[Title 17 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2004 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



          17


          Part 240 to End

                         Revised as of April 1, 2004


          Commodity and Securities Exchanges
          
          


________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2004
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2004



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[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 17:
          Chapter II--Securities and Exchange Commission 
          (Continued)                                                3
          Chapter IV--Department of the Treasury                   913
  Finding Aids:
      Material Approved for Incorporation by Reference........     987
      Table of CFR Titles and Chapters........................     989
      Alphabetical List of Agencies Appearing in the CFR......    1007
      Table of OMB Control Numbers............................    1017
      List of CFR Sections Affected...........................    1023

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  17 CFR 240.0-1 
                       refers to title 17, part 
                       240, section 0-1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, April 1, 2004), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 741-6010.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

[[Page vii]]


REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
[email protected].

SALES

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ELECTRONIC SERVICES

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Government Manual, the Federal Register, Public Laws, Public Papers, 
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Compilation are available in electronic format at www.gpoaccess.gov/
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    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal--
register. The NARA site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

April 1, 2004.

[[Page ix]]



                               THIS TITLE

    Title 17--Commodity and Securities Exchanges is composed of three 
volumes. The first volume containing parts 1 to 199, comprises Chapter 
I--Commodity Futures Trading Commission. The second volume contains 
Chapter II--Securities and Exchange Commission, parts 200 to 239. The 
third volume, comprising part 240 to end, contains the remaining 
regulations of the Securities and Exchange Commission, and Chapter IV--
Department of the Treasury. The contents of these volumes represent all 
current regulations issued by the Commodity Futures Trading Commission, 
the Securities and Exchange Commission, and the Department of the 
Treasury as of April 1, 2004.

    The OMB control numbers for the Securities and Exchange Commission 
appear in Sec.  200.800 of Chapter II. For the convenience of the user, 
Sec.  200.800 is reprinted in the Finding Aids section of the volume 
containing part 240 to end.

    For this volume, Bonnie Fritts was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Frances D. 
McDonald, assisted by Alomha S. Morris.

[[Page x]]




[[Page 1]]



              TITLE 17--COMMODITY AND SECURITIES EXCHANGES




                  (This book contains part 240 to End)

  --------------------------------------------------------------------
                                                                    Part

chapter ii--Securities and Exchange Commission (Continued)..         240

chapter iv--Department of the Treasury......................         400

[[Page 3]]



       CHAPTER II--SECURITIES AND EXCHANGE COMMISSION (CONTINUED)




  --------------------------------------------------------------------
Part                                                                Page
240             General rules and regulations, Securities 
                    Exchange Act of 1934....................           5
241             Interpretative releases relating to the 
                    Securities Exchange Act of 1934 and 
                    general rules and regulations thereunder         513
242             Regulations M, ATS, and AC and customer 
                    margin requirements for security futures         518
243             Regulation FD...............................         546
244             Regulation G................................         548
245             Regulation blackout trading restriction.....         550
248             Regulation S-P: Privacy of consumer 
                    financial information...................         556
249             Forms, Securities Exchange Act of 1934......         574
249a

Forms, Securities Investor Protection Act of 1970 [Reserved]

249b            Further forms, Securities Exchange Act of 
                    1934....................................         591
250             General rules and regulations, Public 
                    Utility Holding Company Act of 1935.....         592
251             Interpretative releases relating to the 
                    Public Utility Holding Company Act of 
                    1935 and general rules and regulations 
                    thereunder..............................         637
256             Uniform system of accounts for mutual 
                    service companies and subsidiary service 
                    companies, Public Utility Holding 
                    Company Act of 1935.....................         638
257             Preservation and destruction of records of 
                    registered public utility holding 
                    companies and of mutual and subsidiary 
                    service companies.......................         656
259             Forms prescribed under the Public Utility 
                    Holding Company Act of 1935.............         663
260             General rules and regulations, Trust 
                    Indenture Act of 1939...................         667
261             Interpretative releases relating to the 
                    Trust Indenture Act of 1939 and general 
                    rules and regulations thereunder........         684

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269             Forms prescribed under the Trust Indenture 
                    Act of 1939.............................         685
270             Rules and regulations, Investment Company 
                    Act of 1940.............................         687
271             Interpretative releases relating to the 
                    Investment Company Act of 1940 and 
                    general rules and regulations thereunder         847
274             Forms prescribed under the Investment 
                    Company Act of 1940.....................         850
275             Rules and regulations, Investment Advisers 
                    Act of 1940.............................         858
276             Interpretative releases relating to the 
                    Investment Advisers Act of 1940 and 
                    general rules and regulations thereunder         890
279             Forms prescribed under the Investment 
                    Advisers Act of 1940....................         891
281             Interpretative releases relating to 
                    corporate reorganizations under Chapter 
                    X of the Bankruptcy Act.................         892
285             Rules and regulations pursuant to section 
                    15(a) of the Bretton Woods Agreements 
                    Act.....................................         892
286             General rules and regulations pursuant to 
                    section 11(a) of the Inter-American 
                    Development Bank Act....................         894
287             General rules and regulations pursuant to 
                    section 11(a) of the Asian Development 
                    Bank Act................................         896
288             General rules and regulations pursuant to 
                    section 9(a) of the African Development 
                    Bank Act................................         898
289             General rules and regulations pursuant to 
                    section 13(a) of the International 
                    Finance Corporation Act.................         900
290             General rules and regulations pursuant to 
                    section 9(a) of the European Bank for 
                    Reconstruction and Development Act......         902
300             Rules of the Securities Investor Protection 
                    Corporation.............................         904
301             Forms, Securities Investor Protection 
                    Corporation.............................         910

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PART 240_GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934--Table of Contents




  Subpart A_Rules and Regulations Under the Securities Exchange Act of 
                                  1934

                      Rules of General Application

Sec.
240.0-1 Definitions.
240.0-2 Business hours of the Commission.
240.0-3 Filing of material with the Commission.
240.0-4 Nondisclosure of information obtained in examinations and 
          investigations.
240.0-5 Reference to rule by obsolete designation.
240.0-6 Disclosure detrimental to the national defense or foreign 
          policy.
240.0-8 Application of rules to registered broker-dealers.
240.0-9 Payment of fees.
240.0-10 Small entities under the Securities Exchange Act for purposes 
          of the Regulatory Flexibility Act.
240.0-11 Filing fees for certain acquisitions, dispositions and similar 
          transactions.
240.0-12 Commission procedures for filing applications for orders for 
          exemptive relief under Section 36 of the Exchange Act.
240.3a1-1 Exemption from the definition of ``Exchange'' under Section 
          3(a)(1) of the Act.
240.3a4-1 Associated persons of an issuer deemed not to be brokers.
240.3a4-2 Exemption from the definition of ``broker'' for bank 
          calculating compensation for effecting transactions in 
          fiduciary accounts.
240.3a4-3 Exemption from the definition of ``broker'' for bank effecting 
          transactions as an indenture trustee in a no-load money market 
          fund.
240.3a4-4 Exemption from the definition of ``broker'' for small bank 
          effecting transactions in investment company securities in a 
          tax-deferred custody account.
240.3a4-5 Exemption from the definition of ``broker'' for banks 
          effecting transactions in securities in a custody account.
240.3a4-6 Exemption from the definition of ``broker'' for banks that 
          execute transactions in investment company securities through 
          NSCC Mutual Fund Services.
240.3a5-1 Exemption from the definition of ``dealer'' for a bank engaged 
          in riskless principal transactions.

   Definition of ``Equity Security'' as Used in Sections 12(g) and 16

240.3a11-1 Definition of the term ``equity security''.

                        Miscellaneous Exemptions

240.3a12-1 Exemption of certain mortgages and interests in mortgages.
240.3a12-2 [Reserved]
240.3a12-3 Exemption from sections 14(a), 14(b), 14(c), 14(f), and 16 
          for securities of certain foreign issuers.
240.3a12-4 Exemptions from sections 15(a) and 15(c)(3) for certain 
          mortgage securities.
240.3a12-5 Exemption of certain investment contract securities from 
          sections 7(c) and 11(d)(1).
240.3a12-6 Definition of ``common trust fund'' as used in section 
          3(a)(12) of the Act.
240.3a12-7 Exemption for certain derivative securities traded otherwise 
          than on a national securities exchange.
240.3a12-8 Exemption for designated foreign government securities for 
          purposes of futures trading.
240.3a12-9 Exemption of certain direct participation program securities 
          from the arranging provisions of sections 7(c) and 11(d)(1).
240.3a12-10 Exemption of certain securities issued by the Resolution 
          Funding Corporation.
240.3a12-11 Exemption from sections 8(a), 14(a), 14(b), and 14(c) for 
          debt securities listed on a national securities exchange.
240.3a40-1 Designation of financial responsibility rules.
240.3a43-1 Customer-related government securities activities incidental 
          to the futures-related business of a futures commission 
          merchant registered with the Commodity Futures Trading 
          Commission.
240.3a44-1 Proprietary government securities transactions incidental to 
          the futures-related business of a CFTC-regulated person.
240.3a51-1 Definition of ``penny stock''.
240.3a55-1 Method for determining market capitalization and dollar value 
          of average daily trading volume; application of the definition 
          of narrow-based security index.
240.3a55-2 Indexes underlying futures contracts trading for fewer than 
          30 days.
240.3a55-3 Futures contracts on security indexes trading on or subject 
          to the rules of a foreign board of trade.

                               Definitions

240.3b-1 Definition of ``listed''.
240.3b-2 Definition of ``officer''.
240.3b-3 Definition of ``short sale''.

[[Page 6]]

240.3b-4 Definition of ``foreign government,'' ``foreign issuer'' and 
          ``foreign private issuer''.
240.3b-5 Non-exempt securities issued under governmental obligations.
240.3b-6 Liability for certain statements by issuers.
240.3b-7 Definition of ``executive officer''.
240.3b-8 Definitions of ``Qualified OTC Market Maker, Qualified Third 
          Market Maker'' and ``Qualified Block Positioner''.
240.3b-9 Definition of ``bank'' for purposes of section 3(a) (4) and (5) 
          of the Act.
240.3b-10 [Reserved]
240.3b-11 Definitions relating to limited partnership roll-up 
          transactions for purposes of sections 6(b)(9), 14(h) and 
          15A(b)(12)-(13).
240.3b-12 Definition of OTC derivatives dealer.
240.3b-13 Definition of eligible OTC derivative instrument.
240.3b-14 Definition of cash management securities activities.
240.3b-15 Definition of ancillary portfolio management securities 
          activities.
240.3b-16 Definitions of terms used in Section 3(a)(1) of the Act.
240.3b-17 Definitions of terms used in Section 3(a)(4) of the Act.
240.3b-18 Definitions of terms used in Section 3(a)(5) of the Act.

                 Registration and Exemption of Exchanges

240.6a-1 Application for registration as a national securities exchange 
          or exemption from registration based on limited volume.
240.6a-2 Amendments to application.
240.6a-3 Supplemental material to be filed by exchanges.
240.6a-4 Notice of registration under Section 6(g) of the Act, amendment 
          to such notice, and supplemental materials to be filed by 
          exchanges registered under Section 6(g) of the Act.
240.6h-1 Settlement and regulatory halt requirements for security 
          futures products.
240.7c2-1 [Reserved]

                 Hypothecation of Customers'' Securities

240.8c-1 Hypothecation of customers'' securities.
240.9b-1 Options disclosure document.

                               Short Sales

240.10a-1 Short sales.
240.10a-2 Requirements for covering purchases.

           Manipulative and Deceptive Devices and Contrivances

240.10b-1 Prohibition of use of manipulative or deceptive devices or 
          contrivances with respect to certain securities exempted from 
          registration.
240.10b-2 [Reserved]
240.10b-3 Employment of manipulative and deceptive devices by brokers or 
          dealers.
240.10b-4 [Reserved]
240.10b-5 Employment of manipulative and deceptive devices.
240.10b5-1 Trading ``on the basis of'' material nonpublic information in 
          insider trading cases.
240.10b5-2 Duties of trust or confidence in misappropriation insider 
          trading cases.
240.10b-6--240.10b-8 [Reserved]
240.10b-9 Prohibited representations in connection with certain 
          offerings.
240.10b-10 Confirmation of transactions.
240.10b-13 [Reserved]
240.10b-16 Disclosure of credit terms in margin transactions.
240.10b-17 Untimely announcements of record dates.
240.10b-18 Purchases of certain equity securities by the issuer and 
          others.
240.10b-21 [Reserved]

                        Reports Under Section 10A

240.10A-1 Notice to the Commission Pursuant to Section 10A of the Act.
240.10A-2 Auditor independence.
240.10A-3 Listing standards relating to audit committees.

            Adoption of Floor Trading Regulation (Rule 11a-1)

240.11a-1 Regulation of floor trading.
240.11a1-1(T) Transactions yielding priority, parity, and precedence.
240.11a1-2 Transactions for certain accounts of associated persons of 
          members.
240.11a1-3(T) Bona fide hedge transactions in certain securities.
240.11a1-4(T) Bond transactions on national securities exchanges.
240.11a1-5 Transactions by registered competitive market makers and 
          registered equity market makers.
240.11a1-6 Transactions for certain accounts of OTC derivatives dealers.
240.11a2-2(T) Transactions effected by exchange members through other 
          members.

            Adoption of Regulation on Conduct of Specialists

240.11b-1 Regulation of specialists.

          Exemption of Certain Securities From Section 11(d)(1)

240.11d1-1 Exemption of certain securities from section 11(d)(1).
240.11d1-2 Exemption from section 11(d)(1) for certain investment 
          company securities held by broker-dealers as collateral in 
          margin accounts.
240.11d2-1 Exemption from Section 11(d)(2) for certain broker-dealers 
          effecting

[[Page 7]]

          transactions for customers security futures products in 
          futures accounts.

            Registration of Securities Information Processors

240.11Aa2-1 Designation of national market system securities.
240.11Aa3-1 Dissemination of transaction reports and last sale data with 
          respect to transactions in reported securities.
240.11Aa3-2 Filing and amendment of national market system plans.
240.11Ab2-1 Registration of securities information processors: Form of 
          application and amendments.
240.11Ac1-1 Dissemination of quotations.
240.11Ac1-2 Display of transaction reports, last sale data and quotation 
          information.
240.11Ac1-3 Customer account statements.
240.11Ac1-4 Display of customer limit orders.
240.11Ac1-5 Disclosure of order routing information.
240.11Ac1-6 Disclosure of order execution information.

                  Securities Exempted From Registration

240.12a-4 Exemption of certain warrants from section 12(a).
240.12a-5 Temporary exemption of substituted or additional securities.
240.12a-6 Exemption of securities underlying certain options from 
          section 12(a).
240.12a-7 Exemption of stock contained in standardized market baskets 
          from section 12(a) of the Act.
240.12a-8 Exemption of depositary shares.
240.12a-9 Exemption of standardized options from section 12(a) of the 
          Act.

               Regulation 12B: Registration and Reporting

                                 General

240.12b-1 Scope of regulation.
240.12b-2 Definitions.
240.12b-3 Title of securities.
240.12b-4 Supplemental information.
240.12b-5 Determination of affiliates of banks.
240.12b-6 When securities are deemed to be registered.
240.12b-7 [Reserved]

                           Formal Requirements

240.12b-10 Requirements as to proper form.
240.12b-11 Number of copies; signatures; binding.
240.12b-12 Requirements as to paper, printing and language.
240.12b-13 Preparation of statement or report.
240.12b-14 Riders; inserts.
240.12b-15 Amendments.

                   General Requirements as to Contents

240.12b-20 Additional information.
240.12b-21 Information unknown or not available.
240.12b-22 Disclaimer of control.
240.12b-23 Incorporation by reference.
240.12b-24 [Reserved]
240.12b-25 Notification of inability to timely file all or any required 
          portion of a Form 10-K, 10-KSB, 20-F, 11-K, N-SAR, N-CSR, 10-Q 
          or 10-QSB.

                                Exhibits

240.12b-30 Additional exhibits.
240.12b-31 Omission of substantially identical documents.
240.12b-32 Incorporation of exhibits by reference.
240.12b-33 Annual reports to other Federal agencies.

                           Special Provisions

240.12b-35 [Reserved]
240.12b-36 Use of financial statements filed under other acts.
240.12b-37 Satisfaction of filing requirements.

      Certification by Exchanges and Effectiveness of Registration

240.12d1-1 Registration effective as to class or series.
240.12d1-2 Effectiveness of registration.
240.12d1-3 Requirements as to certification.
240.12d1-4 Date of receipt of certification by Commission.
240.12d1-5 Operation of certification on subsequent amendments.
240.12d1-6 Withdrawal of certification.

    Suspension of Trading, Withdrawal, and Striking From Listing and 
                              Registration

240.12d2-1 Suspension of trading.
240.12d2-2 Removal from listing and registration.

                            Unlisted Trading

240.12f-1 Applications for permission to reinstate unlisted trading 
          privileges.
240.12f-2 Extending unlisted trading privileges to a security that is 
          the subject of an initial public offering.
240.12f-3 Termination or suspension of unlisted trading privileges.
240.12f-4 Exemption of securities admitted to unlisted trading 
          privileges from sections 13, 14, and 16.
240.12f-5 Exchange rules for securities to which unlisted trading 
          privileges are extended.
240.12f-6 [Reserved]

            Extensions and Temporary Exemptions; Definitions

240.12g-1 Exemption from section 12(g).

[[Page 8]]

240.12g-2 Securities deemed to be registered pursuant to section 
          12(g)(1) upon termination of exemption pursuant to section 
          12(g)(2) (A) or (B).
240.12g-3 Registration of securities of successor issuers under section 
          12(b) or 12(g).
240.12g3-2 Exemptions for American depositary receipts and certain 
          foreign securities.
240.12g-4 Certifications of termination of registration under section 
          12(g).
240.12g5-1 Definition of securities ``held of record''.
240.12g5-2 Definition of ``total assets''.
240.12h-1 Exemptions from registration under section 12(g) of the Act.
240.12h-2 [Reserved]
240.12h-3 Suspension of duty to file reports under section 15(d).
240.12h-4 Exemption from duty to file reports under section 15(d).
240.12h-5 Exemption for subsidiary issuers of guaranteed securities and 
          subsidiary guarantors.

Regulation 13A: Reports of Issuers of Securities Registered Pursuant to 
                               Section 12

                             Annual Reports

240.13a-1 Requirements of annual reports.
240.13a-2 [Reserved]
240.13a-3 Reporting by Form 40-F registrant.

                              Other Reports

240.13a-10 Transition reports.
240.13a-11 Current reports on Form 8-K (Sec. 249.308 of this chapter).
240.13a-13 Quarterly reports on Form 10-Q and Form 10-QSB (Sec. 
          249.308a and Sec. 249.308b of this chapter).
240.13a-14 Certification of disclosure in annual and quarterly reports.
240.13a-15 Controls and procedures.
240.13a-16 Reports of foreign private issuers on Form 6-K (17 CFR 
          249.306).
240.13a-17 [Reserved]

  Regulation 13b-2: Maintenance of Records and Preparation of Required 
                                 Reports

240.13b2-1 Falsification of accounting records.
240.13b2-2 Representations and conduct in connection with the 
          preparation of required reports and documents.

                             Regulation 13D

240.13d-1 Filing of Schedules 13D and 13G.
240.13d-2 Filing of amendments to Schedules 13D or 13G.
240.13d-3 Determination of beneficial owner.
240.13d-4 Disclaimer of beneficial ownership.
240.13d-5 Acquisition of securities.
240.13d-6 Exemption of certain acquisitions.
240.13d-7 Dissemination.
240.13d-101 Schedule 13D--Information to be included in statements filed 
          pursuant to Sec. 240.13d-1(a) and amendments thereto filed 
          pursuant to Sec. 240.13d-2(a).
240.13d-102 Schedule 13G--Information to be included in statements filed 
          pursuant to Sec. 240.13d-1(b), (c), and (d) and amendments 
          thereto filed pursuant to Sec. 240.13d-2(b).
240.13e-1 Purchase of securities by the issuer during a third-party 
          tender offer.
240.13e-2 [Reserved]
240.13e-3 Going private transactions by certain issuers or their 
          affiliates.
240.13e-4 Tender offers by issuers.
240.13e-100 Schedule 13E-3, Transaction statement under section 13(e) of 
          the Securities Exchange Act of 1934 and Rule 13e-3 (Sec. 
          240.13e-3) thereunder.
240.13e-101 [Reserved]
240.13e-102 Schedule 13E-4F. Tender offer statement pursuant to section 
          13(e) (1) of the Securities Exchange Act of 1934 and Sec. 
          240.13e-4 thereunder.
240.13f-1 Reporting by institutional investment managers of information 
          with respect to accounts over which they exercise investment 
          discretion.

                Regulation 14A: Solicitations of Proxies

240.14a-1 Definitions.
240.14a-2 Solicitations to which Sec. 240.14a-3 to Sec. 240.14a-15 
          apply.
240.14a-3 Information to be furnished to security holders.
240.14a-4 Requirements as to proxy.
240.14a-5 Presentation of information in proxy statement.
240.14a-6 Filing requirements.
240.14a-7 Obligations of registrants to provide a list of, or mail 
          soliciting material to, security holders.
240.14a-8 Shareholder proposals.
240.14a-9 False or misleading statements.
240.14a-10 Prohibition of certain solicitations.
240.14a-11 [Reserved]
240.14a-12 Solicitation before furnishing a proxy statement.
240.14a-13 Obligation of registrants in communicating with beneficial 
          owners.
240.14a-14 Modified or superseded documents.
240.14a-15 Differential and contingent compensation in connection with 
          roll-up transactions.
240.14a-101 Schedule 14A. Information required in proxy statement.
240.14a-102 [Reserved]
240.14a-103 Notice of Exempt Solicitation. Information to be included in 
          statements submitted by or on behalf of a person pursuant to 
          Sec. 240.14a-6(g).

[[Page 9]]

240.14a-104 Notice of Exempt Preliminary Roll-up Communication. 
          Information regarding ownership interests and any potential 
          conflicts of interest to be included in statements submitted 
          by or on behalf of a person pursuant to Sec. 240.14a-2(b)(4) 
          and Sec. 240.14a-6(n).
240.14b-1 Obligation of registered brokers and dealers in connection 
          with the prompt forwarding of certain communications to 
          beneficial owners.
240.14b-2 Obligation of banks, associations and other entities that 
          exercise fiduciary powers in connection with the prompt 
          forwarding of certain communications to beneficial owners.

  Regulation 14C: Distribution of Information Pursuant to Section 14(c)

240.14c-1 Definitions.
240.14c-2 Distribution of information statement.
240.14c-3 Annual report to be furnished security holders.
240.14c-4 Presentation of information in information statement.
240.14c-5 Filing requirements.
240.14c-6 False or misleading statements.
240.14c-7 Providing copies of material for certain beneficial owners.
240.14c-101 Schedule 14C. Information required in information statement.

                             Regulation 14D

240.14d-1 Scope of and definitions applicable to Regulations 14D and 
          14E.
240.14d-2 Commencement of a tender offer.
240.14d-3 Filing and transmission of tender offer statement.
240.14d-4 Dissemination of tender offers to security holders.
240.14d-5 Dissemination of certain tender offers by the use of 
          stockholder lists and security position listings.
240.14d-6 Disclosure of tender offer information to security holders.
240.14d-7 Additional withdrawal rights.
240.14d-8 Exemption from statutory pro rata requirements.
240.14d-9 Recommendation or solicitation by the subject company and 
          others.
240.14d-10 Equal treatment of security holders.
240.14d-11 Subsequent offering period.
240.14d-100 Schedule TO. Tender offer statement under section 14(d)(1) 
          or 13(e)(1) of the Securities Exchange Act of 1934.
240.14d-101 Schedule 14D-9.
240.14d-102 Schedule 14D-1F. Tender offer statement pursuant to rule 
          14d-1(b) under the Securities Exchange Act of 1934.
240.14d-103 Schedule 14D-9F. Solicitation/recommendation statement 
          pursuant to section 14(d)(4) of the Securities Exchange Act of 
          1934 and rules 14d-1(b) and 14e-2(c) thereunder.

                             Regulation 14E

240.14e-1 Unlawful tender offer practices.
240.14e-2 Position of subject company with respect to a tender offer.
240.14e-3 Transactions in securities on the basis of material, nonpublic 
          information in the context of tender offers.
240.14e-4 Prohibited transactions in connection with partial tender 
          offers.
240.14e-5 Prohibiting purchases outside of a tender offer.
240.14e-6 Repurchase offers by certain closed-end registered investment 
          companies.
240.14e-7 Unlawful tender offer practices in connection with roll-ups.
240.14e-8 Prohibited conduct in connection with pre-commencement 
          communications.
240.14f-1 Change in majority of directors.

              Exemption of Certain OTC Derivatives Dealers

240.15a-1 Securities activities of OTC derivatives dealers.

           Exemption of Certain Securities From Section 15(a)

240.15a-2 Exemption of certain securities of cooperative apartment 
          houses from section 15(a).
240.15a-3 [Reserved]
240.15a-4 Forty-five day exemption from registration for certain members 
          of national securities exchanges.
240.15a-5 Exemption of certain nonbank lenders.

                   Registration of Brokers and Dealers

240.15a-6 Exemption of certain foreign brokers or dealers.
240.15a-7 Exemption from the definitions of ``broker'' or ``dealer'' for 
          banks for limited period of time.
240.15a-8 Exemption for banks from Section 29 liability.
240.15a-9 Exemption from the definitions of ``broker'' and ``dealer'' 
          for savings associations and savings banks.
240.15a-10 Exemption of certain brokers or dealers with respect to 
          security futures products.
240.15a-11 Exemption from the definitions of ``broker'' and ``dealer'' 
          for banks engaging in securities lending transactions.
240.15b1-1 Application for registration of brokers or dealers.
240.15b1-2 [Reserved]
240.15b1-3 Registration of successor to registered broker or dealer.
240.15b1-4 Registration of fiduciaries.
240.15b1-5 Consent to service of process to be furnished by nonresident 
          brokers or dealers and by nonresident general partners or 
          managing agents of brokers or dealers.

[[Page 10]]

240.15b2-2 Inspection of newly registered brokers and dealers.
240.15b3-1 Amendments to application.
240.15b5-1 Extension of registration for purposes of the Securities 
          Investor Protection Act of 1970 after cancellation or 
          revocation.
240.15b6-1 Withdrawal from registration.
240.15b7-1 Compliance with qualification requirements of self-regulatory 
          organizations.
240.15b7-3T Operational capability in a Year 2000 environment.
240.15b9-1 Exemption for certain exchange members.
240.15b9-2 Exemption from SRO membership for OTC derivatives dealers.
240.15b11-1 Registration by notice of security futures product broker-
          dealers.

               Rules Relating to Over-the-Counter Markets

240.15c1-1 Definitions.
240.15c1-2 Fraud and misrepresentation.
240.15c1-3 Misrepresentation by brokers, dealers and municipal 
          securities dealers as to registration.
240.15c1-4 [Reserved]
240.15c1-5 Disclosure of control.
240.15c1-6 Disclosure of interest in distribution.
240.15c1-7 Discretionary accounts.
240.15c1-8 Sales at the market.
240.15c1-9 Use of pro forma balance sheets.
240.15c2-1 Hypothecation of customers' securities.
240.15c2-3 [Reserved]
240.15c2-4 Transmission or maintenance of payments received in 
          connection with underwritings.
240.15c2-5 Disclosure and other requirements when extending or arranging 
          credit in certain transactions.
240.15c2-6 [Reserved]
240.15c2-7 Identification of quotations.
240.15c2-8 Delivery of prospectus.
240.15c2-11 Initiation or resumption of quotations without specific 
          information.
240.15c2-12 Municipal securities disclosure.
240.15c3-1 Net capital requirements for brokers or dealers.
240.15c3-1a Options (Appendix A to 17 CFR 240.15c3-1).
240.15c3-1b Adjustments to net worth and aggregate indebtedness for 
          certain commodities transactions (Appendix B to 17 CFR 
          240.15c3-1).
240.15c3-1c Consolidated computations of net capital and aggregate 
          indebtedness for certain subsidiaries and affiliates (Appendix 
          C to 17 CFR 240.15c3-1).
240.15c3-1d Satisfactory Subordination Agreements (Appendix D to 17 CFR 
          240.15c3-1).
240.15c3-1e Temporary Minimum Requirements (Appendix E to 17 CFR 
          240.15c3-1e).
240.15c3-1f Optional market and credit risk requirements for OTC 
          derivatives dealers (Appendix F to 17 CFR 240.15c3-1)
240.15c3-2 Customers' free credit balances.
240.15c3-3 Customer protection--reserves and custody of securities.
240.15c3-3a Exhibit A--formula for determination reserve requirement of 
          brokers and dealers under Sec. 240.15c3-3.
240.15c3-4 Internal risk management control systems for OTC derivatives 
          dealers.
240.15c6-1 Settlement cycle.

 Regulation 15D: Reports of Registrants Under the Securities Act of 1933

                             Annual Reports

240.15d-1 Requirement of annual reports.
240.15d-2 Special financial report.
240.15d-3 Reports for depositary shares registered on Form F-6.
240.15d-4 Reporting by Form 40-F Registrants.
240.15d-5 Reporting by successor issuers.
240.15d-6 Suspension of duty to file reports.

                              Other Reports

240.15d-10 Transition reports.
240.15d-11 Current reports on Form 8-K (Sec. 249.308 of this chapter).
240.15d-13 Quarterly reports on Form 10-Q and Form 10-QSB (Sec. 
          249.308a and Sec. 249.308b of this chapter).
240.15d-14 Certification of disclosure in annual and quarterly reports.
240.15d-15 Controls and procedures.
240.15d-16 Reports of foreign private issuers on Form 6-K [17 CFR 
          249.306].
240.15d-17 [Reserved]

       Exemption of Certain Issuers From Section 15(d) of the Act

240.15d-21 Reports for employee stock purchase, savings and similar 
          plans.
240.15g-1 Exemptions for certain transactions.
240.15g-2 Risk disclosure document relating to the penny stock market.
240.15g-3 Broker or dealer disclosure of quotations and other 
          information relating to the penny stock market.
240.15g-4 Disclosure of compensation to brokers or dealers.
240.15g-5 Disclosure of compensation of associated persons in connection 
          with penny stock transactions.
240.15g-6 Account statements for penny stock customers.
240.15g-8 Sales of escrowed securities of blank check companies.
240.15g-9 Sales practice requirements for certain low-priced securities.
240.15g-100 Schedule 15G--Information to be included in the document 
          distributed pursuant to 17 CFR 240.15g-2.

[[Page 11]]

             National and Affiliated Securities Associations

240.15Aa-1 Registration of a national or an affiliated securities 
          association.
240.15Aj-1 Amendments and supplements to registration statements of 
          securities associations.
240.15Al2-1 [Reserved]
240.15Ba2-1 Application for registration of municipal securities dealers 
          which are banks or separately identifiable departments or 
          divisions of banks.
240.15Ba2-2 Application for registration of non-bank municipal 
          securities dealers whose business is exclusively intrastate.
240.15Ba2-4 Registration of successor to registered municipal securities 
          dealer.
240.15Ba2-5 Registration of fiduciaries.
240.15Ba2-6 [Reserved]
240.15Bc3-1 Withdrawal from registration of municipal securities 
          dealers.
240.15Bc7-1 Availability of examination reports.

Registration of Government Securities Brokers and Government Securities 
                                 Dealers

240.15Ca1-1 Notice of government securities broker-dealer activities.
240.15Ca2-1 Application for registration as a government securities 
          broker or government securities dealer.
240.15Ca2-2 [Reserved]
240.15Ca2-3 Registration of successor to registered government 
          securities broker or government securities dealer.
240.15Ca2-4 Registration of fiduciaries.
240.15Ca2-5 Consent to service of process to be furnished by non-
          resident government securities brokers or government 
          securities dealers and by non-resident general partners or 
          managing agents of government securities brokers or government 
          securities dealers.
240.15Cc1-1 Withdrawal from registration of government securities 
          brokers or government securities dealers.

       Reports of Directors, Officers, and Principal Shareholders

240.16a-1 Definition of terms.
240.16a-2 Persons and transactions subject to section 16.
240.16a-3 Reporting transactions and holdings.
240.16a-4 Derivative securities.
240.16a-5 Odd-lot dealers.
240.16a-6 Small acquisitions.
240.16a-7 Transactions effected in connection with a distribution.
240.16a-8 Trusts.
240.16a-9 Stock splits, stock dividends, and pro rata rights.
240.16a-10 Exemptions under section 16(a).
240.16a-11 Dividend or interest reinvestment plans.
240.16a-12 Domestic relations orders.
240.16a-13 Change in form of beneficial ownership.

          Exemption of Certain Transactions From Section 16(b)

240.16b-1 Transactions approved by a regulatory authority.
240.16b-2 [Reserved]
240.16b-3 Transactions between an issuer and its officers or directors.
240.16b-4 [Reserved]
240.16b-5 Bona fide gifts and inheritance.
240.16b-6 Derivative securities.
240.16b-7 Mergers, reclassifications, and consolidations.
240.16b-8 Voting trusts.

          Exemption of Certain Transactions From Section 16(c)

240.16c-1 Brokers.
240.16c-2 Transactions effected in connection with a distribution.
240.16c-3 Exemption of sales of securities to be acquired.
240.16c-4 Derivative securities.

                         Arbitrage Transactions

240.16e-1 Arbitrage transactions under section 16.

  Preservation of Records and Reports of Certain Stabilizing Activities

240.17a-1 Recordkeeping rule for national securities exchanges, national 
          securities associations, registered clearing agencies and the 
          Municipal Securities Rulemaking Board.
240.17a-2 Recordkeeping requirements relating to stabilizing activities.
240.17a-3 Records to be made by certain exchange members, brokers and 
          dealers.
240.17a-4 Records to be preserved by certain exchange members, brokers 
          and dealers.
240.17a-5 Reports to be made by certain brokers and dealers.
240.17a-6 Right of national securities exchange, national securities 
          association, registered clearing agency or the Municipal 
          Securities Rulemaking Board to destroy or dispose of 
          documents.
240.17a-7 Records of non-resident brokers and dealers.
240.17a-8 Financial recordkeeping and reporting of currency and foreign 
          transactions.
240.17a-9T Records to be made and retained by certain exchange members, 
          brokers and dealers.
240.17a-10 Report of revenue and expenses.
240.17a-11 Notification provisions for brokers and dealers.
240.17a-12 Reports to be made by certain OTC derivatives dealers.

[[Page 12]]

240.17a-13 Quarterly security counts to be made by certain exchange 
          members, brokers, and dealers.
240.17a-18 [Reserved]
240.17a-19 Form X-17A-19 Report by national securities exchanges and 
          registered national securities associations of changes in the 
          membership status of any of their members.
240.17a-21 Reports of the Municipal Securities Rulemaking Board.
240.17a-22 Supplemental material of registered clearing agencies.
240.17a-23 Recordkeeping and reporting requirements relating to broker-
          dealer trading systems.
240.17a-25 Electronic submission of securities transaction information 
          by exchange members, brokers, and dealers.
240.17d-1 Examination for compliance with applicable financial 
          responsibility rules.
240.17d-2 Program for allocation of regulatory responsibility.
240.17f-1 Requirements for reporting and inquiry with respect to 
          missing, lost, counterfeit or stolen securities.
240.17f-2 Fingerprinting of securities industry personnel.
240.17h-1T Risk assessment recordkeeping requirements for associated 
          persons of brokers and dealers.
240.17h-2T Risk assessment reporting requirements for brokers and 
          dealers.
240.17Ab2-1 Registration of clearing agencies.
240.17Ac2-1 Application for registration of transfer agents.
240.17Ac2-2 Annual reporting requirement for registered transfer agents.
240.17Ac3-1 Withdrawal from registration with the Commission.
240.17Ad-1 Definitions.
240.17Ad-2 Turnaround, processing, and forwarding of items.
240.17Ad-3 Limitations on expansion.
240.17Ad-4 Applicability of Sec. Sec. 240.17Ad-2, 240.17Ad-3 and 
          240.17Ad-6(a) (1) through (7) and (11).
240.17Ad-5 Written inquiries and requests.
240.17Ad-6 Recordkeeping.
240.17Ad-7 Record retention.
240.17Ad-8 Securities position listings.
240.17Ad-9 Definitions.
240.17Ad-10 Prompt posting of certificate detail to master 
          securityholder files, maintenance of accurate securityholder 
          files, communications between co-transfer agents and 
          recordkeeping transfer agents, maintenance of current control 
          book, retention of certificate detail and ``buy-in'' of 
          physical over-issuance.
240.17Ad-11 Reports regarding aged record differences, buy-ins and 
          failure to post certificate detail to master securityholder 
          and subsidiary files.
240.17Ad-12 Safeguarding of funds and securities.
240.17Ad-13 Annual study and evaluation of internal accounting control.
240.17Ad-14 Tender agents.
240.17Ad-15 Signature guarantees.
240.17Ad-16 Notice of assumption or termination of transfer agent 
          services.
240.17Ad-17 Transfer agents' obligation to search for lost 
          securityholders.
240.17Ad-18 Year 2000 Reports to be made by certain transfer agents.
240.17Ad-19 Requirements for cancellation, processing, storage, 
          transportation, and destruction or other disposition of 
          securities certificates.
240.17Ad-21T Operational capability in a Year 2000 environment.

              Suspension and Expulsion of Exchange Members

240.19a3-1 [Reserved]
240.19b-3 [Reserved]
240.19b-4 Filings with respect to proposed rule changes by self-
          regulatory organizations.
240.19b-5 Temporary exemption from the filing requirements of Section 
          19(b) of the Act.
240.19b-7 Filings with respect to proposed rule changes submitted 
          pursuant to Section 19(b)(7) of the Act.
240.19c-1 Governing certain off-board agency transactions by members of 
          national securities exchanges.
240.19c-3 Governing off-board trading by members of national securities 
          exchanges.
240.19c-4 Governing certain listing or authorization determinations by 
          national securities exchanges and associations.
240.19c-5 Governing the multiple listing of options on national 
          securities exchanges.
240.19d-1 Notices by self-regulatory organizations of final disciplinary 
          actions, denials, bars, or limitations respecting membership, 
          association, participation, or access to services, and summary 
          suspensions.
240.19d-2 Applications for stays of disciplinary sanctions or summary 
          suspensions by a self-regulatory organization.
240.19d-3 Applications for review of final disciplinary sanctions, 
          denials of membership, participation or association, or 
          prohibitions or limitations of access to services imposed by 
          self-regulatory organizations.
240.19d-4 Notice by the Public Company Accounting Oversight Board of 
          disapproval of registration or of disciplinary action.
240.19g2-1 Enforcement of compliance by national securities exchanges 
          and registered securities associations with the Act and rules 
          and regulations thereunder.
240.19h-1 Notice by a self-regulatory organization of proposed admission 
          to or continuance in membership or particiption

[[Page 13]]

          or association with a member of any person subject to a 
          statutory disqualification, and applications to the Commission 
          for relief therefrom.

      Inspection and Publication of Information Filed Under the Act

240.24b-1 Documents to be kept public by exchanges.
240.24b-2 Nondisclosure of information filed with the Commission and 
          with any exchange.
240.24b-3 Information filed by issuers and others under sections 12, 13, 
          14, and 16.
240.24c-1 Access to nonpublic information.
240.31-1 Securities transactions exempt from transaction fees.
240.36a1-1 Exemption from Section 7 for OTC derivatives dealers.
240.36a1-2 Exemption from SIPA for OTC derivatives dealers.

Subpart B--Rules and Regulations Under the Securities Investor Protection 
Act of 1970 [Reserved]

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 
78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll, 
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 
and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted.
    Section 240.3a4-1 also issued under secs. 3 and 15, 89 Stat. 97, as 
amended, 89 Stat. 121 as amended;
    Section 240.3a12-8 also issued under 15 U.S.C. 78a et seq., 
particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), and 23(a), 15 U.S.C. 
78w(a);
    Section 240.3a12-10 also issued under 15 U.S.C. 78b and c;
    Section 240.3a12-9 also issued under secs. 3(a)(12), 7(c), 11(d)(1), 
15 U.S.C. 78c(a)(12), 78g(c), 78k(d)(1));
    Sections 240.3a43-1 and 240.3a44-1 also issued under sec. 3; 15 
U.S.C. 78c;
    Section 240.3b-6 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a).
    Section 240.3b-9 also issued under secs. 2, 3 and 15, 89 Stat. 97, 
as amended, 89 Stat. 121, as amended (15 U.S.C. 78b, 78c, 78o);
    Section 240.9b-1 is also issued under sec. 2, 7, 10, 19(a), 48 Stat. 
74, 78, 81, 85; secs. 201, 205, 209, 120, 48 Stat. 905, 906, 908; secs. 
1-4, 8, 68 Stat. 683, 685; sec. 12(a), 73 Stat. 143; sec. 7(a), 74 Stat. 
412; sec. 27(a), 84 Stat. 1433; sec. 308(a)(2), 90 Stat. 57; sec. 505, 
94 Stat. 2292; secs. 9, 15, 23(a), 48 Stat. 889, 895, 901; sec. 230(a), 
49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; sec. 2, 52 Stat. 1075; 
secs. 6, 10, 78 Stat. 570-574, 580; sec. 11(d), 84 Stat. 121; sec. 18, 
89 Stat. 155; sec. 204, 91 Stat. 1500; 15 U.S.C. 77b, 77g, 77j, 77s(a), 
78i, 78o, 78w(a);
    Section 240.10b-10 is also issued under secs. 2, 3, 9, 10, 11, 11A, 
15, 17, 23, 48 Stat. 891, 89 Stat. 97, 121, 137, 156, (15 U.S.C. 78b, 
78c, 78i, 78j, 78k, 78k-1, 78o, 78q).
    Section 240.12a-7 also issued under 15 U.S.C. 78a et seq., 
particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), 6, 15 U.S.C. 78(f), 
11A, 15 U.S.C. 78k, 12, 15 U.S.C. 78(l), and 23(a)(1), 15 U.S.C. 
78(w)(a)(1).
    Sections 240.12b-1 to 240.12b-36 also issued under secs. 3, 12, 13, 
15, 48 Stat. 892, as amended, 894, 895, as amended; 15 U.S.C. 78c, 78l, 
78m, 78o;
    Section 240.12b-15 is also issued under secs. 3(a) and 302, Pub.L. 
No. 107-204, 116 Stat. 745.
    Section 240.12b-25 is also issued under 15 U.S.C. 80a-8, 80a-24(a), 
80a-29, and 80a-37.
    Section 240.12g-3 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a).
    Section 240.12g3-2 is also issued under 15 U.S.C. 77f, 77g, 77h, 
77j, 77s(a).
    Section 240.13a-10 is also issued under secs. 3(a) and 302, Pub.L. 
No. 107-204, 116 Stat. 745.
    Section 240.13a-11 is also issued under secs. 3(a) and 306(a), Pub. 
L. 107-204, 116 Stat. 745.
    Section 240.13a-14 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 240.13a-15 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Sections 240.13e-4, 240.14d-7, 240.14d-10 and 240.14e-1 also issued 
under secs. 3(b), 9(a)(6), 10(b), 13(e), 14(d) and 14(e), 15 U.S.C. 
78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(d) and 78n(e) and sec. 23(c) of 
the Investment Company Act of 1940, 15 U.S.C 80a-23(c);
    Sections 240.13e-4 to 240.13e-101 also issued under secs. 3(b), 
9(a)(6), 10(b), 13(e), 14(e), 15(c)(1), 48 Stat. 882, 889, 891, 894, 
895, 901, sec. 8, 49 Stat. 1379, sec. 5, 78 Stat. 569, 570, secs. 2, 3, 
82 Stat. 454, 455, secs. 1, 2, 3-5, 84 Stat. 1497, secs. 3, 18, 89 Stat. 
97, 155; 15 U.S.C. 78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(e), 78o(c); 
sec. 23(c) of the Investment Company Act of 1940; 54 Stat. 825; 15 
U.S.C. 80a-23(c);
    Section 240.13f-2(T) also issued under sec. 13(f)(1) (15 U.S.C. 
78m(f)(1));
    Sections 240.14a-1, 240.14a-3, 240.14a-13, 240.14b-1, 240.14b-2, 
240.14c-1, and 240.14c-7 also issued under secs. 12, 15 U.S.C. 781, and 
14, Pub. L. 99-222, 99 Stat. 1737, 15 U.S.C. 78n;
    Sections 240.14a-3, 240.14a-13, 240.14b-1 and 240.14c-7 also issued 
under secs. 12, 14 and 17, 15 U.S.C. 781, 78n and 78g;
    Sections 240.14c-1 to 240.14c-101 also issued under sec. 14, 48 
Stat. 895; 15 U.S.C. 78n;
    Section 240.14d-1 is also issued under 15 U.S.C. 77g, 77j, 77s(a), 
77ttt(a), 79t, 80a-37.
    Section 240.14e-2 is also issued under 15 U.S.C. 77g, 77h, 77s(a), 
77sss, 79t, 80a-37(a).
    Section 240.14e-4 also issued under the Exchange Act, 15 U.S.C. 78a 
et seq., and particularly sections 3(b), 10(a), 10(b), 14(e), 15(c), and 
23(a) of the Exchange Act (15 U.S.C. 78c(b), 78j(a), 78j(b), 78n(e), 
78o(c), and 78w(a)).
    Section 240.15a-6, also issued under secs. 3, 10, 15, and 17, 15 
U.S.C. 78c, 78j, 78o, and 78q;
    Section 240.15b1-3 also issued under sec. 15, 17; 15 U.S.C. 78o 78q;

[[Page 14]]

    Sections 240.15b1-3 and 240.15b2-1 also issued under 15 U.S.C. 78o, 
78q;
    Section 240.15b2-2 also issued under secs. 3, 15; 15 U.S.C. 78c, 
78o;
    Sections 240.15b10-1 to 240.15b10-9 also issued under secs. 15, 17, 
48 Stat. 895, 897, sec. 203, 49 Stat. 704, secs. 4, 8, 49 Stat. 1379, 
sec. 5, 52 Stat. 1076, sec. 6, 78 Stat. 570; 15 U.S.C. 78o, 78q, 12 
U.S.C. 241 nt.;
    Section 240.15c2-6, also issued under secs. 3, 10, and 15, 15 U.S.C. 
78c, 78j, and 78o.
    Section 240.15c2-11 also issued under 15 U.S.C. 78j(b), 78o(c), 
78q(a), and 78w(a).
    Section 240.15c2-12 also issued under 15 U.S.C. 78b, 78c, 78j, 78o, 
78o-4 and 78q.
    Section 240.15c3-1 is also issued under secs. 15(c)(3), 15 U.S.C. 
78o(c)(3).
    Section 240.15c3-3 is also issued under 15 U.S.C. 78o(c)(2), 
78(c)(3), 78q(a), 78w(a); sec. 6(c), 84 Stat. 1652; 15 U.S.C. 78fff.
    Section 240.15c3-3(o) is also issued under Pub. L. 106-554, 114 
Stat. 2763, section 203.
    Section 240.15d-5 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a).
    Section 240.15d-10 is also issued under 15 U.S.C. 80a-20(a) and 80a-
37(a), and secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745.
    Section 240.15d-11 is also issued under secs. 3(a) and 306(a), Pub. 
L. 107-204, 116 Stat. 745.
    Section 240.15d-14 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 240.15d-15 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Sections 240.15Ca1-1, 240.15Ca2-1, 240.15Ca2-2, 240.15Ca2-3, 
240.15Ca2-4, 240.15Ca2-5, 240.15Cc1-1 also issued under secs. 3, 15C; 15 
U.S.C. 78c, 78o-5;
    Section 240.17a-3 also issued under secs. 2, 17, 23a, 48 Stat. 897, 
as amended; 15 U.S.C. 78d-1, 78d-2, 78q; secs. 12, 14, 17, 23(a), 48 
Stat. 892, 895, 897, 901; secs. 1, 4, 8, 49 Stat. 1375, 1379; sec. 
203(a), 49 Stat. 704; sec. 5, 52 Stat. 1076; sec. 202, 68 Stat. 686; 
secs. 3, 5, 10, 78 Stat. 565-568, 569, 570, 580; secs. 1, 3, 82 Stat. 
454, 455; secs. 28(c), 3-5, 84 Stat. 1435, 1497; sec. 105(b), 88 Stat. 
1503; secs. 8, 9, 14, 18, 89 Stat. 117, 118, 137, 155; 15 U.S.C. 78l, 
78n, 78q, 78w(a);
    Section 240.17a-4 also issued under secs. 2, 17, 23(a), 48 Stat. 
897, as amended; 15 U.S.C. 78a, 78d-1, 78d-2; sec. 14, Pub. L. 94-29, 89 
Stat. 137 (15 U.S.C. 78a); sec. 18, Pub. L. 94-29, 89 Stat. 155 (15 
U.S.C. 78w);
    Section 240.17a-23 also issued under 15 U.S.C. 78b, 78c, 78o, 78q, 
and 78w(a).
    Section 240.17f-1 is also authorized under sections 2, 17 and 17A, 
48 Stat. 891, 89 Stat. 137, 141 (15 U.S.C. 78b, 78q, 78q-1);
    Section 240.17h-1T also issued under 15 U.S.C. 78q.
    Sections 240.17Ac2-1(c) and 240.17Ac2-2 also issued under secs. 17, 
17A and 23(a); 48 Stat. 897, as amended, 89 Stat. 137, 141 and 48 Stat. 
901 (15 U.S.C. 78q, 78q-1, 78w(a));
    Section 240.17Ad-1 is also issued under secs. 2, 17, 17A and 23(a); 
48 Stat. 841 as amended, 48 Stat. 897, as amended, 89 Stat. 137, 141, 
and 48 Stat. 901 (15 U.S.C. 78b, 78q, 78q-1, 78w);
    Sections 240.17Ad-5 and 240.17Ad-10 are also issued under secs. 3 
and 17A; 48 Stat. 882, as amended, and 89 Stat. (15 U.S.C. 78c and 78q-
1);
    Section 240.17Ad-7 also issued under 15 U.S.C. 78b, 78q, and 78q-1.
    Sections 240.19c-4 also issued under secs. 6, 11A, 14, 15A, 19 and 
23 of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3, and 78s);
    Section 240.19c-5 also issued under Sections 6, 11A, and 19 of the 
Securities Exchange Act of 1934, 48 Stat. 885, as amended, 89 Stat. 111, 
as amended, and 48 Stat. 898, as amended, 15 U.S.C. 78f, 78k-1, and 78s.
    Section 240.31-1 is also issued under sec. 31, 48 Stat. 904, as 
amended (15 U.S.C. 78ee).

    Editorial Note: For nomenclature changes to this part see 57 FR 
36501, Aug. 13, 1992, and 57 FR 47409, Oct. 16, 1992.
    Note: In Sec. Sec. 240.0-1 to 240.24b-3, the numbers to the right 
of the decimal point correspond with the respective rule numbers of the 
rules and regulations under the Securities Exchange Act of 1934.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



  Subpart A_Rules and Regulations Under the Securities Exchange Act of 
                                  1934

                      Rules of General Application



Sec. 240.0-1  Definitions.

    (a) As used in the rules and regulations in this part, prescribed by 
the Commission pursuant to Title I of the Securities Exchange Act of 
1934 (48 Stat. 881-905; 15 U.S.C. chapter 2B), unless the context 
otherwise specifically requires:
    (1) The term Commission means the Securities and Exchange 
Commission.
    (2) The term act means Title I of the Securities Exchange Act of 
1934.

[[Page 15]]

    (3) The term section refers to a section of the Securities Exchange 
Act of 1934. \1\
---------------------------------------------------------------------------

    \1\ The provisions of paragraph (a)(3) of 17 CFR 240.0-1 relate to 
the terminology of rules and regulations as published by the Securities 
and Exchange Commission and are inapplicable to the terminology 
appearing in the Code of Federal Regulations.
---------------------------------------------------------------------------

    (4) The term rules and regulations refers to all rules and 
regulations adopted by the Commission pursuant to the act, including the 
forms for registration and reports and the accompanying instructions 
thereto.
    (5) The term electronic filer means a person or an entity that 
submits filings electronically pursuant to Rules 100 and 101 of 
Regulation S-T (Sec. Sec. 232.100 and 232.101 of this chapter, 
respectively).
    (6) The term electronic filing means a document under the federal 
securities laws that is transmitted or delivered to the Commission in 
electronic format.
    (b) Unless otherwise specifically stated, the terms used in this 
part shall have the meaning defined in the act.
    (c) A rule or regulation which defines a term without express 
reference to the act or to the rules and regulations, or to a portion 
thereof, defines such term for all purposes as used both in the act and 
in the rules and regulations, unless the context otherwise specifically 
requires.
    (d) Unless otherwise specified or the context otherwise requires, 
the term prospectus means a prospectus meeting the requirements of 
section 10(a) of the Securities Act of 1933 as amended.

    Cross References: For definition of ``listed'', see Sec. 240.3b-1; 
``officer'', Sec. 240.3b-2; ``short sale'', Sec. 240.3b-3. For 
additional definitions, see Sec. 240.15c1-1.

[13 FR 8178, Dec. 22, 1948, as amended at 13 FR 9321, Dec. 31, 1948; 19 
FR 6730, Oct. 20, 1954; 58 FR 14682, Mar. 18, 1993; 62 FR 36459, July 8, 
1997]



Sec. 240.0-2  Business hours of the Commission.

    (a) The principal office of the Commission, at 450 Fifth Street, 
NW., Washington, DC 20549, is open each day, except Saturdays, Sundays, 
and federal holidays, from 9 a.m. to 5:30 p.m., Eastern Standard Time or 
Eastern Daylight Saving Time, whichever currently is in effect in 
Washington, DC, provided that hours for the filing of documents pursuant 
to the Act or the rules and regulations thereunder are as set forth in 
paragraphs (b) and (c) of this section.
    (b) Submissions made in paper. Paper documents filed with or 
otherwise furnished to the Commission may be submitted to the Commission 
each day, except Saturdays, Sundays and federal holidays, from 8 a.m. to 
5:30 p.m., Eastern Standard Time or Eastern Daylight Saving Time, 
whichever is currently in effect.
    (c) Electronic filings. Filings made by direct transmission may be 
submitted to the Commission each day, except Saturdays, Sundays and 
federal holidays, from 8 a.m. to 10 p.m., Eastern Standard Time or 
Eastern Daylight Saving Time, whichever is currently in effect.

    Cross References: For registration and exemption of exchanges, see 
Sec. Sec. 240.6a-1 to 240.6a-3. For forms for permanent registration of 
securities, see Sec. 240.12b-1. For regulations relating to 
registration of securities, see Sec. Sec. 240.12b-1 to 240.12b-36. For 
forms for applications for registration of brokers and dealers, see 
Sec. Sec. 240.15b1-1 to 240.15b9-1.

[58 FR 14682, Mar. 18, 1993, as amended at 65 FR 24801, Apr. 27, 2000; 
68 FR 25799, May 13, 2003]



Sec. 240.0-3  Filing of material with the Commission.

    (a) All papers required to be filed with the Commission pursuant to 
the Act or the rules and regulations thereunder shall be filed at the 
principal office in Washington, DC. Material may be filed by delivery to 
the Commission, through the mails or otherwise. The date on which papers 
are actually received by the Commission shall be the date of filing 
thereof if all of the requirements with respect to the filing have been 
complied with, except that if the last day on which papers can be 
accepted as timely filed falls on a Saturday, Sunday or holiday, such 
papers may be filed on the first business day following.
    (b) The manually signed original (or in the case of duplicate 
originals, one duplicate original) of all registrations, applications, 
statements, reports, or other documents filed under the Securities 
Exchange Act of 1934, as amended, shall be numbered sequentially (in

[[Page 16]]

addition to any internal numbering which otherwise may be present) by 
handwritten, typed, printed, or other legible form of notation from the 
facing page of the document through the last page of that document and 
any exhibits or attachments thereto. Further, the total number of pages 
contained in a numbered original shall be set forth on the first page of 
the document.
    (c) Each document filed shall contain an exhibit index, which should 
immediately precede the exhibits filed with such document. The index 
shall list each exhibit filed and identify by handwritten, typed, 
printed, or other legible form of notation in the manually signed 
original, the page number in the sequential numbering system described 
in paragraph (b) of this section where such exhibit can be found or 
where it is stated that the exhibit is incorporated by reference. 
Further, the first page of the manually signed document shall list the 
page in the filing where the exhibit index is located.

[44 FR 4666, Jan. 23, 1979, as amended at 45 FR 58828, Sept. 5, 1980]



Sec. 240.0-4  Nondisclosure of information obtained in examinations and 
investigations.

    Information or documents obtained by officers or employees of the 
Commission in the course of any examination or investigation pursuant to 
section 17(a) (48 Stat. 897, section 4, 49 Stat. 1379; 15 U.S.C. 78q(a)) 
or 21(a) (48 Stat. 899; 15 U.S.C. 78u(a)) shall, unless made a matter of 
public record, be deemed confidential. Except as provided by 17 CFR 
203.2, officers and employees are hereby prohibited from making such 
confidential information or documents or any other non-public records of 
the Commission available to anyone other than a member, officer or 
employee of the Commission, unless the Commission or the General 
Counsel, pursuant to delegated authority, authorizes the disclosure of 
such information or the production of such documents as not being 
contrary to the public interest. Any officer or employee who is served 
with a subpoena requiring the disclosure of such information or the 
production of such documents shall appear in court and, unless the 
authorization described in the preceding sentence shall have been given, 
shall respectfully decline to disclose the information or produce the 
documents called for, basing his or her refusal upon this section. Any 
officer or employee who is served with such a subpoena shall promptly 
advise the General Counsel of the service of such subpoena, the nature 
of the information or documents sought, and any circumstances which may 
bear upon the desirability of making available such information or 
documents.

(Sec. 19, 48 Stat. 85; sec. 20, 48 Stat. 86; sec. 21, 48 Stat. 899; sec. 
23, 48 Stat. 901; sec. 18, 49 Stat. 831; sec. 20, 49 Stat. 833; sec. 
319, 53 Stat. 1173; sec. 321, 53 Stat. 1174; sec. 38, 54 Stat. 841; sec. 
42, 54 Stat. 842; sec. 209, 54 Stat. 853; sec. 211, 54 Stat. 855; sec. 
1, 76 Stat. 394. (15 U.S.C. 77s, 77t, 78u, 78w, 79r, 79t, 77sss, 77uuu, 
80a-37, 80a-41, 80b-9, 80b-11, 78d-1))

[44 FR 50836, Aug. 30, 1979, as amended at 53 FR 17459, May 17, 1988]



Sec. 240.0-5  Reference to rule by obsolete designation.

    Wherever in any rule, form, or instruction book specific reference 
is made to a rule by number or other designation which is now obsolete, 
such reference shall be deemed to be made to the corresponding rule or 
rules in the existing general rules and regulations.

[13 FR 8179, Dec. 22, 1948]



Sec. 240.0-6  Disclosure detrimental to the national defense or foreign policy.

    (a) Any requirement to the contrary notwithstanding, no registration 
statement, report, proxy statement or other document filed with the 
Commission or any securities exchange shall contain any document or 
information which, pursuant to Executive order, has been classified by 
an appropriate department or agency of the United States for protection 
in the interests of national defense or foreign policy.
    (b) Where a document or information is omitted pursuant to paragraph 
(a) of this section, there shall be filed, in lieu of such document or 
information, a statement from an appropriate department or agency of the 
United States to the effect that such document or information has been 
classified or that the

[[Page 17]]

status thereof is awaiting determination. Where a document is omitted 
pursuant to paragraph (a) of this section, but information relating to 
the subject matter of such document is nevertheless included in material 
filed with the Commission pursuant to a determination of an appropriate 
department or agency of the United States that disclosure of such 
information would not be contrary to the interests of national defense 
or foreign policy, a statement from such department or agency to that 
effect shall be submitted for the information of the Commission. A 
registrant may rely upon any such statement in filing or omitting any 
document or information to which the statement relates.
    (c) The Commission may protect any information in its possession 
which may require classification in the interests of national defense or 
foreign policy pending determination by an appropriate department or 
agency as to whether such information should be classified.
    (d) It shall be the duty of the registrant to submit the documents 
or information referred to in paragraph (a) of this section to the 
appropriate department or agency of the United States prior to filing 
them with the Commission and to obtain and submit to the Commission, at 
the time of filing such documents or information, or in lieu thereof, as 
the case may be, the statements from such department or agency required 
by paragraph (b) of this section. All such statements shall be in 
writing.

[33 FR 7682, May 24, 1968]



Sec. 240.0-8  Application of rules to registered broker-dealers.

    Any provision of any rule or regulation under the Act which 
prohibits any act, practice, or course of business by any person if the 
mails or any means or instrumentality of interstate commerce are used in 
connection therewith, shall also prohibit any such act, practice, or 
course of business by any broker or dealer registered pursuant to 
section 15(b) of the Act, or any person acting on behalf of such a 
broker or dealer, irrespective of any use of the mails or any means or 
instrumentality of interstate commerce.

[29 FR 12555, Sept. 3, 1964]



Sec. 240.0-9  Payment of fees.

    All payment of fees shall be made in cash, certified check or by 
United States postal money order, bank cashier's check or bank money 
order payable to the Securities and Exchange Commission, omitting the 
name or title of any official of the Commission. Payment of fees 
required by this section shall be made in accordance with the directions 
set forth in Sec. 202.3a of this chapter.

[61 FR 49959, Sept. 24, 1996]



Sec. 240.0-10  Small entities under the Securities Exchange Act for 
purposes of the Regulatory Flexibility Act.

    For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.), and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the term small business or small organization 
shall:
    (a) When used with reference to an ``issuer'' or a ``person,'' other 
than an investment company, mean an ``issuer'' or ``person'' that, on 
the last day of its most recent fiscal year, had total assets of $5 
million or less;
    (b) When used with reference to an ``issuer'' or ``person'' that is 
an investment company, have the meaning ascribed to those terms by Sec. 
270.0-10 of this chapter;
    (c) When used with reference to a broker or dealer, mean a broker or 
dealer that:
    (1) Had total capital (net worth plus subordinated liabilities) of 
less than $500,000 on the date in the prior fiscal year as of which its 
audited financial statements were prepared pursuant to Sec. 240.17a-
5(d) or, if not required to file such statements, a broker or dealer 
that had total capital (net worth plus subordinated liabilities) of less 
than $500,000 on the last business day of the preceding fiscal year (or 
in the time that it has been in business, if shorter); and
    (2) Is not affiliated with any person (other than a natural person) 
that is

[[Page 18]]

not a small business or small organization as defined in this section;
    (d) When used with reference to a clearing agency, mean a clearing 
agency that:
    (1) Compared, cleared and settled less than $500 million in 
securities transactions during the preceding fiscal year (or in the time 
that it has been in business, if shorter);
    (2) Had less than $200 million of funds and securities in its 
custody or control at all times during the preceding fiscal year (or in 
the time that it has been in business, if shorter); and
    (3) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (e) When used with reference to an exchange, mean any exchange that:
    (1) Has been exempted from the reporting requirements of Sec. 
240.11Aa3-1; and
    (2) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (f) When used with reference to a municipal securities dealer that 
is a bank (including any separately identifiable department or division 
of a bank), mean any such municipal securities dealer that:
    (1) Had, or is a department of a bank that had, total assets of less 
than $10 million at all times during the preceding fiscal year (or in 
the time that it has been in business, if shorter);
    (2) Had an average monthly volume of municipal securities 
transactions in the preceding fiscal year (or in the time it has been 
registered, if shorter) of less than $100,000; and
    (3) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization as defined in this 
section;
    (g) When used with reference to a securities information processor, 
mean a securities information processor that:
    (1) Had gross revenues of less than $10 million during the preceding 
fiscal year (or in the time it has been in business, if shorter);
    (2) Provided service to fewer than 100 interrogation devices or 
moving tickers at all times during the preceding fiscal year (or in the 
time that it has been in business, if shorter); and
    (3) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization under this section; 
and
    (h) When used with reference to a transfer agent, mean a transfer 
agent that:
    (1) Received less than 500 items for transfer and less than 500 
items for processing during the preceding six months (or in the time 
that it has been in business, if shorter);
    (2) Transferred items only of issuers that would be deemed ``small 
businesses'' or ``small organizations'' as defined in this section; and
    (3) Maintained master shareholder files that in the aggregate 
contained less than 1,000 shareholder accounts or was the named transfer 
agent for less than 1,000 shareholder accounts at all times during the 
preceding fiscal year (or in the time that it has been in business, if 
shorter); and
    (4) Is not affiliated with any person (other than a natural person) 
that is not a small business or small organization under this section.
    (i) For purposes of paragraph (c) of this section, a broker or 
dealer is affiliated with another person if:
    (1) Such broker or dealer controls, is controlled by, or is under 
common control with such other person; a person shall be deemed to 
control another person if that person has the right to vote 25 percent 
or more of the voting securities of such other person or is entitled to 
receive 25 percent or more of the net profits of such other person or is 
otherwise able to direct or cause the direction of the management or 
policies of such other person; or
    (2) Such broker or dealer introduces transactions in securities, 
other than registered investment company securities or interests or 
participations in insurance company separate accounts, to such other 
person, or introduces accounts of customers or other brokers or dealers, 
other than accounts that hold only registered investment company 
securities or interests or participations in insurance company separate 
accounts, to such other person that carries such accounts on a fully 
disclosed basis.

[[Page 19]]

    (j) For purposes of paragraphs (d) through (h) of this section, a 
person is affiliated with another person if that person controls, is 
controlled by, or is under common control with such other person; a 
person shall be deemed to control another person if that person has the 
right to vote 25 percent or more of the voting securities of such other 
person or is entitled to receive 25 percent or more of the net profits 
of such other person or is otherwise able to direct or cause the 
direction of the management or policies of such other person.
    (k) For purposes of paragraph (g) of this section, ``interrogation 
device'' shall refer to any device that may be used to read or receive 
securities information, including quotations, indications of interest, 
last sale data and transaction reports, and shall include proprietary 
terminals or personal computers that receive securities information via 
computer-to-computer interfaces or gateway access.

[47 FR 5222, Feb. 4, 1982, as amended at 51 FR 25362, July 14, 1986; 63 
FR 35514, June 30, 1998]



Sec. 240.0-11  Filing fees for certain acquisitions, dispositions and 
similar transactions.

    (a) General. (1) At the time of filing a disclosure document 
described in paragraphs (b) through (d) of this section relating to 
certain acquisitions, dispositions, business combinations, 
consolidations or similar transactions, the person filing the specified 
document shall pay a fee payable to the Commission to be calculated as 
set forth in paragraphs (b) through (d) of this section.
    (2) Only one fee per transaction is required to be paid. A required 
fee shall be reduced in an amount equal to any fee paid with respect to 
such transaction pursuant to either section 6(b) of the Securities Act 
of 1933 or any applicable provision of this rule; the fee requirements 
under section 6(b) shall be reduced in an amount equal to the fee paid 
the Commission with respect to a transaction under this regulation. No 
part of a filing fee is refundable.
    (3) If at any time after the initial payment the aggregate 
consideration offered is increased, an additional filing fee based upon 
such increase shall be paid with the required amended filing.
    (4) When the fee is based upon the market value of securities, such 
market value shall be established by either the average of the high and 
low prices reported in the consolidated reporting system (for exchange 
traded securities and last sale reported over-the-counter securities) or 
the average of the bid and asked price (for other over-the-counter 
securities) as of a specified date within 5 business days prior to the 
date of the filing. If there is no market for the securities, the value 
shall be based upon the book value of the securities computed as of the 
latest practicable date prior to the date of the filing, unless the 
issuer of the securities is in bankruptcy or receivership or has an 
accumulated capital deficit, in which case one-third of the principal 
amount, par value or stated value of the securities shall be used.
    (5) The cover page of the filing shall set forth the calculation of 
the fee in tabular format, as well as the amount offset by a previous 
filing and the identification of such filing, if applicable.
    (b) Section 13(e)(1) filings. At the time of filing such statement 
as the Commission may require pursuant to section 13(e)(1) of the 
Exchange Act, a fee of one-fiftieth of one percent of the value of the 
securities proposed to be acquired by the acquiring person. The value of 
the securities proposed to be acquired shall be determined as follows:
    (1) The value of the securities to be acquired solely for cash shall 
be the amount of cash to be paid for them:
    (2) The value of the securities to be acquired with securities or 
other non-cash consideration, whether or not in combination with a cash 
payment for the same securities, shall be based upon the market value of 
the securities to be received by the acquiring person as established in 
accordance with paragraph (a)(4) of this section.
    (c) Proxy and information statement filings. At the time of filing a 
preliminary proxy statement pursuant to Rule 14a-6(a) or preliminary 
information statement pursuant to Rule 14c-5(a) that concerns a merger, 
consolidation, acquisition of a company, or proposed

[[Page 20]]

sale or other disposition of substantially all the assets of the 
registrant (including a liquidation), the following fee:
    (1) For preliminary material involving a vote upon a merger, 
consolidation or acquisition of a company, a fee of one-fiftieth of one 
percent of the proposed cash payment or of the value of the securities 
and other property to be transferred to security holders in the 
transaction. The fee is payable whether the registrant is acquiring 
another company or being acquired.
    (i) The value of securities or other property to be transferred to 
security holders, whether or not in combination with a cash payment for 
the same securities, shall be based upon the market value of the 
securities to be received by the acquiring person as established in 
accordance with paragraph (a)(4) of this section.
    (ii) Notwithstanding the above, where the acquisition, merger or 
consolidation is for the sole purpose of changing the registrant's 
domicile, no filing fee is required to be paid.
    (2) For preliminary material involving a vote upon a proposed sale 
or other disposition of substantially all the assets of the registrant, 
a fee of one-fiftieth of one percent of the aggregate of the cash and 
the value of the securities (other than its own) and other property to 
be received by the registrant. In the case of a disposition in which the 
registrant will not receive any property, such as at liquidation or 
spin-off, the fee shall be one-fiftieth of one percent of the aggregate 
of the cash and the value of the securities and other property to be 
distributed to security holders.
    (i) The value of the securities to be received (or distributed in 
the case of a spin-off or liquidation) shall be based upon the market 
value of such securities as established in accordance with paragraph 
(a)(4) of this section.
    (ii) The value of other property shall be a bona fide estimate of 
the fair market value of such property.
    (3) Where two or more companies are involved in the transaction, 
each shall pay a proportionate share of such fee, determined by the 
persons involved.
    (4) Notwithstanding the above, the fee required by this paragraph 
(c) shall not be payable for a proxy statement filed by a company 
registered under the Investment Company Act of 1940.
    (d) Schedule 14D-1 filings. At the time of filing a Schedule 14D-1, 
a fee of one-fiftieth of one percent of the aggregate of the cash or of 
the value of the securities or other property offered by the bidder. 
Where the bidder is offering securities or other non-cash consideration 
for some or all of the securities to be acquired, whether or not in 
combination with a cash payment for the same securities, the value of 
the consideration to be offered for such securities shall be based upon 
the market value of the securities to be received by the bidder as 
established in accordance with paragraph (a)(4) of this section.

[51 FR 2476, Jan. 17, 1986, as amended at 58 FR 14682, Mar. 18, 1993; 61 
FR 49959, Sept. 24, 1996]



Sec. 240.0-12  Commission procedures for filing applications for orders 
for exemptive relief under Section 36 of the Exchange Act.

    (a) The application shall be in writing in the form of a letter, 
must include any supporting documents necessary to make the application 
complete, and otherwise must comply with Sec. 240.0-3. All applications 
must be submitted to the Office of the Secretary of the Commission. 
Requestors may seek confidential treatment of their applications to the 
extent provided under Sec. 200.81 of this chapter. If an application is 
incomplete, the Commission, through the Division handling the 
application, may request that the application be withdrawn unless the 
applicant can justify, based on all the facts and circumstances, why 
supporting materials have not been submitted and undertakes to submit 
the omitted materials promptly.
    (b) An applicant may submit a request electronically in standard 
electronic mail text or ASCII format. The electronic mailbox to use for 
these applications is described on the Commission's website at 
www.sec.gov in the ``Exchange Act Exemptive Applications'' subsection 
located under the ``Current SEC Rulemaking'' section. In the event 
electronic mailboxes are revised in the future, applicants can find

[[Page 21]]

the appropriate mailbox by accessing the Commission's website directory 
of electronic mailboxes at http://www.sec.gov/asec/mailboxs.htm.
    (c) An applicant also may submit a request in paper format. Five 
copies of every paper application and every amendment to such an 
application must be submitted to the Office of the Secretary at 450 
Fifth Street, N.W., Washington, D.C. 20549. Applications must be on 
white paper no larger than 8\1/2\ by 11 inches in size. The left margin 
of applications must be at least 1\1/2\ inches wide, and if the 
application is bound, it must be bound on the left side. All typewritten 
or printed material must be on one side of the paper only and must be 
set forth in black ink so as to permit photocopying.
    (d) Every application (electronic or paper) must contain the name, 
address and telephone number of each applicant and the name, address, 
and telephone number of a person to whom any questions regarding the 
application should be directed. The Commission will not consider 
hypothetical or anonymous requests for exemptive relief. Each applicant 
shall state the basis for the relief sought, and identify the 
anticipated benefits for investors and any conditions or limitations the 
applicant believes would be appropriate for the protection of investors. 
Applicants should also cite to and discuss applicable precedent.
    (e) Amendments to the application should be prepared and submitted 
as set forth in these procedures and should be marked to show what 
changes have been made.
    (f) After the filing is complete, the applicable Division will 
review the application. Once all questions and issues have been answered 
to the satisfaction of the Division, the staff will make an appropriate 
recommendation to the Commission. After consideration of the 
recommendation by the Commission, the Commission's Office of the 
Secretary will issue an appropriate response and will notify the 
applicant. If the application pertains to a section of the Exchange Act 
pursuant to which the Commission has delegated its authority to the 
appropriate Division, the Division Director or his or her designee will 
issue an appropriate response and notify the applicant.
    (g) The Commission, in its sole discretion, may choose to publish in 
the Federal Register a notice that the application has been submitted. 
The notice would provide that any person may, within the period 
specified therein, submit to the Commission any information that relates 
to the Commission action requested in the application. The notice also 
would indicate the earliest date on which the Commission would take 
final action on the application, but in no event would such action be 
taken earlier than 25 days following publication of the notice in the 
Federal Register.
    (h) The Commission may, in its sole discretion, schedule a hearing 
on the matter addressed by the application.

[63 FR 8102, Feb. 18. 1998]



Sec. 240.3a1-1  Exemption from the definition of ``Exchange'' under 
Section 3(a)(1) of the Act.

    (a) An organization, association, or group of persons shall be 
exempt from the definition of the term ``exchange'' under section 
3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, 
association, or group of persons:
    (1) Is operated by a national securities association;
    (2) Is in compliance with Regulation ATS, 17 CFR 242.300 through 
242.303; or
    (3) Pursuant to paragraph (a) of Sec. 242.301 of Regulation ATS, 17 
CFR 242.301(a), is not required to comply with Regulation ATS, 17 CFR 
242.300 through 242.303.
    (b) Notwithstanding paragraph (a) of this section, an organization, 
association, or group of persons shall not be exempt under this section 
from the definition of ``exchange,'' if:
    (1) During three of the preceding four calendar quarters such 
organization, association, or group of persons had:
    (i) Fifty percent or more of the average daily dollar trading volume 
in any security and five percent or more of the average daily dollar 
trading volume in any class of securities; or
    (ii) Forty percent or more of the average daily dollar trading 
volume in any class of securities; and
    (2) The Commission determines, after notice to the organization, 
association,

[[Page 22]]

or group of persons, and an opportunity for such organization, 
association, or group of persons to respond, that such an exemption 
would not be necessary or appropriate in the public interest or 
consistent with the protection of investors taking into account the 
requirements for exchange registration under section 6 of the Act, (15 
U.S.C. 78f), and the objectives of the national market system under 
section 11A of the Act, (15 U.S.C 78k-1).
    (3) For purposes of paragraph (b) of this section, each of the 
following shall be considered a ``class of securities'':
    (i) Equity securities, which shall have the same meaning as in Sec. 
240.3a11-1;
    (ii) Listed options, which shall mean any options traded on a 
national securities exchange or automated facility of a national 
securities exchange;
    (iii) Unlisted options, which shall mean any options other than 
those traded on a national securities exchange or automated facility of 
a national securities association;
    (iv) Municipal securities, which shall have the same meaning as in 
section 3(a)(29) of the Act, (15 U.S.C. 78c(a)(29));
    (v) Investment grade corporate debt securities, which shall mean any 
security that:
    (A) Evidences a liability of the issuer of such security;
    (B) Has a fixed maturity date that is at least one year following 
the date of issuance;
    (C) Is rated in one of the four highest ratings categories by at 
least one Nationally Recognized Statistical Ratings Organization; and
    (D) Is not an exempted security, as defined in section 3(a)(12) of 
the Act, (15 U.S.C. 78c(a)(12));
    (vi) Non-investment grade corporate debt securities, which shall 
mean any security that:
    (A) Evidences a liability of the issuer of such security;
    (B) Has a fixed maturity date that is at least one year following 
the date of issuance;
    (C) Is not rated in one of the four highest ratings categories by at 
least one Nationally Recognized Statistical Ratings Organization; and
    (D) Is not an exempted security, as defined in section 3(a)(12) of 
the Act, (15 U.S.C. 78o);
    (vii) Foreign corporate debt securities, which shall mean any 
security that:
    (A) Evidences a liability of the issuer of such debt security;
    (B) Is issued by a corporation or other organization incorporated or 
organized under the laws of any foreign country; and
    (C) Has a fixed maturity date that is at least one year following 
the date of issuance; and
    (viii) Foreign sovereign debt securities, which shall mean any 
security that:
    (A) Evidences a liability of the issuer of such debt security;
    (B) Is issued or guaranteed by the government of a foreign country, 
any political subdivision of a foreign country, or any supranational 
entity; and
    (C) Does not have a maturity date of a year or less following the 
date of issuance.

[63 FR 70917, Dec. 22, 1998]



Sec. 240.3a4-1  Associated persons of an issuer deemed not to be brokers.

    (a) An associated person of an issuer of securities shall not be 
deemed to be a broker solely by reason of his participation in the sale 
of the securities of such issuer if the associated person:
    (1) Is not subject to a statutory disqualification, as that term is 
defined in section 3(a)(39) of the Act, at the time of his 
participation; and
    (2) Is not compensated in connection with his participation by the 
payment of commissions or other remuneration based either directly or 
indirectly on transactions in securities; and
    (3) Is not at the time of his participation an associated person of 
a broker or dealer; and
    (4) Meets the conditions of any one of paragraph (a)(4) (i), (ii), 
or (iii) of this section.
    (i) The associated person restricts his participation to 
transactions involving offers and sales of securities:
    (A) To a registered broker or dealer; a registered investment 
company (or registered separate account); an insurance company; a bank; 
a savings and loan association; a trust company or

[[Page 23]]

similar institution supervised by a state or federal banking authority; 
or a trust for which a bank, a savings and loan association, a trust 
company, or a registered investment adviser either is the trustee or is 
authorized in writing to make investment decisions; or
    (B) That are exempted by reason of section 3(a)(7), 3(a)(9) or 
3(a)(10) of the Securities Act of 1933 from the registration provisions 
of that Act; or
    (C) That are made pursuant to a plan or agreement submitted for the 
vote or consent of the security holders who will receive securities of 
the issuer in connection with a reclassification of securities of the 
issuer, a merger or consolidation or a similar plan of acquisition 
involving an exchange of securities, or a transfer of assets of any 
other person to the issuer in exchange for securities of the issuer; or
    (D) That are made pursuant to a bonus, profit-sharing, pension, 
retirement, thrift, savings, incentive, stock purchase, stock ownership, 
stock appreciation, stock option, dividend reinvestment or similar plan 
for employees of an issuer or a subsidiary of the issuer;
    (ii) The associated person meets all of the following conditions:
    (A) The associated person primarily performs, or is intended 
primarily to perform at the end of the offering, substantial duties for 
or on behalf of the issuer otherwise than in connection with 
transactions in securities; and
    (B) The associated person was not a broker or dealer, or an 
associated person of a broker or dealer, within the preceding 12 months; 
and
    (C) The associated person does not participate in selling an 
offering of securities for any issuer more than once every 12 months 
other than in reliance on paragraph (a)(4)(i) or (iii) of this section, 
except that for securities issued pursuant to rule 415 under the 
Securities Act of 1933, the 12 months shall begin with the last sale of 
any security included within one rule 415 registration.
    (iii) The associated person restricts his participation to any one 
or more of the following activities:
    (A) Preparing any written communication or delivering such 
communication through the mails or other means that does not involve 
oral solicitation by the associated person of a potential purchaser; 
Provided, however, that the content of such communication is approved by 
a partner, officer or director of the issuer;
    (B) Responding to inquiries of a potential purchaser in a 
communication initiated by the potential purchaser; Provided, however, 
That the content of such responses are limited to information contained 
in a registration statement filed under the Securities Act of 1933 or 
other offering document; or
    (C) Performing ministerial and clerical work involved in effecting 
any transaction.
    (b) No presumption shall arise that an associated person of an 
issuer has violated section 15(a) of the Act solely by reason of his 
participation in the sale of securities of the issuer if he does not 
meet the conditions specified in paragraph (a) of this section.
    (c) Definitions. When used in this section:
    (1) The term associated person of an issuer means any natural person 
who is a partner, officer, director, or employee of:
    (i) The issuer;
    (ii) A corporate general partner of a limited partnership that is 
the issuer;
    (iii) A company or partnership that controls, is controlled by, or 
is under common control with, the issuer; or
    (iv) An investment adviser registered under the Investment Advisers 
Act of 1940 to an investment company registered under the Investment 
Company Act of 1940 which is the issuer.
    (2) The term associated person of a broker or dealer means any 
partner, officer, director, or branch manager of such broker or dealer 
(or any person occupying a similar status or performing similar 
functions), any person directly or indirectly controlling, controlled 
by, or under common control with such broker or dealer, or any employee 
of such broker or dealer, except that any person associated with a 
broker or dealer whose functions are solely clerical or ministerial and 
any person who is required under the laws of any State to register as a 
broker or dealer in that State solely because such person is an issuer 
of securities or

[[Page 24]]

associated person of an issuer of securities shall not be included in 
the meaning of such term for purposes of this section.

[50 FR 27946, July 9, 1985]



Sec. 240.3a4-2  Exemption from the definition of ``broker'' for bank 
calculating compensation for effecting transactions in fiduciary accounts.

    (a) A bank that meets the conditions for exception from the 
definition of the term ``broker'' under Section 3(a)(4)(B)(ii) of the 
Act (15 U.S.C. 78c(a)(4)(B)(ii)), except for the ``chiefly compensated'' 
condition in Section 3(a)(4)(B)(ii)(I) of the Act (15 U.S.C. 
78c(a)(4)(B)(ii)(I)), is exempt from the definition of the term 
``broker'' under Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) solely 
for effecting transactions in securities pursuant to Section 
3(a)(4)(B)(ii) of the Act (15 U.S.C. 78c(a)(4)(B)(ii)) if:
    (1) The bank can demonstrate that sales compensation, as defined in 
Sec. 240.3b-17(j), received during the immediately preceding year is 
less than 10% of the total amount of relationship compensation, as 
defined in Sec. 240.3b-17(i), received during that year;
    (2) The bank maintains procedures reasonably designed to ensure 
compliance with the ``chiefly compensated'' condition in Section 
3(a)(4)(B)(ii)(I) of the Act (15 U.S.C. 78c(a)(4)(B)(ii)(I)) with 
respect to a trust or fiduciary account:
    (i) When the account is opened;
    (ii) When the compensation arrangement for the account is changed; 
and
    (iii) When sales compensation, as defined in Sec. 240.3b-17, 
received from the account is reviewed by the bank for purposes of 
determining an employee's compensation; and
    (3) The bank complies with Section 3(a)(4)(C) of the Act (15 U.S.C. 
78c(a)(4)(C)).
    (b) For purposes of this section, the term year means either a 
calendar year or other fiscal year consistently used by the bank for 
recordkeeping and reporting purposes.

[66 FR 27796, May 18, 2001]



Sec. 240.3a4-3  Exemption from the definition of ``broker'' for bank 
effecting transactions as an indenture trustee in a no-load money market fund.

    A bank that meets the conditions for exception from the definition 
of the term ``broker'' under Section 3(a)(4)(B)(ii) of the Act (15 
U.S.C. 78c(a)(4)(B)(ii)), except for the ``chiefly compensated'' 
condition in Section 3(a)(4)(B)(ii)(I) of the Act (15 U.S.C. 
78c(a)(4)(B)(ii)(I)), is exempt from the definition of the term 
``broker'' under Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) solely 
for effecting transactions as an indenture trustee in a no-load money 
market fund, as defined in Sec. 240.3b-17(f) and Sec. 240.3b-17(e), 
respectively.

[66 FR 27796, May 18, 2001]



Sec. 240.3a4-4  Exemption from the definition of ``broker'' for small 

bank effecting transactions in investment company securities in a 
tax-deferred custody account.

    (a) A small bank is exempt from the definition of the term 
``broker'' under Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) solely 
for effecting transactions in securities of an open-end management 
investment company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.) in a tax-deferred account for which the bank 
acts as custodian under Section 3(a)(4)(B)(viii) of the Act (15 U.S.C. 
78c(a)(4)(B)(viii)) if:
    (1) The bank is not associated with a broker or dealer and does not 
have an arrangement with a broker or dealer to effect transactions in 
securities for the bank's customers;
    (2) Any bank employee effecting such transactions:
    (i) Is not an associated person of a broker or dealer;
    (ii) Primarily performs duties for the bank other than effecting 
transactions in securities for customers; and
    (iii) Does not receive compensation for such transactions from the 
bank, the executing broker or dealer, or any other person related to:
    (A) The size, value, or completion of any securities transaction;
    (B) The amount of securities-related assets gathered; or

[[Page 25]]

    (C) The size or value of any customer's securities account;
    (3) The bank complies with Section 3(a)(4)(C) of the Act (15 U.S.C. 
78c(a)(4)(C));
    (4) The bank makes available to the tax-deferred account the 
securities of investment companies that are not affiliated persons, as 
defined in Section 2(a)(3) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(3)), of the bank and that have similar characteristics 
to the securities of investment companies made available that are 
affiliated persons;
    (5) The bank does not solicit securities transactions except through 
the following activities:
    (i) Delivering advertising and sales literature for the security 
that is prepared by the registered broker-dealer that is the principal 
underwriter of an open-end management investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), or 
prepared by an open-end management investment company registered under 
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) that is not 
an affiliated person, as defined in Section 2(a)(3) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(3)), of the bank;
    (ii) Responding to inquiries of a potential purchaser in a 
communication initiated by the potential purchaser; provided, however, 
that the content of such responses is limited to information contained 
in a registration statement for the security of an investment company 
filed under the Securities Act of 1933 (15 U.S.C. 77a et seq.) or sales 
literature prepared by the investment company security's principal 
underwriter that is a registered broker-dealer;
    (iii) Advertising of trust activities, if any, permitted under 
Section 3(a)(4)(B)(ii)(II) of the Act (15 U.S.C. 78c(a)(4)(B)(ii)(II)); 
or
    (iv) Notifying its existing customers that it accepts orders for 
investment company securities in conjunction with solicitations related 
to its other activities concerning tax-deferred accounts; and
    (6) The bank's annual compensation related to effecting transactions 
in securities pursuant to this exemption is less than 3% of its annual 
revenue.
    (b) Definitions. For purposes of this section:
    (1) The phrase compensation related to effecting transactions in 
securities pursuant to this exemption means the total annual 
compensation received for effecting transactions in securities pursuant 
to this exemption, including fees received from investment companies for 
distribution.
    (2) The term networking arrangement means a contractual or other 
written arrangement with a broker or dealer to effect transactions in 
securities for the bank's customers.
    (3) The term principal underwriter has the meaning given in Section 
2(a)(29) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(29)).
    (4) The term revenue means the total annual net interest income and 
noninterest income from the bank's most recent Consolidated Reports of 
Condition and Income (Call Reports) or any successor forms the bank is 
required to file by its appropriate Federal banking agency (as defined 
in Section 3 of the FDIA (12 U.S.C. 1813).
    (5) (i) The term small bank means a bank that:
    (A) Had less than $100 million in assets as of December 31 of both 
of the prior two calendar years; and
    (B) Is not, and since December 31 of the third prior calendar year 
has not been, an affiliate of a bank holding company or a financial 
holding company that as of December 31 of both of the prior two calendar 
years had consolidated assets of more than $1 billion.
    (ii) For purposes of this paragraph (b)(5) the terms affiliate, bank 
holding company, and financial holding company have the same meanings as 
given in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
    (6) The term tax-deferred account means those accounts described in 
Sections 401(a), 403, 408, and 408A under Subchapter D and in Section 
457 under Subchapter E of the Internal Revenue Code of 1986 (26 U.S.C. 1 
et seq.).

[66 FR 27796, May 18, 2001]

[[Page 26]]



Sec. 240.3a4-5  Exemption from the definition of ``broker'' for banks 
effecting transactions in securities in a custody account.

    (a) A bank is exempt from the definition of the term ``broker'' 
under Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) solely for 
effecting transactions in securities in an account for which the bank 
acts as custodian under Section 3(a)(4)(B)(viii) of the Act (15 U.S.C. 
78c(a)(4)(B)(viii)) if:
    (1) The bank does not directly or indirectly receive any 
compensation for effecting such transactions;
    (2) Any bank employee effecting such transactions:
    (i) Is not an associated person of a broker or dealer;
    (ii) Primarily performs duties for the bank other than effecting 
transactions in securities for customers;
    (iii) Does not receive compensation for such transactions related 
to:
    (A) The size, value, or completion of any securities transaction;
    (B) The amount of securities-related assets gathered; or
    (C) The size or value of any customer's securities account; and
    (iv) Does not receive compensation for the referral of any customer 
to the broker or dealer;
    (3) The bank complies with Section 3(a)(4)(C) of the Act (15 U.S.C. 
78c(a)(4)(C));
    (4) The bank makes available to the account the securities of 
investment companies with similar characteristics that are not 
affiliated persons, as defined in Section 2(a)(3) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(3)), of the bank, if the bank 
makes available the securities of investment companies that are 
affiliated persons, as defined in Section 2(a)(3) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(3)); and
    (5) The bank does not solicit securities transactions except through 
the following activities:
    (i) Delivering advertising and sales literature for the security 
that is prepared by the registered broker-dealer that is the principal 
underwriter of an investment company, or prepared by an investment 
company that is not an affiliated person, as defined in Section 2(a)(3) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)), of the 
bank;
    (ii) Responding to inquiries of a potential purchaser in a 
communication initiated by the potential purchaser of the security; 
provided, however, that the content of such responses is limited to 
information contained in a registration statement for the security filed 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) or sales 
literature prepared by the principal underwriter that is a registered 
broker-dealer;
    (iii) Advertising of trust activities, if any, permitted under 
Section 3(a)(4)(B)(ii)(II) of the Act (15 U.S.C. 78c(a)(4)(B)(ii)(II)); 
and
    (iv) Notifying its existing customers that it accepts orders for 
securities in conjunction with solicitations related to its other 
custody activities.
    (b) For purposes of this section, the term principal underwriter has 
the meaning given in Section 2(a)(29) of the Investment Company Act of 
1940 (15 U.S.C. 80a-2(a)(29)).

[66 FR 27796, May 18, 2001]



Sec. 240.3a4-6  Exemption from the definition of ``broker'' for banks 

that execute transactions in investment company securities through NSCC 
Mutual Fund Services.

    A bank that meets the conditions for an exception or exemption from 
the definition of the term ``broker,'' except for the condition in 
Section 3(a)(4)(C)(i) of the Act (15 U.S.C. 78c(a)(4)(C)(i)), is exempt 
from such condition solely for transactions in investment company 
securities effected through the National Securities Clearing 
Corporation's Mutual Fund Services.

[66 FR 27796, May 18, 2001]



Sec. 240.3a5-1  Exemption from the definition of ``dealer'' for a bank 
engaged in riskless principal transactions.

    (a) A bank is exempt from the definition of the term ``dealer'' to 
the extent that it engages in or effects riskless principal transactions 
if the number of such riskless principal transactions during a calendar 
year combined with transactions in which the bank is acting as an agent 
for a customer pursuant to section 3(a)(4)(B)(xi) of the Act (15 U.S.C. 
78c(a)(4)(B)(xi)) during that same year does not exceed 500.

[[Page 27]]

    (b) For purposes of this section, the term riskless principal 
transaction means a transaction in which, after having received an order 
to buy from a customer, the bank purchased the security from another 
person to offset a contemporaneous sale to such customer or, after 
having received an order to sell from a customer, the bank sold the 
security to another person to offset a contemporaneous purchase from 
such customer.

[68 FR 8700, Feb. 24, 2003]

   Definition of ``Equity Security'' as Used in Sections 12(g) and 16



Sec. 240.3a11-1.  Definition of the term ``equity security.''

    The term equity security is hereby defined to include any stock or 
similar security, certificate of interest or participation in any profit 
sharing agreement, preorganization certificate or subscription, 
transferable share, voting trust certificate or certificate of deposit 
for an equity security, limited partnership interest, interest in a 
joint venture, or certificate of interest in a business trust; any 
security future on any such security; or any security convertible, with 
or without consideration into such a security, or carrying any warrant 
or right to subscribe to or purchase such a security; or any such 
warrant or right; or any put, call, straddle, or other option or 
privilege of buying such a security from or selling such a security to 
another without being bound to do so.

[67 FR 19673, Apr. 23, 2002]

                        Miscellaneous Exemptions



Sec. 240.3a12-1  Exemption of certain mortgages and interests in mortgages.

    Mortgages, as defined in section 302(d) of the Emergency Home 
Finance Act of 1970, which are or have been sold by the Federal Home 
Loan Mortgage Corporation are hereby exempted from the operation of such 
provisions of the Act as by their terms do not apply to an ``exempted 
security'' or to ``exempted securities''.

(Sec. 3(a)(12), 48 Stat. 882, 15 U.S.C. 78(c))

[37 FR 25167, Nov. 28, 1972]



Sec. 240.3a12-2  [Reserved]



Sec. 240.3a12-3  Exemption from sections 14(a), 14(b), 14(c), 14(f) 
and 16 for securities of certain foreign issuers.

    (a) Securities for which the filing of registration statements on 
Form 18 [17 CFR 249.218] are authorized shall be exempt from the 
operation of sections 14 and 16 of the Act.
    (b) Securities registered by a foreign private issuer, as defined in 
Rule 3b-4 (Sec. 240.3b-4 of this chapter), shall be exempt from 
sections 14(a), 14(b), 14(c), 14(f) and 16 of the Act.

[44 FR 70137, Dec. 6, 1979, as amended at 47 FR 54780, Dec. 6, 1982; 56 
FR 30067, July 1, 1991]



Sec. 240.3a12-4  Exemptions from sections 15(a) and 15(c)(3) for certain 
mortgage securities.

