for purposes
of sections 2(10) and 5(c) of the Act (15 U.S.C. 77a et seq.) even
though such broker or dealer is or will be a participant in the
distribution of the security to which such registration statement
relates.
(b) Where a registrant which meets the requirements of paragraph
(c)(1), (c)(2) or (c)(3) of this section proposes to file, has filed or
has an effective registration statement under the Act relating solely
to common stock or to debt or preferred stock convertible into common
stock, the publication or distribution in the regular course of its
business by a broker or dealer of information, opinions or
recommendations relating solely to a nonconvertible debt security, or
to a nonconvertible nonparticipating preferred stock shall not be
deemed to constitute an offer for sale or offer to sell the security to
which such registration statement relates for purposes of sections
2(10) and 5(c) of the Act (15 U.S.C. 77a et seq.), even though such
broker or dealer is or will be a participant in the distribution of the
security to which such registration statement relates.
(c)(1) The registrant meets all of the conditions for the use of
Form S-2 (Sec. 239.12 of this chapter) or Form F-2 (Sec. 239.32 of this
chapter);
(2) The registrant meets the registrant requirements of Form S-3
(Sec. 239.13 of this chapter) or Form F-3 (Sec. 239.33 of this
chapter); or
(3) The registrant is a foreign private issuer which meets all the
registrant requirements of Form F-3 (Sec. 239.33 of this chapter),
other than the reporting history provisions of paragraph A.1. and
A.2.(a) of General Instruction I of such form, and meets the minimum
float or investment grade securities provisions of either paragraph
B.1. or B.2. of General Instruction I. of such form and the
registrant's securities have been traded for a period of at least 12
months on a designated offshore securities market, as defined in
Sec. 230.902(a).
Instruction to Rule 138
When a registration statement relates to securities which are being
registered for an offering to be made on a continuous or delayed basis
pursuant to Rule 415(a)(1)(x) under the Act (Sec. 230.415(a)(1)(x)) and
the securities which are being registered include classes of securities
which are specified in both paragraph (a) and (b) of this section on
either an allocated or unallocated basis, a broker or dealer may
nonetheless rely on:
(1) Paragraph (a) of this section when the offering in which such
broker or dealer is or will be a participant relates solely to classes
of securities specified in paragraph (a) of this section, and
(2) Paragraph (b) of this section when the offering in which such
broker or dealer is or will be a participant relates solely to classes
of securities specified in paragraph (b) of this section.
3. By revising the introductory text to Sec. 230.139 and paragraph
(a)(2) to read as follows:
Sec. 230.139 Definition of ``offer for sale'' and ``offer to sell'' in
sections 2(10) and 5(c) in relation to certain publications.
Where a registrant which is required to file reports pursuant to
section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78a et seq.) or which is a foreign private issuer meeting the
conditions of paragraph (a)(2) of this section proposes to file, has
filed or has an effective registration statement under the Securities
Act of 1933 (15 U.S.C. 77a et seq.) relating to its securities, the
publication or distribution by a broker or dealer of information, an
opinion or a recommendation with respect to the registrant or any class
of its securities shall not be deemed to constitute an offer for sale
or offer to sell the securities registered or proposed to be registered
for purposes of sections 2(10) and 5(c) of the Act (15 U.S.C. 77a et
seq.), even though such broker or dealer is or will be a participant in
the distribution of such securities, if the conditions of paragraph (a)
or (b) of this section have been met:
(a)(1) * * *
(2) The registrant is a foreign private issuer that meets all the
registrant requirements of Form F-3 (Sec. 239.33 of this chapter),
other than the reporting history provisions of paragraphs A.1. and
A.2.(a) of General Instruction I of such form, and meets the minimum
float or investment grade securities provisions of either paragraph
B.1. or B.2. of General Instruction I of such form, and the
registrant's securities have been traded for a period of at least 12
months on a designated offshore securities market, as defined in
Sec. 230.902(a), and such information, opinion or recommendation is
contained in a publication which is distributed with reasonable
regularity in the normal course of business.
* * * * *
By the Commission.
Dated: December 13, 1994.
Margaret H. McFarland,
Deputy Secretary.
Note: This Appendix to the Preamble will not appear in the Code
of Federal Regulations.
Appendix A
Securities and Exchange Commission Regulatory Flexibility Act
Certification
I, Arthur Levitt, Chairman of the United States Securities and
Exchange Commission (the ``Commission''), hereby certify pursuant to
5 U.S.C. 605(b) that proposed revisions to Rules 138 and 139 under
the Securities Act of 1933 (the ``Securities Act''), if promulgated,
will not have a significant economic impact on a substantial number
of small entities. The reason for this certification is that the
proposed revisions to the rules are intended to clarify the
availability of the safe harbor provisions of the rules with respect
to large domestic and foreign issuers. Any incidental impact on
small U.S. entities is not expected to be significant.
Dated: December 12, 1994.
Arthur Levitt,
Chairman.
[FR Doc. 94-31038 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-P