    (a) When used in this Rule the following terms shall have the 
meanings indicated:
    (1) The term whole loan mortgage means an evidence of indebtedness 
secured by mortgage, deed of trust, or other lien upon real estate or 
upon leasehold interests therein where the entire mortgage, deed or 
other lien is transferred with the entire evidence of indebtedness.
    (2) The term aggregated whole loan mortgage means two or more whole 
loan mortgages that are grouped together and sold to one person in one 
transaction.
    (3) The term participation interest means an undivided interest 
representing one of only two such interests in a whole loan mortgage or 
in an aggregated whole loan mortgage, provided that the other interest 
is retained by the originator of such participation interest.
    (4) The term commitment means a contract to purchase a whole loan 
mortgage, an aggregated whole loan mortgage or a participation interest 
which by its terms requires that the contract be fully executed within 2 
years.
    (5) The term mortgage security means a whole loan mortgage, an 
aggregated whole loan mortgage, a participation interest, or a 
commitment.
    (b) A mortgage security shall be deemed an ``exempted security'' for 
purposes of subsections (a) and (c)(3) of

[[Page 28]]

section 15 of the Act provided that, in the case of and at the time of 
any sale of the mortgage security by a broker or dealer, such mortgage 
security is not in default and has an unpaid principal amount of at 
least $50,000.

[39 FR 19945, June 5, 1974]



Sec. 240.3a12-5  Exemption of certain investment contract securities 
from sections 7(c) and 11(d)(1).

    (a) An investment contract security involving the direct ownership 
of specified residential real property shall be exempted from the 
provisions of sections 7(c) and 11(d)(1) of the Act with respect to any 
transaction by a broker or dealer who, directly or indirectly, arranges 
for the extension or maintenance of credit on the security to or from a 
customer, if the credit:
    (1) Is secured by a lien, mortgage, deed of trust, or any other 
similar security interest related only to real property: Provided, 
however, That this provision shall not prevent a lender from requiring 
(i) a security interest in the common areas and recreational facilities 
or furniture and fixtures incidental to the investment contract if the 
purchase of such furniture and fixtures is required by, or subject to 
the approval of, the issuer, as a condition of purchase; or (ii) an 
assignment of future rentals in the event of default by the purchaser or 
a co-signer or guarantor on the debt obligation other than the issuer, 
its affiliates, or any broker or dealer offering such securities;
    (2) Is to be repaid by periodic payments of principal and interest 
pursuant to an amortization schedule established by the governing 
instruments: Provided, however, That this provision shall not prevent 
the extension of credit on terms which require the payment of interest 
only, if extended in compliance with the other provisions of this rule; 
and
    (3) Is extended by a lender which is not, directly or indirectly 
controlling, controlled by, or under common control with the broker or 
dealer or the issuer of the securities or affiliates thereof.
    (b) For purposes of this rule:
    (1) Residential real property shall mean real property containing 
living accommodations, whether used on a permanent or transient basis, 
and may include furniture or fixtures if required as a condition of 
purchase of the investment contract or if subject to the approval of the 
issuer.
    (2) Direct ownership shall mean ownership of a fee or leasehold 
estate or a beneficial interest in a trust the purchase of which, under 
applicable local law, is financed and secured by a security interest 
therein similar to a mortgage or deed of trust, but it shall not include 
an interest in a real estate investment trust, an interest in a general 
or limited partnership, or similar indirect interest in the ownership of 
real property.

(Sec. 3(a)(12), 48 Stat. 882, as amended 84 Stat. 718, 1435, 1499 (15 
U.S.C. 78c(12)); sec. 7(c), 48 Stat. 886, as amended 82 Stat. 452 (15 
U.S.C. 78g(c)); sec. 11(d)(1), 48 Stat. 891 as amended 68 Stat. 636 (15 
U.S.C. 78k(d)(1)); sec. 15(c), 48 Stat. 895, as amended 52 Stat. 1075, 
84 Stat. 1653 (15 U.S.C. 78o(c)); sec. 23(a), 48 Stat. 901, as amended 
49 Stat. 704, 1379 (15 U.S.C. 78w(a)))

[40 FR 6646, Feb. 13, 1975]



Sec. 240.3a12-6  Definition of ``common trust fund'' as used in 
section 3(a)(12) of the Act.

    The term common trust fund as used in section 3(a)(12) of the Act 
(15 U.S.C. 78c(a)(12)) shall include a common trust fund which is 
maintained by a bank which is a member of an affiliated group, as 
defined in section 1504(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 1504(a)), and which is maintained exclusively for the collective 
investment and reinvestment of monies contributed thereto by one or more 
bank members of such affiliated group in the capacity of trustee, 
executor, administrator, or guardian; Provided, That:
    (a) The common trust fund is operated in compliance with the same 
state and federal regulatory requirements as would apply if the bank 
maintaining such fund and any other contributing banks were the same 
entity; and
    (b) The rights of persons for whose benefit a contributing bank acts 
as trustee, executor, administrator, or guardian would not be diminished 
by

[[Page 29]]

reason of the maintenance of such common trust fund by another bank 
member of the affiliated group.

(15 U.S.C. 78c(b))

[43 FR 2392, Jan. 17, 1978]



Sec. 240.3a12-7  Exemption for certain derivative securities traded 
otherwise than on a national securities exchange.

    Any put, call, straddle, option, or privilege traded exclusively 
otherwise than on a national securities exchange and for which 
quotations are not disseminated through an automated quotation system of 
a registered securities association, which relates to any securities 
which are direct obligations of, or obligations guaranteed as to 
principal or interest by, the United States, or securities issued or 
guaranteed by a corporation in which the United States has a direct or 
indirect interest as shall be designated for exemption by the Secretary 
of the Treasury pursuant to section 3(a)(12) of the Act, shall be exempt 
from all provisions of the Act which by their terms do not apply to any 
``exempted security'' or ``exempted securities,'' provided that the 
securities underlying such put, call, straddle, option or privilege 
represent an obligation equal to or exceeding $250,000 principal amount.

(15 U.S.C. 78a et seq., and particularly secs. 3(a)(12), 15(a)(2) and 
23(a) (15 U.S.C. 78c(a)(12), 78o(a)(2) and 78w(a)))

[49 FR 5073, Feb. 10, 1984]



Sec. 240.3a12-8  Exemption for designated foreign government securities 
for purposes of futures trading.

    (a) When used in this Rule, the following terms shall have the 
meaning indicated:
    (1) The term designated foreign government security shall mean a 
security not registered under the Securities Act of 1933 nor the subject 
of any American depositary receipt so registered, and representing a 
debt obligation of the government of
    (i) The United Kingdom of Great Britain and Northern Ireland;
    (ii) Canada;
    (iii) Japan;
    (iv) The Commonwealth of Australia;
    (v) The Republic of France;
    (vi) New Zealand;
    (vii) The Republic of Austria;
    (viii) The Kingdom of Denmark;
    (ix) The Republic of Finland;
    (x) The Kingdom of the Netherlands;
    (xi) Switzerland;
    (xii) The Federal Republic of Germany;
    (xiii) The Republic of Ireland;
    (xiv) The Republic of Italy;
    (xv) The Kingdom of Spain;
    (xvi) The United Mexican States;
    (xvii) The Federative Republic of Brazil;
    (xviii) The Republic of Argentina;
    (xix) The Republic of Venezuela;
    (xx) The Kingdom of Belgium; or
    (xxi) The Kingdom of Sweden.
    (2) The term qualifying foreign futures contracts shall mean any 
contracts for the purchase or sale of a designated foreign government 
security for future delivery, as ``future delivery'' is defined in 7 
U.S.C. 2, provided such contracts require delivery outside the United 
States, any of its possessions or territories, and are traded on or 
through a board of trade, as defined at 7 U.S.C. 2.
    (b) Any designated foreign government security shall, for purposes 
only of the offer, sale or confirmation of sale of qualifying foreign 
futures contracts, be exempted from all provisions of the Act which by 
their terms do not apply to an ``exempted security'' or ``exempted 
securities.''

(15 U.S.C. 78a et seq., and particularly secs. 3(a)(12), and 23(a) 15 
U.S.C. 78c(a)(12), and 78w(a))

[49 FR 8599, Mar. 8, 1984, as amended at 51 FR 25998, July 18, 1986; 52 
FR 8877, Mar. 20, 1987; 52 FR 42279, Nov. 4, 1987; 53 FR 43863, Oct. 31, 
1988; 57 FR 1378, Jan. 14, 1992; 59 FR 54815, Nov. 2, 1994; 60 FR 62326, 
Dec. 6, 1995; 61 FR 10274, Mar. 13, 1996; 64 FR 10567, Mar. 5, 1999; 64 
FR 29553, June 2, 1999



Sec. 240.3a12-9  Exemption of certain direct participation program 
securities from the arranging provisions of sections 7(c) and 11(d)(1).

    (a) Direct participation program securities sold on a basis whereby 
the purchase price is paid to the issuer in one or more mandatory 
deferred payments shall be deemed to be exempted securities for purposes 
of the arranging provisions of sections 7(c) and 11(d)(1) of the Act, 
provided that:

[[Page 30]]

    (1) The securities are registered under the Securities Act of 1933 
or are sold or offered exclusively on an intrastate basis in reliance 
upon section 3(a)(11) of that Act;
    (2) The mandatory deferred payments bear a reasonable relationship 
to the capital needs and program objectives described in a business 
development plan disclosed to investors in a registration statement 
filed with the Commission under the Securities Act of 1933 or, where no 
registration statement is required to be filed with the Commission, as 
part of a statement filed with the relevant state securities 
administrator;
    (3) Not less than 50 percent of the purchase price of the direct 
participation program security is paid by the investor at the time of 
sale;
    (4) The total purchase price of the direct participation program 
security is due within three years in specified property programs or two 
years in non-specified property programs. Such pay-in periods are to be 
measured from the earlier of the completion of the offering or one year 
following the effective date of the offering.
    (b) For purposes of this rule:
    (1) Direct participation program shall mean a program financed 
through the sale of securities, other than securities that are listed on 
an exchange, quoted on NASDAQ, or will otherwise be actively traded 
during the pay-in period as a result of efforts by the issuer, 
underwriter, or other participants in the initial distribution of such 
securities, that provides for flow-through tax consequences to its 
investors; Provided, however, That the term ``direct participation 
program'' does not include real estate investment trusts, Subchapter S 
corporate offerings, tax qualified pension and profit sharing plans 
under sections 401 and 403(a) of the Internal Revenue Code (``Code''), 
tax shelter annuities under section 403(b) of the Code, individual 
retirement plans under section 408 of the Code, and any issuer, 
including a separate account, that is registered under the Investment 
Company Act of 1940.
    (2) Business development plan shall mean a specific plan describing 
the program's anticipated economic development and the amounts of future 
capital contributions, in the form of mandatory deferred payments, to be 
required at specified times or upon the occurrence of certain events.
    (3) Specified property program shall mean a direct participation 
program in which, at the date of effectiveness, more than 75 percent of 
the net proceeds from the sale of program securities are committed to 
specific purchases or expenditures. Non-specified property program shall 
mean any other direct participation program.

[51 FR 8801, Mar. 14, 1986]



Sec. 240.3a12-10  Exemption of certain securities issued by the Resolution 
Funding Corporation.

    Securities that are issued by the Resolution Funding Corporation 
pursuant to section 21B(f) of the Federal Home Loan Bank Act (12 U.S.C. 
1421 et seq.) are exempt from the operation of all provisions of the Act 
that by their terms do not apply to any ``exempted security'' or to 
``exempted securities.''

[54 FR 37789, Sept. 13, 1989]



Sec. 240.3a12-11  Exemption from sections 8(a), 14(a), 14(b), and 14(c) 
for debt securities listed on a national securities exchange.

    (a) Debt securities that are listed for trading on a national 
securities exchange shall be exempt from the restrictions on borrowing 
of section 8(a) of the Act (15 U.S.C. 78h(a)).
    (b) Debt securities registered pursuant to the provisions of section 
12(b) of the Act (15 U.S.C. 78l(b)) shall be exempt from sections 14(a), 
14(b), and 14(c) of the Act (15 U.S.C. 78n(a), (b), and (c)), except 
that Sec. Sec. 240.14a-1, 240.14a-2(a), 240.14a-9, 240.14a-13, 240.14b-
1, 240.14b-2, 240.14c-1, 240.14c-6 and 240.14c-7 shall continue to 
apply.
    (c) For purposes of this section, debt securities is defined to mean 
any securities that are not ``equity securities'' as defined in section 
3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and Sec. 240.3a11-1 
thereunder.

[59 FR 55347, Nov. 7, 1994]

[[Page 31]]



Sec. 240.3a40-1  Designation of financial responsibility rules.

    The term financial responsibility rules for purposes of the 
Securities Investor Protection Act of 1970 shall include:
    (a) Any rule adopted by the Commission pursuant to sections 8, 
15(c)(3), 17(a) or 17(e)(1)(A) of the Securities Exchange Act of 1934;
    (b) Any rule adopted by the Commission relating to hypothecation or 
lending of customer securities;
    (c) Any rule adopted by any self-regulatory organization relating to 
capital, margin, recordkeeping, hypothecation or lending requirements; 
and
    (d) Any other rule adopted by the Commission or any self-regulatory 
organization relating to the protection of funds or securities.

(Secs. 3, 15(c)(3), 17(a) and 23 (15 U.S.C. 78c, 78o, 78q(a) and 78u))

[44 FR 28318, May 15, 1979]



Sec. 240.3a43-1  Customer-related government securities activities 

incidental to the futures-related business of a futures commission 
merchant registered with the Commodity Futures Trading Commission.

    (a) A futures commission merchant registered with the Commodity 
Futures Trading Commission (``CFTC'') is not a government securities 
broker or government securities dealer solely because such futures 
commission merchant effects transactions in government securities that 
are defined in paragraph (b) of this section as incidental to such 
person's futures-related business.
    (b) Provided that the futures commission merchant maintains in a 
regulated account all funds and securities associated with such 
government securities transactions (except funds and securities 
associated with transactions under paragraph (b)(1)(i) of this section 
and does not advertise that it is in the business of effecting 
transactions in government securities otherwise than in connection with 
futures or options on futures trading or the investment of margin or 
excess funds related to such trading or the trading of any other 
instrument subject to CFTC jurisdiction, the following transactions in 
government securities are incidental to the futures-related business of 
such a futures commission merchant:
    (1) Transactions as agent for a customer--
    (i) To effect delivery pursuant to a futures contract; or
    (ii) For risk reduction or arbitrage of existing or 
contemporaneously created postions in futures or options on futures;
    (2) Transactions as agent for a customer for investment of margin 
and excess funds related to futures or options on futures trading or the 
trading of other instruments subject to CFTC jurisdiction, provided 
further that,
    (i) Such transactions involve Treasury securities with a maturity of 
less than 93 days at the time of the transation.
    (ii) Such transactions generate no monetary profit for the futures 
commission merchant in excess of the costs of executing such 
transactions, or
    (iii) Such transactions are unsolicited, and commissions and other 
income generated on transactions pursuant to this paragraph (b)(2)(iii) 
(including transactional fees paid by the futures commission merchant 
and charged to its customer) do not exceed 2% of such futures commission 
merchant's total commission revenues;
    (3) Exchange of futures for physicals transactions as agent for or 
as principal with a customer; and
    (4) Any transaction or transactions that the Commission exempts, 
either unconditionally or on specified terms and conditions, as 
incidental to the futures-related business of a specified futures 
commission merchant, a specified category of futures commission 
merchants, or futures commission merchants generally.
    (c) Definitions. (1) Customer means any person for whom the futures 
commission merchant effects or intends to effect transactions in 
futures, options on futures, or any other instruments subject to CFTC 
jurisdiction.
    (2) Regulated account means a customer segregation account subject 
to the regulations of the CFTC; provided, however, that, where such 
regulations do not permit to be maintained in such an account or require 
to be maintained in a separate regulated account funds or securities in 
proprietary accounts or

[[Page 32]]

funds or securities used as margin for or excess funds related to 
futures contracts, options on futures or any other instruments subject 
to CFTC jurisdiction that trade outside the United States, its 
territories, or possessions, the term regulated account means such 
separate regulated account or any other account subject to record-
keeping regulations of the CFTC.
    (3) Unsolicited transaction means a transaction that is not effected 
in a discretionary account or recommended to a customer by the futures 
commission merchant, an associated person of a futures commission 
merchant, a business affiliate that is controlled by, controlling, or 
under common control with the futures commission merchant, or an 
introducing broker that is guaranteed by the futures commission 
merchant.
    (4) Futures and futures contracts mean contracts of sale of a 
commodity for future delivery traded on or subject to the rules of a 
contract market designated by the CFTC or traded on or subject to the 
rules of any board of trade located outside the United States, its 
territories, or possessions.
    (5) Options on futures means puts or calls on a futures contract 
traded on or subject to the rules of a contract market designated by the 
CFTC or traded or subject to the rules of any board of trade located 
outside the United States, its territories, or possessions.

[52 FR 27969, July 24, 1987]



Sec. 240.3a44-1  Proprietary government securities transactions 
incidental to the futures-related business of a CFTC-regulated person.

    (a) A person registered with the Commodity Futures Trading 
Commission (``CFTC''), a contract market designated by the CFTC, such a 
contract market's affiliated clearing organization, or any floor trader 
or such a contract market (hereinafter referred to collectively as a 
``CFTC-regulated person'') is not a government securities dealer solely 
because such person effects transactions for its own account in 
government securities that are defined in paragraph (b) of this section 
as incidental to such person's futures-related business.
    (b) Provided that a CFTC-regulated person does not advertise or 
otherwise hold itself out as a government securities dealer except as 
permitted under rule 3a43-1 (Sec. 240.3a43-1) the following 
transactions in government securities for its own account are incidental 
to the futures-related business of such a CFTC-regulated person:
    (1) Transactions to effect delivery of a government security 
pursuant to a futures contract;
    (2) Exchange of futures for physicals transactions with (i) a 
government securities broker or government securities dealer that has 
registered with the Commission or filed notice pursuant to section 
15C(a) of the Act or (ii) a CFTC-regulated person;
    (3) Transactions (including repurchase agreements and reverse 
repurchase agreements) involving segregated customer funds and 
securities or funds and securities held by a clearing organization with 
(i) a government securities broker or government securities dealer that 
has registered with the Commission of filed notice pursuant to section 
15C(a) of the Act or (ii) a bank;
    (4) Transactions for risk reduction or arbitrage of existing or 
contemporaneously created positions in futures or options on futures 
with (i) a government securities broker or government securities dealer 
that has registered with the Commission or filed notice pursuant to 
section 15C(a) of the Act or (ii) a CFTC-regulated person;
    (5) Repurchase and reverse repurchase agreement transactions between 
a futures commission merchant acting in a proprietary capacity and 
another CFTC-regulated person acting in a proprietary capacity and 
contemporaneous offsetting transactions between such a futures 
commission merchant and (i) a government securities broker or government 
securities dealer that has registered with the Commission or filed 
notice pursuant to section 15C(a) of the Act, (ii) a bank, or (iii) a 
CFTC-regulated person acting in a proprietary capacity; and
    (6) Any transaction or transactions that the Commission exempts, 
either unconditionally or on specified terms and conditions, as 
incidental to the futures related business of a specified

[[Page 33]]

CFTC-regulated person, a specified category of CFTC-regulated persons, 
or CFTC-regulated persons generally.
    (c) Definitions. (1) Segregated customer funds means funds subject 
to CFTC segregation requirements.
    (2) Futures and futures contracts means contracts of sale of a 
commodity for future delivery traded on or subject to the rules of a 
contract market designated by the CFTC or traded on or subject to the 
rules of any board of trade located outside the United States, its 
territories, or possessions.
    (3) Options on futures means puts or calls on a futures contract 
traded on or subject to the rules of a contract market designated by the 
CFTC or traded on or subject to the rules of any board of trade located 
outside the United States, its territories, or possessions.

[52 FR 27970, July 24, 1987]



Sec. 240.3a51-1  Definition of ``penny stock''.

    For purposes of section 3(a)(51) of the Act, the term ``penny 
stock'' shall mean any equity security other than a security:
    (a) That is a reported security, as defined in 17 CFR 240.11Aa3-1(a) 
of this chapter;

except that a security that is registered on the American Stock 
Exchange, Inc. pursuant to the listing criteria of the Emerging Company 
Marketplace, but that does not otherwise satisfy the requirements of 
paragraph (b), (c), or (d) of this section, shall be a penny stock for 
purposes of section 15(b)(6) of the Act;
    (b) That is issued by an investment company registered under the 
Investment Company Act of 1940;
    (c) That is a put or call option issued by the Options Clearing 
Corporation;
    (d) Except for purposes of section 7(b) of the Securities Act and 
Rule 419 (17 CFR 230.419), that has a price of five dollars or more;
    (1) For purposes of paragraph (d) of this section:
    (i) A security has a price of five dollars or more for a particular 
transaction if the security is purchased or sold in that transaction at 
a price of five dollars or more, excluding any broker or dealer 
commission, commission equivalent, mark-up, or mark-down; and
    (ii) Other than in connection with a particular transaction, a 
security has a price of five dollars or more at a given time if the 
inside bid quotation is five dollars or more; provided, however, that if 
there is no such inside bid quotation, a security has a price of five 
dollars or more at a given time if the average of three or more 
interdealer bid quotations at specified prices displayed at that time in 
an interdealer quotation system, as defined in 17 CFR 240.15c2-7(c)(1), 
by three or more market makers in the security, is five dollars or more.
    (iii) The term ``inside bid quotation'' shall mean the highest bid 
quotation for the security displayed by a market maker in the security 
on an automated interdealer quotation system that has the 
characteristics set forth in section 17B(b)(2) of the Act, or such other 
automated interdealer quotation system designated by the Commission for 
purposes of this section, at any time in which at least two market 
makers are contemporaneously displaying on such system bid and offer 
quotations for the security at specified prices.
    (2) If a security is a unit composed of one or more securities, the 
unit price divided by the number of shares of the unit that are not 
warrants, options, rights, or similar securities must be five dollars or 
more, as determined in accordance with paragraph (d)(1) of this section, 
and any share of the unit that is a warrant, option, right, or similar 
security, or a convertible security, must have an exercise price or 
conversion price of five dollars or more;
    (e) That is registered, or approved for registration upon notice of 
issuance, on a national securities exchange that makes transaction 
reports available pursuant to 17 CFR 240.11Aa3-1 of this chapter, 
provided that:
    (1) Price and volume information with respect to transactions in 
that security is required to be reported on a current and continuing 
basis and is made available to vendors of market information pursuant to 
the rules of the national securities exchange; and
    (2) The security is purchased or sold in a transaction that is 
effected on or

[[Page 34]]

through the facilities of the national securities exchange, or that is 
part of a distribution of the security;

except that a security that satisfies the requirements of this 
paragraph, but that does not otherwise satisfy the requirements of 
paragraph (a), (b), (c), or (d) of this section, shall be a penny stock 
for purposes of Section 15(b)(6) of the Act;
    (f) That is authorized, or approved for authorization upon notice of 
issuance, for quotation in the National Association of Securities 
Dealers' Automated Quotation system (NASDAQ), provided that price and 
volume information with respect to transactions in that security is 
required to be reported on a current and continuing basis and is made 
available to vendors of market information pursuant to the rules of the 
National Association of Securities Dealers, Inc.;


except that a security that satisfies the requirements of this 
paragraph, but that does not otherwise satisfy the requirements of 
paragraphs (a), (b), (c), or (d) of this section, shall be a penny stock 
for purposes of section 15(b)(6) of the Act; or
    (g) Whose issuer has:
    (1) Net tangible assets (i.e., total assets less intangible assets 
and liabilities) in excess of $2,000,000, if the issuer has been in 
continuous operation for at least three years, or $5,000,000, if the 
issuer has been in continuous operation for less than three years; or
    (2) Average revenue of at least $6,000,000 for the last three years.
    (3) For purposes of paragraph (g) of this section, net tangible 
assets or average revenues must be demonstrated by financial statements 
dated less than fifteen months prior to the date of the transaction that 
the broker or dealer has reviewed and has a reasonable basis for 
believing are accurate in relation to the date of the transaction, and:
    (i) If the issuer is other than a foreign private issuer, are the 
most recent financial statements for the issuer that have been audited 
and reported on by an independent public accountant in accordance with 
the provisions of 17 CFR 210.2-02; or
    (ii) If the issuer is a foreign private issuer, are the most recent 
financial statements for the issuer that have been filed with the 
Commission or furnished to the Commission pursuant to 17 CFR 240.12g3-
2(b); provided, however, that if financial statements for the issuer 
dated less than fifteen months prior to the date of the transaction have 
not been filed with or furnished to the Commission, financial statements 
dated within fifteen months prior to the transaction shall be prepared 
in accordance with generally accepted accounting principles in the 
country of incorporation, audited in compliance with the requirements of 
that jurisdiction, and reported on by an accountant duly registered and 
in good standing in accordance with the regulations of that 
jurisdiction.
    (4) The broker or dealer shall preserve, as part of its records, 
copies of the financial statements required by paragraph (g)(3) of this 
section for the period specified in 17 CFR 240.17a-4(b).

[57 FR 18032, Apr. 28, 1992, as amended at 58 FR 58101, Oct. 29, 1993]



Sec. 240.3a55-1  Method for determining market capitalization and dollar 

value of average daily trading volume; application of the definition of 
narrow-based security index.

    (a) Market capitalization. For purposes of Section 
3(a)(55)(C)(i)(III)(bb) of the Act (15 U.S.C. 
78c(a)(55)(C)(i)(III)(bb)):
    (1) On a particular day, a security shall be 1 of 750 securities 
with the largest market capitalization as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the CFTC as applicable for that day.
    (2) In the event that the Commission and the CFTC have not 
designated a list under paragraph (a)(1) of this section:
    (i) The method to be used to determine market capitalization of a 
security as of the preceding 6 full calendar months is to sum the values 
of the market capitalization of such security for each U.S. trading day 
of the preceding 6 full calendar months, and to divide this sum by the 
total number of such trading days.
    (ii) The 750 securities with the largest market capitalization shall 
be identified from the universe of all reported securities, as defined 
in Sec. 240.11Ac1-1,

[[Page 35]]

that are common stock or depositary shares.
    (b) Dollar value of ADTV.
    (1) For purposes of Section 3(a)(55)(B) of the Act (15 U.S.C. 
78c(a)(55)(B)):
    (i)(A) The method to be used to determine the dollar value of ADTV 
of a security is to sum the dollar value of ADTV of all reported 
transactions in such security in each jurisdiction as calculated 
pursuant to paragraphs (b)(1)(ii) and (iii).
    (B) The dollar value of ADTV of a security shall include the value 
of all reported transactions for such security and for any depositary 
share that represents such security.
    (C) The dollar value of ADTV of a depositary share shall include the 
value of all reported transactions for such depositary share and for the 
security that is represented by such depositary share.
    (ii) For trading in a security in the United States, the method to 
be used to determine the dollar value of ADTV as of the preceding 6 full 
calendar months is to sum the value of all reported transactions in such 
security for each U.S. trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of such trading days.
    (iii)(A) For trading in a security in a jurisdiction other than the 
United States, the method to be used to determine the dollar value of 
ADTV as of the preceding 6 full calendar months is to sum the value in 
U.S. dollars of all reported transactions in such security in such 
jurisdiction for each trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of trading days in 
such jurisdiction during the preceding 6 full calendar months.
    (B) If the value of reported transactions used in calculating the 
ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a 
currency other than U.S. dollars, the total value of each day's 
transactions in such currency shall be converted into U.S. dollars on 
the basis of a spot rate of exchange for that day obtained from at least 
one independent entity that provides or disseminates foreign exchange 
quotations in the ordinary course of its business.
    (iv) The dollar value of ADTV of the lowest weighted 25% of an index 
is the sum of the dollar value of ADTV of each of the component 
securities comprising the lowest weighted 25% of such index.
    (2) For purposes of Section 3(a)(55)(C)(i)(III)(cc) of the Act (15 
U.S.C. 78c(a)(55)(C)(i)(III)(cc)):
    (i) On a particular day, a security shall be 1 of 675 securities 
with the largest dollar value of ADTV as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the CFTC as applicable for that day.
    (ii) In the event that the Commission and the CFTC have not 
designated a list under paragraph (b)(2) of this section:
    (A) The method to be used to determine the dollar value of ADTV of a 
security as of the preceding 6 full calendar months is to sum the value 
of all reported transactions in such security in the United States for 
each U.S. trading day during the preceding 6 full calendar months, and 
to divide this sum by the total number of such trading days.
    (B) The 675 securities with the largest dollar value of ADTV shall 
be identified from the universe of all reported securities as defined in 
Sec. 240.11Ac1-1 that are common stock or depositary shares.
    (c) Depositary Shares and Section 12 Registration. For purposes of 
Section 3(a)(55)(C) of the Act (15 U.S.C. 78c(a)(55)(C)), the 
requirement that each component security of an index be registered 
pursuant to Section 12 of the Act (15 U.S.C. 78l) shall be satisfied 
with respect to any security that is a depositary share if the deposited 
securities underlying the depositary share are registered pursuant to 
Section 12 of the Act and the depositary share is registered under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 
239.36).
    (d) Definitions. For purposes of this section:
    (1) CFTC means Commodity Futures Trading Commission.
    (2) Closing price of a security means:
    (i) If reported transactions in the security have taken place in the 
United States, the price at which the last

[[Page 36]]

transaction in such security took place in the regular trading session 
of the principal market for the security in the United States.
    (ii) If no reported transactions in a security have taken place in 
the United States, the closing price of such security shall be the 
closing price of any depositary share representing such security divided 
by the number of shares represented by such depositary share.
    (iii) If no reported transactions in a security or in a depositary 
share representing such security have taken place in the United States, 
the closing price of such security shall be the price at which the last 
transaction in such security took place in the regular trading session 
of the principal market for the security. If such price is reported in a 
currency other than U.S. dollars, such price shall be converted into 
U.S. dollars on the basis of a spot rate of exchange relevant for the 
time of the transaction obtained from at least one independent entity 
that provides or disseminates foreign exchange quotations in the 
ordinary course of its business.
    (3) Depositary share has the same meaning as in Sec. 240.12b-2.
    (4) Foreign financial regulatory authority has the same meaning as 
in Section 3(a)(52) of the Act (15 U.S.C. 78c(a)(52)).
    (5) Lowest weighted 25% of an index. With respect to any particular 
day, the lowest weighted component securities comprising, in the 
aggregate, 25% of an index's weighting for purposes of Section 
3(a)(55)(B)(iv) of the Act (15 U.S.C. 78c(a)(55)(B)(iv)) (``lowest 
weighted 25% of an index'') means those securities:
    (i) That are the lowest weighted securities when all the securities 
in such index are ranked from lowest to highest based on the index's 
weighting methodology; and
    (ii) For which the sum of the weight of such securities is equal to, 
or less than, 25% of the index's total weighting.
    (6) Market capitalization of a security on a particular day:
    (i) If the security is not a depositary share, is the product of:
    (A) The closing price of such security on that same day; and
    (B) The number of outstanding shares of such security on that same 
day.
    (ii) If the security is a depositary share, is the product of:
    (A) The closing price of the depositary share on that same day 
divided by the number of deposited securities represented by such 
depositary share; and
    (B) The number of outstanding shares of the security represented by 
the depositary share on that same day.
    (7) Outstanding shares of a security means the number of outstanding 
shares of such security as reported on the most recent Form 10-K, Form 
10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a, 
249.310b, 249.308b, or 249.220f) filed with the Commission by the issuer 
of such security, including any change to such number of outstanding 
shares subsequently reported by the issuer on a Form 8-K (17 CFR 
249.308).
    (8) Preceding 6 full calendar months means, with respect to a 
particular day, the period of time beginning on the same day of the 
month 6 months before and ending on the day prior to such day.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the preceding 6 full calendar months.
    (10) Reported transaction means:
    (i) With respect to securities transactions in the United States, 
any transaction for which a transaction report is collected, processed, 
and made available pursuant to an effective transaction reporting plan, 
or for which a transaction report, last sale data, or quotation 
information is disseminated through an automated quotation system as 
described in Section 3(a)(51)(A)(ii) of the Act (15 U.S.C. 
78c(a)(51)(A)(ii); and
    (ii) With respect to securities transactions outside the United 
States, any transaction that has been reported to a foreign financial 
regulatory authority in the jurisdiction where such transaction has 
taken place.
    (11) U.S. trading day means any day on which a national securities 
exchange is open for trading.
    (12) Weighting of a component security of an index means the 
percentage of such index's value represented, or

[[Page 37]]

accounted for, by such component security.

[66 FR 44514, Aug. 23, 2001]



Sec. 240.3a55-2  Indexes underlying futures contracts trading for fewer than 30 days.

    (a) An index on which a contract of sale for future delivery is 
trading on a designated contract market, registered derivatives 
transaction execution facility, or foreign board of trade is not a 
narrow-based security index under Section 3(a)(55) of the Act (15 U.S.C. 
78c(a)(55)) for the first 30 days of trading, if:
    (1) Such index would not have been a narrow-based security index on 
each trading day of the preceding 6 full calendar months with respect to 
a date no earlier than 30 days prior to the commencement of trading of 
such contract;
    (2) On each trading day of the preceding 6 full calendar months with 
respect to a date no earlier than 30 days prior to the commencement of 
trading such contract:
    (i) Such index had more than 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting;
    (iii) The 5 highest weighted component securities in such index did 
not comprise, in the aggregate, more than 60 percent of the index's 
weighting; and
    (iv) The dollar value of the trading volume of the lowest weighted 
25% of such index was not less than $50 million (or in the case of an 
index with 15 or more component securities, $30 million); or
    (3) On each trading day of the preceding 6 full calendar months, 
with respect to a date no earlier than 30 days prior to the commencement 
of trading such contract:
    (i) Such index had at least 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting; and
    (iii) Each component security in such index was:
    (A) Registered pursuant to Section 12 of the Act (15 U.S.C. 78) or 
was a depositary share representing a security registered pursuant to 
Section 12 of the Act;
    (B) 1 of 750 securities with the largest market capitalization that 
day; and
    (C) 1 of 675 securities with the largest dollar value of trading 
volume that day.
    (b) An index that is not a narrow-based security index for the first 
30 days of trading pursuant to paragraph (a) of this section, shall 
become a narrow-based security index if such index has been a narrow-
based security index for more than 45 business days over 3 consecutive 
calendar months.
    (c) An index that becomes a narrow-based security index solely 
because it was a narrow-based security index for more than 45 business 
days over 3 consecutive calendar months pursuant to paragraph (b) of 
this section shall not be a narrow-based security index for the 
following 3 calendar months.
    (d) Definitions. For purposes of this section:
    (1) Market capitalization has the same meaning as in Sec. 240.3a55-
1(d)(6).
    (2) Dollar value of trading volume of a security on a particular day 
is the value in U.S. dollars of all reported transactions in such 
security on that day. If the value of reported transactions used in 
calculating dollar value of trading volume is reported in a currency 
other than U.S. dollars, the total value of each day's transactions 
shall be converted into U.S. dollars on the basis of a spot rate of 
exchange for that day obtained from at least one independent entity that 
provides or disseminates foreign exchange quotations in the ordinary 
course of its business.
    (3) Lowest weighted 25% of an index has the same meaning as in Sec. 
240.3a55-1(d)(5).
    (4) Preceding 6 full calendar months has the same meaning as in 
Sec. 240.3a55-1(d)(8).
    (5) Reported transaction has the same meaning as in Sec. 240.3a55-
1(d)(10).

[66 FR 44514, Aug. 23, 2001]



Sec. 240.3a55-3  Futures contracts on security indexes trading on or 
subject to the rules of a foreign board of trade.

    When a contract of sale for future delivery on a security index is 
traded on or subject to the rules of a foreign board of trade, such 
index shall not be a narrow-based security index if it

[[Page 38]]

would not be a narrow-based security index if a futures contract on such 
index were traded on a designated contract market or registered 
derivatives transaction execution facility.

[66 FR 44514, Aug. 23, 2001]

                               Definitions



Sec. 240.3b-1  Definition of ``listed''.

    The term listed means admitted to full trading privileges upon 
application by the issuer or its fiscal agent or, in the case of the 
securities of a foreign corporation, upon application by a banker 
engaged in distributing them; and includes securities for which 
authority to add to the list on official notice of issuance has been 
granted.

(Sec. 3, 48 Stat. 884; 15 U.S.C. 78c)

[13 FR 8179, Dec. 22, 1948]



Sec. 240.3b-2  Definition of ``officer''.

    The term officer means a president, vice president, secretary, 
treasury or principal financial officer, comptroller or principal 
accounting officer, and any person routinely performing corresponding 
functions with respect to any organization whether incorporated or 
unincorporated.

[47 FR 11464, Mar. 16, 1982; 47 FR 11819, Mar. 19, 1982]



Sec. 240.3b-3  Definition of ``short sale''.

    The term short sale means any sale of a security which the seller 
does not own or any sale which is consummated by the delivery of a 
security borrowed by, or for the account of, the seller. A person shall 
be deemed to own a security if (a) he or his agent has the title to it; 
or (b) he has purchased, or has entered into an unconditional contract, 
binding on both parties thereto, to purchase it but has not yet received 
it; or (c) he owns a security convertible into or exchangeable for it 
and has tendered such security for conversion or exchange; or (d) he has 
an option to purchase or acquire it and has exercised such option; or 
(e) he has rights or warrants to subscribe to it and has exercised such 
rights or warrants: Provided, however, That a person shall be deemed to 
own securities only to the extent that he has a net long position in 
such securities.

    Cross Reference: For regulations relating to ``short sale'', see 
Sec. Sec. 240.10a-1, and 240.10a-2.

[40 FR 25444, June 16, 1975]



Sec. 240.3b-4  Definition of ``foreign government,'' ``foreign issuer'' 
and ``foreign private issuer''.

    (a) The term foreign government means the government of any foreign 
country or of any political subdivision of a foreign country.
    (b) The term foreign issuer means any issuer which is a foreign 
government, a national of any foreign country or a corporation or other 
organization incorporated or organized under the laws of any foreign 
country.
    (c) The term foreign private issuer means any foreign issuer other 
than a foreign government except an issuer meeting the following 
conditions:
    (1) More than 50 percent of the issuer's outstanding voting 
securities are directly or indirectly held of record by residents of the 
United States; and
    (2) Any of the following:
    (i) The majority of the executive officers or directors are United 
States citizens or residents;
    (ii) More than 50 percent of the assets of the issuer are located in 
the United States; or
    (iii) The business of the issuer is administered principally in the 
United States.

    Instruction to paragraph (c)(1): To determine the percentage of 
outstanding voting securities held by U.S. residents:
    A. Use the method of calculating record ownership in Rule 12g3-2(a) 
under the Act (Sec. 240.12g3-2(a)), except that your inquiry as to the 
amount of shares represented by accounts of customers resident in the 
United States may be limited to brokers, dealers, banks and other 
nominees located in:
    (1) The United States,
    (2) Your jurisdiction of incorporation, and
    (3) The jurisdiction that is the primary trading market for your 
voting securities, if different than your jurisdiction of incorporation.
    B. If, after reasonable inquiry, you are unable to obtain 
information about the amount of shares represented by accounts of 
customers resident in the United States, you may assume, for purposes of 
this definition, that the customers are residents of the jurisdiction in 
which the nominee has its principal place of business.
    C. Count shares of voting securities beneficially owned by residents 
of the United States as reported on reports of beneficial

[[Page 39]]

ownership provided to you or filed publicly and based on information 
otherwise provided to you.

(Secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85; secs. 205, 209, 48 
Stat. 906, 908; sec. 301, 54 Stat. 857; sec. 8, 68 Stat. 685; sec. 1, 79 
Stat. 1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 13, 15(d), 23(a), 48 
Stat. 892, 894, 895, 901; secs. 1, 3, 8, 49 Stat. 1375, 1377, 1379; sec. 
203(a), 49 Stat. 704; sec. 202, 68 Stat. 686; secs. 3, 4, 6, 78 Stat. 
565-574; secs. 1, 2, 82 Stat. 454; sec. 28(c), 84 Stat. 1435; secs. 1, 
2, 84 Stat. 1497; sec. 105(b), 88 Stat. 1503; secs. 8, 9, 10, 18, 89 
Stat. 117, 118, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 204, 
91 Stat. 1494, 1498, 1500; 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 78l, 
78m, 78o(d), 78w(a))

[32 FR 7848, May 30, 1967, as amended at 48 FR 46739, Oct. 14, 1983; 64 
FR 53912, Oct. 5, 1999]



Sec. 240.3b-5  Non-exempt securities issued under governmental obligations.

    (a) Any part of an obligation evidenced by any bond, note, 
debenture, or other evidence of indebtedness issued by any governmental 
unit specified in section 3(a)(12) of the Act which is payable from 
payments to be made in respect of property or money which is or will be 
used, under a lease, sale, or loan arrangement, by or for industrial or 
commercial enterprise, shall be deemed to be a separate ``security'' 
within the meaning of section 3(a)(10) of the Act, issued by the lessee 
or obligor under the lease, sale or loan arrangement.
    (b) An obligation shall not be deemed a separate ``security'' as 
defined in paragraph (a) of this section if, (1) the obligation is 
payable from the general revenues of a governmental unit, specified in 
section 3(a)(12) of the Act, having other resources which may be used 
for the payment of the obligation, or (2) the obligation relates to a 
public project or facility owned and operated by or on behalf of and 
under the control of a governmental unit specified in such section, or 
(3) the obligation relates to a facility which is leased to and under 
the control of an industrial or commercial enterprise but is a part of a 
public proj ect which, as a whole, is owned by and under the general 
control of a governmental unit specified in such section, or an 
instrumentality thereof.
    (c) This rule shall apply to transactions of the character described 
in paragraph (a) of this section only with respect to bonds, notes, 
debentures or other evidences of indebtedness sold after December 31, 
1968.

(Sec. 3, 48 Stat. 882; 15 U.S.C. 78c, 77s)

[33 FR 12648, Sept. 6, 1968, as amended at 35 FR 6000, Apr. 11, 1970]



Sec. 240.3b-6  Liability for certain statements by issuers.

    (a) A statement within the coverage of paragraph (b) of this section 
which is made by or on behalf of an issuer or by an outside reviewer 
retained by the issuer shall be deemed not to be a fraudulent statement 
(as defined in paragraph (d) of this section), unless it is shown that 
such statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.
    (b) This rule applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a document filed with the Commission, in Part I of a 
quarterly report on Form 10-Q and Form 10-QSB, Sec. 249.308a of this 
chapter, or in an annual report to share-holders meeting the 
requirements of Rules 14a-3(b) and (c) or 14c-3(a) and (b) under the 
Securities Exchange Act of 1934, a statement reaffirming such forward-
looking statement subsequent to the date the document was filed or the 
annual report was made publicly available, or a forward-looking 
statement made prior to the date the document was filed or the date the 
annual report was made publicly available if such statement is 
reaffirmed in a filed document, in Part I of a quarterly report on Form 
10-Q and Form 10-QSB, or in an annual report made publicly available 
within a reasonable time after the making of such forward-looking 
statement; Provided, That:
    (i) At the time such statements are made or reaffirmed, either the 
issuer is subject to the reporting requirements of section 13(a) or 
15(d) of the Securities Exchange Act of 1934 and has complied with the 
requirements of Rule 13a-1 or 15d-1 thereunder, if applicable, to file 
its most recent annual report on Form 10-K and Form 10-KSB or Form

[[Page 40]]

20-F or Form 40-F; or if the issuer is not subject to the reporting 
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 
1934, the statements are made in a registration statement filed under 
the Securities Act of 1933 offering statement or solicitation of 
interest written document or broadcast script under Regulation A or 
pursuant to section 12 (b) or (g) of the Securities Exchange Act of 
1934, and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940; and
    (2) Information which is disclosed in a document filed with the 
Commission in Part I of a quarterly report on Form 10-Q and Form 10-QSB 
(Sec. 249.308a of this chapter) or in an annual report to shareholders 
meeting the requirements of Rules 14a-3 (b) and (c) or 14c-3 (a) and (b) 
under the Securities Exchange Act of 1934 (Sec. Sec. 240.14a-3 (b) and 
(c) or 240.14c-3 (a) and (b) of this chapter) and which relates to (i) 
the effects of changing prices on the business enterprise, presented 
voluntarily or pursuant to Item 303 of Regulation S-K (Sec. 229.303 of 
this chapter) or Regulation S-B (Sec. 228.303 of this chapter) 
``Management's Discussion and Analysis of Financial Condition and 
Results of Operations'' or Item 5 of Form 20-F, ``Operating and 
Financial Review and Prospects'', or Item 302 of Regulation S-K (Sec. 
229.302 of this chapter), ``Supplementary financial information,'' or 
Rule 3-20(c) of Regulation S-X (Sec. 210.3-20(c)) of this chapter) or 
(ii) the value of proved oil and gas reserves (such as a standardized 
measure of discounted future net cash flows relating to proved oil and 
gas reserves as set forth in paragraphs 30-34 of Statement of Financial 
Accounting Standards No. 69) presented voluntarily or pursuant to Item 
302 of Regulation S-K (Sec. 229.302 of this chapter).
    (c) For the purpose of this rule, the term forward-looking statement 
shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations included pursuant to Item 303 of Regulation S-K (Sec. 
229.303 of this chapter) or Item 5 of Form 20-F or
    (4) Disclosed statements of the assumptions underlying or relating 
to any of the statements described in paragraphs (c) (1), (2), or (3) of 
this section.
    (d) For the purpose of this rule the term fraudulent statement shall 
mean a statement which is an untrue statement of a material fact, a 
statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Securities Exchange Act of 1934 or the rules or 
regulations promulgated thereunder.

[46 FR 13990, Feb. 25, 1981, as amended at 46 FR 19457, Mar. 31, 1981; 
47 FR 11464, Mar. 16, 1982; 47 FR 54780, Dec. 6, 1982; 47 FR 57915, Dec. 
29, 1982; 48 FR 19876, May 3, 1983; 56 FR 30067, July 1, 1991; 57 FR 
36494, Aug. 13, 1992; 64 FR 53912, Oct. 5, 1999]



Sec. 240.3b-7  Definition of ``executive officer''.

    The term executive officer, when used with reference to a 
registrant, means its president, any vice president of the registrant in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), any other officer who performs a 
policy making function or any other person who performs similar policy 
making functions for the registrant. Executive officers of subsidiaries 
may be deemed executive officers of the registrant if they perform such 
policy making functions for the registrant.

[47 FR 11464, Mar. 16, 1982, as amended at 56 FR 7265, Feb. 21, 1991]

[[Page 41]]



Sec. 240.3b-8  Definitions of ``Qualified OTC Market Maker, Qualified 
Third Market Maker'' and ``Qualified Block Positioner''.

    For the purposes of Regulation U under the Act (12 CFR part 221):
    (a) The term Qualified OTC Market Maker in an over-the-counter 
(``OTC'') margin security means a dealer in any ``OTC Margin Security'' 
(as that term is defined in section 2(j) of Regulation U (12 CFR 
221.2(j)) who (1) is a broker or dealer registered pursuant to section 
15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 
(17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as 
defined in Rule 15c3-1, of the lesser of (i) $250,000 or (ii) $25,000 
plus $5,000 for each security in excess of five with regard to which the 
broker or dealer is, or is seeking to become a Qualified OTC Market 
Maker, and (4) except when such activity is unlawful, meets all of the 
following conditions with respect to such security: (i) He regularly 
publishes bona fide, competitive bid and offer quotations in a 
recognized inter-dealer quotation system, (ii) he furnishes bona fide, 
competitive bid and offer quotations to other brokers and dealers on 
request, (iii) he is ready, willing and able to effect transactions in 
reasonable amounts, and at his quoted prices, with other brokers and 
dealers, and (iv) he has a reasonable average rate of inventory turnover 
in such security.
    (b) The term Qualified Third Market Maker means a dealer in any 
stock registered on a national securities exchange (``exchange'') who 
(1) is a broker or dealer registered pursuant to section 15 of the Act, 
(2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 
240.15c3-1), (3) has and maintains minimum net capital, as defined in 
Rule 15c3-1, of the lesser of (i) $500,000 or (ii) $100,000 plus $20,000 
for each security in excess of five with regard to which the broker or 
dealer is, or is seeking to become, a Qualified Third Market Maker, and 
(4) except when such activity is unlawful, meets all of the following 
conditions with respect to such security: (i) He furnishes bona fide, 
competitive bid and offer quotations at all times to other brokers and 
dealers on request, (ii) he is ready, willing and able to effect 
transactions for his own account in reasonable amounts, and at his 
quoted prices with other brokers and dealers, and (iii) he has a 
reasonable average rate of inventory turnover in such security.
    (c) The term Qualified Block Positioner means a dealer who (1) is a 
broker or dealer registered pursuant to section 15 of the Act, (2) is 
subject to and in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) 
has and maintains minimum net capital, as defined in Rule 15c3-1 of 
$1,000,000 and (4) except when such activity is unlawful, meets all of 
the following conditions: (i) He engages in the activity of purchasing 
long or selling short, from time to time, from or to a customer (other 
than a partner or a joint venture or other entity in which a partner, 
the dealer, or a person associated with such dealer, as defined in 
section 3(a) (18) of the Act, participates) a block of stock with a 
current market value of $200,000 or more in a single transaction, or in 
several transactions at approximately the same time, from a single 
source to facilitate a sale or purchase by such customer, (ii) he has 
determined in the exercise of reasonable diligence that the block could 
not be sold to or purchased from others on equivalent or better terms, 
and (iii) he sells the shares comprising the block as rapidly as 
possible commensurate with the circumstances.

(15 U.S.C. 78a et seq., as amended by Pub. L. 94-29 (June 4, 1975), 
particularly secs. 2, 3, 11, 15, 17 and 23 thereof (15 U.S.C. 78b, 78c, 
78k, 78o, 78q and 78w))

[48 FR 39606, Sept. 1, 1983]



Sec. 240.3b-9  Definition of ``bank'' for purposes of section 3(a) (4) 
and (5) of the Act.

    (a) The term bank as used in the definition of broker and dealer in 
section 3(a) (4) and (5) of the Act does not include a bank that:
    (1) Publicly solicits brokerage business for which it receives 
transaction-related compensation, unless the bank enters into a 
contractual or other arrangement with a broker-dealer registered under 
the Act pursuant to which the broker-dealer will offer brokerage 
services on or off the premises of the bank, provided that:

[[Page 42]]

    (i) Such broker-dealer is clearly identified as the person 
performing the brokerage services;
    (ii) Bank employees perform only clerical and ministerial functions 
in connection with brokerage transactions unless such employees are 
qualified as registered representatives pursuant to the requirements of 
the self-regulatory organizations;
    (iii) Bank employees do not receive, directly or indirectly, 
compensation for any brokerage activities unless such employees are 
qualified as registered representatives pursuant to the requirements of 
the self-regulatory organizations; and
    (iv) Such services are provided by the broker-dealer on a basis in 
which all customers are fully disclosed.
    (2) Directly or indirectly receives transaction-related compensation 
for providing brokerage services for trust, managing agency or other 
accounts to which the bank provides advice, provided, however, that this 
subsection shall not apply if the bank executes transactions through a 
registered broker-dealer and:
    (i) Each account independently chooses the broker-dealer through 
which execution is effected;
    (ii) The bank's personnel do not receive, directly or indirectly, 
transaction-related compensation or compensation based upon the number 
of accounts choosing to use the registered broker-dealer; and
    (iii) The brokerage services are provided by the broker-dealer on a 
basis in which all customers are fully disclosed; or
    (3) Deals in or underwrites securities.
    (b) This rule shall not apply to any bank that engages in one or 
more of the following activities only:
    (1) Effects transactions in exempted or municipal securities as 
defined in the Act or in commercial paper, bankers' acceptances or 
commercial bills;
    (2) Effects no more than 1,000 transactions each year in securities 
other than exempted or municipal securities as defined in the Act or in 
commercial paper, bankers' acceptances or commercial bills;
    (3) Effects transactions for the investment portfolio of affiliated 
companies;
    (4) Effects transactions as part of a program for the investment or 
reinvestment of bank deposit funds into any no-load open-end investment 
company registered pursuant to the Investment Company Act of 1940 that 
attempts to maintain a constant net asset value per share or has an 
investment policy calling for investment of at least 80% of its assets 
in debt securities maturing in thirteen months or less;
    (5) Effects transactions as part of any bonus, profit-sharing, 
pension, retirement, thrift, savings, incentive, stock purchase, stock 
ownership, stock appreciation, stock option, dividend reinvestment or 
similar plan for employees or shareholders of an issuer or its 
subsidiaries;
    (6) Effects transactions pursuant to sections 3(b), 4(2) and 4(6) of 
the Securities Act of 1933 and the rules and regulations thereunder; or
    (7) Is subject to section 15(e) of the Act.
    (c) The Commission, upon written request, or upon its own motion, 
may exempt a bank, either unconditionally or on specific terms and 
conditions, where the Commisison determines that the bank's activities 
are not within the intended meaning and purpose of this rule.
    (d) For purposes of this section, the term transaction-related 
compensation shall mean monetary profit to the bank in excess of cost 
recovery for providing brokerage execution services.

[50 FR 28394, July 12, 1985]



Sec. 240.3b-10  [Reserved]



Sec. 240.3b-11  Definitions relating to limited partnership roll-up 
transactions for purposes of sections 6(b)(9), 14(h) and 15A(b)(12)-(13).

    For purposes of sections 6(b)(9), 14(h) and 15A(b)(12)-(13) of the 
Act (15 U.S.C. 78f(b)(9), 78n(h) and 78o-3(b)(12)-(13)):
    (a) The term limited partnership roll-up transaction does not 
include a transaction involving only entities that are not ``finite-
life'' as defined in Item 901(b)(2) of Regulation S-K (Sec. 
229.901(b)(2) of this chapter).

[[Page 43]]

    (b) The term limited partnership roll-up transaction does not 
include a transaction involving only entities registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or any Business 
Development Company as defined in section 2(a)(48) of that Act (15 
U.S.C. 80a-2(a)(48)).
    (c) The term regularly traded shall be defined as in Item 
901(c)(2)(v)(C) of Regulation S-K (Sec. 229.901(c)(2)(v)(C) of this 
chapter).

[59 FR 63684, Dec. 8, 1994]



Sec. 240.3b-12  Definition of OTC derivatives dealer.

    The term OTC derivatives dealer means any dealer that is affiliated 
with a registered broker or dealer (other than an OTC derivatives 
dealer), and whose securities activities:
    (a) Are limited to:
    (1) Engaging in dealer activities in eligible OTC derivative 
instruments that are securities;
    (2) Issuing and reacquiring securities that are issued by the 
dealer, including warrants on securities, hybrid securities, and 
structured notes;
    (3) Engaging in cash management securities activities;
    (4) Engaging in ancillary portfolio management securities 
activities; and
    (5) Engaging in such other securities activities that the Commission 
designates by order pursuant to Sec. 240.15a-1(b)(1); and
    (b) Consist primarily of the activities described in paragraphs 
(a)(1), (a)(2), and (a)(3) of this section; and
    (c) Do not consist of any other securities activities, including 
engaging in any transaction in any security that is not an eligible OTC 
derivative instrument, except as permitted under paragraphs (a)(3), 
(a)(4), and (a)(5) of this section.
    (d) For purposes of this section, the term hybrid security means a 
security that incorporates payment features economically similar to 
options, forwards, futures, swap agreements, or collars involving 
currencies, interest or other rates, commodities, securities, indices, 
quantitative measures, or other financial or economic interests or 
property of any kind, or any payment or delivery that is dependent on 
the occurrence or nonoccurrence of any event associated with a potential 
financial, economic, or commercial consequence (or any combination, 
permutation, or derivative of such contract or underlying interest).

[63 FR 59394, Nov. 3, 1998]



Sec. 240.3b-13  Definition of eligible OTC derivative instrument.

    (a) Except as otherwise provided in paragraph (b) of this section, 
the term eligible OTC derivative instrument means any contract, 
agreement, or transaction that:
    (1) Provides, in whole or in part, on a firm or contingent basis, 
for the purchase or sale of, or is based on the value of, or any 
interest in, one or more commodities, securities, currencies, interest 
or other rates, indices, quantitative measures, or other financial or 
economic interests or property of any kind; or
    (2) Involves any payment or delivery that is dependent on the 
occurrence or nonoccurrence of any event associated with a potential 
financial, economic, or commercial consequence; or
    (3) Involves any combination or permutation of any contract, 
agreement, or transaction or underlying interest, property, or event 
described in paragraphs (a)(1) or (a)(2) of this section.
    (b) The term eligible OTC derivative instrument does not include any 
contract, agreement, or transaction that:
    (1) Provides for the purchase or sale of a security, on a firm 
basis, unless:
    (i) The settlement date for such purchase or sale occurs at least 
one year following the trade date or, in the case of an eligible forward 
contract, at least four months following the trade date; or
    (ii) The material economic features of the contract, agreement, or 
transaction consist primarily of features of a type described in 
paragraph (a) of this section other than the provision for the purchase 
or sale of a security on a firm basis; or
    (2) Provides, in whole or in part, on a firm or contingent basis, 
for the purchase or sale of, or is based on the value of, or any 
interest in, any security (or group or index of securities), and is:

[[Page 44]]

    (i) Listed on, or traded on or through, a national securities 
exchange or registered national securities association, or facility or 
market thereof; or
    (ii) Except as otherwise determined by the Commission by order 
pursuant to Sec. 240.15a-1(b)(2), one of a class of fungible 
instruments that are standardized as to their material economic terms.
    (c) The Commission may issue an order pursuant to Sec. 240.15a-
1(b)(3) clarifying whether certain contracts, agreements, or 
transactions are within the scope of eligible OTC derivative instrument.
    (d) For purposes of this section, the term eligible forward contract 
means a forward contract that provides for the purchase or sale of a 
security other than a government security, provided that, if such 
contract provides for the purchase or sale of margin stock (as defined 
in Regulation U of the Regulations of the Board of Governors of the 
Federal Reserve System, 12 CFR Part 221), such contract either:
    (1) Provides for the purchase or sale of such stock by the issuer 
thereof (or an affiliate that is not a bank or a broker or dealer); or
    (2) Provides for the transfer of transaction collateral in an amount 
that would satisfy the requirements, if any, that would be applicable 
assuming the OTC derivatives dealer party to such transaction were not 
eligible for the exemption from Regulation T of the Regulations of the 
Board of Governors of the Federal Reserve System, 12 CFR part 220, set 
forth in Sec. 240.36a1-1.

[63 FR 59395, Nov. 3, 1998]



Sec. 240.3b-14  Definition of cash management securities activities.

    The term cash management securities activities means securities 
activities that are limited to transactions involving:
    (a) Any taking possession of, and any subsequent sale or disposition 
of, collateral provided by a counterparty, or any acquisition of, and 
any subsequent sale or disposition of, collateral to be provided to a 
counterparty, in connection with any securities activities of the dealer 
permitted under Sec. 240.15a-1 or any non-securities activities of the 
dealer that involve eligible OTC derivative instruments or other 
financial instruments;
    (b) Cash management, in connection with any securities activities of 
the dealer permitted under Sec. 240.15a-1 or any non-securities 
activities of the dealer that involve eligible OTC derivative 
instruments or other financial instruments; or
    (c) Financing of positions of the dealer acquired in connection with 
any securities activities of the dealer permitted under Sec. 240.15a-1 
or any non-securities activities that involve eligible OTC derivative 
instruments or other financial instruments.

[63 FR 59395, Nov. 3, 1998]



Sec. 240.3b-15  Definition of ancillary portfolio management securities 
activities.

    (a) The term ancillary portfolio management securities activities 
means securities activities that:
    (1) Are limited to transactions in connection with:
    (i) Dealer activities in eligible OTC derivative instruments;
    (ii) The issuance of securities by the dealer; or
    (iii) Such other securities activities that the Commission 
designates by order pursuant to Sec. 240.15a-1(b)(1); and
    (2) Are conducted for the purpose of reducing the market or credit 
risk of the dealer or consist of incidental trading activities for 
portfolio management purposes; and
    (3) Are limited to risk exposures within the market, credit, 
leverage, and liquidity risk parameters set forth in:
    (i) The trading authorizations granted to the associated person (or 
to the supervisor of such associated person) who executes a particular 
transaction for, or on behalf of, the dealer; and
    (ii) The written guidelines approved by the governing body of the 
dealer and included in the internal risk management control system for 
the dealer pursuant to Sec. 240.15c3-4; and
    (4) Are conducted solely by one or more associated persons of the 
dealer who perform substantial duties for, or on behalf of, the dealer 
in connection with its dealer activities in eligible OTC derivative 
instruments.

[[Page 45]]

    (b) The Commission may issue an order pursuant to Sec. 240.15a-
1(b)(4) clarifying whether certain securities activities are within the 
scope of ancillary portfolio management securities activities.

[63 FR 59395, Nov. 3, 1998]



Sec. 240.3b-16  Definitions of terms used in Section 3(a)(1) of the Act.

    (a) An organization, association, or group of persons shall be 
considered to constitute, maintain, or provide ``a market place or 
facilities for bringing together purchasers and sellers of securities or 
for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange,'' as those terms are used in 
section 3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, 
association, or group of persons:
    (1) Brings together the orders for securities of multiple buyers and 
sellers; and
    (2) Uses established, non-discretionary methods (whether by 
providing a trading facility or by setting rules) under which such 
orders interact with each other, and the buyers and sellers entering 
such orders agree to the terms of a trade.
    (b) An organization, association, or group of persons shall not be 
considered to constitute, maintain, or provide ``a market place or 
facilities for bringing together purchasers and sellers of securities or 
for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange,'' solely because such 
organization, association, or group of persons engages in one or more of 
the following activities:
    (1) Routes orders to a national securities exchange, a market 
operated by a national securities association, or a broker-dealer for 
execution; or
    (2) Allows persons to enter orders for execution against the bids 
and offers of a single dealer; and
    (i) As an incidental part of these activities, matches orders that 
are not displayed to any person other than the dealer and its employees; 
or
    (ii) In the course of acting as a market maker registered with a 
self-regulatory organization, displays the limit orders of such market 
maker's, or other broker-dealer's, customers; and
    (A) Matches customer orders with such displayed limit orders; and
    (B) As an incidental part of its market making activities, crosses 
or matches orders that are not displayed to any person other than the 
market maker and its employees.
    (c) For purposes of this section the term order means any firm 
indication of a willingness to buy or sell a security, as either 
principal or agent, including any bid or offer quotation, market order, 
limit order, or other priced order.
    (d) For the purposes of this section, the terms bid and offer shall 
have the same meaning as under Sec. 240.11Ac1-1.
    (e) The Commission may conditionally or unconditionally exempt any 
organization, association, or group of persons from the definition in 
paragraph (a) of this section.

[63 FR 70918, Dec. 22, 1998]



Sec. 240.3b-17  Definitions of terms used in Section 3(a)(4) of the Act.

    For purposes of Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)):
    (a) The term chiefly compensated means that the ``relationship 
compensation'' received by a bank from a trust or fiduciary account 
exceeds the ``sales compensation'' received by the bank from such 
account during the immediately preceding year, which is either a 
calendar year or other fiscal year consistently used by the bank for 
recordkeeping and reporting purposes.
    (b) The term flat or capped per order processing fee equal to not 
more than the cost incurred by the bank in connection with executing 
securities transactions for trustee and fiduciary customers means a fee 
that is no more than the amount a broker-dealer charged the bank for 
executing the transaction, plus the costs of any resources of the bank 
that are exclusively dedicated to transaction execution, comparison, and 
settlement for trust and fiduciary customers.
    (c) The term indenture trustee means any trustee for an indenture to 
which the definition given in Section 303 of the Trust Indenture Act of 
1939 (15 U.S.C. 77ccc) applies, and any trustee

[[Page 46]]

for an indenture to which the definition in Section 303 of the Trust 
Indenture Act of 1939 (15 U.S.C. 77ccc) would apply but for an exemption 
from qualification pursuant to Section 304 of the Trust Indenture Act of 
1939 (15 U.S.C. 77ddd).
    (d) The term investment adviser if the bank receives a fee for its 
investment advice means a bank that has a relationship with the customer 
paying the fee in which the bank:
    (1) Provides, in return for the fee, continuous and regular 
investment advice to the customer's account that is based upon the 
individual needs of the customer; and
    (2) Under state law, federal law, contract, or customer agreement 
owes a duty of loyalty, including an affirmative duty to make full and 
fair disclosure to the customer of all material facts relating to 
conflicts.
    (e) The term money market fund means an open-end management 
investment company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.) that is regulated as a money market fund 
pursuant to Sec. 270.2a-7 of this chapter.
    (f)(1) The term no-load in the context of an investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.) means:
    (i) Purchases of the investment company's securities are not subject 
to a sales load, as that term is defined in Section 2(a)(35) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(35)), or a deferred 
sales load, as that term is defined in Sec. 270.6c-10 of this chapter; 
and
    (ii) The investment company's total charges against net assets for 
sales or sales promotion expenses and personal service or the 
maintenance of shareholder accounts do not exceed 0.25 of 1% of average 
net assets annually and are disclosed in the money market fund's 
prospectus.
    (2) For purposes of paragraph (f)(1) of this section, charges for 
the following will not be considered charges for personal service or for 
the maintenance of shareholder accounts:
    (i) Transfer agent and subtransfer agent services for beneficial 
owners of the investment company shares;
    (ii) Aggregating and processing purchase and redemption orders;
    (iii) Providing beneficial owners with statements showing their 
positions in the investment companies;
    (iv) Processing dividend payments;
    (v) Providing subaccounting services for investment company shares 
held beneficially;
    (vi) Forwarding shareholder communications, such as proxies, 
shareholder reports, dividend and tax notices, and updating prospectuses 
to beneficial owners; or (vii) Receiving, tabulating, and transmitting 
proxies executed by beneficial owners.
    (g)(1) The term nominal one-time cash fee of a fixed dollar amount 
means a payment in either of the following forms that meets the 
requirements of subparagraph (2):
    (i) A payment that does not exceed one hour of the gross cash wages 
of the unregistered bank employee making a referral; or
    (ii) Points in a system or program that covers a range of bank 
products and non-securities related services where the points count 
toward a bonus that is cash or non-cash if the points (and their value) 
awarded for referrals involving securities are not greater than the 
points (and their value) awarded for activities not involving 
securities.
    (2) Regardless of the form of payment, the payment may not be 
related to:
    (i) The size, value, or completion of any securities transaction;
    (ii) The amount of securities-related assets gathered;
    (iii) The size or value of any customer's bank or securities 
account; or
    (iv) The customer's financial status.
    (h) The term referral means a bank employee arranging a first 
securities-related contact between a registered broker-dealer and a bank 
customer, but does not include any activity (including any part of the 
account opening process) related to effecting transactions in securities 
beyond arranging that first contact.
    (i) The term relationship compensation means any compensation 
received by a bank in connection with activities for which the bank 
relies on an exception under Section 3(a)(4)(B)(ii) of the Act

[[Page 47]]

(15 U.S.C. 78c(a)(4)(B)(ii)) that is received directly from a customer 
or beneficiary, or directly from the assets of the trust or fiduciary 
account, and consists solely of an administration or annual fee (payable 
on a monthly, quarterly, or other basis), a percentage of assets under 
management fee, or a flat or capped per order processing fee equal to 
not more than the cost incurred by the bank in connection with executing 
securities transactions for trust and fiduciary accounts, or any 
combination of such fees.
    (j) The term sales compensation means any compensation received by a 
bank in connection with activities for which the bank relies on an 
exception under Section 3(a)(4)(B)(ii) of the Act (15 U.S.C. 
78c(a)(4)(B)(ii)) that:
    (1) Is a fee for effecting a transaction in securities that is not a 
flat or capped per order processing fee equal to not more than the cost 
incurred by the bank in connection with executing securities 
transactions for trustee and fiduciary customers;
    (2) Is compensation that if paid to a broker or dealer would be 
payment for order flow, as defined in Sec. 240.10b-10;
    (3) Is a finders' fee received in connection with a securities 
transaction or account, except a fee received pursuant to Section 
3(a)(4)(B)(i) of the Act (15 U.S.C. 78c(a)(4)(B)(i));
    (4) Is a fee paid for an offering of securities that is not received 
directly from a customer or beneficiary, or directly from the assets of 
the trust or fiduciary account;
    (5) Is a fee paid pursuant to a Rule 12b-1 plan under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or
    (6) Is a fee paid by an investment company for personal service or 
the maintenance of shareholder accounts, except a fee that is not part 
of a Rule 12b-1 plan under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.) for:
    (i) Transfer agent and subtransfer agent services for beneficial 
owners of shares in the investment company;
    (ii) Aggregating and processing purchase and redemption orders;
    (iii) Providing beneficial owners with statements showing their 
positions in the investment companies;
    (iv) Processing dividend payments;
    (v) Providing subaccounting services for shares in the investment 
company held beneficially;
    (vi) Forwarding shareholder communications, such as proxies, 
shareholder reports, dividend and tax notices, and updating prospectuses 
to beneficial owners; or
    (vii) Receiving, tabulating, and transmitting proxies executed by 
beneficial owners.
    (k) The term trustee capacity in Section 3(a)(4)(B)(ii) of the Act 
(15 U.S.C. 78c(a)(4)(B)(ii)) includes an indenture trustee or a trustee 
for a tax-deferred account described in Sections 401(a), 408, and 408A 
under subchapter D and in Section 457 under subchapter E of the Internal 
Revenue Code of 1986 (26 U.S.C. 1 et seq.).

[66 FR 27798, May 18, 2001]



Sec. 240.3b-18  Definitions of terms used in Section 3(a)(5) of the Act.

    For the purposes of section 3(a)(5)(C) of the Act (15 U.S.C. 
78c(a)(5)(C):
    (a) The term affiliate means any company that controls, is 
controlled by, or is under common control with another company.
    (b) The term consumer-related receivable means any obligation 
incurred by any natural person to pay money arising out of a transaction 
in which the money, property, insurance, or services (being purchased) 
are primarily for personal, family, or household purposes.
    (c) The term member as it relates to the term ``syndicate of banks'' 
means a bank that is a participant in a syndicate of banks and together 
with its affiliates, other than its broker or dealer affiliates, 
originates no less than 10% of the value of the obligations in a pool of 
obligations used to back the securities issued through a grantor trust 
or other separate entity.
    (d) The term obligation means any note, draft, acceptance, loan, 
lease, receivable, or other evidence of indebtedness that is not a 
security issued by a person other than the bank.
    (e) The term originated means:
    (1) Funding an obligation at the time that the obligation is 
created; or
    (2) Initially approving and underwriting the obligation, or 
initially

[[Page 48]]

agreeing to purchase the obligation, provided that:
    (i) The obligation conforms to the underwriting standards or is 
evidenced by the loan documents of the bank or its affiliates, other 
than its broker or dealer affiliates; and
    (ii) The bank or its affiliates, other than its broker or dealer 
affiliates, fund the obligation in a timely manner, not to exceed six 
months after the obligation is created.
    (f) The term pool means more than one obligation or type of 
obligation grouped together to provide collateral for a securities 
offering.
    (g) The term predominantly originated means that no less than 85% of 
the value of the obligations in any pool were originated by:
    (1) The bank or its affiliates, other than its broker or dealer 
affiliates; or
    (2) Banks that are members of a syndicate of banks and affiliates of 
such banks, other than their broker or dealer affiliates, if the 
obligations or pool of obligations consist of mortgage obligations or 
consumer-related receivables.
    (3) For this purpose, the bank and its affiliates include any 
financial institution with which the bank or its affiliates have merged 
but does not include the purchase of a pool of obligations or the 
purchase of a line of business.
    (h) The term syndicate of banks means a group of banks that acts 
jointly, on a temporary basis, to issue through a grantor trust or other 
separate entity, securities backed by obligations originated by each of 
the individual banks or their affiliates, other than their broker or 
dealer affiliates.

[68 FR 8700, Feb. 24, 2003]

                 Registration and Exemption of Exchanges



Sec. 240.6a-1  Application for registration as a national securities 
exchange or exemption from registration based on limited volume.

    (a) An application for registration as a national securities 
exchange, or for exemption from such registration based on limited 
volume, shall be filed on Form 1 (Sec. 249.1 of this chapter), in 
accordance with the instructions contained therein.
    (b) Promptly after the discovery that any information filed on Form 
1 was inaccurate when filed, the exchange shall file with the Commission 
an amendment correcting such inaccuracy.
    (c) Promptly after the discovery that any information in the 
statement, any exhibit, or any amendment was inaccurate when filed, the 
exchange shall file with the Commission an amendment correcting such 
inaccuracy.
    (d) Whenever the number of changes to be reported in an amendment, 
or the number of amendments filed, are so great that the purpose of 
clarity will be promoted by the filing of a new complete statement and 
exhibits, an exchange may, at its election, or shall, upon request of 
the Commission, file as an amendment a complete new statement together 
with all exhibits which are prescribed to be filed in connection with 
Form 1.

(Secs. 5, 6, 17, 48 Stat. 885, 897, as amended; 15 U.S.C. 78e, 78f, 78q)

[14 FR 7759, Dec. 29, 1949, as amended at 63 FR 70918, Dec. 22, 1998]



Sec. 240.6a-2  Amendments to application.

    (a) A national securities exchange, or an exchange exempted from 
such registration based on limited volume, shall file an amendment to 
Form 1, (Sec. 249.1 of this chapter), which shall set forth the nature 
and effective date of the action taken and shall provide any new 
information and correct any information rendered inaccurate, on Form 1, 
(Sec. 249.1 of this chapter), within 10 days after any action is taken 
that renders inaccurate, or that causes to be incomplete, any of the 
following:
    (1) Information filed on the Execution Page of Form 1, or amendment 
thereto; or
    (2) Information filed as part of Exhibits C, F, G, H, J, K or M, or 
any amendments thereto.
    (b) On or before June 30 of each year, a national securities 
exchange, or an exchange exempted from such registration based on 
limited volume, shall file, as an amendment to Form 1, the following:
    (1) Exhibits D and I as of the end of the latest fiscal year of the 
exchange; and

[[Page 49]]

    (2) Exhibits K, M, and N, which shall be up to date as of the latest 
date practicable within 3 months of the date the amendment is filed.
    (c) On or before June 30, 2001 and every 3 years thereafter, a 
national securities exchange, or an exchange exempted from such 
registration based on limited volume, shall file, as an amendment to 
Form 1, complete Exhibits A, B, C and J. The information filed under 
this paragraph (c) shall be current as of the latest practicable date, 
but shall, at a minimum, be up to date within 3 months as of the date 
the amendment is filed.
    (d)(1) If an exchange, on an annual or more frequent basis, 
publishes, or cooperates in the publication of, any of the information 
required to be filed by paragraphs (b)(2) and (c) of this section, in 
lieu of filing such information, an exchange may:
    (i) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price of such publication; and
    (ii) Certify to the accuracy of such information as of its 
publication date.
    (2) If an exchange keeps the information required under paragraphs 
(b)(2) and (c) of this section up to date and makes it available to the 
Commission and the public upon request, in lieu of filing such 
information, an exchange may certify that the information is kept up to 
date and is available to the Commission and the public upon request.
    (3) If the information required to be filed under paragraphs (b)(2) 
and (c) of this section is available continuously on an Internet web 
site controlled by an exchange, in lieu of filing such information with 
the Commission, such exchange may:
    (i) Indicate the location of the Internet web site where such 
information may be found; and
    (ii) Certify that the information available at such location is 
accurate as of its date.
    (e) The Commission may exempt a national securities exchange, or an 
exchange exempted from such registration based on limited volume, from 
filing the amendment required by this section for any affiliate or 
subsidiary listed in Exhibit C of the exchange's application for 
registration, as amended, that either:
    (1) Is listed in Exhibit C of the application for registration or 
notice of registration, as amended, of one or more other national 
securities exchanges; or
    (2) Was an inactive subsidiary throughout the subsidiary's latest 
fiscal year. Any such exemption may be granted upon terms and conditions 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors, provided however, that at least one 
national securities exchange shall be required to file the amendments 
required by this section for an affiliate or subsidiary described in 
paragraph (e)(1) of this section.
    (f) A national securities exchange registered pursuant to Section 
6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) shall be exempt from the 
requirements of this section.

[63 FR 70918, Dec. 22, 1998, as amended at 66 FR 43741, Aug. 20, 2001]



Sec. 240.6a-3  Supplemental material to be filed by exchanges.

    (a)(1) A national securities exchange, or an exchange exempted from 
such registration based on limited volume, shall file with the 
Commission any material (including notices, circulars, bulletins, lists, 
and periodicals) issued or made generally available to members of, or 
participants or subscribers to, the exchange. Such material shall be 
filed with the Commission within 10 days after issuing or making such 
material available to members, participants or subscribers.
    (2) If the information required to be filed under paragraph (a)(1) 
of this section is available continuously on an Internet web site 
controlled by an exchange, in lieu of filing such information with the 
Commission, such exchange may:
    (i) Indicate the location of the Internet web site where such 
information may be found; and
    (ii) Certify that the information available at such location is 
accurate as of its date.

[[Page 50]]

    (b) Within 15 days after the end of each calendar month, a national 
securities exchange or an exchange exempted from such registration based 
on limited volume, shall file a report concerning the securities sold on 
such exchange during the calendar month. Such report shall set forth:
    (1) The number of shares of stock sold and the aggregate dollar 
amount of such stock sold;
    (2) The principal amount of bonds sold and the aggregate dollar 
amount of such bonds sold; and
    (3) The number of rights and warrants sold and the aggregate dollar 
amount of such rights and warrants sold.
    (c) A national securities exchange registered pursuant to Section 
6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) shall be exempt from the 
requirements of this section.

[63 FR 70919, Dec. 22, 1998, as amended at 66 FR 43741, Aug. 20, 2001]



Sec. 240.6a-4  Notice of registration under Section 6(g) of the Act, 

amendment to such notice, and supplemental materials to be filed by 
exchanges registered under Section 6(g) of the Act.

    (a) Notice of registration. (1) An exchange may register as a 
national securities exchange solely for the purposes of trading security 
futures products by filing Form 1-N (Sec. 249.10 of this chapter) 
(``notice of registration''), in accordance with the instructions 
contained therein, if:
    (i) The exchange is a board of trade, as that term in defined in the 
Commodity Exchange Act (7 U.S.C. 1a(2)), that:
    (A) Has been designated a contract market by the Commodity Futures 
Trading Commission and such designation is not suspended by order of the 
Commodity Futures Trading Commission; or
    (B) Is registered as a derivative transaction execution facility 
under Section 5a of the Commodity Exchange Act (7 U.S.C. 7a) and such 
registration is not suspended by the Commodity Futures Trading 
Commission; and
    (ii) Such exchange does not serve as a market place for transactions 
in securities other than:
    (A) Security futures products; or
    (B) Futures on exempted securities or on groups or indexes of 
securities or options thereon that have been authorized under Section 
2(a)(1)(C) of the Commodity Exchange Act (7 U.S.C. 2a).
    (2) Promptly after the discovery that any information filed on Form 
1-N (Sec. 249.10 of this chapter) was inaccurate when filed, the 
exchange shall file with the Commission an amendment correcting such 
inaccuracy.
    (b) Amendment to notice of registration. (1) A national securities 
exchange registered pursuant to Section 6(g)(1) of the Act (15 U.S.C. 
78f(g)(1)) (``Security Futures Product Exchange'') shall file an 
amendment to Form 1-N (Sec. 249.10 of this chapter), which shall set 
forth the nature and effective date of the action taken and shall 
provide any new information and correct any information rendered 
inaccurate, on Form 1-N (Sec. 249.10 of this chapter), within:
    (i) Ten days after any action is taken that renders inaccurate, or 
that causes to be incomplete, any information filed on the Execution 
Page of Form 1-N (Sec. 249.10 of this chapter), or amendment thereto; 
or
    (ii) 30 days after any action is taken that renders inaccurate, or 
that causes to be incomplete, any information filed as part of Exhibit F 
to Form 1-N (Sec. 249.10 of this chapter), or any amendments thereto.
    (2) A Security Futures Product Exchange shall maintain records 
relating to changes in information required in Exhibits C and E to Form 
1-N (Sec. 249.10 of this chapter) which shall be current of as of the 
latest practicable date, but shall, at a minimum, be up-to-date within 
30 days. A Security Futures Product Exchange shall make such records 
available to the Commission and the public upon request.
    (3) On or before June 30, 2002, and by June 30 every year 
thereafter, a Security Futures Product Exchange shall file, as an 
amendment to Form 1-N (Sec. 249.10 of this chapter), Exhibits F, H, and 
I, which shall be current of as of the latest practicable date, but 
shall, at a minimum, be up-to-date within three months as of the date 
the amendment is filed.
    (4) On or before June 30, 2004, and by June 30 every three years 
thereafter, a

[[Page 51]]

Security Futures Product Exchange shall file, as an amendment to Form 1-
N (Sec. 249.10 of this chapter), complete Exhibits A, B, C, and E, 
which shall be current of as of the latest practicable date, but shall, 
at a minimum, be up-to-date within three months as of the date the 
amendment is filed.
    (5)(i) If a Security Futures Product Exchange, on an annual or more 
frequent basis, publishes, or cooperates in the publication of, any of 
the information required to be filed by paragraphs (b)(3) and (b)(4) of 
this section, in lieu of filing such information, a Security Futures 
Product Exchange may satisfy this filing requirement by:
    (A) Identifying the publication in which such information is 
available, the name, address, and telephone number of the person from 
whom such publication may be obtained, and the price of such 
publication; and
    (B) Certifying to the accuracy of such information as of its 
publication date.
    (ii) If a Security Futures Product Exchange keeps the information 
required under paragraphs (b)(3) and (b)(4) of this section up-to-date 
and makes it available to the Commission and the public upon request, in 
lieu of filing such information, a Security Futures Product Exchange may 
satisfy this filing requirement by certifying that the information is 
kept up-to-date and is available to the Commission and the public upon 
request.
    (iii) If the information required to be filed under paragraphs 
(b)(3) and (b)(4) of this section is available continuously on an 
Internet web site controlled by a Security Futures Product Exchange, in 
lieu of filing such information with the Commission, such Security 
Futures Product Exchange may satisfy this filing requirement by:
    (A) Indicating the location of the Internet web site where such 
information may be found; and
    (B) Certifying that the information available at such location is 
accurate as of its date.
    (6)(i) The Commission may exempt a Security Futures Product Exchange 
from filing the amendment required by this section for any affiliate or 
subsidiary listed in Exhibit C to Form 1-N (Sec. 249.10 of this 
chapter), as amended, that either:
    (A) Is listed in Exhibit C to Form 1 (Sec. 249.1 of this chapter) 
or to Form 1-N (Sec. 249.10 of this chapter), as amended, of one or 
more other national securities exchanges; or
    (B) Was an inactive affiliate or subsidiary throughout the 
affiliate's or subsidiary's latest fiscal year.
    (ii) Any such exemption may be granted upon terms and conditions the 
Commission deems necessary or appropriate in the public interest or for 
the protection of investors, provided however, that at least one 
national securities exchange shall be required to file the amendments 
required by this section for an affiliate or subsidiary described in 
paragraph (b)(6)(i) of this section.
    (7) If a Security Futures Product Exchange has filed documents with 
the Commodity Futures Trading Commission, to the extent that such 
documents contain information satisfying the Commission's informational 
requirements, copies of such documents may be filed with the Commission 
in lieu of the required written notice.
    (c) Supplemental material to be filed by Security Futures Product 
Exchanges. (1)(i) A Security Futures Product Exchange shall file with 
the Commission any material related to the trading of security futures 
products (including notices, circulars, bulletins, lists, and 
periodicals) issued or made generally available to members of, 
participants in, or subscribers to, the exchange. Such material shall be 
filed with the Commission within ten days after issuing or making such 
material available to members, participants, or subscribers.
    (ii) If the information required to be filed under paragraph 
(c)(1)(i) of this section is available continuously on an Internet web 
site controlled by an exchange, in lieu of filing such information with 
the Commission, such exchange may:
    (A) Indicate the location of the Internet web site where such 
information may be found; and
    (B) Certify that the information available at such location is 
accurate as of its date.

[[Page 52]]

    (2) Within 15 days after the end of each calendar month, a Security 
Futures Product Exchange shall file a report concerning the security 
futures products traded on such exchange during the previous calendar 
month. Such a report shall:
    (i) For each contract of sale for future delivery of a single 
security, the number of contracts traded on such exchange during the 
relevant calendar month and the total number of shares underlying such 
contracts traded; and
    (ii)For each contract of sale for future delivery of a narrow-based 
security index, the number of contracts traded on such exchange during 
the relevant calendar month and the total number of shares represented 
by the index underlying such contracts traded.

[66 FR 43741, Aug. 20, 2001]



Sec. 240.6h-1  Settlement and regulatory halt requirements for security 
futures products.

    (a) For the purposes of this section:
    (1) Opening price means the price at which a security opened for 
trading, or a price that fairly reflects the price at which a security 
opened for trading, during the regular trading session of the national 
securities exchange or national securities association that lists the 
security. If the security is not listed on a national securities 
exchange or a national securities association, then opening price shall 
mean the price at which a security opened for trading, or a price that 
fairly reflects the price at which a security opened for trading, on the 
primary market for the security.
    (2) Regular trading session of a security means the normal hours for 
business of a national securities exchange or national securities 
association that lists the security.
    (3) Regulatory halt means a delay, halt, or suspension in the 
trading of a security, that is instituted by the national securities 
exchange or national securities association that lists the security, as 
a result of:
    (i) A determination that there are matters relating to the security 
or issuer that have not been adequately disclosed to the public, or that 
there are regulatory problems relating to the security which should be 
clarified before trading is permitted to continue; or
    (ii) The operation of circuit breaker procedures to halt or suspend 
trading in all equity securities trading on that national securities 
exchange or national securities association.
    (b) Final settlement prices for security futures products.
    (1) The final settlement price of a cash-settled security futures 
product must fairly reflect the opening price of the underlying security 
or securities.
    (2) Notwithstanding paragraph (b)(1) of this section, if an opening 
price for one or more securities underlying a security futures product 
is not readily available, the final settlement price of the security 
futures product shall fairly reflect:
    (i) The price of the underlying security or securities during the 
most recent regular trading session for such security or securities; or
    (ii) The next available opening price of the underlying security or 
securities.
    (3) Notwithstanding paragraph (b)(1) or (b)(2) of this section, if a 
clearing agency registered under Section 17A of the Act (15 U.S.C. 78q-
1), or exempt from registration pursuant to Section 17A(b)(7) of the Act 
(15 U.S.C. 78q-1(b)(7)), to which the final settlement price of a 
security futures product is or would be reported determines, pursuant to 
its rules, that such final settlement price is not consistent with the 
protection of investors and the public interest, taking into account 
such factors as fairness to buyers and sellers of the affected security 
futures product, the maintenance of a fair and orderly market in such 
security futures product, and consistency of interpretation and 
practice, the clearing agency shall have the authority to determine, 
under its rules, a final settlement price for such security futures 
product.
    (c) Regulatory trading halts. The rules of a national securities 
exchange or national securities association registered pursuant to 
Section 15A(a) of the Act (15 U.S.C. 78o-3(a)) that lists or trades one 
or more security futures products must include the following provisions:
    (1) Trading of a security futures product based on a single security 
shall be halted at all times that a regulatory

[[Page 53]]

halt has been instituted for the underlying security; and
    (2) Trading of a security futures product based on a narrow-based 
security index shall be halted at all times that a regulatory halt has 
been instituted for one or more underlying securities that constitute 50 
percent or more of the market capitalization of the narrow-based 
security index.
    (d) The Commission may exempt from the requirements of this section, 
either unconditionally or on specified terms and conditions, any 
national securities exchange or national securities association, if the 
Commission determines that such exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors. An 
exemption granted pursuant to this paragraph shall not operate as an 
exemption from any Commodity Futures Trading Commission rules. Any 
exemption that may be required from such rules must be obtained 
separately from the Commodity Futures Trading Commission.

[67 FR 36762, May 24, 2002]



Sec. 240.7c2-1  [Reserved]

                 Hypothecation of Customers' Securities



Sec. 240.8c-1  Hypothecation of customers' securities.

    (a) General provisions. No member of a national securities exchange, 
and no broker or dealer who transacts a business in securities through 
the medium of any such member shall, directly or indirectly, hypothecate 
or arrange for or permit the continued hypothecation of any securities 
carried for the account of any customer under circumstances:
    (1) That will permit the commingling of securities carried for the 
account of any such customer with securities carried for the account of 
any other customer, without first obtaining the written consent of each 
such customer to such hypothecation;
    (2) That will permit such securities to be commingled with 
securities carried for the account of any person other than a bona fide 
customer of such member, broker or dealer under a lien for a loan made 
to such member, broker or dealer; or
    (3) That will permit securities carried for the account of customers 
to be hypothecated or subjected to any lien or liens or claim or claims 
of the pledges or pledgees, for a sum which exceeds the aggregate 
indebtedness of all customers in respect of securities carried for their 
accounts; except that this clause shall not be deemed to be violated by 
reason of an excess arising on any day through the reduction of the 
aggregate indebtedness of customers on such day, provided that funds or 
securities in an amount sufficient to eliminate such excess are paid or 
placed in transfer to pledgees for the purpose of reducing the sum of 
the liens or claims to which securities carried for the account of 
customers are subjected as promptly as practicable after such reduction 
occurs, but before the lapse of one-half hour after the commencement of 
banking hours on the next banking day at the place where the largest 
principal amount of loans of such member, broker or dealer are payable 
and, in any event, before such member, broker or dealer on such day has 
obtained or increased any bank loan collateralized by securities carried 
for the account of customers.
    (b) Definitions. For the purposes of this section:
    (1) The term customer shall not include any general or special 
partner or any director or officer of such member, broker or dealer, or 
any participant, as such, in any joint, group or syndicate account with 
such member, broker or dealer or with any partner, officer or director 
thereof. The term also shall not include any counterparty who has 
delivered collateral to an OTC derivatives dealer pursuant to a 
transaction in an eligible OTC derivative instrument, or pursuant to the 
OTC derivatives dealer's cash management securities activities or 
ancillary portfolio management securities activities, and who has 
received a prominent written notice from the OTC derivatives dealer 
that:
    (i) Except as otherwise agreed in writing by the OTC derivatives 
dealer and the counterparty, the dealer may repledge or otherwise use 
the collateral in its business;

[[Page 54]]

    (ii) In the event of the OTC derivatives dealer's failure, the 
counterparty will likely be considered an unsecured creditor of the 
dealer as to that collateral;
    (iii) The Securities Investor Protection Act of 1970 (15 U.S.C. 
78aaa through 78lll) does not protect the counterparty; and
    (iv) The collateral will not be subject to the requirements of Sec. 
240.8c-1, Sec. 240.15c2-1, Sec. 240.15c3-2, or Sec. 240.15c3-3;
    (2) The term securities carried for the account of any customer 
shall be deemed to mean:
    (i) Securities received by or on behalf of such member, broker or 
dealer for the account of any customer;
    (ii) Securities sold and appropriated by such member, broker or 
dealer to a customer, except that if such securities were subject to a 
lien when appropriated to a customer they shall not be deemed to be 
``securities carried for the account of any customer'' pending their 
release from such lien as promptly as practicable:
    (iii) Securities sold, but not appropriated, by such member, broker 
or dealer to a customer who has made any payment therefor, to the extent 
that such member, broker or dealer owns and has received delivery of 
securities of like kind, except that if such securities were subject to 
a lien when such payment was made they shall not be deemed to be 
``securities carried for the account of any customer'' pending their 
release from such lien as promptly as practicable:
    (3) ``Aggregate indebtedness'' shall not be deemed to be reduced by 
reason of uncollected items. In computing aggregate indebtedness, 
related guaranteed and guarantor accounts shall be treated as a single 
account and considered on a consolidated basis, and balances in accounts 
carrying both long and short positions shall be adjusted by treating the 
market value of the securities required to cover such short positions as 
though such market value were a debit; and
    (4) In computing the sum of the liens or claims to which securities 
carried for the account of customers of a member, broker or dealer are 
subject, any rehypothecation of such securities by another member, 
broker or dealer who is subject to this section or to Sec. 240.15c2-1 
shall be disregarded.
    (c) Exemption for cash accounts. The provisions of paragraph (a)(1) 
of this section shall not apply to any hypothecation of securities 
carried for the account of a customer in a special cash account within 
the meaning of 12 CFR 220.4(c): Provided, That at or before the 
completion of the transaction of purchase of such securities for, or of 
sale of such securities to, such customer, written notice is given or 
sent to such customer disclosing that such securities are or may be 
hypothecated under circumstances which will permit the commingling 
thereof with securities carried for the account of other customers. The 
term the completion of the transaction shall have the meaning given to 
such term by Sec. 240.15c1-1(b).
    (d) Exemption for clearinghouse liens. The provisions of paragraphs 
(a)(2), (a)(3), and (f) of this section shall not apply to any lien or 
claim of the clearing corporation, or similar department or association, 
of a national securities exchange or a registered national securities 
association for a loan made and to be repaid on the same calendar day, 
which is incidental to the clearing of transactions in securities or 
loans through such corporation, department, or association: Provided, 
however, That for the purpose of paragraph (a)(3) of this section, 
``aggregate indebtedness of all customers in respect of securities 
carried for their accounts'' shall not include indebtedness in respect 
of any securities subject to any lien or claim exempted by this 
paragraph.
    (e) Exemption for certain liens on securities of noncustomers. The 
provisions of paragraph (a)(2) of this section shall not be deemed to 
prevent such member, broker or dealer from permitting securities not 
carried for the account of a customer to be subjected (1) to a lien for 
a loan made against securities carried for the account of customers, or 
(2) to a lien for a loan made and to be repaid on the same calendar day. 
For the purpose of this exemption, a loan shall be deemed to be ``made 
against securities carried for the account of customers'' if only 
securities carried for the account of customers are used to obtain or to 
increase such loan or as

[[Page 55]]

substitutes for other securities carried for the account of customers.
    (f) Notice and certification requirements. No person subject to this 
section shall hypothecate any security carried for the account of a 
customer unless at or prior to the time of each such hypothecation, he 
gives written notice to the pledgee that the security pledged is carried 
for the account of a customer and that such hypothecation does not 
contravene any provision of this section, except that in the case of an 
omnibus account the members, broker or dealer for whom such account is 
carried may furnish a signed statement to the person carrying such 
account that all securities carried therein by such member, broker or 
dealer will be securities carried for the account of his customers and 
that the hypothecation thereof by such member, broker or dealer will not 
contravene any provision of this section. The provisions of this 
paragraph shall not apply to any hypothecation of securities under any 
lien or claim of a pledgee securing a loan made and to be repaid on the 
same calendar day.
    (g) The fact that securities carried for the accounts of customers 
and securities carried for the accounts of others are represented by one 
or more certificates in the custody of a clearing corporation or other 
subsidiary organization of either a national securities exchange or of a 
registered national securities association, or of a custodian bank, in 
accordance with a system for the central handling of securities 
established by a national securities exchange or a registered national 
securities association, pursuant to which system the hypothecation of 
such securities is effected by bookkeeping entries without physical 
delivery of such securities, shall not, in and of itself, result in a 
commingling of securities prohibited by paragraph (a)(1) or (a)(2) of 
this section, whenever a participating member, broker or dealer 
hypothecates securities in accordance with such system: Provided, 
however, That (1) any such custodian of any securities held by or for 
such system shall agree that it will not for any reason, including the 
assertion of any claim, right or lien of any kind, refuse to refrain 
from promptly delivering any such securities (other than securities then 
hypothecated in accordance with such system) to such clearing 
corporation or other subsidiary organization or as directed by it, 
except that nothing in such agreement shall be deemed to require the 
custodian to deliver any securities in contravention of any notice of 
levy, seizure or similar notice, or order or judgment, issued or 
directed by a governmental agency or court, or officer thereof, having 
jurisdiction over such custodian, which on its face affects such 
securities; (2) such systems shall have safeguards in the handling, 
transfer and delivery of securities and provisions for fidelity bond 
coverage of the employees and agents of the clearing corporation or 
other subsidiary organization and for periodic examinations by 
independent public accountants; and (3) the provisions of this paragraph 
shall not be effective with respect to any particular system unless the 
agreement required by paragraph (g)(1) of this section and the 
safeguards and provisions required by paragraph (g)(2) of this section 
shall have been deemed adequate by the Commission for the protection of 
investors, and unless any subsequent amendments to such agreement, 
safeguards or provisions shall have been deemed adequate by the 
Commission for the protection of investors.

(Secs. 3, 8, 15, 48 Stat. 882, 888, 895; 15 U.S.C. 78c, 78h, 78o)

    Cross Reference: For interpretative releases applicable to Sec. 
240.8c-1, see Nos. 2690 and 2822 in tabulation, part 241 of this 
chapter.

[13 FR 8180, Dec. 22, 1948, as amended at 31 FR 7740, June 1, 1966; 37 
FR 73, Jan. 5, 1973; 63 FR 59395, Nov. 3, 1998]



Sec. 240.9b-1  Options disclosure document.

    (a) Definitions. The following definitions shall apply for the 
purpose of this rule.
    (1) Options market means a national securities exchange, an 
automated quotation system of a registered securities association or a 
foreign securities exchange on which standardized options are traded.
    (2) Options class means all options contracts covering the same 
underlying instrument.

[[Page 56]]

    (3) Options disclosure document means a document, including all 
amendments and supplements thereto, prepared by one or more options 
markets which has been filed with the Commission or distributed in 
accordance with paragraph (b) of this section. Definitive options 
disclosure document or document means an options disclosure document 
furnished to customers in accordance with paragraph (b) of this section.
    (4) Standardized options are options contracts trading on a national 
securities exchange, an automated quotation system of a registered 
securities association, or a foreign securities exchange which relate to 
options classes the terms of which are limited to specific expiration 
dates and exercise prices, or such other securities as the Commission 
may, by order, designate.
    (b)(1) Five preliminary copies of an options disclosure document 
containing the information specified in paragraph (c) of this section 
shall be filed with the Commission by an options market at least 60 days 
prior to the date definitive copies are furnished to customers, unless 
the commission determines otherwise having due regard to the adequacy of 
the information disclosed and the public interest and protection of 
investors. Five copies of the definitive options disclosure document 
shall be filed with the Commission not later than the date the options 
disclosure document is furnished to customers. Notwithstanding the 
above, the use of an options disclosure document shall not be permitted 
unless the options class to which such document relates is the subject 
of an effective registration statement on Form S-20 under the Securities 
Act of 1933, or is exempt from registration under the Securities Act of 
1933 (15 U.S.C. 77a et seq.).
    (2)(i) If the information contained in the options disclosure 
document becomes or will become materially inaccurate or incomplete or 
there is or will be an omission of material information necessary to 
make the options disclosure document not misleading, the options market 
shall amend or supplement its options disclosure document by filing five 
copies of an amendment or supplement to such options disclosure document 
with the Commission at least 30 days prior to the date definitive copies 
are furnished to customers, unless the Commission determines otherwise 
having due regard to the adequacy of the information disclosed and the 
public interest and protection of investors. Five copies of the 
definitive options disclosure document, as amended or supplemented, 
shall be filed with the Commission not later than the date the amendment 
or supplement, or the amended options disclosure document, is furnished 
to customers.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, an options 
market may distribute an amendment or supplement to an options 
disclosure document prior to such 30 day period if it determines, in 
good faith, that such delivery is necessary to ensure timely and 
accurate disclosure with respect to one or more of the options classes 
covered by the document. Five copies of any amendment or supplement 
distributed pursuant to this paragraph shall be filed with the 
Commission at the time of distribution. In that instance, if the 
Commission determines, having given due regard to the adequacy of the 
information disclosed and the public interest and the protection of 
investors, it may require refiling of the amendment pursuant to 
paragraph (b)(2)(i) of this section.
    (c) Information required in an options disclosure document. An 
options disclosure document shall contain the following information, 
unless otherwise provided by the Commission, with respect to the options 
classes covered by the document:
    (1) A glossary of terms;
    (2) A discussion of the mechanics of exercising the options;
    (3) A discussion of the risks of being a holder or writer of the 
options;
    (4) The identification of the market or markets in which the options 
are traded;
    (5) A brief reference to the transaction costs, margin requirements 
and tax consequences of options trading;
    (6) The identification of the issuer of the options;
    (7) A general identification of the type of instrument or 
instruments underlying the options class or classes covered by the 
document;

[[Page 57]]

    (8) If the options are not exempt from registration under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.), the registration of the 
options on form S-20 (17 CFR 239.20) and the availability of the 
prospectus and the information in part II of the registration statement; 
and
    (9) Such other information as the Commission may specify.
    (d) Broker-dealer obligations. (1) No broker or dealer shall accept 
an order from a customer to purchase or sell an option contract relating 
to an options class that is the subject of a definitive options 
disclosure document, or approve the customer's account for the trading 
of such option, unless the broker or dealer furnishes or has furnished 
to the customer a copy of the definitive options disclosure document.
    (2) If a definitive options disclosure document relating to an 
options class is amended or supplemented, each broker and dealer shall 
promptly send a copy of the definitive amendment or supplement or a copy 
of the definitive options disclosure document as amended to each 
customer whose account is approved for trading the options class or 
classes to which the amendment or supplement relates.

[47 FR 41956, Sept. 23, 1982, as amended at 51 FR 14982, Apr. 22, 1986; 
65 FR 64139, Oct. 26, 2000; 68 FR 192, Jan. 2, 2003]

                               Short Sales



Sec. 240.10a-1  Short sales.

    (a)(1)(i) No person shall, for his own account or for the account of 
any other person, effect a short sale of any security registered on, or 
admitted to unlisted trading privileges on, a national securities 
exchange, if trades in such security are reported pursuant to an 
``effective transaction reporting plan'' as defined in Sec. 240.11Aa3-1 
(Rule 11Aa3-1 under the Act), and information as to such trades is made 
available in accordance with such plan on a real-time basis to vendors 
of market transaction information, (A) below the price at which the last 
sale thereof, regular way, was reported pursuant to an effective 
transaction reporting plan; or (B) at such price unless such price is 
above the next proceeding different price at which a sale of such 
security, regular way, was reported pursuant to an effective transaction 
reporting plan.
    (ii) The provisions of paragraph (a)(1)(i) of this section hereof 
shall not apply to transactions by any person in NASDAQ securities as 
defined in Sec. 240.11Aa3-1 (Rule 11Aa3-1 under the Act) except for 
those NASDAQ securities for which transaction reports are collected, 
processed, and made available pursuant to the plan originally submitted 
to the Commission pursuant to Rule 17a-15 (subsequently amended and 
redesignated as Rule 11Aa3-1) under the Act, which plan was declared 
effective as of May 17, 1974.
    (2) Notwithstanding paragraph (a)(1) of this section, any exchange, 
by rule, may require that no person shall, for his own account or the 
account of any other person, effect a short sale of any such security on 
that exchange (i) below the price at which the last sale thereof, 
regular way, was effected on such exchange, or (ii) at such price unless 
such price is above the next preceding different price at which a sale 
of such securities, regular way, was effected on such exchange, if that 
exchange determines that such action is necessary or appropriate in its 
market in the public interest or for the protection of investors; and, 
if an exchange adopts such a rule, no person shall, for his own account 
or for the account of any other person, effect a short sale of any such 
security on such exchange otherwise than in accordance with such rule, 
and compliance with any such rule of an exchange shall constitute 
compliance with this paragraph (a).
    (3) In determining the price at which a short sale may be effected 
after a security goes ex-dividend, ex-right, or ex-any other 
distribution, all sale prices prior to the ``ex'' date may be reduced by 
the value of such distribution.
    (b) No person shall, for his own account or for the account of any 
other person, effect on a national securities exchange a short sale of 
any security not covered by paragraph (a) of this rule, (1) below the 
price at which the last sale thereof, regular way, was effected on such 
exchange, or (2) at such price unless such price is above the next 
preceding different price at which a sale of such security, regular way,

[[Page 58]]

was effected on such exchange. In determining the price at which a short 
sale may be effected after a security goes ex-dividend, ex-right, or ex-
any other distribution, all sale prices prior to the ``ex'' date may be 
reduced by the value of such distribution.
    (c) No broker or dealer shall, by the use of any facility of a 
national securities exchange, or any means or instrumentality of 
interstate commerce, or of the mails, effect any sell order for a 
security registered on, or admitted to unlisted trading privileges on, a 
national securities exchange unless such order is marked either ``long'' 
or ``short.''
    (d) No broker or dealer shall mark any order to sell a security 
registered on, or admitted to unlisted trading privileges on, a national 
securities exchange ``long'' unless (1) the security to be delivered 
after sale is carried in the account for which the sale is to be 
effected, or (2) such broker or dealer is informed that the seller owns 
the security ordered to be sold and, as soon as is possible without 
undue inconvenience or expense, will deliver the security owned to the 
account for which the sale is to be effected.
    (e) The provisions of paragraphs (a) and (b) of this section (and of 
any exchange rule adopted in accordance with paragraph (a) of this 
section) shall not apply to:
    (1) Any sale by any person, for an account in which he has an 
interest, if such person owns the security sold and intends to deliver 
such security as soon as is possible without undue inconvenience or 
expense;
    (2) Any broker or dealer in respect of a sale, for an account in 
which he has no interest, pursuant to an order to sell which is marked 
``long'';
    (3) Any sale by an odd-lot dealer or an exchange with which it is 
registered for such security, or any over-the-counter sale by a third 
market maker to offset odd-lot orders of customers;
    (4) Any sale by an odd-lot dealer on an exchange with which it is 
registered for such security, or any over-the-counter sale by a third 
market maker to liquidate a long position which is less than a round 
lot, provided such sale does not change the position of such odd-lot 
dealer or such market maker by more than the unit of trading;
    (5) Any sale of a security covered by paragraph (a) of this section 
(except a sale to a stabilizing bid complying with Sec. 242.104 of this 
chapter) by a registered specialist or registered exchange market maker 
for its own account on any exchange with which it is registered for such 
security, or by a third market maker for its own account over-the-
counter,
    (i) Effected at a price equal to or above the last sale, regular 
way, reported for such security pursuant to an effective transaction 
reporting plan; or
    (ii) Effected at a price equal to the most recent offer communicated 
for the security by such registered specialist, registered exchange 
market maker or third market maker to an exchange or a national 
securities association (``association'') pursuant to Sec. 240.11Ac1-1, 
if such offer, when communicated, was equal to or above the last sale, 
regular way, reported for such security pursuant to an effective 
transaction reporting plan:

Provided, however, That any exchange, by rule, may prohibit its 
registered specialist and registered exchange market makers from 
availing themselves of the exemption afforded by this paragraph (e)(5) 
if that exchange determines that such action is necessary or appropriate 
in its market in the public interest or for the protection of investors;
    (6) Any sale of a security covered by paragraph (b) of this section 
on a national securities exchange (except a sale to a stabilizing bid 
complying with Sec. 242.104 of this chapter) effected with the approval 
of such exchange which is necessary to equalize the price of such 
security thereon with the current price of such security on another 
national securities exchange which is the principal exchange market for 
such security;
    (7) Any sale of a security for a special arbitrage acccount by a 
person who then owns another security by virtue of which he is, or 
presently will be, entitled to acquire an equivalent number of 
securities of the same class as the securities sold; provided such sale, 
or the purchase with such sale offsets, is effected for the bona fide 
purpose of

[[Page 59]]

profitting from a current difference between the price of security sold 
and the security owned and that such right of acquisition was originally 
attached to or represented by another security or was issued to all the 
holders of any such class of securities of the issuer.
    (8) Any sale of a security registered on, or admitted to unlisted 
trading privileges on, a national securities exchange effected for a 
special international arbitrage account for the bona fide purpose of 
profitting from a current difference between the price of such security 
on a securities market not within or subject to the jurisdiction of the 
United States and on a securities market subject to the jurisdiction of 
the United States; provided the seller at the time of such sale knows 
or, by virtue of information currently received, has reasonable grounds 
to believe that an offer enabling him to cover such sale is then 
available to him such foreign securities market and intends to accept 
such offer immediately;
    (9) [Reserved]
    (10) Any sale by an underwriter, or any member of a syndicate or 
group participating in the distribution of a security, in connection 
with an over-allotment of securities, or any lay-off sale by such a 
person in connection with a distribution of securities through rights or 
a standby underwriting commitment; or
    (11) Any sale of a security covered by paragraph (a) of this section 
(except a sale to a stabilizing bid complying with Sec. 242.104 of this 
chapter) by any broker or dealer, for his own account or for the account 
of any other person, effected at a price to the most recent offer 
communicated by such broker or dealer to an exchange or association 
pursuant to Sec. 240.11Ac1-1 in an amount less than or equal to the 
quotation size associated with such offer, if such offer, when 
communicated, was (i) above the price at which the last sale, regular 
way, for such security was reported pursuant to an effective transaction 
reporting plan; or (ii) at such last sale price, if such last sale price 
is above the next preceding different price at which a sale of such 
security, regular way, was reported pursuant to an effective transaction 
reporting plan.
    (12) For the purposes of paragraph (e)(8) of this section, a 
depositary receipt of a security shall be deemed to be the same security 
as the security represented by such receipt. For the purposes of 
paragraphs (e)(3), (4) and (5) of this section, the term ``third market 
maker'' shall mean any broker or dealer who holds itself out as being 
willing to buy and sell a reported security for its own account on a 
regular and continuous basis otherwise than on an exchange in amounts of 
less than block size.
    (13) A broker-dealer that has acquired a security while acting in 
the capacity of a block positioner shall be deemed to own such security 
for the purposes of Rule 3b-3 (Sec. 240.3b-3) and of this section not 
withstanding that such broker-dealer may not have a net long position in 
such security if and to the extent that such broker-dealer's short 
position in such security is the subject of one or more offsetting 
positions created in the course of bona fide arbitrage, risk arbitrage, 
or bona fide hedge activities.
    (f) This rule shall not prohibit any transaction or transactions 
which the Commission, upon written request or upon its own motion, 
exempts, either unconditionally or on specified terms and conditions.

(Secs. 2, 3, 6, 9, 10, 15, 17 and 23, Pub. L. 78-291, 48 Stat. 881, 882, 
885, 889, 891, 895, 897 and 901, as amended by secs. 2, 3, 4, 11, 14 and 
18, Pub. L. 94-29, 89 Stat. 97, 104, 121, 137 and 155 (15 U.S.C. 78b, 
78c, 78f, 78i, 78j, 78o, 78q, and 78w); sec. 15A, as added by sec. 1, 
Pub. L. 75-719, 52 Stat. 1070, as amended by sec. 12, Pub. L. 94-29, 89 
Stat. 127 (15 U.S.C. 78o-3); sec. 11A, as added by sec. 7, Pub. L. 94-
29, 89 Stat. 111 (15 U.S.C. 78k-1); 15 U.S.C. 78a et seq., and 
particularly secs. 2, 3, 10(a), 10(b), 15(c), and 23(a), 15 U.S.C. 78b, 
78c, 78i(a)(6), 78j(a), 78j(b), 78o(c), and 78w(a))

    Cross References: For interpretative release applicable to Sec. 
240.10a-1, see No. 1571 in tabulation, part 241 of this chapter; for 
definition of ``short sale'', see Sec. 240.3b-3.

[40 FR 25444, June 16, 1975, as amended at 45 FR 12390, Feb. 26, 1980; 
45 FR 79021, Nov. 28, 1981; 46 FR 49114, Oct. 8, 1981; 49 FR 9415, Mar. 
13, 1984; 51 FR 8804, Mar. 14, 1986; 52 FR 24152, June 29, 1987; 58 FR 
18146, Apr. 8, 1993: 62 FR 543, Jan. 3, 1997]

[[Page 60]]



Sec. 240.10a-2  Requirements for covering purchases.

    (a) No broker or dealer shall lend, or arrange for the loan of, any 
security registered on, or admitted to unlisted trading privileges on, a 
national securities exchange for delivery to the broker for the 
purchaser after sale, or shall fail to deliver a security on the date 
delivery is due, if such broker or dealer knows or has reasonable 
grounds to believe that the sale was effected, or will be effected, 
pursuant to an order marked ``long,'' unless such broker or dealer 
knows, or has been informed by the seller (1) that the security sold has 
been forwarded to the account for which the sale was effected, or (2) 
that the seller owns the security sold, that it is then impracticable to 
deliver to such account the security owned and that he will deliver such 
security to such account as soon as it is possible without undue 
inconvenience or expense.
    (b) The provisions of paragraph (a) of this section shall not apply 
(1) to the lending of a security registered on, or admitted to unlisted 
trading privileges on, a national securities exchange by a broker or 
dealer through the medium of a loan to another broker or dealer, or (2) 
to any loan, or arrangement for the loan, of any such security, or to 
any failure to deliver any such security if, prior to such loan, 
arrangement or failure to deliver, a national securities exchange, in 
the case of a sale effected thereon, or a national securities 
association, in the case of a sale not effected on an exchange, finds 
(i) that such sale resulted from a mistake made in good faith, (ii) that 
due diligence was used to ascertain that the circumstances specified in 
Sec. 240.10a-1(d)(1) existed or to obtain the information specified in 
clause (2) thereof, and (iii) either that the condition of the market at 
the time the mistake was discovered was such that undue hardship would 
result from covering the transaction by a ``purchase for cash'' or that 
the mistake was made by the seller's broker and the sale was at a price 
permissible for a short sale under Sec. 240.10a-1 (a) or (b).

(Sec. 10, 48 Stat. 891, as amended, 64 Stat. 1265, 15 U.S.C. 78j(a); 
sec. 23(a), 48 Stat. 901, as amended, 49 Stat. 704, as amended, 49 Stat. 
1379, as amended, Pub. L. 94-29 Sec. 18 (June 4, 1975), 15 U.S.C. 
78w(a))

    Cross Reference: For interpretative release applicable to Sec. 
240.10a-2, see No. 1571 in tabulation, Part 241 of this chapter.

[40 FR 25445, June 16, 1975]

           Manipulative and Deceptive Devices and Contrivances



Sec. 240.10b-1  Prohibition of use of manipulative or deceptive devices 
or contrivances with respect to certain securities exempted from registration.

    The term manipulative or deceptive device or contrivance, as used in 
section 10(b) (48 Stat. 891; 15 U.S.C. 78j(b)), is hereby defined to 
include any act or omission to act with respect to any security exempted 
from the operation of section 12(a) (48 Stat. 892; 15 U.S.C. 78l(a)) 
pursuant to any section in this part which specifically provides that 
this section shall be applicable to such security if such act or 
omission to act would have been unlawful under section 9(a) (48 Stat. 
889; 15 U.S.C. 78i(a)), or any rule or regulation heretofore or 
hereafter prescribed thereunder, if done or omitted to be done with 
respect to a security registered on a national securities exchange, and 
the use of any means or instrumentality of interstate commerce or of the 
mails or of any facility of any national securities exchange to use or 
employ any such device or contrivance in connection with the purchase or 
sale of any such security is hereby prohibited.

(Secs. 10, 12, 48 Stat. 891, 892; 15 U.S.C. 78j, 78l)

    Cross References: For applicability of this section, see Sec. Sec. 
240.12a-4 and 240.12a-5. For regulations relating to employment of 
manipulative and deceptive devices, see Sec. Sec. 240.10b-3 and 
240.10b-5.

[13 FR 8183, Dec. 22, 1948]

[[Page 61]]



Sec. 240.10b-2  [Reserved]



Sec. 240.10b-3  Employment of manipulative and deceptive devices by 
brokers or dealers.

    (a) It shall be unlawful for any broker or dealer, directly or 
indirectly, by the use of any means or instrumentality of interstate 
commerce, or of the mails, or of any facility of any national securities 
exchange, to use or employ, in connection with the purchase or sale of 
any security otherwise than on a national securities exchange, any act, 
practice, or course of business defined by the Commission to be included 
within the term ``manipulative, deceptive, or other fraudulent device or 
contrivance'', as such term is used in section 15(c)(1) of the act.
    (b) It shall be unlawful for any municipal securities dealer 
directly or indirectly, by the use of any means or instrumentality of 
interstate commerce, or of the mails, or of any facility of any national 
securities exchange, to use or employ, in connection with the purchase 
or sale of any municipal security, any act, practice, or course of 
business defined by the Commission to be included within the term 
``manipulative, deceptive, or other fraudulent device or contrivance,'' 
as such term is used in section 15(c)(1) of the act.

(Secs. 10, 12, 48 Stat. 891, 892, as amended; 15 U.S.C. 78j, 78l)

    Cross References: See also Sec. 240.10b-5. For regulation relating 
to prohibition of manipulative or deceptive devices, see Sec. 240.10b-
1. For the term ``manipulative, deceptive, or other fraudulent device or 
contrivance'', as used in section 15(c)(1) of the act, see Sec. Sec. 
240.15c1-2 to 240.15c1-9.

[13 FR 8183, Dec. 22, 1948, as amended at 19 FR 8017, Dec. 4, 1954; 41 
FR 22824, June 7, 1976]



Sec. 240.10b-4  [Reserved]



Sec. 240.10b-5  Employment of manipulative and deceptive devices.

    It shall be unlawful for any person, directly or indirectly, by the 
use of any means or instrumentality of interstate commerce, or of the 
mails or of any facility of any national securities exchange,
    (a) To employ any device, scheme, or artifice to defraud,
    (b) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they were made, not 
misleading, or
    (c) To engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

(Sec. 10; 48 Stat. 891; 15 U.S.C. 78j)

[13 FR 8183, Dec. 22, 1948, as amended at 16 FR 7928, Aug. 11, 1951]



Sec. 240.10b5-1  Trading ``on the basis of'' material nonpublic 
information in insider trading cases.

    Preliminary Note to Sec. 240.10b5-1: This provision defines when a 
purchase or sale constitutes trading ``on the basis of'' material 
nonpublic information in insider trading cases brought under Section 
10(b) of the Act and Rule 10b-5 thereunder. The law of insider trading 
is otherwise defined by judicial opinions construing Rule 10b-5, and 
Rule 10b5-1 does not modify the scope of insider trading law in any 
other respect.

    (a) General. The ``manipulative and deceptive devices'' prohibited 
by Section 10(b) of the Act (15 U.S.C. 78j) and Sec. 240.10b-5 
thereunder include, among other things, the purchase or sale of a 
security of any issuer, on the basis of material nonpublic information 
about that security or issuer, in breach of a duty of trust or 
confidence that is owed directly, indirectly, or derivatively, to the 
issuer of that security or the shareholders of that issuer, or to any 
other person who is the source of the material nonpublic information.
    (b) Definition of ``on the basis of.'' Subject to the affirmative 
defenses in paragraph (c) of this section, a purchase or sale of a 
security of an issuer is ``on the basis of'' material nonpublic 
information about that security or issuer if the person making the 
purchase or sale was aware of the material nonpublic information when 
the person made the purchase or sale.
    (c) Affirmative defenses. (1)(i) Subject to paragraph (c)(1)(ii) of 
this section, a person's purchase or sale is not ``on the basis of'' 
material nonpublic information if the person making the purchase or sale 
demonstrates that:

[[Page 62]]

    (A) Before becoming aware of the information, the person had:
    (1) Entered into a binding contract to purchase or sell the 
security,
    (2) Instructed another person to purchase or sell the security for 
the instructing person's account, or
    (3) Adopted a written plan for trading securities;
    (B) The contract, instruction, or plan described in paragraph 
(c)(1)(i)(A) of this Section:
    (1) Specified the amount of securities to be purchased or sold and 
the price at which and the date on which the securities were to be 
purchased or sold;
    (2) Included a written formula or algorithm, or computer program, 
for determining the amount of securities to be purchased or sold and the 
price at which and the date on which the securities were to be purchased 
or sold; or
    (3) Did not permit the person to exercise any subsequent influence 
over how, when, or whether to effect purchases or sales; provided, in 
addition, that any other person who, pursuant to the contract, 
instruction, or plan, did exercise such influence must not have been 
aware of the material nonpublic information when doing so; and
    (C) The purchase or sale that occurred was pursuant to the contract, 
instruction, or plan. A purchase or sale is not ``pursuant to a 
contract, instruction, or plan'' if, among other things, the person who 
entered into the contract, instruction, or plan altered or deviated from 
the contract, instruction, or plan to purchase or sell securities 
(whether by changing the amount, price, or timing of the purchase or 
sale), or entered into or altered a corresponding or hedging transaction 
or position with respect to those securities.
    (ii) Paragraph (c)(1)(i) of this section is applicable only when the 
contract, instruction, or plan to purchase or sell securities was given 
or entered into in good faith and not as part of a plan or scheme to 
evade the prohibitions of this section.
    (iii) This paragraph (c)(1)(iii) defines certain terms as used in 
paragraph (c) of this Section.
    (A) Amount. ``Amount'' means either a specified number of shares or 
other securities or a specified dollar value of securities.
    (B) Price. ``Price'' means the market price on a particular date or 
a limit price, or a particular dollar price.
    (C) Date. ``Date'' means, in the case of a market order, the 
specific day of the year on which the order is to be executed (or as 
soon thereafter as is practicable under ordinary principles of best 
execution). ``Date'' means, in the case of a limit order, a day of the 
year on which the limit order is in force.
    (2) A person other than a natural person also may demonstrate that a 
purchase or sale of securities is not ``on the basis of'' material 
nonpublic information if the person demonstrates that:
    (i) The individual making the investment decision on behalf of the 
person to purchase or sell the securities was not aware of the 
information; and
    (ii) The person had implemented reasonable policies and procedures, 
taking into consideration the nature of the person's business, to ensure 
that individuals making investment decisions would not violate the laws 
prohibiting trading on the basis of material nonpublic information. 
These policies and procedures may include those that restrict any 
purchase, sale, and causing any purchase or sale of any security as to 
which the person has material nonpublic information, or those that 
prevent such individuals from becoming aware of such information.

[65 FR 51737, Aug. 24, 2000]



Sec. 240.10b5-2  Duties of trust or confidence in misappropriation 
insider trading cases.

    Preliminary Note to Sec. 240.10b5-2:
    This section provides a non-exclusive definition of circumstances in 
which a person has a duty of trust or confidence for purposes of the 
``misappropriation'' theory of insider trading under Section 10(b) of 
the Act and Rule 10b-5. The law of insider trading is otherwise defined 
by judicial opinions construing Rule 10b-5, and Rule 10b5-2 does not 
modify the scope of insider trading law in any other respect.

    (a) Scope of Rule. This section shall apply to any violation of 
Section 10(b) of the Act (15 U.S.C. 78j(b)) and Sec. 240.10b-5 
thereunder that is based on the purchase or sale of securities on the 
basis of, or the communication of,

[[Page 63]]

material nonpublic information misappropriated in breach of a duty of 
trust or confidence.
    (b) Enumerated ``duties of trust or confidence.'' For purposes of 
this section, a ``duty of trust or confidence'' exists in the following 
circumstances, among others:
    (1) Whenever a person agrees to maintain information in confidence;
    (2) Whenever the person communicating the material nonpublic 
information and the person to whom it is communicated have a history, 
pattern, or practice of sharing confidences, such that the recipient of 
the information knows or reasonably should know that the person 
communicating the material nonpublic information expects that the 
recipient will maintain its confidentiality; or
    (3) Whenever a person receives or obtains material nonpublic 
information from his or her spouse, parent, child, or sibling; provided, 
however, that the person receiving or obtaining the information may 
demonstrate that no duty of trust or confidence existed with respect to 
the information, by establishing that he or she neither knew nor 
reasonably should have known that the person who was the source of the 
information expected that the person would keep the information 
confidential, because of the parties' history, pattern, or practice of 
sharing and maintaining confidences, and because there was no agreement 
or understanding to maintain the confidentiality of the information.

[65 FR 51738, Aug. 24, 2000]



Sec. Sec. 240.10b-6--240.10b-8  [Reserved]



Sec. 240.10b-9  Prohibited representations in connection with certain 
offerings.

    (a) It shall constitute a manipulative or deception device or 
contrivance, as used in section 10(b) of the Act, for any person, 
directly or indirectly, in connection with the offer or sale of any 
security, to make any representation:
    (1) To the effect that the security is being offered or sold on an 
``all-or-none'' basis, unless the security is part of an offering or 
distribution being made on the condition that all or a specified amount 
of the consideration paid for such security will be promptly refunded to 
the purchaser unless (i) all of the securities being offered are sold at 
a specified price within a specified time, and (ii) the total amount due 
to the seller is received by him by a specified date; or
    (2) To the effect that the security is being offered or sold on any 
other basis whereby all or part of the consideration paid for any such 
security will be refunded to the purchaser if all or some of the 
securities are not sold, unless the security is part of an offering or 
distribution being made on the condition that all or a specified part of 
the consideration paid for such security will be promptly refunded to 
the purchaser unless (i) a specified number of units of the security are 
sold at a specified price within a specified time, and (ii) the total 
amount due to the seller is received by him by a specified date.
    (b) This rule shall not apply to any offer or sale of securities as 
to which the seller has a firm commitment from underwriters or others 
(subject only to customary conditions precedent, including ``market 
outs'') for the purchase of all the securities being offered.

(Sec. 10, 48 Stat. 891, as amended; 15 U.S.C. 78j)

[27 FR 9943, Oct. 10, 1962]



Sec. 240.10b-10  Confirmation of transactions.

    Preliminary Note. This section requires broker-dealers to disclose 
specified information in writing to customers at or before completion of 
a transaction. The requirements under this section that particular 
information be disclosed is not determinative of a broker-dealer's 
obligation under the general antifraud provisions of the federal 
securities laws to disclose additional information to a customer at the 
time of the customer's investment decision.

    (a) Disclosure requirement. It shall be unlawful for any broker or 
dealer to effect for or with an account of a customer any transaction 
in, or to induce the purchase or sale by such customer of, any security 
(other than U.S. Savings Bonds or municipal securities) unless such 
broker or dealer, at or before completion of such transaction, gives or 
sends to such customer written notification disclosing:

[[Page 64]]

    (1) The date and time of the transaction (or the fact that the time 
of the transaction will be furnished upon written request to such 
customer) and the identity, price, and number of shares or units (or 
principal amount) of such security purchased or sold by such customer; 
and
    (2) Whether the broker or dealer is acting as agent for such 
customer, as agent for some other person, as agent for both such 
customer and some other person, or as principal for its own account; and 
if the broker or dealer is acting as principal, whether it is a market 
maker in the security (other than by reason of acting as a block 
positioner); and
    (i) If the broker or dealer is acting as agent for such customer, 
for some other person, or for both such customer and some other person:
    (A) The name of the person from whom the security was purchased, or 
to whom it was sold, for such customer or the fact that the information 
will be furnished upon written request of such customer; and
    (B) The amount of any remuneration received or to be received by the 
broker from such customer in connection with the transaction unless 
remuneration paid by such customer is determined pursuant to written 
agreement with such customer, otherwise than on a transaction basis; and
    (C) For a transaction in any subject security as defined in Sec. 
240.11Ac1-2 or a security authorized for quotation on an automated 
interdealer quotation system that has the characteristics set forth in 
section 17B of this Act (15 U.S.C. 78q-2), a statement whether payment 
for order flow is received by the broker or dealer for transactions in 
such securities and the fact that the source and nature of the 
compensation received in connection with the particular transaction will 
be furnished upon written request of the customer; provided, however, 
that brokers or dealers that do not receive payment for order flow in 
connection with any transaction have no disclosure obligation under this 
paragraph; and
    (D) The source and amount of any other remuneration received or to 
be received by the broker in connection with the transaction: Provided, 
however, that if, in the case of a purchase, the broker was not 
participating in a distribution, or in the case of a sale, was not 
participating in a tender offer, the written notification may state 
whether any other remuneration has been or will be received and the fact 
that the source and amount of such other remuneration will be furnished 
upon written request of such customer; or
    (ii) If the broker or dealer is acting as principal for its own 
account:
    (A) In the case where such broker or dealer is not a market maker in 
an equity security and, if, after having received an order to buy from a 
customer, the broker or dealer purchased the equity security from 
another person to offset a contemporaneous sale to such customer or, 
after having received an order to sell from a customer, the broker or 
dealer sold the security to another person to offset a contemporaneous 
purchase from such customer, the difference between the price to the 
customer and the dealer's contemporaneous purchase (for customer 
purchases) or sale price (for customer sales); or
    (B) In the case of any other transaction in a reported security, or 
an equity security that is quoted on NASDAQ or traded on a national 
securities exchange and that is subject to last sale reporting, the 
reported trade price, the price to the customer in the transaction, and 
the difference, if any, between the reported trade price and the price 
to the customer.
    (3) Whether any odd-lot differential or equivalent fee has been paid 
by such customer in connection with the execution of an order for an 
odd-lot number of shares or units (or principal amount) of a security 
and the fact that the amount of any such differential or fee will be 
furnished upon oral or written request: Provided, however, that such 
disclosure need not be made if the differential or fee is included in 
the remuneration disclosure, or exempted from disclosure, pursuant to 
paragraph (a)(2)(i)(B) of this section; and

[[Page 65]]

    (4) In the case of any transaction in a debt security subject to 
redemption before maturity, a statement to the effect that such debt 
security may be redeemed in whole or in part before maturity, that such 
a redemption could affect the yield represented and the fact that 
additional information is available upon request; and
    (5) In the case of a transaction in a debt security effected 
exclusively on the basis of a dollar price:
    (i) The dollar price at which the transaction was effected, and
    (ii) The yield to maturity calculated from the dollar price: 
Provided, however, that this paragraph (a)(5)(ii) shall not apply to a 
transaction in a debt security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest payable thereon; or
    (B) Is an asset-backed security, that represents an interest in or 
is secured by a pool of receivables or other financial assets that are 
subject continuously to prepayment; and
    (6) In the case of a transaction in a debt security effected on the 
basis of yield:
    (i) The yield at which the transaction was effected, including the 
percentage amount and its characterization (e.g., current yield, yield 
to maturity, or yield to call) and if effected at yield to call, the 
type of call, the call date and call price; and
    (ii) The dollar price calculated from the yield at which the 
transaction was effected; and
    (iii) If effected on a basis other than yield to maturity and the 
yield to maturity is lower than the represented yield, the yield to 
maturity as well as the represented yield; Provided, however, that this 
paragraph (a)(6)(iii) shall not apply to a transaction in a debt 
security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest rate payable thereon; or
    (B) Is an asset-backed security, that represents an interest in or 
is secured by a pool of receivables or other financial assets that are 
subject continuously to prepayment; and
    (7) In the case of a transaction in a debt security that is an 
asset-backed security, which represents an interest in or is secured by 
a pool of receivables or other financial assets that are subject 
continuously to prepayment, a statement indicating that the actual yield 
of such asset-backed security may vary according to the rate at which 
the underlying receivables or other financial assets are prepaid and a 
statement of the fact that information concerning the factors that 
affect yield (including at a minimum estimated yield, weighted average 
life, and the prepayment assumptions underlying yield) will be furnished 
upon written request of such customer; and
    (8) In the case of a transaction in a debt security, other than a 
government security, that the security is unrated by a nationally 
recognized statistical rating organization, if such is the case; and
    (9) That the broker or dealer is not a member of the Securities 
Investor Protection Corporation (SIPC), or that the broker or dealer 
clearing or carrying the customer account is not a member of SIPC, if 
such is the case: Provided, however, that this paragraph (a)(9) shall 
not apply in the case of a transaction in shares of a registered open-
end investment company or unit investment trust if:
    (i) The customer sends funds or securities directly to, or receives 
funds or securities directly from, the registered open-end investment 
company or unit investment trust, its transfer agent, its custodian, or 
other designated agent, and such person is not an associated person of 
the broker or dealer required by paragraph (a) of this section to send 
written notification to the customer; and
    (ii) The written notification required by paragraph (a) of this 
section is sent on behalf of the broker or dealer to the customer by a 
person described in paragraph (a)(9)(i) of this section.
    (b) Alternative periodic reporting. A broker or dealer may effect 
transactions for or with the account of a customer without giving or 
sending to such customer the written notification described in paragraph 
(a) of this section if:
    (1) Such transactions are effected pursuant to a periodic plan or an 
investment company plan, or effected in

[[Page 66]]

shares of any open-end management investment company registered under 
the Investment Company Act of 1940 that holds itself out as a money 
market fund and attempts to maintain a stable net asset value per share: 
Provided, however, that no sales load is deducted upon the purchase or 
redemption of shares in the money market fund; and
    (2) Such broker or dealer gives or sends to such customer within 
five business days after the end of each quarterly period, for 
transactions involving investment company and periodic plans, and after 
the end of each monthly period, for other transactions described in 
paragraph (b)(1) of this section, a written statement disclosing each 
purchase or redemption, effected for or with, and each dividend or 
distribution credited to or reinvested for, the account of such customer 
during the month; the date of such transaction; the identity, number, 
and price of any securities purchased or redeemed by such customer in 
each such transaction; the total number of shares of such securities in 
such customer's account; any remuneration received or to be received by 
the broker or dealer in connection therewith; and that any other 
information required by paragraph (a) of this section will be furnished 
upon written request: Provided, however, that the written statement may 
be delivered to some other person designated by the customer for 
distribution to the customer; and
    (3) Such customer is provided with prior notification in writing 
disclosing the intention to send the written information referred to in 
paragraph (b)(1) of this section in lieu of an immediate confirmation.
    (c) A broker or dealer shall give or send to a customer information 
requested pursuant to this rule within 5 business days of receipt of the 
request: Provided, however, That in the case of information pertaining 
to a transaction effected more than 30 days prior to receipt of the 
request, the information shall be given or sent to the customer within 
15 business days.
    (d) Definitions. For the purposes of this section:
    (1) Customer shall not include a broker or dealer;
    (2) Completion of the transaction shall have the meaning provided in 
rule 15c1-1 under the Act;
    (3) Time of the transaction means the time of execution, to the 
extent feasible, of the customer's order;
    (4) Debt security as used in paragraphs (a)(3), (4), and (5) only, 
means any security, such as a bond, debenture, note, or any other 
similar instrument which evidences a liability of the issuer (including 
any such security that is convertible into stock or a similar security) 
and fractional or participation interests in one or more of any of the 
foregoing: Provided, however, That securities issued by an investment 
company registered under the Investment Company Act of 1940 shall not be 
included in this definition;
    (5) Periodic plan means any written authorization for a broker 
acting as agent to purchase or sell for a customer a specific security 
or securities (other than securities issued by an open end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940), in specific amounts (calculated in security units or 
dollars), at specific time intervals and setting forth the commissions 
or charges to be paid by the customer in connection therewith (or the 
manner of calculating them); and
    (6) Investment company plan means any plan under which securities 
issued by an open-end investment company or unit investment trust 
registered under the Investment Company Act of 1940 are purchased by a 
customer (the payments being made directly to, or made payable to, the 
registered investment company, or the principal underwriter, custodian, 
trustee, or other designated agent of the registered investment 
company), or sold by a customer pursuant to:
    (i) An individual retirement or individual pension plan qualified 
under the Internal Revenue Code;
    (ii) A contractual or systematic agreement under which the customer 
purchases at the applicable public offering price, or redeems at the 
applicable redemption price, such securities in specified amounts 
(calculated in security units or dollars) at specified time

[[Page 67]]

intervals and setting forth the commissions or charges to be paid by 
such customer in connection therewith (or the manner of calculating 
them; or
    (iii) Any other arrangement involving a group of two or more 
customers and contemplating periodic purchases of such securities by 
each customer through a person designated by the group: Provided, That 
such arrangement requires the registered investment company or its 
agent--
    (A) To give or send to the designated person, at or before the 
completion of the transaction for the purchase of such securities, a 
written notification of the receipt of the total amount paid by the 
group;
    (B) To send to anyone in the group who was a customer in the prior 
quarter and on whose behalf payment has not been received in the current 
quarter a quarterly written statement reflecting that a payment was not 
received on his behalf; and
    (C) To advise each customer in the group if a payment is not 
received from the designated person on behalf of the group within 10 
days of a date certain specified in the arrangement for delivery of that 
payment by the designated person and thereafter to send to each such 
customer the written notification described in paragraph (a) of this 
section for the next three succeeding payments.
    (7) Reported security shall have the meaning provided in Rule 11Aa3-
1 under the Act.
    (8) Effective transaction reporting plan shall have the meaning 
provided in Rule 11Aa3-1 under the Act.
    (9) Payment for order flow shall mean any monetary payment, service, 
property, or other benefit that results in remuneration, compensation, 
or consideration to a broker or dealer from any broker or dealer, 
national securities exchange, registered securities association, or 
exchange member in return for the routing of customer orders by such 
broker or dealer to any broker or dealer, national securities exchange, 
registered securities association, or exchange member for execution, 
including but not limited to: research, clearance, custody, products or 
services; reciprocal agreements for the provision of order flow; 
adjustment of a broker or dealer's unfavorable trading errors; offers to 
participate as underwriter in public offerings; stock loans or shared 
interest accrued thereon; discounts, rebates, or any other reductions of 
or credits against any fee to, or expense or other financial obligation 
of, the broker or dealer routing a customer order that exceeds that fee, 
expense or financial obligation.
    (10) Asset-backed security means a security that is primarily 
serviced by the cashflows of a discrete pool of receivables or other 
financial assets, either fixed or revolving, that by their terms convert 
into cash within a finite time period plus any rights or other assets 
designed to assure the servicing or timely distribution of proceeds to 
the security holders.
    (e) Security futures products. The provisions of paragraphs (a) and 
(b) of this section shall not apply to a broker or dealer registered 
pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) to 
the extent that it effects transactions for customers in security 
futures products in a futures account (as that term is defined in Sec. 
240.15c3-3(a)(15)) and a broker or dealer registered pursuant to section 
15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is also a futures 
commission merchant registered pursuant to section 4f(a)(1) of the 
Commodity Exchange Act (7 U.S.C. 6f(a)(1)), to the extent that it 
effects transactions for customers in security futures products in a 
futures account (as that term is defined in Sec. 240.15c3-3(a)(15)), 
Provided that:
    (1) The broker or dealer that effects any transaction for a customer 
in security futures products in a futures account gives or sends to the 
customer no later than the next business day after execution of any 
futures securities product transaction, written notification disclosing:
    (i) The date the transaction was executed, the identity of the 
single security or narrow-based security index underlying the contract 
for the security futures product, the number of contracts of such 
security futures product purchased or sold, the price, and the delivery 
month;
    (ii) The source and amount of any remuneration received or to be 
received

[[Page 68]]

by the broker or dealer in connection with the transaction, including, 
but not limited to, markups, commissions, costs, fees, and other charges 
incurred in connection with the transaction, provided, however, that if 
no remuneration is to be paid for an initiating transaction until the 
occurrence of the corresponding liquidating transaction, that the broker 
or dealer may disclose the amount of remuneration only on the 
confirmation for the liquidating transaction;
    (iii) The fact that information about the time of the execution of 
the transaction, the identity of the other party to the contract, and 
whether the broker or dealer is acting as agent for such customer, as 
agent for some other person, as agent for both such customer and some 
other person, or as principal for its own account, and if the broker or 
dealer is acting as principal, whether it is engaging in a block 
transaction or an exchange of security futures products for physical 
securities, will be available upon written request of the customer; and
    (iv) Whether payment for order flow is received by the broker or 
dealer for such transactions, the amount of this payment and the fact 
that the source and nature of the compensation received in connection 
with the particular transaction will be furnished upon written request 
of the customer; provided, however, that brokers or dealers that do not 
receive payment for order flow have no disclosure obligation under this 
paragraph.
    (2) Transitional provision.
    (i) Broker-dealers are not required to comply with paragraph 
(e)(1)(iii) of this section until June 1, 2003, Provided that, if, not 
withstanding the absence of the disclosure required in that paragraph, 
the broker-dealer receives a written request from a customer for the 
information described in paragraph (e)(1)(iii) of this section, the 
broker-dealer must make the information available to the customer; and
    (ii) Broker-dealers are not required to comply with paragraph 
(e)(1)(iv) of this section until June 1, 2003.
    (f) The Commission may exempt any broker or dealer from the 
requirements of paragraphs (a) and (b) of this section with regard to 
specific transactions of specific classes of transactions for which the 
broker or dealer will provide alternative procedures to effect the 
purposes of this section; any such exemption may be granted subject to 
compliance with such alternative procedures and upon such other stated 
terms and conditions as the Commission may impose.

[43 FR 47503, Oct. 16, 1978, as amended at 48 FR 17585, Apr. 25, 1983; 
50 FR 37654, Sept. 17, 1985; 53 FR 40721, Oct. 18, 1988; 59 FR 55012, 
Nov. 2, 1994; 59 FR 59620, Nov. 17, 1994; 59 FR 60555, Nov. 25, 1994; 67 
FR 58312, Sept. 13, 2002]



Sec. 240.10b-13  [Reserved]



Sec. 240.10b-16  Disclosure of credit terms in margin transactions.

    (a) It shall be unlawful for any broker or dealer to extend credit, 
directly or indirectly, to any customer in connection with any 
securities transaction unless such broker or dealer has established 
procedures to assure that each customer:
    (1) Is given or sent at the time of opening the account, a written 
statement or statements disclosing (i) the conditions under which an 
interest charge will be imposed; (ii) the annual rate or rates of 
interest that can be imposed; (iii) the method of computing interest; 
(iv) if rates of interest are subject to change without prior notice, 
the specific conditions under which they can be changed; (v) the method 
of determining the debit balance or balances on which interest is to be 
charged and whether credit is to be given for credit balances in cash 
accounts; (vi) what other charges resulting from the extension of 
credit, if any, will be made and under what conditions; and (vii) the 
nature of any interest or lien retained by the broker or dealer in the 
security or other property held as collateral and the conditions under 
which additional collateral can be required: Provided, however, That the 
requirements of this subparagraph will be met in any case where the 
account is opened by telephone if the information required to be 
disclosed is orally communicated to the customer at that time and the 
required written statement or statements are sent to the customer 
immediately thereafter: And provided, further, That in the case of

[[Page 69]]

customers to whom credit is already being extended on the effective date 
of this section, the written statement or statements required hereunder 
must be given or sent to said customers within 90 days after the 
effective date of this section; and
    (2) Is given or sent a written statement or statements, at least 
quarterly, for each account in which credit was extended, disclosing (i) 
the balance at the beginning of the period; the date, amount and a brief 
description of each debit and credit entered during such period; the 
closing balance; and, if interest is charged for a period different from 
the period covered by the statement, the balance as of the last day of 
the interest period; (ii) the total interest charge for the period 
during which interest is charged (or, if interest is charged separately 
for separate accounts, the total interest charge for each such account), 
itemized to show the dates on which the interest period began and ended; 
the annual rate or rates of interest charged and the interest charge for 
each such different annual rate of interest; and either each different 
debit balance on which an interest calculation was based or the average 
debit balance for the interest period, except that if an average debit 
balance is used, a separate average debit balance must be disclosed for 
each interest rate applied; and (iii) all other charges resulting from 
the extension of credit in that account: Provided, however, That if the 
interest charge disclosed on a statement is for a period different from 
the period covered by the statement, there must be printed on the 
statement appropriate language to the effect that it should be retained 
for use in conjunction with the next statement containing the remainder 
of the required information: And provided further, That in the case of 
``equity funding programs'' registered under the Securities Act of 1933, 
the requirements of this paragraph will be met if the broker or dealer 
furnishes to the customer, within 1 month after each extension of 
credit, a written statement or statements containing the information 
required to be disclosed under this paragraph.
    (b) It shall be unlawful for any broker or dealer to make any 
changes in the terms and conditions under which credit charges will be 
made (as described in the initial statement made under paragraph (a) of 
this section), unless the customer shall have been given not less than 
thirty (30) days written notice of such changes, except that no such 
prior notice shall be necessary where such changes are required by law: 
Provided, however, That if any change for which prior notice would 
otherwise be required under this paragraph results in a lower interest 
charge to the customer than would have been imposed before the change, 
notice of such change may be given within a reasonable time after the 
effective date of the change.

(15 U.S.C. 78j)

[34 FR 19718, Dec. 16, 1969]



Sec. 240.10b-17  Untimely announcements of record dates.

    (a) It shall constitute a ``manipulative or deceptive device or 
contrivance'' as used in section 10(b) of the Act for any issuer of a 
class of securities publicly traded by the use of any means or 
instrumentality of interstate commerce or of the mails or of any 
facility of any national securities exchange to fail to give notice in 
accordance with paragraph (b) of this section of the following actions 
relating to such class of securities:
    (1) A dividend or other distribution in cash or in kind, except an 
ordinary interest payment on a debt security, but including a dividend 
or distribution of any security of the same or another issuer;
    (2) A stock split or reverse split; or
    (3) A rights or other subscription offering.
    (b) Notice shall be deemed to have been given in accordance with 
this section only if:
    (1) Given to the National Association of Securities Dealers, Inc., 
no later than 10 days prior to the record date involved or, in case of a 
rights subscription or other offering if such 10 days advance notice is 
not practical, on or before the record date and in no event later than 
the effective date of the registration statement to which the offering 
relates, and such notice includes:

[[Page 70]]

    (i) Title of the security to which the declaration relates;
    (ii) Date of declaration;
    (iii) Date of record for determining holders entitled to receive the 
dividend or other distribution or to participate in the stock or reverse 
split;
    (iv) Date of payment or distribution or, in the case of a stock or 
reverse split or rights or other subscription offering, the date of 
delivery;
    (v) For a dividend or other distribution including a stock or 
reverse split or rights or other subscription offering:
    (a) In cash, the amount of cash to be paid or distributed per share, 
except if exact per share cash distributions cannot be given because of 
existing conversion rights which may be exercised during the notice 
period and which may affect the per share cash distribution, then a 
reasonable approximation of the per share distribution may be provided 
so long as the actual per share distribution is subsequently provided on 
the record date,
    (b) In the same security, the amount of the security outstanding 
immediately prior to and immediately following the dividend or 
distribution and the rate of the dividend or distribution,
    (c) In any other security of the same issuer, the amount to be paid 
or distributed and the rate of the dividend or distribution,
    (d) In any security of another issuer, the name of the issuer and 
title of that security, the amount to be paid or distributed, and the 
rate of the dividend or distribution and if that security is a right or 
a warrant, the subscription price,
    (e) In any other property (including securities not covered under 
paragraphs (b)(1)(v) (b) through (d) of this section) the identity of 
the property and its value and basis for assigning that value;
    (vi) Method of settlement of fractional interests;
    (vii) Details of any condition which must be satisfied or Government 
approval which must be secured to enable payment of distribution; and in
    (viii) The case of stock or reverse split in addition to the 
aforementioned information;
    (a) The name and address of the transfer or exchange agent; or
    (2) The Commission, upon written request or upon its own motion, 
exempts the issuer from compliance with paragraph (b)(1) of this section 
either unconditionally or on specified terms or conditions, as not 
constituting a manipulative or deceptive device or contrivance 
comprehended within the purpose of this section; or
    (3) Given in accordance with procedures of the national securities 
exchange or exchanges upon which a security of such issuer is registered 
pursuant to section 12 of the Act which contain requirements 
substantially comparable to those set forth in paragraph (b)(1) of this 
section.
    (c) The provisions of this rule shall not apply, however, to 
redeemable securities issued by open-end investment companies and unit 
investment trusts registered with the Commission under the Investment 
Company Act of 1940.

(Secs. 10(b), 23(a), 48 Stat. 891, as amended, 49 Stat. 1379, 15 U.S.C. 
78j)

[36 FR 11514, June 15, 1971, as amended at 37 FR 4330, Mar. 2, 1972]



Sec. 240.10b-18  Purchases of certain equity securities by the issuer and others.

                  Preliminary Notes to Sec. 240.10b-18

    1. Section 240.10b-18 provides an issuer (and its affiliated 
purchasers) with a ``safe harbor'' from liability for manipulation under 
sections 9(a)(2) of the Act and Sec. 240.10b-5 under the Act solely by 
reason of the manner, timing, price, and volume of their repurchases 
when they repurchase the issuer's common stock in the market in 
accordance with the section's manner, timing, price, and volume 
conditions. As a safe harbor, compliance with Sec. 240.10b-18 is 
voluntary. To come within the safe harbor, however, an issuer's 
repurchases must satisfy (on a daily basis) each of the section's four 
conditions. Failure to meet any one of the four conditions will remove 
all of the issuer's repurchases from the safe harbor for that day. The 
safe harbor, moreover, is not available for repurchases that, although 
made in technical compliance with the section, are part of a plan or 
scheme to evade the federal securities laws.

[[Page 71]]

    2. Regardless of whether the repurchases are effected in accordance 
with Sec. 240.10b-18, reporting issuers must report their repurchasing 
activity as required by Item 703 of Regulations S-K and S-B (17 CFR 
229.703 and 228.703) and Item 15(e) of Form 20-F (17 CFR 249.220f) 
(regarding foreign private issuers), and closed-end management 
investment companies that are registered under the Investment Company 
Act of 1940 must report their repurchasing activity as required by Item 
8 of Form N-CSR (17 CFR 249.331; 17 CFR 274.128).
    (a) Definitions. Unless otherwise provided, all terms used in this 
section shall have the same meaning as in the Act. In addition, the 
following definitions shall apply:
    (1) ADTV means the average daily trading volume reported for the 
security during the four calendar weeks preceding the week in which the 
Rule 10b-18 purchase is to be effected.
    (2) Affiliate means any person that directly or indirectly controls, 
is controlled by, or is under common control with, the issuer.
    (3) Affiliated purchaser means:
    (i) A person acting, directly or indirectly, in concert with the 
issuer for the purpose of acquiring the issuer's securities; or
    (ii) An affiliate who, directly or indirectly, controls the issuer's 
purchases of such securities, whose purchases are controlled by the 
issuer, or whose purchases are under common control with those of the 
issuer; Provided, however, that ``affiliated purchaser'' shall not 
include a broker, dealer, or other person solely by reason of such 
broker, dealer, or other person effecting Rule 10b-18 purchases on 
behalf of the issuer or for its account, and shall not include an 
officer or director of the issuer solely by reason of that officer or 
director's participation in the decision to authorize Rule 10b-18 
purchases by or on behalf of the issuer.
    (4) Agent independent of the issuer has the meaning contained in 
Sec. 242.100 of this chapter.
    (5) Block means a quantity of stock that either:
    (i) Has a purchase price of $200,000 or more; or
    (ii) Is at least 5,000 shares and has a purchase price of at least 
$50,000; or
    (iii) Is at least 20 round lots of the security and totals 150 
percent or more of the trading volume for that security or, in the event 
that trading volume data are unavailable, is at least 20 round lots of 
the security and totals at least one-tenth of one percent (.001) of the 
outstanding shares of the security, exclusive of any shares owned by any 
affiliate; Provided, however, That a block under paragraph (a)(5)(i), 
(ii), and (iii) shall not include any amount a broker or dealer, acting 
as principal, has accumulated for the purpose of sale or resale to the 
issuer or to any affiliated purchaser of the issuer if the issuer or 
such affiliated purchaser knows or has reason to know that such amount 
was accumulated for such purpose, nor shall it include any amount that a 
broker or dealer has sold short to the issuer or to any affiliated 
purchaser of the issuer if the issuer or such affiliated purchaser knows 
or has reason to know that the sale was a short sale.
    (6) Consolidated system means a consolidated transaction or 
quotation reporting system that collects and publicly disseminates on a 
current and continuous basis transaction or quotation information in 
common equity securities pursuant to an effective transaction reporting 
plan (as defined in Sec. 240.11Aa3-1) or a national market system plan 
(as defined in Sec. 240.11Aa3-2).
    (7) Market-wide trading suspension means a market-wide trading halt 
of 30 minutes or more that is:
    (i) Imposed pursuant to the rules of a national securities exchange 
or a national securities association in response to a market-wide 
decline during a single trading session; or
    (ii) Declared by the Commission pursuant to its authority under 
section 12(k) of the Act (15 U.S.C. 78l (k)).
    (8) Plan has the meaning contained in Sec. 242.100 of this chapter.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the six full calendar months preceding the week in which the Rule 10b-18 
purchase is to be effected.

[[Page 72]]

    (10) Public float value has the meaning contained in Sec. 242.100 
of this chapter.
    (11) Purchase price means the price paid per share as reported, 
exclusive of any commission paid to a broker acting as agent, or 
commission equivalent, mark-up, or differential paid to a dealer.
    (12) Riskless principal transaction means a transaction in which a 
broker or dealer after having received an order from an issuer to buy 
its security, buys the security as principal in the market at the same 
price to satisfy the issuer's buy order. The issuer's buy order must be 
effected at the same price per-share at which the broker or dealer 
bought the shares to satisfy the issuer's buy order, exclusive of any 
explicitly disclosed markup or markdown, commission equivalent, or other 
fee. In addition, only the first leg of the transaction, when the broker 
or dealer buys the security in the market as principal, is reported 
under the rules of a self-regulatory organization or under the Act. For 
purposes of this section, the broker or dealer must have written 
policies and procedures in place to assure that, at a minimum, the 
issuer's buy order was received prior to the offsetting transaction; the 
offsetting transaction is allocated to a riskless principal account or 
the issuer's account within 60 seconds of the execution; and the broker 
or dealer has supervisory systems in place to produce records that 
enable the broker or dealer to accurately and readily reconstruct, in a 
time-sequenced manner, all orders effected on a riskless principal 
basis.
    (13) Rule 10b-18 purchase means a purchase (or any bid or limit 
order that would effect such purchase) of an issuer's common stock (or 
an equivalent interest, including a unit of beneficial interest in a 
trust or limited partnership or a depository share) by or for the issuer 
or any affiliated purchaser (including riskless principal transactions). 
However, it does not include any purchase of such security:
    (i) Effected during the applicable restricted period of a 
distribution that is subject to Sec. 242.102 of this chapter;
    (ii) Effected by or for an issuer plan by an agent independent of 
the issuer;
    (iii) Effected as a fractional share purchase (a fractional interest 
in a security) evidenced by a script certificate, order form, or similar 
document;
    (iv) Effected during the period from the time of public announcement 
(as defined in Sec. 230.165(f)) of a merger, acquisition, or similar 
transaction involving a recapitalization, until the earlier of the 
completion of such transaction or the completion of the vote by target 
shareholders. This exclusion does not apply to Rule 10b-18 purchases:
    (A) Effected during such transaction in which the consideration is 
solely cash and there is no valuation period; or
    (B) Where:
    (1) The total volume of Rule 10b-18 purchases effected on any single 
day does not exceed the lesser of 25% of the security's four-week ADTV 
or the issuer's average daily Rule 10b-18 purchases during the three 
full calendar months preceding the date of the announcement of such 
transaction;
    (2) The issuer's block purchases effected pursuant to paragraph 
(b)(4) of this section do not exceed the average size and frequency of 
the issuer's block purchases effected pursuant to paragraph (b)(4) of 
this section during the three full calendar months preceding the date of 
the announcement of such transaction; and
    (3) Such purchases are not otherwise restricted or prohibited;
    (v) Effected pursuant to Sec. 240.13e-1;
    (vi) Effected pursuant to a tender offer that is subject to Sec. 
240.13e-4 or specifically excepted from Sec. 240.13e-4; or
    (vii) Effected pursuant to a tender offer that is subject to section 
14(d) of the Act (15 U.S.C. 78n(d)) and the rules and regulations 
thereunder.
    (b) Conditions to be met. Rule 10b-18 purchases shall not be deemed 
to have violated the anti-manipulation provisions of sections 9(a)(2) or 
10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or Sec. 240.10b-5 
under the Act, solely by reason of the time, price, or amount of the 
Rule 10b-18 purchases, or the number of brokers or dealers used in 
connection with such purchases, if the issuer or affiliated purchaser of 
the issuer effects the Rule 10b-18 purchases according to each of the 
following conditions:
    (1) One broker or dealer. Rule 10b-18 purchases must be effected 
from or

[[Page 73]]

through only one broker or dealer on any single day; Provided, however, 
that:
    (i) The ``one broker or dealer'' condition shall not apply to Rule 
10b-18 purchases that are not solicited by or on behalf of the issuer or 
its affiliated purchaser(s);
    (ii) Where Rule 10b-18 purchases are effected by or on behalf of 
more than one affiliated purchaser of the issuer (or the issuer and one 
or more of its affiliated purchasers) on a single day, the issuer and 
all affiliated purchasers must use the same broker or dealer; and
    (iii) Where Rule 10b-18 purchases are effected on behalf of the 
issuer by a broker-dealer that is not an electronic communication 
network (ECN) or other alternative trading system (ATS), that broker-
dealer can access ECN or other ATS liquidity in order to execute 
repurchases on behalf of the issuer (or any affiliated purchaser of the 
issuer) on that day.
    (2) Time of purchases. Rule 10b-18 purchases must not be:
    (i) The opening (regular way) purchase reported in the consolidated 
system;
    (ii) Effected during the 10 minutes before the scheduled close of 
the primary trading session in the principal market for the security, 
and the 10 minutes before the scheduled close of the primary trading 
session in the market where the purchase is effected, for a security 
that has an ADTV value of $1 million or more and a public float value of 
$150 million or more; and
    (iii) Effected during the 30 minutes before the scheduled close of 
the primary trading session in the principal market for the security, 
and the 30 minutes before the scheduled close of the primary trading 
session in the market where the purchase is effected, for all other 
securities;
    (iv) However, for purposes of this section, Rule 10b-18 purchases 
may be effected following the close of the primary trading session until 
the termination of the period in which last sale prices are reported in 
the consolidated system so long as such purchases are effected at prices 
that do not exceed the lower of the closing price of the primary trading 
session in the principal market for the security and any lower bids or 
sale prices subsequently reported in the consolidated system, and all of 
this section's conditions are met. However, for purposes of this 
section, the issuer may use one broker or dealer to effect Rule 10b-18 
purchases during this period that may be different from the broker or 
dealer that it used during the primary trading session. However, the 
issuer's Rule 10b-18 purchase may not be the opening transaction of the 
session following the close of the primary trading session.
    (3) Price of purchases. Rule 10b-18 purchases must be effected at a 
purchase price that:
    (i) Does not exceed the highest independent bid or the last 
independent transaction price, whichever is higher, quoted or reported 
in the consolidated system at the time the Rule 10b-18 purchase is 
effected;
    (ii) For securities for which bids and transaction prices are not 
quoted or reported in the consolidated system, Rule 10b-18 purchases 
must be effected at a purchase price that does not exceed the highest 
independent bid or the last independent transaction price, whichever is 
higher, displayed and disseminated on any national securities exchange 
or on any inter-dealer quotation system (as defined in Sec. 240.15c2-
11) that displays at least two priced quotations for the security, at 
the time the Rule 10b-18 purchase is effected; and
    (iii) For all other securities, Rule 10b-18 purchases must be 
effected at a price no higher than the highest independent bid obtained 
from three independent dealers.
    (4) Volume of purchases. The total volume of Rule 10b-18 purchases 
effected by or for the issuer and any affiliated purchasers effected on 
any single day must not exceed 25 percent of the ADTV for that security; 
However, once each week, in lieu of purchasing under the 25 percent of 
ADTV limit for that day, the issuer or an affiliated purchaser of the 
issuer may effect one block purchase if:
    (i) No other Rule 10b-18 purchases are effected that day, and
    (ii) The block purchase is not included when calculating a 
security's four week ADTV under this section.

[[Page 74]]

    (c) Alternative conditions. The conditions of paragraph (b) of this 
section shall apply in connection with Rule 10b-18 purchases effected 
during a trading session following the imposition of a market-wide 
trading suspension, except:
    (1) That the time of purchases condition in paragraph (b)(2) of this 
section shall not apply, either:
    (i) From the reopening of trading until the scheduled close of 
trading on the day that the market-wide trading suspension is imposed; 
or
    (ii) At the opening of trading on the next trading day until the 
scheduled close of trading that day, if a market-wide trading suspension 
was in effect at the close of trading on the preceding day; and
    (2) The volume of purchases condition in paragraph (b)(4) of this 
section is modified so that the amount of Rule 10b-18 purchases must not 
exceed 100 percent of the ADTV for that security.
    (d) Other purchases. No presumption shall arise that an issuer or an 
affiliated purchaser has violated the anti-manipulation provisions of 
sections 9(a)(2) or 10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or 
Sec. 240.10b-5 under the Act, if the Rule 10b-18 purchases of such 
issuer or affiliated purchaser do not meet the conditions specified in 
paragraph (b) or (c) of this section.

[68 FR 64970, Nov. 17, 2003]



Sec. 240.10b-21  [Reserved]

                        Reports Under Section 10A



Sec. 240.10A-1  Notice to the Commission Pursuant to Section 10A of the Act.

    (a)(1) If any issuer with a reporting obligation under the Act 
receives a report requiring a notice to the Commission in accordance 
with section 10A(b)(3) of the Act, 15 U.S.C. 78j-1(b)(3), the issuer 
shall submit such notice to the Commission's Office of the Chief 
Accountant within the time period prescribed in that section. The notice 
may be provided by facsimile, telegraph, personal delivery, or any other 
means, provided it is received by the Office of the Chief Accountant 
within the required time period.
    (2) The notice specified in paragraph (a)(1) of this section shall 
be in writing and:
    (i) Shall identify the issuer (including the issuer's name, address, 
phone number, and file number assigned to the issuer's filings by the 
Commission) and the independent accountant (including the independent 
accountant's name and phone number, and the address of the independent 
accountant's principal office);
    (ii) Shall state the date that the issuer received from the 
independent accountant the report specified in section 10A(b)(2) of the 
Act, 15 U.S.C. 78j-1(b)(2);
    (iii) Shall provide, at the election of the issuer, either:
    (A) A summary of the independent accountant's report, including a 
description of the act that the independent accountant has identified as 
a likely illegal act and the possible effect of that act on all affected 
financial statements of the issuer or those related to the most current 
three-year period, whichever is shorter; or
    (B) A copy of the independent accountant's report; and
    (iv) May provide additional information regarding the issuer's views 
of and response to the independent accountant's report.
    (3) Reports of the independent accountant submitted by the issuer to 
the Commission's Office of the Chief Accountant in accordance with 
paragraph (a)(2)(iii)(B) of this section shall be deemed to have been 
made pursuant to section 10A(b)(3) or section 10A(b)(4) of the Act, 15 
U.S.C. 78j-1(b)(3) or 78j-1(b)(4), for purposes of the safe harbor 
provided by section 10A(c) of the Act, 15 U.S.C. 78j-1(c).
    (4) Submission of the notice in paragraphs (a)(1) and (a)(2) of this 
section shall not relieve the issuer from its obligations to comply 
fully with all other reporting requirements, including, without 
limitation:
    (i) The filing requirements of Form 8-K, Sec. 249.308 of this 
chapter, and Form N-SAR, Sec. 274.101 of this chapter, regarding a 
change in the issuer's certifying accountant and
    (ii) The disclosure requirements of item 304 of Regulation S-B or 
item 304

[[Page 75]]

of Regulation S-K, Sec. Sec. 228.304 or 229.304 of this chapter.
    (b)(1) Any independent accountant furnishing to the Commission a 
copy of a report (or the documentation of any oral report) in accordance 
with section 10A(b)(3) or section 10A(b)(4) of the Act, 15 U.S.C. 78j-
1(b)(3) or 78j-1(b)(4), shall submit that report (or documentation) to 
the Commission's Office of the Chief Accountant within the time period 
prescribed by the appropriate section of the Act. The report (or 
documentation) may be submitted to the Commission's Office of the Chief 
Accountant by facsimile, telegraph, personal delivery, or any other 
means, provided it is received by the Office of the Chief Accountant 
within the time period set forth in section 10A(b)(3) or 10A(b)(4) of 
the Act, 15 U.S.C. 78j-1(b)(3) or 78j-(b)(4), whichever is applicable in 
the circumstances.
    (2) If the report (or documentation) submitted to the Office of the 
Chief Accountant in accordance with paragraph (b)(1) of this section 
does not clearly identify both the issuer (including the issuer's name, 
address, phone number, and file number assigned to the issuer's filings 
with the Commission) and the independent accountant (including the 
independent accountant's name and phone number, and the address of the 
independent accountant's principal office), then the independent 
accountant shall place that information in a prominent attachment to the 
report (or documentation) and shall submit that attachment to the Office 
of the Chief Accountant at the same time and in the same manner as the 
report (or documentation) is submitted to that Office.
    (3) Submission of the report (or documentation) by the independent 
accountant as described in paragraphs (b)(1) and (b)(2) of this section 
shall not replace, or otherwise satisfy the need for, the newly engaged 
and former accountants' letters under items 304(a)(2)(D) and 304(a)(3) 
of Regulation S-K, Sec. Sec. 229.304(a)(2)(D) and 229.304(a)(3) of this 
chapter, respectively, and under items 304(a)(2)(D) and 304(a)(3) of 
Regulation S-B, Sec. Sec. 228.304(a)(2)(D) and 228.304(a)(3) of this 
chapter, respectively, and shall not limit, reduce, or affect in any way 
the independent accountant's obligations to comply fully with all other 
legal and professional responsibilities, including, without limitation, 
those under generally accepted auditing standards and the rules or 
interpretations of the Commission that modify or supplement those 
auditing standards.
    (c) A notice or report submitted to the Office of the Chief 
Accountant in accordance with paragraphs (a) and (b) of this section 
shall be deemed to be an investigative record and shall be non-public 
and exempt from disclosure pursuant to the Freedom of Information Act to 
the same extent and for the same periods of time that the Commission's 
investigative records are non-public and exempt from disclosure under, 
among other applicable provisions, 5 U.S.C. 552(b)(7) and Sec. 
200.80(b)(7) of this chapter. Nothing in this paragraph, however, shall 
relieve, limit, delay, or affect in any way, the obligation of any 
issuer or any independent accountant to make all public disclosures 
required by law, by any Commission disclosure item, rule, report, or 
form, or by any applicable accounting, auditing, or professional 
standard.

                      Instruction to Paragraph (c)

    Issuers and independent accountants may apply for additional bases 
for confidential treatment for a notice, report, or part thereof, in 
accordance with Sec. 200.83 of this chapter. That section indicates, in 
part, that any person who, pursuant to any requirement of law, submits 
any information or causes or permits any information to be submitted to 
the Commission, may request that the Commission afford it confidential 
treatment by reason of personal privacy or business confidentiality, or 
for any other reason permitted by Federal law.

[62 FR 12749, Mar. 18, 1997]



Sec. 240.10A-2  Auditor independence.

    It shall be unlawful for an auditor not to be independent under 
Sec. 210.2-01(c)(2)(iii)(B), (c)(4), (c)(6), (c)(7), and Sec. 210.2-
07.

[68 FR 6048, Feb. 5, 2003]

[[Page 76]]



Sec. 240.10A-3  Listing standards relating to audit committees.

    (a) Pursuant to section 10A(m) of the Act (15 U.S.C. 78j-1(m)) and 
section 3 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7202):
    (1) National securities exchanges. The rules of each national 
securities exchange registered pursuant to section 6 of the Act (15 
U.S.C. 78f) must, in accordance with the provisions of this section, 
prohibit the initial or continued listing of any security of an issuer 
that is not in compliance with the requirements of any portion of 
paragraph (b) or (c) of this section.
    (2) National securities associations. The rules of each national 
securities association registered pursuant to section 15A of the Act (15 
U.S.C. 78o-3) must, in accordance with the provisions of this section, 
prohibit the initial or continued listing in an automated inter-dealer 
quotation system of any security of an issuer that is not in compliance 
with the requirements of any portion of paragraph (b) or (c) of this 
section.
    (3) Opportunity to cure defects. The rules required by paragraphs 
(a)(1) and (a)(2) of this section must provide for appropriate 
procedures for a listed issuer to have an opportunity to cure any 
defects that would be the basis for a prohibition under paragraph (a) of 
this section, before the imposition of such prohibition. Such rules also 
may provide that if a member of an audit committee ceases to be 
independent in accordance with the requirements of this section for 
reasons outside the member's reasonable control, that person, with 
notice by the issuer to the applicable national securities exchange or 
national securities association, may remain an audit committee member of 
the listed issuer until the earlier of the next annual shareholders 
meeting of the listed issuer or one year from the occurrence of the 
event that caused the member to be no longer independent.
    (4) Notification of noncompliance. The rules required by paragraphs 
(a)(1) and (a)(2) of this section must include a requirement that a 
listed issuer must notify the applicable national securities exchange or 
national securities association promptly after an executive officer of 
the listed issuer becomes aware of any material noncompliance by the 
listed issuer with the requirements of this section.
    (5) Implementation. (i) The rules of each national securities 
exchange or national securities association meeting the requirements of 
this section must be operative, and listed issuers must be in compliance 
with those rules, by the following dates:
    (A) July 31, 2005 for foreign private issuers and small business 
issuers (as defined in Sec. 240.12b-2); and
    (B) For all other listed issuers, the earlier of the listed issuer's 
first annual shareholders meeting after January 15, 2004, or October 31, 
2004.
    (ii) Each national securities exchange and national securities 
association must provide to the Commission, no later than July 15, 2003, 
proposed rules or rule amendments that comply with this section.
    (iii) Each national securities exchange and national securities 
association must have final rules or rule amendments that comply with 
this section approved by the Commission no later than December 1, 2003.
    (b) Required standards--(1) Independence. (i) Each member of the 
audit committee must be a member of the board of directors of the listed 
issuer, and must otherwise be independent; provided that, where a listed 
issuer is one of two dual holding companies, those companies may 
designate one audit committee for both companies so long as each member 
of the audit committee is a member of the board of directors of at least 
one of such dual holding companies.
    (ii) Independence requirements for non-investment company issuers. 
In order to be considered to be independent for purposes of this 
paragraph (b)(1), a member of an audit committee of a listed issuer that 
is not an investment company may not, other than in his or her capacity 
as a member of the audit committee, the board of directors, or any other 
board committee:
    (A) Accept directly or indirectly any consulting, advisory, or other 
compensatory fee from the issuer or any subsidiary thereof, provided 
that, unless the rules of the national securities exchange or national 
securities association provide otherwise, compensatory fees do not 
include the receipt of fixed

[[Page 77]]

amounts of compensation under a retirement plan (including deferred 
compensation) for prior service with the listed issuer (provided that 
such compensation is not contingent in any way on continued service); or
    (B) Be an affiliated person of the issuer or any subsidiary thereof.
    (iii) Independence requirements for investment company issuers. In 
order to be considered to be independent for purposes of this paragraph 
(b)(1), a member of an audit committee of a listed issuer that is an 
investment company may not, other than in his or her capacity as a 
member of the audit committee, the board of directors, or any other 
board committee:
    (A) Accept directly or indirectly any consulting, advisory, or other 
compensatory fee from the issuer or any subsidiary thereof, provided 
that, unless the rules of the national securities exchange or national 
securities association provide otherwise, compensatory fees do not 
include the receipt of fixed amounts of compensation under a retirement 
plan (including deferred compensation) for prior service with the listed 
issuer (provided that such compensation is not contingent in any way on 
continued service); or
    (B) Be an ``interested person'' of the issuer as defined in section 
2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)).
    (iv) Exemptions from the independence requirements. (A) For an 
issuer listing securities pursuant to a registration statement under 
section 12 of the Act (15 U.S.C. 78l), or for an issuer that has a 
registration statement under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.) covering an initial public offering of securities to be listed 
by the issuer, where in each case the listed issuer was not, immediately 
prior to the effective date of such registration statement, required to 
file reports with the Commission pursuant to section 13(a) or 15(d) of 
the Act (15 U.S.C. 78m(a) or 78o(d)):
    (1) All but one of the members of the listed issuer's audit 
committee may be exempt from the independence requirements of paragraph 
(b)(1)(ii) of this section for 90 days from the date of effectiveness of 
such registration statement; and
    (2) A minority of the members of the listed issuer's audit committee 
may be exempt from the independence requirements of paragraph (b)(1)(ii) 
of this section for one year from the date of effectiveness of such 
registration statement.
    (B) An audit committee member that sits on the board of directors of 
a listed issuer and an affiliate of the listed issuer is exempt from the 
requirements of paragraph (b)(1)(ii)(B) of this section if the member, 
except for being a director on each such board of directors, otherwise 
meets the independence requirements of paragraph (b)(1)(ii) of this 
section for each such entity, including the receipt of only ordinary-
course compensation for serving as a member of the board of directors, 
audit committee or any other board committee of each such entity.
    (C) An employee of a foreign private issuer who is not an executive 
officer of the foreign private issuer is exempt from the requirements of 
paragraph (b)(1)(ii) of this section if the employee is elected or named 
to the board of directors or audit committee of the foreign private 
issuer pursuant to the issuer's governing law or documents, an employee 
collective bargaining or similar agreement or other home country legal 
or listing requirements.
    (D) An audit committee member of a foreign private issuer may be 
exempt from the requirements of paragraph (b)(1)(ii)(B) of this section 
if that member meets the following requirements:
    (1) The member is an affiliate of the foreign private issuer or a 
representative of such an affiliate;
    (2) The member has only observer status on, and is not a voting 
member or the chair of, the audit committee; and
    (3) Neither the member nor the affiliate is an executive officer of 
the foreign private issuer.
    (E) An audit committee member of a foreign private issuer may be 
exempt from the requirements of paragraph (b)(1)(ii)(B) of this section 
if that member meets the following requirements:
    (1) The member is a representative or designee of a foreign 
government or foreign governmental entity that is an affiliate of the 
foreign private issuer; and

[[Page 78]]

    (2) The member is not an executive officer of the foreign private 
issuer.
    (F) In addition to paragraphs (b)(1)(iv)(A) through (E) of this 
section, the Commission may exempt from the requirements of paragraphs 
(b)(1)(ii) or (b)(1)(iii) of this section a particular relationship with 
respect to audit committee members, as the Commission determines 
appropriate in light of the circumstances.
    (2) Responsibilities relating to registered public accounting firms. 
The audit committee of each listed issuer, in its capacity as a 
committee of the board of directors, must be directly responsible for 
the appointment, compensation, retention and oversight of the work of 
any registered public accounting firm engaged (including resolution of 
disagreements between management and the auditor regarding financial 
reporting) for the purpose of preparing or issuing an audit report or 
performing other audit, review or attest services for the listed issuer, 
and each such registered public accounting firm must report directly to 
the audit committee.
    (3) Complaints. Each audit committee must establish procedures for:
    (i) The receipt, retention, and treatment of complaints received by 
the listed issuer regarding accounting, internal accounting controls, or 
auditing matters; and
    (ii) The confidential, anonymous submission by employees of the 
listed issuer of concerns regarding questionable accounting or auditing 
matters.
    (4) Authority to engage advisers. Each audit committee must have the 
authority to engage independent counsel and other advisers, as it 
determines necessary to carry out its duties.
    (5) Funding. Each listed issuer must provide for appropriate 
funding, as determined by the audit committee, in its capacity as a 
committee of the board of directors, for payment of:
    (i) Compensation to any registered public accounting firm engaged 
for the purpose of preparing or issuing an audit report or performing 
other audit, review or attest services for the listed issuer;
    (ii) Compensation to any advisers employed by the audit committee 
under paragraph (b)(4) of this section; and
    (iii) Ordinary administrative expenses of the audit committee that 
are necessary or appropriate in carrying out its duties.
    (c) General exemptions. (1) At any time when an issuer has a class 
of securities that is listed on a national securities exchange or 
national securities association subject to the requirements of this 
section, the listing of other classes of securities of the listed issuer 
on a national securities exchange or national securities association is 
not subject to the requirements of this section.
    (2) At any time when an issuer has a class of common equity 
securities (or similar securities) that is listed on a national 
securities exchange or national securities association subject to the 
requirements of this section, the listing of classes of securities of a 
direct or indirect consolidated subsidiary or an at least 50% 
beneficially owned subsidiary of the issuer (except classes of equity 
securities, other than non-convertible, non-participating preferred 
securities, of such subsidiary) is not subject to the requirements of 
this section.
    (3) The listing of securities of a foreign private issuer is not 
subject to the requirements of paragraphs (b)(1) through (b)(5) of this 
section if the foreign private issuer meets the following requirements:
    (i) The foreign private issuer has a board of auditors (or similar 
body), or has statutory auditors, established and selected pursuant to 
home country legal or listing provisions expressly requiring or 
permitting such a board or similar body;
    (ii) The board or body, or statutory auditors is required under home 
country legal or listing requirements to be either:
    (A) Separate from the board of directors; or
    (B) Composed of one or more members of the board of directors and 
one or more members that are not also members of the board of directors;
    (iii) The board or body, or statutory auditors, are not elected by 
management of such issuer and no executive officer of the foreign 
private issuer is a member of such board or body, or statutory auditors;

[[Page 79]]

    (iv) Home country legal or listing provisions set forth or provide 
for standards for the independence of such board or body, or statutory 
auditors, from the foreign private issuer or the management of such 
issuer;
    (v) Such board or body, or statutory auditors, in accordance with 
any applicable home country legal or listing requirements or the 
issuer's governing documents, are responsible, to the extent permitted 
by law, for the appointment, retention and oversight of the work of any 
registered public accounting firm engaged (including, to the extent 
permitted by law, the resolution of disagreements between management and 
the auditor regarding financial reporting) for the purpose of preparing 
or issuing an audit report or performing other audit, review or attest 
services for the issuer; and
    (vi) The audit committee requirements of paragraphs (b)(3), (b)(4) 
and (b)(5) of this section apply to such board or body, or statutory 
auditors, to the extent permitted by law.
    (4) The listing of a security futures product cleared by a clearing 
agency that is registered pursuant to section 17A of the Act (15 U.S.C. 
78q-1) or that is exempt from the registration requirements of section 
17A pursuant to paragraph (b)(7)(A) of such section is not subject to 
the requirements of this section.
    (5) The listing of a standardized option, as defined in Sec. 
240.9b-1(a)(4), issued by a clearing agency that is registered pursuant 
to section 17A of the Act (15 U.S.C. 78q-1) is not subject to the 
requirements of this section.
    (6) The listing of securities of the following listed issuers are 
not subject to the requirements of this section:
    (i) Asset-Backed Issuers (as defined in Sec. 240.13a-14(g) and 
Sec. 240.15d-14(g));
    (ii) Unit investment trusts (as defined in 15 U.S.C. 80a-4(2)); and
    (iii)Foreign governments (as defined in Sec. 240.3b-4(a)).
    (7) The listing of securities of a listed issuer is not subject to 
the requirements of this section if:
    (i) The listed issuer, as reflected in the applicable listing 
application, is organized as a trust or other unincorporated association 
that does not have a board of directors or persons acting in a similar 
capacity; and
    (ii) The activities of the listed issuer that is described in 
paragraph (c)(7)(i) of this section are limited to passively owning or 
holding (as well as administering and distributing amounts in respect 
of) securities, rights, collateral or other assets on behalf of or for 
the benefit of the holders of the listed securities.
    (d) Disclosure. Any listed issuer availing itself of an exemption 
from the independence standards contained in paragraph (b)(1)(iv) of 
this section (except paragraph (b)(1)(iv)(B) of this section), the 
general exemption contained in paragraph (c)(3) of this section or the 
last sentence of paragraph (a)(3) of this section, must:
    (1) Disclose its reliance on the exemption and its assessment of 
whether, and if so, how, such reliance would materially adversely affect 
the ability of the audit committee to act independently and to satisfy 
the other requirements of this section in any proxy or information 
statement for a meeting of shareholders at which directors are elected 
that is filed with the Commission pursuant to the requirements of 
section 14 of the Act (15 U.S.C. 78n); and
    (2) Disclose the information specified in paragraph (d)(1) of this 
section in, or incorporate such information by reference from such proxy 
or information statement filed with the Commission into, its annual 
report filed with the Commission pursuant to the requirements of section 
13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)).
    (e) Definitions. Unless the context otherwise requires, all terms 
used in this section have the same meaning as in the Act. In addition, 
unless the context otherwise requires, the following definitions apply 
for purposes of this section:
    (1)(i) The term affiliate of, or a person affiliated with, a 
specified person, means a person that directly, or indirectly through 
one or more intermediaries, controls, or is controlled by, or is under 
common control with, the person specified.
    (ii)(A) A person will be deemed not to be in control of a specified 
person for purposes of this section if the person:

[[Page 80]]

    (1) Is not the beneficial owner, directly or indirectly, of more 
than 10% of any class of voting equity securities of the specified 
person; and
    (2) Is not an executive officer of the specified person.
    (B) Paragraph (e)(1)(ii)(A) of this section only creates a safe 
harbor position that a person does not control a specified person. The 
existence of the safe harbor does not create a presumption in any way 
that a person exceeding the ownership requirement in paragraph 
(e)(1)(ii)(A)(1) of this section controls or is otherwise an affiliate 
of a specified person.
    (iii) The following will be deemed to be affiliates:
    (A) An executive officer of an affiliate;
    (B) A director who also is an employee of an affiliate;
    (C) A general partner of an affiliate; and
    (D) A managing member of an affiliate.
    (iv) For purposes of paragraph (e)(1)(i) of this section, dual 
holding companies will not be deemed to be affiliates of or persons 
affiliated with each other by virtue of their dual holding company 
arrangements with each other, including where directors of one dual 
holding company are also directors of the other dual holding company, or 
where directors of one or both dual holding companies are also directors 
of the businesses jointly controlled, directly or indirectly, by the 
dual holding companies (and, in each case, receive only ordinary-course 
compensation for serving as a member of the board of directors, audit 
committee or any other board committee of the dual holding companies or 
any entity that is jointly controlled, directly or indirectly, by the 
dual holding companies).
    (2) In the case of foreign private issuers with a two-tier board 
system, the term board of directors means the supervisory or non-
management board.
    (3) In the case of a listed issuer that is a limited partnership or 
limited liability company where such entity does not have a board of 
directors or equivalent body, the term board of directors means the 
board of directors of the managing general partner, managing member or 
equivalent body.
    (4) The term control (including the terms controlling, controlled by 
and under common control with) means the possession, direct or indirect, 
of the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
securities, by contract, or otherwise.
    (5) The term dual holding companies means two foreign private 
issuers that:
    (i) Are organized in different national jurisdictions;
    (ii) Collectively own and supervise the management of one or more 
businesses which are conducted as a single economic enterprise; and
    (iii) Do not conduct any business other than collectively owning and 
supervising such businesses and activities reasonably incidental 
thereto.
    (6) The term executive officer has the meaning set forth in Sec. 
240.3b-7.
    (7) The term foreign private issuer has the meaning set forth in 
Sec. 240.3b-4(c).
    (8) The term indirect acceptance by a member of an audit committee 
of any consulting, advisory or other compensatory fee includes 
acceptance of such a fee by a spouse, a minor child or stepchild or a 
child or stepchild sharing a home with the member or by an entity in 
which such member is a partner, member, an officer such as a managing 
director occupying a comparable position or executive officer, or 
occupies a similar position (except limited partners, non-managing 
members and those occupying similar positions who, in each case, have no 
active role in providing services to the entity) and which provides 
accounting, consulting, legal, investment banking or financial advisory 
services to the issuer or any subsidiary of the issuer.
    (9) The terms listed and listing refer to securities listed on a 
national securities exchange or listed in an automated inter-dealer 
quotation system of a national securities association or to issuers of 
such securities.

                     Instructions to Sec. 240.10A-3

    1. The requirements in paragraphs (b)(2) through (b)(5), (c)(3)(v) 
and (c)(3)(vi) of this section do not conflict with, and do not affect 
the application of, any requirement or

[[Page 81]]

ability under a listed issuer's governing law or documents or other home 
country legal or listing provisions that requires or permits 
shareholders to ultimately vote on, approve or ratify such requirements. 
The requirements instead relate to the assignment of responsibility as 
between the audit committee and management. In such an instance, 
however, if the listed issuer provides a recommendation or nomination 
regarding such responsibilities to shareholders, the audit committee of 
the listed issuer, or body performing similar functions, must be 
responsible for making the recommendation or nomination.
    2. The requirements in paragraphs (b)(2) through (b)(5), (c)(3)(v), 
(c)(3)(vi) and Instruction 1 of this section do not conflict with any 
legal or listing requirement in a listed issuer's home jurisdiction that 
prohibits the full board of directors from delegating such 
responsibilities to the listed issuer's audit committee or limits the 
degree of such delegation. In that case, the audit committee, or body 
performing similar functions, must be granted such responsibilities, 
which can include advisory powers, with respect to such matters to the 
extent permitted by law, including submitting nominations or 
recommendations to the full board.
    3. The requirements in paragraphs (b)(2) through (b)(5), (c)(3)(v) 
and (c)(3)(vi) of this section do not conflict with any legal or listing 
requirement in a listed issuer's home jurisdiction that vests such 
responsibilities with a government entity or tribunal. In that case, the 
audit committee, or body performing similar functions, must be granted 
such responsibilities, which can include advisory powers, with respect 
to such matters to the extent permitted by law.
    4. For purposes of this section, the determination of a person's 
beneficial ownership must be made in accordance with Sec. 240.13d-3.


[68 FR 18818, Apr. 16, 2003]

            Adoption of Floor Trading Regulation (Rule 11a-1)



Sec. 240.11a-1  Regulation of floor trading.

    (a) No member of a national securities exchange, while on the floor 
of such exchange, shall initiate, directly or indirectly, any 
transaction in any security admitted to trading on such exchange, for 
any account in which such member has an interest, or for any such 
account with respect to which such member has discretion as to the time 
of execution, the choice of security to be bought or sold, the total 
amount of any security to be bought or sold, or whether any such 
transaction shall be one of purchase or sale.
    (b) The provisions of paragraph (a) of this section shall not apply 
to:
    (1) Any transaction by a registered specialist in a security in 
which he is so registered on such exchange;
    (2) Any transaction for the account of an odd-lot dealer in a 
security in which he is so registered on such exchange;
    (3) Any stabilizing transaction effected in compliance with Sec. 
242.104 of this chapter to facilitate a distribution of such security in 
which such member is participating;
    (4) Any bona fide arbitrage transaction;
    (5) Any transaction made with the prior approval of a floor official 
of such exchange to permit such member to contribute to the maintenance 
of a fair and orderly market in such security, or any purchase or sale 
to reverse any such transaction;
    (6) Any transaction to offset a transaction made in error; or
    (7) Any transaction effected in conformity with a plan designed to 
eliminate floor trading activities which are not beneficial to the 
market and which plan has been adopted by an exchange and declared 
effective by the Commission. For the purpose of this rule, a plan filed 
with the Commission by a national securities exchange shall not become 
effective unless the Commission, having due regard for the maintenance 
of fair and orderly markets, for the public interest, and for the 
protection of investors, declares the plan to be effective.
    (c) For the purpose of this rule the term ``on the floor of such 
exchange'' shall include the trading floor; the rooms, lobbies, and 
other premises immediately adjacent thereto for use of members 
generally; other rooms, lobbies and premises made available primarily 
for use by members generally; and the telephone and other facilities in 
any such place.
    (d) Any national securities exchange may apply for an exemption from 
the provisions of this rule in compliance

[[Page 82]]

with the provisions of section 11(c) of the Act.

(Sec. 11, 48 Stat. 891; 15 U.S.C. 78k)

[29 FR 7381, June 6, 1964, as amended at 62 FR 544, Jan. 3, 1997]

    Editorial Note 1: The Commission finding that the floor trading plan 
of the New York Stock Exchange filed on May 25, 1964 is designed to 
eliminate floor trading activities not beneficial to the market hereby 
declares such plan effective August 3, 1964 subject to suspension or 
termination on sixty days written notice from the Commission, 29 FR 
7381, June 6, 1964.

    Editorial Note 2: The text of the Commission's action declaring 
effective the amendments to the Floor Trading Plan of the American Stock 
Exchange is as follows, 33 FR 1073, Jan. 27, 1968:

    The Securities and Exchange Commission acting pursuant to the 
Securities Exchange Act of 1934, particularly sections 11(a) and 23(a) 
thereof, and Rule 11a-1 (17 CFR 240.11a-1) under the Act, deeming it 
necessary for the exercise of the functions vested in it, and having due 
regard for the maintenance of fair and orderly markets, for the public 
interest, and for the protection of investors, hereby declares the Floor 
Trading Plan of the American Stock Exchange, as amended by amendments 
filed on May 11, 1967, effective January 31, 1968. If at any time it 
appears to the Commission to be necessary or appropriate in the public 
interest, for the protection of investors, or for the maintenance of 
fair and orderly markets, or that floor trading activities which are not 
beneficial to the market have not been eliminated by the Floor Trading 
Plan of the American Stock Exchange, the Commission may suspend or 
terminate the effectiveness of the plan by sending at least 60 days 
written notice to the American Stock Exchange. The American Stock 
Exchange shall have the opportunity to submit any written data, facts, 
arguments, or modifications in its plan within such 60-day period in 
such form as the Commission deems appropriate under the circumstances. 
The Commission has been informed that all persons subject to the Floor 
Trading Plan of the American Stock Exchange, as amended, have had actual 
notice thereof, and the Commission finds that notice and procedure 
pursuant to section 4 of the Administrative Procedure Act (5 U.S.C. 
section 553) are impracticable and unnecessary and that such Plan, as 
amended, may be, and is hereby, declared effective on January 31, 1968.



Sec. 240.11a1-1(T)  Transactions yielding priority, parity, and precedence.

    (a) A transaction effected on a national securities exchange for the 
account of a member which meets the requirements of section 
11(a)(1)(G)(i) of the Act shall be deemed, in accordance with the 
requirements of section 11(a)(1)(G)(ii), to be not inconsistent with the 
maintenance of fair and orderly markets and to yield priority, parity, 
and precedence in execution to orders for the account of persons who are 
not members or associated with members of the exchange if such 
transaction is effected in compliance with each of the following 
requirements:
    (1) A member shall disclose that a bid or offer for its account is 
for its account to any member with whom such bid or offer is placed or 
to whom it is communicated, and any such member through whom that bid or 
offer is communicated shall disclose to others participating in 
effecting the order that it is for the account of a member.
    (2) Immediately before executing the order, a member (other than the 
specialist in such security) presenting any order for the account of a 
member on the exchange shall clearly announce or otherwise indicate to 
the specialist and to other members then present for the trading in such 
security on the exchange that he is presenting an order for the account 
of a member.
    (3) Notwithstanding rules of priority, parity, and precedence 
otherwise applicable, any member presenting for execution a bid or offer 
for its own account or for the account of another member shall grant 
priority to any bid or offer at the same price for the account of a 
person who is not, or is not associated with, a member, irrespective of 
the size of any such bid or offer or the time when entered.
    (b) A member shall be deemed to meet the requirements of section 
11(a)(1)(G)(i) of the Act if during its preceding fiscal year more than 
50 percent of its gross revenues was derived from one or more of the 
sources specified in that section. In addition to any revenue which 
independently meets the requirements of section 11(a)(1)(G)(i), revenue 
derived from any transaction specified in paragraph (A), (B), or (D) of 
section 11(a)(1) of the Act or specified

[[Page 83]]

in 17 CFR 240.11a1-4(T) shall be deemed to be revenue derived from one 
or more of the sources specified in section 11(a)(1)(G)(i). A member may 
rely on a list of members which are stated to meet the requirements of 
section 11(a)(1)(G)(i) if such list is prepared, and updated at least 
annually, by the exchange. In preparing any such list, an exchange may 
rely on a report which sets forth a statement of gross revenues of a 
member if covered by a report of independent accountants for such member 
to the effect that such report has been prepared in accordance with 
generally accepted accounting principles.

(Secs. 2, 3, 6, 11, 11A, and 23, 89 Stat. 97, 104, 110, 111, 156 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78w); secs. 2, 3, 11, 23, 48 Stat. 
881, 882, 885, 891, 901, as amended)

[43 FR 11553, Mar. 17, 1978, as amended at 43 FR 18562, May 1, 1978; 44 
FR 6093, Jan. 31, 1979]



Sec. 240.11a1-2  Transactions for certain accounts of associated persons of members.

    A transaction effected by a member of a national securities exchange 
for the account of an associated person thereof shall be deemed to be of 
a kind which is consistent with the purposes of section 11(a)(1) of the 
Act, the protection of investors, and the maintenance of fair and 
orderly markets if the transaction is effected:
    (a) For the account of and for the benefit of an associated person, 
if, assuming such transaction were for the account of a member, or
    (b) For the account of an associated person but for the benefit of 
an account carried by such associated person, if, assuming such account 
were carried on the same basis by a member.

The member would have been permitted, under section 11(a) of the Act and 
the other rules thereunder, to effect the transaction: Provided, 
however, That a transaction may not be effected by a member for the 
account of and for the benefit of an associated person under section 
11(a)(1)(G) of the Act and Rule 11a1-1(T) thereunder unless the 
associated person derived, during its preceding fiscal year, more than 
50 percent of its gross revenues from one or more of the sources 
specified in section 11(a)(1)(G)(i) of the Act.

(Secs. 2, 3, 4, 6, 7, 11, 18, 89 Stat. 97, 104, 110, 111, 121, 155 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78o, 78w); secs. 2, 3, 10, 23, 48 
Stat. 881, 882, 891, 901, as amended (15 U.S.C. 78j))

[43 FR 11553, Mar. 17, 1978; 43 FR 14451, Apr. 6, 1978]



Sec. 240.11a1-3(T)  Bona fide hedge transactions in certain securities.

    A bona fide hedge transaction effected on a national securities 
exchange by a member for its own account or an account of an associated 
person thereof and involving a long or short position in a security 
entitling the holder to acquire or sell an equity security, and a long 
or short position in one or more other securities entitling the holder 
to acquire or sell such equity security, shall be deemed to be of a kind 
which is consistent with the purposes of section 11(a)(1) of the Act, 
the protection of investors, and the maintenance of fair and orderly 
markets.

(Secs. 2, 3, 6, 11, 11A, and 23, 89 Stat. 97, 104, 110, 111, 156 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78w); secs. 2, 3, 11, 23, 48 Stat. 
881, 882, 885, 891, 901, as amended)

[44 FR 6093, Jan. 31, 1979]



Sec. 240.11a1-4(T)  Bond transactions on national securities exchanges.

    A transaction in a bond, note, debenture, or other form of 
indebtedness effected on a national securities exchange by a member for 
its own account or the account of an associated person thereof shall be 
deemed to be of a kind which is consistent with the purposes of section 
11(a)(1) of the Act, the protection of investors, and the maintenance of 
fair and orderly markets.

(Secs. 2, 3, 6, 10, 11, 11A, 15 and 23 of the Securities Exchange Act of 
1934 (15 U.S.C. 78b, 78c, 78f, 78j, 78k, 78k-1, 78o, and 78w))

[43 FR 18562, May 1, 1978]



Sec. 240.11a1-5  Transactions by registered competitive market makers 
and registered equity market makers.

    Any transaction by a New York Stock Exchange registered competitive 
market maker or an American Stock

[[Page 84]]

Exchange registered equity market maker effected in compliance with 
their respective governing rules shall be deemed to be of a kind which 
is consistent with the purposes of section 11(a)(1) of the Act, the 
protection of investors, and the maintenance of fair and orderly 
markets.

[46 FR 14889, Mar. 3, 1981]



Sec. 240.11a1-6  Transactions for certain accounts of OTC derivatives dealers.

    A transaction effected by a member of a national securities exchange 
for the account of an OTC derivatives dealer that is an associated 
person of that member shall be deemed to be of a kind that is consistent 
with the purposes of section 11(a)(1) of the Act (15 U.S.C. 78k(a)(1)), 
the protection of investors, and the maintenance of fair and orderly 
markets if, assuming such transaction were for the account of a member, 
the member would have been permitted, under section 11(a) of the Act and 
the other rules thereunder (with the exception of Sec. 240.11a1-2), to 
effect the transaction.

[63 FR 59396, Nov. 3, 1998]



Sec. 240.11a2-2(T)  Transactions effected by exchange members through other members.

    (a) A member of a national securities exchange (the ``initiating 
member'') may not effect a transaction on that exchange for its own 
account, the account of an associated person, or an account with respect 
to which it or an associated person thereof exercises investment 
discretion unless:
    (1) The transaction is of a kind described in paragraphs A through H 
of section 11(a)(1) of the Act and is effected in accordance with 
applicable rules and regulations thereunder; or
    (2) The transaction is effected in compliance with each of the 
following conditions:
    (i) The transaction is executed on the floor, or through use of the 
facilities, of the exchange by a member (the ``executing member'') which 
is not an associated person of the initiating member;
    (ii) The order for the transaction is transmitted from off the 
exchange floor;
    (iii) Neither the initiating member nor an associated person of the 
initiating member participates in the execution of the transaction at 
any time after the order for the transaction has been so transmitted; 
and
    (iv) In the case of a transaction effected for an account with 
respect to which the initiating member or an associated person thereof 
exercises investment discretion, neither the initiating member nor any 
associated person thereof retains any compensation in connection with 
effecting the transaction: Provided, however, That this condition shall 
not apply to the extent that the person or persons authorized to 
transact business for the account have expressly provided otherwise by 
written contract referring to section 11(a) of the Act and this section 
executed on or after March 15, 1978, by each of them and by such 
exchange member or associated person exercising investment discretion.
    (b) For purposes of this section, a member ``effects'' a securities 
transaction when it performs any function in connection with the 
processing of that transaction, including, but not limited to, (1) 
transmission of an order for execution, (2) execution of the order, (3) 
clearance and settlement of the transaction, and (4) arranging for the 
performance of any such function.
    (c) For purposes of this section, the term ``compensation in 
connection with effecting the transaction'' refers to compensation 
directly or indirectly received or calculated on a transaction-related 
basis for the performance of any function involved in effecting a 
securities transaction.
    (d) A member, or an associated person of a member, authorized by 
written contract to retain compensation in connection with effecting 
transactions pursuant to paragraph (a)(2)(iv) of this section shall 
furnish at least annually to the person or persons authorized to 
transact business for the account a statement setting forth the total 
amount of all compensation retained by the member or any associated 
person thereof in connection with effecting transactions for that 
account during the period covered by the statement, which amount shall 
be exclusive of all amounts paid to others during

[[Page 85]]

that period for services rendered in effecting such transactions.
    (e) A transaction effected in compliance with the requirements of 
this section shall be deemed to be of a kind which is consistent with 
the purposes of section 11(a)(1) of the Act, the protection of 
investors, and the maintenance of fair and orderly markets.
    (f) The provisions of this section shall not apply to transactions 
by exchange members to which, by operation of section 11(a)(3) of the 
Act, section 11(a)(1) of the Act is not effective.

(Secs. 2, 3, 4, 6, 7, 11, 18, 89 Stat. 97, 104, 110, 111, 121, 155 (15 
U.S.C. 78b, 78c, 78f, 78k, 78k-1, 78o, 78w); secs. 2, 3, 10, 23, 48 
Stat. 881, 882, 891, 901, as amended (15 U.S.C. 78j))

[43 FR 11554, Mar. 17, 1978, as amended at 43 FR 18562, May 1, 1978]

            Adoption of Regulation on Conduct of Specialists



Sec. 240.11b-1  Regulation of specialists.

    (a)(1) The rules of a national securities exchange may permit a 
member of such exchange to register as a specialist and to act as a 
dealer.
    (2) The rules of a national securities exchange permitting a member 
of such exchange to register as a specialist and to act as a dealer 
shall include:
    (i) Adequate minimum capital requirements in view of the markets for 
securities on such exchange;
    (ii) Requirements, as a condition of a specialist's registration, 
that a specialist engage in a course of dealings for his own account to 
assist in the maintenance, so far as practicable, of a fair and orderly 
market, and that a finding by the exchange of any substantial or 
continued failure by a specialist to engage in such a course of dealings 
will result in the suspension or cancellation of such specialist's 
registration in one or more of the securities in which such specialist 
is registered;
    (iii) Provisions restricting his dealings so far as practicable to 
those reasonably necessary to permit him to maintain a fair and orderly 
market or necessary to permit him to act as an odd-lot dealer;
    (iv) Provisions stating the responsibilities of a specialist acting 
as a broker in securities in which he is registered; and
    (v) Procedures to provide for the effective and systematic 
surveillance of the activities of specialists.
    (b) If after appropriate notice and opportunity for hearing the 
Commission finds that a member of a national securities exchange 
registered with such exchange as a specialist in specified securities 
has, for any account in which he, his member organization, or any 
participant therein has any beneficial interest, direct or indirect, 
effected transactions in such securities which were not part of a course 
of dealings reasonably necessary to permit such specialist to maintain a 
fair and orderly market, or to act as an odd-lot dealer, in the 
securities in which he is registered and were not effected in a manner 
consistent with the rules adopted by such exchange pursuant to paragraph 
(a)(2)(iii) of this section, the Commission may by order direct such 
exchange to cancel, or to suspend for such period as the Commission may 
determine, such specialist's registration in one or more of the 
securities in which such specialist is registered: Provided, however, If 
such exchange has itself suspended or cancelled such specialist's 
registration in one or more of the securities in which such specialist 
is registered, no further sanction shall be imposed pursuant to this 
paragraph (b) except in a case where the Commission finds substantial or 
continued misconduct by a specialist: And provided, further, That the 
provisions of this paragraph (b) shall not apply to a member of a 
national securities exchange exempted pursuant to the provisions of 
paragraph (d) of this section.
    (c) For the purposes of this section, the term rules of an exchange 
shall mean its constitution, articles of incorporation, by-laws, or 
rules or instruments corresponding thereto, whatever the name, and its 
stated policies.
    (d) Any national securities exchange may apply for an exemption from 
the provisions of this section in compliance with the provisions of 
section 11(c) of the Act.

(Sec. 11, 48 Stat. 891, 892; 15 U.S.C. 78k)

[29 FR 15863, Nov. 26, 1964, as amended at 46 FR 15135, Mar. 4, 1981]

[[Page 86]]

          Exemption of Certain Securities From Section 11(d)(1)



Sec. 240.11d1-1  Exemption of certain securities from section 11(d)(1).

    A security shall be exempt from the provisions of section 11(d)(1) 
with respect to any transaction by a broker and dealer who, directly or 
indirectly extends or maintains or arranges for the extension or 
maintenance of credit on the security to or for a customer if:
    (a) The broker and dealer has not sold the security to the customer 
or bought the security for the customer's account; or
    (b) The security is acquired by the customer in exchange with the 
issuer thereof for an outstanding security of the same issuer on which 
credit was lawfully maintained for the customer at the time of the 
exchange; or
    (c) The customer is a broker or dealer or bank; or
    (d) The security is acquired by the customer through the exercise of 
a right evidenced by a warrant or certificate expiring within 90 days 
after issuance, provided such right was originally issued to the 
customer as a stockholder of the corporation issuing the security upon 
which credit is to be extended, or as a stockholder of a company 
distributing such security in order to effectuate the provisions of 
section 11 of the Public Utility Holding Company Act of 1935. The right 
shall be deemed to be issued to the customer as a stockholder if he 
actually owned the stock giving rise to the right when such right 
accrued, even though such stock was not registered in his name; and in 
determining such fact the broker and dealer may rely upon a signed 
statement of the customer which the broker and dealer accepts in good 
faith; or
    (e) Such broker and dealer would otherwise be subject to the 
prohibition of section 11(d)(1) with respect to 50 percent or less of 
all the securities of the same class which are outstanding or currently 
being distributed, and such broker and dealer sold the security to the 
customer or bought the security for the customer's account on a day when 
he was not participating in the distribution of any new issue of such 
security. A brokerdealer shall be deemed to be participating in a 
distribution of a new issue if (1) he owns, directly or indirectly, any 
undistributed security of such issue, or (2) he is engaged in any 
stabilizing activities to facilitate a distribution of such issue, or 
(3) he is a party to any syndicate agreement under which such 
stabilizing activities are being or may be undertaken, or (4) he is a 
party to an executory agreement to purchase or distribute such issue.

(Secs. 3, 11, 48 Stat. 882, 891; 15 U.S.C. 78c, 78k)

[13 FR 8184, Dec. 22, 1948]



Sec. 240.11d1-2  Exemption from section 11(d)(1) for certain investment 
company securities held by broker-dealers as collateral in margin accounts.

    Any securities issued by a registered open-end investment company or 
unit investment trust as defined in the Investment Company Act of 1940 
shall be exempted from the provisions of section 11(d)(1) with respect 
to any transaction by a person who is a broker and a dealer who, 
directly or indirectly, extends or maintains or arranges for the 
extension or maintenance of credit on such security, provided such 
security has been owned by the person to whom credit would be provided 
for more than 30 days, or purchased by such person pursuant to a plan 
for the automatic reinvestment of the dividends of such company or 
trust.

(Secs. 2, 3, 11, and 23, Exchange Act, 15 U.S.C. 78b, 78c, 78k and 78w)

[49 FR 50174, Dec. 27, 1984]



Sec. 240.11d2-1  Exemption from Section 11(d)(2) for certain broker-dealers 
effecting transactions for customers security futures products in futures accounts.

    A broker or dealer registered pursuant to section 15(b)(1) of the 
Act (15 U.S.C. 78o(b)(1)) that is also a futures commission merchant 
registered pursuant to section 4f(a)(1) of the Commodity Exchange Act (7 
U.S.C. 6f(a)(1)), to the extent that it effects transactions for 
customers in security futures products in a futures account (as that 
term is defined in Sec. 240.15c3-

[[Page 87]]

3(a)(15)), is exempt from section 11(d)(2) of the Act (15 U.S.C. 
78k(d)(2)).

[67 FR 58313, Sept. 13, 2002]

            Registration of Securities Information Processors



Sec. 240.11Aa2-1  Designation of national market system securities.

    The term national market system security shall mean any reported 
security as defined in Rule 11Aa3-1.

[52 FR 24153, June 29, 1987]



Sec. 240.11Aa3-1  Dissemination of transaction reports and last sale 
data with respect to transactions in reported securities.

    (a) Definitions. For purposes of this section:
    (1) The term transaction report shall mean a report containing the 
price and volume associated with a transaction involving the purchase or 
sale of one or more round lots of a security (``transaction'').
    (2) The term transaction reporting plan shall mean any plan for 
collecting, processing, making available or disseminating transaction 
reports with respect to transactions in reported securities filed with 
the Commission pursuant to, and meeting the requirements of, this 
section.
    (3) The term effective transaction reporting plan shall mean any 
transaction reporting plan approved by the Commission pursuant to this 
section.
    (4) The term reported security shall mean any security or class of 
securities for which transaction reports are collected, processed and 
made available pursuant to an effective transaction reporting plan.
    (5) The term listed equity security shall mean any equity security 
listed and registered, or admitted to unlisted trading privileges, on a 
national securities exchange (``exchange'').
    (6) The term NASDAQ security shall mean any registered equity 
security for which quotation information is disseminated in the National 
Association of Securities Dealers Automated Quotation system 
(``NASDAQ'').
    (7) The term transaction reporting association shall mean any person 
authorized to implement or administer any transaction reporting plan on 
behalf of persons acting jointly under paragraph (b) of this section.
    (8) The term interrogation device shall mean any securities 
information retrieval system capable of displaying transaction reports 
or last sale data, upon inquiry, on a current basis on a terminal or 
other device.
    (9) The term moving ticker shall mean any continuous real-time 
moving display of transaction reports or last sale data (other than a 
market minder) provided on an interrogation or other display device.
    (10) The term market minder shall mean any service provided by a 
vendor on an interrogation device or other display which (i) permits 
real-time monitoring, on a dynamic basis, of transaction reports or last 
sale data with respect to a particular security, and (ii) displays the 
most recent transaction report or last sale data with respect to that 
security until such report or data has been superseded or supplemented 
by the display of a new transaction report or last sale data reflecting 
the next reported transaction in that security.
    (11) The term vendor shall mean any securities information processor 
engaged in the business of disseminating transaction reports or last 
sale data with respect to transactions in reported securities to 
brokers, dealers or investors on a real-time or other current and 
continuing basis, whether through an electronic communications network, 
moving ticker or interrogation device.
    (12) The term last sale data shall mean any price or volume data 
associated with a transaction.
    (b)(1) Every exchange shall file a transaction reporting plan 
regarding transactions in listed equity and NASDAQ security executed 
through its facilities, and every association shall file a transaction 
reporting plan regarding transactions in listed equity and NASDAQ 
securities executed by its members otherwise than on an exchange.
    (2) Any transaction reporting plan, or any amendment thereto, filed 
pursuant to this section shall be filed with the Commission, and 
considered for approval, in accordance with the procedures set forth in 
paragraphs (b) and (c)

[[Page 88]]

of Sec. 240.11Aa3-2 governing national market system plans. Any such 
plan, or amendment thereto, shall specify, at a minimum:
    (i) The listed equity and NASDAQ securities or classes of such 
securities for which transaction reports shall be required by the plan;
    (ii) Reporting requirements with repect to transactions in listed 
equity securities and NASDAQ securities, for any broker or dealer 
subject to the plan;
    (iii) The manner of collecting, processing, sequencing, making 
available and disseminating transaction reports and last sale data 
reported pursuant to such plan;
    (iv) The manner such transaction reports reported pursuant to such 
plan are to be consolidated with transaction reports from exchanges and 
associations reported pursuant to any other effective transaction 
reporting plan;
    (v) The applicable standards and methods which will be utilized to 
ensure promptness of reporting, and accuracy and completeness of 
transaction reports;
    (vi) Any rules or procedures which may be adopted to ensure that 
transaction reports or last sale data will not be disseminated in a 
fraudulent or manipulative manner;
    (vii) Specific terms of access to transaction reports made available 
or disseminated pursuant to the plan; and
    (viii) That transaction reports or last sale data made available to 
any vendor for display on an interrogation device identify the 
marketplace where each transaction was executed.
    (3) No transaction reporting plan filed pursuant to this section, or 
any amendment to an effective transaction reporting plan, shall become 
effective unless approved by the Commission or otherwise permitted in 
accordance with the procedures set forth in Sec. 240.11Aa3-2 (Rule 
11Aa3-2 under the Act) governing national market system plans.
    (c) Prohibitions and reporting requirements. (1) No broker or dealer 
may execute any transaction in, or induce or attempt to induce the 
purchase or sale of, any reported security,
    (i) On or through the facilities of an exchange unless there is an 
effective transaction reporting plan with respect to transactions in 
such security executed on or through such exchange facilities; or
    (ii) Otherwise than on an exchange unless there is an effective 
transaction reporting plan with respect to transactions in such security 
executed otherwise than on an exchange by such broker or dealer.
    (2) No exchange or member thereof shall make available or 
disseminate, on a current and continuing basis, transaction reports or 
last sale data with respect to transactions in any reported security 
executed through the facilities of such exchange except pursuant to an 
effective transaction reporting plan filed by such exchange (either 
individually or jointly with other persons).
    (3) No association or member thereof shall make available or 
disseminate, on a current and continuing basis, transaction reports or 
last sale data with respect to transactions in any reported security 
executed by a member of such association otherwise than on an exchange 
except pursuant to an effective transaction reporting plan filed by such 
association (either individually or jointly with other persons).
    (4) Every broker or dealer who is a member of an exchange or 
association shall promptly transmit to the exchange or association of 
which it is a member all information required by any effective 
transaction reporting plan filed by such exchange or association (either 
individually or jointly with other exchanges and/or associations).
    (d) Retransmission of transaction reports or last sale data. On and 
after July 5, 1980, notwithstanding any provision of any effective 
transaction reporting plan, no exchange or association may, either 
individually or jointly, by rule, stated policy or practice, transaction 
reporting plan or otherwise, prohibit, condition or otherwise limit, 
directly or indirectly, the ability of any vendor to retransmit, for 
display in moving tickers, transaction reports or last sale data made 
available pursuant to any effective transaction reporting plan: 
Provided, however, That an exchange or

[[Page 89]]

association may, by means of an effective transaction reporting plan, 
condition such retransmission upon appropriate undertakings to ensure 
that any charges for the distribution of transaction reports or last 
sale data in moving tickers permitted by paragraph (e) of this section 
are collected.
    (e) Charges. Nothing in this section shall preclude any exchange or 
association, separately or jointly, pursuant to the terms of an 
effective transaction reporting plan, from imposing reasonable, uniform 
charges (irrespective of geographic location) for distribution of 
transaction reports or last sale data.
    (f) Appeals. The Commission may, in its discretion, entertain 
appeals in connection with the implementation or operation of any 
effective transaction reporting plan in accordance with the provisions 
of paragraph (e) of Sec. 240.11Aa3-2.
    (g) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any exchange, association, broker, dealer or specified 
security if the Commission determines that such exemption is consistent 
with the public interest, the protection of investors and the removal of 
impediments to, and perfection of the mechanisms of, a national market 
system.

(Secs. 2, 3, 6, 9, 10, 15, 17 and 23, Pub. L. 78-291, 48 Stat. 881, 882, 
885, 889, 891, 895, 897 and 901, as amended by secs. 2, 3, 4, 11, 14 and 
18, Pub. L. 94-29, 89 Stat. 97, 104, 121, 137 and 155 (15 U.S.C. 78b, 
78c, 78f, 78i, 78j, 78o, 78q and 78w); sec. 15A, as added by sec. 1, 
Pub. L. 75-719, 52 Stat. 1070, as amended by sec. 12, Pub. L. 94-29, 89 
Stat. 127 (15 U.S.C. 78-3); sec. 11A, as added by sec. 7, Pub. L. 94-29, 
89 Stat. 111 (15 U.S.C. 78k-1); 15 U.S.C. 78a et seq., as amended by 
Pub. L. 84-29 (June 4, 1975) and by Pub. L. 98-38 (June 6, 1983), 
particularly secs. 11A, 15, 19 and 23 thereof (15 U.S.C. 78k-1, 78o, 78s 
and 78w))

[45 FR 12388, Feb. 26, 1980, as amended at 46 FR 14006, Feb. 25, 1981; 
46 FR 15872, Mar. 10, 1981; 48 FR 53690, Nov. 29, 1983; 50 FR 38518, 
Sept. 23, 1985; 52 FR 24153, June 29, 1987; 61 FR 48328, Sept. 12, 1996]



Sec. 240.11Aa3-2  Filing and amendment of national market system plans.

    (a) Definitions. For purposes of this section, (1) The term national 
market system plan shall mean any joint self-regulatory organization 
plan in connection with
    (i) The planning, development, operation or regulation of a national 
market system (or a subsystem thereof) or one or more facilities 
thereof, or
    (ii) The development and implementation of procedures and/or 
facilities designed to achieve compliance by self-regulatory 
organizations and their members with any section of this subpart 
promulgated pursuant to section 11A of the Act.
    (2) The term effective national market system plan shall mean any 
national market system plan approved by the Commission (either 
temporarily or on a permanent basis) pursuant to this section.
    (3) The term self-regulatory organization shall mean any national 
securities exchange (``exchange'') or national securities association 
(``association'').
    (4) The term joint self-regulatory organization plan shall mean a 
plan as to which two or more self-regulatory organizations, acting 
jointly, are sponsors.
    (5) The term sponsors, when used in connection with a national 
market system plan, shall mean any self-regulatory organization which is 
a signatory to such plan and has agreed to act in accordance with the 
terms of the plan.
    (6) The term participants, when used in connection with a national 
market system plan, shall mean any self-regulatory organization which 
has agreed to act in accordance with the terms of the plan but which is 
not a signatory of such plan.
    (7) The term plan processor shall mean any self-regulatory 
organization or securities information processor acting as an exclusive 
processor in connection with the development, implementation and/or 
operation of any facility contemplated by an effective national market 
system plan.
    (8) The term vendor shall have the meaning provided in Sec. 
240.11Aa3-1 (Rule 11Aa3-1 under the Act).
    (b) Filing of national market system plans and amendments thereto. 
(1) Any

[[Page 90]]

two or more self-regulatory organizations, acting jointly, may file a 
national market system plan or may propose an amendment to an effective 
national market system plan (``proposed amendment'') by submitting the 
text of the plan or amendment to the Secretary of the Commission, 
together with a statement of the purpose of such plan or amendment and, 
to the extent applicable, the documents and information required by 
paragraphs (b)(4) and (5) of this section.
    (2) The Commission may propose amendments to any effective national 
market system plan by publishing the text thereof, together with a 
statement of the purpose of such amendment, in accordance with the 
provisions of paragraph (c) of this section.
    (3) Self-regulatory organizations are authorized to act jointly in 
(i) planning, developing, and operating any national market subsystem or 
facility contemplated by a national market system plan, (ii) preparing 
and filing a national market system plan or any amendment thereto, or 
(iii) implementing or administering an effective national market system 
plan.
    (4) Every national market system plan filed pursuant to this 
section, or any amendment thereto, shall be accompanied by (i) copies of 
all governing or constituent documents relating to any person (other 
than a self-regulatory organization) authorized to implement or 
administer such plan on behalf of its sponsors and (ii), to the extent 
applicable,
    (A) A detailed description of the manner in which the plan or 
amendment, and any facility or procedure contemplated by the plan or 
amendment, will be implemented;
    (B) A listing of all significant phases of development and 
implementation (including any pilot phase) contemplated by the plan or 
amendment, together with the projected date of completion of each phase;
    (C) An analysis of the impact on competition of implementation of 
the plan or amendment or of any facility contemplated by the plan or 
amendment;
    (D) A description of any written understandings or agreements 
between or among plan sponsors or particpants relating to 
interpretations of the plan or conditions for becoming a sponsor or 
participant in the plan; and
    (E) In the case of a proposed amendment, a statement that such 
amendment has been approved by the sponsors in accordance with the terms 
of the plan.
    (5) Every national market system plan, or any amendment thereto, 
filed pursuant to this section shall include a description of the manner 
in which any facility contemplated by the plan or amendment will be 
operated. Such description shall include, to the extent applicable,
    (i) The terms and conditions under which brokers, dealers, and/or 
self-regulatory organizations will be granted or denied access 
(including specific procedures and standards governing the granting or 
denial of access);
    (ii) The method by which any fees or charges collected on behalf of 
all of the sponsors and/or participants in connection with access to, or 
use of, any facility contemplated by the plan or amendment will be 
determined and imposed (including any provision for distribution of any 
net proceeds from such fees or charges to the sponsors and/or 
participants) and the amount of such fees or charges;
    (iii) The method by which, and the frequency with which, the 
performance of any person acting as plan processor with respect to the 
implementation and/or operation of the plan will be evaluated; and
    (iv) The method by which disputes arising in connection with the 
operation of the plan will be resolved.
    (6) In connection with the selection of any person to act as plan 
processor with respect to any facility contemplated by a national market 
system plan (including renewal of any contract for any person to so 
act), the sponsors shall file with the Commission a statement 
identifying the person selected, describing the material terms under 
which such person is to serve as plan processor, and indicating the 
solicitation efforts, if any, for alternative plan processors, the 
alternatives considered and the reasons for selection of such person.
    (7) Any national market system plan (or any amendment thereto) which 
is intended by the sponsors to satisfy a

[[Page 91]]

plan filing requirement contained in any other section of this subpart 
shall, in addition to compliance with this section, also comply with the 
requirements of such other section.
    (c) Effectiveness of national market system plans. (1) The 
Commission shall publish notice of the filing of any national market 
system plan, or any proposed amendment to any effective national market 
system plan (including any amendment initiated by the Commission), 
together with the terms of substance of the filing or a description of 
the subjects and issues involved, and shall provide interested persons 
an opportunity to submit written comments. No national market system 
plan, or any amendment thereto, shall become effective unless approved 
by the Commission or otherwise permitted in accordance with paragraph 
(c)(3) of this section.
    (2) Within 120 days of the date of publication of notice of filing 
of a national market system plan or an amendment to an effective 
national market system plan, or within such longer period as the 
Commission may designate up to 180 days of such date if it finds such 
longer period to be appropriate and publishes its reasons for so finding 
or as to which the sponsors consent, the Commission shall approve such 
plan or amendment, with such changes or subject to such conditions as 
the Commission may deem necessary or appropriate, if it finds that such 
plan or amendment is necessary or appropriate in the public interest, 
for the protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system, or otherwise in furtherance of the purposes of 
the Act. Approval of a national market system plan, or an amendment to 
an effective national market system plan (other than an amendment 
initiated by the Commission), shall be by order. Promulgation of an 
amendment to an effective national market system plan initiated by the 
Commission shall be by rule.
    (3) A proposed amendment may be put into effect upon filing with the 
Commission if designated by the sponsors as:
    (i) Establishing or changing a fee or other charge collected on 
behalf of all of the sponsors and/or participants in connection with 
access to, or use of, any facility contemplated by the plan or amendment 
(including changes in any provision with respect to distribution of any 
net proceeds from such fees or other charges to the sponsors and/or 
participants);
    (ii) Concerned solely with the administration of the plan, or 
involving the governing or constituent documents relating to any person 
(other than a self-regulatory organization) authorized to implement or 
administer such plan on behalf of its sponsors; or
    (iii) Involving solely technical or ministerial matters. At any time 
within 60 days of the filing of any such amendment, the Commission may 
summarily abrogate the amendment and require that such amendment be 
refiled in accordance with paragraph (b)(1) of this section and reviewed 
in accordance with paragraph (c)(2) of this section, if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or the maintenance of 
fair and orderly markets, to remove impediments to, and perfect 
mechanisms of, a national market system or otherwise in furtherance of 
the purposes of the Act.
    (4) Notwithstanding the provisions of paragraph (c)(1) of this 
section, a proposed amendment may be put into effect summarily upon 
publication of notice of such amendment, on a temporary basis not to 
exceed 120 days, if the Commission finds that such action is necessary 
or appropriate in the public interest, for the protection of investors 
or the maintenance of fair and orderly markets, to remove impediments 
to, and perfect mechanisms of, a national market system or otherwise in 
furtherance of the purposes of the Act.
    (5) Any plan (or amendment thereto) in connection with:
    (i) The planning, development, operation or regulation of a national 
market system (or a subsystem thereof) or one or more facilities 
thereof; or
    (ii) The development and implementation of procedures and/or 
facilities designed to achieve compliance by self-regulatory 
organizations and/or their

[[Page 92]]

members of any section of this subpart promulguated pursuant to section 
11A of the Act, approved by the Commission pursuant to section 11A of 
the Act (or pursuant to any rule or regulation thereunder) prior to the 
effective date of this section (either temporarily or on a permanent 
basis) shall be deemed to have been filed and approved pursuant to this 
section and no additional filing need be made by the sponsors with 
respect to such plan or amendment; Provided, however, That all terms and 
conditions associated with any such approval (including time 
limitations) shall continue to be applicable; and, Provided, further, 
That any amendment to such plan filed with or approved by the Commission 
on or after the effective date of this section shall be subject to the 
provisions of, and considered in accordance with the procedures 
specified in, this section.
    (d) Compliance with terms of national market system plans. Each 
self-regulatory organization shall comply with the terms of any 
effective national market system plan of which it is a sponsor or a 
participant. Each self-regulatory organization also shall, absent 
reasonable justification or excuse, enforce compliance with any such 
plan by its members and persons associated with its members.
    (e) Appeals. The Commission may, in its discretion, entertain 
appeals in connection with the implementation or operation of any 
effective national market system plan as follows:
    (1) Any action taken or failure to act by any person in connection 
with an effective national market system plan (other than a prohibition 
or limitation of access reviewable by the Commission pursuant to section 
11A(b)(5) or section 19(d) of the Act) shall be subject to review by the 
Commission, on its own motion or upon application by any person 
aggrieved thereby (including, but not limited to, self-regulatory 
organizations, brokers, dealers, issuers, and vendors), filed not later 
than 30 days after notice of such action or failure to act or within 
such longer period as the Commission may determine.
    (2) Application to the Commission for review, or the institution of 
review by the Commission on its own motion, shall not operate as a stay 
of any such action unless the Commission determines otherwise, after 
notice and opportunity for hearing on the question of a stay (which 
hearing may consist only of affidavits or oral arguments).

    (3) In any proceedings for review, if the Commission, after 
appropriate notice and opportunity for hearing (which hearing may 
consist solely of consideration of the record of any proceedings 
conducted in connection with such action or failure to act and an 
opportunity for the presentation of reasons supporting or opposing such 
action or failure to act) and upon consideration of such other data, 
views and arguments as it deems relevant, finds that the action or 
failure to act is in accordance with the applicable provisions of such 
plan and that the applicable provisions are, and were, applied in a 
manner consistent with the public interest, the protection of investors, 
the maintenance of fair and orderly markets and the removal of 
impediments to, and perfection of the mechanisms of, a national market 
system, the Commission, by order, shall dismiss the proceeding. If the 
Commission does not make any such finding, or if it finds that such 
action or failure to act imposes any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act, the 
Commission, by order, shall set aside such action and/or require such 
action with respect to the matter reviewed as the Commission deems 
necessary or appropriate in the public interest, for the protection of 
investors, and the maintenance of fair and orderly markets, or to remove 
impediments to, and perfect the mechanisms of, a national market system.

    (f) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any self-regulatory organization, member thereof, or 
specified security, if the Commission determines that such exemption is 
consistent with the public interest, the protection of investors, the 
maintenance of fair and orderly

[[Page 93]]

markets and the removal of impediments to, and perfection of the 
mechanisms of, a national market system.

(Secs. 2, 3, 6, 9, 10, 15, 17, and 23, Pub. L. 78-291, 48 Stat. 881, 
882, 885, 889, 891, 895, 897, and 901, as amended by secs. 2, 3, 4, 11, 
14, and 18, Pub. L. 94-29, 89 Stat. 97, 104, 121, 137, and 155 (15 
U.S.C. 78b, 78c, 78f, 78i, 78j, 78o, 78q, and 78w); sec. 15A, as added 
by sec. 1, Pub. L. 75-719, 52 Stat. 1070, as amended by sec. 12, Pub. L. 
94-29, 89 Stat. 127 (15 U.S.C. 78-3); sec. 11A, as added by sec. 7, Pub. 
L. 94-29, 89 Stat. 111 (15 U.S.C. 78k-l); 15 U.S.C. 78a et seq., as 
amended by Pub. L. 84-29 (June 4, 1975) and by Pub. L. 98-38 (June 6, 
1983), particularly secs. 11A, 15, 19 and 23 thereof (15 U.S.C. 78k-1, 
78o, 78s and 78w))

[46 FR 15870, Mar. 10, 1981, as amended at 48 FR 53690, Nov. 29, 1983]



Sec. 240.11Ab2-1  Registration of securities information processors: 
Form of application and amendments.

    (a) An application for the registration of a securities information 
processor shall be filed on Form SIP in accordance with the instructions 
contained therein.
    (b) If any information reported in items 1-13 or item 21 of Form SIP 
or in any amendment thereto is or becomes inaccurate for any reason, 
whether before or after the registration has been granted, the 
securities information processor shall promptly file an amendment on 
Form SIP correcting such information.
    (c) The Commission, upon its own motion or upon application by any 
securities information processor, may conditionally or unconditionally 
exempt any securities information processor from any provision of the 
rules or regulations adopted under section 11A(b).
    (d) Every amendment filed pursuant to this section shall constitute 
a ``report'' within the meaning of sections 17(a), 18(a) and 32(a) of 
the Act.

[40 FR 45424, Oct. 2, 1975]



Sec. 240.11Ac1-1  Dissemination of quotations.

    (a) Definitions. For the purposes of this section:
    (1) The term aggregate quotation size shall mean the sum of the 
quotation sizes of all responsible brokers or dealers who have 
communicated on any exchange bids or offers for a covered security at 
the same price.
    (2) The term association shall mean any association of brokers and 
dealers registered pursuant to Section 15A of the Act (15 U.S.C. 78o-3).
    (3) The terms best bid and best offer shall mean the highest priced 
bid and the lowest priced offer.
    (4) The terms bid and offer shall mean the bid price and the offer 
price communicated by an exchange member or OTC market maker to any 
broker or dealer, or to any customer, at which it is willing to buy or 
sell one or more round lots of a covered security, as either principal 
or agent, but shall not include indications of interest.
    (5) The term consolidated system means the consolidated transaction 
reporting system, including a transaction reporting system operating 
pursuant to an effective national market system plan.
    (6) The term covered security shall mean any reported security and 
any other security for which a transaction report, last sale data or 
quotation information is disseminated through an automated quotation 
system as described in Section 3(a)(51)(A)(ii) of the Act (15 U.S.C. 
78c(a)(51)(A)(ii)).
    (7) The term effective transaction reporting plan shall have the 
meaning provided in Sec. 240.11Aa3-1(a)(3).
    (8) The term electronic communications network, for the purposes of 
Sec. 240.11Ac1-1(c)(5), shall mean any electronic system that widely 
disseminates to third parties orders entered therein by an exchange 
market maker or OTC market maker, and permits such orders to be executed 
against in whole or in part; except that the term electronic 
communications network shall not include:
    (i) Any system that crosses multiple orders at one or more specified 
times at a single price set by the ECN (by algorithm or by any 
derivative pricing mechanism) and does not allow orders to be crossed or 
executed against directly by participants outside of such times; or
    (ii) Any system operated by, or on behalf of, an OTC market maker or 
exchange market maker that executes customer orders primarily against 
the account of such market maker as principal, other than riskless 
principal.

[[Page 94]]

    (9) The term exchange market maker shall mean any member of a 
national securities exchange (``exchange'') who is registered as a 
specialist or market maker pursuant to the rules of such exchange.
    (10) The term exchange-traded security shall mean any covered 
security or class of covered securities listed and registered, or 
admitted to unlisted trading privileges, on an exchange; provided, 
however, That securities not listed on any exchange that are traded 
pursuant to unlisted trading privileges are excluded.
    (11) The term make available, when used with respect to bids, 
offers, quotation sizes and aggregate quotation sizes supplied to 
quotation vendors by an exchange or association, shall mean to provide 
circuit connections at the premises of the exchange or association 
supplying such data, or at a common location determined by mutual 
agreement of the exchanges and associations, for the delivery of such 
data to quotation vendors.
    (12) The term odd-lot shall mean an order for the purchase or sale 
of a covered security in an amount less than a round lot.
    (13) The term OTC market maker shall mean any dealer who holds 
itself out as being willing to buy from and sell to its customers, or 
otherwise, a covered security for its own account on a regular or 
continuous basis otherwise than on an exchange in amounts of less than 
block size.
    (14) The term plan processor shall have the meaning provided in 
Sec. 240.11Aa3-2(a)(7).
    (15) The term published aggregate quotation size shall mean the 
aggregate quotation size calculated by an exchange and displayed by a 
quotation vendor on a terminal or other display device at the time an 
order is presented for execution to a responsible broker or dealer.
    (16) The terms published bid and published offer shall mean the bid 
or offer of a responsible broker or dealer for a covered security 
communicated by it to its exchange or association pursuant to this 
section and displayed by a quotation vendor on a terminal or other 
display device at the time an order is presented for execution to such 
responsible broker or dealer.
    (17) The term published quotation size shall mean the quotation size 
of a responsible broker or dealer communicated by it to its exchange or 
association pursuant to this section and displayed by a quotation vendor 
on a terminal or other display device at the time an order is presented 
for execution to such responsible broker or dealer.
    (18) The term quotation size, when used with respect to a 
responsible broker's or dealer's bid or offer for a covered security, 
shall mean:
    (i) The number of shares (or units of trading) of that covered 
security which such responsible broker or dealer has specified, for 
purposes of dissemination to quotation vendors, that it is willing to 
buy at the bid price or sell at the offer price comprising its bid or 
offer, as either principal or agent; or
    (ii) In the event such responsible broker or dealer has not so 
specified, a normal unit of trading for that covered security.
    (19) The term quotation vendor shall mean any securities information 
processor engaged in the business of disseminating to brokers, dealers 
or investors on a real-time basis, bids and offers made available 
pursuant to this section, whether distributed through an electronic 
communications network or displayed on a terminal or other display 
device.
    (20) The term reported security means any security or class of 
securities for which transaction reports are collected, processed and 
made available pursuant to an effective transaction reporting plan, or 
an effective national market system plan for reporting transactions in 
listed options.
    (21) The term responsible broker or dealer shall mean:
    (i) When used with respect to bids or offers communicated on an 
exchange, any member of such exchange who communicates to another member 
on such exchange, at the location (or locations) designated by such 
exchange for trading in a covered security, a bid or offer for such 
covered security, as either principal or agent; provided, however, That, 
in the event two or more

[[Page 95]]

members of an exchange have communicated on such exchange bids or offers 
for a covered security at the same price, each such member shall be 
considered a ``responsible broker or dealer'' for that bid or offer, 
subject to the rules of priority and precedence then in effect on that 
exchange; and further provided, That for a bid or offer which is 
transmitted from one member of an exchange to another member who 
undertakes to represent such bid or offer on such exchange as agent, 
only the last member who undertakes to represent such bid or offer as 
agent shall be considered the ``responsible broker or dealer'' for that 
bid or offer; and
    (ii) When used with respect to bids and offers communicated by a 
member of an association to another broker or dealer or to a customer 
otherwise than on an exchange, the member communicating the bid or offer 
(regardless of whether such bid or offer is for its own account or on 
behalf of another person).
    (22) The term revised bid or offer shall mean a market maker's bid 
or offer which supersedes its published bid or published offer.
    (23) The term revised quotation size shall mean a market maker's 
quotation size which supersedes its published quotation size.
    (24) The term specified persons, when used in connection with any 
notification required to be provided pursuant to paragraph (b)(3) of 
this section and any election (or withdrawal thereof) permitted under 
paragraph (b)(5) of this section, shall mean:
    (i) Each quotation vendor;
    (ii) Each plan processor; and
    (iii) The processor for the Options Price Reporting Authority (in 
the case of a notification for a subject security which is a class of 
securities underlying options admitted to trading on any exchange).
    (25) The term subject security shall mean:
    (i) With respect to an exchange:
    (A) Any exchange-traded security other than a security for which the 
executed volume of such exchange, during the most recent calendar 
quarter, comprised one percent or less of the aggregate trading volume 
for such security as reported in the consolidated system; and
    (B) Any other covered security for which such exchange has in effect 
an election, pursuant to paragraph (b)(5)(i) of this section, to 
collect, process, and make available to quotation vendors, bids, offers, 
quotation sizes, and aggregate quotation sizes communicated on such 
exchange; and
    (ii) With respect to a member of an association:
    (A) Any exchange-traded security for which such member acts in the 
capacity of an OTC market maker unless the executed volume of such 
member, during the most recent calendar quarter, comprised one percent 
or less of the aggregate trading volume for such security as reported in 
the consolidated system; and
    (B) Any other covered security for which such member acts in the 
capacity of an OTC market maker and has in effect an election, pursuant 
to paragraph (b)(5)(ii) of this section, to communicate to its 
association bids, offers and quotation sizes for the purpose of making 
such bids, offers and quotation sizes available to quotation vendors.
    (26) The term customer means any person that is not a registered 
broker-dealer.
    (27) The term listed option means any option traded on a registered 
national securities exchange or automated facility of a national 
securities association.
    (28) The term options class means all of the put option or call 
option series overlying a security, as defined in Section 3(a)(10) of 
the Act (15 U.S.C. 78c(a)(10)).
    (29) The term options series means the contracts in an options class 
that have the same unit of trade, expiration date, and exercise price, 
and other terms or conditions.
    (30) The term trading rotation means, with respect to an options 
class, the time period on an exchange during which:
    (i) Opening, re-opening, or closing transactions in options series 
in such options class are not yet completed; and
    (ii) Continuous trading has not yet commenced or has not yet ended 
for the day in options series in such options class.

[[Page 96]]

    (b) Dissemination requirements for exchanges and associations. (1) 
Every exchange and association shall establish and maintain procedures 
and mechanisms for collecting bids, offers, quotation sizes and 
aggregate quotation sizes from responsible brokers or dealers who are 
members of such exchange or association, processing such bids, offers 
and sizes, and making such bids, offers and sizes available to quotation 
vendors, as follows:
    (i) Each exchange shall at all times such exchange is open for 
trading, collect, process and make available to quotation vendors the 
best bid, the best offer, and aggregate quotation sizes for each subject 
security listed or admitted to unlisted trading privileges which is 
communicated on any exchange by any responsible broker or dealer, but 
shall not include:
    (A) Any bid or offer executed immediately after communication and 
any bid or offer communicated by a responsible broker or dealer other 
than an exchange market maker which is cancelled or withdrawn if not 
executed immediately after communication; and
    (B) Any bid or offer communicated during a period when trading in 
that security has been suspended or halted, or prior to the commencement 
of trading in that security on any trading day, on that exchange.
    (ii) Each association shall, at all times that last sale information 
with respect to reported securities is reported pursuant to an effective 
transaction reporting plan, collect, process and make available to 
quotation vendors the best bid, best offer, and quotation sizes 
communicated otherwise than on an exchange by each member of such 
association acting in the capacity of an OTC market maker for each 
subject security and the identity of that member (excluding any bid or 
offer executed immediately after communication), except during any 
period when over-the-counter trading in that security has been 
suspended.
    (2) Each exchange shall, with respect to each published bid and 
published offer representing a bid or offer of a member for a subject 
security, establish and maintain procedures for ascertaining and 
disclosing to other members of that exchange, upon presentation of 
orders sought to be executed by them in reliance upon paragraph (c)(2) 
of this section, the identity of the responsible broker or dealer who 
made such bid or offer and the quotation size associated with it.
    (3)(i) If, at any time an exchange is open for trading, such 
exchange determines, pursuant to rules approved by the Securities and 
Exchange Commission pursuant to section 19(b)(2) of the Act (15 U.S.C. 
78s(b)(2)), that the level of trading activities or the existence of 
unusual market conditions is such that the exchange is incapable of 
collecting, processing, and making available to quotation vendors the 
data for a subject security required to be made available pursuant to 
paragraph (b)(1) of this section in a manner that accurately reflects 
the current state of the market on such exchange, such exchange shall 
immediately notify all specified persons of that determination. Upon 
such notification, responsible brokers or dealers that are members of 
that exchange shall be relieved of their obligation under paragraph 
(c)(2) and (d)(3) of this section and such exchange shall be relieved of 
its obligations under paragraphs (b) (1) and (2) of this section for 
that security: provided, however, That such exchange will continue, to 
the maximum extent practicable under the circumstances, to collect, 
process, and make available to quotation vendors data for that security 
in accordance with paragraph (b)(1) of this section.
    (ii) During any period an exchange, or any responsible broker or 
dealer that is a member of that exchange, is relieved of any obligation 
imposed by this section for any subject security by virtue of a 
notification made pursuant to paragraph (b)(3)(i) of this section, such 
exchange shall monitor the activity or conditions which formed the basis 
for such notification and shall immediately renotify all specified 
persons when that exchange is once again capable of collecting, 
processing, and making available to quotation vendors the data for that 
security required to be made available pursuant to paragraph (b)(1) of 
this section in a manner that accurately reflects the current state of 
the market on such exchange.

[[Page 97]]

Upon such renotification, any exchange or responsible broker or dealer 
which had been relieved of any obligation imposed by this section as a 
consequence of the prior notification shall again be subject to such 
obligation.
    (4) Nothing in this section shall preclude any exchange or 
association from making available to quotation vendors indications of 
interest or bids and offers for a subject security at any time such 
exchange or association is not required to do so pursuant to paragraph 
(b)(1) of this section.
    (5)(i) Any exchange may make an election for purposes of paragraph 
(a)(25)(i)(B) of this section for any covered security, by collecting, 
processing, and making available bids, offers, quotation sizes, and 
aggregate quotation sizes in that security; except that for any covered 
security previously listed or admitted to unlisted trading privileges on 
only one exchange and not traded by any OTC market maker, such election 
shall be made by notifying all specified persons, and shall be effective 
at the opening of trading on the business day following notification.
    (ii) Any member of an association acting in the capacity of an OTC 
market maker may make an election for purposes of paragraph 
(a)(25)(ii)(B) of this section for any covered security, by 
communicating to its association bids, offers, and quotation sizes in 
that security; except that for any other covered security listed or 
admitted to unlisted trading privileges on only one exchange and not 
traded by any other OTC market maker, such election shall be made by 
notifying its association and all specified persons, and shall be 
effective at the opening of trading on the business day following 
notification.
    (iii) The election of an exchange or member of an association for 
any covered security pursuant to this paragraph (b)(5) shall cease to be 
in effect if such exchange or member ceases to make available or 
communicate bids, offers, and quotation sizes in such security.
    (c) Obligations of responsible brokers and dealers. (1) Each 
responsible broker or dealer shall promptly communicate to its exchange 
or association, pursuant to the procedures established by that exchange 
or association, its best bids, best offers, and quotation sizes for any 
subject security.
    (2) Subject to the provisions of paragraph (c)(3) of this section, 
each responsible broker or dealer shall be obligated to execute any 
order to buy or sell a subject security, other than an odd-lot order, 
presented to it by another broker or dealer, or any other person 
belonging to a category of persons with whom such responsible broker or 
dealer customarily deals, at a price at least as favorable to such buyer 
or seller as the responsible broker's or dealer's published bid or 
published offer (exclusive of any commission, commission equivalent or 
differential customarily charged by such responsible broker or dealer in 
connection with execution of any such order) in any amount up to its 
published quotation size.
    (3)(i) No responsible broker or dealer shall be obligated to execute 
a transaction for any subject security as provided in paragraph (c)(2) 
of this section to purchase or sell that subject security in an amount 
greater than such revised quotation if:
    (A) Prior to the presentation of an order for the purchase or sale 
of a subject security, a responsible broker or dealer has communicated 
to its exchange or association, pursuant to paragraph (c)(1) of this 
section, a revised quotation size; or
    (B) At the time an order for the purchase or sale of a subject 
security is presented, a responsible broker or dealer is in the process 
of effecting a transaction in such subject security, and immediately 
after the completion of such transaction, it communicates to its 
exchange or association a revised quotation size, such responsible 
broker or dealer shall not be obligated by paragraph (c)(2) of this 
section to purchase or sell that subject security in an amount greater 
than such revised quotation size.
    (ii) No responsible broker or dealer shall be obligated to execute a 
transaction for any subject security as provided in paragraph (c)(2) of 
this section if:
    (A) Before the order sought to be executed is presented, such 
responsible broker or dealer has communicated to

[[Page 98]]

its exchange or association pursuant to paragraph (c)(1) of this 
section, a revised bid or offer; or
    (B) At the time the order sought to be executed is presented, such 
responsible broker or dealer is in the process of effecting a 
transaction in such subject security, and, immediately after the 
completion of such transaction, such responsible broker or dealer 
communicates to its exchange or association pursuant to paragraph (c)(1) 
of this section, a revised bid or offer; provided, however, That such 
responsible broker or dealer shall nonetheless be obligated to execute 
any such order in such subject security as provided in paragraph (c)(2) 
of this section at its revised bid or offer in any amount up to its 
published quotation size or revised quotation size.
    (4) Subject to the provisions of paragraph (b)(4) of this section:
    (i) No exchange or OTC market maker may make available, disseminate 
or otherwise communicate to any quotation vendor, directly or 
indirectly, for display on a terminal or other display device any bid, 
offer, quotation size, or aggregate quotation size for any covered 
security which is not a subject security with respect to such exchange 
or OTC market maker; and
    (ii) No quotation vendor may disseminate or display on a terminal or 
other display device any bid, offer, quotation size, or aggregate 
quotation size from any exchange or OTC market maker for any covered 
security which is not a subject security with respect to such exchange 
or OTC market maker.
    (5)(i) Entry of any priced order for a covered security by an 
exchange market maker or OTC market maker in that security into an 
electronic communications network that widely disseminates such order 
shall be deemed to be:
    (A) A bid or offer under this section, to be communicated to the 
market maker's exchange or association pursuant to paragraph (c) of this 
section for at least the minimum quotation size that is required by the 
rules of the market maker's exchange or association if the priced order 
is for the account of a market maker, or the actual size of the order up 
to the minimum quotation size required if the priced order is for the 
account of a customer; and
    (B) A communication of a bid or offer to a quotation vendor for 
display on a display device for purposes of paragraph (c)(4) of this 
section.
    (ii) An exchange market maker or OTC market maker that has entered a 
priced order for a covered security into an electronic communications 
network that widely disseminates such order shall be deemed to be in 
compliance with paragraph (c)(5)(i)(A) of this section if the electronic 
communications network:
    (A)(1)Provides to an exchange or association (or an exclusive 
processor acting on behalf of one or more exchanges or associations) the 
prices and sizes of the orders at the highest buy price and the lowest 
sell price for such security entered in, and widely disseminated by, the 
electronic communications network by exchange market makers and OTC 
market makers for the covered security, and such prices and sizes are 
included in the quotation data made available by the exchange, 
association, or exclusive processor to quotation vendors pursuant to 
this section; and
    (2) Provides, to any broker or dealer, the ability to effect a 
transaction with a priced order widely disseminated by the electronic 
communications network entered therein by an exchange market maker or 
OTC market maker that is:
    (i) Equivalent to the ability of any broker or dealer to effect a 
transaction with an exchange market maker or OTC market maker pursuant 
to the rules of the exchange or association to which the electronic 
communications network supplies such bids and offers; and
    (ii) At the price of the highest priced buy order or lowest priced 
sell order, or better, for the lesser of the cumulative size of such 
priced orders entered therein by exchange market makers or OTC market 
makers at such price, or the size of the execution sought by the broker 
or dealer, for the covered security; or
    (B) Is an alternative trading system that:

[[Page 99]]

    (1) Displays orders and provides the ability to effect transactions 
with such orders under Sec. 242.301(b)(3) of this chapter; and
    (2) Otherwise is in compliance with Regulation ATS, Sec. 242.300 
through Sec. 242.303 of this chapter.
    (d) Transactions in listed options.
    (1) An exchange or association:
    (i) Shall not be required, under paragraph (b) of this section, to 
collect from responsible brokers or dealers who are members of such 
exchange or association, or to make available to quotation vendors, the 
quotation sizes and aggregate quotation sizes for listed options, if 
such exchange or association establishes by rule and periodically 
publishes the quotation size for which such responsible brokers or 
dealers are obligated to execute an order to buy or sell an options 
series that is a subject security at its published bid or offer under 
paragraph (c)(2) of this section;
    (ii) May establish by rule and periodically publish a quotation 
size, which shall not be for less than one contract, for which 
responsible brokers or dealers who are members of such exchange or 
association are obligated under paragraph (c)(2) of this section to 
execute an order to buy or sell a listed option for the account of a 
broker or dealer that is in an amount different from the quotation size 
for which it is obligated to execute an order for the account of a 
customer; and
    (iii) May establish and maintain procedures and mechanisms for 
collecting from responsible brokers and dealers who are members of such 
exchange or association, and making available to quotation vendors, the 
quotation sizes and aggregate quotation sizes in listed options for 
which such responsible broker or dealer will be obligated under 
paragraph (c)(2) of this section to execute an order from a customer to 
buy or sell a listed option and establish by rule and periodically 
publish the size, which shall not be less than one contract, for which 
such responsible brokers or dealers are obligated to execute an order 
for the account of a broker or dealer.
    (2) If, pursuant to paragraph (d)(1) of this section, the rules of 
an exchange or association do not require its members to communicate to 
it their quotation sizes for listed options, a responsible broker or 
dealer that is a member of such exchange or association shall:
    (i) Be relieved of its obligations under paragraph (c)(1) of this 
section to communicate to such exchange or association its quotation 
sizes for any listed option; and
    (ii) Comply with its obligations under paragraph (c)(2) of this 
section by executing any order to buy or sell a listed option, in an 
amount up to the size established by such exchange's or association's 
rules under paragraph (d)(1) of this section.
    (3) Thirty second response. Each responsible broker or dealer, 
within thirty seconds of receiving an order to buy or sell a listed 
option in an amount greater than the quotation size established by an 
exchange's or association's rules pursuant to paragraph (d)(1) of this 
section, or its published quotation size must:
    (i) Execute the entire order; or
    (ii)(A) Execute that portion of the order equal to at least:
    (1) The quotation size established by an exchange's or association's 
rules, pursuant to paragraph (d)(1) of this section, to the extent that 
such exchange or association does not collect and make available to 
quotation vendors quotation size and aggregate quotation size under 
paragraph (b) of this section; or
    (2) Its published quotation size; and
    (B) Revise its bid or offer.
    (4) Notwithstanding paragraph (d)(3) of this section, no responsible 
broker or dealer shall be obligated to execute a transaction for any 
listed option as provided in paragraph (c)(2) of this section if:
    (i) Any of the circumstances in paragraph (c)(3) of this section 
exist; or
    (ii) The order for the purchase or sale of a listed option is 
presented during a trading rotation in that listed option.

[[Page 100]]

    (e) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any responsible broker or dealer, electronic communications 
network, exchange, or association if the Commission determines that such 
exemption is consistent with the public interest, the protection of 
investors and the removal of impediments to and perfection of the 
mechanism of a national market system.

[61 FR 48328, Sept. 12, 1996, as amended at 63 FR 70919, Dec. 22, 1998; 
65 FR 75461, Dec. 1, 2000]



Sec. 240.11Ac1-2  Display of transaction reports, last sale data and quotation information.

    (a) Definitions. For purposes of this section, (1) The terms 
transaction report, effective transaction reporting plan, moving ticker, 
last sale data, market minder and interrogation device shall have the 
meaning provided in Sec. 240.11Aa3-1 (Rules 11Aa3-1 under the Act).
    (2) The term vendor shall mean any securities information processor 
engaged in the business of disseminating transaction reports, last sale 
data or quotation information with respect to subject securities to 
brokers, dealers or investors on a real-time or other current and 
continuing basis, whether through an electronic communications network, 
moving ticker or interrogation device.
    (3) The term NASDAQ shall mean the electronic inter-dealer quotation 
system owned and operated by NASDAQ, Inc., a subsidiary of the National 
Association of Securities Dealers, Inc.
    (4) The term subject security shall mean,
    (i) Any reported security; and
    (ii) Any other equity security as to which transaction reports, last 
sale data or quotation information is disseminated through NASDAQ.
    (5) The terms quotations and quotation information shall mean bids, 
offers and, where applicable, quotation sizes and aggregate quotation 
sizes.
    (6) The terms bid and offer shall,
    (i) In the case of a reported security, have the meaning provided in 
Sec. 240.11Ac1-1 (Rule 11Ac1-1 under the Act); and
    (ii) In the case of any subject security other than a reported 
security, mean the most recent bid price or offer price of an over-the-
counter market maker disseminated through Level 2 or 3 of NASDAQ.
    (7) The terms quotation size, aggregate quotation size, third market 
maker and make available shall have the meaning provided in Sec. 
240.11Ac1-1 (Rule 11Ac1-1 under the Act).
    (8) The term consolidated display shall mean, with respect to a 
particular reported security,
    (i) Any display (other than a moving ticker or market minder) of 
transaction reports for such security from all reporting market centers;
    (ii) Any display (other than a moving ticker or market minder) of 
last sale data for such security, or information derived therefrom, 
based on transaction reports from all reporting market centers; or
    (iii) Any display of quotation information for that security based 
on quotations from all reporting market centers.
    (9) The term consolidated price, when used with respect to a 
particular reported security, shall mean the price of the most recent 
transaction report for that security reported pursuant to any effective 
transaction reporting plan.
    (10) The term consolidated volume, when used with respect to a 
particular reported security, shall mean the volume of the most recent 
transaction report for that security reported pursuant to any effective 
transaction reporting plan.
    (11) The term cumulative consolidated volume, when used with respect 
to a particular reported security, shall mean the cumulative volume of 
all transaction reports for that security reported pursuant to any 
effective transaction reporting plan during a particular trading day.
    (12) The term individual market center display shall mean, with 
respect to a particular reported security,
    (i) Any display (other than a moving ticker or market minder) of 
transaction reports for such security from a particular market center;

[[Page 101]]

    (ii) Any display (other than a moving ticker or market minder) of 
last sale data for such security, or information derived therefrom, 
based on transaction reports from a particular reporting market center; 
or
    (iii) Any display of quotation information for that security based 
on quotations from a particular reporting market center.
    (13) The term over-the-counter market maker shall mean, with respect 
to any subject security other than a reported security, any broker or 
dealer which holds itself out as being willing to buy and sell such 
security on a regular and continuous basis otherwise than on an exchange 
in amounts of less than block size.
    (14) The term reporting market center shall mean, (i) with respect 
to a reported security,
    (A) Any national securities exchange (``exchange'') on which, or 
through whose facilities, transactions in such security are executed and 
which collects, processes and makes available transaction reports with 
respect to transactions in such security on a current basis pursuant to 
Sec. 240.11Aa3-1 (Rule 11Aa3-1 under the Act); and
    (B) Any person acting in the capacity of a third market maker with 
respect to such security which reports transactions in such security to 
a national securities association on a current basis pursuant to Sec. 
240.11Aa3-1 (Rule 11Aa3-1 under the Act) and disseminates quotations in 
such security pursuant to Sec. 240.11Ac1-1 (Rule 11Ac1-1 under the 
Act); and
    (ii) With respect to a subject security other than a reported 
security, any person acting in the capacity of an over-the-counter 
market maker who is authorized to disseminate quotations in such 
security, through NASDAQ, and who makes such quotations available 
through that system on a regular and continuous basis.
    (15) The terms best bid and best offer shall mean,
    (i) With respect to quotations for a reported security, the highest 
bid or lowest offer for that security made available by any reporting 
market center pursuant to Sec. 240.11Ac1-1 (Rule 11Ac1-1 under the Act) 
(excluding any bid or offer made available by an exchange during any 
period such exchange is relieved of its obligations under paragraphs (b) 
(1) and (2) of Sec. 240. 11Ac1-1 by virtue of paragraph (b)(3)(i) 
thereof)); Provided, however, That in the event two or more reporting 
market centers make available identical bids or offers for a reported 
security, the best bid or best offer (as the case may be) shall be 
computed by ranking all such identical bids or offers (as the case may 
be) first by size (giving the highest ranking to the bid or offer 
associated with the largest size), then by time (giving the highest 
ranking to the bid or offer received first in time); and
    (ii) With respect to quotations for a subject security other than a 
reported security, the highest bid or lowest offer (as the case may be) 
for such security disseminated by an over-the-counter market maker in 
Level 2 or 3 of NASDAQ.
    (16) The term quotation montage shall mean, with respect to a 
particular subject security, a display on an interrogation device which 
disseminates simultaneously quotations in that security from all 
reporting market centers.
    (17) The term representative bid or offer shall mean any number 
representing a bid price or an offer price (as the case may be) for a 
particular subject security which is (i) the mean, median, mode or 
weighted average of two or more bids or offers of reporting market 
centers in such security, (ii) calculated with reference to or derived 
from any such mean, median, mode or weighted average, or (iii) 
calculated by adding to or subtracting from the bid or offer of any 
reporting market center in such security any number representing a 
commission, commission equivalent, mark-up or differential.
    (18) The term market information, when used with respect to an 
individual market center display or a consolidated display for a 
particular reported security, shall mean (i) any transaction reports or 
last sale data, or information derived therefrom, contained in any such 
display, (ii) any quotation information contained in any such display, 
and (iii) any other category of information contained in any such 
display which relates to the particular reported security involved, 
including, but not limited to, annual or

[[Page 102]]

periodic dividend, ex-dividend date, time of most recent trade and news 
dissemination.
    (19) The term market linkage system shall mean any communications 
and data processing facility which permits orders for the purchase and 
sale of a subject security to be transmitted from one reporting market 
center to another such reporting market center.
    (20) The term reported security shall mean any security or class of 
securities for which transaction reports are collected, processed and 
made available pursuant to an effective transaction reporting plan.
    (b) Display requirements for transaction reports and last sale data. 
(1) No vendor shall distribute, publish, display or otherwise provide to 
brokers and dealers on a real-time or other current and continuing 
basis, whether through an electronic communications network, moving 
ticker or interrogation device, transaction reports, last sale data or 
market information in contravention of the provisions of this section.
    (2) On and after the effective date of this section, the following 
requirements shall be applicable to the display of transaction reports, 
last sale data or market information with respect to reported 
securities:
    (i) If transaction reports or last sale data with respect to a 
particular reported security are provided by a vendor on an 
interrogation device, such vendor shall provide on that device a 
consolidated display of transaction reports or last sale data for such 
security which shall include, at a minimum, (A) the consolidated price 
for such security, (B) the consolidated volume or cumulative 
consolidated volume for such security, and (C) an identifier indicating 
the reporting market center associated with such consolidated price and 
consolidated volume (the ``consolidated last sale display'').
    (ii) The consolidated last sale display shall be accessed by means 
of retrieval instructions involving a number of key strokes which is 
fewer than the number of strokes required to access any individual 
market center display of transaction reports or last sale data provided 
on that device for such security; Provided, however, That, 
notwithstanding the above requirement, a vendor may provide on that 
device both the consolidated last sale display and any such individual 
market center displays made available for such security by means of 
retrieval instructions involving an equal number of key strokes if the 
information request or transmit key for the consolidated last sale 
display is the most prominent.
    (iii) Subject to the provisions of paragraph (b)(2)(ii) of this 
section, a vendor may provide on an interrogation device an individual 
market center display of transaction reports or last sale data for a 
particular reported security for any reporting market center in such 
security.
    (iv) No moving ticker may include an identifier indicating the 
reporting market center associated with a particular transaction report 
with respect to a reported security unless such moving ticker includes 
identifiers for all transaction reports for such security (or an 
identifiable subset of all such transaction reports) from all reporting 
market centers in that security in a non-discriminatory manner.
    (v) No moving ticker or consolidated last sale display may exclude 
any transaction report or last sale data based upon the market center in 
which a transaction has been executed.
    (vi) No vendor may provide any category of market information in an 
individual market center display for a particular subject security 
unless that category of market information is also provided, on a 
consolidated basis, as part of the consolidated last sale display for 
that security; Provided, however, That a vendor may delete from such 
consolidated last sale display up to three categories of information if 
such deletion is necessary to accommodate the display of any market 
identifiers required by this section.
    (vii) Transaction reports and last sale data from all reporting 
market centers which are third market makers may be identified in a 
consolidated last sale display or a moving ticker by a single identifier 
without identification of the individual third market maker associated 
with such transaction report or last sale data.
    (c) Display requirements for quotation information. (1) No vendor 
shall distribute, publish, display or otherwise

[[Page 103]]

provide to brokers and dealers on a real-time or other current and 
continuing basis, whether through an electronic communications network, 
moving ticker or interrogation device, quotation information with 
respect to subject securities in contravention of the provisions of this 
section.
    (2) On and after the effective date of this section, the following 
requirements shall be applicable to the display of quotation information 
with respect to subject securities:
    (i) If quotation information with respect to a particular subject 
security is provided by a vendor on an interrogation device, such vendor 
shall provide on that device a consolidated display of quotation 
information for such security (the ``consolidated quotation display'') 
which shall include, at a minimum,
    (A) The best bid and best offer for such security and, in the case 
of a reported security, (1) identifiers indicating the reporting market 
center making available such best bid and the reporting market center 
making available such best offer and (2) the quotation size or aggregate 
quotation size associated with such best bid and the quotation size or 
aggregate quotation size associated with such best offer, or
    (B) A quotation montage for that security.
    (ii) The consolidated quotation display shall be accessed by means 
of retrieval instructions involving a number of key strokes which is 
fewer than the number of strokes required to access any individual 
market center quotation display provided on that device by such vendors 
for such security: Provided, however, That, notwithstanding the above 
requirement, a vendor may provide on that device both the consolidated 
quotation display and any individual market center display of quotation 
information provided for such security by means of retrieval 
instructions involving an equal number of key strokes if the information 
request or transmit key for the consolidated quotation display is the 
most prominent.
    (iii) Subject to the provisions of paragraph (c)(2)(ii) of this 
section, a vendor may provide on an interrogation device
    (A) An individual market center display of quotation information for 
a particular subject security for any reporting market center in such 
security; or
    (B) Either separately or as the consolidated quotation display, a 
quotation montage for that security.
    (iv) No consolidated quotation display or separate quotation montage 
provided on an interrogation device may exclude any quotation 
information based upon the market center making available such 
information: Provided, however, That for purposes of providing the 
consolidated quotation display or a separate quotation montage for any 
reported security, quotation information from all reporting market 
centers which are third market makers may be consolidated to derive a 
best bid and offer for all such market centers if such interrogation 
device is capable of displaying, either separately or as part of the 
consolidated quotation display or separate quotation montage, (A) 
identifiers indicating the reporting market center making available such 
best bid and the reporting market center making available such best 
offer, and (B) the quotation size associated with both such best bid and 
best offer.
    (v) Each individual market center display of quotation information 
or separate quotation montage for a particular reported security shall 
include the quotation size or aggregate quotation size associated with 
each bid or offer disseminated as part of such display or montage.
    (vi) No vendor may provide on any interrogation device a 
representative bid or offer with respect to any subject security.
    (d) Joint display of transaction reports and quotation information. 
Subject to the provisions of paragraphs (b)(2)(ii) and (c)(2)(ii) of 
this section regarding the means of access to consolidated last sale 
displays and consolidated quotation displays, a vendor may combine the 
consolidated last sale display and the consolidated quotation display 
for a particular subject security.
    (e) Applicability to brokers and dealers. Subject to the provisions 
of paragraph

[[Page 104]]

(f) of this section, no broker or dealer may operate or maintain any 
display of transaction reports, last sale data, quotation information or 
market information which would not be permitted to be provided by a 
vendor under paragraph (b) or (c) of this section.
    (f) Exchange or market linkage system displays. The provisions of 
this section shall not apply to: (1) The dissemination or display of 
transactions reports, last sale data, quotation information or market 
information on the trading floor or through the facilities of an 
exchange, (2) any display of transaction reports, last sale data, 
quotation information or market information operated or maintained by a 
self-regulatory organization for monitoring or surveillance purposes, or 
(3) any display of transaction reports, last sale data or quotation 
information in connection with the operation of a market linkage system 
implemented in accordance with a plan approved by the Commission 
pursuant to section 11A(a)(3)(B) of the Act.
    (g) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any securities information processor, self-regulatory 
organization, broker, dealer or specified subject security if the 
Commission determines that such exemption is consistent with the public 
interest, the protection of investors and the removal of impediments to, 
and perfection of the mechanisms of, a national market system.
    (h) Effective date. The effective date of this section shall be 
April 5, 1980, except for paragraph (c)(2)(vi), which shall become 
effective on July 5, 1980, and paragraphs (b)(2)(ii), (vi) and 
(c)(2)(i), (ii), (iv), (v) which shall become effective on October 1, 
1981.

(Secs. 2, 3, 6, 9, 10, 15, 17 and 23, Pub. L. 78-291, 48 Stat. 881, 882, 
885, 889, 891, 895, 897 and 901, as amended by secs. 2, 3, 4, 11, 14 and 
18, Pub. L. 94-29, 89 Stat. 97, 104, 121, 137 and 155 (15 U.S.C. 78b, 
78c, 78f, 78i, 78j, 78o, 78g and 78w); sec. 15A, as added by sec. 1, 
Pub. L. 75-719, 52 Stat. 1070, as amended by sec. 12, Pub. L. 94-29, 89 
Stat. 127 (15 U.S.C. 78-3); sec. 11A, as added by sec. 7, Pub. L. 94-29, 
89 Stat. 111 (15 U.S.C. 78k-l); 15 U.S.C. 78a et seq., as amended by 
Pub. L. 94-29 (June 4, 1975) and by Pub. L. 98-38 (June 6, 1983), 
particularly secs. 11A, 15, 19 and 23 thereof (15 U.S.C. 78k-1, 78o, 78s 
and 78w))


[45 FR 12405, Feb. 26, 1980, as amended at 46 FR 43962, Sept. 2, 1981; 
48 FR 53691, Nov. 29, 1983]



Sec. 240.11Ac1-3  Customer account statements.

    (a) No broker or dealer acting as agent for a customer may effect 
any transaction in, induce or attempt to induce the purchase or sale of, 
or direct orders for purchase or sale of, any subject security as 
defined in Sec. 240.11Ac1-2 or a security authorized for quotation on 
an automated inter-dealer quotation system that has the characteristics 
set forth in section 17B of the Act (15 U.S.C. 78q-2), unless such 
broker or dealer informs such customer, in writing, upon opening a new 
account and on an annual basis thereafter, of the following:

    (1) The broker's or dealer's policies regarding receipt of payment 
for order flow as defined in Sec. 240.10b-10(e)(9), from any broker or 
dealer, national securities exchange, registered securities association, 
or exchange member to which it routes customers' orders for execution, 
including a statement as to whether any payment for order flow is 
received for routing customer orders and a detailed description of the 
nature of the compensation received; and

    (2) The broker's or dealer's policies for determining where to route 
customer orders that are the subject of payment for order flow as 
defined in Sec. 240.10b-10(e)(9) absent specific instructions from 
customers, including a description of the extent to which orders can be 
executed prices superior to the best bid or best offer as defined in 
Sec. 240.11Ac1-2.

[[Page 105]]

    (b) Exemptions. The Commission, upon request or upon its own motion, 
may exempt by rule or by order, any broker or dealer or any class of 
brokers or dealers, security or class of securities from the 
requirements of paragraph (a) of this section with respect to any 
transaction or class of transactions, either unconditionally or on 
specified terms and conditions, if the Commission determines that such 
exemption is consistent with the pubic interest and the protection of 
investors.

[59 FR 55012, Nov. 2, 1994]



Sec. 240.11Ac1-4  Display of customer limit orders.

    (a) Definitions. For purposes of this section:
    (1) The term association shall mean any association of brokers and 
dealers registered pursuant to Section 15A of the Act (15 U.S.C. 78o-3).
    (2) The terms best bid and best offer shall have the meaning 
provided in Sec. 240.11Ac1-1(a)(3).
    (3) The terms bid and offer shall have the meaning provided in Sec. 
240.11Ac1-1(a)(4).
    (4) The term block size shall mean any order:
    (i) Of at least 10,000 shares; or
    (ii) For a quantity of stock having a market value of at least 
$200,000.
    (5) The term covered security shall mean any ``reported security'' 
and any other security for which a transaction report, last sale data or 
quotation information is disseminated through an automated quotation 
system as described in section 3(a)(51)(A)(ii) of the Act (15 U.S.C. 
78c(a)(51)(A)(ii)).
    (6) The term customer limit order shall mean an order to buy or sell 
a covered security at a specified price that is not for the account of 
either a broker or dealer; provided, however, That the term customer 
limit order shall include an order transmitted by a broker or dealer on 
behalf of a customer.
    (7) The term electronic communications network shall have the 
meaning provided in Sec. 240.11Ac1-1(a)(8).
    (8) The term exchange-traded security shall have the meaning 
provided in Sec. 240.11Ac1-1(a)(10).
    (9) The term OTC market maker shall mean any dealer who holds itself 
out as being willing to buy from and sell to its customers, or 
otherwise, a covered security for its own account on a regular or 
continuous basis otherwise than on a national securities exchange in 
amounts of less than block size.
    (10) The term reported security means any security or class of 
securities for which transaction reports are collected, processed, and 
made available pursuant to an effective transaction reporting plan.
    (b) Specialists and OTC market makers. For all covered securities:
    (1) Each member of an exchange that is registered by that exchange 
as a specialist, or is authorized by that exchange to perform functions 
substantially similar to that of a specialist, shall publish immediately 
a bid or offer that reflects:
    (i) The price and the full size of each customer limit order held by 
the specialist that is at a price that would improve the bid or offer of 
such specialist in such security; and
    (ii) The full size of each customer limit order held by the 
specialist that:
    (A) Is priced equal to the bid or offer of such specialist for such 
security;
    (B) Is priced equal to the national best bid or offer; and
    (C) Represents more than a de minimis change in relation to the size 
associated with the specialist's bid or offer.
    (2) Each registered broker or dealer that acts as an OTC market 
maker shall publish immediately a bid or offer that reflects:
    (i) The price and the full size of each customer limit order held by 
the OTC market maker that is at a price that would improve the bid or 
offer of such OTC market maker in such security; and
    (ii) The full size of each customer limit order held by the OTC 
market maker that:
    (A) Is priced equal to the bid or offer of such OTC market maker for 
such security;
    (B) Is priced equal to the national best bid or offer; and
    (C) Represents more than a de minimis change in relation to the size 
associated with the OTC market maker's bid or offer.

[[Page 106]]

    (c) Exceptions. The requirements in paragraph (b) of this section 
shall not apply to any customer limit order:
    (1) That is executed upon receipt of the order.
    (2) That is placed by a customer who expressly requests, either at 
the time that the order is placed or prior thereto pursuant to an 
individually negotiated agreement with respect to such customer's 
orders, that the order not be displayed.
    (3) That is an odd-lot order.
    (4) That is a block size order, unless a customer placing such order 
requests that the order be displayed.
    (5) That is delivered immediately upon receipt to an exchange or 
association-sponsored system, or an electronic communications network 
that complies with the requirements of Sec. 240.11Ac1-1(c)(5)(ii) with 
respect to that order.
    (6) That is delivered immediately upon receipt to another exchange 
member or OTC market maker that complies with the requirements of this 
section with respect to that order.
    (7) That is an ``all or none'' order.
    (d) Exemptions. The Commission may exempt from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, any responsible broker or dealer, electronic communications 
network, exchange, or association if the Commission determines that such 
exemption is consistent with the public interest, the protection of 
investors and the removal of impediments to and perfection of the 
mechanism of a national market system.

[61 FR 48331, Sept. 12, 1996, as amended at 65 FR 75462, Dec. 1, 2000]



Sec. 240.11Ac1-5  Disclosure of order execution information.

    Preliminary Note: Section 240.11Ac1-5 requires market centers to 
make available standardized, monthly reports of statistical information 
concerning their order executions. This information is presented in 
accordance with uniform standards that are based on broad assumptions 
about order execution and routing practices. The information will 
provide a starting point to promote visibility and competition on the 
part of market centers and broker-dealers, particularly on the factors 
of execution price and speed. The disclosures required by this section 
do not encompass all of the factors that may be important to investors 
in evaluating the order routing services of a broker-dealer. In 
addition, any particular market center's statistics will encompass 
varying types of orders routed by different broker-dealers on behalf of 
customers with a wide range of objectives. Accordingly, the statistical 
information required by this Section alone does not create a reliable 
basis to address whether any particular broker-dealer failed to obtain 
the most favorable terms reasonably available under the circumstances 
for customer orders.
    (a) Definitions. For the purposes of this section:
    (1) The term alternative trading system shall have the meaning 
provided in Sec. 242.300(c) of this chapter.
    (2) The term average effective spread shall mean the share-weighted 
average of effective spreads for order executions calculated, for buy 
orders, as double the amount of difference between the execution price 
and the midpoint of the consolidated best bid and offer at the time of 
order receipt and, for sell orders, as double the amount of difference 
between the midpoint of the consolidated best bid and offer at the time 
of order receipt and the execution price.
    (3) The term average realized spread shall mean the share-weighted 
average of realized spreads for order executions calculated, for buy 
orders, as double the amount of difference between the execution price 
and the midpoint of the consolidated best bid and offer five minutes 
after the time of order execution and, for sell orders, as double the 
amount of difference between the midpoint of the consolidated best bid 
and offer five minutes after the time of order execution and the 
execution price; provided, however, that the midpoint of the final 
consolidated best bid and offer disseminated for regular trading hours 
shall be used to calculate a realized spread if it is disseminated less 
than five minutes after the time of order execution.
    (4) The term categorized by order size shall mean dividing orders 
into separate categories for sizes from 100 to 499

[[Page 107]]

shares, from 500 to 1999 shares, from 2000 to 4999 shares, and 5000 or 
greater shares.
    (5) The term categorized by order type shall mean dividing orders 
into separate categories for market orders, marketable limit orders, 
inside-the-quote limit orders, at-the-quote limit orders, and near-the-
quote limit orders.
    (6) The term categorized by security shall mean dividing orders into 
separate categories for each national market system security that is 
included in a report.
    (7) The term consolidated best bid and offer shall mean the highest 
firm bid and the lowest firm offer for a security that is calculated and 
disseminated on a current and continuous basis pursuant to an effective 
national market system plan.
    (8) The term covered order shall mean any market order or any limit 
order (including immediate-or-cancel orders) received by a market center 
during regular trading hours at a time when a consolidated best bid and 
offer is being disseminated, and, if executed, is executed during 
regular trading hours, but shall exclude any order for which the 
customer requests special handling for execution, including, but not 
limited to, orders to be executed at a market opening price or a market 
closing price, orders submitted with stop prices, orders to be executed 
only at their full size, orders to be executed on a particular type of 
tick or bid, orders submitted on a ``not held'' basis, orders for other 
than regular settlement, and orders to be executed at prices unrelated 
to the market price of the security at the time of execution.
    (9) The term exchange market maker shall mean any member of a 
national securities exchange that is registered as a specialist or 
market maker pursuant to the rules of such exchange.
    (10) The term executed at the quote shall mean, for buy orders, 
execution at a price equal to the consolidated best offer at the time of 
order receipt and, for sell orders, execution at a price equal to the 
consolidated best bid at the time of order receipt.
    (11) The term executed outside the quote shall mean, for buy orders, 
execution at a price higher than the consolidated best offer at the time 
of order receipt and, for sell orders, execution at a price lower than 
the consolidated best bid at the time of order receipt.
    (12) The term executed with price improvement shall mean, for buy 
orders, execution at a price lower than the consolidated best offer at 
the time of order receipt and, for sell orders, execution at a price 
higher than the consolidated best bid at the time of order receipt.
    (13) The terms inside-the-quote limit order, at-the-quote limit 
order, and near-the-quote limit order shall mean non-marketable buy 
orders with limit prices that are, respectively, higher than, equal to, 
and lower by $0.10 or less than the consolidated best bid at the time of 
order receipt, and non-marketable sell orders with limit prices that 
are, respectively, lower than, equal to, and higher by $0.10 or less 
than the consolidated best offer at the time of order receipt.
    (14) The term market center shall mean any exchange market maker, 
OTC market maker, alternative trading system, national securities 
exchange, or national securities association.
    (15) The term marketable limit order shall mean any buy order with a 
limit price equal to or greater than the consolidated best offer at the 
time of order receipt, and any sell order with a limit price equal to or 
less than the consolidated best bid at the time of order receipt.
    (16) The term effective national market system plan shall have the 
meaning provided in Sec. 240.11Aa3-2(a)(2).
    (17) The term national market system security shall have the meaning 
provided in Sec. 240.11Aa2-1.
    (18) The term OTC market maker shall mean any dealer that holds 
itself out as being willing to buy from and sell to its customers, or 
others, in the United States, a national market system security for its 
own account on a regular or continuous basis otherwise than on a 
national securities exchange in amounts of less than block size.
    (19) The term regular trading hours shall mean the time between 9:30 
a.m. and 4:00 p.m. Eastern Time, or such other time as is set forth in 
the procedures established pursuant to paragraph (c)(2) of this section.

[[Page 108]]

    (20) The term time of order execution shall mean the time (to the 
second) that an order was executed at any venue.
    (21) The term time of order receipt shall mean the time (to the 
second) that an order was received by a market center for execution.
    (b) Monthly electronic reports by market centers. (1) Every market 
center shall make available for each calendar month, in accordance with 
the procedures established pursuant to paragraph (b)(2) of this section, 
a report on the covered orders in national market system securities that 
it received for execution from any person. Such report shall be in 
electronic form; shall be categorized by security, order type, and order 
size; and shall include the following columns of information:
    (i) For market orders, marketable limit orders, inside-the-quote 
limit orders, at-the-quote limit orders, and near-the-quote limit 
orders:
    (A) The number of covered orders;
    (B) The cumulative number of shares of covered orders;
    (C) The cumulative number of shares of covered orders cancelled 
prior to execution;
    (D) The cumulative number of shares of covered orders executed at 
the receiving market center;
    (E) The cumulative number of shares of covered orders executed at 
any other venue;
    (F) The cumulative number of shares of covered orders executed from 
0 to 9 seconds after the time of order receipt;
    (G) The cumulative number of shares of covered orders executed from 
10 to 29 seconds after the time of order receipt;
    (H) The cumulative number of shares of covered orders executed from 
30 seconds to 59 seconds after the time of order receipt;
    (I) The cumulative number of shares of covered orders executed from 
60 seconds to 299 seconds after the time of order receipt;
    (J) The cumulative number of shares of covered orders executed from 
5 minutes to 30 minutes after the time of order receipt; and
    (K) The average realized spread for executions of covered orders; 
and
    (ii) For market orders and marketable limit orders:
    (A) The average effective spread for executions of covered orders;
    (B) The cumulative number of shares of covered orders executed with 
price improvement;
    (C) For shares executed with price improvement, the share-weighted 
average amount per share that prices were improved;
    (D) For shares executed with price improvement, the share-weighted 
average period from the time of order receipt to the time of order 
execution;
    (E) The cumulative number of shares of covered orders executed at 
the quote;
    (F) For shares executed at the quote, the share-weighted average 
period from the time of order receipt to the time of order execution;
    (G) The cumulative number of shares of covered orders executed 
outside the quote;
    (H) For shares executed outside the quote, the share-weighted 
average amount per share that prices were outside the quote; and
    (I) For shares executed outside the quote, the share-weighted 
average period from the time of order receipt to the time of order 
execution.
    (2) Every national securities exchange on which national market 
system securities are traded and national securities association shall 
act jointly in establishing procedures for market centers to follow in 
making available to the public the reports required by paragraph (b)(1) 
of this section in a uniform, readily accessible, and usable electronic 
form. In the event there is no effective national market system plan 
establishing such procedures, market centers shall prepare their reports 
in a consistent, usable, and machine-readable electronic format, and 
make such reports available for downloading from an Internet web site 
that is free and readily accessible to the public.
    (3) A market center shall make available the report required by 
paragraph (b)(1) of this section within one month after the end of the 
month addressed in the report.
    (c) Exemptions. The Commission may, by order upon application, 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities,

[[Page 109]]

or transactions, from any provision or provisions of this section, if 
the Commission determines that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.

[65 FR 75436, Dec. 1, 2000]



Sec. 240.11Ac1-6  Disclosure of order routing information.

    (a) Definitions. For the purposes of this section:
    (1) The term covered security shall mean:
    (i) Any national market system security and any other security for 
which a transaction report, last sale data or quotation information is 
disseminated through an automated quotation system as defined in Section 
3(a)(51)(A)(ii) of the Act (15 U.S.C. 78c(a)(51)(A)(ii)); and
    (ii) Any option contract traded on a national securities exchange 
for which last sale reports and quotation information are made available 
pursuant to an effective national market system plan.
    (2) The term customer order shall mean an order to buy or sell a 
covered security that is not for the account of a broker or dealer, but 
shall not include any order for a quantity of a security having a market 
value of at least $50,000 for a covered security that is an option 
contract and a market value of at least $200,000 for any other covered 
security.
    (3) The term directed order shall mean a customer order that the 
customer specifically instructed the broker or dealer to route to a 
particular venue for execution.
    (4) The term make publicly available shall mean posting on an 
Internet web site that is free and readily accessible to the public, 
furnishing a written copy to customers on request without charge, and 
notifying customers at least annually in writing that a written copy 
will be furnished on request.
    (5) The term non-directed order shall mean any customer order other 
than a directed order.
    (6) The term effective national market system plan shall have the 
meaning provided in Sec. 240.11Aa3-2(a)(2).
    (7) The term national market system security shall have the meaning 
provided in Sec. 240.11Aa2-1.
    (8) The term payment for order flow shall have the meaning provided 
in Sec. 240.10b-10(d)(9).
    (9) The term profit-sharing relationship shall mean any ownership or 
other type of affiliation under which the broker or dealer, directly or 
indirectly, may share in any profits that may be derived from the 
execution of non-directed orders.
    (10) The term time of the transaction shall have the meaning 
provided in Sec. 240.10b-10(d)(3).
    (b) Quarterly report on order routing. (1) Every broker or dealer 
shall make publicly available for each calendar quarter a report on its 
routing of non-directed orders in covered securities during that 
quarter. For covered securities other than option contracts, such report 
shall be divided into three separate sections for securities that are 
listed on the New York Stock Exchange, Inc., securities that are 
qualified for inclusion in the Nasdaq Stock Market, Inc., and securities 
that are listed on the American Stock Exchange LLC or any other national 
securities exchange. Such report also shall include a separate section 
for covered securities that are option contracts. Each of the four 
sections in a report shall include the following information:
    (i) The percentage of total customer orders for the section that 
were non-directed orders, and the percentages of total non-directed 
orders for the section that were market orders, limit orders, and other 
orders;
    (ii) The identity of the ten venues to which the largest number of 
total non-directed orders for the section were routed for execution and 
of any venue to which five percent or more of non-directed orders were 
routed for execution, the percentage of total non-directed orders for 
the section routed to the venue, and the percentages of total non-
directed market orders, total non-directed limit orders, and total non-
directed other orders for the section that were routed to the venue; and
    (iii) A discussion of the material aspects of the broker's or 
dealer's relationship with each venue identified

[[Page 110]]

pursuant to paragraph (b)(1)(ii) of this section, including a 
description of any arrangement for payment for order flow and any 
profit-sharing relationship.
    (2) A broker or dealer shall make the report required by paragraph 
(b)(1) of this section publicly available within one month after the end 
of the quarter addressed in the report.
    (c) Customer requests for information on order routing. (1) Every 
broker or dealer shall, on request of a customer, disclose to its 
customer the identity of the venue to which the customer's orders were 
routed for execution in the six months prior to the request, whether the 
orders were directed orders or non-directed orders, and the time of the 
transactions, if any, that resulted from such orders.
    (2) A broker or dealer shall notify customers in writing at least 
annually of the availability on request of the information specified in 
paragraph (c)(1) of this section.
    (d) Exemptions. The Commission may, by order upon application, 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of this section, if the 
Commission determines that such exemption is necessary or appropriate in 
the public interest, and is consistent with the protection of investors.

[65 FR 75436, Dec. 1, 2000]

                  Securities Exempted From Registration



Sec. 240.12a-4  Exemption of certain warrants from section 12(a).

    (a) When used in this section, the following terms shall have the 
meaning indicated unless the context otherwise requires:
    (1) The term warrant means any warrant or certificate evidencing a 
right to subscribe to or otherwise acquire another security, issued or 
unissued.
    (2) The term beneficiary security means a security to the holders of 
which a warrant or right to subscribe to or otherwise acquire another 
security is granted.
    (3) The term subject security means a security which is the subject 
of a warrant or right to subscribe to or otherwise acquire such 
security.
    (4) The term in the process of admission to dealing, in respect of a 
specified security means that (i) an application has been filed pursuant 
to section 12 (b) and (c) of the Act for the registration of such 
security on a national securities exchange; or (ii) the Commission has 
granted an application made pursuant to section 12(f) of the Act to 
continue or extend unlisted trading privileges to such security on a 
national securities exchange; or (iii) written notice has been filed 
with the Commission by a national securities exchange to the effect that 
such security has been approved for admission to dealing as a security 
exempted from the operation of section 12(a) of the Act.
    (b) Any issued or unissued warrant granted to the holders of a 
security admitted to dealing on a national securities exchange, shall be 
exempt from the operation of section 12(a) of the Act to the extent 
necessary to render lawful the effecting of transactions therein on any 
national securities exchange (i) on which the beneficiary security is 
admitted to dealing or (ii) on which the subject security is admitted to 
dealing or is in the process of admission to dealing, subject to the 
following terms and conditions:
    (1) Such warrant by its terms expires within 90 days after the 
issuance thereof;
    (2) A registration statement under the Securities Act of 1933 is in 
effect as to such warrant and as to each subject security, or the 
applicable terms of any exemption from such registration have been met 
in respect to such warrant and each subject security; and
    (3) Within five days after the exchange has taken official action to 
admit such warrant to dealing, it shall notify the Commission of such 
action.
    (c) Notwithstanding paragraph (b) of this section, no exemption 
pursuant to this section shall be available for transactions in any such 
warrant on any exchange on which the beneficiary security is admitted to 
dealing unless:
    (1) Each subject security is admitted to dealing or is in process of 
admission to dealing on a national securities exchange; or

[[Page 111]]

    (2) There is available from a registration statement and periodic 
reports or other data filed by the issuer of the subject security, 
pursuant to any act administered by the Commission, information 
substantially equivalent to that available with respect to a security 
listed and registered on a national securities exchange.
    (d) Notwithstanding the foregoing, an unissued warrant shall not be 
exempt pursuant to this section unless:
    (1) Formal or official announcement has been made by the issuer 
specifying (i) the terms upon which such warrant and each subject 
security is to be issued, (ii) the date, if any, as of which the 
security holders entitled to receive such warrant will be determined, 
(iii) the approximate date of the issuance of such warrant, and (iv) the 
approximate date of the issuance of each subject security; and,
    (2) The members of the exchange are subject to rules which provide 
that the performance of the contract to purchase and sell an unissued 
warrant shall be conditioned upon the issuance of such warrant.
    (e) The Commission may by order deny or revoke the exemption of a 
warrant under this section, if, after appropriate notice and opportunity 
for hearing to the issuer of such warrant and to the exchange or 
exchanges on which such warrant is admitted to dealing as an exempted 
security, it finds that:
    (1) Any of the terms or conditions of this section have not been met 
with respect to such exemption, or
    (2) At any time during the period of such exemption transactions 
have been effected on any such exchanges in such warrant which (i) 
create or induce a false, misleading or artificial appearance of 
activity, (ii) unduly or improperly influence the market price, or (iii) 
make a price which does not reflect the true state of the market; or
    (3) Any other facts exist which make such denial or revocation 
necessary or appropriate in the public interest or for the protection of 
investors.
    (f) If it appears necessary or appropriate in the public interest or 
for the protection of investors, the Commission may summarily suspend 
the exemption of such warrant pending the determination by the 
Commission whether such exemption shall be denied or revoked.
    (g) Section 240.10b-1 shall be applicable to any warrant exempted by 
this section.

(Secs. 3, 12, 48 Stat. 882, as amended, 892; 15 U.S.C. 78c, 78l)

[15 FR 3450, June 2, 1950, as amended at 18 FR 128, Jan. 7, 1953]



Sec. 240.12a-5  Temporary exemption of substituted or additional securities.

    (a)(1) Subject to the conditions of paragraph (a)(2) of this 
section, whenever the holders of a security admitted to trading on a 
national securities exchange (hereinafter called the original security) 
obtain the right, by operation of law or otherwise, to acquire all or 
any part of a class of another or substitute security of the same or 
another issuer, or an additional amount of the original security, then:
    (i) All or any part of the class of such other or substituted 
security shall be temporarily exempted from the operation of section 
12(a) to the extent necessary to render lawful transactions therein on 
an issued or ``when-issued'' basis on any national securities exchange 
on which the original, the other or the substituted security is lawfully 
admitted to trading; and
    (ii) The additional amount of the original security shall be 
temporarily exempted from the operation of section 12(a) to the extent 
necessary to render lawful transactions therein on a ``when-issued'' 
basis on any national securities exchange on which the original security 
is lawfully admitted to trading.
    (2) The exemptions provided by paragraph (a)(1) of this section 
shall be available only if the following conditions are met:
    (i) A registration statement is in effect under the Securities Act 
of 1933 to the extent required as to the security which is the subject 
of such exemption, or the terms of any applicable exemption from 
registration under such act have been complied with, if required;
    (ii) Any stockholder approval necessary to the issuance of the 
security which is the subject of the exemption, has been obtained; and
    (iii) All other necessary official action, other than the filing or 
recording

[[Page 112]]

of charter amendments or other documents with the appropriate State 
authorities, has been taken to authorize and assure the issuance of the 
security which is the subject of such exemption.
    (b) The exemption provided by this section shall terminate on the 
earliest of the following dates:
    (1) When registration of the exempt security on the exchange become 
effective;
    (2) When the exempt security is granted unlisted trading privileges 
on the exchange;
    (3) The close of business on the tenth day after (i) withdrawal of 
an application for registration of the exempt security on the exchange; 
(ii) withdrawal by the exchange of its certification of approval of the 
exempt security for listing and registration; (iii) withdrawal of an 
application for admission of the exempt security to unlisted trading 
privileges on the exchange; or (iv) the sending to the exchange of 
notice of the entry of an order by the Commission denying any 
application for admission of the exempt security to unlisted trading 
privileges on the exchange;
    (4) The close of business on the one hundred and twentieth day after 
the date on which the exempt security was admitted by action of the 
exchange to trading thereon as a security exempted from the operation of 
section 12 (a) by this section, unless prior thereto an application for 
registration of the exempt security or for admission of the exempt 
security to unlisted trading privileges on the exchange has been filed.
    (c) Notwithstanding paragraph (b) of this section, the Commission, 
having due regard for the public interest and the protection of 
investors, may at any time extend the period of exemption of any 
security by this rule or may sooner terminate the exemption upon notice 
to the exchange and to the issuer of the extension or termination 
thereof.
    (d) The Exchange shall file with the Commission a notification on 
Form 26 \1\ promptly after taking action to admit any security to 
trading under this section: Provided, however, That no notification need 
be filed under this section concerning the admission or proposed 
admission to trading of additional amounts of a class of security 
admitted to trading on such exchange.
---------------------------------------------------------------------------

    \1\ Copy filed with the Federal Register Division.
---------------------------------------------------------------------------

    (e) Section 240.10b-1 shall be applicable to all securities exempted 
from the operation of section 12(a) of the act by this section.

(Secs. 3, 12, 48 Stat. 882, 892; 15 U.S.C. 78c (12), 78l)

[13 FR 8185, Dec. 22, 1948, as amended at 19 FR 669, Feb. 5, 1954; 20 FR 
2081, Apr. 2, 1955; 53 FR 41206, Oct. 20, 1988]



Sec. 240.12a-6  Exemption of securities underlying certain options 
from section 12(a).

    (a) When used in this rule, the following terms shall have the 
meanings indicated unless the context otherwise requires:
    (1) The term option shall include any put, call, spread, straddle, 
or other option or privilege of buying a security from or selling a 
security to another without being bound to do so, but such term shall 
not include any such option where the writer is: The issuer of the 
security which may be purchased or sold upon exercise of the option, or 
is a person that directly, or indirectly, through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with such issuer;
    (2) The term underlying security means a security which relates to 
or is the subject of an option.
    (b) Any underlying security shall be exempt from the operation of 
section 12(a) of the Act if all of the following terms and conditions 
are met:
    (1) The related option is duly listed and registered on a national 
securities exchange;
    (2) The only transactions on such exchange with respect to such 
underlying securities consist of the delivery of and payment for such 
underlying securities pursuant to the terms of such options relating to 
the exercise thereof; and
    (3) Such underlying security is (i) duly listed and registered on 
another national securities exchange at the time the option is issued; 
or (ii) duly quoted on the National Association of Securities Dealers 
Automated

[[Page 113]]

Quotation System (``NASDAQ'') at the time the option is issued.

(Secs. 3(a)(12); 48 Stat. 882, 84 Stat. 718, 1435, 1499 (15 U.S.C. 
78(c)))

[38 FR 11449, May 8, 1973, as amended at 50 FR 20203, May 15, 1985]



Sec. 240.12a-7  Exemption of stock contained in standardized market 
baskets from section 12(a) of the Act.

    (a) Any component stock of a standardized market basket shall be 
exempt from the registration requirement of section 12(a) of the Act, 
solely for the purpose of inclusion in a standardized market basket, 
provided that all of the following terms and conditions are met:
    (1) The standardized market basket has been duly approved by the 
Commission for listing on a national securities exchange pursuant to the 
requirements of section 19(b) of the Act; and
    (2) The stock is a National Market System security as defined in 
rule 11Aa2-1 under the Act (17 CFR 240.11Aa2-1) and is either:
    (i) Listed and registered for trading on a national securities 
exchange by the issuer or
    (ii) Quoted on the National Association of Securities Dealers 
Automated Quotation System;
    (b) When used in this rule, the term standardized market basket 
means a group of at least 100 stocks purchased or sold in a single 
execution and at a single trading location with physical delivery and 
transfer of ownership of each component stock resulting from such 
execution.

[56 FR 28322, June 20, 1991]



Sec. 240.12a-8  Exemption of depositary shares.

    Depositary shares (as that term is defined in Sec. 240.12b-2) 
registered on Form F-6 (Sec. 239.36 of this chapter), but not the 
underlying deposited securities, shall be exempt from the operation of 
section 12(a) of the Act (15 U.S.C. 78l(a)).

[62 FR 39766, July 24, 1997]



Sec. 240.12a-9  Exemption of standardized options from section 12(a) of the Act.

    The provisions of section 12(a) of the Act (15 U.S.C. 78l(a)) do not 
apply in respect of any standardized option, as defined by section 
240.9b-1(a)(4), issued by a clearing agency registered under section 17A 
of the Act (15 U.S.C. 78q-1) and traded on a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)).

[68 FR 192, Jan. 2, 2003]

               Regulation 12B: Registration and Reporting

    Source: Sections 240.12b-1 to 240.12b-36 appear at 13 FR 9321, Dec. 
31, 1948, unless otherwise noted.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.

                                 General



Sec. 240.12b-1  Scope of regulation.

    The rules contained in this regulation shall govern all registration 
statements pursuant to sections 12(b) and 12(g) of the Act and all 
reports filed pursuant to sections 13 and 15(d) of the Act, including 
all amendments to such statements and reports, except that any provision 
in a form covering the same subject matter as any such rule shall be 
controlling.

[47 FR 11464, Mar. 16, 1982]



Sec. 240.12b-2  Definitions.

    Unless the context otherwise requires, the following terms, when 
used in the rules contained in this regulation or in Regulation 13A or 
15D or in the forms for statements and reports filed pursuant to 
sections 12, 13 or 15(d) of the act, shall have the respective meanings 
indicated in this rule:

[[Page 114]]

    Accelerated filer. (1) The term ``accelerated filer'' means an 
issuer after it first meets the following conditions as of the end of 
its fiscal year:
    (i) The aggregate market value of the voting and non-voting common 
equity held by non-affiliates of the issuer is $75 million or more;
    (ii) The issuer has been subject to the requirements of Section 
13(a) or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) for a period of at 
least twelve calendar months;
    (iii) The issuer has filed at least one annual report pursuant to 
Section 13(a) or 15(d) of the Act; and
    (iv) The issuer is not eligible to use Forms 10-KSB and 10-QSB 
(Sec. 249.310b and Sec. 249.308b) for its annual and quarterly 
reports.

    Note to paragraph (1): The aggregate market value of the issuer's 
outstanding voting and non-voting common equity shall be computed by use 
of the price at which the common equity was last sold, or the average of 
the bid and asked prices of such common equity, in the principal market 
for such common equity, as of the last business day of the issuer's most 
recently completed second fiscal quarter.

    (2) Entering and Exiting Accelerated Filer Status. (i) The 
determination for whether a non-accelerated filer becomes an accelerated 
filer as of the end of the issuer's fiscal year governs the annual 
report to be filed for that fiscal year, the quarterly and annual 
reports to be filed for the subsequent fiscal year and all annual and 
quarterly reports to be filed thereafter while the issuer remains an 
accelerated filer.
    (ii) Once an issuer becomes an accelerated filer, it will remain an 
accelerated filer unless the issuer becomes eligible to use Forms 10-KSB 
and 10-QSB for its annual and quarterly reports. In that case, the 
issuer will not become an accelerated filer again unless it subsequently 
meets the conditions in paragraph (1) of this definition.
    Affiliate. An ``affiliate'' of, or a person ``affiliated'' with, a 
specified person, is a person that directly, or indirectly through one 
or more intermediaries, controls, or is controlled by, or is under 
common control with, the person specified.
    Amount. The term ``amount,'' when used in regard to securities, 
means the principal amount if relating to evidences of indebtedness, the 
number of shares if relating to shares, and the number of units if 
relating to any other kind of security.

    Associate. The term ``associate'' used to indicate a relationship 
with any person, means (1) any corporation or organization (other than 
the registrant or a majority-owned subsidiary of the registrant) of 
which such person is an officer or partner or is, directly or 
indirectly, the beneficial owner of 10 percent or more of any class of 
equity securities, (2) any trust or other estate in which such person 
has a substantial beneficial interest or as to which such person serves 
as trustee or in a similar fiduciary capacity, and (3) any relative or 
spouse of such person, or any relative of such spouse, who has the same 
home as such person or who is a director or officer of the registrant or 
any of its parents or subsidiaries.

    Certified. The term ``certified,'' when used in regard to financial 
statements, means examined and reported upon with an opinion expressed 
by an independent public or certified public accountant.

    Charter. The term ``charter'' includes articles of incorporation, 
declarations of trust, articles of association or partnership, or any 
similar instrument, as amended, effecting (either with or without filing 
with any governmental agency) the organization or creation of an 
incorporated or unincorporated person.

    Common equity. The term ``common equity'' means any class of common 
stock or an equivalent interest, including but not limited to a unit of 
beneficial interest in a trust or a limited partnership interest.

    Control. The term ``control'' (including the terms ``controlling,'' 
``controlled by'' and ``under common control with'') means the 
possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether through 
the ownership of voting securities, by contract, or otherwise.

[[Page 115]]

    Depositary share. The term ``depositary share'' means a security, 
evidenced by an American Depositary Receipt, that represents a foreign 
security or a multiple of or fraction thereof deposited with a 
depositary.
    Employee. The term ``employee'' does not include a director, 
trustee, or officer.
    Fiscal year. The term ``fiscal year'' means the annual accounting 
period or, if no closing date has been adopted, the calendar year ending 
on December 31.
    Majority-owned subsidiary. The term ``majority-owned subsidiary'' 
means a subsidiary more than 50 percent of whose outstanding securities 
representing the right, other than as affected by events of default, to 
vote for the election of directors, is owned by the subsidiary's parent 
and/or one or more of the parent's other majority-owned subsidiaries.
    Managing underwriter. The term ``managing underwriter'' includes an 
underwriter (or underwriters) who, by contract or otherwise, deals with 
the registrant; organizes the selling effort; receives some benefit 
directly or indirectly in which all other underwriters similarly 
situated do not share in proportion to their respective interests in the 
underwriting; or represents any other underwriters in such matters as 
maintaining the records of the distribution, arranging the allotments of 
securities offered or arranging for appropriate stabilization 
activities, if any.
    Material. The term ``material,'' when used to qualify a requirement 
for the furnishing of information as to any subject, limits the 
information required to those matters to which there is a substantial 
likelihood that a reasonable investor would attach importance in 
determining whether to buy or sell the securities registered.
    Parent. A ``parent'' of a specified person is an affiliate 
controlling such person directly, or indirectly through one or more 
intermediaries.
    Predecessor. The term ``predecessor'' means a person the major 
portion of the business and assets of which another person acquired in a 
single succession or in a series of related successions in each of which 
the acquiring person acquired the major portion of the business and 
assets of the acquired person.
    Previously filed or reported. The terms ``previously filed'' and 
``previously reported'' mean previously filed with, or reported in, a 
statement under section 12, a report under section 13 or 15(d), a 
definitive proxy statement or information statement under section 14 of 
the act, or a registration statement under the Securities Act of 1933: 
Provided, That information contained in any such document shall be 
deemed to have been previously filed with, or reported to, an exchange 
only if such document is filed with such exchange.
    Principal underwriter. The term ``principal underwriter'' means an 
underwriter in privity of contract with the issuer of the securities as 
to which he is underwriter.
    Promoter. (1) The term ``promoter'' includes:
    (i) Any person who, acting alone or in conjunction with one or more 
other persons, directly or indirectly takes initiative in founding and 
organizing the business or enterprise of an issuer; or
    (ii) Any person who, in connection with the founding and organizing 
of the business or enterprise of an issuer, directly or indirectly 
receives in consideration of services or property, or both services and 
property, 10 percent or more of any class of securities of the issuer or 
10 percent or more of the proceeds from the sale of any class of such 
securities. However, a person who receives such securities or proceeds 
either solely as underwriting commissions or solely in consideration of 
property shall not be deemed a promoter within the meaning of this 
paragraph if such person does not otherwise take part in founding and 
organizing the enterprise.
    (2) All persons coming within the definition of ``promoter'' in 
paragraph (1) of this definition may be referred to as ``founders'' or 
``organizers'' or by another term provided that such term is reasonably 
descriptive of those persons' activities with respect to the issuer.
    Prospectus. Unless otherwise specified or the context otherwise 
requires, the term ``prospectus'' means a prospectus meeting the 
requirements of section

[[Page 116]]

10(a) of the Securities Act of 1933 as amended.
    Registrant. The term ``registrant'' means an issuer of securities 
with respect to which a registration statement or report is to be filed.
    Registration statement. The term ``registration statement'' or 
``statement'', when used with reference to registration pursuant to 
section 12 of the act, includes both an application for registration of 
securities on a national securities exchange pursuant to section 12(b) 
of the act and a registration statement filed pursuant to section 12(g) 
of the act.
    Share. The term ``share'' means a share of stock in a corporation or 
unit of interest in an unincorporated person.
    Significant subsidiary. The term ``significant subsidiary'' means a 
subsidiary, including its subsidiaries, which meets any of the following 
conditions:
    (1) The registrant's and its other subsidiaries' investments in and 
advances to the subsidiary exceed 10 percent of the total assets of the 
registrant and its subsidiaries consolidated as of the end of the most 
recently completed fiscal year (for a proposed business combination to 
be accounted for as a pooling of interests, this condition is also met 
when the number of common shares exchanged or to be exchanged by the 
registrant exceeds 10 percent of its total common shares outstanding at 
the date the combination is initiated); or
    (2) The registrant's and its other subsidiaries' proportionate share 
of the total assets (after intercompany eliminations) of the subsidiary 
exceeds 10 percent of the total assets of the registrants and its 
subsidiaries consolidated as of the end of the most recently completed 
fiscal year; or
    (3) The registrant's and its other subsidiaries' equity in the 
income from continuing operations before income taxes, extraordinary 
items and cumulative effect of a change in accounting principle of the 
subsidiary exceeds 10 percent of such income of the registrant and its 
subsidiaries consolidated for the most recently completed fiscal year.

    Computational note: For purposes of making the prescribed income 
test the following guidance should be applied:
    1. When a loss has been incurred by either the parent and its 
subsidiaries consolidated or the tested subsidiary, but not both, the 
equity in the income or loss of the tested subsidiary should be excluded 
from the income of the registrant and its subsidiaries consolidated for 
purposes of the computation.
    2. If income of the registrant and its subsidiaries consolidated for 
the most recent fiscal year is at least 10 percent lower than the 
average of the income for the last five fiscal years, such average 
income should be substituted for purposes of the computation. Any loss 
years should be omitted for purposes of computing average income.

    Small Business Issuer. The term ``small business issuer'' means an 
entity that meets the following criteria:
    (1) Has revenues of less than $25,000,000;
    (2) Is a U.S. or Canadian issuer;
    (3) Is not an investment company; and
    (4) If a majority owned subsidiary, the parent corporation is also a 
small business issuer.
    Provided however, that an entity is not a small business issuer if 
it has a public float (the aggregate market value of the issuer's 
outstanding voting and non-voting common equity held by non-affiliates) 
of $25,000,000 or more.
    Note: The public float of a reporting company shall be computed by 
use of the price at which the stock was last sold, or the average of the 
bid and asked prices of such stock, on a date within 60 days prior to 
the end of its most recent fiscal year. The public float of a company 
filing an initial registration statement under the Exchange Act shall be 
determined as of a date within 60 days of the date the registration 
statement is filed. In the case of an initial public offering of 
securities, public float shall be computed on the basis of the number of 
shares outstanding prior to the offering and the estimated public 
offering price of the securities.
    Subsidiary. A ``subsidiary'' of a specified person is an affiliate 
controlled by such person directly, or indirectly through one or more 
intermediaries. (See also ``majority-owned subsidiary,'' ``significant 
subsidiary,'' and ``totally-held subsidiary.'')
    Succession. The term ``succession'' means the direct acquisition of 
the assets comprising a going business, whether by merger, 
consolidation, purchase, or other direct transfer. The

[[Page 117]]

term does not include the acquisition of control of a business unless 
followed by the direct acquisition of its assets. The terms ``succeed'' 
and ``successor'' have meanings correlative to the foregoing.
    Totally held subsidiary. The term ``totally held subsidiary'' means 
a subsidiary (1) substantially all of whose outstanding securities are 
owned by its parent and/or the parent's other totally held subsidiaries, 
and (2) which is not indebted to any person other than its parent and/or 
the parent's other totally held subsidiaries in an amount which is 
material in relation to the particular subsidiary, excepting 
indebtedness incurred in the ordinary course of business which is not 
overdue and which matures within one year from the date of its creation, 
whether evidenced by securities or not.
    Voting securities. The term ``voting securities'' means securities 
the holders of which are presently entitled to vote for the election of 
directors.
    Wholly-owned subsidiary. The term ``wholly-owned subsidiary'' means 
a subsidiary substantially all of whose outstanding voting securities 
are owned by its parent and/or the parent's other wholly-owned 
subsidiaries.

[13 FR 9321, Dec. 31, 1948, as amended at 19 FR 6730, Oct. 30, 1954; 20 
FR 8285, Nov. 4, 1955; 30 FR 2022, Feb. 13, 1965; 47 FR 11464, Mar. 16, 
1982; 47 FR 29841, July 9, 1982; 47 FR 54780, Dec. 6, 1982; 48 FR 12350, 
Mar. 24, 1983; 50 FR 25216, June 18, 1985; 57 FR 36494, Aug. 13, 1992; 
62 FR 26389, May 14, 1997; 67 FR 58505, Sept. 16, 2002]



Sec. 240.12b-3  Title of securities.

    Wherever the title of securities is required to be stated there 
shall be given such information as will indicate the type and general 
character of the securities, including the following:
    (a) In the case of shares, the par or stated value, if any; the rate 
of dividends, if fixed, and whether cumulative or noncumulative; a brief 
indication of the preference, if any; and if convertible, a statement to 
that effect.
    (b) In the case of funded debt, the rate of interest; the date of 
maturity, or if the issue matures serially, a brief indication of the 
serial maturities, such as ``maturing serially from 1950 to 1960''; if 
the payment of principal or interest is contingent, an appropriate 
indication of such contingency; a brief indication of the priority of 
the issue; and if convertible, a statement to that effect.
    (c) In the case of any other kind of security, appropriate 
information of comparable character.



Sec. 240.12b-4  Supplemental information.

    The Commission or its staff may, where it is deemed appropriate, 
request supplemental information concerning the registrant, a 
registration statement or a periodic or other report under the Act. This 
information shall not be required to be filed with or deemed part of the 
registration statement or report. The information shall be returned to 
the registrant upon request, provided that:
    (a) Such request is made at the time such information is furnished 
to the staff;
    (b) The return of such information is consistent with the protection 
of investors; and
    (c) The return of such information is consistent with the provisions 
of the Freedom of Information Act (5 U.S.C. 552).

[47 FR 11465, Mar. 16, 1982]



Sec. 240.12b-5  Determination of affiliates of banks.

    In determining whether a person is an ``affiliate'' or ``parent'' of 
a bank or whether a bank is a ``subsidiary'' or ``majority-owner 
subsidiary'' of a person within the meaning of those terms as defined in 
Sec. 240.12b-2, voting securities of the bank held by a corporation all 
of the stock of which is directly owned by the United States Government 
shall not be taken into consideration.



Sec. 240.12b-6  When securities are deemed to be registered.

    A class of securities with respect to which a registration statement 
has been filed pursuant to section 12 of the act shall be deemed to be 
registered for the purposes of sections 13, 14, 15(d) and 16 of the act 
and the rules and regulations thereunder only when such statement has 
become effective as provided in section 12, and securities of said class 
shall not be subject to sections 13,

[[Page 118]]

14 and 16 of the act until such statement has become effective as 
provided in section 12.

(Secs. 3, 14, 16, 48 Stat. 882, 895, 896, sec. 3(d), 78 Stat. 568; 15 
U.S.C. 78c, 78n, 78p, 78l)

[30 FR 482, Jan. 14, 1965]



Sec. 240.12b-7  [Reserved]

                           Formal Requirements



Sec. 240.12b-10  Requirements as to proper form.

    Every statement or report shall be on the form prescribed therefor 
by the Commission, as in effect on the date of filing. Any statement or 
report shall be deemed to be filed on the proper form unless objection 
to the form is made by the Commission within thirty days after the date 
of filing.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2022, Feb. 13, 1965]



Sec. 240.12b-11  Number of copies; signatures; binding.

    (a) Except as provided in a particular form, three complete copies 
of each statement or report, including exhibits and all other papers and 
documents filed as a part thereof, shall be filed with the Commission. 
At least one complete copy of each statement shall be filed with each 
exchange on which the securities covered thereby are to be registered. 
At least one complete copy of each report under section 13 of the Act 
shall be filed with each exchange on which the registrant has securities 
registered.
    (b) At least one copy of each statement or report filed with the 
Commission and one copy thereof filed with each exchange shall be signed 
in the manner prescribed by the appropriate form.
    (c) Each copy of a statement or report filed with the Commission or 
with an exchange shall be bound in one or more parts. Copies filed with 
the Commission shall be bound without stiff covers. The statement or 
report shall be bound on the left side in such a manner as to leave the 
reading matter legible.
    (d) Signatures. Where the Act or the rules, forms, reports or 
schedules thereunder, including paragraph (b) of this section, require a 
document filed with or furnished to the Commission to be signed, such 
document shall be manually signed, or signed using either typed 
signatures or duplicated or facsimile versions of manual signatures. 
Where typed, duplicated or facsimile signatures are used, each signatory 
to the filing shall manually sign a signature page or other document 
authenticating, acknowledging or otherwise adopting his or her signature 
that appears in the filing. Such document shall be executed before or at 
the time the filing is made and shall be retained by the filer for a 
period of five years. Upon request, the filer shall furnish to the 
Commission or its staff a copy of any or all documents retained pursuant 
to this section.

[47 FR 11465, Mar. 16, 1982, as amended at 60 FR 26622, May 17, 1995; 61 
FR 30403, June 14, 1996]



Sec. 240.12b-12  Requirements as to paper, printing and language.

    (a) Statements and reports shall be filed on good quality, unglazed 
white paper, no larger than 8\1/2\x11 inches in size, insofar as 
practicable. To the extent that the reduction of larger documents would 
render them illegible, such documents may be filed on paper larger than 
8\1/2\x11 inches in size.
    (b) The statement or report and, insofar as practicable, all papers 
and documents filed as a part thereof, shall be printed, lithographed, 
mimeographed, or typewritten. However, the statement or report or any 
portion thereof may be prepared by any similar process which, in the 
opinion of the Commission, produces copies suitable for a permanent 
record and microfilming. Irrespective of the process used, all copies of 
any such material shall be clear, easily readable and suitable for 
repeated photocopying. Debits in credit categories and credits in debit 
categories shall be designated so as to be clearly distinguishable as 
such on photocopies.
    (c) The body of all printed statements and reports and all notes to 
financial statements and other tabular data included therein shall be in 
roman type at least as large and as legible as 10-point modern type. 
However, to the

[[Page 119]]

extent necessary for convenient presentation, financial statements and 
other tabular data, including tabular data in notes, may be in roman 
type at least as large and as legible as 8-point modern type. All such 
type shall be leaded at least 2 points.
    (d)(1) All Exchange Act filings and submissions must be in the 
English language, except as otherwise provided by this section. If a 
filing or submission requires the inclusion of a document that is in a 
foreign language, a party must submit instead a fair and accurate 
English translation of the entire foreign language document, except as 
provided by paragraph (d)(3) of this section.
    (2) If a filing or submission subject to review by the Division of 
Corporation Finance requires the inclusion of a foreign language 
document as an exhibit or attachment, a party must submit a fair and 
accurate English translation of the foreign language document if 
consisting of any of the following, or an amendment of any of the 
following:
    (i) Articles of incorporation, memoranda of association, bylaws, and 
other comparable documents, whether original or restated;
    (ii) Instruments defining the rights of security holders, including 
indentures qualified or to be qualified under the Trust Indenture Act of 
1939;
    (iii) Voting agreements, including voting trust agreements;
    (iv) Contracts to which directors, officers, promoters, voting 
trustees or security holders named in a registration statement, report 
or other document are parties;
    (v) Contracts upon which a filer's business is substantially 
dependent;
    (vi) Audited annual and interim consolidated financial information; 
and
    (vii) Any document that is or will be the subject of a confidential 
treatment request under Sec. 240.24b-2 or Sec. 230.406 of this 
chapter.
    (3)(i) A party may submit an English summary instead of an English 
translation of a foreign language document as an exhibit or attachment 
to a filing or submission subject to review by the Division of 
Corporation Finance, as long as:
    (A) The foreign language document does not consist of any of the 
subject matter enumerated in paragraph (d)(2) of this section; or
    (B) The applicable form permits the use of an English summary.
    (ii) Any English summary submitted under paragraph (d)(3) of this 
section must:
    (A) Fairly and accurately summarize the terms of each material 
provision of the foreign language document; and
    (B) Fairly and accurately describe the terms that have been omitted 
or abridged.
    (4) When submitting an English summary or English translation of a 
foreign language document under this section, a party must identify the 
submission as either an English summary or English translation. A party 
may submit a copy of the unabridged foreign language document when 
including an English summary or English translation of a foreign 
language document in a filing or submission. A party must provide a copy 
of any foreign language document upon the request of Commission staff.
    (5) A foreign government or its political subdivision must provide a 
fair and accurate English translation of its latest annual budget 
submitted as Exhibit B to Form 18 (Sec. 249.218 of this chapter) or 
Exhibit (c) to Form 18-K (Sec. 249.318 of this chapter) only if one is 
available. If no English translation is available, a filer must provide 
a copy of the foreign language version of its latest annual budget as an 
exhibit.
    (6) A Canadian issuer may file an exhibit, attachment or other part 
of a Form 40-F registration statement or annual report (Sec. 249.240f 
of this chapter), Schedule 13E-4F (Sec. 240.13e-102), Schedule 14D-1F 
(Sec. 240.14d-102), or Schedule 14D-9F (Sec. 240.14d-103), that 
contains text in both French and English if the issuer included the 
French text to comply with the requirements of the Canadian securities 
administrator or other Canadian authority and, for an electronic filing, 
if the filing is an HTML document, as defined in Regulation S-T Rule 11 
(17 CFR 232.11).
    (e) Where a statement or report is distributed to investors through 
an electronic medium, issuers may satisfy legibility requirements 
applicable to printed documents, such as paper size

[[Page 120]]

and type size and font, by presenting all required information in a 
format readily communicated to investors.

[47 FR 11466, Mar. 16, 1982, as amended at 47 FR 58238, Dec. 30, 1982; 
61 FR 24656, May 15, 1996; 67 FR 36704, May 24, 2002]



Sec. 240.12b-13  Preparation of statement or report.

    The statement or report shall contain the numbers and captions of 
all items of the appropriate form, but the text of the items may be 
omitted provided the answers thereto are so prepared as to indicate to 
the reader the coverage of the items without the necessity of his 
referring to the text of the items or instructions thereto. However, 
where any item requires information to be given in tabular form, it 
shall be given in substantially the tabular form specified in the item. 
All instructions, whether appearing under the items of the form or 
elsewhere therein, are to be omitted. Unless expressly provided 
otherwise, if any item is inapplicable or the answer thereto is in the 
negative, an appropriate statement to that effect shall be made.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec. 240.12b-14  Riders; inserts.

    Riders shall not be used. If the statement or report is typed on a 
printed form, and the space provided for the answer to any given item is 
insufficient, reference shall be made in such space to a full insert 
page or pages on which the item number and caption and the complete 
answer are given.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec. 240.12b-15  Amendments.

    All amendments must be filed under cover of the form amended, marked 
with the letter ``A'' to designate the document as an amendment, e.g., 
``10-K/A,'' and in compliance with pertinent requirements applicable to 
statements and reports. Amendments filed pursuant to this section must 
set forth the complete text of each item as amended. Amendments must be 
numbered sequentially and be filed separately for each statement or 
report amended. Amendments to a statement may be filed either before or 
after registration becomes effective. Amendments must be signed on 
behalf of the registrant by a duly authorized representative of the 
registrant. An amendment to any report required to include the 
certifications as specified in Sec. 240.13a-14(a) or Sec. 240.15d-
14(a) must include new certifications by each principal executive and 
principal financial officer of the registrant, and an amendment to any 
report required to be accompanied by the certifications as specified in 
Sec. 240.13a-14(b) or Sec. 240.15d-14(b) must be accompanied by new 
certifications by each principal executive and principal financial 
officer of the registrant. The requirements of the form being amended 
will govern the number of copies to be filed in connection with a paper 
format amendment. Electronic filers satisfy the provisions dictating the 
number of copies by filing one copy of the amendment in electronic 
format. See Sec. 232.309 of this chapter (Rule 309 of Regulation S-T).

[68 FR 36665, June 18, 2003]

                   General Requirements as to Contents



Sec. 240.12b-20  Additional information.

    In addition to the information expressly required to be included in 
a statement or report, there shall be added such further material 
information, if any, as may be necessary to make the required 
statements, in the light of the circumstances under which they are made 
not misleading.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec. 240.12b-21  Information unknown or not available.

    Information required need be given only insofar as it is known or 
reasonably available to the registrant. If any required information is 
unknown and not reasonably available to the registrant, either because 
the obtaining

[[Page 121]]

thereof would involve unreasonable effort or expense, or because it 
rests peculiarly within the knowledge of another person not affiliated 
with the registrant, the information may be omitted, subject to the 
following conditions.
    (a) The registrant shall give such information on the subject as it 
possesses or can acquire without unreasonable effort or expense, 
together with the sources thereof.
    (b) The registrant shall include a statement either showing that 
unreasonable effort or expense would be involved or indicating the 
absence of any affiliation with the person within whose knowledge the 
information rests and stating the result of a request made to such 
person for the information.



Sec. 240.12b-22  Disclaimer of control.

    If the existence of control is open to reasonable doubt in any 
instance, the registrant may disclaim the existence of control and any 
admission thereof; in such case, however, the registrant shall state the 
material facts pertinent to the possible existence of control.



Sec. 240.12b-23  Incorporation by reference.

    (a) Except for information filed as an exhibit which is covered by 
Rule 12b-32 (17 CFR 240.12b-32), information may be incorporated by 
reference in answer, or partial answer, to any item of a registration 
statement or report subject to the following provisions:
    (1) Financial statements incorporated by reference shall satisfy the 
requirements of the form or report in which they are incorporated. 
Financial statements or other financial data required to be given in 
comparative form for two or more fiscal years or periods shall not be 
incorporated by reference unless the material incorporated by reference 
includes the entire period for which the comparative data is given;
    (2) Information in any part of the registration statement or report 
may be incorporated by reference in answer, or partial answer, to any 
other item of the registration statement or report; and
    (3) Copies of any information or financial statement incorporated 
into a registration statement or report by reference, or copies of the 
pertinent pages of the document containing such information or 
statement, shall be filed as an exhibit to the statement or report, 
except that:
    (i) A proxy or information statement incorporated by reference in 
response to Part III of Form 10-K and Form 10-KSB (Sec. 249.310 and 
Sec. 249.310b); and
    (ii) A form of prospectus filed pursuant to Sec. 230.424(b) 
incorporated by reference in response to Item 1 of Form 8-A (Sec. 
249.208a) need not be filed as an exhibit.
    (b) Any incorporation by reference of matter pursuant to this 
section shall be subject to the provisions of Sec. 228.10(f) and Sec. 
229.10(d) of this chapter restricting incorporation by reference of 
documents which incorporate by reference other information. Material 
incorporated by reference shall be clearly identified in the reference 
by page, paragraph, caption or otherwise. Where only certain pages of a 
document are incorporated by reference and filed as an exhibit, the 
document from which the material is taken shall be clearly identified in 
the reference. An express statement that the specified matter is 
incorporated by reference shall be made at the particular place in the 
statement or report where the information is required. Matter shall not 
be incorporated by reference in any case where such incorporation would 
render the statement or report incomplete, unclear or confusing.

[47 FR 11466, Mar. 16, 1982, as amended at 57 FR 48977, Oct. 29, 1992; 
60 FR 32825, June 23, 1995]

    Effective Date Note: At 69 FR 15618, Mar. 25, 2004, Sec. 240.12b-23 
was amended by revising paragraphs (a)(3)(i) and (ii) and adding 
paragraph (a)(3)(iii), effective Aug. 23, 2004. For the convenience of 
the user, the revised and added text is set forth as follows:

Sec. 240.12b-23  Incorporation by reference.

                                * * * * *

    (a) * * *
    (3) * * *
    (i) A proxy or information statement incorporated by reference in 
response to Part III of Form 10-K and Form 10-KSB (17 CFR 249.310 and 
249.310b);
    (ii) A form of prospectus filed pursuant to 17 CFR 230.424(b) 
incorporated by reference

[[Page 122]]

in response to Item 1 of Form 8-A (17 CFR 249.208a); and
    (iii) Information filed on Form 8-K (17 CFR 249.308) need not be 
filed as an exhibit.

                                * * * * *



Sec. 240.12b-24  [Reserved]



Sec. 240.12b-25  Notification of inability to timely file all or any 

required portion of a Form 10-K, 10-KSB, 20-F, 11-K, N-SAR, N-CSR, 
10-Q or 10-QSB.

    (a) If all or any required portion of an annual or transition report 
on Form 10-K, 10-KSB, 20-F or 11-K (17 CFR 249.310, 249.310b, 249.220f 
or 249.311), or a quarterly or transition report on Form 10-Q or 10-QSB 
(17 CFR 249.308a or 249.308b) required to be filed pursuant to sections 
13 or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) and rules thereunder, 
or if all or any required portion of a semi-annual, annual or transition 
report on Form N-CSR (17 CFR 249.331; 17 CFR 274.128) or Form N-SAR (17 
CFR 249.330; 17 CFR 274.101) required to be filed pursuant to sections 
13 or 15(d) of the Act or section 30 of the Investment Company Act of 
1940 (15 U.S.C. 80a-29) and the rules thereunder, is not filed within 
the time period prescribed for such report, the registrant, no later 
than one business day after the due date for such report, shall file a 
Form 12b-25 (17 CFR 249.322) with the Commission which shall contain 
disclosure of its inability to file the report timely and the reasons 
therefor in reasonable detail.
    (b) With respect to any report or portion of any report described in 
paragraph (a) of this section which is not timely filed because the 
registrant is unable to do so without unreasonable effort or expense, 
such report shall be deemed to be filed on the prescribed due date for 
such report if:
    (1) The registrant files the Form 12b-25 in compliance with 
paragraph (a) of this section and, when applicable, furnishes the 
exhibit required by paragraph (c) of this section;
    (2) The registrant represents in the Form 12b-25 that:
    (i) The reason(s) causing the inability to file timely could not be 
eliminated by the registrant without unreasonable effort or expense; and
    (ii) The subject annual report, semi-annual report or transition 
report on Form 10-K, 10-KSB, 20-F, 11-K, N-SAR, or N-CSR, or portion 
thereof, will be filed no later than the fifteenth calendar day 
following the prescribed due date; or the subject quarterly report or 
transition report on Form 10-Q or 10-QSB, or portion thereof, will be 
filed no later than the fifth calendar day following the prescribed due 
date; and
    (3) The report/portion thereof is actually filed within the period 
specified by paragraph (b)(2)(ii) of this section.
    (c) If paragraph (b) of this section is applicable and the reason 
the subject report/portion thereof cannot be filed timely without 
unreasonable effort or expense relates to the inability of any person, 
other than the registrant, to furnish any required opinion, report or 
certification, the Form 12b-25 shall have attached as an exhibit a 
statement signed by such person stating the specific reasons why such 
person is unable to furnish the required opinion, report or 
certification on or before the date such report must be filed.
    (d) Notwithstanding paragraph (b) of this section, a registrant will 
not be eligible to use any registration statement form under the 
Securities Act of 1933 the use of which is predicated on timely filed 
reports until the subject report is actually filed pursuant to paragraph 
(b)(3) of this section.
    (e) If a Form 12b-25 filed pursuant to paragraph (a) of this sectin 
relates only to a portion of a subject report, the registrant shall:
    (1) File the balance of such report and indicate on the cover page 
thereof which disclosure items are omitted; and
    (2) Include, on the upper right corner of the amendment to the 
report which includes the previously omitted information, the following 
statement:

    The following items were the subject of a Form 12b-25 and are 
included herein: (List Item Numbers)

    (f) The provisions of this section shall not apply to financial 
statements to be filed by amendment to a form 10-K as provided for by 
paragraph (a) of Sec. 210.3-09 or schedules to be filed by amendment in 
accordance with General Instruction A to form 10-K.

[[Page 123]]

    (g) Electronic filings. The provisions of this section shall not 
apply to reports required to be filed in electronic format if the sole 
reason the report is not filed within the time period prescribed is that 
the filer is unable to file the report in electronic format. Filers 
unable to submit a report in electronic format within the time period 
prescribed solely due to difficulties with electronic filing should 
comply with either Rule 201 or 202 of Regulation S-T (Sec. 232.201 and 
Sec. 232.202 of this chapter), or apply for an adjustment of filing 
date pursuant to Rule 13(b) of Regulation S-T (Sec. 232.13(c) of this 
chapter).

[45 FR 23652, Apr. 8, 1980, as amended at 50 FR 1449, Jan. 11, 1985; 50 
FR 2957, Jan. 23, 1985; 54 FR 10316, Mar. 13, 1989; 58 FR 14683, Mar. 
18, 1993; 58 FR 21349, Apr. 21, 1993; 59 FR 67764, Dec. 30, 1994; 68 FR 
5364, Feb. 3, 2003]

                                Exhibits



Sec. 240.12b-30  Additional exhibits.

    The registrant may file such exhibits as it may desire, in addition 
to those required by the appropriate form. Such exhibits shall be so 
marked as to indicate clearly the subject matters to which they refer.



Sec. 240.12b-31  Omission of substantially identical documents.

    In any case where two or more indentures, contracts, franchises, or 
other documents required to be filed as exhibits are substantially 
identical in all material respects except as to the parties thereto, the 
dates of execution, or other details, the registrant need file a copy of 
only one of such documents, with a schedule identifying the other 
documents omitted and setting forth the material details in which such 
documents differ from the document of which a copy is filed. The 
Commission may at any time in its discretion require the filing of 
copies of any documents so omitted.



Sec. 240.12b-32  Incorporation of exhibits by reference.

    (a) Any document or part thereof filed with the Commission pursuant 
to any act administered by the Commission may, subject to Sec. 
228.10(f) and Sec. 229.10(d) of this chapter be incorporated by 
reference as an exhibit to any statement or report filed with the 
Commission by the same or any other person. Any document or part thereof 
filed with an exchange pursuant to the act may be incorporated by 
reference as an exhibit to any statement or report filed with the 
exchange by the same or any other person.
    (b) If any modification has occurred in the text of any document 
incorporated by reference since the filing thereof, the registrant shall 
file with the reference a statement containing the text of any such 
modification and the date thereof.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[13 FR 9321, Dec. 31, 1948, as amended at 30 FR 2023, Feb. 13, 1965; 60 
FR 32825, June 23, 1995]



Sec. 240.12b-33  Annual reports to other Federal agencies.

    Notwithstanding any rule or other requirement to the contrary, 
whenever copies of an annual report by a registrant to any other Federal 
agency are required or permitted to be filed as an exhibit to an 
application or report filed by such registrant with the Commission or 
with a securities exchange, only one copy of such annual report need be 
filed with the Commission and one copy thereof with each such exchange, 
provided appropriate reference to such copy is made in each copy of the 
application or report filed with the Commission or with such exchange.

[18 FR 1441, Mar. 13, 1953]

                           Special Provisions



Sec. 240.12b-35  [Reserved]



Sec. 240.12b-36  Use of financial statements filed under other acts.

    Where copies of certified financial statements filed under other 
acts administered by the Commission are filed with a statement or 
report, the accountant's certificate shall be manually signed or 
manually signed copies of the certificate shall be filed with the 
financial statements. Where such financial statements are incorporated 
by reference in a statement or report, the written consent of the 
accountant to such incorporation by reference shall be filed with the 
statement or report.

[[Page 124]]

Such consent shall be dated and signed manually.

(Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as amended, 901; 15 U.S.C. 
77d, 78p, 77s, 78x)

[30 FR 2023, Feb. 13, 1965]



Sec. 240.12b-37  Satisfaction of filing requirements.

    With regard to issuers eligible to rely on Release No. 34-45589 
(March 18, 2002) or Release No. IC-25463 (March 18, 2002) (each of which 
may be viewed on the Commission's website at www.sec.gov), filings made 
in accordance with the provisions of those Releases shall satisfy the 
issuer's requirement to make such a filing under Section 13(a), 14 or 
15(d) of the Act (15 U.S.C. 77m(a), 78n or 78o(d)), as applicable, and 
the Commission's rules and regulations thereunder.

[67 FR 13537, Mar. 22, 2002]

      Certification by Exchanges and Effectiveness of Registration

    Source: Sections 240.12d1-1 to 240.12d-6 appear at 19 FR 670, Feb. 
5, 1954, unless otherwise noted.



Sec. 240.12d1-1  Registration effective as to class or series.

    (a) An application filed pursuant to section 12 (b) and (c) of the 
act for registration of a security on a national securities exchange 
shall be deemed to apply for registration of the entire class of such 
security. Registration shall become effective, as provided in section 
12(d) of the act, (1) as to the shares or amounts of such class then 
issued, and (2), without further application for registration, upon 
issuance as to additional shares or amounts of such class then or 
thereafter authorized.
    (b) This section shall apply to classes of securities of which a 
specified number of shares or amounts was registered or registered upon 
notice of issuance, and to applications for registration filed, prior to 
the close of business on January 28, 1954, as well as to classes 
registered, or applications filed, thereafter.
    (c) This section shall not affect the right of a national securities 
exchange to require the issuer of a registered security to file 
documents with or pay fees to the exchange in connection with the 
modification of such security or the issuance of additional shares or 
amounts.
    (d) If a class of security is issuable in two or more series with 
different terms, each such series shall be deemed a separate class for 
the purposes of this section.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)



Sec. 240.12d1-2  Effectiveness of registration.

    (a) A request for acceleration of the effective date of registration 
pursuant to section 12(d) of the act and Sec. 240.12d1-1 shall be made 
in writing by either the registrant, the exchange, or both and shall 
briefly describe the reasons therefor.
    (b) A registration statement on Form 8-A (17 CFR 249.208a) for the 
registration of a class of securities under Section 12(b) of the Act (15 
U.S.C. 78l(b)) shall become effective:
    (1) If a class of securities is not concurrently being registered 
under the Securities Act of 1933 (``Securities Act''), upon the later of 
receipt by the Commission of certification from the national securities 
exchange or the filing of the Form 8-A with the Commission; or
    (2) If a class of securities is concurrently being registered under 
the Securities Act, upon the later of the filing of the Form 8-A with 
the Commission, receipt by the Commission of certification from the 
national securities exchange listed on the Form 8-A or effectiveness of 
the Securities Act registration statement relating to the class of 
securities.
    (c) A registration statement on Form 8-A (17 CFR 249.208a) for the 
registration of a class of securities under Section 12(g) of the Act (15 
U.S.C. 78l(g)) shall become effective:
    (1) If a class of securities is not concurrently being registered 
under the Securities Act, upon the filing of the Form 8-A with the 
Commission; or
    (2) If class of securities is concurrently being registered under 
the Securities Act, upon the later of the filing of the Form 8-A with 
the Commission or the effectiveness of the Securities

[[Page 125]]

Act registration statement relating to the class of securities.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[19 FR 670, Feb. 5, 1954, as amended at 59 FR 55347, Nov. 7, 1994; 62 FR 
39766, July 24, 1997]



Sec. 240.12d1-3  Requirements as to certification.

    (a) Certification that a security has been approved by an exchange 
for listing and registration pursuant to section 12(d) of the act and 
Sec. 240.12d1-1 shall be made by the governing committee or other 
corresponding authority of the exchange.
    (b) The certification shall specify (1) the approval of the exchange 
for listing and registration; (2) the title of the security so approved; 
(3) the date of filing with the exchange of the application for 
registration and of any amendments thereto; and (4) any conditions 
imposed on such certification. The exchange shall promptly notify the 
Commission of the partial or complete satisfaction of any such 
conditions.
    (c) The certification may be made by telegram but in such case shall 
be confirmed in writing. All certifications in writing and all 
amendments thereto shall be filed with the Commission in duplicate and 
at least one copy shall be manually signed by the appropriate exchange 
authority.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)



Sec. 240.12d1-4  Date of receipt of certification by Commission.

    The date of receipt by the Commission of the certification approving 
a security for listing and registration shall be the date on which the 
certification is actually received by the Commission or the date on 
which the application for registration to which the certification 
relates is actually received by the Commission, whichever date is later.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)



Sec. 240.12d1-5  Operation of certification on subsequent amendments.

    If an amendment to the application for registration of a security is 
filed with the exchange and with the Commission after the receipt by the 
Commission of the certification of the exchange approving the security 
for listing and registration, the certification, unless withdrawn, shall 
be deemed made with reference to the application as amended.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)



Sec. 240.12d1-6  Withdrawal of certification.

    An exchange may, by notice to the Commission, withdraw its 
certification prior to the time that the registration to which it 
relates first becomes effective pursuant to Sec. 240.12d1-1.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

    Suspension of Trading, Withdrawal, and Striking From Listing and 
                              Registration



Sec. 240.12d2-1  Suspension of trading.

    (a) A national securities exchange may suspend from trading a 
security listed and registered thereon in accordance with its rules. 
Such exchange shall promptly notify the Commission of any such 
suspension, the effective date thereof, and the reasons therefor.
    (b) Any such suspension may be continued until such time as it shall 
appear to the Commission that such suspension is designed to evade the 
provisions of section 12(d) and the rules and regulations thereunder 
relating to the withdrawal and striking of a security from listing and 
registration. During the continuance of such suspension the exchange 
shall notify the Commission promptly of any change in the reasons for 
the suspension. Upon the restoration to trading of any security 
suspended under this rule, the exchange shall notify the Commission 
promptly of the effective date thereof.
    (c) Suspension of trading shall not terminate the registration of 
any security.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[28 FR 1506, Feb. 16, 1963]

[[Page 126]]



Sec. 240.12d2-2  Removal from listing and registration.

    (a) A national securities exchange shall file with the Commission an 
application on Form 25 to strike a security from listing and 
registration thereon within a reasonable time after the exchange is 
reliably informed that any of the following conditions exist with 
respect to such a security:
    (1) The entire class of the security has been called for redemption, 
maturity or retirement; appropriate notice thereof has been given; funds 
sufficient for the payment of all such securities have been deposited 
with an agency authorized to make such payments; and such funds have 
been made available to security holders.
    (2) The entire class of the security has been redeemed or paid at 
maturity or retirement.
    (3) The instruments representing the securities comprising the 
entire class have come to evidence, by operation of law or otherwise, 
other securities in substitution therefor and represent no other right, 
except, if such be the fact, the right to receive an immediate cash 
payment (the right of dissenters to receive the appraised or fair value 
of their holdings shall not prevent the application of this provision).
    (4) All rights pertaining to the entire class of the security have 
been extinguished: Provided, however, That where such an event occurs as 
the result of an order of a court or other governmental authority, the 
order shall be final, all applicable appeal periods shall have expired, 
and no appeals shall be pending.


    Effective Date: Such an application shall be deemed to be granted 
and shall become effective at the opening of business on such date as 
the exchange shall specify in said application, but not less than 10 
days following the date on which said application is filed with the 
Commission; Provided, however, That in the event removal is being 
effected under paragraph (a)(3) of this section and the exchange has 
admitted or intends to admit a successor security to trading under the 
temporary exemption provided for by Sec. 240.12a-5, such date shall not 
be earlier than the date on which the successor security is removed from 
its exempt status.

    (b)(1) A national securities exchange may strike a security from 
listing and registration thereon if (i) trading in such security has 
been terminated pursuant to a rule of such exchange requiring such 
termination whenever the security is admitted to trading on another 
exchange; and (ii) listing and registration of such security has become 
effective on such other exchange.
    (2) A national securities exchange which has striken a security from 
listing and registration under the provisions of this paragraph shall 
send written notice of such action to the Commission within 3 days from 
the date thereof.
    (c) In cases not provided for in paragraph (a) or (b) of this 
section, a national securities exchange may file an application to 
strike a security from listing and registration, in accordance with its 
rules, on a date specified in the application, which date shall be not 
less than 10 days after it is filed with the Commission. The Commission 
will enter an order granting such application on the date specified in 
the application unless the Commission, by written notice to the 
exchange, postpones the effective date for a period of not more than 60 
days thereafter: Provided, however, That the Commission, by written 
notice to the exchange on or before the effective date, may order a 
hearing to determine whether the application to strike the security from 
listing and registration has been made in accordance with the rules of 
the exchange, or what terms should be imposed by the Commission for the 
protection of investors.
    (d) The issuer of a security listed and registered on a national 
securities exchange may file an application to withdraw such security 
from listing and registration on such exchange in accordance with the 
rules of such exchange. Notice of the filing of such an application 
shall be published by the Commission in the Federal Register, and such 
notice shall provide that any interested person may, on or before a date 
specified, submit to the Commission in writing, all facts bearing upon 
whether the application to withdraw the security from listing and 
registration has been made in accordance with the rules of the exchange 
and what terms should be imposed by the Commission for the protection of 
investors. An order disposing of the matter will

[[Page 127]]

be issued by the Commission on the basis of the application and any 
other information furnished to the Commission unless prior thereto the 
Commission orders a hearing on the matter.
    (e) An application by an issuer or by a national securities exchange 
to withdraw or strike a security from listing and registration pursuant 
to the provisions of paragraph (c) or (d) of this section shall comply 
with the following requirements:
    (1) The application shall be filed in triplicate, the original of 
which shall be dated and signed by an authorized official of the 
exchange, or of the issuer, as the case may be.
    (2) If the applicant is the exchange it shall promptly deliver a 
copy of the application to the issuer and if the applicant is the issuer 
it shall promptly deliver a copy of the application to the exchange.
    (3) The application shall set forth a description of the security 
involved together with a statement of all material facts relating to the 
reasons for filing such application for withdrawal or striking from 
listing and registration.
    (4) The application shall set forth the steps taken by the applicant 
to comply with the rules of the exchange governing the delisting of 
securities.
    (f) If within 30 days after the publication of any rule or 
regulation which substantially alters or adds to the obligations, or 
detracts from the rights, of an issuer of a security registered pursuant 
to application under section 12 (b) or (c), or of its officers, 
directors, or security holders, or of persons soliciting or giving any 
proxy or consent or authorization with respect to such security, the 
issuer shall file with the Commission a request that such registration 
shall expire and shall accompany such request with a written explanation 
of the reasons why the publication of such rule or regulation leads the 
issuer to make such request, such registration shall expire immediately 
upon receipt of such request or immediately before such rule or 
regulation becomes effective, whichever date is later. The absence of an 
express reservation, in an application for registration, of the rights 
herein granted shall not be deemed a waiver thereof.

(Sec. 12, 48 Stat. 892, as amended; 15 U.S.C. 78l)

[28 FR 1506, Feb. 16, 1963]

                            Unlisted Trading



Sec. 240.12f-1  Applications for permission to reinstate unlisted 
trading privileges.

    (a) An application to reinstate unlisted trading privileges may be 
made to the Commission by any national securities exchange for the 
extension of unlisted trading privileges to any security for which such 
unlisted trading privileges have been suspended by the Commission, 
pursuant to section 12(f)(2)(A) of the Act (15 U.S.C. 78l(2)(A)). One 
copy of such application, executed by a duly authorized officer of the 
exchange, shall be filed and shall set forth:
    (1) Name of issuer;
    (2) Title of security;
    (3) The name of each national securities exchange, if any, on which 
such security is listed or admitted to unlisted trading privileges; and
    (4) Whether transaction information concerning such security is 
reported in the consolidated transaction reporting system contemplated 
by Rule 11Aa3-1 under the Act (Sec. 240.11Aa3-1);
    (5) The date of the Commission's suspension of unlisted trading 
privileges in the security on the exchange;
    (6) Any other information which is deemed pertinent to the question 
of whether the reinstatement of unlisted trading privileges in such 
security is consistent with the maintenance of fair and orderly markets 
and the protection of investors; and
    (7) That a copy of the instant application has been mailed, or 
otherwise personally provided, to the issuer of the securities for which 
unlisted trading privileges are sought and to each exchange listed in 
item (3) of this section.

(Secs. 12 and 23, Pub. L. 78-291, 48 Stat 894 and 901, as amended by 
secs. 8 and 18, Pub. L. 94-29, 89 Stat. 117 and 155 (15 U.S.C. 78l and 
78w))

[44 FR 75134, Dec. 19, 1979, as amended at 45 FR 12390, Feb. 26, 1980; 
45 FR 36076, May 29, 1980; 60 FR 20896, Apr. 28, 1995]

[[Page 128]]



Sec. 240.12f-2  Extending unlisted trading privileges to a security 
that is the subject of an initial public offering.

    (a) General provision. A national securities exchange may extend 
unlisted trading privileges to a subject security when at least one 
transaction in the subject security has been effected on the national 
securities exchange upon which the security is listed and the 
transaction has been reported pursuant to an effective transaction 
reporting plan, as defined in Sec. 240.11Aa3-1.
    (b) The extension of unlisted trading privileges pursuant to this 
section shall be subject to all the provisions set forth in Section 
12(f) of the Act (15 U.S.C. 78l(f)), as amended, and any rule or 
regulation promulgated thereunder, or which may be promulgated 
thereunder while the extension is in effect.
    (c) Definitions. For the purposes of this section:
    (1) The term subject security shall mean a security that is the 
subject of an initial public offering, as that term is defined in 
section 12(f)(1)(G)(i) of the Act (15 U.S.C. 78l(f)(1)(G)(i)), and
    (2) An initial public offering commences at such time as is 
described in section 12(f)(1)(G)(ii) of the Act (15 U.S.C. 
78l(f)(1)(G)(ii)).

[60 FR 20896, Apr. 28, 1995, as amended at 65 FR 53565, Sept. 5, 2000]



Sec. 240.12f-3  Termination or suspension of unlisted trading privileges.

    (a) The issuer of any security for which unlisted trading privileges 
on any exchange have been continued or extended, or any broker or dealer 
who makes or creates a market for such security, or any other person 
having a bona fide interest in the question of termination or suspension 
of such unlisted trading privileges, may make application to the 
Commission for the termination or suspension of such unlisted trading 
privileges. One duly executed copy of such application shall be filed, 
and it shall contain the following information:
    (1) Name and address of applicant;
    (2) A brief statement of the applicant's interest in the question of 
termination or suspension of such unlisted trading privileges;
    (3) Title of security;
    (4) Names of issuer;
    (5) Amount of such security issued and outstanding (number of shares 
of stock or principal amount of bonds), stating source of information;
    (6) Annual volume of public trading in such security (number of 
shares of stock or principal amount of bonds) on such exchange for each 
of the three calendar years immediately preceding the date of such 
application, and monthly volume of trading in such security for each of 
the twelve calendar months immediately preceding the date of such 
application;
    (7) Price range on such exchange for each of the twelve calendar 
months immediately preceding the date of such application; and
    (8) A brief statement of the information in the applicant's 
possession, and the source thereof, with respect to (i) the extent of 
public trading in such security on such exchange, and (ii) the character 
of trading in such security on such exchange; and
    (9) A brief statement that a copy of the instant application has 
been mailed, or otherwise personally provided, to the exchange from 
which the suspension or termination of unlisted trading privileges is 
sought, and to any other exchange on which such security is listed or 
traded pursuant to unlisted trading privileges.
    (b) Unlisted trading privileges in any security on any national 
securities exchange may be suspended or terminated by such exchange in 
accordance with its rules.

(Secs. 12(f) and 23, 15 U.S.C. 78l and 78w)

[20 FR 6702, Sept. 13, 1955, as amended at 44 FR 75135, Dec. 19, 1979; 
45 FR 36076, May 29, 1980; 60 FR 20896, Apr. 28, 1995]



Sec. 240.12f-4  Exemption of securities admitted to unlisted trading 
privileges from sections 13, 14 and 16.

    (a) Any security for which unlisted trading privileges on any 
national securities exchange have been continued or extended pursuant to 
section 12(f) of the Act shall be exempt from section 13 of the Act 
unless (1) such security or another security of the same issuer is 
listed and registered on a national securities exchange or registered 
pursuant to section 12(g) of the Act, or (2)

[[Page 129]]

such issuer would be required to file information, documents and reports 
pursuant to section 15(d) of the Act but for the fact that securities of 
the issuer are deemed to be ``registered on a national securities 
exchange'' within the meaning of section 12(f)(6) of the Act.
    (b) Any security for which unlisted trading privileges on any 
national securities exchange have been continued or extended pursuant to 
section 12(f) of the Act shall be exempt from section 14 of the Act 
unless such security is also listed and registered on a national 
securities exchange or registered pursuant to section 12(g) of the Act.
    (c)(1) Any equity security for which unlisted trading privileges on 
any national securities exchange have been continued or extended 
pursuant to section 12(f) of the Act shall be exempt from section 16 of 
the act unless such security or another equity security of the same 
issuer is listed and registered on a national securities exchange or 
registered pursuant to section 12(g) of the Act.
    (2) Any equity security for which unlisted trading privileges on any 
national securities exchange have been continued or extended pursuant to 
section 12(f) of the Act and which is not listed and registered on any 
other such exchange or registered pursuant to section 12(g) of the Act 
shall be exempt from section 16 of the Act insofar as that section would 
otherwise apply to any person who is directly or indirectly the 
beneficial owner of more than 10 percent of such security, unless 
another equity security of the issuer of such unlisted security is so 
listed or registered and such beneficial owner is a director or officer 
of such issuer or directly or indirectly the beneficial owner of more 
than 10 percent of any such listed security.
    (d) Any reference in this section to a security registered pursuant 
to section 12(g) of the Act shall include, and any reference to a 
security not so registered shall exclude, any security as to which a 
registration statement pursuant to such section is at the time required 
to be effective.

(Sec. 3, 78 Stat. 565, 15 U.S.C. 78l)

[30 FR 482, Jan. 14, 1965]



Sec. 240.12f-5  Exchange rules for securities to which unlisted trading 
privileges are extended.

    A national securities exchange shall not extend unlisted trading 
privileges to any security unless the national securities exchange has 
in effect a rule or rules providing for transactions in the class or 
type of security to which the exchange extends unlisted trading 
privileges.

[60 FR 20896, Apr. 28, 1995]



Sec. 240.12f-6  [Reserved]

            Extensions and Temporary Exemptions; Definitions



Sec. 240.12g-1  Exemption from section 12(g).

    An issuer shall be exempt from the requirement to register any class 
of equity securities pursuant to section 12(g)(1) if on the last day of 
its most recent fiscal year the issuer had total assets not exceeding 
$10 million and, with respect to a foreign private issuer, such 
securities were not quoted in an automated inter-dealer quotation 
system.

(Secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85; secs. 205, 209, 48 
Stat. 906, 908; sec. 301, 54 Stat. 857; sec. 8, 68 Stat. 685; sec. 1, 79 
Stat. 1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 13, 15(d), 23(a), 48 
Stat. 892, 894, 895, 901; secs. 1, 3, 8, 49 Stat. 1375, 1377, 1379; sec. 
203(a), 49 Stat. 704; sec. 202, 68 Stat. 686; secs. 3, 4, 6, 78 Stat. 
565-574; secs. 1, 2, 82 Stat. 454; sec. 28(c), 84 Stat. 1435; secs. 1, 
2, 84 Stat. 1497; sec. 105(b), 88 Stat. 1503; secs. 8, 9, 10, 18, 89 
Stat. 117, 118, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 204, 
91 Stat. 1494, 1498, 1500; 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 78l, 
78m, 78o(d), 78w(a))

[48 FR 46739, Oct. 14, 1983, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996]



Sec. 240.12g-2  Securities deemed to be registered pursuant to section 
12(g)(1) upon termination of exemption pursuant to section 12(g)(2) (A) or (B).

    Any class of securities which would have been required to be 
registered pursuant to section 12(g)(1) of the Act except for the fact 
that it was exempt from such registration by section 12(g)(2)(A) because 
it was listed and

[[Page 130]]

registered on a national securities exchange, or by section 12(g)(2)(B) 
because it was issued by an investment company registered pursuant to 
section 8 of the Investment Company Act of 1940, shall upon the 
termination of the listing and registration of such class or the 
termination of the registration of such company and without the filing 
of an additional registration statement be deemed to be registered 
pursuant to said section 12(g)(1) if at the time of such termination (a) 
the issuer of such class of securities has elected to be regulated as a 
business development company pursuant to sections 55 through 65 of the 
Investment Company Act of 1940 and such election has not been withdrawn, 
or (b) securities of the class are not exempt from such registration 
pursuant to section 12 or rules thereunder delete ``or'' and all 
securities of such class are held of record by 300 or more persons.

[47 FR 17052, Apr. 21, 1982]



Sec. 240.12g-3  Registration of securities of successor issuers under 
section 12(b) or 12(g).

    (a) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of an issuer that are not already registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) are issued to the holders of any class of 
securities of another issuer that is registered pursuant to either 
section 12 (b) or (g) of the Act (15 U.S.C. 78l (b) or (g)), the class 
of securities so issued shall be deemed to be registered under the same 
paragraph of section 12 of the Act unless upon consummation of the 
succession:
    (1) Such class is exempt from such registration other than by Sec. 
240.12g3-2;
    (2) All securities of such class are held of record by less than 300 
persons; or
    (3) The securities issued in connection with the succession were 
registered on Form F-8 or Form F-80 (Sec. 239.38 or Sec. 239.41 of 
this chapter) and following succession the successor would not be 
required to register such class of securities under section 12 of the 
Act (15 U.S.C. 78l) but for this section.
    (b) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of an issuer that are not already registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) are issued to the holders of any class of 
securities of another issuer that is required to file a registration 
statement pursuant to either section 12(b) or (g) of the Act (15 U.S.C. 
78l(b) or (g)) but has not yet done so, the duty to file such statement 
shall be deemed to have been assumed by the issuer of the class of 
securities so issued. The successor issuer shall file a registration 
statement pursuant to the same paragraph of section 12 of the Act with 
respect to such class within the period of time the predecessor issuer 
would have been required to file such a statement unless upon 
consummation of the succession:
    (1) Such class is exempt from such registration other than by Sec. 
240.12g3-2;
    (2) All securities of such class are held of record by less than 300 
persons; or
    (3) The securities issued in connection with the succession were 
registered on Form F-8 or Form F-80 (Sec. 239.38 or Sec. 239.41 of 
this chapter) and following the succession the successor would not be 
required to register such class of securities under section 12 of the 
Act (15 U.S.C. 78l) but for this section.
    (c) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of an issuer that are not already registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) are issued to the holders of classes of 
securities of two or more other issuers that are each registered 
pursuant to section 12 of the Act, the class of securities so issued 
shall be deemed to be registered under section 12 of the Act unless upon 
consummation of the succession:
    (1) Such class is exempt from such registration other than by Sec. 
240.12g3-2;
    (2) All securities of such class are held of record by less than 300 
persons; or
    (3) The securities issued in connection with the succession were 
registered on Form F-8 or Form F-80

[[Page 131]]

(Sec. 239.38 or Sec. 239.41 of this chapter) and following succession 
the successor would not be required to register such class of securities 
under section 12 of the Act (15 U.S.C. 78l) but for this section.
    (d) If the classes of securities issued by two or more predecessor 
issuers (as described in paragraph (c) of this section) are registered 
under the same paragraph of section 12 of the Act (15 U.S.C. 78l), the 
class of securities issued by the successor issuer shall be deemed 
registered under the same paragraph of section 12 of the Act. If the 
classes of securities issued by the predecessor issuers are not 
registered under the same paragraph of section 12 of the Act, the class 
of securities issued by the successor issuer shall be deemed registered 
under section 12(g) of the Act (15 U.S.C. 78l(g)).
    (e) An issuer that is deemed to have a class of securities 
registered pursuant to section 12 of the Act (15 U.S.C. 78l) according 
to paragraph (a), (b), (c) or (d) of this section shall file reports on 
the same forms and such class of securities shall be subject to the 
provisions of sections 14 and 16 of the Act (15 U.S.C. 78n and 78p) to 
the same extent as the predecessor issuers, except as follows:
    (1) An issuer that is not a foreign issuer shall not be eligible to 
file on Form 20-F (Sec. 249.220f of this chapter) or to use the 
exemption in Sec. 240.3a12-3.
    (2) A foreign private issuer shall be eligible to file on Form 20-F 
(Sec. 249.220f of this chapter) and to use the exemption in Sec. 
240.3a12-3.
    (f) An issuer that is deemed to have a class of securities 
registered pursuant to section 12 of the Act (15 U.S.C. 78l) according 
to paragraphs (a), (b), (c) or (d) of this section shall indicate in the 
Form 8-K (Sec. 249.308 of this chapter) report filed with the 
Commission in connection with the succession, pursuant to the 
requirements of Form 8-K, the paragraph of section 12 of the Act under 
which the class of securities issued by the successor issuer is deemed 
registered by operation of paragraphs (a), (b), (c) or (d) of this 
section. If a successor issuer that is deemed registered under section 
12(g) of the Act (15 U.S.C. 78l(g)) by paragraph (d) of this section 
intends to list a class of securities on a national securities exchange, 
it must file a registration statement pursuant to section 12(b) of the 
Act (15 U.S.C. 78l(b)) with respect to that class of securities.
    (g) An issuer that is deemed to have a class of securities 
registered pursuant to section 12 of the Act (15 U.S.C. 78l) according 
to paragraph (a), (b), (c) or (d) of this section shall file an annual 
report for each fiscal year beginning on or after the date as of which 
the succession occurred. Annual reports shall be filed within the period 
specified in the appropriate form. Each such issuer shall file an annual 
report for each of its predecessors that had securities registered 
pursuant to section 12 of the Act (15 U.S.C. 78l) covering the last full 
fiscal year of the predecessor before the registrant's succession, 
unless such report has been filed by the predecessor. Such annual report 
shall contain information that would be required if filed by the 
predecessor.

[62 FR 39767, July 24, 1997]



Sec. 240.12g3-2  Exemptions for American depositary receipts and certain 
foreign securities.

    (a) Securities of any class issued by any foreign private issuer 
shall be exempt from section 12(g) (15 U.S.C. 78l(g)) of the Act if the 
class has fewer than 300 holders resident in the United States. This 
exemption shall continue until the next fiscal year end at which the 
issuer has a class of equity securities held by 300 or more persons 
resident in the United States. For the purpose of determining whether a 
security is exempt pursuant to this paragraph:
    (1) Securities held of record by persons resident in the United 
States shall be determined as provided in Sec. 240.12g5-1 except that 
securities held of record by a broker, dealer, bank or nominee for any 
of them for the accounts of customers resident in the United States 
shall be counted as held in the United States by the number of separate 
accounts for which the securities are held. The issuer may rely in good 
faith on information as to the number of such separate accounts supplied 
by all owners of the class of its securities which are brokers, dealers, 
or banks or a nominee for any of them.

[[Page 132]]

    (2) Persons in the United States who hold the security only through 
a Canadian Retirement Account (as that term is defined in rule 237(a)(2) 
under the Securities Act of 1933 (Sec. 230.237(a)(2) of this chapter)), 
shall not be counted as holders resident in the United States.
    (b)(1) Securities of any foreign private issuer shall be exempt from 
section 12(g) of the Act if the issuer, or a government official or 
agency of the country of the issuer's domicile or in which it is 
incorporated or organized:
    (i) Shall furnish to the Commission whatever information in each of 
the following categories the issuer since the beginning of its last 
fiscal year (A) has made or is required to make public pursuant to the 
law of the country of its domicile or in which it is incorporated or 
organized, (B) has filed or is required to file with a stock exchange on 
which its securities are traded and which was made public by such 
exchange, or (C) has distributed or is required to distribute to its 
security holders;
    (ii) Shall furnish to the Commission a list identifying the 
information referred to in paragraph (b)(1)(i) of this section and 
stating when and by whom it is required to be made public, filed with 
any such exchange, or distributed to security holders;
    (iii) Shall furnish to the Commission, during each subsequent fiscal 
year, whatever information is made public as described in paragraphs 
(b)(1)(i) (A), (B) or (C) of this section promptly after such 
information is made or required to be made public as described therein;
    (iv) Shall, promptly after the end of any fiscal year in which any 
changes occur in the kind of information required to be published as 
referred to in the list furnished under paragraph (b)(1)(ii) of this 
section or any subsequent list, furnish to the Commission a revised list 
reflecting such changes; and
    (v) Shall furnish to the Commission in connection with the initial 
submission the following information to the extent known or which can be 
obtained without unreasonable effort or expense: the number of holders 
of each class of equity securities resident in the United States, the 
amount and percentage of each class of outstanding equity securities 
held by residents in the United States, the circumstances in which such 
securities were acquired, and the date and circumstances of the most 
recent public distribution of securities by the issuer or an affiliate 
thereof.
    (2) The information required to be furnished under paragraphs 
(b)(1)(i) and (ii) of this section shall be furnished on or before the 
date on which a registration statement under section 12(g) of the Act 
would otherwise be required to be filed. Any issuer furnishing 
information under paragraph (b)(1)(i) of this section shall notify the 
Commission that it is furnished under that paragraph.
    (3) The information required to be furnished under this paragraph 
(b) is information material to an investment decision such as: the 
financial condition or results of operations; changes in business; 
acquisitions or dispositions of assets; issuance, redemption or 
acquisitions of their securities; changes in management or control; the 
granting of options or the payment of other remuneration to directors or 
officers; and transactions with directors, officers or principal 
security holders.
    (4) Only one complete copy of any information or document need be 
furnished under paragraph (b)(1) of this section. Such information and 
documents need not be under cover of any prescribed form and shall not 
be deemed to be ``filed'' with the Commission or otherwise subject to 
the liabilities of section 18 of the Act. Press releases and all other 
communications or materials distributed directly to securityholders of 
each class of securities to which the exemption relates shall be in 
English. English versions or adequate summaries in English may be 
furnished in lieu of original English translations. No other documents 
need be furnished unless the issuer has prepared or caused to be 
prepared, English translations, versions, or summaries of them. If no 
English translations, versions, or summaries have been prepared, a brief 
description in English of any such documents shall be furnished. 
Information or documents in a language other than English are not 
required to be furnished. If practicable, the Commission file number 
shall appear on the information furnished or in

[[Page 133]]

an accompanying letter. Any information or document previously sent to 
the Commission under cover of Form 40-F or Form 6-K need not be 
furnished under paragraph (b)(1) of this section.
    (5) The furnishing of any information or document under paragraph 
(b) of this rule shall not constitute an admission for any purpose that 
the issuer is subject to the Act.
    (c) Depositary Shares registered on Form F-6 (Sec. 239.36 of this 
chapter), but not the underlying deposited securities, are exempt from 
section 12(g) of the Act under this paragraph (c).
    (d) The exemption provided by paragraph (b) of this rule shall not 
be available for the following securities:
    (1) Securities of a foreign private issuer that has or has had 
during the prior eighteen months any securities registered under section 
12 of the Act or a reporting obligation (suspended or active) under 
section 15(d) of the Act (other than arising solely by virtue of the use 
of Form F-7, F-8, F-9, F-10 or F-80) ;
    (2) Securities of a foreign private issuer issued in a transaction 
(other than a transaction registered on Form F-8, F-9, F-10 or F-80) to 
acquire by merger, consolidation, exchange of securities or acquisition 
of assets, another issuer that had securities registered under section 
12 of the Act or a reporting obligation (suspended or active) under 
section 15(d) of the Act; and
    (3) Securities quoted in an ``automated inter-dealer quotation 
system'' or securities represented by American Depositary Receipts so 
quoted unless all the following conditions are met:
    (i) Such securities were so quoted on October 5, 1983 and have been 
continuously traded since;
    (ii) The issuer is in compliance with the exemption in paragraph (b) 
of this section on October 5, 1983 and has continuously maintained the 
exemption since; and
    (iii) After January 2, 1986, the issuer is organized under the laws 
of any country except Canada or a political subdivision thereof.

[48 FR 46739, Oct. 14, 1983, as amended at 49 FR 12689, Mar. 30, 1984; 
56 FR 30068, July 1, 1991; 65 FR 37676, June 15, 2000]



Sec. 240.12g-4  Certifications of termination of registration under section 12(g).

    (a) Termination of registration of a class of securities shall take 
effect 90 days, or such shorter period as the Commission may determine, 
after the issuer certifies to the Commission on Form 15 that:
    (1) Such class of securities is held of record by:
    (i) Less than 300 persons; or
    (ii) By less than 500 persons, where the total assets of the issuer 
have not exceeded $10 million on the last day of each of the issuer's 
most recent three fiscal years; or
    (2) Such class of securities of a foreign private issuer, as defined 
in Rule 3b-4 (Sec. 240.3b-4), is held of record by:
    (i) Less than 300 persons resident in the United States or
    (ii) Less than 500 persons resident in the United States where the 
total assets of the issuer have not exceeded $10 million on the last day 
of each of the issuer's most recent three fiscal years.

For purposes of this paragraph, the number of persons resident in the 
United States shall be determined in accordance with the provisions of 
Rule 12g3-2(a) (Sec. 240.12g3-2(a)).
    (b) The issuer's duty to file any reports required under section 
13(a) shall be suspended immediately upon filing a certification on Form 
15; Provided, however, That if the certification on Form 15 is 
subsequently withdrawn or denied, the issuer shall, within 60 days after 
the date of such withdrawal or denial, file with the Commission all 
reports which would have been required had the certification on Form 15 
not been filed. If the suspension resulted from the issuer's merger 
into, or consolidation with, another issuer or issuers, the 
certification shall be filed by the successor issuer.

(Secs. 12(g)(4), 12(h), 13(a), 15(d), 23(a), 48 Stat. 892, 894, 895, 
901; sec. 203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 
3, 4, 6, 78 Stat. 565-568, 569, 570-574; sec. 18, 89 Stat. 155; sec. 
204, 91 Stat. 1500; 15 U.S.C. 78l(g)(4), 78l(h), 78m(a), 78o(d), 78w(a))

[49 FR 12689, Mar. 30, 1984, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996]

[[Page 134]]



Sec. 240.12g5-1  Definition of securities ``held of record''.

    (a) For the purpose of determining whether an issuer is subject to 
the provisions of sections 12(g) and 15(d) of the Act, securities shall 
be deemed to be ``held of record'' by each person who is identified as 
the owner of such securities on records of security holders maintained 
by or on behalf of the issuer, subject to the following:
    (1) In any case where the records of security holders have not been 
maintained in accordance with accepted practice, any additional person 
who would be identified as such an owner on such records if they had 
been maintained in accordance with accepted practice shall be included 
as a holder of record.
    (2) Securities identified as held of record by a corporation, a 
partnership, a trust whether or not the trustees are named, or other 
organization shall be included as so held by one person.
    (3) Securities identified as held of record by one or more persons 
as trustees, executors, guardians, custodians or in other fiduciary 
capacities with respect to a single trust, estate or account shall be 
included as held of record by one person.
    (4) Securities held by two or more persons as coowners shall be 
included as held by one person.
    (5) Each outstanding unregistered or bearer certificate shall be 
included as held of record by a separate person, except to the extent 
that the issuer can establish that, if such securities were registered, 
they would be held of record, under the provisions of this rule, by a 
lesser number of persons.
    (6) Securities registered in substantially similar names where the 
issuer has reason to believe because of the address or other indications 
that such names represent the same person, may be included as held of 
record by one person.
    (b) Notwithstanding paragraph (a) of this section:
    (1) Securities held, to the knowledge of the issuer, subject to a 
voting trust, deposit agreement or similar arrangement shall be included 
as held of record by the record holders of the voting trust 
certificates, certificates of deposit, receipts or similar evidences of 
interest in such securities: Provided, however, That the issuer may rely 
in good faith on such information as is received in response to its 
request from a non-affiliated issuer of the certificates or evidences of 
interest.
    (2) Whole or fractional securities issued by a savings and loan 
association, building and loan association, cooperative bank, homestead 
association, or similar institution for the sole purpose of qualifying a 
borrower for membership in the issuer, and which are to be redeemed or 
repurchased by the issuer when the borrower's loan is terminated, shall 
not be included as held of record by any person.
    (3) If the issuer knows or has reason to know that the form of 
holding securities of record is used primarily to circumvent the 
provisions of section 12(g) or 15(d) of the Act, the beneficial owners 
of such securities shall be deemed to be the record owners thereof.

(Sec. 3, 48 Stat. 882, as amended, sec. 3, 78 Stat. 566; 15 U.S.C. 78c, 
78l)

[30 FR 484, Jan. 14, 1965]



Sec. 240.12g5-2  Definition of ``total assets''.

    For the purpose of section 12(g)(1) of the Act, the term total 
assets shall mean the total assets as shown on the issuer's balance 
sheet or the balance sheet of the issuer and its subsidiaries 
consolidated, whichever is larger, as required to be filed on the form 
prescribed for registration under this section and prepared in 
accordance with the pertinent provisions of Regulation S-X (17 CFR part 
210). Where the security is a certificate of deposit, voting trust 
certificate, or certificate or other evidence of interest in a similar 
trust or agreement, the ``total assets'' of the issuer of the security 
held under the trust or agreement shall be deemed to be the ``total 
assets'' of the issuer of such certificate or evidence of interest.

(Sec. 3, 48 Stat. 882, as amended, sec. 3, 78 Stat. 566; 15 U.S.C. 78c, 
78l)

[30 FR 484, Jan. 14, 1965]



Sec. 240.12h-1  Exemptions from registration under section 12(g) of the Act.

    Issuers shall be exempt from the provisions of section 12(g) of the 
Act with respect to the following securities:

[[Page 135]]

    (a) Any interest or participation in an employee stock bonus, stock 
purchase, profit sharing, pension, retirement, incentive, thrift, 
savings or similar plan which is not transferable by the holder except 
in the event of death or mental incompetency, or any security issued 
solely to fund such plans;
    (b) Any interest or participation in any common trust fund or 
similar fund maintained by a bank exclusively for the collective 
investment and reinvestment of monies contributed thereto by the bank in 
its capacity as a trustee, executor, administrator, or guardian. For 
purposes of this paragraph (b), the term ``common trust fund'' shall 
include a common trust fund which is maintained by a bank which is a 
member of an affiliated group, as defined in section 1504(a) of the 
Internal Revenue Code of 1954 (26 U.S.C. 1504(a)), and which is 
maintained exclusively for the investment and reinvestment of monies 
contributed thereto by one or more bank members of such affilated group 
in the capacity of trustee, executor, administrator, or guardian; 
Provided, That:
    (1) The common trust fund is operated in compliance with the same 
state and Federal regulatory requirements as would apply if the bank 
maintaining such fund as any other contributing banks were the same 
entity; and
    (2) The rights of persons for whose benefit a contributiong bank 
acts as trustee, executor, administrator or guardian would not be 
diminished by reason of the maintenance of such common trust fund by 
another bank member of the affiliated group;
    (c) Any class of equity security which would not be outstanding 60 
days after a registration statement would be required to be filed with 
respect thereto;
    (d) Any standardized option, as that term is defined in section 
240.9b-1(a)(4), that is issued by a clearing agency registered under 
section 17A of the Act (15 U.S.C. 78q-1) and traded on a national 
securities exchange registered pursuant to section 6(a) of the Act (15 
U.S.C. 78f(a)) or on a national securities association registered 
pursuant to section 15A(a) of the Act (15 U.S.C. 780-3(a)); and
    (e) Any security futures product that is traded on a national 
securities exchange registered pursuant to section 6 of the Act (15 
U.S.C. 78f) or on a national securities association registered pursuant 
to section 15A(a) of the Act (15 U.S.C. 780-3(a)) and cleared by a 
clearing agency that is registered pursuant to section 17A of the Act 
(15 U.S.C. 78q-1) or is exempt from registration under section 17A(b)(7) 
of the Act (15 U.S.C. 78q-1(b)(7)).

[30 FR 6114, Apr. 30, 1965, as amended at 43 FR 2392, Jan. 17, 1978. 
Redesignated at 47 FR 17052, Apr. 21, 1982; 68 FR 192, Jan. 2, 2003]



Sec. 240.12h-2  [Reserved]



Sec. 240.12h-3  Suspension of duty to file reports under section 15(d).

    (a) Subject to paragraphs (c) and (d) of this section, the duty 
under section 15(d) to file reports required by section 13(a) of the Act 
with respect to a class of securities specified in paragraph (b) of this 
section shall be suspended for such class of securities immediately upon 
filing with the Commission a certification on Form 15 (17 CFR 249.323) 
if the issuer of such class has filed all reports required by section 
13(a), without regard to Rule 12b-25 (17 CFR 249.322), for the shorter 
of its most recent three fiscal years and the portion of the current 
year preceding the date of filing Form 15, or the period since the 
issuer became subject to such reporting obligation. If the certification 
on Form 15 is subsequently withdrawn or denied, the issuer shall, within 
60 days, file with the Commission all reports which would have been 
required if such certification had not been filed.
    (b) The classes of securities eligible for the suspension provided 
in paragraph (a) of this section are:
    (1) Any class of securites held of record by:
    (i) Less than 300 persons; or
    (ii) By less then 500 persons, where the total assets of the issuer 
have not exceeded $10 million on the last day of each of the issuer's 
three most recent fiscal years;
    (2) Any class of securities of a foreign private issuer, as defined 
in Rule 3b-4 (Sec. 240.3b-4), held of record by:
    (i) Less than 300 persons resident in the United States or

[[Page 136]]

    (ii) Less than 500 persons resident in the United States where the 
total assets of the issuer have not exceeded $10 million on the last day 
of each of the issuer's three most recent fiscal years.


For purposes of this paragraph, the number of persons resident in the 
United States shall be determined in accordance with the provisions of 
Rule 12g3-2(a) (Sec. 240.12g3-2(a)); and
    (3) Any class or securities deregistered pursuant to section 12(d) 
of the Act if such class would not thereupon be deemed registered under 
section 12(g) of the Act or the rules thereunder.
    (c) This section shall not be available for any class of securities 
for a fiscal year in which a registration statement relating to that 
class becomes effective under the Securities Act of 1933, or is required 
to be updated pursuant to section 10(a)(3) of the Act, and, in the case 
of paragraphs (b)(1)(ii) and (2)(ii), the two succeeding fiscal years; 
Provided, however, That this paragraph shall not apply to the duty to 
file reports which arises solely from a registration statement filed by 
an issuer with no significant assets, for the reorganization of a non-
reporting issuer into a one subsidiary holding company in which equity 
security holders receive the same proportional interest in the holding 
company as they held in the non-reporting issuer, except for changes 
resulting from the exercise of dissenting shareholder rights under state 
law.
    (d) The suspension provided by this rule relates only to the 
reporting obligation under section 15(d) with respect to a class of 
securities, does not affect any other duties imposed on that class of 
securities, and shall continue as long as criteria (i) and (ii) in 
either paragraph (b)(1) or (2) is met on the first day of any subsequent 
fiscal year; Provided, however, That such criteria need not be met if 
the duty to file reports arises solely from a registration statement 
filed by an issuer with no significant assets in a reorganization of a 
non-reporting company into a one subsidiary holding company in which 
equity security holders receive the same proportional interest in the 
holding company as they held in the non-reporting issuer except for 
changes resulting from the exercise of dissenting shareholder rights 
under state law.
    (e) If the suspension provided by this rule is discontinued because 
a class of securities does not meet the eligibility criteria of 
paragraph (b) on the first day of an issuer's fiscal year, then the 
issuer shall resume periodic reporting pursuant to section 15(d) by 
filing an annual report on Form 10-K and Form 10-KSB for its preceding 
fiscal year, not later than 120 days after the end of such fiscal year.

(Secs. 12(g)(4), 12(h), 13(a), 15(d), 23(a), 48 Stat. 892, 894, 895, 
901; sec. 203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 
3, 4, 6, 78 Stat. 565-568, 569, 570-574; sec. 18, 89 Stat. 155; sec. 
204, 91 Stat. 1500; 15 U.S.C. 78l(g)(4), 78l(h), 78m(a), 78o(d), 78w(a))

[49 FR 12689, Mar. 30, 1984, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996]



Sec. 240.12h-4  Exemption from duty to file reports under section 15(d).

    An issuer shall be exempt from the duty under section 15(d) of the 
Act to file reports required by section 13(a) of the Act with respect to 
securities registered under the Securities Act of 1933 on Form F-7, Form 
F-8 or Form F-80, provided that the issuer is exempt from the 
obligations of Section 12(g) of the Act pursuant to Rule 12g3-2(b).

[56 FR 30068, July 1, 1991]



Sec. 240.12h-5  Exemption for subsidiary issuers of guaranteed securities 
and subsidiary guarantors.

    (a) Any issuer of a guaranteed security, or guarantor of a security, 
that is permitted to omit financial statements by Sec. 210.3-10 of 
Regulation S-X of this chapter is exempt from the requirements of 
Section 13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)).
    (b) Any issuer of a guaranteed security, or guarantor of a security, 
that would be permitted to omit financial statements by Sec. 210.3-10 
of Regulation S-X of this chapter, but is required to file financial 
statements in accordance with the operation of Sec. 210.3-10(g) of 
Regulation S-X of this chapter, is exempt from the requirements of 
Section 13(a) or 15(d) of the Act (15 U.S.C. 78m(a) or 78o(d)).

[65 FR 51711, Aug. 24, 2000]

[[Page 137]]

Regulation 13A: Reports of Issuers of Securities Registered Pursuant to 
                               Section 12



Annual Reports--Table of Contents






Sec. 240.13a-1  Requirements of annual reports.

    Every issuer having securities registered pursuant to section 12 of 
the Act (15 U.S.C. 78l) shall file an annual report on the appropriate 
form authorized or prescribed therefor for each fiscal year after the 
last full fiscal year for which financial statements were filed in its 
registration statement. Annual reports shall be filed within the period 
specified in the appropriate form.

[62 FR 39767, July 24, 1997]



Sec. 240.13a-2  [Reserved]



Sec. 240.13a-3  Reporting by Form 40-F registrant.

    A registrant that is eligible to use Forms 40-F and 6-K and files 
reports in accordance therewith shall be deemed to satisfy the 
requirements of Regulation 13A (Sec. Sec. 240.13a-1 through 240.13a-17 
of this chapter).

[56 FR 30068, July 1, 1991]

                              Other Reports



Sec. 240.13a-10  Transition reports.

    (a) Every issuer that changes its fiscal closing date shall file a 
report covering the resulting transition period between the closing date 
of its most recent fiscal year and the opening date of its new fiscal 
year; Provided, however, that an issuer shall file an annual report for 
any fiscal year that ended before the date on which the issuer 
determined to change its fiscal year end. In no event shall the 
transition report cover a period of 12 or more months.
    (b) The report pursuant to this section shall be filed for the 
transition period not more than the number of days specified in 
paragraph (j) of this section after either the close of the transition 
period or the date of the determination to change the fiscal closing 
date, whichever is later. The report shall be filed on the form 
appropriate for annual reports of the issuer, shall cover the period 
from the close of the last fiscal year end and shall indicate clearly 
the period covered. The financial statements for the transition period 
filed therewith shall be audited. Financial statements, which may be 
unaudited, shall be filed for the comparable period of the prior year, 
or a footnote, which may be unaudited, shall state for the comparable 
period of the prior year, revenues, gross profits, income taxes, income 
or loss from continuing operations before extraordinary items and 
cumulative effect of a change in accounting principles and net income or 
loss. The effects of any discontinued operations and/or extraordinary 
items as classified under the provisions of generally accepted 
accounting principles also shall be shown, if applicable. Per share data 
based upon such income or loss and net income or loss shall be presented 
in conformity with applicable accounting standards. Where called for by 
the time span to be covered, the comparable period financial statements 
or footnote shall be included in subsequent filings.
    (c) If the transition period covers a period of less than six 
months, in lieu of the report required by paragraph (b) of this section, 
a report may be filed for the transition period on Form 10-Q and Form 
10-QSB (Sec. 249.308a of this chapter) not more than the number of days 
specified in paragraph (j) of this section after either the close of the 
transition period or the date of the determination to change the fiscal 
closing date, whichever is later. The report on Form 10-Q and Form 10-
QSB shall cover the period from the close of the last fiscal year end 
and shall indicate clearly the period covered. The financial statements 
filed therewith need not be audited but, if they are not audited, the 
issuer shall file with the first annual report for the newly adopted 
fiscal year separate audited statements of income and cash flows 
covering the transition period. The notes to financial statements for 
the transition period included in such first annual report may be 
integrated with the notes to financial statements for the full fiscal 
period. A separate audited balance sheet as of the end of the transition 
period shall be filed in the annual report only if the audited balance 
sheet as of

[[Page 138]]

the end of the fiscal year prior to the transition period is not filed. 
Schedules need not be filed in transition reports on Form 10-Q and Form 
10-QSB.
    (d) Notwithstanding the foregoing in paragraphs (a), (b), and (c) of 
this section, if the transition period covers a period of one month or 
less, the issuer need not file a separate transition report if either:
    (1) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is an annual report, and that report covers the 
transition period as well as the fiscal year; or
    (2)(i) The issuer files with the first annual report for the newly 
adopted fiscal year separate audited statements of income and cash flows 
covering the transition period; and
    (ii) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is a quarterly report on Form 10-Q and Form 10-QSB; 
and
    (iii) Information on the transition period is included in the 
issuer's quarterly report on Form 10-Q and Form 10-QSB for the first 
quarterly period (except the fourth quarter) of the newly adopted fiscal 
year that ends after the date of the determination to change the fiscal 
year. The information covering the transition period required by Part II 
and Item 2 of Part I may be combined with the information regarding the 
quarter. However, the financial statements required by Part I, which may 
be unaudited, shall be furnished separately for the transition period.
    (e) Every issuer required to file quarterly reports on Form 10-Q and 
Form 10-QSB pursuant to Sec. 240.13a-13 of this chapter that changes 
its fiscal year end shall:
    (1) File a quarterly report on Form 10-Q and Form 10-QSB within the 
time period specified in General Instruction A.1. to that form for any 
quarterly period (except the fourth quarter) of the old fiscal year that 
ends before the date on which the issuer determined to change its fiscal 
year end, except that the issuer need not file such quarterly report if 
the date on which the quarterly period ends also is the date on which 
the transition period ends;
    (2) File a quarterly report on Form 10-Q and Form 10-QSB within the 
time specified in General Instruction A.1. to that form for each 
quarterly period of the old fiscal year within the transition period. In 
lieu of a quarterly report for any quarter of the old fiscal year within 
the transition period, the issuer may file a quarterly report on Form 
10-Q and Form 10-QSB for any period of three months within the 
transition period that coincides with a quarter of the newly adopted 
fiscal year if the quarterly report is filed within the number of days 
specified in paragraph (j) of this section after the end of such three 
month period, provided the issuer thereafter continues filing quarterly 
reports on the basis of the quarters of the newly adopted fiscal year;
    (3) Commence filing quarterly reports for the quarters of the new 
fiscal year no later than the quarterly report for the first quarter of 
the new fiscal year that ends after the date on which the issuer 
determined to change the fiscal year end; and
    (4) Unless such information is or will be included in the transition 
report, or the first annual report on Form 10-K and Form 10-KSB for the 
newly adopted fiscal year, include in the initial quarterly report on 
Form 10-Q and Form 10-QSB for the newly adopted fiscal year information 
on any period beginning on the first day subsequent to the period 
covered by the issuer's final quarterly report on Form 10-Q and Form 10-
QSB or annual report on Form 10-K and Form 10-KSB for the old fiscal 
year. The information covering such period required by Part II and Item 
2 of Part I may be combined with the information regarding the quarter. 
However, the financial statements required by Part I, which may be 
unaudited, shall be furnished separately for such period.

    Note to Paragraphs (c) and (e): If it is not practicable or cannot 
be cost-justified to furnish in a transition report on Form 10-Q and 
Form 10-QSB or a quarterly report for the newly adopted fiscal year 
financial statements for corresponding periods of the prior year where 
required, financial statements

[[Page 139]]

may be furnished for the quarters of the preceding fiscal year that most 
nearly are comparable if the issuer furnishes an adequate discussion of 
seasonal and other factors that could affect the comparability of 
information or trends reflected, an assessment of the comparability of 
the data, and a representation as to the reason recasting has not been 
undertaken.

    (f) Every successor issuer with securities registered under Section 
12 of this Act that has a different fiscal year from that of its 
predecessor(s) shall file a transition report pursuant to this section, 
containing the required information about each predecessor, for the 
transition period, if any, between the close of the fiscal year covered 
by the last annual report of each predecessor and the date of 
succession. The report shall be filed for the transition period on the 
form appropriate for annual reports of the issuer not more than the 
number of days specified in paragraph (j) of this section after the date 
of the succession, with financial statements in conformity with the 
requirements set forth in paragraph (b) of this section. If the 
transition period covers a period of less than six months, in lieu of a 
transition report on the form appropriate for the issuer's annual 
reports, the report may be filed for the transition period on Form 10-Q 
and Form 10-QSB not more than the number of days specified in paragraph 
(j) of this section after the date of the succession, with financial 
statements in conformity with the requirements set forth in paragraph 
(c) of this section. Notwithstanding the foregoing, if the transition 
period covers a period of one month or less, the successor issuer need 
not file a separate transition report if the information is reported by 
the successor issuer in conformity with the requirements set forth in 
paragraph (d) of this section.
    (g)(1) Paragraphs (a) through (f) of this section shall not apply to 
foreign private issuers.
    (2) Every foreign private issuer that changes its fiscal closing 
date shall file a report covering the resulting transition period 
between the closing date of its most recent fiscal year and the opening 
date of its new fiscal year. In no event shall a transition report cover 
a period longer than 12 months.
    (3) The report for the transition period shall be filed on Form 20-F 
responding to all items to which such issuer is required to respond when 
Form 20-F is used as an annual report. Such report shall be filed within 
six months after either the close of the transition period or the date 
on which the issuer made the determination to change the fiscal closing 
date, whichever is later. The financial statements for the transition 
period filed therewith shall be audited.
    (4) If the transition period covers a period of six or fewer months, 
in lieu of the report required by paragraph (g)(3) of this section, a 
report for the transition period may be filed on Form 20-F responding to 
Items 5, 8.A.7., 13, 14, and 17 or 18 within three months after either 
the close of the transition period or the date on which the issuer made 
the determination to change the fiscal closing date, whichever is later. 
The financial statements required by either Item 17 or Item 18 shall be 
furnished for the transition period. Such financial statements may be 
unaudited and condensed as permitted in Article 10 of Regulation S-X 
(Sec. 210.10-01 of this chapter), but if the financial statements are 
unaudited and condensed, the issuer shall file with the first annual 
report for the newly adopted fiscal year separate audited statements of 
income and cash flows covering the transition period.
    (5) Notwithstanding the foregoing in paragraphs (g)(2), (g)(3), and 
(g)(4) of this section, if the transition period covers a period of one 
month or less, a foreign private issuer need not file a separate 
transition report if the first annual report for the newly adopted 
fiscal year covers the transition period as well as the fiscal year.
    (h) The provisions of this rule shall not apply to investment 
companies required to file reports pursuant to Rule 30b1-1 (Sec. 
270.30b1-1 of this chapter) under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.).
    (i) No filing fee shall be required for a transition report filed 
pursuant to this section.
    (j)(1) For transition reports to be filed on the form appropriate 
for annual reports of the issuer, the number of days shall be:

[[Page 140]]

    (i) For accelerated filers (as defined in Sec. 240.12b-2):
    (A) 90 days for fiscal years ending on or after December 15, 2002 
and before December 15, 2003;
    (B) 75 days for fiscal years ending on or after December 15, 2003 
and before December 15, 2004; and
    (C) 60 days for fiscal years ending on or after December 15, 2004; 
and
    (ii) 90 days for all other issuers; and
    (2) For transition reports to be filed on Form 10-Q or Form 10-QSB 
(Sec. 249.308a or Sec. 249.308b of this chapter), the number of days 
shall be:
    (i) For accelerated filers (as defined in Sec. 240.12b-2):
    (A) 45 days for fiscal years ending on or after December 15, 2002 
and before December 15, 2004;
    (B) 40 days for fiscal years ending on or after December 15, 2004 
and before December 15, 2005; and
    (C) 35 days for fiscal years ending on or after December 15, 2005; 
and
    (ii) 45 days for all other issuers.

    Note 1: In addition to the report or reports to be filed pursuant to 
this section, every issuer, except a foreign private issuer or an 
investment company required to file reports pursuant to Rule 30b1-1 
under the Investment Company Act of 1940, that changes its fiscal 
closing date is required to file a report on Form 8-K responding to Item 
8 thereof within the period specified in General Instruction B. 1. to 
that form.
    Note 2: The report or reports to be filed pursuant to this section 
must include the certification required by Sec. 240.13a-14.

[54 FR 10316, Mar. 13, 1989, as amended at 56 FR 30068, July 1, 1991; 64 
FR 53912, Oct. 5, 1999; 67 FR 57288, Sept. 9, 2002; 67 FR 58505, Sept. 
16, 2002]

    Effective Date Note: At 69 FR 15618, Mar. 25, 2004, Sec. 240.13a-10 
was amended by revising Note 1 at the end of the section, effective Aug. 
23, 2004. For the convenience of the user, the revised text is set forth 
as follows:

Sec. 240.13a-10  Transition reports.

                                * * * * *

    Note 1: In addition to the report or reports required to be filed 
pursuant to this section, every issuer, except a foreign private issuer 
or an investment company required to file reports pursuant to Sec. 
270.30b1-1 of this chapter, that changes its fiscal closing date is 
required to file a Form 8-K (Sec. 249.308 of this chapter) report that 
includes the information required by Item 5.03 of Form 8-K within the 
period specified in General Instruction B.1. to that form.

                                * * * * *



Sec. 240.13a-11  Current reports on Form 8-K (Sec. 249.308 of this chapter).

    (a) Except as provided in paragraph (b) of this section, every 
registrant subject to Sec. 240.13a-1 shall file a current report on 
Form 8-K within the period specified in that form unless substantially 
the same information as that required by Form 8-K has been previously 
reported by the registrant.
    (b) This section shall not apply to foreign governments, foreign 
private issuers required to make reports on Form 6-K (17 CFR 249.306) 
pursuant to Sec. 240.13a-16, issuers of American Depositary Receipts 
for securities of any foreign issuer, or investment companies required 
to file reports pursuant to Sec. 270.30b1-1 of this chapter under the 
Investment Company Act of 1940, except where such investment companies 
are required to file notice of a blackout period pursuant to Sec. 
245.104 of this chapter.

[42 FR 4428, Jan. 25, 1977, as amended at 50 FR 27939, July 9, 1985; 68 
FR 4355, Jan. 28, 2003]

    Effective Date Note: At 69 FR 15618, Mar. 25, 2004, Sec. 240.13a-11 
was amended by adding paragraph (c), effective Aug. 23, 2004. For the 
convenience of the user, the added text is set forth as follows:

Sec. 240.13a-11  Current reports on Form 8-K (Sec. 249.308 of this 
          chapter).

                                * * * * *

    (c) No failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 or 4.02(a) of Form 
8-K shall be deemed to be a violation of 15 U.S.C. 78j(b) and Sec. 
240.10b-5.



Sec. 240.13a-13  Quarterly reports on Form 10-Q and Form 10-QSB (Sec. 
249.308a and Sec. 249.308b of this chapter).

    (a) Except as provided in paragraphs (b) and (c) of this section, 
every issuer that has securities registered pursuant to section 12 of 
the Act and is required to file annual reports pursuant to section 13 of 
the Act, and has filed or intends to file such reports on Form 10-K and 
Form 10-KSB (Sec. 249.310 of this

[[Page 141]]

chapter) or U5S (Sec. 259.5s of this chapter), shall file a quarterly 
report on Form 10-Q and Form 10-QSB (Sec. 249.308a of this chapter) 
within the period specified in General Instruction A.1. to that form for 
each of the first three quarters of each fiscal year of the issuer, 
commencing with the first fiscal quarter following the most recent 
fiscal year for which full financial statements were included in the 
registration statement, or, if the registration statement included 
financial statements for an interim period subsequent to the most recent 
fiscal year end meeting the requirements of Article 10 of Regulation S-
X, for the first fiscal quarter subsequent to the quarter reported upon 
in the registration statement. The first quarterly report of the issuer 
shall be filed either within 45 days after the effective date of the 
registration statement or on or before the date on which such report 
would have been required to be filed if the issuer has been required to 
file reports on Form 10-Q and Form 10-QSB as of its last fiscal quarter, 
whichever is later.
    (b) The provisions of this rule shall not apply to the following 
issuers:
    (1) Investment companies required to file reports pursuant to Sec. 
270.30b1-1;
    (2) Foreign private issuers required to file reports pursuant to 
Sec. 240.13a-16.
    (c) Part I of the quarterly reports on Form 10-Q or Form 10-QSB need 
not be filed by:
    (1) Mutual life insurance companies; or
    (2) Mining companies not in the production stage but engaged 
primarily in the exploration for the development of mineral deposits 
other than oil, gas or coal, if all of the following conditions are met:
    (i) The registrant has not been in production during the current 
fiscal year or the two years immediately prior thereto; except that 
being in production for an aggregate period of not more than eight 
months over the three-year period shall not be a violation of this 
condition.
    (ii) Receipts from the sale of mineral products or from the 
operations of mineral producing properties by the registrant and its 
subsidiaries combined have not exceeded $500,000 in any of the most 
recent six years and have not aggregated more than $1,500,000 in the 
most recent six fiscal years.
    (d) Notwithstanding the foregoing provisions of this section, the 
financial information required by Part I of Form 10-Q and Form 10-QSB, 
shall not be deemed to be ``filed'' for the purpose of section 18 of the 
Act or otherwise subject to the liabilities of that section of the Act 
but shall be subject to all other provisions of the Act.

(Sec. 12, 13, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; sec 203(a), 49 
Stat. 704; secs. 1, 3, 8, 49 Stat. 1375, 1377, 1379; sec. 202, 68 Stat. 
686; secs. 3, 4, 6, 78 Stat. 565-568, 569, 570-574; secs. 1, 2, 82 Stat. 
454; secs. 1, 2, 28(c), 84 Stat. 1435, 1497; sec. 105(b), 88 Stat. 1503; 
secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155; 15 U.S.C. 78l, 78m, 
78o(d), 78w(a); secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85, secs. 
205, 209, 48 Stat. 906, 908; sec. 301, 54 Stat. 857; sec. 8, 88 Stat. 
685; sec. 1, 79 Stat. 1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 13, 
14, 15(d), 23(a), 48 Stat. 892, 895, 901; secs. 1, 3, 8, 49 Stat. 1375, 
1377, 1379; sec 203(a), 49 Stat. 704; sec. 202, 68 Stat. 686; secs. 3, 
4, 5, 6, 78 Stat. 565-568, 569, 570-574; secs. 1, 2, 3, 82 Stat. 454, 
455; secs. 28(c), ``1, 2, 3-5, 84 Sat. 1435, 1497; sec. 105(b), 88 Stat. 
1503; secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155; sec. 308(b), 90 
Stat. 57; secs. 202, 203, 204, 81 Stat. 1494, 1498, 1499, 1500; 15 
U.S.C. 77f, 77g, 77h, 77j, 77s(a), 78l, 78m, 78n, 78o(d), 78w(a))

[42 FR 24064, May 12, 1977, as amended at 48 FR 19877, May 3, 1983; 50 
FR 27939, July 9, 1985; 54 FR 10317, Mar. 13, 1989; 57 FR 10615, Mar. 
27, 1992; 61 FR 30403, June 14, 1996]



Sec. 240.13a-14  Certification of disclosure in annual and quarterly reports.

    (a) Each report, including transition reports, filed on Form 10-Q, 
Form 10-QSB, Form 10-K, Form 10-KSB, Form 20-F or Form 40-F (Sec. Sec. 
249.308a, 249.308b, 249.310, 249.310b, 249.220f or 249.240f of this 
chapter) under section 13(a) of the Act (15 U.S.C. 78m(a)), other than a 
report filed by an Asset-Backed Issuer (as defined in paragraph (g) of 
this section), must include certifications in the form specified in the 
applicable exhibit filing requirements of such report and such 
certifications must be filed as an exhibit to such report. Each 
principal executive and principal financial officer of the issuer, or 
persons performing similar functions, at the time of filing of the 
report must sign a certification.
    (b) Each periodic report containing financial statements filed by an 
issuer pursuant to section 13(a) of the Act (15

[[Page 142]]

U.S.C. 78m(a)) must be accompanied by the certifications required by 
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 
U.S.C. 1350) and such certifications must be furnished as an exhibit to 
such report as specified in the applicable exhibit requirements for such 
report. Each principal executive and principal financial officer of the 
issuer (or equivalent thereof) must sign a certification. This 
requirement may be satisfied by a single certification signed by an 
issuer's principal executive and principal financial officers.
    (c) A person required to provide a certification specified in 
paragraph (a) or (b) of this section may not have the certification 
signed on his or her behalf pursuant to a power of attorney or other 
form of confirming authority.
    (d) Each annual report filed by an Asset-Backed Issuer (as defined 
in paragraph (g) of this section) under section 13(a) of the Act (15 
U.S.C. 78m(a)) must include a certification addressing the following 
items:
    (1) Review by the certifying officer of the annual report and other 
reports containing distribution information for the period covered by 
the annual report;
    (2) The absence in these reports, to the best of the certifying 
officer's knowledge, of any untrue statement of material fact or 
omission of a material fact necessary to make the statements made, in 
light of the circumstances under which such statements were made, not 
misleading;
    (3) The inclusion in these reports, to the best of the certifying 
officer's knowledge, of the financial information required to be 
provided to the trustee under the governing documents of the issuer; and
    (4) Compliance by the servicer with its servicing obligations and 
minimum servicing standards.
    (e) With respect to Asset-Backed Issuers, the certification required 
by paragraph (d) of this section must be signed by the trustee of the 
trust (if the trustee signs the annual report) or the senior officer in 
charge of securitization of the depositor (if the depositor signs the 
annual report). Alternatively, the senior officer in charge of the 
servicing function of the master servicer (or entity performing the 
equivalent functions) may sign the certification.
    (f) [Reserved]
    (g) For purposes of this section, the term Asset-Backed Issuer means 
any issuer whose reporting obligation results from the registration of 
securities it issued that are primarily serviced by the cash flows of a 
discrete pool of receivables or other financial assets, either fixed or 
revolving, that by their terms convert into cash within a finite time 
period plus any rights or other assets designed to assure the servicing 
or timely distribution of proceeds to security holders.

[67 FR 57288, Sept. 9, 2002, as amended at 68 FR 36665, June 18, 2003]



Sec. 240.13a-15  Controls and procedures.

    (a) Every issuer that has a class of securities registered pursuant 
to section 12 of the Act (15 U.S.C. 78l), other than an Asset-Backed 
Issuer (as defined in Sec. 240.13a-14(g)), a small business investment 
company registered on Form N-5 (Sec. Sec. 239.24 and 274.5 of this 
chapter), or a unit investment trust as defined by section 4(2) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-4(2)), must maintain 
disclosure controls and procedures (as defined in paragraph (e) of this 
section) and internal control over financial reporting (as defined in 
paragraph (f) of this section).
    (b) Each such issuer's management must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, the 
effectiveness of the issuer's disclosure controls and procedures, as of 
the end of each fiscal quarter, except that management must perform this 
evaluation:
    (1) In the case of a foreign private issuer (as defined in Sec. 
240.3b-4) as of the end of each fiscal year; and
    (2) In the case of an investment company registered under section 8 
of the Investment Company Act of 1940 (15 U.S.C. 80a-8), within the 90-
day period prior to the filing date of each report requiring 
certification under Sec. 270.30a-2 of this chapter.
    (c) The management of each such issuer, other than an investment 
company registered under section 8 of the

[[Page 143]]

Investment Company Act of 1940, must evaluate, with the participation of 
the issuer's principal executive and principal financial officers, or 
persons performing similar functions, the effectiveness, as of the end 
of each fiscal year, of the issuer's internal control over financial 
reporting. The framework on which management's evaluation of the 
issuer's internal control over financial reporting is based must be a 
suitable, recognized control framework that is established by a body or 
group that has followed due-process procedures, including the broad 
distribution of the framework for public comment.
    (d) The management of each such issuer, other than an investment 
company registered under section 8 of the Investment Company Act of 
1940, must evaluate, with the participation of the issuer's principal 
executive and principal financial officers, or persons performing 
similar functions, any change in the issuer's internal control over 
financial reporting, that occurred during each of the issuer's fiscal 
quarters, or fiscal year in the case of a foreign private issuer, that 
has materially affected, or is reasonably likely to materially affect, 
the issuer's internal control over financial reporting.
    (e) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of an issuer that are 
designed to ensure that information required to be disclosed by the 
issuer in the reports that it files or submits under the Act (15 U.S.C. 
78a et seq.) is recorded, processed, summarized and reported, within the 
time periods specified in the Commission's rules and forms. Disclosure 
controls and procedures include, without limitation, controls and 
procedures designed to ensure that information required to be disclosed 
by an issuer in the reports that it files or submits under the Act is 
accumulated and communicated to the issuer's management, including its 
principal executive and principal financial officers, or persons 
performing similar functions, as appropriate to allow timely decisions 
regarding required disclosure.
    (f) The term internal control over financial reporting is defined as 
a process designed by, or under the supervision of, the issuer's 
principal executive and principal financial officers, or persons 
performing similar functions, and effected by the issuer's board of 
directors, management and other personnel, to provide reasonable 
assurance regarding the reliability of financial reporting and the 
preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles and includes those 
policies and procedures that:
    (1) Pertain to the maintenance of records that in reasonable detail 
accurately and fairly reflect the transactions and dispositions of the 
assets of the issuer;
    (2) Provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and 
expenditures of the issuer are being made only in accordance with 
authorizations of management and directors of the issuer; and
    (3) Provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use or disposition of the 
issuer's assets that could have a material effect on the financial 
statements.

[68 FR 36666, June 18, 2003]



Sec. 240.13a-16  Reports of foreign private issuers on Form 6-K (17 CFR 249.306).

    (a) Every foreign private issuer which is subject to Rule 13a-1 (17 
CFR 240.13a-1) shall make reports on Form 6-K, except that this rule 
shall not apply to:
    (1) Investment companies required to file reports pursuant to Rule 
30b1-1 (17 CFR 270.30b1-1);
    (2) Issuers of American depositary receipts for securities of any 
foreign issuer; or
    (3) Issuers filing periodic reports on Forms 10-K and Form 10-KSB, 
10-Q and Form 10-QSB and 8-K.
    (b) Such reports shall be transmitted promptly after the information 
required by Form 6-K is made public by the issuer, by the country of its 
domicile or under the laws of which it was incorporated or organized, or 
by a foreign securities exchange with which the issuer has filed the 
information.

[[Page 144]]

    (c) Reports furnished pursuant to this rule shall not be deemed to 
be ``filed'' for the purpose of section 18 of the Act or otherwise 
subject to the liabilities of that section.

[32 FR 7849, May 30, 1967, as amended at 44 FR 70137, Dec. 6, 1979; 47 
FR 54781, Dec. 6, 1982; 50 FR 27939, July 9, 1985; 57 FR 10615, Mar. 27, 
1991]



Sec. 240.13a-17  [Reserved]

  Regulation 13b-2: Maintenance of Records and Preparation of Required 
                                 Reports



Sec. 240.13b2-1  Falsification of accounting records.

    No person shall directly or indirectly, falsify or cause to be 
falsified, any book, record or account subject to section 13(b)(2)(A) of 
the Securities Exchange Act.

(15 U.S.C. 78m(b)(2); 15 U.S.C. 78m(a), 78m(b)(1), 78o(d), 78j(b), 
78n(a), 78t(b), 78t(c))

[44 FR 10970, Feb. 23, 1979]



Sec. 240.13b2-2  Representations and conduct in connection with the 
preparation of required reports and documents.

    (a) No director or officer of an issuer shall, directly or 
indirectly:
    (1) Make or cause to be made a materially false or misleading 
statement to an accountant in connection with; or
    (2) Omit to state, or cause another person to omit to state, any 
material fact necessary in order to make statements made, in light of 
the circumstances under which such statements were made, not misleading, 
to an accountant in connection with:
    (i) Any audit, review or examination of the financial statements of 
the issuer required to be made pursuant to this subpart; or
    (ii) The preparation or filing of any document or report required to 
be filed with the Commission pursuant to this subpart or otherwise.
    (b)(1) No officer or director of an issuer, or any other person 
acting under the direction thereof, shall directly or indirectly take 
any action to coerce, manipulate, mislead, or fraudulently influence any 
independent public or certified public accountant engaged in the 
performance of an audit or review of the financial statements of that 
issuer that are required to be filed with the Commission pursuant to 
this subpart or otherwise if that person knew or should have known that 
such action, if successful, could result in rendering the issuer's 
financial statements materially misleading.
    (2) For purposes of paragraphs (b)(1) and (c)(2) of this section, 
actions that, ``if successful, could result in rendering the issuer's 
financial statements materially misleading'' include, but are not 
limited to, actions taken at any time with respect to the professional 
engagement period to coerce, manipulate, mislead, or fraudulently 
influence an auditor:
    (i) To issue or reissue a report on an issuer's financial statements 
that is not warranted in the circumstances (due to material violations 
of generally accepted accounting principles, generally accepted auditing 
standards, or other professional or regulatory standards);
    (ii) Not to perform audit, review or other procedures required by 
generally accepted auditing standards or other professional standards;
    (iii) Not to withdraw an issued report; or
    (iv) Not to communicate matters to an issuer's audit committee.
    (c) In addition, in the case of an investment company registered 
under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), 
or a business development company as defined in section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), no officer or 
director of the company's investment adviser, sponsor, depositor, 
trustee, or administrator (or, in the case of paragraph (c)(2) of this 
section, any other person acting under the direction thereof) shall, 
directly or indirectly:
    (1)(i) Make or cause to be made a materially false or misleading 
statement to an accountant in connection with; or
    (ii) Omit to state, or cause another person to omit to state, any 
material fact necessary in order to make statements made, in light of 
the circumstances under which such statements were made, not misleading 
to an accountant in connection with:

[[Page 145]]

    (A) Any audit, review, or examination of the financial statements of 
the investment company required to be made pursuant to this subpart; or
    (B) The preparation or filing of any document or report required to 
be filed with the Commission pursuant to this subpart or otherwise; or
    (2) Take any action to coerce, manipulate, mislead, or fraudulently 
influence any independent public or certified public accountant engaged 
in the performance of an audit or review of the financial statements of 
that investment company that are required to be filed with the 
Commission pursuant to this subpart or otherwise if that person knew or 
should have known that such action, if successful, could result in 
rendering the investment company's financial statements materially 
misleading.

[68 FR 31830, May 28, 2003]

                             Regulation 13D

    Source: Sections 240.13d-1 through 240.13f-1 appear at 43 FR 18495, 
Apr. 28, 1978, unless otherwise noted.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec. 240.13d-1  Filing of Schedules 13D and 13G.

    (a) Any person who, after acquiring directly or indirectly the 
beneficial ownership of any equity security of a class which is 
specified in paragraph (i) of this section, is directly or indirectly 
the beneficial owner of more than five percent of the class shall, 
within 10 days after the acquisition, file with the Commission, a 
statement containing the information required by Schedule 13D (Sec. 
240.13d-101).
    (b)(1) A person who would otherwise be obligated under paragraph (a) 
of this section to file a statement on Schedule 13D (Sec. 240.13d-101) 
may, in lieu thereof, file with the Commission, a short-form statement 
on Schedule 13G (Sec. 240.13d-102), Provided, That:
    (i) Such person has acquired such securities in the ordinary course 
of his business and not with the purpose nor with the effect of changing 
or influencing the control of the issuer, nor in connection with or as a 
participant in any transaction having such purpose or effect, including 
any transaction subject to Rule 13d-3(b) (Sec. 240.13d-3(b)); and
    (ii) Such person is:
    (A) A broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o);
    (B) A bank as defined in section 3(a)(6) of the Act (15 U.S.C. 78c);
    (C) An insurance company as defined in section 3(a)(19) of the Act 
(15 U.S.C. 78c);
    (D) An investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-8);
    (E) Any person registered as an investment adviser under Section 203 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) or under the 
laws of any state;
    (F) An employee benefit plan as defined in Section 3(3) of the 
Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 
1001 et seq. (``ERISA'') that is subject to the provisions of ERISA, or 
any such plan that is not subject to ERISA that is maintained primarily 
for the benefit of the employees of a state or local government or 
instrumentality, or an endowment fund;
    (G) A parent holding company or control person, provided the 
aggregate amount held directly by the parent or control person, and 
directly and indirectly by their subsidiaries or affiliates that are not 
persons specified in Sec. 240.13d-1(b)(1)(ii)(A) through (I), does not 
exceed one percent of the securities of the subject class;
    (H) A savings association as defined in Section 3(b) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813);
    (I) A church plan that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-3); and

[[Page 146]]

    (J) A group, provided that all the members are persons specified in 
Sec. 240.13d-1(b)(1)(ii)(A) through (I); and
    (iii) Such person has promptly notified any other person (or group 
within the meaning of section 13(d)(3) of the Act) on whose behalf it 
holds, on a discretionary basis, securities exceeding five percent of 
the class, of any acquisition or transaction on behalf of such other 
person which might be reportable by that person under section 13(d) of 
the Act. This paragraph only requires notice to the account owner of 
information which the filing person reasonably should be expected to 
know and which would advise the account owner of an obligation he may 
have to file a statement pursuant to section 13(d) of the Act or an 
amendment thereto.
    (2) The Schedule 13G filed pursuant to paragraph (b)(1) of this 
section shall be filed within 45 days after the end of the calendar year 
in which the person became obligated under paragraph (b)(1) of this 
section to report the person's beneficial ownership as of the last day 
of the calendar year, Provided, That it shall not be necessary to file a 
Schedule 13G unless the percentage of the class of equity security 
specified in paragraph (i) of this section beneficially owned as of the 
end of the calendar year is more than five percent; However, if the 
person's direct or indirect beneficial ownership exceeds 10 percent of 
the class of equity securities prior to the end of the calendar year, 
the initial Schedule 13G shall be filed within 10 days after the end of 
the first month in which the person's direct or indirect beneficial 
ownership exceeds 10 percent of the class of equity securities, computed 
as of the last day of the month.
    (c) A person who would otherwise be obligated under paragraph (a) of 
this section to file a statement on Schedule 13D (Sec. 240.13d-101) 
may, in lieu thereof, file with the Commission, within 10 days after an 
acquisition described in paragraph (a) of this section, a short-form 
statement on Schedule 13G (Sec. 240.13d-102). Provided, That the 
person:
    (1) Has not acquired the securities with any purpose, or with the 
effect of, changing or influencing the control of the issuer, or in 
connection with or as a participant in any transaction having that 
purpose or effect, including any transaction subject to Sec. 240.13d-
3(b);
    (2) Is not a person reporting pursuant to paragraph (b)(1) of this 
section; and
    (3) Is not directly or indirectly the beneficial owner of 20 percent 
or more of the class.
    (d) Any person who, as of the end of any calendar year, is or 
becomes directly or indirectly the beneficial owner of more than five 
percent of any equity security of a class specified in paragraph (i) of 
this section and who is not required to file a statement under paragraph 
(a) of this section by virtue of the exemption provided by Section 
13(d)(6)(A) or (B) of the Act (15 U.S.C. 78m(d)(6)(A) or 78m(d)(6)(B)), 
or because the beneficial ownership was acquired prior to December 22, 
1970, or because the person otherwise (except for the exemption provided 
by Section 13(d)(6)(C) of the Act (15 U.S.C. 78m(d)(6)(C))) is not 
required to file a statement, shall file with the Commission, within 45 
days after the end of the calendar year in which the person became 
obligated to report under this paragraph (d), a statement containing the 
information required by Schedule 13G (Sec. 240.13d-102).
    (e)(1) Notwithstanding paragraphs (b) and (c) of this section and 
Sec. 240.13d-2(b), a person that has reported that it is the beneficial 
owner of more than five percent of a class of equity securities in a 
statement on Schedule 13G (Sec. 240.13d-102) pursuant to paragraph (b) 
or (c) of this section, or is required to report the acquisition but has 
not yet filed the schedule, shall immediately become subject to 
Sec. Sec. 240.13d-1(a) and 240.13d-2(a) and shall file a statement on 
Schedule 13D (Sec. 240.13d-101) within 10 days if, and shall remain 
subject to those requirements for so long as, the person:
    (i) Has acquired or holds the securities with a purpose or effect of 
changing or influencing control of the issuer, or in connection with or 
as a participant in any transaction having that purpose or effect, 
including any transaction subject to Sec. 240.13d-3(b); and
    (ii) Is at that time the beneficial owner of more than five percent 
of a class of equity securities described in Sec. 240.13d-1(i).

[[Page 147]]

    (2) From the time the person has acquired or holds the securities 
with a purpose or effect of changing or influencing control of the 
issuer, or in connection with or as a participant in any transaction 
having that purpose or effect until the expiration of the tenth day from 
the date of the filing of the Schedule 13D (Sec. 240.13d-101) pursuant 
to this section, that person shall not:
    (i) Vote or direct the voting of the securities described therein; 
or
    (ii) Acquire an additional beneficial ownership interest in any 
equity securities of the issuer of the securities, nor of any person 
controlling the issuer.
    (f)(1) Notwithstanding paragraph (c) of this section and Sec. 
240.13d-2(b), persons reporting on Schedule 13G (Sec. 240.13d-102) 
pursuant to paragraph (c) of this section shall immediately become 
subject to Sec. Sec. 240.13d-1(a) and 240.13d-2(a) and shall remain 
subject to those requirements for so long as, and shall file a statement 
on Schedule 13D (Sec. 240.13d-101) within 10 days of the date on which, 
the person's beneficial ownership equals or exceeds 20 percent of the 
class of equity securities.
    (2) From the time of the acquisition of 20 percent or more of the 
class of equity securities until the expiration of the tenth day from 
the date of the filing of the Schedule 13D (Sec. 240.13d-101) pursuant 
to this section, the person shall not:
    (i) Vote or direct the voting of the securities described therein, 
or
    (ii) Acquire an additional beneficial ownership interest in any 
equity securities of the issuer of the securities, nor of any person 
controlling the issuer.
    (g) Any person who has reported an acquisition of securities in a 
statement on Schedule 13G (Sec. 240.13d-102) pursuant to paragraph (b) 
of this section, or has become obligated to report on the Schedule 13G 
(Sec. 240.13d-102) but has not yet filed the Schedule, and thereafter 
ceases to be a person specified in paragraph (b)(1)(ii) of this section 
or determines that it no longer has acquired or holds the securities in 
the ordinary course of business shall immediately become subject to 
Sec. 240.13d-1(a) or Sec. 240.13d-1(c) (if the person satisfies the 
requirements specified in Sec. 240.13d-1(c)), and Sec. Sec. 240.13d-2 
(a), (b) or (d), and shall file, within 10 days thereafter, a statement 
on Schedule 13D (Sec. 240.13d-101) or amendment to Schedule 13G, as 
applicable, if the person is a beneficial owner at that time of more 
than five percent of the class of equity securities.
    (h) Any person who has filed a Schedule 13D (Sec. 240.13d-101) 
pursuant to paragraph (e), (f) or (g) of this section may again report 
its beneficial ownership on Schedule 13G (Sec. 240.13d-102) pursuant to 
paragraphs (b) or (c) of this section provided the person qualifies 
thereunder, as applicable, by filing a Schedule 13G (Sec. 240.13d-102) 
once the person determines that the provisions of paragraph (e), (f) or 
(g) of this section no longer apply.
    (i) For the purpose of this regulation, the term ``equity security'' 
means any equity security of a class which is registered pursuant to 
section 12 of that Act, or any equity security of any insurance company 
which would have been required to be so registered except for the 
exemption contained in section 12(g)(2)(G) of the Act, or any equity 
security issued by a closed-end investment company registered under the 
Investment Company Act of 1940; Provided, Such term shall not include 
securities of a class of non-voting securities.
    (j) For the purpose of sections 13(d) and 13(g), any person, in 
determining the amount of outstanding securities of a class of equity 
securities, may rely upon information set forth in the issuer's most 
recent quarterly or annual report, and any current report subsequent 
thereto, filed with the Commission pursuant to this Act, unless he knows 
or has reason to believe that the information contained therein is 
inaccurate.
    (k)(1) Whenever two or more persons are required to file a statement 
containing the information required by Schedule 13D or Schedule 13G with 
respect to the same securities, only one statement need be filed: 
Provided, That:
    (i) Each person on whose behalf the statement is filed is 
individually eligible to use the Schedule on which the information is 
filed;
    (ii) Each person on whose behalf the statement is filed is 
responsible for the

[[Page 148]]

timely filing of such statement and any amendments thereto, and for the 
completeness and accuracy of the information concerning such person 
contained therein; such person is not responsible for the completeness 
or accuracy of the information concerning the other persons making the 
filing, unless such person knows or has reason to believe that such 
information is inaccurate; and
    (iii) Such statement identifies all such persons, contains the 
required information with regard to each such person, indicates that 
such statement is filed on behalf of all such persons, and includes, as 
an exhibit, their agreement in writing that such a statement is filed on 
behalf of each of them.
    (2) A group's filing obligation may be satisfied either by a single 
joint filing or by each of the group's members making an individual 
filing. If the group's members elect to make their own filings, each 
such filing should identify all members of the group but the information 
provided concerning the other persons making the filing need only 
reflect information which the filing person knows or has reason to know.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6,) 13(g)(1), 13(g)(2), 
13(g)(5), 23; 48 Stat. 882, 894, 901; sec. 203(a), 49 Stat. 704; sec. 8, 
49 Stat. 1379; sec. 10, 78 Stat. 88a; sec. 2, 82 Stat. 454; secs. 1, 2, 
84 Stat. 1497; secs. 3, 10, 18, 89 Stat. 97, 119, 155; secs. 202, 203, 
91 Stat. 1494, 1498, 1499; (15 U.S.C. 78c(b), 78m(d)(1), 78m(d)(2), 
78m(d)(5), 78m(d)(6), 78m(g)(1), 78m(g)(2), 78m(g)(5), 78w))

[43 FR 18495, Apr. 28, 1978, as amended at 43 FR 29768, July 11, 1978; 
43 FR 55755, Nov. 29, 1978; 44 FR 10703, Feb. 23, 1979; 63 FR 2865, Jan. 
16, 1998; 63 FR 15287, Mar. 31, 1998]



Sec. 240.13d-2  Filing of amendments to Schedules 13D or 13G.

    (a) If any material change occurs in the facts set forth in the 
Schedule 13D (Sec. 240.13d-101) required by Sec. 240.13d-1(a), 
including, but not limited to, any material increase or decrease in the 
percentage of the class beneficially owned, the person or persons who 
were required to file the statement shall promptly file or cause to be 
filed with the Commission an amendment disclosing that change. An 
acquisition or disposition of beneficial ownership of securities in an 
amount equal to one percent or more of the class of securities shall be 
deemed ``material'' for purposes of this section; acquisitions or 
dispositions of less than those amounts may be material, depending upon 
the facts and circumstances.
    (b) Notwithstanding paragraph (a) of this section, and provided that 
the person filing a Schedule 13G (Sec. 240.13d-102) pursuant to Sec. 
240.13d-1(b) or Sec. 240.13d-1(c) continues to meet the requirements 
set forth therein, any person who has filed a Schedule 13G (Sec. 
240.13d-102) pursuant to Sec. 240.13d-1(b), Sec. 240.13d-1(c) or Sec. 
240.13d-1(d) shall amend the statement within forty-five days after the 
end of each calendar year if, as of the end of the calendar year, there 
are any changes in the information reported in the previous filing on 
that Schedule: Provided, however, That an amendment need not be filed 
with respect to a change in the percent of class outstanding previously 
reported if the change results solely from a change in the aggregate 
number of securities outstanding. Once an amendment has been filed 
reflecting beneficial ownership of five percent or less of the class of 
securities, no additional filings are required unless the person 
thereafter becomes the beneficial owner of more than five percent of the 
class and is required to file pursuant to Sec. 240.13d-1.
    (c) Any person relying on Sec. 240.13d-1(b) that has filed its 
initial Schedule 13G (Sec. 240.13d-102) pursuant to that paragraph 
shall, in addition to filing any amendments pursuant to Sec. 240.13d-
2(b), file an amendment on Schedule 13G (Sec. 240.13d-102) within 10 
days after the end of the first month in which the person's direct or 
indirect beneficial ownership, computed as of the last day of the month, 
exceeds 10 percent of the class of equity securities. Thereafter, that 
person shall, in addition to filing any amendments pursuant to Sec. 
240.13d-2(b), file an amendment on Schedule 13G (Sec. 240.13d-102) 
within 10 days after the end of the first month in which the person's 
direct or indirect beneficial ownership, computed as of the last day of 
the month, increases or decreases by more than five percent of the class 
of equity securities. Once an amendment has been filed reflecting 
beneficial ownership of five percent or less of the

[[Page 149]]

class of securities, no additional filings are required by this 
paragraph (c).
    (d) Any person relying on Sec. 240.13d-1(c) and has filed its 
initial Schedule 13G (Sec. 240.13d-102) pursuant to that paragraph 
shall, in addition to filing any amendments pursuant to Sec. 240.13d-
2(b), file an amendment on Schedule 13G (Sec. 240.13d-102) promptly 
upon acquiring, directly or indirectly, greater than 10 percent of a 
class of equity securities specified in Sec. 240.13d-1(d), and 
thereafter promptly upon increasing or decreasing its beneficial 
ownership by more than five percent of the class of equity securities. 
Once an amendment has been filed reflecting beneficial ownership of five 
percent or less of the class of securities, no additional filings are 
required by this paragraph (d).
    (e) The first electronic amendment to a paper format Schedule 13D 
(Sec. 240.13d-101 of this chapter) or Schedule 13G (Sec. 240.13d-102 
of this chapter) shall restate the entire text of the Schedule 13D or 
13G, but previously filed paper exhibits to such Schedules are not 
required to be restated electronically. See Rule 102 of Regulation S-T 
(Sec. 232.102 of this chapter) regarding amendments to exhibits 
previously filed in paper format. Notwithstanding the foregoing, if the 
sole purpose of filing the first electronic Schedule 13D or 13G 
amendment is to report a change in beneficial ownership that would 
terminate the filer's obligation to report, the amendment need not 
include a restatement of the entire text of the Schedule being amended.

    Note to Sec. 240.13d-2:
    For persons filing a short-form statement pursuant to Rule 13d-1(b) 
or (c), see also Rules 13d-1(e), (f), and (g).

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; sec. 203(a), 49 Stat. 704, sec. 8, 49 Stat. 
1379; sec. 10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w); sec. 23, 48 
Stat. 901; sec. 203(a), 49 Stat. 704; sec. 8, 49 Stat. 1379; sec. 10, 78 
Stat. 580; sec. 18, 89 Stat. 155; secs. 102, 202, 203, 91 Stat. 1494, 
1498, 1499; 15 U.S.C. 78m(g), 78w(a))

[43 FR 18495, Apr. 28, 1978, as amended at 45 FR 81558, Dec. 11, 1980; 
47 FR 49964, Nov. 4, 1982; 58 FR 14683, Mar. 18, 1993; 59 FR 67764, Dec. 
30, 1994; 62 FR 36459, July 8, 1997; 63 FR 2866, Jan. 16, 1998]



Sec. 240.13d-3  Determination of beneficial owner.

    (a) For the purposes of sections 13(d) and 13(g) of the Act a 
beneficial owner of a security includes any person who, directly or 
indirectly, through any contract, arrangement, understanding, 
relationship, or otherwise has or shares:
    (1) Voting power which includes the power to vote, or to direct the 
voting of, such security; and/or,
    (2) Investment power which includes the power to dispose, or to 
direct the disposition of, such security.
    (b) Any person who, directly or indirectly, creates or uses a trust, 
proxy, power of attorney, pooling arrangement or any other contract, 
arrangement, or device with the purpose of effect of divesting such 
person of beneficial ownership of a security or preventing the vesting 
of such beneficial ownership as part of a plan or scheme to evade the 
reporting requirements of section 13(d) or (g) of the Act shall be 
deemed for purposes of such sections to be the beneficial owner of such 
security.
    (c) All securities of the same class beneficially owned by a person, 
regardless of the form which such beneficial ownership takes, shall be 
aggregated in calculating the number of shares beneficially owned by 
such person.
    (d) Notwithstanding the provisions of paragraphs (a) and (c) of this 
rule:
    (1)(i) A person shall be deemed to be the beneficial owner of a 
security, subject to the provisions of paragraph (b) of this rule, if 
that person has the right to acquire beneficial ownership of such 
security, as defined in Rule 13d-3(a) (Sec. 240.13d-3(a)) within sixty 
days, including but not limited to any right to acquire: (A) Through the 
exercise of any option, warrant or right; (B) through the conversion of 
a security; (C) pursuant to the power to revoke a trust, discretionary 
account, or similar arrangement; or (D) pursuant to the automatic 
termination of a trust, discretionary account or similar arrangement; 
provided, however, any person who acquires a security or power specified 
in paragraphs (d)(1)(i)(A), (B) or (C), of this section, with the 
purpose or effect of changing or influencing the control of the issuer, 
or in connection

[[Page 150]]

with or as a participant in any transaction having such purpose or 
effect, immediately upon such acquisition shall be deemed to be the 
beneficial owner of the securities which may be acquired through the 
exercise or conversion of such security or power. Any securities not 
outstanding which are subject to such options, warrants, rights or 
conversion privileges shall be deemed to be outstanding for the purpose 
of computing the percentage of outstanding securities of the class owned 
by such person but shall not be deemed to be outstanding for the purpose 
of computing the percentage of the class by any other person.
    (ii) Paragraph (d)(1)(i) of this section remains applicable for the 
purpose of determining the obligation to file with respect to the 
underlying security even though the option, warrant, right or 
convertible security is of a class of equity security, as defined in 
Sec. 240.13d-1(i), and may therefore give rise to a separate obligation 
to file.
    (2) A member of a national securities exchange shall not be deemed 
to be a beneficial owner of securities held directly or indirectly by it 
on behalf of another person solely because such member is the record 
holder of such securities and, pursuant to the rules of such exchange, 
may direct the vote of such securities, without instruction, on other 
than contested matters or matters that may affect substantially the 
rights or privileges of the holders of the securities to be voted, but 
is otherwise precluded by the rules of such exchange from voting without 
instruction.
    (3) A person who in the ordinary course of his business is a pledgee 
of securities under a written pledge agreement shall not be deemed to be 
the beneficial owner of such pledged securities until the pledgee has 
taken all formal steps necessary which are required to declare a default 
and determines that the power to vote or to direct the vote or to 
dispose or to direct the disposition of such pledged securities will be 
exercised, provided, that:
    (i) The pledgee agreement is bona fide and was not entered into with 
the purpose nor with the effect of changing or influencing the control 
of the issuer, nor in connection with any transaction having such 
purpose or effect, including any transaction subject to Rule 13d-3(b);
    (ii) The pledgee is a person specified in Rule 13d-1(b)(ii), 
including persons meeting the conditions set forth in paragraph (G) 
thereof; and
    (iii) The pledgee agreement, prior to default, does not grant to the 
pledgee;
    (A) The power to vote or to direct the vote of the pledged 
securities; or
    (B) The power to dispose or direct the disposition of the pledged 
securities, other than the grant of such power(s) pursuant to a pledge 
agreement under which credit is extended subject to regulation T (12 CFR 
220.1 to 220.8) and in which the pledgee is a broker or dealer 
registered under section 15 of the act.
    (4) A person engaged in business as an underwriter of securities who 
acquires securities through his participation in good faith in a firm 
commitment underwriting registered under the Securities Act of 1933 
shall not be deemed to be the beneficial owner of such securities until 
the expiration of forty days after the date of such acquisition.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; sec. 203(a), 49 Stat. 704, sec. 8, 49 Stat. 
1379; sec. 10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w)

[43 FR 18495, Apr. 28, 1978, as amended at 43 FR 29768, July 11, 1978; 
63 FR 2867, Jan. 16, 1998]



Sec. 240.13d-4  Disclaimer of beneficial ownership.

    Any person may expressly declare in any statement filed that the 
filing of such statement shall not be construed as an admission that 
such person is, for the purposes of sections 13(d) or 13(g) of the Act, 
the beneficial owner of any securities covered by the statement.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; sec. 203(a), 49 Stat. 704, sec. 8, 49 Stat. 
1379; sec. 10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w)

[[Page 151]]



Sec. 240.13d-5  Acquisition of securities.

    (a) A person who becomes a beneficial owner of securities shall be 
deemed to have acquired such securities for purposes of section 13(d)(1) 
of the Act, whether such acquisition was through purchase or otherwise. 
However, executors or administrators of a decedent's estate generally 
will be presumed not to have acquired beneficial ownership of the 
securities in the decedent's estate until such time as such executors or 
administrators are qualified under local law to perform their duties.
    (b)(1) When two or more persons agree to act together for the 
purpose of acquiring, holding, voting or disposing of equity securities 
of an issuer, the group formed thereby shall be deemed to have acquired 
beneficial ownership, for purposes of sections 13(d) and (g) of the Act, 
as of the date of such agreement, of all equity securities of that 
issuer beneficially owned by any such persons.
    (2) Notwithstanding the previous paragraph, a group shall be deemed 
not to have acquired any equity securities beneficially owned by the 
other members of the group solely by virtue of their concerted actions 
relating to the purchase of equity securities directly from an issuer in 
a transaction not involving a public offering: Provided, That:
    (i) All the members of the group are persons specified in Rule 13d-
1(b)(1)(ii);
    (ii) The purchase is in the ordinary course of each member's 
business and not with the purpose nor with the effect of changing or 
influencing control of the issuer, nor in connection with or as a 
participant in any transaction having such purpose or effect, including 
any transaction subject to Rule 13d-3(b);
    (iii) There is no agreement among, or between any members of the 
group to act together with respect to the issuer or its securities 
except for the purpose of facilitating the specific purchase involved; 
and
    (iv) The only actions among or between any members of the group with 
respect to the issuer or its securities subsequent to the closing date 
of the non-public offering are those which are necessary to conclude 
ministerial matters directly related to the completion of the offer or 
sale of the securities.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; sec. 203(a), 49 Stat. 704, sec. 8, 49 Stat. 
1379; sec. 10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w))



Sec. 240.13d-6  Exemption of certain acquisitions.

    The acquisition of securities of an issuer by a person who, prior to 
such acquisition, was a beneficial owner of more than five percent of 
the outstanding securities of the same class as those acquired shall be 
exempt from section 13(d) of the Act: Provided, That:
    (a) The acquisition is made pursuant to preemptive subscription 
rights in an offering made to all holders of securities of the class to 
which the preemptive subscription rights pertain;
    (b) Such person does not acquire additional securities except 
through the exercise of his pro rata share of the preemptive 
subscription rights; and
    (c) The acquisition is duly reported, if required, pursuant to 
section 16(a) of the Act and the rules and regulations thereunder.

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 14(d)(1), 23; 48 
Stat. 882, 894, 895, 901; sec. 203(a), 49 Stat. 704, sec. 8, 49 Stat. 
1379; sec. 10, 78 Stat. 88a; secs. 2, 3, 82 Stat. 454, 455; secs. 1, 2, 
3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 
78m(d)(1), 89m(d)(2), 78m(d)(5), 78m(d)(6), 78n(d)(1), 78w))



Sec. 240.13d-7  Dissemination.

    One copy of the Schedule filed pursuant to Sec. Sec. 240.13d-1 and 
240.13d-2 shall be sent to the issuer of the security at its principal 
executive office by registered or certified mail. A copy of Schedules 
filed pursuant to Sec. Sec. 240.13d-1(a) and 240.13d-2(a) shall also be 
sent to each national securities exchange where the security is traded.

[63 FR 2867, Jan. 16, 1998]



Sec. 240.13d-101  Schedule 13D--Information to be included in 

statements filed pursuant to Sec. 240.13d-1(a) and amendments 
thereto filed pursuant to Sec. 240.13d-2(a).

Securities and Exchange Commission, Washington, D.C. 20549


[[Page 152]]


Schedule 13D

Under the Securities Exchange Act of 1934

(Amendment No.--)*
________________________________________________________________________
(Name of Issuer)
________________________________________________________________________
(Title of Class of Securities)
________________________________________________________________________
(CUSIP Number)
________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to Receive 
          Notices and Communications)
________________________________________________________________________
(Date of Event Which Requires Filing of This Statement)

    If the filing person has previously filed a statement on Schedule 
13G to report the acquisition that is the subject of this Schedule 13D, 
and is filing this schedule because of Sec. Sec. 240.13d-1(e), 240.13d-
1(f) or 240.13d-1(g), check the following box. [squ]
    Note: Schedules filed in paper format shall include a signed 
original and five copies of the schedule, including all exhibits. See 
Rule 13d-7 for other parties to whom copies are to be sent.

    * The remainder of this cover page shall be filled out for a 
reporting person's initial filing on this form with respect to the 
subject class of securities, and for any subsequent amendment containing 
information which would alter disclosures provided in a prior cover 
page.
    The information required on the remainder of this cover page shall 
not be deemed to be ``filed'' for the purpose of section 18 of the 
Securities Exchange Act of 1934 (``Act'') or otherwise subject to the 
liabilities of that section of the Act but shall be subject to all other 
provisions of the Act (however, see the Notes).

                             CUSIP No.------
------------------------------------------------------------------------
(1) Names of reporting persons.........
  I.R.S. Identification Nos. of above
   persons (entities only)..
----------------------------------------
(2) Check the appropriate box if a       (a)
 member of a group
                                        --------------------------------
           (see instructions)            (b)
----------------------------------------
(3) SEC use only.......................
----------------------------------------
(4) Source of funds (see instructions).
----------------------------------------
(5) Check if disclosure of legal
 proceedings is required pursuant to
 Items 2(d) or 2(e).
----------------------------------------
(6) Citizenship or place of
 organization.
----------------------------------------
Number of shares beneficially owned by
 each reporting person with:
  (7) Sole voting power................
                                        --------------------------------
  (8) Shared voting power..............
                                        --------------------------------
  (9) Sole dispositive power...........
                                        --------------------------------
  (10) Shared dispositive power........
----------------------------------------
(11) Aggregate amount beneficially
 owned by each reporting person.
----------------------------------------
(12) Check if the aggregate amount in
 Row (11) excludes certain shares (see
 instructions).
----------------------------------------
(13) Percent of class represented by
 amount in Row (11).
----------------------------------------
(14) Type of reporting person (see
 instructions).
------------------------------------------------------------------------

                           Page -- of -- Pages

Instructions for Cover Page

    (1) Names and I.R.S. Identifiaction Numbers of Reporting Persons-- 
Furnish the full legal name of each person for whom the report is 
filed--i.e., each person required to sign the schedule itself--including 
each member of a group. Do not include the name of a person required to 
be identified in the report but who is not a reporting person. Reporting 
persons that are entities are also requested to furnish their I.R.S. 
identification numbers,

[[Page 153]]

although disclosure of such numbers is voluntary, not mandatory (see 
``SPECIAL INSTRUCTIONS FOR COMPLYING WITH SCHEDULE 13-D'' below).
    (2) If any of the shares beneficially owned by a reporting person 
are held as a member of the group and the membership is expressly 
affirmed, please check row 2(a). If the reporting person disclaims 
membership in a group or describes a relationship with other person but 
does not affirm the existence of a group, please check row 2(b) (unless 
it is a joint filing pursuant to Rule 13d-1(k)(1) in which case it may 
not be necessary to check row 2(b)).
    (3) The 3rd row is for SEC internal use; please leave blank.
    (4) Classify the source of funds or other consideration used or to 
be used in making the purchases as required to be disclosed pursuant to 
Item 3 of Schedule 13D and insert the appropriate symbol (or symbols if 
more than one is necessary) in row (4):

------------------------------------------------------------------------
              Category of Source                         Symbol
------------------------------------------------------------------------
Subject Company (Company whose securities are  SC
 being acquired).
Bank.........................................  BK
Affiliate (of reporting person)..............  AF
Working Capital (of reporting person)........  WC
Personal Funds (of reporting person).........  PF
Other........................................  OO
------------------------------------------------------------------------

    (5) If disclosure of legal proceedings or actions is required 
pursuant to either Items 2(d) or 2(e) of Schedule 13D, row 5 should be 
checked.
    (6) Citizenship or Place of Organization--Furnish citizenship if the 
named reporting person is a natural person. Otherwise, Furnish place of 
organization. (See Item 2 of Schedule 13D).
    (7)-(11) [Reserved]
    (12) Check if the aggregate amount reported as beneficially owned in 
row (11) does not include shares which the reporting person discloses in 
the report but as to which beneficial ownership is disclaimed pursuant 
to Rule 13d-4 [17 CFR 240.13d-4] under the Securities Exchange Act of 
1934.
    (13) Aggregate Amount Beneficially Owned by Each Reporting Person, 
Etc.--Rows (7) through (11), inclusive, and (13) are to be completed in 
accordance with the provisions of Item 5 of Schedule 13D. All 
percentages are to be rounded off to nearest tenth (one place after 
decimal point).
    (14) Type of Reporting Person--Please classify each ``reporting 
person'' according to the following breakdown and place the appropriate 
symbol (or symbols, i.e., if more than one is applicable, insert all 
applicable symbols) on the form:

------------------------------------------------------------------------
                  Category                              Symbol
------------------------------------------------------------------------
Broker Dealer...............................  BD
Bank........................................  BK
Insurance Company...........................  IC
Investment Company..........................  IV
Investment Adviser..........................  IA
Employee Benefit Plan or Endowment Fund.....  EP
Parent Holding Company/Control Person.......  HC
Savings Association.........................  SA
Church Plan.................................  CP
Corporation.................................  CO
Partnership.................................  PN
Individual..................................  IN
Other.......................................  OO
------------------------------------------------------------------------

    Notes: Attach as many copies of the second part of the cover page as 
are needed, one reporting person per page.

    Filing persons may, in order to avoid unnecessary duplication, 
answer items on the schedules (Schedule 13D, 13G, or 14D-1) by 
appropriate cross references to an item or items on the cover page(s). 
This approach may only be used where the cover page item or items 
provide all the disclosure required by the schedule item. Moreover, such 
a use of a cover page item will result in the item becoming a part of 
the schedule and accordingly being considered as ``filed'' for purposes 
of section 18 of the Securities Exchange Act or otherwise subject to the 
liabilities of that section of the Act.
    Reporting persons may comply with their cover page filing 
requirements by filing either completed copies of the blank forms 
available from the Commission, printed or typed facsimiles, or computer 
printed facsim iles, provided the documents filed have identical formats 
to the forms prescribed in the Commission's regulations and meet 
existing Securities Exchange Act rules as to such matters as clarity and 
size (Securities Exchange Act Rule 12b-12).

          Special Instructions for Complying With Schedule 13D

    Under sections 13(d) and 23 of the Securities Exchange Act of 1934 
and the rules and regulations thereunder, the Commission is authorized 
to solicit the information required to be supplied by this schedule by 
certain security holders of certain issuers.
    Disclosure of the information specified in this schedule is 
mandatory, except for I.R.S. identification numbers, disclosure of which 
is voluntary. The information will be used for the primary purpose of 
determining and disclosing the holdings of certain beneficial owners of 
certain equity securities. This statement will be made a matter of 
public record. Therefore, any information given will be available for 
inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
utilize it for a variety of purposes, including referral to other 
governmental authorities or securities

[[Page 154]]

self-regulatory organizations for investigatory purposes or in 
connection with litigation involving the Federal securities laws or 
other civil, criminal or regulatory statutes or provisions. I.R.S. 
identification numbers, if furnished, will assist the Commission in 
identifying security holders and, therefore, in promptly processing 
statements of beneficial ownership of securities.
    Failure to disclose the information requested by this schedule, 
except for I.R.S. identification numbers, may result in civil or 
criminal action against the persons involved for violation of the 
Federal securities laws and rules promulgated thereunder.

    Instructions. A. The item numbers and captions of the items shall be 
included but the text of the items is to be omitted. The answers to the 
items shall be so prepared as to indicate clearly the coverage of the 
items without referring to the text of the items. Answer every item. If 
an item is inapplicable or the answer is in the negative, so state.
    B. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item or 
sub-item of the statement unless it would render such answer misleading, 
incomplete, unclear or confusing. Material incorporated by reference 
shall be clearly identified in the reference by page, paragraph, caption 
or otherwise. An express statement that the specified matter is 
incorporated by reference shall be made at the particular place in the 
statement where the information is required. A copy of any information 
or a copy of the pertinent pages of a document containing such 
information which is incorporated by reference shall be submitted with 
this statement as an exhibit and shall be deemed to be filed with the 
Commission for all purposes of the Act.
    C. If the statement is filed by a general or limited partnership, 
syndicate, or other group, the information called for by Items 2-6, 
inclusive, shall be given with respect to (i) each partner of such 
general partnership; (ii) each partner who is denominated as a general 
partner or who functions as a general partner of such limited 
partnership; (iii) each member of such syndicate or group; and (iv) each 
person controlling such partner or member. If the statement is filed by 
a corporation or if a person referred to in (i), (ii), (iii) or (iv) of 
this Instruction is a corporation, the information called for by the 
above mentioned items shall be given with respect to (a) each executive 
officer and director of such corporation; (b) each person controlling 
such corporation; and (c) each executive officer and director of any 
corporation or other person ultimately in control of such corporation.
    Item 1. Security and Issuer. State the title of the class of equity 
securities to which this statement relates and the name and address of 
the principal executive offices of the issuer of such securities.
    Item 2. Identity and Background. If the person filing this statement 
or any person enumerated in Instruction C of this statement is a 
corporation, general partnership, limited partnership, syndicate or 
other group of persons, state its name, the state or other place of its 
organization, its principal business, the address of its principal 
office and the information required by (d) and (e) of this Item. If the 
person filing this statement or any person enumerated in Instruction C 
is a natural person, provide the information specified in (a) through 
(f) of this Item with respect to such person(s).
    (a) Name;
    (b) Residence or business address;
    (c) Present principal occupation or employment and the name, 
principal business and address of any corporation or other organization 
in which such employment is conducted;
    (d) Whether or not, during the last five years, such person has been 
convicted in a criminal proceeding (excluding traffic violations or 
similar misdemeanors) and, if so, give the dates, nature of conviction, 
name and location of court, any penalty imposed, or other disposition of 
the case;
    (e) Whether or not, during the last five years, such person was a 
party to a civil proceeding of a judicial or administrative body of 
competent jurisdiction and as a result of such proceeding was or is 
subject to a judgment, decree or final order enjoining future violations 
of, or prohibiting or mandating activities subject to, federal or state 
securities laws or finding any violation with respect to such laws; and, 
if so, identify and describe such proceedings and summarize the terms of 
such judgment, decree or final order; and
    (f) Citizenship.
    Item 3. Source and Amount of Funds or Other Consideration. State the 
source and the amount of funds or other consideration used or to be used 
in making the purchases, and if any part of the purchase price is or 
will be represented by funds or other consideration borrowed or 
otherwise obtained for the purpose of acquiring, holding, trading or 
voting the securities, a description of the transaction and the names of 
the parties thereto. Where material, such information should also be 
provided with respect to prior acquisitions not previously reported 
pursuant to this regulation. If the source of all or any part of the 
funds is a loan made in the ordinary course of business by a bank, as 
defined in section 3(a)(6) of the Act, the name of the bank shall not be 
made available to the public if the person at the time of filing the 
statement so requests in writing and files such request, naming such 
bank, with the

[[Page 155]]

Secretary of the Commission. If the securities were acquired other than 
by purchase, describe the method of acquisition.
    Item 4. Purpose of Transaction. State the purpose or purposes of the 
acquisition of securities of the issuer. Describe any plans or proposals 
which the reporting persons may have which relate to or would result in:
    (a) The acquisition by any person of additional securities of the 
issuer, or the disposition of securities of the issuer;
    (b) An extraordinary corporate transaction, such as a merger, 
reorganization or liquidation, involving the issuer or any of its 
subsidiaries;
    (c) A sale or transfer of a material amount of assets of the issuer 
or any of its subsidiaries;
    (d) Any change in the present board of directors or management of 
the issuer, including any plans or proposals to change the number or 
term of directors or to fill any existing vacancies on the board;
    (e) Any material change in the present capitalization or dividend 
policy of the issuer;
    (f) Any other material change in the issuer's business or corporate 
structure, including but not limited to, if the issuer is a registered 
closed-end investment company, any plans or proposals to make any 
changes in its investment policy for which a vote is required by section 
13 of the Investment Company Act of 1940;
    (g) Changes in the issuer's charter, bylaws or instruments 
corresponding thereto or other actions which may impede the acquisition 
of control of the issuer by any person;
    (h) Causing a class of securities of the issuer to be delisted from 
a national securities exchange or to cease to be authorized to be quoted 
in an inter-dealer quotation system of a registered national securities 
association;
    (i) A class of equity securities of the issuer becoming eligible for 
termination of registration pursuant to section 12(g)(4) of the Act; or
    (j) Any action similar to any of those enumerated above.
    Item 5. Interest in Securities of the Issuer. (a) State the 
aggregate number and percentage of the class of securities identified 
pursuant to Item 1 (which may be based on the number of securities 
outstanding as contained in the most recently available filing with the 
Commission by the issuer unless the filing person has reason to believe 
such information is not current) beneficially owned (identifying those 
shares which there is a right to acquire) by each person named in Item 
2. The above mentioned information should also be furnished with respect 
to persons who, together with any of the persons named in Item 2, 
comprise a group within the meaning of section 13(d)(3) of the Act;
    (b) For each person named in response to paragraph (a), indicate the 
number of shares as to which there is sole power to vote or to direct 
the vote, sole power to dispose or to direct the disposition, or shared 
power to dispose or to direct the disposition. Provide the applicable 
information required by Item 2 with respect to each person with whom the 
power to vote or to direct the vote or to dispose or direct the 
disposition is shared;
    (c) Describe any transactions in the class of securities reported on 
that were effected during the past sixty days or since the most recent 
filing of Schedule 13D (Sec. 240.13d-101), whichever is less, by the 
persons named in response to paragraph (a).
    Instruction. The description of a transaction required by Item 5(c) 
shall include, but not necessarily be limited to: (1) The identity of 
the person covered by Item 5(c) who effected the transaction; (2) the 
date of transaction; (3) the amount of securities involved; (4) the 
price per share or unit; and (5) where and how the transaction was 
effected.
    (d) If any other person is known to have the right to receive or the 
power to direct the receipt of dividends from, or the proceeds from the 
sale of, such securities, a statement to that effect should be included 
in response to this item and, if such interest relates to more than five 
percent of the class, such person should be identified. A listing of the 
shareholders of an investment company registered under the Investment 
Company Act of 1940 or the beneficiaries of an employee benefit plan, 
pension fund or endowment fund is not required.
    (e) If applicable, state the date on which the reporting person 
ceased to be the beneficial owner of more than five percent of the class 
of securities.
    Instruction. For computations regarding securities which represent a 
right to acquire an underlying security, see Rule 13d-3(d)(1) and the 
note thereto.
    Item 6. Contracts, Arrangements, Understandings or Relationships 
With Respect to Securities of the Issuer. Describe any contracts, 
arrangements, understandings or relationships (legal or otherwise) among 
the persons named in Item 2 and between such persons and any person with 
respect to any securities of the issuer, including but not limited to 
transfer or voting of any of the securities, finder's fees, joint 
ventures, loan or option arrangements, puts or calls, guarantees of 
profits, division of profits or loss, or the giving or withholding of 
proxies, naming the persons with whom such contracts, arrangements, 
understandings or relationships have been entered into. Include such 
information for any of the securities that are pledged or otherwise 
subject to a contingency the occurrence of which would give another 
person voting power or investment power over such securities except that 
disclosure of standard default and similar provisions contained in loan 
agreements need not be included.

[[Page 156]]

    Item 7. Material to be Filed as Exhibits. The following shall be 
filed as exhibits: Copies of written agreements relating to the filing 
of joint acquisition statements as required by Rule 13d-1(k) and copies 
of all written agreements, contracts, arrangements, understanding, plans 
or proposals relating to: (1) The borrowing of funds to finance the 
acquisition as disclosed in Item 3; (2) the acquisition of issuer 
control, liquidation, sale of assets, merger, or change in business or 
corporate structure, or any other matter as disclosed in Item 4; and (3) 
the transfer or voting of the securities, finder's fees, joint ventures, 
options, puts, calls, guarantees of loans, guarantees against loss or of 
profit, or the giving or withholding of any proxy as disclosed in Item 
6.
    Signature. After reasonable inquiry and to the best of my knowledge 
and belief, I certify that the information set forth in this statement 
is true, complete and correct.
Date____________________________________________________________________
Signature_______________________________________________________________
Name/Title______________________________________________________________
    The original statement shall be signed by each person on whose 
behalf the statement is filed or his authorized representative. If the 
statement is signed on behalf of a person by his authorized 
representative (other than an executive officer or general partner of 
the filing person), evidence of the representative's authority to sign 
on behalf of such person shall be filed with the statement: Provided, 
however, That a power of attorney for this purpose which is already on 
file with the Commission may be incorporated by reference. The name and 
any title of each person who signs the statement shall be typed or 
printed beneath his signature.
    Attention--Intentional misstatements or omissions of fact constitute 
Federal criminal violations (See 18 U.S.C. 1001).

(Secs. 13(d), 13(g), 14(d), 23, 48 Stat. 894, 895, 901; sec. 8, 49 Stat. 
1379; sec. 203(a), 49 Stat. 704; sec. 10, 78 Stat. 88a; secs. 2, 3, 82 
Stat. 454, 455; secs. 1, 2, 3-5, 84 Stat. 1497; sec. 18, 89 Stat. 155; 
secs. 202, 203, 91 Stat. 1494, 1498, 1499; 15 U.S.C. 78m(d), 78m(g), 
78n(d), 78w)

[44 FR 2145, Jan. 9, 1979; 44 FR 11751, Mar. 2, 1979; 44 FR 70340, Dec. 
6, 1979; 47 FR 11466, Mar. 16, 1982; 61 FR 49959, Sept. 24, 1996; 62 FR 
35340, July 1, 1997; 63 FR 2867, Jan. 16, 1998; 63 FR 15287, Mar. 31, 
1998]



Sec. 240.13d-102  Schedule 13G--Information to be included in statements 

filed pursuant to Sec. 240.13d-1(b), (c), and (d) and amendments thereto 
filed pursuant to Sec. 240.13d-2.

Securities and Exchange Commission, Washington, D.C. 20549

Schedule 13G

Under the Securities Exchange Act of 1934

(Amendment No.--)*
________________________________________________________________________
(Name of Issuer)
________________________________________________________________________
(Title of Class of Securities)
________________________________________________________________________
(CUSIP Number)
________________________________________________________________________
(Date of Event Which Requires Filing of this Statement)

    Check the appropriate box to designate the rule pursuant to which 
this Schedule is filed:

[ ] Rule 13d-1(b)
[ ] Rule 13d-1(c)
[ ] Rule 13d-1(d)

    *The remainder of this cover page shall be filled out for a 
reporting person's initial filing on this form with respect to the 
subject class of securities, and for any subsequent amendment containing 
information which would alter the disclosures provided in a prior cover 
page.
    The information required in the remainder of this cover page shall 
not be deemed to be ``filed'' for the purpose of Section 18 of the 
Securities Exchange Act of 1934 (``Act'') or otherwise subject to the 
liabilities of that section of the Act but shall be subject to all other 
provisions of the Act (however, see the Notes).

                             CUSIP No.------
------------------------------------------------------------------------
(1) Names of reporting persons.........
  I.R.S. Identification Nos. of above
   persons (entities only)..
----------------------------------------
(2) Check the appropriate box if a       (a)
 member of a group
                                        --------------------------------
           (see instructions)            (b)
----------------------------------------
(3) SEC use only.......................
----------------------------------------
(4) Citizenship or place of
 organization.
----------------------------------------

[[Page 157]]

 
Number of shares beneficially owned by
 each reporting person with:
  (5) Sole voting power................
                                        --------------------------------
  (6) Shared voting power..............
                                        --------------------------------
  (7) Sole dispositive power...........
                                        --------------------------------
  (8) Shared dispositive power.........
----------------------------------------
(9) Aggregate amount beneficially owned
 by each reporting person.
----------------------------------------
(10) Check if the aggregate amount in
 Row (9) excludes certain shares (see
 instructions).
----------------------------------------
(11) Percent of class represented by
 amount in Row (9).
----------------------------------------
(12) Type of reporting person (see
 instructions).
------------------------------------------------------------------------

                           Page -- of -- Pages

Instructions for Cover Page:

    (1) Names and I.R.S. Identification Numbers of Reporting Persons-- 
Furnish the full legal name of each person for whom the report is 
filed--i.e., each person required to sign the schedule itself--including 
each member of a group. Do not include the name of a person required to 
be identified in the report but who is not a reporting person. Reporting 
persons that are entities are also requested to furnish their I.R.S. 
identification numbers, although disclosure of such numbers is 
voluntary, not mandatory (see ``SPECIAL INSTRUCTIONS FOR COMPLYING WITH 
SCHEDULE 13G'', below).
    (2) If any of the shares beneficially owned by a reporting person 
are held as a member of a group and that membership is expressly 
affirmed, please check row 2(a). If the reporting person disclaims 
membership in a group or describes a relationship with other person but 
does not affirm the existence of a group, please check row 2(b) [unless 
it is a joint filing pursuant to Rule 13d-1(k)(1) in which case it may 
not be necessary to check row 2(b)].
    (3) The third row is for SEC internal use; please leave blank.
    (4) Citizenship or Place of Organization--Furnish citizenship if the 
named reporting person is a natural person. Otherwise, furnish place of 
organization.
    (5)-(9), (11) Aggregated Amount Beneficially Owned By Each Reporting 
Person, etc.--Rows (5) through (9) inclusive, and (11) are to be 
completed in accordance with the provisions of Item 4 of Schedule 13G. 
All percentages are to be rounded off to the nearest tenth (one place 
after decimal point).
    (10) Check if the aggregate amount reported as beneficially owned in 
row (9) does not include shares as to which beneficial ownership is 
disclaimed pursuant to Rule 13d-4 [17 CFR 240.13d-4] under the 
Securities Exchange Act of 1934.
    (12) Type of Reporting Person--Please classify each ``reporting 
person'' according to the following breakdown (see Item 3 of Schedule 
13G) and place the appropriate symbol on the form:

------------------------------------------------------------------------
                  Category                              Symbol
------------------------------------------------------------------------
Broker Dealer...............................  BD
Bank........................................  BK
Insurance Company...........................  IC
Investment Company..........................  IV
Investment Adviser..........................  IA
Employee Benefit Plan or Endowment Fund.....  EP
Parent Holding Company/Control Person.......  HC
Savings Association.........................  SA
Church Plan.................................  CP
Corporation.................................  CO
Partnership.................................  PN
Individual..................................  IN
Other.......................................  OO
------------------------------------------------------------------------

    Notes: Attach as many copies of the second part of the cover page as 
are needed, one reporting person per page.
    Filing persons may, in order to avoid unnecessary duplication, 
answer items on the schedules (Schedule 13D, 13G, or 14D-1) by 
appropriate cross references to an item or items on the cover page(s). 
This approach may only be used where the cover page item or items 
provide all the disclosure required by the schedule item. Moreover, such 
a use of a cover page item will result in the item becoming a part of 
the schedule and accordingly being considered as ``filed'' for purposes 
of section 18 of the Securities Exchange Act or otherwise subject to the 
liabilities of that section of the Act.
    Reporting persons may comply with their cover page filing 
requirements by filing either completed copies of the blank forms 
available from the Commission, printed or typed facsimiles, or computer 
printed facsimiles, provided the documents filed have identical formats 
to the forms prescribed in

[[Page 158]]

the Commission's regulations and meet existing Securities Exchange Act 
rules as to such matters as clarity and size (Securities Exchange Act 
Rule 12b-12).

          Special Instructions for Complying With Schedule 13G

    Under Sections 13 (d), 13(g) and 23 of the Securities Exchange Act 
of 1934 and the rules and regulations thereunder, the Commission is 
authorized to solicit the information required to be supplied by this 
schedule by certain security holders of certain issuers.
    Disclosure of the information specified in this schedule is 
mandatory, except for I.R.S. identification numbers, disclosure of which 
is voluntary. The information will be used for the primary purpose of 
determining and disclosing the holdings of certain beneficial owners of 
certain equity securities. This statement will be made a matter of 
public record. Therefore, any information given will be available for 
inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
use it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
Federal securities laws or other civil, criminal or regulatory statutes 
or provisions. I.R.S. identification numbers, if furnished, will assist 
the Commission in identifying security holders and, therefore, in 
promptly processing statements of beneficial ownership of securities.
    Failure to disclose the information requested by this schedule, 
except for I.R.S. identification numbers, may result in civil or 
criminal action against the persons involved for violation of the 
Federal securities laws and rules promulgated thereunder.
    Instructions. A. Statements filed pursuant to Rule 13d-1(b) 
containing the information required by this schedule shall be filed not 
later than February 14 following the calendar year covered by the 
statement or within the time specified in Rules 13d-1(b)(2) and 13d-
2(c). Statements filed pursuant to Rule 13d-1(d) shall be filed within 
the time specified in Rules 13d-1(c), 13d-2(b) and 13d-2(d). Statements 
filed pursuant to Rule 13d-1(c) shall be filed not later than February 
14 following the calendar year covered by the statement pursuant to 
Rules 13d-1(d) and 13d-2(b).
    B. Information contained in a form which is required to be filed by 
rules under section 13(f) (15 U.S.C. 78m(f)) for the same calendar year 
as that covered by a statement on this schedule may be incorporated by 
reference in response to any of the items of this schedule. If such 
information is incorporated by reference in this schedule, copies of the 
relevant pages of such form shall be filed as an exhibit to this 
schedule.
    C. The item numbers and captions of the items shall be included but 
the text of the items is to be omitted. The answers to the items shall 
be so prepared as to indicate clearly the coverage of the items without 
referring to the text of the items. Answer every item. If an item is 
inapplicable or the answer is in the negative, so state.
    Item 1(a) Name of issuer:------
    Item 1(b) Address of issuer's principal executive offices:--------
    2(a) Name of person filing:
________________________________________________________________________
    2(b) Address or principal business office or, if none, residence:
________________________________________________________________________
    2(c) Citizenship:
________________________________________________________________________
    2(d) Title of class of securities:
________________________________________________________________________
    2(e) CUSIP No.:
________________________________________________________________________
    Item 3. If this statement is filed pursuant to Sec. Sec. 240.13d-
1(b) or 240.13d-2(b) or (c), check whether the person filing is a:
    (a) [ ] Broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o).
    (b) [ ] Bank as defined in section 3(a)(6) of the Act (15 U.S.C. 
78c).
    (c) [ ] Insurance company as defined in section 3(a)(19) of the Act 
(15 U.S.C. 78c).
    (d) [ ] Investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C 80a-8).
    (e) [ ] An investment adviser in accordance with Sec. 240.13d-
1(b)(1)(ii)(E);
    (f) [ ] An employee benefit plan or endowment fund in accordance 
with Sec. 240.13d-1(b)(1)(ii)(F);
    (g) [ ] A parent holding company or control person in accordance 
with Sec. 240.13d-1(b)(1)(ii)(G);
    (h) [ ] A savings associations as defined in Section 3(b) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813);
    (i) [ ] A church plan that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-3);
    (j) [ ] Group, in accordance with Sec. 240.13d-1(b)(1)(ii)(J).

                            Item 4. Ownership

    Provide the following information regarding the aggregate number and 
percentage of the class of securities of the issuer identified in Item 
1.
    (a) Amount beneficially owned: ----------.
    (b) Percent of class: ----------.
    (c) Number of shares as to which the person has:
    (i) Sole power to vote or to direct the vote ----------.
    (ii) Shared power to vote or to direct the vote ----------.

[[Page 159]]

    (iii) Sole power to dispose or to direct the disposition of --------
--.
    (iv) Shared power to dispose or to direct the disposition of ------
----.
    Instruction. For computations regarding securities which represent a 
right to acquire an underlying security see Sec. 240.13d-3(d)(1).
    Item 5. Ownership of 5 Percent or Less of a Class. If this statement 
is being filed to report the fact that as of the date hereof the 
reporting person has ceased to be the beneficial owner of more than 5 
percent of the class of securities, check the following [ ].
    Instruction. Dissolution of a group requires a response to this 
item.
    Item 6. Ownership of More than 5 Percent on Behalf of Another 
Person. If any other person is known to have the right to receive or the 
power to direct the receipt of dividends from, or the proceeds from the 
sale of, such securities, a statement to that effect should be included 
in response to this item and, if such interest relates to more than 5 
percent of the class, such person should be identified. A listing of the 
shareholders of an investment company registered under the Investment 
Company Act of 1940 or the beneficiaries of employee benefit plan, 
pension fund or endowment fund is not required.
    Item 7. Identification and Classification of the Subsidiary Which 
Acquired the Security Being Reported on by the Parent Holding Company or 
Control Person. If a parent holding company or control person has filed 
this schedule pursuant to Rule 13d-1(b)(1)(ii)(G), so indicate under 
Item 3(g) and attach an exhibit stating the identity and the Item 3 
classification of the relevant subsidiary. If a parent holding company 
or control person has filed this schedule pursuant to Rule 13d-1(c) or 
Rule 13d-1(d), attach an exhibit stating the identification of the 
relevant subsidiary.

    Item 8. Identification and Classification of Members of the Group

    If a group has filed this schedule pursuant to Sec. 240.13d-
1(b)(1)(ii)(J), so indicate under Item 3(j) and attach an exhibit 
stating the identity and Item 3 classification of each member of the 
group. If a group has filed this schedule pursuant to Rule 13d-1(c) or 
Rule 13d-1(d), attach an exhibit stating the identity of each member of 
the group.
    Item 9. Notice of Dissolution of Group. Notice of dissolution of a 
group may be furnished as an exhibit stating the date of the dissolution 
and that all further filings with respect to transactions in the 
security reported on will be filed, if required, by members of the 
group, in their individual capacity. See Item 5.

                         Item 10. Certifications

    (a) The following certification shall be included if the statement 
is filed pursuant to Sec. 240.13d-1(b):
    By signing below I certify that, to the best of my knowledge and 
belief, the securities referred to above were acquired and are held in 
the ordinary course of business and were not acquired and are not held 
for the purpose of or with the effect of changing or influencing the 
control of the issuer of the securities and were not acquired and are 
not held in connection with or as a participant in any transaction 
having that purpose or effect.
    (b) The following certification shall be included if the statement 
is filed pursuant to Sec. 240.13d-1(c):
    By signing below I certify that, to the best of my knowledge and 
belief, the securities referred to above were not acquired and are not 
held for the purpose of or with the effect of changing or influencing 
the control of the issuer of the securities and were not acquired and 
are not held in connection with or as a participant in any transaction 
having that purpose or effect.
    Signature. After reasonable inquiry and to the best of my knowledge 
and belief, I certify that the information set forth in this statement 
is true, complete and correct.
    Dated:----
                                                             ----------.
                                                              Signature.
                                                             ----------.
                                                             Name/Title.

    The original statement shall be signed by each person on whose 
behalf the statement is filed or his authorized representative. If the 
statement is signed on behalf of a person by his authorized 
representative other than an executive officer or general partner of the 
filing person, evidence of the representative's authority to sign on 
behalf of such person shall be filed with the statement, Provided, 
however, That a power of attorney for this purpose which is already on 
file with the Commission may be incorporated by reference. The name and 
any title of each person who signs the statement shall be typed or 
printed beneath his signature.

    Note: Schedules filed in paper format shall include a signed 
original and five copies of the schedule, including all exhibits. See 
Rule 13d-7 for other parties for whom copies are to be sent.
    Attention: Intentional misstatements or omissions of fact

[[Page 160]]

constitute Federal criminal violations (see 18 U.S.C. 1001).

(Secs. 3(b), 13(d)(1), 13(d)(2), 13(d)(5), 13(d)(6), 13(g)(1), 13(g)(2), 
13(g)(5), 23, 48 Stat. 882, 894, 901; sec. 203(a), 49 Stat. 704; sec. 8, 
49 Stat. 1379; sec. 10, 78 Stat. 88a; sec. 2, 82 Stat. 454; secs. 1, 2, 
84 Stat. 1497; secs. 3, 10, 18, 89 Stat. 97, 119, 155; secs. 202, 203, 
91 Stat. 1494, 1498, 1499; (15 U.S.C. 78c(b), 78m(d)(1), 78m(d)(2), 
78m(d)(5), 78m(d)(6), 78m(g)(1), 78m(g)(2), 78m(g)(5), 78w))

[43 FR 18499, Apr. 28, 1978, as amended at 43 FR 55756, Nov. 29, 1978; 
44 FR 2148, Jan. 9, 1979; 44 FR 11751, Mar. 2, 1979; 61 FR 49959, Sept. 
24, 1996; 62 FR 35340, July 1, 1997; 63 FR 2867, Jan. 16, 1998; 63 FR 
15287, Mar. 31, 1998]



Sec. 240.13e-1  Purchase of securities by the issuer during a 
third-party tender offer.

    An issuer that has received notice that it is the subject of a 
tender offer made under Section 14(d)(1) of the Act (15 U.S.C. 78n), 
that has commenced under Sec. 240.14d-2 must not purchase any of its 
equity securities during the tender offer unless the issuer first:
    (a) Files a statement with the Commission containing the following 
information:
    (1) The title and number of securities to be purchased;
    (2) The names of the persons or classes of persons from whom the 
issuer will purchase the securities;
    (3) The name of any exchange, inter-dealer quotation system or any 
other market on or through which the securities will be purchased;
    (4) The purpose of the purchase;
    (5) Whether the issuer will retire the securities, hold the 
securities in its treasury, or dispose of the securities. If the issuer 
intends to dispose of the securities, describe how it intends to do so; 
and
    (6) The source and amount of funds or other consideration to be used 
to make the purchase. If the issuer borrows any funds or other 
consideration to make the purchase or enters any agreement for the 
purpose of acquiring, holding, or trading the securities, describe the 
transaction and agreement and identify the parties; and
    (b) Pays the fee required by Sec. 240.0-11 when it files the 
initial statement.
    (c) This section does not apply to periodic repurchases in 
connection with an employee benefit plan or other similar plan of the 
issuer so long as the purchases are made in the ordinary course and not 
in response to the tender offer.

    Instruction to Sec. 240.13e-1:
    File eight copies if paper filing is permitted.

[64 FR 61452, Nov. 10, 1999]



Sec. 240.13e-2  [Reserved]



Sec. 240.13e-3  Going private transactions by certain issuers or their affiliates.

    (a) Definitions. Unless indicated otherwise or the context otherwise 
requires, all terms used in this section and in Schedule 13E-3 [Sec. 
240.13e-100] shall have the same meaning as in the Act or elsewhere in 
the General Rules and Regulations thereunder. In addition, the following 
definitions apply:
    (1) An affiliate of an issuer is a person that directly or 
indirectly through one or more intermediaries controls, is controlled 
by, or is under common control with such issuer. For the purposes of 
this section only, a person who is not an affiliate of an issuer at the 
commencement of such person's tender offer for a class of equity 
securities of such issuer will not be deemed an affiliate of such issuer 
prior to the stated termination of such tender offer and any extensions 
thereof;
    (2) The term purchase means any acquisition for value including, but 
not limited to, (i) any acquisition pursuant to the dissolution of an 
issuer subsequent to the sale or other disposition of substantially all 
the assets of such issuer to its affiliate, (ii) any acquisition 
pursuant to a merger, (iii) any acquisition of fractional interests in 
connection with a reverse stock split, and (iv) any acquisition subject 
to the control of an issuer or an affiliate of such issuer;
    (3) A Rule 13e-3 transaction is any transaction or series of 
transactions involving one or more of the transactions described in 
paragraph (a)(3)(i) of this section which has either a reasonable 
likelihood or a purpose of producing, either directly or indirectly, any 
of the effects described in paragraph (a)(3)(ii) of this section;
    (i) The transactions referred to in paragraph (a)(3) of this section 
are:

[[Page 161]]

    (A) A purchase of any equity security by the issuer of such security 
or by an affiliate of such issuer;
    (B) A tender offer for or request or invitation for tenders of any 
equity security made by the issuer of such class of securities or by an 
affiliate of such issuer; or
    (C) A solicitation subject to Regulation 14A [Sec. Sec. 240.14a-1 
to 240.14b-1] of any proxy, consent or authorization of, or a 
distribution subject to Regulation 14C [Sec. Sec. 240.14c-1 to 14c-101] 
of information statements to, any equity security holder by the issuer 
of the class of securities or by an affiliate of such issuer, in 
connection with: a merger, consolidation, reclassification, 
recapitalization, reorganization or similar corporate transaction of an 
issuer or between an issuer (or its subsidiaries) and its affiliate; a 
sale of substantially all the assets of an issuer to its affiliate or 
group of affiliates; or a reverse stock split of any class of equity 
securities of the issuer involving the purchase of fractional interests.
    (ii) The effects referred to in paragraph (a)(3) of this section 
are:
    (A) Causing any class of equity securities of the issuer which is 
subject to section 12(g) or section 15(d) of the Act to be held of 
record by less than 300 persons; or
    (B) Causing any class of equity securities of the issuer which is 
either listed on a national securities exchange or authorized to be 
quoted in an inter-dealer quotation system of a registered national 
securities association to be neither listed on any national securities 
exchange nor authorized to be quoted on an inter-dealer quotation system 
of any registered national securities association.
    (4) An unaffiliated security holder is any security holder of an 
equity security subject to a Rule 13e-3 transaction who is not an 
affiliate of the issuer of such security.
    (b) Application of section to an issuer (or an affiliate of such 
issuer) subject to section 12 of the Act. (1) It shall be a fraudulent, 
deceptive or manipulative act or practice, in connection with a Rule 
13e-3 transaction, for an issuer which has a class of equity securities 
registered pursuant to section 12 of the Act or which is a closed-end 
investment company registered under the Investment Company Act of 1940, 
or an affiliate of such issuer, directly or indirectly
    (i) To employ any device, scheme or artifice to defraud any person;
    (ii) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, in 
light of the circumstances under which they were made, not misleading; 
or
    (iii) To engage in any act, practice or course of business which 
operates or would operate as a fraud or deceit upon any person.
    (2) As a means reasonably designed to prevent fraudulent, deceptive 
or manipulative acts or practices in connection with any Rule 13e-3 
transaction, it shall be unlawful for an issuer which has a class of 
equity securities registered pursuant to section 12 of the Act, or an 
affiliate of such issuer, to engage, directly or indirectly, in a Rule 
13e-3 transaction unless:
    (i) Such issuer or affiliate complies with the requirements of 
paragraphs (d), (e) and (f) of this section; and
    (ii) The Rule 13e-3 transaction is not in violation of paragraph 
(b)(1) of this section.
    (c) Application of section to an issuer (or an affiliate of such 
issuer) subject to section 15(d) of the Act. (1) It shall be unlawful as 
a fraudulent, deceptive or manipulative act or practice for an issuer 
which is required to file periodic reports pursuant to Section 15(d) of 
the Act, or an affiliate of such issuer, to engage, directly or 
indirectly, in a Rule 13e-3 transaction unless such issuer or affiliate 
complies with the requirements of paragraphs (d), (e) and (f) of this 
section.
    (2) An issuer or affiliate which is subject to paragraph (c)(1) of 
this section and which is soliciting proxies or distributing information 
statements in connection with a transaction described in paragraph 
(a)(3)(i)(A) of this section may elect to use the timing procedures for 
conducting a solicitation subject to Regulation 14A (Sec. Sec. 240.14a-
1 to 240.14b-1) or a distribution subject to Regulation 14C (Sec. Sec. 
240.14c-1 to 240.14c-101) in complying with paragraphs (d), (e) and (f) 
of this section, provided that if an election is

[[Page 162]]

made, such solicitation or distribution is conducted in accordance with 
the requirements of the respective regulations, including the filing of 
preliminary copies of soliciting materials or an information statement 
at the time specified in Regulation 14A or 14C, respectively.
    (d) Material required to be filed. The issuer or affiliate engaging 
in a Rule 13e-3 transaction must file with the Commission:
    (1) A Schedule 13E-3 (Sec. 240.13e-100), including all exhibits;
    (2) An amendment to Schedule 13E-3 reporting promptly any material 
changes in the information set forth in the schedule previously filed; 
and
    (3) A final amendment to Schedule 13E-3 reporting promptly the 
results of the Rule 13e-3 transaction.
    (e) Disclosure of information to security holders. (1) In addition 
to disclosing the information required by any other applicable rule or 
regulation under the federal securities laws, the issuer or affiliate 
engaging in a Sec. 240.13e-3 transaction must disclose to security 
holders of the class that is the subject of the transaction, as 
specified in paragraph (f) of this section, the following:
    (i) The information required by Item 1 of Schedule 13E-3 (Sec. 
240.13e-100) (Summary Term Sheet);
    (ii) The information required by Items 7, 8 and 9 of Schedule 13E-3, 
which must be prominently disclosed in a ``Special Factors'' section in 
the front of the disclosure document;
    (iii) A prominent legend on the outside front cover page that 
indicates that neither the Securities and Exchange Commission nor any 
state securities commission has: approved or disapproved of the 
transaction; passed upon the merits or fairness of the transaction; or 
passed upon the adequacy or accuracy of the disclosure in the document. 
The legend also must make it clear that any representation to the 
contrary is a criminal offense;
    (iv) The information concerning appraisal rights required by Sec. 
229.1016(f) of this chapter; and
    (v) The information required by the remaining items of Schedule 13E-
3, except for Sec. 229.1016 of this chapter (exhibits), or a fair and 
adequate summary of the information.

    Instructions to paragraph (e)(1):
    1. If the Rule 13e-3 transaction also is subject to Regulation 14A 
(Sec. Sec. 240.14a-1 through 240.14b-2) or 14C (Sec. Sec. 240.14c-1 
through 240.14c-101), the registration provisions and rules of the 
Securities Act of 1933, Regulation 14D or Sec. 240.13e-4, the 
information required by paragraph (e)(1) of this section must be 
combined with the proxy statement, information statement, prospectus or 
tender offer material sent or given to security holders.
    2. If the Rule 13e-3 transaction involves a registered securities 
offering, the legend required by Sec. 229.501(b)(7) of this chapter 
must be combined with the legend required by paragraph (e)(1)(iii) of 
this section.
    3. The required legend must be written in clear, plain language.

    (2) If there is any material change in the information previously 
disclosed to security holders, the issuer or affiliate must disclose the 
change promptly to security holders as specified in paragraph 
(f)(1)(iii) of this section.
    (f) Dissemination of information to security holders. (1) If the 
Rule 13e-3 transaction involves a purchase as described in paragraph 
(a)(3)(i)(A) of this section or a vote, consent, authorization, or 
distribution of information statements as described in paragraph 
(a)(3)(i)(C) of this section, the issuer or affiliate engaging in the 
Rule 13e-3 transaction shall:
    (i) Provide the information required by paragraph (e) of this 
section: (A) In accordance with the provisions of any applicable Federal 
or State law, but in no event later than 20 days prior to: any such 
purchase; any such vote, consent or authorization; or with respect to 
the distribution of information statements, the meeting date, or if 
corporate action is to be taken by means of the written authorization or 
consent of security holders, the earliest date on which corporate action 
may be taken: Provided, however, That if the purchase subject to this 
section is pursuant to a tender offer excepted from Rule 13e-4 by 
paragraph (g)(5) of Rule 13e-4, the information required by paragraph 
(e) of this section shall be disseminated in accordance with paragraph 
(e) of Rule 13e-4 no later than 10 business days prior to any purchase 
pursuant to such tender offer, (B) to each person who is a record holder 
of a class of equity securities subject to the Rule 13e-3 transaction as 
of a date not more than 20

[[Page 163]]

days prior to the date of dissemination of such information.
    (ii) If the issuer or affiliate knows that securities of the class 
of securities subject to the Rule 13e-3 transaction are held of record 
by a broker, dealer, bank or voting trustee or their nominees, such 
issuer or affiliate shall (unless Rule 14a-13(a) [Sec. 240.14a-13(a)] 
or 14c-7 [Sec. 240.14c-7] is applicable) furnish the number of copies 
of the information required by paragraph (e) of this section that are 
requested by such persons (pursuant to inquiries by or on behalf of the 
issuer or affiliate), instruct such persons to forward such information 
to the beneficial owners of such securities in a timely manner and 
undertake to pay the reasonable expenses incurred by such persons in 
forwarding such information; and
    (iii) Promptly disseminate disclosure of material changes to the 
information required by paragraph (d) of this section in a manner 
reasonably calculated to inform security holders.
    (2) If the Rule 13e-3 transaction is a tender offer or a request or 
invitation for tenders of equity securities which is subject to 
Regulation 14D [Sec. Sec. 240.14d-1 to 240.14d-101] or Rule 13e-4 
[Sec. 240.13e-4], the tender offer containing the information required 
by paragraph (e) of this section, and any material change with respect 
thereto, shall be published, sent or given in accordance with Regulation 
14D or Rule 13e-4, respectively, to security holders of the class of 
securities being sought by the issuer or affiliate.
    (g) Exceptions. This section shall not apply to:
    (1) Any Rule 13e-3 transaction by or on behalf of a person which 
occurs within one year of the date of termination of a tender offer in 
which such person was the bidder and became an affiliate of the issuer 
as a result of such tender offer: Provided, That the consideration 
offered to unaffiliated security holders in such Rule 13e-3 transaction 
is at least equal to the highest consideration offered during such 
tender offer and Provided further, That:
    (i) If such tender offer was made for any or all securities of a 
class of the issuer;
    (A) Such tender offer fully disclosed such person's intention to 
engage in a Rule 13e-3 transaction, the form and effect of such 
transaction and, to the extent known, the proposed terms thereof; and
    (B) Such Rule 13e-3 transaction is substantially similar to that 
described in such tender offer; or
    (ii) If such tender offer was made for less than all the securities 
of a class of the issuer:
    (A) Such tender offer fully disclosed a plan of merger, a plan of 
liquidation or a similar binding agreement between such person and the 
issuer with respect to a Rule 13e-3 transaction; and
    (B) Such Rule 13e-3 transaction occurs pursuant to the plan of 
merger, plan of liquidation or similar binding agreement disclosed in 
the bidder's tender offer.
    (2) Any Rule 13e-3 transaction in which the security holders are 
offered or receive only an equity security Provided, That:
    (i) Such equity security has substantially the same rights as the 
equity security which is the subject of the Rule 13e-3 transaction 
including, but not limited to, voting, dividends, redemption and 
liquidation rights except that this requirement shall be deemed to be 
satisfied if unaffiliated security holders are offered common stock;
    (ii) Such equity security is registered pursuant to section 12 of 
the Act or reports are required to be filed by the issuer thereof 
pursuant to section 15(d) of the Act; and
    (iii) If the security which is the subject of the Rule 13e-3 
transaction was either listed on a national securities exchange or 
authorized to be quoted in an interdealer quotation system of a 
registered national securities association, such equity security is 
either listed on a national securities exchange or authorized to be 
quoted in an inter-dealer quotation system of a registered national 
securities association.
    (3) Transactions by a holding company registered under the Public 
Utility Holding Company Act of 1935 in compliance with the provisions of 
that Act;
    (4) Redemptions, calls or similar purchases of an equity security by 
an issuer pursuant to specific provisions set forth in the instrument(s) 
creating

[[Page 164]]

or governing that class of equity securities; or
    (5) Any solicitation by an issuer with respect to a plan of 
reorganization under Chapter XI of the Bankruptcy Act, as amended, if 
made after the entry of an order approving such plan pursuant to section 
1125(b) of that Act and after, or concurrently with, the transmittal of 
information concerning such plan as required by section 1125(b) of that 
Act.
    (6) Any tender offer or business combination made in compliance with 
Sec. 230.802 of this chapter, Sec. 240.13e-4(h)(8) or Sec. 240.14d-
1(c).

(Sec. 17(a), 19(a), 48 Stat. 84, 85; secs. 3(b), 10(b), 13(e), 14(a), 
14(d), 14(e), 23(a), 48 Stat. 882, 894, 895, 891, 901; sec. 209, 48 
Stat. 908; sec. 203(a), 49 Stat. 704; sec. 8, 49 Stat. 1379; sec. 10, 68 
Stat. 686; sec. 5, 78 Stat. 569, 570; secs. 2, 3, 82 Stat. 454, 455; 
secs. 1, 2, 3-5, 84 Stat. 1497; secs. 3, 18, 89 Stat. 97, 155; 15 U.S.C. 
77g(a), 77s(a), 78c(b), 78j(b), 78m(e), 78n(a), 78n(c), 78n(e), 78w(a); 
secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85, secs. 205, 209, 48 
Stat. 906, 908; sec. 301, 54 Stat. 857; sec. 8, 88 Stat. 685; sec. 1, 79 
Stat. 1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 13, 14, 15(d), 23(a), 
48 Stat. 892, 895, 901; secs. 1, 3, 8, 49 Stat. 1375, 1377, 1379; sec 
203(a), 49 Stat. 704; sec. 202, 68 Stat. 686; secs. 3, 4, 5, 6, 78 Stat. 
565-568, 569, 570-574; secs. 1, 2, 3, 82 Stat. 454, 455; secs. 28(c), 1, 
2, 3-5, 84 Stat. 1435, 1497; sec. 105(b), 88 Stat. 1503; secs. 8, 9, 10, 
18, 89 Stat. 117, 118, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 
203, 204, 81 Stat. 1494, 1498, 1499, 1500; 15 U.S.C. 77f, 77g, 77h, 77j, 
77s(a), 78l, 78m, 78n, 78o(d), 78w(a); secs. 3(b), 9(a)(6), 10(b), 
13(e), 14(e) and 23(a) of the Act, 15 U.S.C. 78c(b), 78i(a), 78j(b), 
78m(e), 78n(e) and 78w(a))

[44 FR 46741, Aug. 8, 1979, as amended at 47 FR 11466, Mar. 16, 1982; 48 
FR 19877, May 3, 1983; 48 FR 34253, July 28, 1983; 51 FR 42059, Nov. 20, 
1986; 61 FR 24656, May 15, 1996; 64 FR 61403, 64 FR 61452, Nov. 10, 
1999]



Sec. 240.13e-4  Tender offers by issuers.

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section and in Schedule TO (Sec. 240.14d-100) shall have 
the same meaning as in the Act or elsewhere in the General Rules and 
Regulations thereunder. In addition, the following definitions shall 
apply:
    (1) The term issuer means any issuer which has a class of equity 
security registered pursuant to section 12 of the Act, or which is 
required to file periodic reports pursuant to section 15(d) of the Act, 
or which is a closed-end investment company registered under the 
Investment Company Act of 1940.
    (2) The term issuer tender offer refers to a tender offer for, or a 
request or invitation for tenders of, any class of equity security, made 
by the issuer of such class of equity security or by an affiliate of 
such issuer.
    (3) As used in this section and in Schedule TO (Sec. 240.14d-100), 
the term business day means any day, other than Saturday, Sunday, or a 
Federal holiday, and shall consist of the time period from 12:01 a.m. 
through 12:00 midnight Eastern Time. In computing any time period under 
this Rule or Schedule 13E-4, the date of the event that begins the 
running of such time period shall be included except that if such event 
occurs on other than a business day such period shall begin to run on 
and shall include the first business day thereafter.
    (4) The term commencement means 12:01 a.m. on the date that the 
issuer or affiliate has first published, sent or given the means to 
tender to security holders. For purposes of this section, the means to 
tender includes the transmittal form or a statement regarding how the 
transmittal form may be obtained.
    (5) The term termination means the date after which securities may 
not be tendered pursuant to an issuer tender offer.
    (6) The term security holders means holders of record and beneficial 
owners of securities of the class of equity security which is the 
subject of an issuer tender offer.
    (7) The term security position listing means, with respect to the 
securities of any issuer held by a registered clearing agency in the 
name of the clearing agency or its nominee, a list of those participants 
in the clearing agency on whose behalf the clearing agency holds the 
issuer's securities and of the participants' respective positions in 
such securities as of a specified date.
    (b) Filing, disclosure and dissemination. As soon as practicable on 
the date of commencement of the issuer tender offer, the issuer or 
affiliate making the issuer tender offer must comply with:
    (1) The filing requirements of paragraph (c)(2) of this section;

[[Page 165]]

    (2) The disclosure requirements of paragraph (d)(1) of this section; 
and
    (3) The dissemination requirements of paragraph (e) of this section.
    (c) Material required to be filed. The issuer or affiliate making 
the issuer tender offer must file with the Commission:
    (1) All written communications made by the issuer or affiliate 
relating to the issuer tender offer, from and including the first public 
announcement, as soon as practicable on the date of the communication;
    (2) A Schedule TO (Sec. 240.14d-100), including all exhibits;
    (3) An amendment to Schedule TO (Sec. 240.14d-100) reporting 
promptly any material changes in the information set forth in the 
schedule previously filed; and
    (4) A final amendment to Schedule TO (Sec. 240.14d-100) reporting 
promptly the results of the issuer tender offer.

    Instructions to Sec. 240.13e-4(c):
    1. Pre-commencement communications must be filed under cover of 
Schedule TO (Sec. 240.14d-100) and the box on the cover page of the 
schedule must be marked.
    2. Any communications made in connection with an exchange offer 
registered under the Securities Act of 1933 need only be filed under 
Sec. 230.425 of this chapter and will be deemed filed under this 
section.
    3. Each pre-commencement written communication must include a 
prominent legend in clear, plain language advising security holders to 
read the tender offer statement when it is available because it contains 
important information. The legend also must advise investors that they 
can get the tender offer statement and other filed documents for free at 
the Commission's web site and explain which documents are free from the 
issuer.
    4. See Sec. Sec. 230.135, 230.165 and 230.166 of this chapter for 
pre-commencement communications made in connection with registered 
exchange offers.
    5. ``Public announcement'' is any oral or written communication by 
the issuer, affiliate or any person authorized to act on their behalf 
that is reasonably designed to, or has the effect of, informing the 
public or security holders in general about the issuer tender offer.

    (d) Disclosure of tender offer information to security holders. (1) 
The issuer or affiliate making the issuer tender offer must disclose, in 
a manner prescribed by paragraph (e)(1) of this section, the following:
    (i) The information required by Item 1 of Schedule TO (Sec. 
240.14d-100) (summary term sheet); and
    (ii) The information required by the remaining items of Schedule TO 
for issuer tender offers, except for Item 12 (exhibits), or a fair and 
adequate summary of the information.
    (2) If there are any material changes in the information previously 
disclosed to security holders, the issuer or affiliate must disclose the 
changes promptly to security holders in a manner specified in paragraph 
(e)(3) of this section.
    (3) If the issuer or affiliate disseminates the issuer tender offer 
by means of summary publication as described in paragraph (e)(1)(iii) of 
this section, the summary advertisement must not include a transmittal 
letter that would permit security holders to tender securities sought in 
the offer and must disclose at least the following information:
    (i) The identity of the issuer or affiliate making the issuer tender 
offer;
    (ii) The information required by Sec. 229.1004(a)(1) and Sec. 
229.1006(a) of this chapter;
    (iii) Instructions on how security holders can obtain promptly a 
copy of the statement required by paragraph (d)(1) of this section, at 
the issuer or affiliate's expense; and
    (iv) A statement that the information contained in the statement 
required by paragraph (d)(1) of this section is incorporated by 
reference.
    (e) Dissemination of tender offers to security holders. An issuer 
tender offer will be deemed to be published, sent or given to security 
holders if the issuer or affiliate making the issuer tender offer 
complies fully with one or more of the methods described in this 
section.
    (1) For issuer tender offers in which the consideration offered 
consists solely of cash and/or securities exempt from registration under 
section 3 of the Securities Act of 1933 (15 U.S.C. 77c):
    (i) Dissemination of cash issuer tender offers by long-form 
publication: By making adequate publication of the information required 
by paragraph (d)(1) of this section in a newspaper or newspapers, on the 
date of commencement of the issuer tender offer.

[[Page 166]]

    (ii) Dissemination of any issuer tender offer by use of stockholder 
and other lists:
    (A) By mailing or otherwise furnishing promptly a statement 
containing the information required by paragraph (d)(1) of this section 
to each security holder whose name appears on the most recent 
stockholder list of the issuer;
    (B) By contacting each participant on the most recent security 
position listing of any clearing agency within the possession or access 
of the issuer or affiliate making the issuer tender offer, and making 
inquiry of each participant as to the approximate number of beneficial 
owners of the securities sought in the offer that are held by the 
participant;
    (C) By furnishing to each participant a sufficient number of copies 
of the statement required by paragraph (d)(1) of this section for 
transmittal to the beneficial owners; and
    (D) By agreeing to reimburse each participant promptly for its 
reasonable expenses incurred in forwarding the statement to beneficial 
owners.
    (iii) Dissemination of certain cash issuer tender offers by summary 
publication:
    (A) If the issuer tender offer is not subject to Sec. 240.13e-3, by 
making adequate publication of a summary advertisement containing the 
information required by paragraph (d)(3) of this section in a newspaper 
or newspapers, on the date of commencement of the issuer tender offer; 
and
    (B) By mailing or otherwise furnishing promptly the statement 
required by paragraph (d)(1) of this section and a transmittal letter to 
any security holder who requests a copy of the statement or transmittal 
letter.

    Instruction to paragraph (e)(1): For purposes of paragraphs 
(e)(1)(i) and (e)(1)(iii) of this section, adequate publication of the 
issuer tender offer may require publication in a newspaper with a 
national circulation, a newspaper with metropolitan or regional 
circulation, or a combination of the two, depending upon the facts and 
circumstances involved.

    (2) For tender offers in which the consideration consists solely or 
partially of securities registered under the Securities Act of 1933, a 
registration statement containing all of the required information, 
including pricing information, has been filed and a preliminary 
prospectus or a prospectus that meets the requirements of Section 10(a) 
of the Securities Act (15 U.S.C. (15 U.S.C. 77j(a)), including a letter 
of transmittal, is delivered to security holders. However, for going-
private transactions (as defined by Sec. 240.13e-3) and roll-up 
transactions (as described by Item 901 of Regulation S-K (Sec. 229.901 
of this chapter)), a registration statement registering the securities 
to be offered must have become effective and only a prospectus that 
meets the requirements of Section 10(a) of the Securities Act may be 
delivered to security holders on the date of commencement.

    Instructions to paragraph (e)(2):
    1. If the prospectus is being delivered by mail, mailing on the date 
of commencement is sufficient.
    2. A preliminary prospectus used under this section may not omit 
information under Sec. 230.430 or Sec. 230.430A of this chapter.
    3. If a preliminary prospectus is used under this section and the 
issuer must disseminate material changes, the tender offer must remain 
open for the period specified in paragraph (e)(3) of this section.
    4. If a preliminary prospectus is used under this section, tenders 
may be requested in accordance with Sec. 230.162(a) of this chapter.

    (3) If a material change occurs in the information published, sent 
or given to security holders, the issuer or affiliate must disseminate 
promptly disclosure of the change in a manner reasonably calculated to 
inform security holders of the change. In a registered securities offer 
where the issuer or affiliate disseminates the preliminary prospectus as 
permitted by paragraph (e)(2) of this section, the offer must remain 
open from the date that material changes to the tender offer materials 
are disseminated to security holders, as follows:
    (i) Five business days for a prospectus supplement containing a 
material change other than price or share levels;
    (ii) Ten business days for a prospectus supplement containing a 
change in price, the amount of securities sought, the dealer's 
soliciting fee, or other similarly significant change;

[[Page 167]]

    (iii) Ten business days for a prospectus supplement included as part 
of a post-effective amendment; and
    (iv) Twenty business days for a revised prospectus when the initial 
prospectus was materially deficient.
    (f) Manner of making tender offer. (1) The issuer tender offer, 
unless withdrawn, shall remain open until the expiration of:
    (i) At least twenty business days from its commencement; and
    (ii) At least ten business days from the date that notice of an 
increase or decrease in the percentage of the class of securities being 
sought or the consideration offered or the dealer's soliciting fee to be 
given is first published, sent or given to security holders.

Provided, however, That, for purposes of this paragraph, the acceptance 
for payment by the issuer or affiliate of an additional amount of 
securities not to exceed two percent of the class of securities that is 
the subject of the tender offer shall not be deemed to be an increase. 
For purposes of this paragraph, the percentage of a class of securities 
shall be calculated in accordance with section 14(d)(3) of the Act.
    (2) The issuer or affiliate making the issuer tender offer shall 
permit securities tendered pursuant to the issuer tender offer to be 
withdrawn:
    (i) At any time during the period such issuer tender offer remains 
open; and
    (ii) If not yet accepted for payment, after the expiration of forty 
business days from the commencement of the issuer tender offer.
    (3) If the issuer or affiliate makes a tender offer for less than 
all of the outstanding equity securities of a class, and if a greater 
number of securities is tendered pursuant thereto than the issuer or 
affiliate is bound or willing to take up and pay for, the securities 
taken up and paid for shall be taken up and paid for as nearly as may be 
pro rata, disregarding fractions, according to the number of securities 
tendered by each security holder during the period such offer remains 
open; Provided, however, That this provision shall not prohibit the 
issuer or affiliate making the issuer tender offer from:
    (i) Accepting all securities tendered by persons who own, 
beneficially or of record, an aggregate of not more than a specified 
number which is less than one hundred shares of such security and who 
tender all their securities, before prorating securities tendered by 
others; or
    (ii) Accepting by lot securities tendered by security holders who 
tender all securities held by them and who, when tendering their 
securities, elect to have either all or none or at least a minimum 
amount or none accepted, if the issuer or affiliate first accepts all 
securities tendered by security holders who do not so elect;
    (4) In the event the issuer or affiliate making the issuer tender 
increases the consideration offered after the issuer tender offer has 
commenced, such issuer or affiliate shall pay such increased 
consideration to all security holders whose tendered securities are 
accepted for payment by such issuer or affiliate.
    (5) The issuer or affiliate making the tender offer shall either pay 
the consideration offered, or return the tendered securities, promptly 
after the termination or withdrawal of the tender offer.
    (6) Until the expiration of at least ten business days after the 
date of termination of the issuer tender offer, neither the issuer nor 
any affiliate shall make any purchases, otherwise than pursuant to the 
tender offer, of:
    (i) Any security which is the subject of the issuer tender offer, or 
any security of the same class and series, or any right to purchase any 
such securities; and
    (ii) In the case of an issuer tender offer which is an exchange 
offer, any security being offered pursuant to such exchange offer, or 
any security of the same class and series, or any right to purchase any 
such security.
    (7) The time periods for the minimum offering periods pursuant to 
this section shall be computed on a concurrent as opposed to a 
consecutive basis.
    (8) No issuer or affiliate shall make a tender offer unless:
    (i) The tender offer is open to all security holders of the class of 
securities subject to the tender offer; and
    (ii) The consideration paid to any security holder pursuant to the 
tender offer is the highest consideration paid

[[Page 168]]

to any other security holder during such tender offer.
    (9) Paragraph (f)(8)(i) of this section shall not:
    (i) Affect dissemination under paragraph (e) of this section; or
    (ii) Prohibit an issuer or affiliate from making a tender offer 
excluding all security holders in a state where the issuer or affiliate 
is prohibited from making the tender offer by administrative or judicial 
action pursuant to a state statute after a good faith effort by the 
issuer or affiliate to comply with such statute.
    (10) Paragraph (f)(8)(ii) of this section shall not prohibit the 
offer of more than one type of consideration in a tender offer, provided 
that:
    (i) Security holders are afforded equal right to elect among each of 
the types of consideration offered; and
    (ii) The highest consideration of each type paid to any security 
holder is paid to any other security holder receiving that type of 
consideration.
    (11) If the offer and sale of securities constituting consideration 
offered in an issuer tender offer is prohibited by the appropriate 
authority of a state after a good faith effort by the issuer or 
affiliate to register or qualify the offer and sale of such securities 
in such state:
    (i) The issuer or affiliate may offer security holders in such state 
an alternative form of consideration; and
    (ii) Paragraph (f)(10) of this section shall not operate to require 
the issuer or affiliate to offer or pay the alternative form of 
consideration to security holders in any other state.
    (12) Electronic filings. If the issuer or affiliate is an electronic 
filer, the minimum offering periods set forth in paragraph (f)(1) of 
this section shall be tolled for any period during which it fails to 
file in electronic format, absent a hardship exemption (Sec. Sec. 
232.201 and 232.202 of this chapter), the Schedule TO (Sec. 240.14d-
100), the tender offer material specified in Item 1016(a)(1) of 
Regulation M-A (Sec. 229.1016(a)(1) of this chapter), and any 
amendments thereto. If such documents were filed in paper pursuant to a 
hardship exemption (see Sec. 232.201 and Sec. 232.202 of this 
chapter), the minimum offering periods shall be tolled for any period 
during which a required confirming electronic copy of such Schedule and 
tender offer material is delinquent.
    (g) The requirements of section 13(e) (1) of the Act and Rule 13e-4 
and Schedule TO (Sec. 240.14d-100) thereunder shall be deemed satisfied 
with respect to any issuer tender offer, including any exchange offer, 
where the issuer is incorporated or organized under the laws of Canada 
or any Canadian province or territory, is a foreign private issuer, and 
is not an investment company registered or required to be registered 
under the Investment Company Act of 1940, if less than 40 percent of the 
class of securities that is the subject of the tender offer is held by 
U. S. holders, and the tender offer is subject to, and the issuer 
complies with, the laws, regulations and policies of Canada and/or any 
of its provinces or territories governing the conduct of the offer 
(unless the issuer has received an exemption(s) from, and the issuer 
tender offer does not comply with, requirements that otherwise would be 
prescribed by this section), provided that:
    (1) Where the consideration for an issuer tender offer subject to 
this paragraph consists solely of cash, the entire disclosure document 
or documents required to be furnished to holders of the class of 
securities to be acquired shall be filed with the Commission on Schedule 
13E-4F (Sec. 240.13e-102) and disseminated to shareholders residing in 
the United States in accordance with such Canadian laws, regulations and 
policies; or
    (2) Where the consideration for an issuer tender offer subject to 
this paragraph includes securities to be issued pursuant to the offer, 
any registration statement and/or prospectus relating thereto shall be 
filed with the Commission along with the Schedule 13E-4F referred to in 
paragraph (g)(1) of this section, and shall be disseminated, together 
with the home jurisdiction document(s) accompanying such Schedule, to 
shareholders of the issuer residing in the United States in accordance 
with such Canadian laws, regulations and policies.
    Note: Notwithstanding the grant of an exemption from one or more of 
the applicable Canadian regulatory provisions imposing requirements that 
otherwise would be prescribed by this section, the issuer tender

[[Page 169]]

offer will be eligible to proceed in accordance with the requirements of 
this section if the Commission by order determines that the applicable 
Canadian regulatory provisions are adequate to protect the interest of 
investors.
    (h) This section shall not apply to:
    (1) Calls or redemptions of any security in accordance with the 
terms and conditions of its governing instruments;
    (2) Offers to purchase securities evidenced by a scrip certificate, 
order form or similar document which represents a fractional interest in 
a share of stock or similar security;
    (3) Offers to purchase securities pursuant to a statutory procedure 
for the purchase of dissenting security holders' securities;
    (4) Any tender offer which is subject to section 14(d) of the Act;
    (5) Offers to purchase from security holders who own an aggregate of 
not more than a specified number of shares that is less than one 
hundred: Provided, however, That:
    (i) The offer complies with paragraph (f)(8)(i) of this section with 
respect to security holders who own a number of shares equal to or less 
than the specified number of shares, except that an issuer can elect to 
exclude participants in a plan as that term is defined in Sec. 242.100 
of this chapter, or to exclude security holders who do not own their 
shares as of a specified date determined by the issuer; and
    (ii) The offer complies with paragraph (f)(8)(ii) of this section or 
the consideration paid pursuant to the offer is determined on the basis 
of a uniformly applied formula based on the market price of the subject 
security;
    (6) An issuer tender offer made solely to effect a rescission offer: 
Provided, however, That the offer is registered under the Securities Act 
of 1933 (15 U.S.C. 77a et seq.), and the consideration is equal to the 
price paid by each security holder, plus legal interest if the issuer 
elects to or is required to pay legal interest;
    (7) Offers by closed-end management investment companies to 
repurchase equity securities pursuant to Sec. 270.23c-3 of this 
chapter;
    (8) Cross-border tender offers (Tier I). Any issuer tender offer 
(including any exchange offer) where the issuer is a foreign private 
issuer as defined in Sec. 240.3b-4 if the following conditions are 
satisfied.
    (i) Except in the case of an issuer tender offer which is commenced 
during the pendency of a tender offer made by a third party in reliance 
on Sec. 240.14d-1(c), U.S. holders do not hold more than 10 percent of 
the class of securities sought in the offer (as determined under 
Instruction 2 to paragraph (h)(8) and paragraph (i) of this section); 
and
    (ii) The issuer or affiliate must permit U.S. holders to participate 
in the offer on terms at least as favorable as those offered any other 
holder of the same class of securities that is the subject of the offer; 
however:
    (A) Registered exchange offers. If the issuer or affiliate offers 
securities registered under the Securities Act of 1933 (15 U.S.C. 77a et 
seq.), the issuer or affiliate need not extend the offer to security 
holders in those states or jurisdictions that prohibit the offer or sale 
of the securities after the issuer or affiliate has made a good faith 
effort to register or qualify the offer and sale of securities in that 
state or jurisdiction, except that the issuer or affiliate must offer 
the same cash alternative to security holders in any such state or 
jurisdiction that it has offered to security holders in any other state 
or jurisdiction.
    (B) Exempt exchange offers. If the issuer or affiliate offers 
securities exempt from registration under Sec. 230.802 of this chapter, 
the issuer or affiliate need not extend the offer to security holders in 
those states or jurisdictions that require registration or 
qualification, except that the issuer or affiliate must offer the same 
cash alternative to security holders in any such state or jurisdiction 
that it has offered to security holders in any other state or 
jurisdiction.
    (C) Cash only consideration. The issuer or affiliate may offer U.S. 
holders cash only consideration for the tender of the subject 
securities, notwithstanding the fact that the issuer or affiliate is 
offering security holders outside the United States a consideration that 
consists in whole or in part of securities of the issuer or affiliate, 
if the issuer or affiliate has a reasonable basis for believing that the 
amount of cash is substantially equivalent to the value of the

[[Page 170]]

consideration offered to non-U.S. holders, and either of the following 
conditions are satisfied:
    (1) The offered security is a ``margin security'' within the meaning 
of Regulation T (12 CFR 220.2) and the issuer or affiliate undertakes to 
provide, upon the request of any U.S. holder or the Commission staff, 
the closing price and daily trading volume of the security on the 
principal trading market for the security as of the last trading day of 
each of the six months preceding the announcement of the offer and each 
of the trading days thereafter; or
    (2) If the offered security is not a ``margin security'' within the 
meaning of Regulation T (12 CFR 220.2), the issuer or affiliate 
undertakes to provide, upon the request of any U.S. holder or the 
Commission staff, an opinion of an independent expert stating that the 
cash consideration offered to U.S. holders is substantially equivalent 
to the value of the consideration offered security holders outside the 
United States.
    (D) Disparate tax treatment. If the issuer or affiliate offers 
``loan notes'' solely to offer sellers tax advantages not available in 
the United States and these notes are neither listed on any organized 
securities market nor registered under the Securities Act of 1933 (15 
U.S.C. 77a et seq.), the loan notes need not be offered to U.S. holders.
    (iii) Informational documents. (A) If the issuer or affiliate 
publishes or otherwise disseminates an informational document to the 
holders of the securities in connection with the issuer tender offer 
(including any exchange offer), the issuer or affiliate must furnish 
that informational document, including any amendments thereto, in 
English, to the Commission on Form CB (Sec. 249.480 of this chapter) by 
the first business day after publication or dissemination. If the issuer 
or affiliate is a foreign company, it must also file a Form F-X (Sec. 
239.42 of this chapter) with the Commission at the same time as the 
submission of Form CB to appoint an agent for service in the United 
States.
    (B) The issuer or affiliate must disseminate any informational 
document to U.S. holders, including any amendments thereto, in English, 
on a comparable basis to that provided to security holders in the home 
jurisdiction.
    (C) If the issuer or affiliate disseminates by publication in its 
home jurisdiction, the issuer or affiliate must publish the information 
in the United States in a manner reasonably calculated to inform U.S. 
holders of the offer.
    (iv) An investment company registered or required to be registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), 
other than a registered closed-end investment company, may not use this 
paragraph (h)(8); or
    (9) Any other transaction or transactions, if the Commission, upon 
written request or upon its own motion, exempts such transaction or 
transactions, either unconditionally, or on specified terms and 
conditions, as not constituting a fraudulent, deceptive or manipulative 
act or practice comprehended within the purpose of this section.
    (i) Cross-border tender offers (Tier II). Any issuer tender offer 
(including any exchange offer) that meets the conditions in paragraph 
(i)(1) of this section shall be entitled to the exemptive relief 
specified in paragraph (i)(2) of this section provided that such issuer 
tender offer complies with all the requirements of this section other 
than those for which an exemption has been specifically provided in 
paragraph (i)(2) of this section:
    (1) Conditions. (i) The issuer is a foreign private issuer as 
defined in Sec. 240.3b-4 and is not an investment company registered or 
required to be registered under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.), other than a registered closed-end investment 
company; and
    (ii) Except in the case of an issuer tender offer which is commenced 
during the pendency of a tender offer made by a third party in reliance 
on Sec. 240.14d-1(d), U.S. holders do not hold more than 40 percent of 
the class of securities sought in the offer (as determined under 
Instruction 2 to paragraphs (h)(8) and (i) of this section).
    (2) Exemptions. The issuer tender offer shall comply with all 
requirements of this section other than the following:

[[Page 171]]

    (i) Equal treatment--loan notes. If the issuer or affiliate offers 
loan notes solely to offer sellers tax advantages not available in the 
United States and these notes are neither listed on any organized 
securities market nor registered under the Securities Act (15 U.S.C. 77a 
et seq.), the loan notes need not be offered to U.S. holders, 
notwithstanding paragraph (f)(8) and (h)(9) of this section.
    (ii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of paragraph (f)(8) of this section, an 
issuer or affiliate conducting an issuer tender offer meeting the 
conditions of paragraph (i)(1) of this section may separate the offer 
into two offers: One offer made only to U.S. holders and another offer 
made only to non-U.S. holders. The offer to U.S. holders must be made on 
terms at least as favorable as those offered any other holder of the 
same class of securities that is the subject of the tender offer.
    (iii) Notice of extensions. Notice of extensions made in accordance 
with the requirements of the home jurisdiction law or practice will 
satisfy the requirements of Sec. 240.14e-1(d).
    (iv) Prompt payment. Payment made in accordance with the 
requirements of the home jurisdiction law or practice will satisfy the 
requirements of Sec. 240.14e-1(c).

    Instructions to paragraph (h)(8) and (i) of this section:
    1. Home jurisdiction means both the jurisdiction of the issuer's 
incorporation, organization or chartering and the principal foreign 
market where the issuer's securities are listed or quoted.
    2. U.S. holder means any security holder resident in the United 
States. To determine the percentage of outstanding securities held by 
U.S. holders:
    i. Calculate the U.S. ownership as of 30 days before the 
commencement of the issuer tender offer;
    ii. Include securities underlying American Depositary Shares 
convertible or exchangeable into the securities that are the subject of 
the tender offer when calculating the number of subject securities 
outstanding, as well as the number held by U.S. holders. Exclude from 
the calculations other types of securities that are convertible or 
exchangeable into the securities that are the subject of the tender 
offer, such as warrants, options and convertible securities. Exclude 
from those calculations securities held by persons who hold more than 10 
percent of the subject securities;
    iii. Use the method of calculating record ownership in Sec. 
240.12g3-2(a), except that your inquiry as to the amount of securities 
represented by accounts of customers resident in the United States may 
be limited to brokers, dealers, banks and other nominees located in the 
United States, your jurisdiction of incorporation, and the jurisdiction 
that is the primary trading market for the subject securities, if 
different than your jurisdiction of incorporation;
    iv. If, after reasonable inquiry, you are unable to obtain 
information about the amount of securities represented by accounts of 
customers resident in the United States, you may assume, for purposes of 
this definition, that the customers are residents of the jurisdiction in 
which the nominee has its principal place of business; and
    v. Count securities as beneficially owned by residents of the United 
States as reported on reports of beneficial ownership that are provided 
to you or publicly filed and based on information otherwise provided to 
you.
    3. United States. United States means the United States of America, 
its territories and possessions, any State of the United States, and the 
District of Columbia.
    4. The exemptions provided by paragraphs (h)(8) and (i) of this 
section are not available for any securities transaction or series of 
transactions that technically complies with paragraph (h)(8) or (i) of 
this section but are part of a plan or scheme to evade the provisions of 
this section.

    (j)(1) It shall be a fraudulent, deceptive or manipulative act or 
practice, in connection with an issuer tender offer, for an issuer or an 
affiliate of such issuer, in connection with an issuer tender offer:
    (i) To employ any device, scheme or artifice to defraud any person;
    (ii) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they were made, not 
misleading; or
    (iii) To engage in any act, practice or course of business which 
operates or would operate as a fraud or deceit upon any person.
    (2) As a means reasonably designed to prevent fraudulent, deceptive 
or manipulative acts or practices in connection with any issuer tender 
offer, it shall be unlawful for an issuer or an affiliate of such issuer 
to make an issuer tender offer unless:

[[Page 172]]

    (i) Such issuer or affiliate complies with the requirements of 
paragraphs (b), (c), (d), (e) and (f) of this section; and
    (ii) The issuer tender offer is not in violation of paragraph (j)(1) 
of this section.

[44 FR 49410, Aug. 22, 1979, as amended at 47 FR 11467, Mar. 16, 1982; 
47 FR 54780, Dec. 6, 1982; 48 FR 34253, July 28, 1983; 51 FR 3034, Jan. 
23, 1986; 51 FR 25882, July 17, 1986; 51 FR 32630, Sept. 15, 1986; 56 FR 
30069, July 1, 1991; 58 FR 14683, Mar. 18, 1993; 58 FR 19343, Apr. 14, 
1993; 61 FR 24656, May 15, 1996; 61 FR 68589, Dec. 30, 1996; 62 FR 544, 
Jan. 3, 1997; 62 FR 11323, Mar. 12, 1997; 62 FR 36459, July 8, 1997; 64 
FR 61403, 61453 Nov. 10, 1999]



Sec. 240.13e-100  Schedule 13E-3, Transaction statement under section 

13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 (Sec. 240.13e-3) 
thereunder.

Securities and Exchange Commission,
Washington, D.C. 20549

Rule 13e-3 Transaction Statement under Section 13(e) of the Securities 
Exchange Act of 1934 (Amendment No. --)
________________________________________________________________________

(Name of the Issuer)

________________________________________________________________________

(Names of Persons Filing Statement)

________________________________________________________________________

(Title of Class of Securities)

________________________________________________________________________

(CUSIP Number of Class of Securities)

________________________________________________________________________

(Name, Address, and Telephone Numbers of Person Authorized to Receive 
Notices and Communications on Behalf of the Persons Filing Statement)

    This statement is filed in connection with (check the appropriate 
box):
    a. [ ] The filing of solicitation materials or an information 
statement subject to Regulation 14A (Sec. Sec. 240.14a-1 through 
240.14b-2), Regulation 14C (Sec. Sec. 240.14c-1 through 240.14c-101) or 
Rule 13e-3(c) (Sec. 240.13e-3(c)) under the Securities Exchange Act of 
1934 (``the Act'').
    b. [ ] The filing of a registration statement under the Securities 
Act of 1933.
    c. [ ] A tender offer.
    d. [ ] None of the above.
    Check the following box if the soliciting materials or information 
statement referred to in checking box (a) are preliminary copies: [ ]
    Check the following box if the filing is a final amendment reporting 
the results of the transaction [ ]

                        Calculation of Filing Fee
------------------------------------------------------------------------
         Transaction  valuation *               Amount of filing fee
------------------------------------------------------------------------
 
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state
  how it was determined.

    [ ] Check the box if any part of the fee is offset as provided by 
Sec. 240.0-11(a)(2) and identify the filing with which the offsetting 
fee was previously paid. Identify the previous filing by registration 
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid:_________________________________________________
Form or Registration No.:_______________________________________________
Filing Party:___________________________________________________________
Date Filed:_____________________________________________________________
    General Instructions:
    A. File eight copies of the statement, including all exhibits, with 
the Commission if paper filing is permitted.
    B. This filing must be accompanied by a fee payable to the 
Commission as required by Sec. 240.0-11(b).
    C. If the statement is filed by a general or limited partnership, 
syndicate or other group, the information called for by Items 3, 5, 6, 
10 and 11 must be given with respect to: (i) Each partner of the general 
partnership; (ii) each partner who is, or functions as, a general 
partner of the limited partnership; (iii) each member of the syndicate 
or group; and (iv) each person controlling the partner or member. If the 
statement is filed by a corporation or if a person referred to in (i), 
(ii), (iii) or (iv) of this Instruction is a corporation, the 
information called for by the items specified above must be given with 
respect to: (a) Each executive officer and director of the corporation; 
(b) each person controlling the corporation; and (c) each executive 
officer and director of any corporation or other person ultimately in 
control of the corporation.
    D. Depending on the type of Rule 13e-3 transaction (Sec. 240.13e-
3(a)(3)), this statement must be filed with the Commission:
    1. At the same time as filing preliminary or definitive soliciting 
materials or an information statement under Regulations 14A or 14C of 
the Act;
    2. At the same time as filing a registration statement under the 
Securities Act of 1933;
    3. As soon as practicable on the date a tender offer is first 
published, sent or given to security holders; or
    4. At least 30 days before any purchase of securities of the class 
of securities subject to the Rule 13e-3 transaction, if the transaction 
does not involve a solicitation, an information statement, the 
registration of securities or a tender offer, as described in paragraphs 
1, 2 or 3 of this Instruction; and
    5. If the Rule 13e-3 transaction involves a series of transactions, 
the issuer or affiliate

[[Page 173]]

must file this statement at the time indicated in paragraphs 1 through 4 
of this Instruction for the first transaction and must amend the 
schedule promptly with respect to each subsequent transaction.
    E. If an item is inapplicable or the answer is in the negative, so 
state. The statement published, sent or given to security holders may 
omit negative and not applicable responses, except that responses to 
Items 7, 8 and 9 of this schedule must be provided in full. If the 
schedule includes any information that is not published, sent or given 
to security holders, provide that information or specifically 
incorporate it by reference under the appropriate item number and 
heading in the schedule. Do not recite the text of disclosure 
requirements in the schedule or any document published, sent or given to 
security holders. Indicate clearly the coverage of the requirements 
without referring to the text of the items.
    F. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item unless 
it would render the answer misleading, incomplete, unclear or confusing. 
A copy of any information that is incorporated by reference or a copy of 
the pertinent pages of a document containing the information must be 
submitted with this statement as an exhibit, unless it was previously 
filed with the Commission electronically on EDGAR. If an exhibit 
contains information responding to more than one item in the schedule, 
all information in that exhibit may be incorporated by reference once in 
response to the several items in the schedule for which it provides an 
answer. Information incorporated by reference is deemed filed with the 
Commission for all purposes of the Act.
    G. If the Rule 13e-3 transaction also involves a transaction subject 
to Regulation 14A (Sec. Sec. 240.14a-1 through 240.14b-2) or 14C 
(Sec. Sec. 240.14c-1 through 240.14c-101) of the Act, the registration 
of securities under the Securities Act of 1933 and the General Rules and 
Regulations of that Act, or a tender offer subject to Regulation 14D 
(Sec. Sec. 240.14d-1 through 240.14d-101) or Sec. 240.13e-4, this 
statement must incorporate by reference the information contained in the 
proxy, information, registration or tender offer statement in answer to 
the items of this statement.
    H. The information required by the items of this statement is 
intended to be in addition to any disclosure requirements of any other 
form or schedule that may be filed with the Commission in connection 
with the Rule 13e-3 transaction. If those forms or schedules require 
less information on any topic than this statement, the requirements of 
this statement control.
    I. If the Rule 13e-3 transaction involves a tender offer, then a 
combined statement on Schedules 13E-3 and TO may be filed with the 
Commission under cover of Schedule TO (Sec. 240.14d-100). See 
Instruction J of Schedule TO (Sec. 240.14d-100).
    J. Amendments disclosing a material change in the information set 
forth in this statement may omit any information previously disclosed in 
this statement.

                       Item 1. Summary Term Sheet

    Furnish the information required by Item 1001 of Regulation M-A 
(Sec. 229.1001 of this chapter) unless information is disclosed to 
security holders in a prospectus that meets the requirements of Sec. 
230.421(d) of this chapter.

                   Item 2. Subject Company Information

    Furnish the information required by Item 1002 of Regulation M-A 
(Sec. 229.1002 of this chapter).

            Item 3. Identity and Background of Filing Person

    Furnish the information required by Item 1003(a) through (c) of 
Regulation M-A (Sec. 229.1003 of this chapter).

                    Item 4. Terms of the Transaction

    Furnish the information required by Item 1004(a) and (c) through (f) 
of Regulation M-A (Sec. 229.1004 of this chapter).

    Item 5. Past Contacts, Transactions, Negotiations and Agreements

    Furnish the information required by Item 1005(a) through (c) and (e) 
of Regulation M-A (Sec. 229.1005 of this chapter).

       Item 6. Purposes of the Transaction and Plans or Proposals

    Furnish the information required by Item 1006(b) and (c)(1) through 
(8) of Regulation M-A (Sec. 229.1006 of this chapter).
    Instruction to Item 6: In providing the information specified in 
Item 1006(c) for this item, discuss any activities or transactions that 
would occur after the Rule 13e-3 transaction.

           Item 7. Purposes, Alternatives, Reasons and Effects

    Furnish the information required by Item 1013 of Regulation M-A 
(Sec. 229.1013 of this chapter).

                   Item 8. Fairness of the Transaction

    Furnish the information required by Item 1014 of Regulation M-A 
(Sec. 229.1014 of this chapter).

         Item 9. Reports, Opinions, Appraisals and Negotiations

    Furnish the information required by Item 1015 of Regulation M-A 
(Sec. 229.1015 of this chapter).

[[Page 174]]

       Item 10. Source and Amounts of Funds or Other Consideration

    Furnish the information required by Item 1007 of Regulation M-A 
(Sec. 229.1007 of this chapter).

         Item 11. Interest in Securities of the Subject Company

    Furnish the information required by Item 1008 of Regulation M-A 
(Sec. 229.1008 of this chapter).

               Item 12. The Solicitation or Recommendation

    Furnish the information required by Item 1012(d) and (e) of 
Regulation M-A (Sec. 229.1012 of this chapter).

                      Item 13. Financial Statements

    Furnish the information required by Item 1010(a) through (b) of 
Regulation M-A (Sec. 229.1010 of this chapter) for the issuer of the 
subject class of securities.
    Instructions to Item 13:
    1. The disclosure materials disseminated to security holders may 
contain the summarized financial information required by Item 1010(c) of 
Regulation M-A (Sec. 229.1010 of this chapter) instead of the financial 
information required by Item 1010(a) and (b). In that case, the 
financial information required by Item 1010(a) and (b) of Regulation M-A 
must be disclosed directly or incorporated by reference in the 
statement. If summarized financial information is disseminated to 
security holders, include appropriate instructions on how more complete 
financial information can be obtained. If the summarized financial 
information is prepared on the basis of a comprehensive body of 
accounting principles other than U.S. GAAP, the summarized financial 
information must be accompanied by a reconciliation as described in 
Instruction 2.
    2. If the financial statements required by this Item are prepared on 
the basis of a comprehensive body of accounting principles other than 
U.S. GAAP, provide a reconciliation to U.S. GAAP in accordance with Item 
17 of Form 20-F (Sec. 249.220f of this chapter).
    3. The filing person may incorporate by reference financial 
statements contained in any document filed with the Commission, solely 
for the purposes of this schedule, if: (a) The financial statements 
substantially meet the requirements of this Item; (b) an express 
statement is made that the financial statements are incorporated by 
reference; (c) the matter incorporated by reference is clearly 
identified by page, paragraph, caption or otherwise; and (d) if the 
matter incorporated by reference is not filed with this Schedule, an 
indication is made where the information may be inspected and copies 
obtained. Financial statements that are required to be presented in 
comparative form for two or more fiscal years or periods may not be 
incorporated by reference unless the material incorporated by reference 
includes the entire period for which the comparative data is required to 
be given. See General Instruction F to this Schedule.

    Item 14. Persons/Assets, Retained, Employed, Compensated or Used

    Furnish the information required by Item 1009 of Regulation M-A 
(Sec. 229.1009 of this chapter).

                     Item 15. Additional Information

    Furnish the information required by Item 1011(b) of Regulation M-A 
(Sec. 229.1011 of this chapter).

                            Item 16. Exhibits

    File as an exhibit to the Schedule all documents specified in Item 
1016(a) through (d), (f) and (g) of Regulation M-A (Sec. 229.1016 of 
this chapter).

Signature. After due inquiry and to the best of my knowledge and belief, 
I certify that the information set forth in this statement is true, 
complete and correct.

________________________________________________________________________
(Signature)

________________________________________________________________________
(Name and title)

________________________________________________________________________
(Date)

    Instruction to Signature: The statement must be signed by the filing 
person or that person's authorized representative. If the statement is 
signed on behalf of a person by an authorized representative (other than 
an executive officer of a corporation or general partner of a 
partnership), evidence of the representative's authority to sign on 
behalf of the person must be filed with the statement. The name and any 
title of each person who signs the statement must be typed or printed 
beneath the signature. See Sec. 240.12b-11 with respect to signature 
requirements.

[64 FR 61454, Nov. 10, 1999]



Sec. 240.13e-101  [Reserved]



Sec. 240.13e-102  Schedule 13E-4F. Tender offer statement pursuant to 

section 13(e) (1) of the Securities Exchange Act of 1934 and Sec. 240.13e-4 
thereunder.

Securities and Exchange Commission
Washington, DC 20549
Schedule 13E-4F
Issuer Tender Offer Statement Pursuant to Section 13(e)(1) of the 
Securities Exchange Act of 1934
[Amendment No. ----]
________________________________________________________________________

[[Page 175]]

    (Exact name of Issuer as specified in its charter)
________________________________________________________________________
    (Translation of Issuer's Name into English (if applicable) )
________________________________________________________________________
    (Jurisdiction of Issuer's Incorporation or Organization)
________________________________________________________________________
    (Name(s) of Person(s) Filing Statement)
________________________________________________________________________
    (Title of Class of Securities)
________________________________________________________________________
    (CUSIP Number of Class of Securities) (if applicable)
________________________________________________________________________
    (Name, address (including zip code) and telephone number (including 
area code) of person authorized to receive notices and communications on 
behalf of the person(s) filing statement)
________________________________________________________________________
    (Date tender offer first published, sent or given to 
securityholders)

Calculation of Filing Fee *
    Transaction Valuation
    Amount of Filing Fee

    * Set forth the amount on which the filing fee is calculated and 
state how it was determined. See General Instruction II. C. for rules 
governing the calculation of the filing fee.

[ ] Check box if any part of the fee is offset as provided by Rule 0-
          11(a)(2) and identify the filing with which the offsetting fee 
          was previously paid. Identify the previous filing by 
          registration statement number, or the Form or Schedule and the 
          date of its filing.

    Amount Previously Paid: --------
    Registration No.: --------
    Filing Party:
________________________________________________________________________
    Form: -------- Date Filed: --------

                          General Instructions

         I. Eligibility Requirements for Use of Schedule 13E-4F

    A. Schedule 13E-4F may be used by any foreign private issuer if: (1) 
The issuer is incorporated or organized under the laws of Canada or any 
Canadian province or territory; (2) the issuer is making a cash tender 
or exchange offer for the issuer's own securities; and (3) less than 40 
percent of the class of such issuer's securities outstanding that is the 
subject of the tender offer is held by U.S. holders. The calculation of 
securities held by U.S. holders shall be made as of the end of the 
issuer's last quarter or, if such quarter terminated within 60 days of 
the filing date, as of the end of the issuer's preceding quarter.

                              Instructions

    1. For purposes of this Schedule, ``foreign private issuer'' shall 
be construed in accordance with Rule 405 under the Securities Act.
    2. For purposes of this Schedule, the term ``U.S. holder'' shall 
mean any person whose address appears on the records of the issuer, any 
voting trustee, any depositary, any share transfer agent or any person 
acting in a similar capacity on behalf of the issuer as being located in 
the United States.
    3. If this Schedule is filed during the pendency of one or more 
ongoing cash tender or exchange offers for securities of the class 
subject to this offer that was commenced or was eligible to be commenced 
on Schedule 14D-1F and/or Form F-8 or Form F-80, the date for 
calculation of U.S. ownership for purposes of this Schedule shall be the 
same as that date used by the initial bidder or issuer.
    4. For purposes of this Schedule, the class of subject securities 
shall not include any securities that may be converted into or are 
exchangeable for the subject securities.
    B. Any issuer using this Schedule must extend the cash tender or 
exchange offer to U.S. holders of the class of securities subject to the 
offer upon terms and conditions not less favorable than those extended 
to any other holder of the same class of such securities, and must 
comply with the requirements of any Canadian federal, provincial and/or 
territorial law, regulation or policy relating to the terms and 
conditions of the offer.
    C. This Schedule shall not be used if the issuer is an investment 
company registered or required to be registered under the Investment 
Company Act of 1940.

                    II. Filing Instructions and Fees

    A.(1) The issuer must file this Schedule and any amendment to the 
Schedule (see Part I, Item 1.(b)), including all exhibits and other 
documents filed as part of the Schedule or amendment, in electronic 
format via the Commission's Electronic Data Gathering, Analysis, and 
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in 
Regulation S-T (17 CFR Part 232). For assistance with technical 
questions about EDGAR or to request an access code, call the EDGAR Filer 
Support Office at (202) 942-8900. For assistance with the EDGAR rules, 
call the Office of EDGAR and Information Analysis at (202) 942-2940.
    (2) If filing the Schedule in paper under a hardship exemption in 17 
CFR 232.201 or 232.202 of Regulation S-T, or as otherwise permitted, the 
issuer must file with the Commission at its principal office five copies 
of the complete Schedule and any amendment, including exhibits and all 
other documents filed as a part of the Schedule or amendment. The issuer 
must bind, staple or otherwise compile each copy in one or more

[[Page 176]]

parts without stiff covers. The issuer must further bind the Schedule or 
amendment on the side or stitching margin in a manner that leaves the 
reading matter legible. The issuer must provide three additional copies 
of the Schedule or amendment without exhibits to the Commission.
    B. An electronic filer must provide the signatures required for the 
Schedule or amendment in accordance with 17 CFR 232.302 of Regulation S-
T. An issuer filing in paper must have the original and at least one 
copy of the Schedule and any amendment signed in accordance with 
Exchange Act Rule 12b-11(d) (17 CFR 12b-11(d)) by the persons whose 
signatures are required for this Schedule or amendment. The issuer must 
also conform the unsigned copies.
    C. At the time of filing this Schedule with the Commission, the 
issuer shall pay to the Commission in accordance with Rule 0-11 of the 
Exchange Act, a fee in U.S. dollars in the amount prescribed by section 
13(e)(3) of the Exchange Act. See also Rule 0-9 of the Exchange Act.
    (1) The value of the securities to be acquired solely for cash shall 
be the amount of cash to be paid for them, calculated into U.S. dollars.
    (2) The value of the securities to be acquired with securities or 
other non-cash consideration, whether or not in combination with a cash 
payment for the same securities, shall be based on the market value of 
the securities to be acquired by the issuer as established in accordance 
with paragraph (3) of this section.
    (3) When the fee is based upon the market value of the securities, 
such market value shall be established by either the average of the high 
and low prices reported on the consolidated reporting system (for 
exchange-traded securities and last sale reported for over-the-counter 
securities) or the average of the bid and asked price (for other over-
the-counter securities) as of a specified date within 5 business days 
prior to the date of filing the Schedule. If there is no market for the 
securities to be acquired by the issuer, the value shall be based upon 
the book value of such securities computed as of the latest practicable 
date prior to the date of filing of the Schedule, unless the issuer of 
the securities is in bankruptcy or receivership or has an accumulated 
capital deficit, in which case one-third of the principal amount, par 
value or stated value of such securities shall be used.
    D. If at any time after the initial payment of the fee the aggregate 
consideration offered is increased, an additional filing fee based upon 
such increase shall be paid with the required amended filing.
    E. The issuer must file the Schedule or amendment in electronic 
format in the English language in accordance with 17 CFR 232.306 of 
Regulation S-T. The issuer may file part of the Schedule or amendment, 
or exhibit or other attachment to the Schedule or amendment, in both 
French and English if the issuer included the French text to comply with 
the requirements of the Canadian securities administrator or other 
Canadian authority and, for an electronic filing, if the filing is an 
HTML document, as defined in 17 CFR 232.11 of Regulation S-T. For both 
an electronic filing and a paper filing, the issuer may provide an 
English translation or English summary of a foreign language document as 
an exhibit or other attachment to the Schedule or amendment as permitted 
by the rules of the applicable Canadian securities administrator.
    F. A paper filer must number sequentially the signed original of the 
Schedule or amendment (in addition to any internal numbering that 
otherwise may be present) by handwritten, typed, printed or other 
legible form of notation from the first page through the last page of 
the Schedule or amendment, including any exhibits or attachments. A 
paper filer must disclose the total number of pages on the first page of 
the sequentially numbered Schedule or amendment.

                  III. Compliance with the Exchange Act

    A. Pursuant to Rule 13e-4(g) under the Exchange Act, the issuer 
shall be deemed to comply with the requirements of section 13(e)(1) of 
the Exchange Act and Rule 13e-4 and Schedule 13E-4 thereunder in 
connection with a cash tender or exchange offer for securities that may 
be made pursuant to this Schedule, provided that, if an exemption has 
been granted from the requirements of Canadian federal, provincial and/
or territorial laws, regulations or policies, and the tender offer does 
not comply with requirements that otherwise would be prescribed by Rule 
13e-4, the issuer (absent an order from the Commission) shall comply 
with the provisions of section 13(e)(1) and Rule 13e-4 and Schedule 13E-
4 thereunder.
    B. Any cash tender or exchange offer made pursuant to this Schedule 
is not exempt from the antifraud provisions of section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder, section 13(e)(1) of the Exchange 
Act and Rule 13e-4(b)(1) thereunder, and section 14(e) of the Exchange 
Act and Rule 14e-3 thereunder, and this Schedule shall be deemed 
``filed'' for purposes of section 18 of the Exchange Act.
    C. The issuer's attention is directed to Regulation M (Sec. Sec. 
242.100 through 242.105 of this chapter), in the case of an issuer 
exchange offer, and to Rule 10b-13 under the Exchange Act (Sec. 
240.10b-13), in the case of an issuer cash tender offer or issuer 
exchange offer. [See Exchange Act Release No. 29355 (June 21, 1991) 
containing an exemption from Rule 10b-13.]

[[Page 177]]

         Part I--Information Required To Be Sent to Shareholders

                   Item 1. Home Jurisdiction Documents

    (a) This Schedule shall be accompanied by the entire disclosure 
document or documents required to be delivered to holders of securities 
to be acquired by the issuer in the proposed transaction pursuant to the 
laws, regulations or policies of the Canadian jurisdiction in which the 
issuer is incorporated or organized, and any other Canadian federal, 
provincial and/or territorial law, regulation or policy relating to the 
terms and conditions of the offer. The Schedule need not include any 
documents incorporated by reference into such disclosure document(s) and 
not distributed to offerees pursuant to any such law, regulation or 
policy.
    (b) Any amendment made by the issuer to a home jurisdiction document 
or documents shall be filed with the Commission under cover of this 
Schedule, which must indicate on the cover page the number of the 
amendment.
    (c) In an exchange offer where securities of the issuer have been or 
are to be offered or cancelled in the transaction, such securities shall 
be registered on forms promulgated by the Commission under the 
Securities Act of 1933 including, where available, the Commission's Form 
F-8 or F-80 providing for inclusion in that registration statement of 
the home jurisdiction prospectus.

                      Item 2. Informational Legends

    The following legends, to the extent applicable, shall appear on the 
outside front cover page of the home jurisdiction document(s) in bold-
face roman type at least as high as ten-point modern type and at least 
two-points leaded:
    ``This tender offer is made by a foreign issuer for its own 
securities, and while the offer is subject to disclosure requirements of 
the country in which the issuer is incorporated or organized, investors 
should be aware that these requirements are different from those of the 
United States. Financial statements included herein, if any, have been 
prepared in accordance with foreign generally accepted accounting 
principles and thus may not be comparable to financial statements of 
United States companies.
    ``The enforcement by investors of civil liabilities under the 
federal securities laws may be affected adversely by the fact that the 
issuer is located in a foreign country, and that some or all of its 
officers and directors are residents of a foreign country.
    ``Investors should be aware that the issuer or its affiliates, 
directly or indirectly, may bid for or make purchases of the securities 
of the issuer subject to the offer, or of its related securities, during 
the period of the issuer tender offer, as permitted by applicable 
Canadian laws or provincial laws or regulations.''

    Note to Item 2. If the home jurisdiction document(s) are delivered 
through an electronic medium, the issuer may satisfy the legibility 
requirements for the required legends relating to type size and fonts by 
presenting the legend in any manner reasonably calculated to draw 
security holder attention to it.

      Part II--Information Not Required To Be Sent to Shareholders

    The exhibits specified below shall be filed as part of the Schedule, 
but are not required to be sent to shareholders unless so required 
pursuant to the laws, regulations or policies of Canada and/or any of 
its provinces or territories. Exhibits shall be lettered or numbered 
appropriately for convenient reference.
    (1) File any reports or information that, in accordance with the 
requirements of the home jurisdiction(s), must be made publicly 
available by the issuer in connection with the transaction, but need not 
be disseminated to shareholders.
    (2) File copies of any documents incorporated by reference into the 
home jurisdiction document(s) .
    (3) If any name is signed to the Schedule pursuant to power of 
attorney, manually signed copies of any such power of attorney shall be 
filed. If the name of any officer signing on behalf of the issuer is 
signed pursuant to a power of attorney, certified copies of a resolution 
of the issuer's board of directors authorizing such signature also shall 
be filed.

        Part III--Undertakings and Consent to Service of Process

                             1. Undertakings

    The Schedule shall set forth the following undertakings of the 
issuer:
    (a) The issuer undertakes to make available, in person or by 
telephone, representatives to respond to inquiries made by the 
Commission staff, and to furnish promptly, when requested to do so by 
the Commission staff, information relating to this Schedule or to 
transactions in said securities.
    (b) The issuer also undertakes to disclose in the United States, on 
the same basis as it is required to make such disclosure pursuant to 
applicable Canadian federal and/or provincial or territorial laws, 
regulations or policies, or otherwise discloses, information regarding 
purchases of the issuer's securities in connection with the cash tender 
or exchange offer covered by this Schedule. Such information shall be 
set forth in amendments to this Schedule.

[[Page 178]]

                    2. Consent to Service of Process

    (a) At the time of filing this Schedule, the issuer shall file with 
the Commission a written irrevocable consent and power of attorney on 
Form F-X.
    (b) Any change to the name or address of a registrant's agent for 
service shall be communicated promptly to the Commission by amendment to 
Form F-X referencing the file number of the registrant.

                           Part IV--Signatures

    A. The Schedule shall be signed by each person on whose behalf the 
Schedule is filed or its authorized representative. If the Schedule is 
signed on behalf of a person by his authorized representative (other 
than an executive officer or general partner of the company), evidence 
of the representative's authority shall be filed with the Schedule.
    B. The name of each person who signs the Schedule shall be typed or 
printed beneath his signature.
    C. By signing this Schedule, the person(s) filing the Schedule 
consents without power of revocation that any administrative subpoena 
may be served, or any administrative proceeding, civil suit or civil 
action where the cause of action arises out of or relates to or concerns 
any offering made or purported to be made in connection with the filing 
on Schedule 13E-4F or any purchases or sales of any security in 
connection therewith, may be commenced against it in any administrative 
tribunal or in any appropriate court in any place subject to the 
jurisdiction of any state or of the United States by service of said 
subpoena or process upon the registrant's designated agent.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
________________________________________________________________________
    (Signature)
________________________________________________________________________
    (Name and Title)
________________________________________________________________________
    (Date)

[56 FR 30069, July 1, 1991, as amended at 61 FR 24656, May 15, 1996; 62 
FR 544, Jan. 3, 1997; 67 FR 36705, May 24, 2002]



Sec. 240.13f-1  Reporting by institutional investment managers of 
information with respect to accounts over which they exercise investment discretion.

    (a)(1) Every institutional investment manager which exercises 
investment discretion with respect to accounts holding section 13(f) 
securities, as defined in paragraph (c) of this section, having an 
aggregate fair market value on the last trading day of any month of any 
calendar year of at least $100,000,000 shall file a report on Form 13F 
(Sec. 249.325 of this chapter) with the Commission within 45 days after 
the last day of such calendar year and within 45 days after the last day 
of each of the first three calendar quarters of the subsequent calendar 
year.
    (2) An amendment to a Form 13F (Sec. 249.325 of this chapter) 
report, other than one reporting only holdings that were not previously 
reported in a public filing for the same period, must set forth the 
complete text of the Form 13F. Amendments must be numbered sequentially.
    (b) For the purposes of this rule, ``investment descretion'' has the 
meaning set forth in section 3(a)(35) of the Act (15 U.S.C. 78c(a)(35)). 
An institutional investment manager shall also be deemed to exercise 
``investment discretion'' with respect to all accounts over which any 
person under its control exercises investment discretion.
    (c) For purposes of this rule ``section 13(f) securities'' shall 
mean equity securities of a class described in section 13(d)(1) of the 
Act that are admitted to trading on a national securities exchange or 
quoted on the automated quotation system of a registered securities 
association. In determining what classes of securities are section 13(f) 
securities, an institutional investment manager may rely on the most 
recent list of such securities published by the Commission pursuant to 
section 13(f)(3) of the Act (15 U.S.C. 78m(f)(3)). Only securities of a 
class on such list shall be counted in determining whether an 
institutional investment manager must file a report under this rule 
(Sec. 240.13f-1(a)) and only those securities shall be reported in such 
report. Where a person controls the issuer of a class of equity 
securities which are ``section 13(f) securities'' as defined in this 
rule, those securities shall not be deemed to be ``section 13(f) 
securities'' with respect to the controlling person, provided that such 
person does not otherwise exercise investment descretion with respect to 
accounts with fair market value of at least $100,000,000 within the

[[Page 179]]

meaning of paragraph (a) of this section.

(Secs. 3(b), 13(f) and 23 of the Exchange Act (15 U.S.C. 78c(b), 78m(f) 
and 78w))

[43 FR 26705, June 22, 1978, as amended at 44 FR 3034, Jan. 15, 1979; 64 
FR 2849, Jan. 19, 1999]

                 Regulation 14A: Solicitation of Proxies

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec. 240.14a-1  Definitions.

    Unless the context otherwise requires, all terms used in this 
regulation have the same meanings as in the Act or elsewhere in the 
general rules and regulations thereunder. In addition, the following 
definitions apply unless the context otherwise requires:
    (a) Associate. The term ``associate,'' used to indicate a 
relationship with any person, means:
    (1) Any corporation or organization (other than the registrant or a 
majority owned subsidiary of the registrant) of which such person is an 
officer or partner or is, directly or indirectly, the beneficial owner 
of 10 percent or more of any class of equity securities;
    (2) Any trust or other estate in which such person has a substantial 
beneficial interest or as to which such person serves as trustee or in a 
similar fiduciary capacity; and
    (3) Any relative or spouse of such person, or any relative of such 
spouse, who has the same home as such person or who is a director or 
officer of the registrant or any of its parents or subsidiaries.
    (b) Employee benefit plan. For purposes of Sec. Sec. 240.14a-13, 
240.14b-1 and 240.14b-2, the term ``employee benefit plan'' means any 
purchase, savings, option, bonus, appreciation, profit sharing, thrift, 
incentive, pension or similar plan primarily for employees, directors, 
trustees or officers.
    (c) Entity that exercises fiduciary powers. The term ``entity that 
exercises fiduciary powers'' means any entity that holds securities in 
nominee name or otherwise on behalf of a beneficial owner but does not 
include a clearing agency registered pursuant to section 17A of the Act 
or a broker or a dealer.
    (d) Exempt employee benefit plan securities. For purposes of 
Sec. Sec. 240.14a-13, 240.14b-1 and 240.14b-2, the term ``exempt 
employee benefit plan securities'' means:
    (1) Securities of the registrant held by an employee benefit plan, 
as defined in paragraph (b) of this section, where such plan is 
established by the registrant; or
    (2) If notice regarding the current solicitation has been given 
pursuant to Sec. 240.14a-13(a)(1)(ii)(C) or if notice regarding the 
current request for a list of names, addresses and securities positions 
of beneficial owners has been given pursuant to Sec. 240.14a-13(b)(3), 
securities of the registrant held by an employee benefit plan, as 
defined in paragraph (b) of this section, where such plan is established 
by an affiliate of the registrant.
    (e) Last fiscal year. The term ``last fiscal year'' of the 
registrant means the last fiscal year of the registrant ending prior to 
the date of the meeting for which proxies are to be solicited or if the 
solicitation involves written authorizations or consents in lieu of a 
meeting, the earliest date they may be used to effect corporate action.
    (f) Proxy. The term ``proxy'' includes every proxy, consent or 
authorization within the meaning of section 14(a) of the Act. The 
consent or authorization may take the form of failure to object or to 
dissent.
    (g) Proxy statement. The term ``proxy statement'' means the 
statement required by Sec. 240.14a-3(a) whether or not contained in a 
single document.
    (h) Record date. The term ``record date'' means the date as of which 
the record holders of securities entitled to vote at a meeting or by 
written consent or authorization shall be determined.

[[Page 180]]

    (i) Record holder. For purposes of Sec. Sec. 240.14a-13, 240.14b-1 
and 240.14b-2, the term ``record holder'' means any broker, dealer, 
voting trustee, bank, association or other entity that exercises 
fiduciary powers which holds securities of record in nominee name or 
otherwise or as a participant in a clearing agency registered pursuant 
to section 17A of the Act.
    (j) Registrant. The term ``registrant'' means the issuer of the 
securities in respect of which proxies are to be solicited.
    (k) Respondent bank. For purposes of Sec. Sec. 240.14a-13, 240.14b-
1 and 240.14b-2, the term ``respondent bank'' means any bank, 
association or other entity that exercises fiduciary powers which holds 
securities on behalf of beneficial owners and deposits such securities 
for safekeeping with another bank, association or other entity that 
exercises fiduciary powers.
    (l) Solicitation. (1) The terms ``solicit'' and ``solicitation'' 
include:
    (i) Any request for a proxy whether or not accompanied by or 
included in a form of proxy:
    (ii) Any request to execute or not to execute, or to revoke, a 
proxy; or
    (iii) The furnishing of a form of proxy or other communication to 
security holders under circumstances reasonably calculated to result in 
the procurement, withholding or revocation of a proxy.
    (2) The terms do not apply, however, to:
    (i) The furnishing of a form of proxy to a security holder upon the 
unsolicited request of such security holder;
    (ii) The performance by the registrant of acts required by Sec. 
240.14a-7;
    (iii) The performance by any person of ministerial acts on behalf of 
a person soliciting a proxy; or
    (iv) A communication by a security holder who does not otherwise 
engage in a proxy solicitation (other than a solicitation exempt under 
Sec. 240.14a-2) stating how the security holder intends to vote and the 
reasons therefor, provided that the communication:
    (A) Is made by means of speeches in public forums, press releases, 
published or broadcast opinions, statements, or advertisements appearing 
in a broadcast media, or newspaper, magazine or other bona fide 
publication disseminated on a regular basis,
    (B) Is directed to persons to whom the security holder owes a 
fiduciary duty in connection with the voting of securities of a 
registrant held by the security holder, or
    (C) Is made in response to unsolicited requests for additional 
information with respect to a prior communication by the security holder 
made pursuant to this paragraph (l)(2)(iv).

[51 FR 44275, Dec. 9, 1986, as amended at 52 FR 23648, June 24, 1987; 53 
FR 16405, May, 9, 1988; 57 FR 48290, Oct. 22, 1992]



Sec. 240.14a-2  Solicitations to which Sec. 240.14a-3 to Sec. 240.14a-15 apply.

    Sections 240.14a-3 to 240.14a-15, except as specified, apply to 
every solicitation of a proxy with respect to securities registered 
pursuant to section 12 of the Act (15 U.S.C. 78l), whether or not 
trading in such securities has been suspended. To the extent specified 
below, certain of these sections also apply to roll-up transactions that 
do not involve an entity with securities registered pursuant to section 
12 of the Act.
    (a) Sections 240.14a-3 to 240.14a-15 do not apply to the following:
    (1) Any solicitation by a person in respect to securities carried in 
his name or in the name of his nominee (otherwise than as voting 
trustee) or held in his custody, if such person--
    (i) Receives no commission or remuneration for such solicitation, 
directly or indirectly, other than reimbursement of reasonable expenses,
    (ii) Furnishes promptly to the person solicited (or such person's 
household in accordance with Sec. 240.14a-3(e)(1)) a copy of all 
soliciting material with respect to the same subject matter or meeting 
received from all persons who shall furnish copies thereof for such 
purpose and who shall, if requested, defray the reasonable expenses to 
be incurred in forwarding such material, and
    (iii) In addition, does no more than impartially instruct the person 
solicited to forward a proxy to the person, if any, to whom the person 
solicited desires to give a proxy, or impartially request from the 
person solicited instructions as to the authority to be conferred by the 
proxy and state that a

[[Page 181]]

proxy will be given if no instructions are received by a certain date.
    (2) Any solicitation by a person in respect of securities of which 
he is the beneficial owner;
    (3) Any solicitation involved in the offer and sale of securities 
registered under the Securities Act of 1933: Provided, That this 
paragraph shall not apply to securities to be issued in any transaction 
of the character specified in paragraph (a) of Rule 145 under that Act;
    (4) Any solicitation with respect to a plan of reorganization under 
Chapter 11 of the Bankruptcy Reform Act of 1978, as amended, if made 
after the entry of an order approving the written disclosure statement 
concerning a plan of reorganization pursuant to section 1125 of said Act 
and after, or concurrently with, the transmittal of such disclosure 
statement as required by section 1125 of said Act;
    (5) Any solicitation which is subject to Rule 62 under the Public 
Utility Holding Company Act of 1935; and
    (6) Any solicitation through the medium of a newspaper advertisement 
which informs security holders of a source from which they may obtain 
copies of a proxy statement, form of proxy and any other soliciting 
material and does no more than:
    (i) Name the registrant,
    (ii) State the reason for the advertisement, and
    (iii) Identify the proposal or proposals to be acted upon by 
security holders.
    (b) Sections 240.14a-3 to 240.14a-6 (other than 14a-6(g)), 240.14a-
8, and 240.14a-10 to 240.14a-15 do not apply to the following:
    (1) Any solicitation by or on behalf of any person who does not, at 
any time during such solicitation, seek directly or indirectly, either 
on its own or another's behalf, the power to act as proxy for a security 
holder and does not furnish or otherwise request, or act on behalf of a 
person who furnishes or requests, a form of revocation, abstention, 
consent or authorization. Provided, however, That the exemption set 
forth in this paragraph shall not apply to:
    (i) The registrant or an affiliate or associate of the registrant 
(other than an officer or director or any person serving in a similar 
capacity);
    (ii) An officer or director of the registrant or any person serving 
in a similar capacity engaging in a solicitation financed directly or 
indirectly by the registrant;
    (iii) An officer, director, affiliate or associate of a person that 
is ineligible to rely on the exemption set forth in this paragraph 
(other than persons specified in paragraph (b)(1)(i) of this section), 
or any person serving in a similar capacity;
    (iv) Any nominee for whose election as a director proxies are 
solicited;
    (v) Any person soliciting in opposition to a merger, 
recapitalization, reorganization, sale of assets or other extraordinary 
transaction recommended or approved by the board of directors of the 
registrant who is proposing or intends to propose an alternative 
transaction to which such person or one of its affiliates is a party;
    (vi) Any person who is required to report beneficial ownership of 
the registrant's equity securities on a Schedule 13D (Sec. 240.13d-
101), unless such person has filed a Schedule 13D and has not disclosed 
pursuant to Item 4 thereto an intent, or reserved the right, to engage 
in a control transaction, or any contested solicitation for the election 
of directors;
    (vii) Any person who receives compensation from an ineligible person 
directly related to the solicitation of proxies, other than pursuant to 
Sec. 240.14a-13;
    (viii) Where the registrant is an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), an 
``interested person'' of that investment company, as that term is 
defined in section 2(a)(19) of the Investment Company Act (15 U.S.C. 
80a-2);
    (ix) Any person who, because of a substantial interest in the 
subject matter of the solicitation, is likely to receive a benefit from 
a successful solicitation that would not be shared pro rata by all other 
holders of the same class of securities, other than a benefit arising 
from the person's employment with the registrant; and
    (x) Any person acting on behalf of any of the foregoing.

[[Page 182]]

    (2) Any solicitation made otherwise than on behalf of the registrant 
where the total number of persons solicited is not more than ten;
    (3) The furnishing of proxy voting advice by any person (the 
``advisor'') to any other person with whom the advisor has a business 
relationship, if:
    (i) The advisor renders financial advice in the ordinary course of 
his business;
    (ii) The advisor discloses to the recipient of the advice any 
significant relationship with the registrant or any of its affiliates, 
or a security holder proponent of the matter on which advice is given, 
as well as any material interests of the advisor in such matter.
    (iii) The advisor receives no special commission or remuneration for 
furnishing the proxy voting advice from any person other than a 
recipient of the advice and other persons who receive similar advice 
under this subsection; and
    (iv) The proxy voting advice is not furnished on behalf of any 
person soliciting proxies or on behalf of a participant in an election 
subject to the provisions of Rule 14a-11; and
    (4) Any solicitation in connection with a roll-up transaction as 
defined in Item 901(c) of Regulation S-K (Sec. 229.901 of this chapter) 
in which the holder of a security that is the subject of a proposed 
roll-up transaction engages in preliminary communications with other 
holders of securities that are the subject of the same limited 
partnership roll-up transaction for the purpose of determining whether 
to solicit proxies, consents, or authorizations in opposition to the 
proposed limited partnership roll-up transaction; provided, however, 
that:
    (i) This exemption shall not apply to a security holder who is an 
affiliate of the registrant or general partner or sponsor; and
    (ii) This exemption shall not apply to a holder of five percent (5%) 
or more of the outstanding securities of a class that is the subject of 
the proposed roll-up transaction who engages in the business of buying 
and selling limited partnership interests in the secondary market unless 
that holder discloses to the persons to whom the communications are made 
such ownership interest and any relations of the holder to the parties 
of the transaction or to the transaction itself, as required by Sec. 
240.14a-6(n)(1) and specified in the Notice of Exempt Preliminary Roll-
up Communication (Sec. 240.14a-104). If the communication is oral, this 
disclosure may be provided to the security holder orally. Whether the 
communication is written or oral, the notice required by Sec. 240.14a-
6(n) and Sec. 240.14a-104 shall be furnished to the Commission.

(Secs. 12, 13, 14, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 1, 
3, 8, 49 Stat. 1375, 1377, 1379; sec. 203(a), 49 Stat. 704; sec. 202, 68 
Stat. 686; secs. 3, 4, 5, 6, 78, Stat. 565-568, 569, 570-574; secs. 1, 
2, 3, 82 Stat. 454, 455, secs. 28(c), 1, 2, 3-5, 84 Stat. 1435, 1497; 
secs. 10, 18, 89 Stat. 119, 155; sec. 308(b), 90 Stat. 57; sec. 204, 91 
Stat. 1500; 15 U.S.C. 78l, 78m, 78n, 78o(d))

[44 FR 68769, Nov. 29, 1979, as amended at 51 FR 42059, Nov. 20, 1986; 
52 FR 21936, June 10, 1987; 57 FR 48290, Oct. 22, 1992; 59 FR 63684, 
Dec. 8, 1994; 65 FR 65749, Nov. 2, 2000]



Sec. 240.14a-3  Information to be furnished to security holders.

    (a) No solicitation subject to this regulation shall be made unless 
each person solicited is concurrently furnished or has previously been 
furnished with a publicly-filed preliminary or definitive written proxy 
statement containing the information specified in Schedule 14A (Sec. 
240.14a-101) or with a preliminary or definitive written proxy statement 
included in a registration statement filed under the Securities Act of 
1933 on Form S-4 or F-4 (Sec. 239.25 or Sec. 239.34 of this chapter) 
or Form N-14 (Sec. 239.23) and containing the information specified in 
such Form.
    (b) If the solicitation is made on behalf of the registrant, other 
than an investment company registered under the Investment Company Act 
of 1940, and relates to an annual (or special meeting in lieu of the 
annual) meeting of security holders, or written consent in lieu of such 
meeting, at which directors are to be elected, each proxy statement 
furnished pursuant to paragraph (a) of this section shall be accompanied 
or preceded by an annual report to security holders as follows:

    Note to Small Business Issuers--A ``small business issuer,'' defined 
under Rule 12b-2 of the Exchange Act (Sec. 240.12b-2), shall refer to 
the disclosure items in Regulation S-B (Sec. 228.10--702 of this 
chapter) rather than

[[Page 183]]

Regulation S-K (Sec. 229.10--702 of this chapter). If there is no 
comparable disclosure item in Regulation S-B, a small business issuer 
need not provide the information requested. A small business issuer 
shall provide the information in Item 310(a) of Regulation S-B in lieu 
of the financial information required by Rule 14a-3(b)(1) (Sec. 
240.14a-3(b)(1)). Small business issuers using the transitional small 
business issuers disclosure format in the filing of their most recent 
annual report on Form 10-KSB (Sec. 249.310b of this chapter) need not 
provide the information specified below. Rather, those small business 
issuers shall provide only the financial statements required to be filed 
in their most recent Form 10-KSB. The inclusion of additional 
information, including information required of non-transitional small 
business issuers, in the annual report to security holders will not 
cause the issuer to be ineligible for the transitional disclosure forms.

    (1) The report shall include, for the registrant and its 
subsidiaries consolidated, audited balance sheets as of the end of each 
of the two most recent fiscal years and audited statements of income and 
cash flows for each of the three most recent fiscal years prepared in 
accordance with Regulation S-X (part 210 of this chapter), except that 
the provisions of Article 3 (other than Sec. Sec. 210.3-03(e), 210.3-04 
and 210.3-20) and Article 11 shall not apply. Any financial statement 
schedules or exhibits or separate financial statements which may 
otherwise be required in filings with the Commission may be omitted. If 
the financial statements of the registrant and its subsidiaries 
consolidated in the annual report filed or to be filed with the 
Commission are not required to be audited, the financial statements 
required by this paragraph may be unaudited.

    Note  1--If the financial statements for a period prior to the most 
recently completed fiscal year have been examined by a predecessor 
accountant, the separate report of the predecessor accountant may be 
omitted in the report to security holders provided the registrant has 
obtained from the predecessor accountant a reissued report covering the 
prior period presented and the successor accountant clearly indicates in 
the scope paragraph of his report (a) that the financial statements of 
the prior period were examined by other accountants, (b) the date of 
their report, (c) the type of opinion expressed by the predecessor 
accountant and (d) the substantive reasons therefor, if it was other 
than unqualified. It should be noted, however, that the separate report 
of any predecessor accountant is required in filings with the 
Commission. If, for instance, the financial statements in the annual 
report to security holders are incorporated by reference in a Form 10-K 
and Form 10-KSB, the separate report of a predecessor accountant shall 
be filed in Part II or in Part IV as a financial statement schedule.
    Note  2--For purposes of complying with Sec. 240.14a-3, if the 
registrant has changed its fiscal closing date, financial statements 
covering two years and one period of 9 to 12 months shall be deemed to 
satisfy the requirements for statements of income and cash flows for the 
three most recent fiscal years.

    (2)(i) Financial statements and notes thereto shall be presented in 
roman type at least as large and as legible as 10-point modern type. If 
necessary for convenient presentation, the financial statements may be 
in roman type as large and as legible as 8-point modern type. All type 
shall be leaded at least 2 points.
    (ii) Where the annual report to security holders is delivered 
through an electronic medium, issuers may satisfy legibility 
requirements applicable to printed documents, such as type size and 
font, by presenting all required information in a format readily 
communicated to investors.
    (3) The report shall contain the supplementary financial information 
required by item 302 of Regulation S-K (Sec. 229.302 of this chapter).
    (4) The report shall contain information concerning changes in and 
disagreements with accountants on accounting and financial disclosure 
required by Item 304 of Regulation S-K (Sec. 229.304 of this chapter).
    (5)(i) The report shall contain the selected financial data required 
by Item 301 of Regulation S-K (Sec. 229.301 of this chapter).
    (ii) The report shall contain management's discussion and analysis 
of financial condition and results of operations required by Item 303 of 
Regulation S-K (Sec. 229.303 of this chapter) or, if applicable, a plan 
of operation required by Item 303(a) of Regulation S-B (Sec. 228.303(a) 
of this chapter).
    (iii) The report shall contain the quantitative and qualitative 
disclosures about market risk required by Item 305 of Regulation S-K 
(Sec. 229.305 of this chapter).

[[Page 184]]

    (6) The report shall contain a brief description of the business 
done by the registrant and its subsidiaries during the most recent 
fiscal year which will, in the opinion of management, indicate the 
general nature and scope of the business of the registrant and its 
subsidiaries.
    (7) The report shall contain information relating to the 
registrant's industry segments, classes of similar products or services, 
foreign and domestic operations and exports sales required by paragraphs 
(b), (c)(1)(i) and (d) of Item 101 of Regulation S-K (Sec. 229.101 of 
this chapter).
    (8) The report shall identify each of the registrant's directors and 
executive officers, and shall indicate the principal occupation or 
employment of each such person and the name and principal business of 
any organization by which such person is employed.
    (9) The report shall contain the market price of and dividends on 
the registrant's common equity and related security holder matters 
required by Item 201(a), (b) and (c) of Regulation S-K (Sec. 
229.201(a), (b) and (c) of this chapter).
    (10) The registrant's proxy statement, or the report, shall contain 
an undertaking in bold face or otherwise reasonably prominent type to 
provide without charge to each person solicited upon the written request 
of any such person, a copy of the registrant's annual report on Form 10-
K and Form 10-KSB, including the financial statements and the financial 
statement schedules, required to be filed with the Commission pursuant 
to Rule 13a-1 under the Act for the registrant's most recent fiscal 
year, and shall indicate the name and address (including title or 
department) of the person to whom such a written request is to be 
directed. In the discretion of management, a registrant need not 
undertake to furnish without charge copies of all exhibits to its Form 
10-K and Form 10-KSB provided the that copy of the annual report on Form 
10-K and Form 10-KSB furnished without charge to requesting security 
holders is accompanied by a list briefly describing all the exhibits not 
contained therein and indicating that the registrant will furnish any 
exhibit upon the payment of a specified reasonable fee which fee shall 
be limited to the registrant's reasonable expenses in furnishing such 
exhibit. If the registrant's annual report to security holders complies 
with all of the disclosure requirements of Form 10-K and Form 10-KSB and 
is filed with the Commission in satisfaction of its Form 10-K and Form 
10-KSB filing requirements, such registrant need not furnish a separate 
Form 10-K and Form 10-KSB to security holders who receive a copy of such 
annual report.
    Note: Pursuant to the undertaking required by paragraph (b)(10) of 
this section, a registrant shall furnish a copy of its annual report on 
Form 10-K and Form 10-KSB (Sec. 249.310 of this chapter) to a 
beneficial owner of its securities upon receipt of a written request 
from such person. Each request must set forth a good faith 
representation that, as of the record date for the solicitation 
requiring the furnishing of the annual report to security holders 
pursuant to paragraph (b) of this section, the person making the request 
was a beneficial owner of securities entitled to vote.
    (11) Subject to the foregoing requirements, the report may be in any 
form deemed suitable by management and the information required by 
paragraphs (b)(5) to (10) of this section may be presented in an 
appendix or other separate section of the report, provided that the 
attention of security holders is called to such presentation.
    Note: Registrants are encouraged to utilize tables, schedules, 
charts and graphic illustrations of present financial information in an 
understandable manner. Any presentation of financial information must be 
consistent with the data in the financial statements contained in the 
report and, if appropriate, should refer to relevant portions of the 
financial statements and notes thereto.
    (12) [Reserved]
    (13) Paragraph (b) of this section shall not apply, however, to 
solicitations made on behalf of the registrant before the financial 
statements are available if a solicitation is being made at the same 
time in opposition to the registrant and if the registrant's proxy 
statement includes an undertaking in bold face type to furnish such 
annual report to all persons being solicited at least 20 calendar days 
before the date of the meeting or, if the solicitation refers to a 
written consent or authorization in lieu of a meeting, at least 20 
calendar days prior to the earliest date

[[Page 185]]

on which it may be used to effect corporate action.
    (c) Seven copies of the report sent to security holders pursuant to 
this rule shall be mailed to the Commission, solely for its information, 
not later than the date on which such report is first sent or given to 
security holders or the date on which preliminary copies, or definitive 
copies, if preliminary filing was not required, of solicitation material 
are filed with the Commission pursuant to Rule 14a-6, whichever date is 
later. The report is not deemed to be ``soliciting material'' or to be 
``filed'' with the Commission or subject to this regulation otherwise 
than as provided in this Rule, or to the liabilities of section 18 of 
the Act, except to the extent that the registrant specifically requests 
that it be treated as a part of the proxy soliciting material or 
incorporates it in the proxy statement or other filed report by 
reference.
    (d) An annual report to security holders prepared on an integrated 
basis pursuant to General Instruction H to Form 10-K and Form 10-KSB 
(Sec. 249.310) may also be submitted in satisfaction of this rule. When 
filed as the annual report on Form 10-K and Form 10-KSB, responses to 
the Items of that form are subject to section 18 of the Act 
notwithstanding paragraph (c) of this section.
    (e)(1)(i) A registrant will be considered to have delivered an 
annual report or proxy statement to all security holders of record who 
share an address if:
    (A) The registrant delivers one annual report or proxy statement, as 
applicable, to the shared address;
    (B) The registrant addresses the annual report or proxy statement, 
as applicable, to the security holders as a group (for example, ``ABC 
Fund [or Corporation] Security Holders,'' ``Jane Doe and Household,'' 
``The Smith Family''), to each of the security holders individually (for 
example, ``John Doe and Richard Jones'') or to the security holders in a 
form to which each of the security holders has consented in writing;

    Note to paragraph (e)(1)(i)(B):
    Unless the company addresses the annual report or proxy statement to 
the security holders as a group or to each of the security holders 
individually, it must obtain, from each security holder to be included 
in the householded group, a separate affirmative written consent to the 
specific form of address the company will use.

    (C) The security holders consent, in accordance with paragraph 
(e)(1)(ii) of this section, to delivery of one annual report or proxy 
statement, as applicable;
    (D) With respect to delivery of the proxy statement, the registrant 
delivers, together with or subsequent to delivery of the proxy 
statement, a separate proxy card for each security holder at the shared 
address; and
    (E) The registrant includes an undertaking in the proxy statement to 
deliver promptly upon written or oral request a separate copy of the 
annual report or proxy statement, as applicable, to a security holder at 
a shared address to which a single copy of the document was delivered.
    (ii) Consent. (A) Affirmative written consent. Each security holder 
must affirmatively consent, in writing, to delivery of one annual report 
or proxy statement, as applicable. A security holder's affirmative 
written consent will only be considered valid if the security holder has 
been informed of:
    (1) The duration of the consent;
    (2) The specific types of documents to which the consent will apply;
    (3) The procedures the security holder must follow to revoke 
consent; and
    (4) The registrant's obligation to begin sending individual copies 
to a security holder within thirty days after the security holder 
revokes consent.
    (B) Implied consent. The registrant need not obtain affirmative 
written consent from a security holder for purposes of paragraph 
(e)(1)(ii)(A) of this section if all of the following conditions are 
met:
    (1) The security holder has the same last name as the other security 
holders at the shared address or the registrant reasonably believes that 
the security holders are members of the same family;
    (2) The registrant has sent the security holder a notice at least 60 
days before the registrant begins to rely on this section concerning 
delivery of annual reports and proxy statements to that security holder. 
The notice must:

[[Page 186]]

    (i) Be a separate written document;
    (ii) State that only one annual report or proxy statement, as 
applicable, will be delivered to the shared address unless the 
registrant receives contrary instructions;
    (iii) Include a toll-free telephone number, or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
security holder can use to notify the registrant that the security 
holder wishes to receive a separate annual report or proxy statement;
    (iv) State the duration of the consent;
    (v) Explain how a security holder can revoke consent;
    (vi) State that the registrant will begin sending individual copies 
to a security holder within thirty days after the security holder 
revokes consent; and
    (vii) Contain the following prominent statement, or similar clear 
and understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Security Holder Documents.'' This statement also 
must appear on the envelope in which the notice is delivered. 
Alternatively, if the notice is delivered separately from other 
communications to security holders, this statement may appear either on 
the notice or on the envelope in which the notice is delivered.

    Note to paragraph (e)(1)(ii)(B)(2):
    The notice should be written in plain English. See Sec. 
230.421(d)(2) of this chapter for a discussion of plain English 
principles.

    (3) The registrant has not received the reply form or other 
notification indicating that the security holder wishes to continue to 
receive an individual copy of the annual report or proxy statement, as 
applicable, within 60 days after the registrant sent the notice; and
    (4) The registrant delivers the document to a post office box or 
residential street address.

    Note to paragraph (e)(1)(ii)(B)(4):
    The registrant can assume that a street address is residential 
unless the registrant has information that indicates the street address 
is a business.

    (iii) Revocation of consent. If a security holder, orally or in 
writing, revokes consent to delivery of one annual report or proxy 
statement to a shared address, the registrant must begin sending 
individual copies to that security holder within 30 days after the 
registrant receives revocation of the security holder's consent.
    (iv) Definition of address. Unless otherwise indicated, for purposes 
of this section, address means a street address, a post office box 
number, an electronic mail address, a facsimile telephone number or 
other similar destination to which paper or electronic documents are 
delivered, unless otherwise provided in this section. If the registrant 
has reason to believe that the address is a street address of a multi-
unit building, the address must include the unit number.

    Note to paragraph (e)(1):
    A person other than the registrant making a proxy solicitation may 
deliver a single proxy statement to security holders of record or 
beneficial owners who have separate accounts and share an address if: 
(a) the registrant or intermediary has followed the procedures in this 
section; and (b) the registrant or intermediary makes available the 
shared address information to the person in accordance with Sec. 
240.14a-7(a)(2)(i) and (ii).

    (2) Notwithstanding paragraphs (a) and (b) of this section, unless 
state law requires otherwise, a registrant is not required to send an 
annual report or proxy statement to a security holder if:
    (i) An annual report and a proxy statement for two consecutive 
annual meetings; or
    (ii) All, and at least two, payments (if sent by first class mail) 
of dividends or interest on securities, or dividend reinvestment 
confirmations, during a twelve month period, have been mailed to such 
security holder's address and have been returned as undeliverable. If 
any such security holder delivers or causes to be delivered to the 
registrant written notice setting forth his then current address for 
security holder communications purposes, the registrant's obligation to 
deliver an annual report or a proxy statement under this section is 
reinstated.
    (f) The provisions of paragraph (a) of this section shall not apply 
to a communication made by means of speeches in public forums, press 
releases, published or broadcast opinions, statements, or advertisements 
appearing in

[[Page 187]]

a broadcast media, newspaper, magazine or other bona fide publication 
disseminated on a regular basis, provided that:
    (1) No form of proxy, consent or authorization or means to execute 
the same is provided to a security holder in connection with the 
communication; and
    (2) At the time the communication is made, a definitive proxy 
statement is on file with the Commission pursuant to Sec. 240.14a-6(b).

[39 FR 40768, Nov. 20, 1974]

    Editorial Note: For Federal Register citations affecting Sec. 
240.14a-3, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 240.14a-4  Requirements as to proxy.

    (a) The form of proxy (1) shall indicate in bold-face type whether 
or not the proxy is solicited on behalf of the registrant's board of 
directors or, if provided other than by a majority of the board of 
directors, shall indicate in bold-face type on whose behalf the 
solicitation is made;
    (2) Shall provide a specifically designated blank space for dating 
the proxy card; and
    (3) Shall identify clearly and impartially each separate matter 
intended to be acted upon, whether or not related to or conditioned on 
the approval of other matters, and whether proposed by the registrant or 
by security holders. No reference need be made, however, to proposals as 
to which discretionary authority is conferred pursuant to paragraph (c) 
of this section.

    Note to paragraph (a)(3) (Electronic filers): Electronic filers 
shall satisfy the filing requirements of Rule 14a-6(a) or (b) (Sec. 
240.14a-6(a) or (b)) with respect to the form of proxy by filing the 
form of proxy as an appendix at the end of the proxy statement. Forms of 
proxy shall not be filed as exhibits or separate documents within an 
electronic submission.

    (b)(1) Means shall be provided in the form of proxy whereby the 
person solicited is afforded an opportunity to specify by boxes a choice 
between approval or disapproval of, or abstention with respect to each 
separate matter referred to therein as intended to be acted upon, other 
than elections to office. A proxy may confer discretionary authority 
with respect to matters as to which a choice is not specified by the 
security holder provided that the form of proxy states in bold-face type 
how it is intended to vote the shares represented by the proxy in each 
such case.
    (2) A form of proxy which provides for the election of directors 
shall set forth the names of persons nominated for election as 
directors. Such form of proxy shall clearly provide any of the following 
means for security holders to withhold authority to vote for each 
nominee:
    (i) A box opposite the name of each nominee which may be marked to 
indicate that authority to vote for such nominee is withheld; or
    (ii) An instruction in bold-face type which indicates that the 
security holder may withhold authority to vote for any nominee by lining 
through or otherwise striking out the name of any nominee; or
    (iii) Designated blank spaces in which the security holder may enter 
the names of nominees with respect to whom the security holder chooses 
to withhold authority to vote; or
    (iv) Any other similar means, provided that clear instructions are 
furnished indicating how the security holder may withhold authority to 
vote for any nominee.

Such form of proxy also may provide a means for the security holder to 
grant authority to vote for the nominees set forth, as a group, provided 
that there is a similar means for the security holder to withhold 
authority to vote for such group of nominees. Any such form of proxy 
which is executed by the security holder in such manner as not to 
withhold authority to vote for the election of any nominee shall be 
deemed to grant such authority, provided that the form of proxy so 
states in bold-face type.

    Instructions. 1. Paragraph (2) does not apply in the case of a 
merger, consolidation or other plan if the election of directors is an 
integral part of the plan.
    2. If applicable state law gives legal effect to votes cast against 
a nominee, then in lieu of, or in addition to, providing a means for 
security holders to withhold authority to vote, the registrant should 
provide a similar

[[Page 188]]

means for security holders to vote against each nominee.

    (c) A proxy may confer discretionary authority to vote on any of the 
following matters:
    (1) For an annual meeting of shareholders, if the registrant did not 
have notice of the matter at least 45 days before the date on which the 
registrant first mailed its proxy materials for the prior year's annual 
meeting of shareholders (or date specified by an advance notice 
provision), and a specific statement to that effect is made in the proxy 
statement or form of proxy. If during the prior year the registrant did 
not hold an annual meeting, or if the date of the meeting has changed 
more than 30 days from the prior year, then notice must not have been 
received a reasonable time before the registrant mails its proxy 
materials for the current year.
    (2) In the case in which the registrant has received timely notice 
in connection with an annual meeting of shareholders (as determined 
under paragraph (c)(1) of this section), if the registrant includes, in 
the proxy statement, advice on the nature of the matter and how the 
registrant intends to exercise its discretion to vote on each matter. 
However, even if the registrant includes this information in its proxy 
statement, it may not exercise discretionary voting authority on a 
particular proposal if the proponent:
    (i) Provides the registrant with a written statement, within the 
time-frame determined under paragraph (c)(1) of this section, that the 
proponent intends to deliver a proxy statement and form of proxy to 
holders of at least the percentage of the company's voting shares 
required under applicable law to carry the proposal;
    (ii) Includes the same statement in its proxy materials filed under 
Sec. 240.14a-6; and
    (iii) Immediately after soliciting the percentage of shareholders 
required to carry the proposal, provides the registrant with a statement 
from any solicitor or other person with knowledge that the necessary 
steps have been taken to deliver a proxy statement and form of proxy to 
holders of at least the percentage of the company's voting shares 
required under applicable law to carry the proposal.
    (3) For solicitations other than for annual meetings or for 
solicitations by persons other than the registrant, matters which the 
persons making the solicitation do not know, a reasonable time before 
the solicitation, are to be presented at the meeting, if a specific 
statement to that effect is made in the proxy statement or form of 
proxy.
    (4) Approval of the minutes of the prior meeting if such approval 
does not amount to ratification of the action taken at that meeting;
    (5) The election of any person to any office for which a bona fide 
nominee is named in the proxy statement and such nominee is unable to 
serve or for good cause will not serve.
    (6) Any proposal omitted from the proxy statement and form of proxy 
pursuant to Sec. 240.14a-8 or Sec. 240.14a-9 of this chapter.
    (7) Matters incident to the conduct of the meeting.
    (d) No proxy shall confer authority:
    (1) To vote for the election of any person to any office for which a 
bona fide nominee is not named in the proxy statement,
    (2) To vote at any annual meeting other than the next annual meeting 
(or any adjournment thereof) to be held after the date on which the 
proxy statement and form of proxy are first sent or given to security 
holders,
    (3) To vote with respect to more than one meeting (and any 
adjournment thereof) or more than one consent solicitation or
    (4) To consent to or authorize any action other than the action 
proposed to be taken in the proxy statement, or matters referred to in 
paragraph (c) of this rule. A person shall not be deemed to be a bona 
fide nominee and he shall not be named as such unless he has consented 
to being named in the proxy statement and to serve if elected. Provided, 
however, That nothing in this section 240.14a-4 shall prevent any person 
soliciting in support of nominees who, if elected, would constitute a 
minority of the board of directors, from seeking authority to vote for 
nominees named in the registrant's proxy statement, so long as the 
soliciting party:

[[Page 189]]

    (i) Seeks authority to vote in the aggregate for the number of 
director positions then subject to election;
    (ii) Represents that it will vote for all the registrant nominees, 
other than those registrant nominees specified by the soliciting party;
    (iii) Provides the security holder an opportunity to withhold 
authority with respect to any other registrant nominee by writing the 
name of that nominee on the form of proxy; and
    (iv) States on the form of proxy and in the proxy statement that 
there is no assurance that the registrant's nominees will serve if 
elected with any of the soliciting party's nominees.
    (e) The proxy statement or form of proxy shall provide, subject to 
reasonable specified conditions, that the shares represented by the 
proxy will be voted and that where the person solicited specifies by 
means of a ballot provided pursuant to paragraph (b) of this section a 
choice with respect to any matter to be acted upon, the shares will be 
voted in accordance with the specifications so made.
    (f) No person conducting a solicitation subject to this regulation 
shall deliver a form of proxy, consent or authorization to any security 
holder unless the security holder concurrently receives, or has 
previously received, a definitive proxy statement that has been filed 
with the Commission pursuant to Sec. 240.14a-6(b).

(Secs. 12, 13, 14, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 1, 
3, 8, 49 Stat. 1375, 1377, 1379; sec. 203(a), 49 Stat. 704; sec. 202, 68 
Stat. 686; secs. 3, 4, 5, 6, 78, Stat. 565-568, 569, 570-574; secs. 1, 
2, 3, 82 Stat. 454, 455, secs. 28(c), 1, 2, 3-5, 84 Stat. 1435, 1497; 
secs. 10, 18, 89 Stat. 119, 155; sec. 308(b), 90 Stat. 57; sec. 204, 91 
Stat. 1500; 15 U.S.C. 78l, 78m, 78n, 78o(d), 78w(a))

[17 FR 11432, Dec. 18, 1952, as amended at 31 FR 212, Jan. 7, 1966; 32 
FR 20963, Dec. 29, 1967; 44 FR 68770, Nov. 29, 1979; 45 FR 76979, Nov. 
21, 1980; 51 FR 42060, Nov. 20, 1986; 57 FR 48291, Oct. 22, 1992; 59 FR 
67764, Dec. 30, 1994; 63 FR 29118, May 28, 1998; 63 FR 50622, Sept. 22, 
1998; 64 FR 61456, Nov. 10, 1999]



Sec. 240.14a-5  Presentation of information in proxy statement.

    (a) The information included in the proxy statement shall be clearly 
presented and the statements made shall be divided into groups according 
to subject matter and the various groups of statements shall be preceded 
by appropriate headings. The order of items and sub-items in the 
schedule need not be followed. Where practicable and appropriate, the 
information shall be presented in tabular form. All amounts shall be 
stated in figures. Information required by more than one applicable item 
need not be repeated. No statement need be made in response to any item 
or sub-item which is inapplicable.
    (b) Any information required to be included in the proxy statement 
as to terms of securities or other subject matter which from a 
standpoint of practical necessity must be determined in the future may 
be stated in terms of present knowledge and intention. To the extent 
practicable, the authority to be conferred concerning each such matter 
shall be confined within limits reasonably related to the need for 
discretionary authority. Subject to the foregoing, information which is 
not known to the persons on whose behalf the solicitation is to be made 
and which it is not reasonably within the power of such persons to 
ascertain or procure may be omitted, if a brief statement of the 
circumstances rendering such information unavailable is made.
    (c) Any information contained in any other proxy soliciting material 
which has been furnished to each person solicited in connection with the 
same meeting or subject matter may be omitted from the proxy statement, 
if a clear reference is made to the particular document containing such 
information.
    (d)(1) All printed proxy statements shall be in roman type at least 
as large and as legible as 10-point modern type, except that to the 
extent necessary for convenient presentation financial statements and 
other tabular data, but not the notes thereto, may be in roman type at 
least as large and as legible as 8-point modern type. All such type 
shall be leaded at least 2 points.
    (2) Where a proxy statement is delivered through an electronic 
medium, issuers may satisfy legibility requirements applicable to 
printed documents, such as type size and font, by presenting all 
required information in a format readily communicated to investors.

[[Page 190]]

    (e) All proxy statements shall disclose, under an appropriate 
caption, the following dates:
    (1) The deadline for submitting shareholder proposals for inclusion 
in the registrant's proxy statement and form of proxy for the 
registrant's next annual meeting, calculated in the manner provided in 
Sec. 240.14a-8(e)(Question 5); and
    (2) The date after which notice of a shareholder proposal submitted 
outside the processes of Sec. 240.14a-8 is considered untimely, either 
calculated in the manner provided by Sec. 240.14a-4(c)(1) or as 
established by the registrant's advance notice provision, if any, 
authorized by applicable state law.
    (f) If the date of the next annual meeting is subsequently advanced 
or delayed by more than 30 calendar days from the date of the annual 
meeting to which the proxy statement relates, the registrant shall, in a 
timely manner, inform shareholders of such change, and the new dates 
referred to in paragraphs (e)(1) and (e)(2) of this section, by 
including a notice, under Item 5, in its earliest possible quarterly 
report on Form 10-Q (Sec. 249.308a of this chapter) or Form 10-QSB 
(Sec. 249.308b of this chapter), or, in the case of investment 
companies, in a shareholder report under Sec. 270.30d-1 of this chapter 
under the Investment Company Act of 1940, or, if impracticable, any 
means reasonably calculated to inform shareholders.

(Secs. 12, 13, 14, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 1, 
3, 8, 49 Stat. 1375, 1377, 1379; sec. 203(a), 49 Stat. 704; sec. 202, 68 
Stat. 686; secs. 3, 4, 5, 6, 78, Stat. 565-568, 569, 570-574; secs. 1, 
2, 3, 82 Stat. 454, 455, secs. 28(c), 1, 2, 3-5, 84 Stat. 1435, 1497; 
secs. 10, 18, 89 Stat. 119, 155; sec. 308(b), 90 Stat. 57; sec. 204, 91 
Stat. 1500; 15 U.S.C. 78l, 78m, 78n, 78o(d), 78w(a))

[17 FR 11432, Dec. 18, 1952, as amended at 36 FR 8935, May 15, 1971; 37 
FR 23179, Oct. 31, 1972; 44 FR 68770, Nov. 29, 1979; 51 FR 42061, Nov. 
20, 1986; 61 FR 24656, May 15, 1996; 63 FR 29118, May 28, 1998; 63 FR 
46881, Sept. 3, 1998]



Sec. 240.14a-6  Filing requirements.

    (a) Preliminary proxy statement. Five preliminary copies of the 
proxy statement and form of proxy shall be filed with the Commission at 
least 10 calendar days prior to the date definitive copies of such 
material are first sent or given to security holders, or such shorter 
period prior to that date as the Commission may authorize upon a showing 
of good cause thereunder. A registrant, however, shall not file with the 
Commission a preliminary proxy statement, form of proxy or other 
soliciting material to be furnished to security holders concurrently 
therewith if the solicitation relates to an annual (or special meeting 
in lieu of the annual) meeting, or for an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a 
business development company, if the solicitation relates to any meeting 
of security holders at which the only matters to be acted upon are:
    (1) The election of directors;
    (2) The election, approval or ratification of accountant(s);
    (3) A security holder proposal included pursuant to Rule 14a-8 
(Sec. 240.14a-8 of this chapter);
    (4) The approval or ratification of a plan as defined in paragraph 
(a)(7)(ii) of Item 402 of Regulation S-K (Sec. 229.402(a)(7)(ii) of 
this chapter) or amendments to such a plan;
    (5) With respect to an investment company registered under the 
Investment Company Act of 1940 or a business development company, a 
proposal to continue, without change, any advisory or other contract or 
agreement that previously has been the subject of a proxy solicitation 
for which proxy material was filed with the Commission pursuant to this 
section; and/or
    (6) With respect to an open-end investment company registered under 
the Investment Company Act of 1940, a proposal to increase the number of 
shares authorized to be issued.

This exclusion from filing preliminary proxy material does not apply if 
the registrant comments upon or refers to a solicitation in opposition 
in connection with the meeting in its proxy material.

    Note 1: The filing of revised material does not recommence the ten 
day time period unless the revised material contains material revisions 
or material new proposal(s) that constitute a fundamental change in the 
proxy material.
    Note 2: The official responsible for the preparation of the proxy 
material should make every effort to verify the accuracy and 
completeness of the information required by

[[Page 191]]

the applicable rules. The preliminary material should be filed with the 
Commission at the earliest practicable date.
    Note 3: Solicitation in Opposition. For purposes of the exclusion 
from filing preliminary proxy material, a ``solicitation in opposition'' 
includes: (a) Any solicitation opposing a proposal supported by the 
registrant; and (b) any solicitation supporting a proposal that the 
registrant does not expressly support, other than a security holder 
proposal included in the registrant's proxy material pursuant to Rule 
14a-8 (Sec. 240.14a-8 of this chapter). The inclusion of a security 
holder proposal in the registrant's proxy material pursuant to Rule 14a-
8 does not constitute a ``solicitation in opposition,'' even if the 
registrant opposes the proposal and/or includes a statement in 
opposition to the proposal.
    Note 4: A registrant that is filing proxy material in preliminary 
form only because the registrant has commented on or referred to a 
solicitation in opposition should indicate that fact in a transmittal 
letter when filing the preliminary material with the Commission.

    (b) Definitive proxy statement and other soliciting material. Eight 
definitive copies of the proxy statement, form of proxy and all other 
soliciting materials, in the same form as the materials sent to security 
holders, must be filed with the Commission no later than the date they 
are first sent or given to security holders. Three copies of these 
materials also must be filed with, or mailed for filing to, each 
national securities exchange on which the registrant has a class of 
securities listed and registered.
    (c) Personal solicitation materials. If part or all of the 
solicitation involves personal solicitation, then eight copies of all 
written instructions or other materials that discuss, review or comment 
on the merits of any matter to be acted on, that are furnished to 
persons making the actual solicitation for their use directly or 
indirectly in connection with the solicitation, must be filed with the 
Commission no later than the date the materials are first sent or given 
to these persons.
    (d) Release dates. All preliminary proxy statements and forms of 
proxy filed pursuant to paragraph (a) of this section shall be 
accompanied by a statement of the date on which definitive copies 
thereof filed pursuant to paragraph (b) of this section are intended to 
be released to security holders. All definitive material filed pursuant 
to paragraph (b) of this section shall be accompanied by a statement of 
the date on which copies of such material were released to security 
holders, or, if not released, the date on which copies thereof are 
intended to be released. All material filed pursuant to paragraph (c) of 
this section shall be accompanied by a statement of the date on which 
copies thereof were released to the individual who will make the actual 
solicitation or if not released, the date on which copies thereof are 
intended to be released.
    (e)(1) Public availability of information. All copies of preliminary 
proxy statements and forms of proxy filed pursuant to paragraph (a) of 
this section shall be clearly marked ``Preliminary Copies,'' and shall 
be deemed immediately available for public inspection unless 
confidential treatment is obtained pursuant to paragraph (e)(2) of this 
section.
    (2) Confidential treatment. If action will be taken on any matter 
specified in Item 14 of Schedule 14A (Sec. 240.14a-101), all copies of 
the preliminary proxy statement and form of proxy filed under paragraph 
(a) of this section will be for the information of the Commission only 
and will not be deemed available for public inspection until filed with 
the Commission in definitive form so long as:
    (i) The proxy statement does not relate to a matter or proposal 
subject to Sec. 240.13e-3 or a roll-up transaction as defined in Item 
901(c) of Regulation S-K (Sec. 229.901(c) of this chapter);
    (ii) Neither the parties to the transaction nor any persons 
authorized to act on their behalf have made any public communications 
relating to the transaction except for statements where the content is 
limited to the information specified in Sec. 230.135 of this chapter; 
and
    (iii) The materials are filed in paper and marked ``Confidential, 
For Use of the Commission Only.'' In all cases, the materials may be 
disclosed to any department or agency of the United States Government 
and to the Congress, and the Commission may make any inquiries or 
investigation into the

[[Page 192]]

materials as may be necessary to conduct an adequate review by the 
Commission.

    Instruction to paragraph (e)(2): If communications are made publicly 
that go beyond the information specified in Sec. 230.135 of this 
chapter, the preliminary proxy materials must be re-filed promptly with 
the Commission as public materials.

    (f) Communications not required to be filed. Copies of replies to 
inquiries from security holders requesting further information and 
copies of communications which do no more than request that forms of 
proxy theretofore solicited be signed and returned need not be filed 
pursuant to this section.
    (g) Solicitations subject to Sec. 240.14a-2(b)(1). (1) Any person 
who:
    (i) Engages in a solicitation pursuant to Sec. 240.14a-2(b)(1), and
    (ii) At the commencement of that solicitation owns beneficially 
securities of the class which is the subject of the solicitation with a 
market value of over $5 million,


shall furnish or mail to the Commission, not later than three days after 
the date the written solicitation is first sent or given to any security 
holder, five copies of a statement containing the information specified 
in the Notice of Exempt Solicitation (Sec. 240.14a-103) which statement 
shall attach as an exhibit all written soliciting materials. Five copies 
of an amendment to such statement shall be furnished or mailed to the 
Commission, in connection with dissemination of any additional 
communications, not later than three days after the date the additional 
material is first sent or given to any security holder. Three copies of 
the Notice of Exempt Solicitation and amendments thereto shall, at the 
same time the materials are furnished or mailed to the Commission, be 
furnished or mailed to each national securities exchange upon which any 
class of securities of the registrant is listed and registered.
    (2) Notwithstanding paragraph (g)(1) of this section, no such 
submission need be made with respect to oral solicitations (other than 
with respect to scripts used in connection with such oral 
solicitations), speeches delivered in a public forum, press releases, 
published or broadcast opinions, statements, and advertisements 
appearing in a broadcast media, or a newspaper, magazine or other bona 
fide publication disseminated on a regular basis.
    (h) Revised material. Where any proxy statement, form of proxy or 
other material filed pursuant to this section is amended or revised, two 
of the copies of such amended or revised material filed pursuant to this 
section (or in the case of investment companies registered under the 
Investment Company Act of 1940, three of such copies) shall be marked to 
indicate clearly and precisely the changes effected therein. If the 
amendment or revision alters the text of the material the changes in 
such text shall be indicated by means of underscoring or in some other 
appropriate manner.
    (i) Fees. At the time of filing the proxy solicitation material, the 
persons upon whose behalf the solicitation is made, other than 
investment companies registered under the Investment Company Act of 
1940, shall pay to the Commission the following applicable fee:
    (1) For preliminary proxy material involving acquisitions, mergers, 
spinoffs, consolidations or proposed sales or other dispositions of 
substantially all the assets of the company, a fee established in 
accordance with Rule 0-11 (Sec. 240.0-11 of this chapter) shall be 
paid. No refund shall be given.
    (2) For all other proxy submissions and submissions made pursuant to 
Sec. 240.14a-6(g), no fee shall be required.
    (j) Merger proxy materials. (1) Any proxy statement, form of proxy 
or other soliciting material required to be filed by this section that 
also is either
    (i) Included in a registration statement filed under the Securities 
Act of 1933 on Forms S-4 (Sec. 239.25 of this chapter), F-4 (Sec. 
239.34 of this chapter) or N-14 (Sec. 239.23 of this chapter); or
    (ii) Filed under Sec. 230.424, Sec. 230.425 or Sec. 230.497 of 
this chapter is required to be filed only under the Securities Act, and 
is deemed filed under this section.
    (2) Under paragraph (j)(1) of this section, the fee required by 
paragraph (i) of this section need not be paid.
    (k) Computing time periods. In computing time periods beginning with 
the filing date specified in Regulation 14A

[[Page 193]]

(Sec. Sec. 240.14a-1 to 240.14b-1 of this chapter), the filing date 
shall be counted as the first day of the time period and midnight of the 
last day shall constitute the end of the specified time period.
    (l) Roll-up transactions. If a transaction is a roll-up transaction 
as defined in Item 901(c) of Regulation S-K (17 CFR 229.901(c)) and is 
registered (or authorized to be registered) on Form S-4 (17 CFR 229.25) 
or Form F-4 (17 CFR 229.34), the proxy statement of the sponsor or the 
general partner as defined in Item 901(d) and Item 901(a), respectively, 
of Regulation S-K (17 CFR 229.901) must be distributed to security 
holders no later than the lesser of 60 calendar days prior to the date 
on which the meeting of security holders is held or action is taken, or 
the maximum number of days permitted for giving notice under applicable 
state law.
    (m) Cover page. Proxy materials filed with the Commission shall 
include a cover page in the form set forth in Schedule 14A (Sec. 
240.14a-101 of this chapter). The cover page required by this paragraph 
need not be distributed to security holders.
    (n) Solicitations subject to Sec. 240.14a-2(b)(4). Any person who:
    (1) Engages in a solicitation pursuant to Sec. 240.14a-2(b)(4); and
    (2) At the commencement of that solicitation both owns five percent 
(5%) or more of the outstanding securities of a class that is the 
subject of the proposed roll-up transaction, and engages in the business 
of buying and selling limited partnership interests in the secondary 
market, shall furnish or mail to the Commission, not later than three 
days after the date an oral or written solicitation by that person is 
first made, sent or provided to any security holder, five copies of a 
statement containing the information specified in the Notice of Exempt 
Preliminary Roll-up Communication (Sec. 240.14a-104). Five copies of 
any amendment to such statement shall be furnished or mailed to the 
Commission not later than three days after a communication containing 
revised material is first made, sent or provided to any security holder.
    (o) Solicitations before furnishing a definitive proxy statement. 
Solicitations that are published, sent or given to security holders 
before they have been furnished a definitive proxy statement must be 
made in accordance with Sec. 240.14a-12 unless there is an exemption 
available under Sec. 240.14a-2.

[17 FR 11432, Dec. 18, 1952]

    Editorial Note: For Federal Register citations affecting Sec. 
240.14a-6, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 240.14a-7  Obligations of registrants to provide a list of, or 
mail soliciting material to, security holders.

    (a) If the registrant has made or intends to make a proxy 
solicitation in connection with a security holder meeting or action by 
consent or authorization, upon the written request by any record or 
beneficial holder of securities of the class entitled to vote at the 
meeting or to execute a consent or authorization to provide a list of 
security holders or to mail the requesting security holder's materials, 
regardless of whether the request references this section, the 
registrant shall:
    (1) Deliver to the requesting security holder within five business 
days after receipt of the request:
    (i) Notification as to whether the registrant has elected to mail 
the security holder's soliciting materials or provide a security holder 
list if the election under paragraph (b) of this section is to be made 
by the registrant;
    (ii) A statement of the approximate number of record holders and 
beneficial holders, separated by type of holder and class, owning 
securities in the same class or classes as holders which have been or 
are to be solicited on management's behalf, or any more limited group of 
such holders designated by the security holder if available or 
retrievable under the registrant's or its transfer agent's security 
holder data systems; and
    (iii) The estimated cost of mailing a proxy statement, form of proxy 
or other communication to such holders, including to the extent known or 
reasonably available, the estimated costs of any bank, broker, and 
similar person through whom the registrant has solicited or intends to 
solicit beneficial

[[Page 194]]

owners in connection with the security holder meeting or action;
    (2) Perform the acts set forth in either paragraphs (a)(2)(i) or 
(a)(2)(ii) of this section, at the registrant's or requesting security 
holder's option, as specified in paragraph (b) of this section:
    (i) Mail copies of any proxy statement, form of proxy or other 
soliciting material furnished by the security holder to the record 
holders, including banks, brokers, and similar entities, designated by 
the security holder. A sufficient number of copies must be mailed to the 
banks, brokers, and similar entities for distribution to all beneficial 
owners designated by the security holder. If the registrant has received 
affirmative written or implied consent to deliver a single proxy 
statement to security holders at a shared address in accordance with the 
procedures in Sec. 240.14a-3(e)(1), a single copy of the proxy 
statement furnished by the security holder shall be mailed to that 
address. The registrant shall mail the security holder material with 
reasonable promptness after tender of the material to be mailed, 
envelopes or other containers therefor, postage or payment for postage 
and other reasonable expenses of effecting such mailing. The registrant 
shall not be responsible for the content of the material; or
    (ii) Deliver the following information to the requesting security 
holder within five business days of receipt of the request: a reasonably 
current list of the names, addresses and security positions of the 
record holders, including banks, brokers and similar entities holding 
securities in the same class or classes as holders which have been or 
are to be solicited on management's behalf, or any more limited group of 
such holders designated by the security holder if available or 
retrievable under the registrant's or its transfer agent's security 
holder data systems; the most recent list of names, addresses and 
security positions of beneficial owners as specified in Sec. 240.14a-
13(b), in the possession, or which subsequently comes into the 
possession, of the registrant; and the names of security holders at a 
shared address that have consented to delivery of a single copy of proxy 
materials to a shared address, if the registrant has received written or 
implied consent in accordance with Sec. 240.14a-3(e)(1). All security 
holder list information shall be in the form requested by the security 
holder to the extent that such form is available to the registrant 
without undue burden or expense. The registrant shall furnish the 
security holder with updated record holder information on a daily basis 
or, if not available on a daily basis, at the shortest reasonable 
intervals, provided, however, the registrant need not provide beneficial 
or record holder information more current than the record date for the 
meeting or action.
    (b)(1) The requesting security holder shall have the options set 
forth in paragraph (a)(2) of this section, and the registrant shall have 
corresponding obligations, if the registrant or general partner or 
sponsor is soliciting or intends to solicit with respect to:
    (i) A proposal that is subject to Sec. 240.13e-3;
    (ii) A roll-up transaction as defined in Item 901(c) of Regulation 
S-K (Sec. 229.901(c) of this chapter) that involves an entity with 
securities registered pursuant to Section 12 of the Act (15 U.S.C. 78l); 
or
    (iii) A roll-up transaction as defined in Item 901(c) of Regulation 
S-K (Sec. 229.901(c) of this chapter) that involves a limited 
partnership, unless the transaction involves only:
    (A) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under Section 11A of the Act (15 U.S.C. 78k-1); or
    (B) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under Section 11A of the Act (15 U.S.C. 78k-1).
    (2) With respect to all other requests pursuant to this section, the 
registrant shall have the option to either mail the security holder's 
material or furnish the security holder list as set forth in this 
section.
    (c) At the time of a list request, the security holder making the 
request shall:

[[Page 195]]

    (1) If holding the registrant's securities through a nominee, 
provide the registrant with a statement by the nominee or other 
independent third party, or a copy of a current filing made with the 
Commission and furnished to the registrant, confirming such holder's 
beneficial ownership; and
    (2) Provide the registrant with an affidavit, declaration, 
affirmation or other similar document provided for under applicable 
state law identifying the proposal or other corporate action that will 
be the subject of the security holder's solicitation or communication 
and attesting that:
    (i) The security holder will not use the list information for any 
purpose other than to solicit security holders with respect to the same 
meeting or action by consent or authorization for which the registrant 
is soliciting or intends to solicit or to communicate with security 
holders with respect to a solicitation commenced by the registrant; and
    (ii) The security holder will not disclose such information to any 
person other than a beneficial owner for whom the request was made and 
an employee or agent to the extent necessary to effectuate the 
communication or solicitation.
    (d) The security holder shall not use the information furnished by 
the registrant pursuant to paragraph (a)(2)(ii) of this section for any 
purpose other than to solicit security holders with respect to the same 
meeting or action by consent or authorization for which the registrant 
is soliciting or intends to solicit or to communicate with security 
holders with respect to a solicitation commenced by the registrant; or 
disclose such information to any person other than an employee, agent, 
or beneficial owner for whom a request was made to the extent necessary 
to effectuate the communication or solicitation. The security holder 
shall return the information provided pursuant to paragraph (a)(2)(ii) 
of this section and shall not retain any copies thereof or of any 
information derived from such information after the termination of the 
solicitation.
    (e) The security holder shall reimburse the reasonable expenses 
incurred by the registrant in performing the acts requested pursuant to 
paragraph (a) of this section.
    Notes to Sec. 240.14a-7
    1. Reasonably prompt methods of distribution to security holders may 
be used instead of mailing. If an alternative distribution method is 
chosen, the costs of that method should be considered where necessary 
rather than the costs of mailing.
    2. When providing the information required by Sec. 240.14a-
7(a)(1)(ii), if the registrant has received affirmative written or 
implied consent to delivery of a single copy of proxy materials to a 
shared address in accordance with Sec. 240.14a-3(e)(1), it shall 
exclude from the number of record holders those to whom it does not have 
to deliver a separate proxy statement.

[57 FR 48292, Oct. 22, 1992, as amended at 59 FR 63684, Dec. 8, 1994; 61 
FR 24657, May 15, 1996; 65 FR 65750, Nov. 2, 2000]



Sec. 240.14a-8  Shareholder proposals.

    This section addresses when a company must include a shareholder's 
proposal in its proxy statement and identify the proposal in its form of 
proxy when the company holds an annual or special meeting of 
shareholders. In summary, in order to have your shareholder proposal 
included on a company's proxy card, and included along with any 
supporting statement in its proxy statement, you must be eligible and 
follow certain procedures. Under a few specific circumstances, the 
company is permitted to exclude your proposal, but only after submitting 
its reasons to the Commission. We structured this section in a question-
and-answer format so that it is easier to understand. The references to 
``you'' are to a shareholder seeking to submit the proposal.
    (a) Question 1: What is a proposal? A shareholder proposal is your 
recommendation or requirement that the company and/or its board of 
directors take action, which you intend to present at a meeting of the 
company's shareholders. Your proposal should state as clearly as 
possible the course of action that you believe the company should 
follow. If your proposal is placed on the company's proxy card, the 
company must also provide in the form of proxy means for shareholders to 
specify by boxes a choice between approval or disapproval, or 
abstention. Unless otherwise indicated, the word

[[Page 196]]

``proposal'' as used in this section refers both to your proposal, and 
to your corresponding statement in support of your proposal (if any).
    (b) Question 2: Who is eligible to submit a proposal, and how do I 
demonstrate to the company that I am eligible? (1) In order to be 
eligible to submit a proposal, you must have continuously held at least 
$2,000 in market value, or 1%, of the company's securities entitled to 
be voted on the proposal at the meeting for at least one year by the 
date you submit the proposal. You must continue to hold those securities 
through the date of the meeting.
    (2) If you are the registered holder of your securities, which means 
that your name appears in the company's records as a shareholder, the 
company can verify your eligibility on its own, although you will still 
have to provide the company with a written statement that you intend to 
continue to hold the securities through the date of the meeting of 
shareholders. However, if like many shareholders you are not a 
registered holder, the company likely does not know that you are a 
shareholder, or how many shares you own. In this case, at the time you 
submit your proposal, you must prove your eligibility to the company in 
one of two ways:
    (i) The first way is to submit to the company a written statement 
from the ``record'' holder of your securities (usually a broker or bank) 
verifying that, at the time you submitted your proposal, you 
continuously held the securities for at least one year. You must also 
include your own written statement that you intend to continue to hold 
the securities through the date of the meeting of shareholders; or
    (ii) The second way to prove ownership applies only if you have 
filed a Schedule 13D (Sec. 240.13d-101), Schedule 13G (Sec. 240.13d-
102), Form 3 (Sec. 249.103 of this chapter), Form 4 (Sec. 249.104 of 
this chapter) and/or Form 5 (Sec. 249.105 of this chapter), or 
amendments to those documents or updated forms, reflecting your 
ownership of the shares as of or before the date on which the one-year 
eligibility period begins. If you have filed one of these documents with 
the SEC, you may demonstrate your eligibility by submitting to the 
company:
    (A) A copy of the schedule and/or form, and any subsequent 
amendments reporting a change in your ownership level;
    (B) Your written statement that you continuously held the required 
number of shares for the one-year period as of the date of the 
statement; and
    (C) Your written statement that you intend to continue ownership of 
the shares through the date of the company's annual or special meeting.
    (c) Question 3: How many proposals may I submit? Each shareholder 
may submit no more than one proposal to a company for a particular 
shareholders' meeting.
    (d) Question 4: How long can my proposal be? The proposal, including 
any accompanying supporting statement, may not exceed 500 words.
    (e) Question 5: What is the deadline for submitting a proposal? (1) 
If you are submitting your proposal for the company's annual meeting, 
you can in most cases find the deadline in last year's proxy statement. 
However, if the company did not hold an annual meeting last year, or has 
changed the date of its meeting for this year more than 30 days from 
last year's meeting, you can usually find the deadline in one of the 
company's quarterly reports on Form 10-Q (Sec. 249.308a of this 
chapter) or 10-QSB (Sec. 249.308b of this chapter), or in shareholder 
reports of investment companies under Sec. 270.30d-1 of this chapter of 
the Investment Company Act of 1940. In order to avoid controversy, 
shareholders should submit their proposals by means, including 
electronic means, that permit them to prove the date of delivery.
    (2) The deadline is calculated in the following manner if the 
proposal is submitted for a regularly scheduled annual meeting. The 
proposal must be received at the company's principal executive offices 
not less than 120 calendar days before the date of the company's proxy 
statement released to shareholders in connection with the previous 
year's annual meeting. However, if the company did not hold an annual 
meeting the previous year, or if the date of this year's annual meeting 
has been changed by more than 30 days from the

[[Page 197]]

date of the previous year's meeting, then the deadline is a reasonable 
time before the company begins to print and mail its proxy materials.
    (3) If you are submitting your proposal for a meeting of 
shareholders other than a regularly scheduled annual meeting, the 
deadline is a reasonable time before the company begins to print and 
mail its proxy materials.
    (f) Question 6: What if I fail to follow one of the eligibility or 
procedural requirements explained in answers to Questions 1 through 4 of 
this section? (1) The company may exclude your proposal, but only after 
it has notified you of the problem, and you have failed adequately to 
correct it. Within 14 calendar days of receiving your proposal, the 
company must notify you in writing of any procedural or eligibility 
deficiencies, as well as of the time frame for your response. Your 
response must be postmarked, or transmitted electronically, no later 
than 14 days from the date you received the company's notification. A 
company need not provide you such notice of a deficiency if the 
deficiency cannot be remedied, such as if you fail to submit a proposal 
by the company's properly determined deadline. If the company intends to 
exclude the proposal, it will later have to make a submission under 
Sec. 240.14a-8 and provide you with a copy under Question 10 below, 
Sec. 240.14a-8(j).
    (2) If you fail in your promise to hold the required number of 
securities through the date of the meeting of shareholders, then the 
company will be permitted to exclude all of your proposals from its 
proxy materials for any meeting held in the following two calendar 
years.
    (g) Question 7: Who has the burden of persuading the Commission or 
its staff that my proposal can be excluded? Except as otherwise noted, 
the burden is on the company to demonstrate that it is entitled to 
exclude a proposal.
    (h) Question 8: Must I appear personally at the shareholders' 
meeting to present the proposal? (1) Either you, or your representative 
who is qualified under state law to present the proposal on your behalf, 
must attend the meeting to present the proposal. Whether you attend the 
meeting yourself or send a qualified representative to the meeting in 
your place, you should make sure that you, or your representative, 
follow the proper state law procedures for attending the meeting and/or 
presenting your proposal.
    (2) If the company holds its shareholder meeting in whole or in part 
via electronic media, and the company permits you or your representative 
to present your proposal via such media, then you may appear through 
electronic media rather than traveling to the meeting to appear in 
person.
    (3) If you or your qualified representative fail to appear and 
present the proposal, without good cause, the company will be permitted 
to exclude all of your proposals from its proxy materials for any 
meetings held in the following two calendar years.
    (i) Question 9: If I have complied with the procedural requirements, 
on what other bases may a company rely to exclude my proposal? (1) 
Improper under state law: If the proposal is not a proper subject for 
action by shareholders under the laws of the jurisdiction of the 
company's organization;

    Note to paragraph (i)(1):
    Depending on the subject matter, some proposals are not considered 
proper under state law if they would be binding on the company if 
approved by shareholders. In our experience, most proposals that are 
cast as recommendations or requests that the board of directors take 
specified action are proper under state law. Accordingly, we will assume 
that a proposal drafted as a recommendation or suggestion is proper 
unless the company demonstrates otherwise.

    (2) Violation of law: If the proposal would, if implemented, cause 
the company to violate any state, federal, or foreign law to which it is 
subject;

    Note to paragraph (i)(2):
    We will not apply this basis for exclusion to permit exclusion of a 
proposal on grounds that it would violate foreign law if compliance with 
the foreign law would result in a violation of any state or federal law.

    (3) Violation of proxy rules: If the proposal or supporting 
statement is contrary to any of the Commission's proxy rules, including 
Sec. 240.14a-9, which prohibits materially false or misleading 
statements in proxy soliciting materials;
    (4) Personal grievance; special interest: If the proposal relates to 
the redress of

[[Page 198]]

a personal claim or grievance against the company or any other person, 
or if it is designed to result in a benefit to you, or to further a 
personal interest, which is not shared by the other shareholders at 
large;
    (5) Relevance: If the proposal relates to operations which account 
for less than 5 percent of the company's total assets at the end of its 
most recent fiscal year, and for less than 5 percent of its net earnings 
and gross sales for its most recent fiscal year, and is not otherwise 
significantly related to the company's business;
    (6) Absence of power/authority: If the company would lack the power 
or authority to implement the proposal;
    (7) Management functions: If the proposal deals with a matter 
relating to the company's ordinary business operations;
    (8) Relates to election: If the proposal relates to an election for 
membership on the company's board of directors or analogous governing 
body;
    (9) Conflicts with company's proposal: If the proposal directly 
conflicts with one of the company's own proposals to be submitted to 
shareholders at the same meeting;

    Note to paragraph (i)(9):
    A company's submission to the Commission under this section should 
specify the points of conflict with the company's proposal.

    (10) Substantially implemented: If the company has already 
substantially implemented the proposal;
    (11) Duplication: If the proposal substantially duplicates another 
proposal previously submitted to the company by another proponent that 
will be included in the company's proxy materials for the same meeting;
    (12) Resubmissions: If the proposal deals with substantially the 
same subject matter as another proposal or proposals that has or have 
been previously included in the company's proxy materials within the 
preceding 5 calendar years, a company may exclude it from its proxy 
materials for any meeting held within 3 calendar years of the last time 
it was included if the proposal received:
    (i) Less than 3% of the vote if proposed once within the preceding 5 
calendar years;
    (ii) Less than 6% of the vote on its last submission to shareholders 
if proposed twice previously within the preceding 5 calendar years; or
    (iii) Less than 10% of the vote on its last submission to 
shareholders if proposed three times or more previously within the 
preceding 5 calendar years; and
    (13) Specific amount of dividends: If the proposal relates to 
specific amounts of cash or stock dividends.
    (j) Question 10: What procedures must the company follow if it 
intends to exclude my proposal? (1) If the company intends to exclude a 
proposal from its proxy materials, it must file its reasons with the 
Commission no later than 80 calendar days before it files its definitive 
proxy statement and form of proxy with the Commission. The company must 
simultaneously provide you with a copy of its submission. The Commission 
staff may permit the company to make its submission later than 80 days 
before the company files its definitive proxy statement and form of 
proxy, if the company demonstrates good cause for missing the deadline.
    (2) The company must file six paper copies of the following:
    (i) The proposal;
    (ii) An explanation of why the company believes that it may exclude 
the proposal, which should, if possible, refer to the most recent 
applicable authority, such as prior Division letters issued under the 
rule; and
    (iii) A supporting opinion of counsel when such reasons are based on 
matters of state or foreign law.
    (k) Question 11: May I submit my own statement to the Commission 
responding to the company's arguments?
    Yes, you may submit a response, but it is not required. You should 
try to submit any response to us, with a copy to the company, as soon as 
possible after the company makes its submission. This way, the 
Commission staff will have time to consider fully your submission before 
it issues its response. You should submit six paper copies of your 
response.
    (l) Question 12: If the company includes my shareholder proposal in 
its proxy materials, what information about me must it include along 
with the proposal itself?

[[Page 199]]

    (1) The company's proxy statement must include your name and 
address, as well as the number of the company's voting securities that 
you hold. However, instead of providing that information, the company 
may instead include a statement that it will provide the information to 
shareholders promptly upon receiving an oral or written request.
    (2) The company is not responsible for the contents of your proposal 
or supporting statement.
    (m) Question 13: What can I do if the company includes in its proxy 
statement reasons why it believes shareholders should not vote in favor 
of my proposal, and I disagree with some of its statements?
    (1) The company may elect to include in its proxy statement reasons 
why it believes shareholders should vote against your proposal. The 
company is allowed to make arguments reflecting its own point of view, 
just as you may express your own point of view in your proposal's 
supporting statement.
    (2) However, if you believe that the company's opposition to your 
proposal contains materially false or misleading statements that may 
violate our anti-fraud rule, Sec. 240.14a-9, you should promptly send 
to the Commission staff and the company a letter explaining the reasons 
for your view, along with a copy of the company's statements opposing 
your proposal. To the extent possible, your letter should include 
specific factual information demonstrating the inaccuracy of the 
company's claims. Time permitting, you may wish to try to work out your 
differences with the company by yourself before contacting the 
Commission staff.
    (3) We require the company to send you a copy of its statements 
opposing your proposal before it mails its proxy materials, so that you 
may bring to our attention any materially false or misleading 
statements, under the following timeframes:
    (i) If our no-action response requires that you make revisions to 
your proposal or supporting statement as a condition to requiring the 
company to include it in its proxy materials, then the company must 
provide you with a copy of its opposition statements no later than 5 
calendar days after the company receives a copy of your revised 
proposal; or
    (ii) In all other cases, the company must provide you with a copy of 
its opposition statements no later than 30 calendar days before its 
files definitive copies of its proxy statement and form of proxy under 
Sec. 240.14a-6.

[63 FR 29119, May 28, 1998; 63 FR 50622, 50623, Sept. 22, 1998]



Sec. 240.14a-9  False or misleading statements.

    (a) No solicitation subject to this regulation shall be made by 
means of any proxy statement, form of proxy, notice of meeting or other 
communication, written or oral, containing any statement which, at the 
time and in the light of the circumstances under which it is made, is 
false or misleading with respect to any material fact, or which omits to 
state any material fact necessary in order to make the statements 
therein not false or misleading or necessary to correct any statement in 
any earlier communication with respect to the solicitation of a proxy 
for the same meeting or subject matter which has become false or 
misleading.
    (b) The fact that a proxy statement, form of proxy or other 
soliciting material has been filed with or examined by the Commission 
shall not be deemed a finding by the Commission that such material is 
accurate or complete or not false or misleading, or that the Commission 
has passed upon the merits of or approved any statement contained 
therein or any matter to be acted upon by security holders. No 
representation contrary to the foregoing shall be made.

    Note: The following are some examples of what, depending upon 
particular facts and circumstances, may be misleading within the meaning 
of this section.
    (a) Predictions as to specific future market values.
    (b) Material which directly or indirectly impugns character, 
integrity or personal reputation, or directly or indirectly makes 
charges concerning improper, illegal or immoral conduct or associations, 
without factual foundation.
    (c) Failure to so identify a proxy statement, form of proxy and 
other soliciting material as to clearly distinguish it from the 
soliciting material of any other person or

[[Page 200]]

persons soliciting for the same meeting or subject matter.
    (d) Claims made prior to a meeting regarding the results of a 
solicitation.

(Secs. 19(a), 3(b), 23(a)(1), 20, 319(a), 48 Stat. 85, 882, 901; sec. 
209, 48 Stat. 908; 49 Stat. 833; sec. 203(a), 49 Stat. 704; sec. 8, 49 
Stat. 1379; 53 Stat. 1173; secs. 3, 18, 89 Stat. 97, 155; sec. 
308(a)(2), 90 Stat. 57; 15 U.S.C. 77s(a), 78c(b), 78w(a)(1), 79t, 
77sss(a))

[31 FR 212, Jan. 7, 1966, as amended at 41 FR 19933, May 14, 1976; 44 FR 
38815, July 2, 1979; 44 FR 68456, Nov. 29, 1979]



Sec. 240.14a-10  Prohibition of certain solicitations.

    No person making a solicitation which is subject to Sec. Sec. 
240.14a-1 to 240.14a-10 shall solicit:
    (a) Any undated or postdated proxy; or
    (b) Any proxy which provides that it shall be deemed to be dated as 
of any date subsequent to the date on which it is signed by the security 
holder.

[17 FR 11434, Dec. 18, 1952]



Sec. 240.14a-11  [Reserved]



Sec. 240.14a-12  Solicitation before furnishing a proxy statement.

    (a) Notwithstanding the provisions of Sec. 240.14a-3(a), a 
solicitation may be made before furnishing security holders with a proxy 
statement meeting the requirements of Sec. 240.14a-3(a) if:
    (1) Each written communication includes:
    (i) The identity of the participants in the solicitation (as defined 
in Instruction 3 to Item 4 of Schedule 14A (Sec. 240.14a-101)) and a 
description of their direct or indirect interests, by security holdings 
or otherwise, or a prominent legend in clear, plain language advising 
security holders where they can obtain that information; and
    (ii) A prominent legend in clear, plain language advising security 
holders to read the proxy statement when it is available because it 
contains important information. The legend also must explain to 
investors that they can get the proxy statement, and any other relevant 
documents, for free at the Commission's web site and describe which 
documents are available free from the participants; and
    (2) A definitive proxy statement meeting the requirements of Sec. 
240.14a-3(a) is sent or given to security holders solicited in reliance 
on this section before or at the same time as the forms of proxy, 
consent or authorization are furnished to or requested from security 
holders.
    (b) Any soliciting material published, sent or given to security 
holders in accordance with paragraph (a) of this section must be filed 
with the Commission no later than the date the material is first 
published, sent or given to security holders. Three copies of the 
material must at the same time be filed with, or mailed for filing to, 
each national securities exchange upon which any class of securities of 
the registrant is listed and registered. The soliciting material must 
include a cover page in the form set forth in Schedule 14A (Sec. 
240.14a-101) and the appropriate box on the cover page must be marked. 
Soliciting material in connection with a registered offering is required 
to be filed only under Sec. 230.424 or Sec. 230.425 of this chapter, 
and will be deemed filed under this section.
    (c) Solicitations by any person or group of persons for the purpose 
of opposing a solicitation subject to this regulation by any other 
person or group of persons with respect to the election or removal of 
directors at any annual or special meeting of security holders also are 
subject to the following provisions:
    (1) Application of this rule to annual report. Notwithstanding the 
provisions of Sec. 240.14a-3 (b) and (c), any portion of the annual 
report referred to in Sec. 240.14a-3(b) that comments upon or refers to 
any solicitation subject to this rule, or to any participant in the 
solicitation, other than the solicitation by the management, must be 
filed with the Commission as proxy material subject to this regulation. 
This must be filed in electronic format unless an exemption is available 
under Rules 201 or 202 of Regulation S-T (Sec. 232.201 or Sec. 232.202 
of this chapter).
    (2) Use of reprints or reproductions. In any solicitation subject to 
this Sec. 240.14a-12(c), soliciting material that includes, in whole or 
part, any reprints or reproductions of any previously published material 
must:

[[Page 201]]

    (i) State the name of the author and publication, the date of prior 
publication, and identify any person who is quoted without being named 
in the previously published material.
    (ii) Except in the case of a public or official document or 
statement, state whether or not the consent of the author and 
publication has been obtained to the use of the previously published 
material as proxy soliciting material.
    (iii) If any participant using the previously published material, or 
anyone on his or her behalf, paid, directly or indirectly, for the 
preparation or prior publication of the previously published material, 
or has made or proposes to make any payments or give any other 
consideration in connection with the publication or republication of the 
material, state the circumstances.

    Instructions to Sec. 240.14a-12:
    1. If paper filing is permitted, file eight copies of the soliciting 
material with the Commission, except that only three copies of the 
material specified by Sec. 240.14a-12(c)(1) need be filed.
    2. Any communications made under this section after the definitive 
proxy statement is on file but before it is disseminated also must 
specify that the proxy statement is publicly available and the 
anticipated date of dissemination.

[64 FR 61456, Nov. 10, 1999]



Sec. 240.14a-13  Obligation of registrants in communicating with beneficial owners.

    (a) If the registrant knows that securities of any class entitled to 
vote at a meeting (or by written consents or authorizations if no 
meeting is held) with respect to which the registrant intends to solicit 
proxies, consents or authorizations are held of record by a broker, 
dealer, voting trustee, bank, association, or other entity that 
exercises fiduciary powers in nominee name or otherwise, the registrant 
shall:
    (1) By first class mail or other equally prompt means:
    (i) Inquire of each such record holder:
    (A) Whether other persons are the beneficial owners of such 
securities and if so, the number of copies of the proxy and other 
soliciting material necessary to supply such material to such beneficial 
owners;
    (B) In the case of an annual (or special meeting in lieu of the 
annual) meeting, or written consents in lieu of such meeting, at which 
directors are to be elected, the number of copies of the annual report 
to security holders necessary to supply such report to beneficial owners 
to whom such reports are to be distributed by such record holder or its 
nominee and not by the registrant;
    (C) If the record holder has an obligation under Sec. 240.14b-
1(b)(3) or Sec. 240.14b-2(b)(4)(ii) and (iii), whether an agent has 
been designated to act on its behalf in fulfilling such obligation and, 
if so, the name and address of such agent; and
    (D) Whether it holds the registrant's securities on behalf of any 
respondent bank and, if so, the name and address of each such respondent 
bank; and
    (ii) Indicate to each such record holder:
    (A) Whether the registrant, pursuant to paragraph (c) of this 
section, intends to distribute the annual report to security holders to 
beneficial owners of its securities whose names, addresses and 
securities positions are disclosed pursuant to Sec. 240.14b-1(b)(3) or 
Sec. 240.14b-2(b)(4)(ii) and (iii);
    (B) The record date; and
    (C) At the option of the registrant, any employee benefit plan 
established by an affiliate of the registrant that holds securities of 
the registrant that the registrant elects to treat as exempt employee 
benefit plan securities;
    (2) Upon receipt of a record holder's or respondent bank's response 
indicating, pursuant to Sec. 240.14b-2(b)(1)(i), the names and 
addresses of its respondent banks, within one business day after the 
date such response is received, make an inquiry of and give notification 
to each such respondent bank in the same manner required by paragraph 
(a)(1) of this section; Provided, however, the inquiry required by 
paragraphs (a)(1) and (a)(2) of this section shall not cover beneficial 
owners of exempt employee benefit plan securities;
    (3) Make the inquiry required by paragraph (a)(1) of this section at 
least 20 business days prior to the record date of the meeting of 
security holders, or
    (i) If such inquiry is impracticable 20 business days prior to the 
record date

[[Page 202]]

of a special meeting, as many days before the record date of such 
meeting as is practicable or,
    (ii) If consents or authorizations are solicited, and such inquiry 
is impracticable 20 business days before the earliest date on which they 
may be used to effect corporate action, as many days before that date as 
is practicable, or
    (iii) At such later time as the rules of a national securities 
exchange on which the class of securities in question is listed may 
permit for good cause shown; Provided, however, That if a record holder 
or respondent bank has informed the registrant that a designated 
office(s) or department(s) is to receive such inquiries, the inquiry 
shall be made to such designated office(s) or department(s); and
    (4) Supply, in a timely manner, each record holder and respondent 
bank of whom the inquiries required by paragraphs (a)(1) and (a)(2) of 
this section are made with copies of the proxy, other proxy soliciting 
material, and/or the annual report to security holders, in such 
quantities, assembled in such form and at such place(s), as the record 
holder or respondent bank may reasonably request in order to send such 
material to each beneficial owner of securities who is to be furnished 
with such material by the record holder or respondent bank; and
    (5) Upon the request of any record holder or respondent bank that is 
supplied with proxy soliciting material and/or annual reports to 
security holders pursuant to paragraph (a)(4) of this section, pay its 
reasonable expenses for completing the mailing of such material to 
beneficial owners.

    Note 1: If the registrant's list of security holders indicates that 
some of its securities are registered in the name of a clearing agency 
registered pursuant to Section 17A of the Act (e.g., ``Cede & Co.,'' 
nominee for the Depository Trust Company), the registrant shall make 
appropriate inquiry of the clearing agency and thereafter of the 
participants in such clearing agency who may hold on behalf of a 
beneficial owner or respondent bank, and shall comply with the above 
paragraph with respect to any such participant (see Sec. 240.14a-1(i)).
    Note 2: The attention of registrants is called to the fact that each 
broker, dealer, bank, association, and other entity that exercises 
fiduciary powers has an obligation pursuant to Sec. 240.14b-1 and Sec. 
240.14b-2 (except as provided therein with respect to exempt employee 
benefit plan securities held in nominee name) and, with respect to 
brokers and dealers, applicable self-regulatory organization 
requirements to obtain and forward, within the time periods prescribed 
therein, (a) proxies (or in lieu thereof requests for voting 
instructions) and proxy soliciting materials to beneficial owners on 
whose behalf it holds securities, and (b) annual reports to security 
holders to beneficial owners on whose behalf it holds securities, unless 
the registrant has notified the record holder or respondent bank that it 
has assumed responsibility to mail such material to beneficial owners 
whose names, addresses, and securities positions are disclosed pursuant 
to Sec. 240.14b-1(b)(3) and Sec. 240.14b-2(b)(4)(ii) and (iii).
    Note 3: The attention of registrants is called to the fact that 
registrants have an obligation, pursuant to paragraph (d) of this 
section, to cause proxies (or in lieu thereof requests for voting 
instructions), proxy soliciting material and annual reports to security 
holders to be furnished, in a timely manner, to beneficial owners of 
exempt employee benefit plan securities.

    (b) Any registrant requesting pursuant to Sec. 240.14b-1(b)(3) or 
Sec. 240.14b-2(b)(4)(ii) and (iii) a list of names, addresses and 
securities positions of beneficial owners of its securities who either 
have consented or have not objected to disclosure of such information 
shall:
    (1) By first class mail or other equally prompt means, inquire of 
each record holder and each respondent bank identified to the registrant 
pursuant to Sec. 240.14b-2(b)(4)(i) whether such record holder or 
respondent bank holds the registrant's securities on behalf of any 
respondent banks and, if so, the name and address of each such 
respondent bank;
    (2) Request such list to be compiled as of a date no earlier than 
five business days after the date the registrant's request is received 
by the record holder or respondent bank; Provided, however, That if the 
record holder or respondent bank has informed the registrant that a 
designated office(s) or department(s) is to receive such requests, the 
request shall be made to such designated office(s) or department(s);

[[Page 203]]

    (3) Make such request to the following persons that hold the 
registrant's securities on behalf of beneficial owners: all brokers, 
dealers, banks, associations and other entities that exercises fiduciary 
powers; Provided however, such request shall not cover beneficial owners 
of exempt employee benefit plan securities as defined in Sec. 240.14a-
1(d)(1); and, at the option of the registrant, such request may give 
notice of any employee benefit plan established by an affiliate of the 
registrant that holds securities of the registrant that the registrant 
elects to treat as exempt employee benefit plan securities;
    (4) Use the information furnished in response to such request 
exclusively for purposes of corporate communications; and
    (5) Upon the request of any record holder or respondent bank to whom 
such request is made, pay the reasonable expenses, both direct and 
indirect, of providing beneficial owner information.
    Note: A registrant will be deemed to have satisfied its obligations 
under paragraph (b) of this section by requesting consenting and non-
objecting beneficial owner lists from a designated agent acting on 
behalf of the record holder or respondent bank and paying to that 
designated agent the reasonable expenses of providing the beneficial 
owner information.
    (c) A registrant, at its option, may mail its annual report to 
security holders to the beneficial owners whose identifying information 
is provided by record holders and respondent banks, pursuant to Sec. 
240.14b-1(b)(3) or Sec. 240.14b-2(b)(4)(ii) and (iii), provided that 
such registrant notifies the record holders and respondent banks, at the 
time it makes the inquiry required by paragraph (a) of this section, 
that the registrant will mail the annual report to security holders to 
the beneficial owners so identified.
    (d) If a registrant solicits proxies, consents or authorizations 
from record holders and respondent banks who hold securities on behalf 
of beneficial owners, the registrant shall cause proxies (or in lieu 
thereof requests or voting instructions), proxy soliciting material and 
annual reports to security holders to be furnished, in a timely manner, 
to beneficial owners of exempt employee benefit plan securities.

[51 FR 44276, Dec. 9, 1986; 52 FR 2220, Jan. 21, 1987, as amended at 52 
FR 23648, June 24, 1987; 53 FR 16405, May 9, 1988; 57 FR 1099, Jan. 10, 
1992]



Sec. 240.14a-14  Modified or superseded documents.

    (a) Any statement contained in a document incorporated or deemed to 
be incorporated by reference shall be deemed to be modified or 
superseded, for purposes of the proxy statement, to the extent that a 
statement contained in the proxy statement or in any other subsequently 
filed document that also is or is deemed to be incorporated by reference 
modifies or replaces such statement.
    (b) The modifying or superseding statement may, but need not, state 
it has modified or superseded a prior statement or include any other 
information set forth in the document that is not so modified or 
superseded. The making of a modifying or superseding statement shall not 
be deemed an admission that the modified or superseded statement, when 
made, constituted an untrue statement of a material fact, an omission to 
state a material fact necessary to make a statement not misleading, or 
the employment of a manipulative, deceptive, or fraudulent device, 
contrivance, scheme, transaction, act, practice, course of business or 
artifice to defraud, as those terms are used in the Securities Act of 
1933, the Securities Exchange Act of 1934 (``the Act''), the Public 
Utility Holding Company Act of 1935, the Investment Company Act of 1940, 
or the rules and regulations thereunder.
    (c) Any statement so modified shall not be deemed in its unmodified 
form to constitute part of the proxy statement for purposes of the Act. 
Any statement so superseded shall not be deemed to constitute a part of 
the proxy statement for purposes of the Act.

[52 FR 21936, June 10, 1987]

[[Page 204]]



Sec. 240.14a-15  Differential and contingent compensation in connection 
with roll-up transactions.

    (a) It shall be unlawful for any person to receive compensation for 
soliciting proxies, consents, or authorizations directly from security 
holders in connection with a roll-up transaction as provided in 
paragraph (b) of this section, if the compensation is:
    (1) Based on whether the solicited proxy, consent, or authorization 
either approves or disapproves the proposed roll-up transaction; or
    (2) Contingent on the approval, disapproval, or completion of the 
roll-up transaction.
    (b) This section is applicable to a roll-up transaction as defined 
in Item 901(c) of Regulation S-K (Sec. 229.901(c) of this chapter), 
except for a transaction involving only:
    (1) Finite-life entities that are not limited partnerships;
    (2) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under section 11A of the Act (15 U.S.C. 78k-1); or
    (3) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under section 11A of the Act (15 U.S.C. 78k-1).

[59 FR 63684, Dec. 8, 1994]



Sec. 240.14a-101  Schedule 14A. Information required in proxy statement.

                        Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act 
                                 of 1934

                            (Amendment No. )

Filed by the Registrant [ ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 
          14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Sec. 240.14a-12
________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 
          0-11
    (1) Title of each class of securities to which transaction applies:
________________________________________________________________________
    (2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
    (3) Per unit price or other underlying value of transaction computed 
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the 
filing fee is calculated and state how it was determined):
________________________________________________________________________
    (4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
    (5) Total fee paid:
________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange 
          Act Rule 0-11(a)(2) and identify the filing for which the 
          offsetting fee was paid previously. Identify the previous 
          filing by registration statement number, or the Form or 
          Schedule and the date of its filing.
    (1) Amount Previously Paid:
________________________________________________________________________
    (2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
    (3) Filing Party:
________________________________________________________________________
    (4) Date Filed:
________________________________________________________________________

                                  Notes

    Notes: A. Where any item calls for information with respect to any 
matter to be acted upon and such matter involves other matters with 
respect to which information is called for by other items of this 
schedule, the information called for by such other items also shall be 
given. For example, where a solicitation of security holders is for the 
purpose of approving the authorization of additional securities which 
are to be used to acquire another specified company, and the 
registrants' security holders will not have a separate opportunity to 
vote upon the transaction, the solicitation to authorize the securities 
is also a solicitation with respect to the acquisition. Under those 
facts, information required by Items 11, 13 and 14 shall be furnished.
    B. Where any item calls for information with respect to any matter 
to be acted upon at the meeting, such item need be answered

[[Page 205]]

in the registrant's soliciting material only with respect to proposals 
to be made by or on behalf of the registrant.
    C. Except as otherwise specifically provided, where any item calls 
for information for a specified period with regard to directors, 
executive officers, officers or other persons holding specified 
positions or relationships, the information shall be given with regard 
to any person who held any of the specified positions or relationships 
at any time during the period. Information need not be included for any 
portion of the period during which such person did not hold any such 
position or relationship, provided a statement to that effect is made.
    D. Information may be incorporated by reference only in the manner 
and to the extent specifically permitted in the items of this schedule. 
Where incorporation by reference is used, the following shall apply:
    1. Any incorporation by reference of information pursuant to the 
provisions of this schedule shall be subject to the provisions of Sec. 
228.10(f) and Sec. 229.10(d) of this chapter restricting incorporation 
by reference of documents which incorporate by reference other 
information. A registrant incorporating any documents, or portions of 
documents, shall include a statement on the last page(s) of the proxy 
statement as to which documents, or portions of documents, are 
incorporated by reference. Information shall not be incorporated by 
reference in any case where such incorporation would render the 
statement incomplete, unclear or confusing.
    2. If a document is incorporated by reference but not delivered to 
security holders, include an undertaking to provide, without charge, to 
each person to whom a proxy statement is delivered, upon written or oral 
request of such person and by first class mail or other equally prompt 
means within one business day of receipt of such request, a copy of any 
and all of the information that has been incorporated by reference in 
the proxy statement (not including exhibits to the information that is 
incorporated by reference unless such exhibits are specifically 
incorporated by reference into the information that the proxy statement 
incorporates), and the address (including title or department) and 
telephone numbers to which such a request is to be directed. This 
includes information contained in documents filed subsequent to the date 
on which definitive copies of the proxy statement are sent or given to 
security holders, up to the date of responding to the request.
    3. If a document or portion of a document other than an annual 
report sent to security holders pursuant to the requirements of Rule 
14a-3 (Sec. 240.14a-3 of this chapter) with respect to the same meeting 
or solicitation of consents or authorizations as that to which the proxy 
statement relates is incorporated by reference in the manner permitted 
by Item 13(b) or 14(e)(1) of this schedule, the proxy statement must be 
sent to security holders no later than 20 business days prior to the 
date on which the meeting of such security holders is held or, if no 
meeting is held, at least 20 business days prior to the date the votes, 
consents or authorizations may be used to effect the corporate action.
    4. Electronic filings. If any of the information required by Items 
13 or 14 of this Schedule is incorporated by reference from an annual or 
quarterly report to security holders, such report, or any portion 
thereof incorporated by reference, shall be filed in electronic format 
with the proxy statement. This provision shall not apply to registered 
investment companies.
    E. In Item 13 of this Schedule, the reference to ``meets the 
requirements of Form S-2'' shall refer to a registrant which meets the 
requirements for use of Form S-2 (Sec. 239.12 of this chapter) and the 
reference to ``meets the requirement of Form S-3'' shall refer to a 
registrant which meets the following requirements:
    (1) The registrant meets the requirements of General Instruction 
I.A. of Form S-3 (Sec. 239.13 of this chapter); and
    (2) One of the following is met:
    (i) The registrant meets the aggregate market value requirement of 
General Instruction I.B.1 of Form S-3; or
    (ii) Action is to be taken as described in Items 11, 12 and 14 of 
this schedule which concerns non-convertible debt or preferred 
securities which are ``investment grade securities'' as defined in 
General Instruction I.B.2 of Form S-3, except that the time by which the 
rating must be assigned shall be the date on which definitive copies of 
the proxy statement are first sent or given to security holders; or
    (iii) The registrant is a majority-owned subsidiary and one of the 
conditions of General Instruction I.C. of Form S-3 is met.
    F. Note to Small Business Issuers-- Registrants and acquirees that 
meet the definition of ``small business issuer'' under Rule 12b-2 of the 
Exchange Act (Sec. 240.12b-2) shall refer to the disclosure items in 
Regulation S-B (Sec. 228.10 et seq. of this chapter) and not Regulation 
S-K (Sec. 229.10 et seq. of this chapter). If there is no comparable 
disclosure item in Regulation S-B, small business issuers need not 
provide the information requested. Small business issuers shall provide 
the financial information in Item 310 of Regulation S-B in lieu of the 
financial statements required in Schedule 14A.

               G. Special Note for Small Business Issuers

    (1) Registrants and acquirees which meet the definition of ``small 
business issuer'' in Rule 12b-2 of the Exchange Act and filed their 
latest annual report in accordance with ``Information Required in Annual 
Report of Transitional Small Business Issuers'' in

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Form 10-KSB shall refer to this ``Special Note for Small Business 
Issuers'' with respect to the specified items in this Schedule. If 
paragraph G(2) or G(3), below, does not contain an alternative 
disclosure instruction, small business issuers should comply with the 
disclosure item in this schedule, as modified by Instruction F.
    (2) Registrants and acquirees that relied upon Alternative 1 in 
their most recent Form 10-KSB may provide the following information 
(Question numbers are in reference to Model A of Form 1-A): (a) 
Questions 37 and 38 instead of Item 6(d); (b) Question 43 instead of 
Item 7(a); (c) Questions 29-36 and 39 instead of Item 7(b); (d) 
Questions 40-42 instead of Item 8; (e) Questions 40-42 instead of Item 
10; (f) the information required in Part F/S of Form 10-SB instead of 
the financial statement requirements of Items 13 or 14; (g) Questions 4, 
11, and 47-50 instead of Item 13(a)(1)(3); (h) Question 3 instead of the 
information specified in Items 101 and 102 of Regulation S-B (Sec. Sec. 
228.101 and 228.102 of this chapter); and (i) Questions 4, 11, and 47-50 
instead of the information specified in Item 303 of Regulation S-B 
(Sec. 228.303 of this chapter).
    (3) Registrants and acquirees that relied upon Alternative 2 in 
their most recent Form 10-KSB may provide the following information 
(``Model B'' refers to Model B of Form 1-A): (a) Item 10 of Model B 
instead of Item 6(d) of Schedule 14A; (b) Item 8(d) of Model B instead 
of Item 7(a) of Schedule 14A; (c) Items 8(a)(8(c) and Item 11 of Model B 
instead of Item 7(b) of Schedule 14A; (d) Item 9 of Model B instead of 
Item 8 of Schedule 14A; (e) Item 9 of Model B instead of Item 10 of 
Schedule 14A; (f) the information required in Part F/S of Form 10-SB 
instead of the financial statements requirements of Items 13 or 14 of 
Schedule 14A; (g) Item 6(a)(3)(i) of Model B instead of Item 13(a)(1)(3) 
of Schedule 14A; (h) Items 6 and 7 of Model B instead of the information 
specified in Items 101 and 102 of Regulation S-B (Sec. Sec. 228.101 and 
228.102 of this chapter); and (i) Item 6(a)(3)(i) of Model B instead of 
the information specified in Item 303 of Regulation S-B (Sec. 228.303 
of this chapter).
    Item 1. Date, time and place information. (a) State the date, time 
and place of the meeting of security holders, and the complete mailing 
address, including ZIP Code, of the principal executive offices of the 
registrant, unless such information is otherwise disclosed in material 
furnished to security holders with or preceding the proxy statement. If 
action is to be taken by written consent, state the date by which 
consents are to be submitted if state law requires that such a date be 
specified or if the person soliciting intends to set a date.
    (b) On the first page of the proxy statement, as delivered to 
security holders, state the approximate date on which the proxy 
statement and form of proxy are first sent or given to security holders.
    (c) Furnish the information required to be in the proxy statement by 
Rule 14a-5(e) (Sec. 240.14a-5(e) of this chapter).
    Item 2. Revocability of proxy. State whether or not the person 
giving the proxy has the power to revoke it. If the right of revocation 
before the proxy is exercised is limited or is subject to compliance 
with any formal procedure, briefly describe such limitation or 
procedure.
    Item 3. Dissenters' right of appraisal. Outline briefly the rights 
of appraisal or similar rights of dissenters with respect to any matter 
to be acted upon and indicate any statutory procedure required to be 
followed by dissenting security holders in order to perfect such rights. 
Where such rights may be exercised only within a limited time after the 
date of adoption of a proposal, the filing of a charter amendment or 
other similar act, state whether the persons solicited will be notified 
of such date.
    Instructions. 1. Indicate whether a security holder's failure to 
vote against a proposal will constitute a waiver of his appraisal or 
similar rights and whether a vote against a proposal will be deemed to 
satisfy any notice requirements under State law with respect to 
appraisal rights. If the State law is unclear, state what position will 
be taken in regard to these matters.
    2. Open-end investment companies registered under the Investment 
Company Act of 1940 are not required to respond to this item.
    Item 4. Persons Making the Solicitation--(a) Solicitations not 
subject to Rule 14a-12(c) (Sec. 240.14a-12(c)). (1) If the solicitation 
is made by the registrant, so state. Give the name of any director of 
the registrant who has informed the registrant in writing that he 
intends to oppose any action intended to be taken by the registrant and 
indicate the action which he intends to oppose.
    (2) If the solicitation is made otherwise than by the registrant, so 
state and give the names of the participants in the solicitation, as 
defined in paragraphs (a) (iii), (iv), (v) and (vi) of Instruction 3 to 
this Item.
    (3) If the solicitation is to be made otherwise than by the use of 
the mails, describe the methods to be employed. If the solicitation is 
to be made by specially, engaged employees or paid solicitors, state (i) 
the material features of any contract or arrangement for such 
solicitation and identify the parties, and (ii) the cost or anticipated 
cost thereof.
    (4) State the names of the persons by whom the cost of solicitation 
has been or will be borne, directly or indirectly.
    (b) Solicitations subject to Rule 14a-12(c) (Sec. 240.14a-12(c)). 
(1) State by whom the solicitation is made and describe the methods 
employed and to be employed to solicit security holders.

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    (2) If regular employees of the registrant or any other participant 
in a solicitation have been or are to be employed to solicit security 
holders, describe the class or classes of employees to be so employed, 
and the manner and nature of their employment for such purpose.
    (3) If specially engaged employees, representatives or other persons 
have been or are to be employed to solicit security holders, state (i) 
the material features of any contract or arrangement for such 
solicitation and the identity of the parties, (ii) the cost or 
anticipated cost thereof and (iii) the approximate number of such 
employees of employees or any other person (naming such other person) 
who will solicit security holders).
    (4) State the total amount estimated to be spent and the total 
expenditures to date for, in furtherance of, or in connection with the 
solicitation of security holders.
    (5) State by whom the cost of the solicitation will be borne. If 
such cost is to be borne initially by any person other than the 
registrant, state whether reimbursement will be sought from the 
registrant, and, if so, whether the question of such reimbursement will 
be submitted to a vote of security holders.
    (6) If any such solicitation is terminated pursuant to a settlement 
between the registrant and any other participant in such solicitation, 
describe the terms of such settlement, including the cost or anticipated 
cost thereof to the registrant.
    Instructions. 1. With respect to solicitations subject to Rule 14a-
12(c) (Sec. 240.14a-12(c)), costs and expenditures within the meaning 
of this Item 4 shall include fees for attorneys, accountants, public 
relations or financial advisers, solicitors, advertising, printing, 
transportation, litigation and other costs incidental to the 
solicitation, except that the registrant may exclude the amount of such 
costs represented by the amount normally expended for a solicitation for 
an election of directors in the absence of a contest, and costs 
represented by salaries and wages of regular employees and officers, 
provided a statement to that effect is included in the proxy statement.
    2. The information required pursuant to paragraph (b)(6) of this 
Item should be included in any amended or revised proxy statement or 
other soliciting materials relating to the same meeting or subject 
matter furnished to security holders by the registrant subsequent to the 
date of settlement.
    3. For purposes of this Item 4 and Item 5 of this Schedule 14A:
    (a) The terms ``participant'' and ``participant in a solicitation'' 
include the following:
    (i) The registrant;
    (ii) Any director of the registrant, and any nominee for whose 
election as a director proxies are solicited;
    (iii) Any committee or group which solicits proxies, any member of 
such committee or group, and any person whether or not named as a member 
who, acting alone or with one or more other persons, directly or 
indirectly takes the initiative, or engages, in organizing, directing, 
or arranging for the financing of any such committee or group;
    (iv) Any person who finances or joins with another to finance the 
solicitation of proxies, except persons who contribute not more than 
$500 and who are not otherwise participants;
    (v) Any person who lends money or furnishes credit or enters into 
any other arrangements, pursuant to any contract or understanding with a 
participant, for the purpose of financing or otherwise inducing the 
purchase, sale, holding or voting of securities of the registrant by any 
participant or other persons, in support of or in opposition to a 
participant; except that such terms do not include a bank, broker or 
dealer who, in the ordinary course of business, lends money or executes 
orders for the purchase or sale of securities and who is not otherwise a 
participant; and
    (vi) Any person who solicits proxies.
    (b) The terms ``participant'' and ``participant in a solicitation'' 
do not include:
    (i) Any person or organization retained or employed by a participant 
to solicit security holders and whose activities are limited to the 
duties required to be performed in the course of such employment;
    (ii) Any person who merely transmits proxy soliciting material or 
performs other ministerial or clerical duties;
    (iii) Any person employed by a participant in the capacity of 
attorney, accountant, or advertising, public relations or financial 
adviser, and whose activities are limited to the duties required to be 
performed in the course of such employment;
    (iv) Any person regularly employed as an officer or employee of the 
registrant or any of its subsidiaries who is not otherwise a 
participant; or
    (v) Any officer or director of, or any person regularly employed by, 
any other participant, if such officer, director or employee is not 
otherwise a participant.
    Item 5. Interest of certain Persons in Matters To Be Acted Upon--(a) 
Solicitations not subject to Rule 14a-12(c) (Sec. 240.14a-12(c)). 
Describe briefly any substantial interest, direct or indirect, by 
security holdings or otherwise, of each of the following persons in any 
matter to be acted upon, other than elections to office:
    (1) If the solicitation is made on behalf of the registrant, each 
person who has been a director or executive officer of the registrant at 
any time since the beginning of the last fiscal year.

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    (2) If the solicitation is made otherwise than on behalf of the 
registrant, each participant in the solicitation, as defined in 
paragraphs (a) (iii), (iv), (v), and (vi) of Instruction 3 to Item 4 of 
this Schedule 14A.
    (3) Each nominee for election as a director of the registrant.
    (4) Each associate of any of the foregoing persons.
    Instruction. Except in the case of a solicitation subject to this 
regulation made in opposition to another solicitation subject to this 
regulation, this sub-item (a) shall not apply to any interest arising 
from the ownership of securities of the registrant where the security 
holder receives no extra or special benefit not shared on a pro rata 
basis by all other holders of the same class.
    (b) Solicitation subject to Rule 14a-12(c) (Sec. 240.14a-12(c)). 
With respect to any solicitation subject to Rule 14a-12(c) (Sec. 
240.14a-12(c)):
    (1) Describe briefly any substantial interest, direct or indirect, 
by security holdings or otherwise, of each participant as defined in 
paragraphs (a) (ii), (iii), (iv), (v) and (vi) of Instruction 3 to Item 
4 of this Schedule 14A, in any matter to be acted upon at the meeting, 
and include with respect to each participant the following information, 
or a fair and accurate summary thereof:
    (i) Name and business address of the participant.
    (ii) The participant's present principal occupation or employment 
and the name, principal business and address of any corporation or other 
organization in which such employment is carried on.
    (iii) State whether or not, during the past ten years, the 
participant has been convicted in a criminal proceeding (excluding 
traffic violations or similar misdemeanors) and, if so, give dates, 
nature of conviction, name and location of court, and penalty imposed or 
other disposition of the case. A negative answer need not be included in 
the proxy statement or other soliciting material.
    (iv) State the amount of each class of securities of the registrant 
which the participant owns beneficially, directly or indirectly.
    (v) State the amount of each class of securities of the registrant 
which the participant owns of record but not beneficially.
    (vi) State with respect to all securities of the registrant 
purchased or sold within the past two years, the dates on which they 
were purchased or sold and the amount purchased or sold on each such 
date.
    (vii) If any part of the purchase price or market value of any of 
the shares specified in paragraph (b)(1)(vi) of this Item is represented 
by funds borrowed or otherwise obtained for the purpose of acquiring or 
holding such securities, so state and indicate the amount of the 
indebtedness as of the latest practicable date. If such funds were 
borrowed or obtained otherwise than pursuant to a margin account or bank 
loan in the regular course of business of a bank, broker or dealer, 
briefly describe the transaction, and state the names of the parties.
    (viii) State whether or not the participant is, or was within the 
past year, a party to any contract, arrangements or understandings with 
any person with respect to any securities of the registrant, including, 
but not limited to joint ventures, loan or option arrangements, puts or 
calls, guarantees against loss or guarantees of profit, division of 
losses or profits, or the giving or withholding of proxies. If so, name 
the parties to such contracts, arrangements or understandings and give 
the details thereof.
    (ix) State the amount of securities of the registrant owned 
beneficially, directly or indirectly, by each of the participant's 
associates and the name and address of each such associate.
    (x) State the amount of each class of securities of any parent or 
subsidiary of the registrant which the participant owns beneficially, 
directly or indirectly.
    (xi) Furnish for the participant and associates of the participant 
the information required by Item 404(a) of Regulation S-K (Sec. 
229.404(a) of this chapter).
    (xii) State whether or not the participant or any associates of the 
participant have any arrangement or understanding with any person--
    (A) with respect to any future employment by the registrant or its 
affiliates; or
    (B) with respect to any future transactions to which the registrant 
or any of its affiliates will or may be a party.

If so, describe such arrangement or understanding and state the names of 
the parties thereto.
    (2) With respect to any person, other than a director or executive 
officer of the registrant acting solely in that capacity, who is a party 
to an arrangement or understanding pursuant to which a nominee for 
election as director is proposed to be elected, describe any substantial 
interest, direct or indirect, by security holdings or otherwise, that 
such person has in any matter to be acted upon at the meeting, and 
furnish the information called for by paragraphs (b)(1) (xi) and (xii) 
of this Item.
    Instruction: For purposes of this Item 5, beneficial ownership shall 
be determined in accordance with Rule 13d-3 under the Act (Section 
240.13d-3 of this chapter).
    Item 6. Voting securities and principal holders thereof, (a) As to 
each class of voting securities of the registrant entitled to be voted 
at the meeting (or by written consents or authorizations if no meeting 
is held), state the number of shares outstanding and the number of votes 
to which each class is entitled.
    (b) State the record date, if any, with respect to this 
solicitation. If the right to vote or give consent is not to be 
determined, in whole or in part, by reference to a record

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date, indicate the criteria for the determination of security holders 
entitled to vote or give consent.
    (c) If action is to be taken with respect to the election of 
directors and if the persons solicited have cumulative voting rights: 
(1) Make a statement that they have such rights, (2) briefly describe 
such rights, (3) state briefly the conditions precedent to the exercise 
thereof, and (4) if discretionary authority to cumulate votes is 
solicited, so indicate.
    (d) Furnish the information required by Item 403 of Regulation S-K 
(Sec. 229.403 of this chapter) to the extent known by the persons on 
whose behalf the solicitation is made.
    (e) If, to the knowledge of the persons on whose behalf the 
solicitation is made, a change in control of the registrant has occurred 
since the beginning of its last fiscal year, state the name of the 
person(s) who acquired such control, the amount and the source of the 
consideration used by such person or persons; the basis of the control, 
the date and a description of the transaction(s) which resulted in the 
change of control and the percentage of voting securities of the 
registrant now beneficially owned directly or indirectly by the 
person(s) who acquired control; and the identity of the person(s) from 
whom control was assumed. If the source of all or any part of the 
consideration used is a loan made in the ordinary course of business by 
a bank as defined by section 3(a)(6) of the Act, the identity of such 
bank shall be omitted provided a request for confidentiality has been 
made pursuant to section 13(d)(1)(B) of the Act by the person(s) who 
acquired control. In lieu thereof, the material shall indicate that the 
identity of the bank has been so omitted and filed separately with the 
Commission.
    Instruction. 1. State the terms of any loans or pledges obtained by 
the new control group for the purpose of acquiring control, and the 
names of the lenders or pledgees.
    2. Any arrangements or understandings among members of both the 
former and new control groups and their associates with respect to 
election of directors or other matters should be described.
    Item 7. Directors and executive officers. If action is to be taken 
with respect to the election of directors, furnish the following 
information in tabular form to the extent practicable. If, however, the 
solicitation is made on behalf of persons other than the registrant, the 
information required need be furnished only as to nominees of the 
persons making the solicitation.
    (a) The information required by instruction 4 to Item 103 of 
Regulation S-K (Sec. 229.103 of this chapter) with respect to directors 
and executive officers.
    (b) The information required by Items 401, 404 (a) and (c), and 405 
of Regulation S-K (Sec. 229.401, Sec. 229.404 and Sec. 229.405 of 
this chapter).
    (c) The information required by Item 404(b) of Regulation S-K (Sec. 
229.404 of this chapter).
    (d)(1) State whether or not the registrant has standing audit, 
nominating and compensation committees of the Board of Directors, or 
committees performing similar functions. If the registrant has such 
committees, however designated, identify each committee member, state 
the number of committee meetings held by each such committee during the 
last fiscal year and describe briefly the functions performed by such 
committees. Such disclosure need not be provided to the extent it is 
duplicative of disclosure provided in accordance with Item 401(i) of 
Regulation S-K (Sec. 229.401(i) of this chapter).
    (2)(i) If the registrant does not have a standing nominating 
committee or committee performing similar functions, state the basis for 
the view of the board of directors that it is appropriate for the 
registrant not to have such a committee and identify each director who 
participates in the consideration of director nominees;
    (ii) Provide the following information regarding the registrant's 
director nomination process:
    (A) If the nominating committee has a charter, disclose whether a 
current copy of the charter is available to security holders on the 
registrant's Web site. If the nominating committee has a charter and a 
current copy of the charter is available to security holders on the 
registrant's Web site, provide the registrant's Web site address. If the 
nominating committee has a charter and a current copy of the charter is 
not available to security holders on the registrant's Web site, include 
a copy of the charter as an appendix to the registrant's proxy statement 
at least once every three fiscal years. If a current copy of the charter 
is not available to security holders on the registrant's Web site, and 
is not included as an appendix to the registrant's proxy statement, 
identify in which of the prior fiscal years the charter was so included 
in satisfaction of this requirement;
    (B) If the nominating committee does not have a charter, state that 
fact;
    (C) If the registrant is a listed issuer (as defined in Sec. 
240.10A-3) whose securities are listed on a national securities exchange 
registered pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or in 
an automated inter-dealer quotation system of a national securities 
association registered pursuant to section 15A(a) of the Act (15 U.S.C. 
78o-3(a)) that has independence requirements for nominating committee 
members, disclose whether the members of the nominating committee are 
independent, as independence for nominating committee members is defined 
in the listing standards applicable to the listed issuer;

[[Page 210]]

    (D) If the registrant is not a listed issuer (as defined in Sec. 
240.10A-3), disclose whether each of the members of the nominating 
committee is independent. In determining whether a member is 
independent, the registrant must use a definition of independence of a 
national securities exchange registered pursuant to section 6(a) of the 
Act (15 U.S.C. 78f(a)) or a national securities association registered 
pursuant to section 15A(a) of the Act (15 U.S.C. 78o-3(a)) that has been 
approved by the Commission (as that definition may be modified or 
supplemented), and state which definition it used. Whatever definition 
the registrant chooses, it must apply that definition consistently to 
all members of the nominating committee and use the independence 
standards of the same national securities exchange or national 
securities association for purposes of nominating committee disclosure 
under this requirement and audit committee disclosure required under 
paragraph (d)(3)(iv) of Item 7 of Schedule 14A (Sec. 240.14a-101);
    (E) If the nominating committee has a policy with regard to the 
consideration of any director candidates recommended by security 
holders, provide a description of the material elements of that policy, 
which shall include, but need not be limited to, a statement as to 
whether the committee will consider director candidates recommended by 
security holders;
    (F) If the nominating committee does not have a policy with regard 
to the consideration of any director candidates recommended by security 
holders, state that fact and state the basis for the view of the board 
of directors that it is appropriate for the registrant not to have such 
a policy;
    (G) If the nominating committee will consider candidates recommended 
by security holders, describe the procedures to be followed by security 
holders in submitting such recommendations;
    (H) Describe any specific, minimum qualifications that the 
nominating committee believes must be met by a nominating committee-
recommended nominee for a position on the registrant's board of 
directors, and describe any specific qualities or skills that the 
nominating committee believes are necessary for one or more of the 
registrant's directors to possess;
    (I) Describe the nominating committee's process for identifying and 
evaluating nominees for director, including nominees recommended by 
security holders, and any differences in the manner in which the 
nominating committee evaluates nominees for director based on whether 
the nominee is recommended by a security holder;
    (J) With regard to each nominee approved by the nominating committee 
for inclusion on the registrant's proxy card (other than nominees who 
are executive officers or who are directors standing for re-election), 
state which one or more of the following categories of persons or 
entities recommended that nominee: security holder, non-management 
director, chief executive officer, other executive officer, third-party 
search firm, or other, specified source. With regard to each such 
nominee approved by a nominating committee of an investment company, 
state which one or more of the following additional categories of 
persons or entities recommended that nominee: security holder, director, 
chief executive officer, other executive officer, or employee of the 
investment company's investment adviser, principal underwriter, or any 
affiliated person of the investment adviser or principal underwriter;
    (K) If the registrant pays a fee to any third party or parties to 
identify or evaluate or assist in identifying or evaluating potential 
nominees, disclose the function performed by each such third party; and
    (L) If the registrant's nominating committee received, by a date not 
later than the 120th calendar day before the date of the registrant's 
proxy statement released to security holders in connection with the 
previous year's annual meeting, a recommended nominee from a security 
holder that beneficially owned more than 5% of the registrant's voting 
common stock for at least one year as of the date the recommendation was 
made, or from a group of security holders that beneficially owned, in 
the aggregate, more than 5% of the registrant's voting common stock, 
with each of the securities used to calculate that ownership held for at 
least one year as of the date the recommendation was made, identify the 
candidate and the security holder or security holder group that 
recommended the candidate and disclose whether the nominating committee 
chose to nominate the candidate, provided, however, that no such 
identification or disclosure is required without the written consent of 
both the security holder or security holder group and the candidate to 
be so identified.
    Instructions to paragraph (d)(2)(ii)(L):
    1. For purposes of Item 7(d)(2)(ii)(L), the percentage of securities 
held by a nominating security holder may be determined using information 
set forth in the registrant's most recent quarterly or annual report, 
and any current report subsequent thereto, filed with the Commission 
pursuant to this Act (or, in the case of a registrant that is an 
investment company registered under the Investment Company Act of 1940, 
the registrant's most recent report on Form N-CSR (Sec. Sec. 249.331 
and 274.128)), unless the party relying on such report knows or has 
reason to believe that the information contained therein is inaccurate.
    2. For purposes of the registrant's obligation to provide the 
disclosure specified in Item 7(d)(2)(ii)(L), where the date of the 
annual meeting has been changed by more than 30 days from the date of 
the previous year's

[[Page 211]]

meeting, the obligation under that Item will arise where the registrant 
receives the security holder recommendation a reasonable time before the 
registrant begins to print and mail its proxy materials.
    3. For purposes of Item 7(d)(2)(ii)(L), the percentage of securities 
held by a recommending security holder, as well as the holding period of 
those securities, may be determined by the registrant if the security 
holder is the registered holder of the securities. If the security 
holder is not the registered owner of the securities, he or she can 
submit one of the following to the registrant to evidence the required 
ownership percentage and holding period:
    A. A written statement from the ``record'' holder of the securities 
(usually a broker or bank) verifying that, at the time the security 
holder made the recommendation, he or she had held the required 
securities for at least one year; or
    B. If the security holder has filed a Schedule 13D (Sec. 240.13d-
101), Schedule 13G (Sec. 240.13d-102), Form 3 (Sec. 249.103), Form 4 
(Sec. 249.104), and/or Form 5 (Sec. 249.105), or amendments to those 
documents or updated forms, reflecting ownership of the securities as of 
or before the date of the recommendation, a copy of the schedule and/or 
form, and any subsequent amendments reporting a change in ownership 
level, as well as a written statement that the security holder 
continuously held the securities for the one-year period as of the date 
of the recommendation.
    4. For purposes of the registrant's obligation to provide the 
disclosure specified in Item 7(d)(2)(ii)(L), the security holder or 
group must have provided to the registrant, at the time of the 
recommendation, the written consent of all parties to be identified and, 
where the security holder or group members are not registered holders, 
proof that the security holder or group satisfied the required ownership 
percentage and holding period as of the date of the recommendation.
    Instruction to paragraph (d)(2)(ii): For purposes of Item 
7(d)(2)(ii), the term ``nominating committee'' refers not only to 
nominating committees and committees performing similar functions, but 
also to groups of directors fulfilling the role of a nominating 
committee, including the entire board of directors.
    (3) If the registrant has an audit committee:
    (i) Provide the information required by Item 306 of Regulation S-K 
(17 CFR 229.306).
    (ii) State whether the registrant's Board of Directors has adopted a 
written charter for the audit committee.
    (iii) Include a copy of the written charter, if any, as an appendix 
to the registrant's proxy statement, unless a copy has been included as 
an appendix to the registrant's proxy statement within the registrant's 
past three fiscal years.
    (iv)(A) If the registrant is a listed issuer, as defined in Sec. 
240.10A-3:
    (1) Disclose whether the members of the audit committee are 
independent, as independence for audit committee members is defined in 
the listing standards applicable to the listed issuer. If the registrant 
does not have a separately designated audit committee, or committee 
performing similar functions, the registrant must provide the disclosure 
with respect to all members of its board of directors.
    (2) If the listed issuer's board of directors determines, in 
accordance with the listing standards applicable to the listed issuer, 
to appoint a director to the audit committee who is not independent 
(apart from the requirements in Sec. 240.10A-3) because of exceptional 
or limited or similar circumstances, disclose the nature of the 
relationship that makes that individual not independent and the reasons 
for the board of directors' determination.
    (B) If the registrant, including a small business issuer, is not a 
listed issuer, disclose whether the registrant has an audit committee 
established in accordance with section 3(a)(58)(A) of the Act (15 U.S.C. 
78c(a)(58)(A)) and, if so, whether the members of the committee are 
independent. In determining whether a member is independent, the 
registrant must use a definition for audit committee member independence 
of a national securities exchange registered pursuant to section 6(a) of 
the Act (15 U.S.C. 78f(a)) or a national securities association 
registered pursuant to section 15A(a) of the Act (15 U.S.C. 78o-3(a)) 
that has been approved by the Commission (as such definition may be 
modified or supplemented), and state which definition was used. 
Whichever definition is chosen must be applied consistently to all 
members of the audit committee.
    (v) The information required by paragraph (d)(3) of this Item shall 
not be deemed to be ``soliciting material,'' or to be ``filed'' with the 
Commission or subject to Regulation 14A or 14C (17 CFR 240.14a-1 et seq. 
or 240.14c-1 et seq.), other than as provided in this Item, or to the 
liabilities of section 18 of the Exchange Act (15 U.S.C. 78r), except to 
the extent that the registrant specifically requests that the 
information be treated as soliciting material or specifically 
incorporates it by reference into a document filed under the Securities 
Act or the Exchange Act. Such information will not be deemed to be 
incorporated by reference into any filing under the Securities Act or 
the Exchange Act, except to the extent that the registrant specifically 
incorporates it by reference.
    (vi) The disclosure required by this paragraph (d)(3) need only be 
provided one time during any fiscal year.

[[Page 212]]

    (vii) Investment companies registered under the Investment Company 
Act of 1940 (15 U.S.C. 80a-1 et seq.), other than closed-end investment 
companies, need not provide the information required by this paragraph 
(d)(3).
    (e) In lieu of paragraphs (a) through (d)(1) and (d)(2)(ii)(D) of 
this Item, investment companies registered under the Investment Company 
Act of 1940 (15 U.S.C. 80a) must furnish the information required by 
Item 22(b) of this Schedule 14A.
    (f) State the total number of meetings of the board of directors 
(including regularly scheduled and special meetings) which were held 
during the last full fiscal year. Name each incumbent director who 
during the last full fiscal year attended fewer than 75 percent of the 
aggregate of (1) the total number of meetings of the board of directors 
(held during the period for which he has been a director) and (2) the 
total number of meetings held by all committees of the board on which he 
served (during the periods that he served).
    (g) If a director has resigned or declined to stand for re-election 
to the board of directors since the date of the last annual meeting of 
security holders because of a disagreement with the registrant on any 
matter relating to the registrant's operations, policies or practices, 
and if the director has furnished the registrant with a letter 
describing such disagreement and requesting that the matter be 
disclosed, the registrant shall state the date of resignation or 
declination to stand for re-election and summarize the director's 
description of the disagreement.

If the registrant believes that the description provided by the director 
is incorrect or incomplete, it may include a brief statement presenting 
its view of the disagreement.
    (h)(1) State whether or not the registrant's board of directors 
provides a process for security holders to send communications to the 
board of directors and, if the registrant does not have such a process 
for security holders to send communications to the board of directors, 
state the basis for the view of the board of directors that it is 
appropriate for the registrant not to have such a process;
    (2) If the registrant has a process for security holders to send 
communications to the board of directors:
    (i) Describe the manner in which security holders can send 
communications to the board and, if applicable, to specified individual 
directors; and
    (ii) If all security holder communications are not sent directly to 
board members, describe the registrant's process for determining which 
communications will be relayed to board members; and
    Instruction to paragraph (h)(2)(ii): For purposes of the disclosure 
required by this paragraph, a registrant's process for collecting and 
organizing security holder communications, as well as similar or related 
activities, need not be disclosed provided that the registrant's process 
is approved by a majority of the independent directors or, in the case 
of a registrant that is an investment company, a majority of the 
directors who are not ``interested persons'' of the investment company 
as defined in section 2(a)(19) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(19)).
    (3) Describe the registrant's policy, if any, with regard to board 
members' attendance at annual meetings and state the number of board 
members who attended the prior year's annual meeting.
    Instruction to paragraphs (h)(2) and (h)(3): In lieu of providing 
the information required by paragraphs (h)(2) and (h)(3) in the proxy 
statement, the registrant may instead provide the registrant's Website 
address where such information appears.
    Instructions to paragraph (h):
    1. For purposes of this paragraph, communications from an officer or 
director of the registrant will not be viewed as ``security holder 
communications.'' Communications from an employee or agent of the 
registrant will be viewed as ``security holder communications'' for 
purposes of this paragraph only if those communications are made solely 
in such employee's or agent's capacity as a security holder.
    2. For purposes of this paragraph, security holder proposals 
submitted pursuant to Sec. 240.14a-8, and communications made in 
connection with such proposals, will not be viewed as ``security holder 
communications.''
    Item 8. Compensation of directors and executive officers. Furnish 
the information required by Item 402 (Sec. 229.402 of this chapter) of 
Regulation S-K if action is to be taken with regard to:
    (a) The election of directors;
    (b) Any bonus, profit sharing or other compensation plan, contract 
or arrangement in which any director, nominee for election as a 
director, or executive officer of the registrant will participate;
    (c) Any pension or retirement plan in which any such person will 
participate; or
    (d) The granting or extension to any such person of any options, 
warrants or rights to purchase any securities, other than warrants or 
rights issued to security holders as such, on a pro rata basis.
    However, if the solicitation is made on behalf of persons other than 
the registrant, the information required need be furnished only as to 
nominees of the persons making the solicitation and associates of such 
nominees. In the case of investment companies registered under the 
Investment Company Act of 1940 and registrants that have elected to be 
regulated as business development companies, furnish the information 
required by Item 22(b)(13) of this Schedule.

[[Page 213]]

    Instruction. If an otherwise reportable compensation plan became 
subject to such requirements because of an acquisition or merger and, 
within one year of the acquisition or merger, such plan was terminated 
for purposes of prospective eligibility, the registrant may furnish a 
description of its obligation to the designated individuals pursuant to 
the compensation plan. Such description may be furnished in lieu of a 
description of the compensation plan in the proxy statement.
    Item 9. Independent public accountants. If the solicitation is made 
on behalf of the registrant and relates to: (1) The annual (or special 
meeting in lieu of annual) meeting of security holders at which 
directors are to be elected, or a solicitation of consents or 
authorizations in lieu of such meeting or (2) the election, approval or 
ratification of the registrant's accountant, furnish the following 
information describing the registrant's relationship with its 
independent public accountant:
    (a) The name of the principal accountant selected or being 
recommended to security holders for election, approval or ratification 
for the current year. If no accountant has been selected or recommended, 
so state and briefly describe the reasons therefor.
    (b) The name of the principal accountant for the fiscal year most 
recently completed if different from the accountant selected or 
recommended for the current year or if no accountant has yet been 
selected or recommended for the current year.
    (c) The proxy statement shall indicate: (1) Whether or not 
representatives of the principal accountant for the current year and for 
the most recently completed fiscal year are expected to be present at 
the security holders' meeting, (2) whether or not they will have the 
opportunity to make a statement if they desire to do so, and (3) whether 
or not such representatives are expected to be available to respond to 
appropriate questions.
    (d) If during the registrant's two most recent fiscal years or any 
subsequent interim period, (1) an independent accountant who was 
previously engaged as the principal accountant to audit the registrant's 
financial statements, or an independent accountant on whom the principal 
accountant expressed reliance in its report regarding a significant 
subsidiary, has resigned (or indicated it has declined to stand for re-
election after the completion of the current audit) or was dismissed, or 
(2) a new independent accountant has been engaged as either the 
principal accountant to audit the registrant's financial statements or 
as an independent accountant on whom the principal accountant has 
expressed or is expected to express reliance in its report regarding a 
significant subsidiary, then, notwithstanding any previous disclosure, 
provide the information required by Item 304(a) of Regulation S-K (Sec. 
229.304 of this chapter).
    (e)(1) Disclose, under the caption Audit Fees, the aggregate fees 
billed for each of the last two fiscal years for professional services 
rendered by the principal accountant for the audit of the registrant's 
annual financial statements and review of financial statements included 
in the registrant's Form 10-Q (17 CFR 249.308a) or 10-QSB (17 CFR 
249.308b) or services that are normally provided by the accountant in 
connection with statutory and regulatory filings or engagements for 
those fiscal years.
    (2) Disclose, under the caption Audit-Related Fees, the aggregate 
fees billed in each of the last two fiscal years for assurance and 
related services by the principal accountant that are reasonably related 
to the performance of the audit or review of the registrant's financial 
statements and are not reported under paragraph (e)(1) of this section. 
Registrants shall describe the nature of the services comprising the 
fees disclosed under this category.
    (3) Disclose, under the caption Tax Fees, the aggregate fees billed 
in each of the last two fiscal years for professional services rendered 
by the principal accountant for tax compliance, tax advice, and tax 
planning. Registrants shall describe the nature of the services 
comprising the fees disclosed under this category.
    (4) Disclose, under the caption All Other Fees, the aggregate fees 
billed in each of the last two fiscal years for products and services 
provided by the principal accountant, other than the services reported 
in paragraphs (e)(1) through (e)(3) of this section. Registrants shall 
describe the nature of the services comprising the fees disclosed under 
this category.
    (5)(i) Disclose the audit committee's pre-approval policies and 
procedures described in 17 CFR 210.2-01(c)(7)(i).
    (ii) Disclose the percentage of services described in each of 
paragraphs (e)(2) through (e)(4) of this section that were approved by 
the audit committee pursuant to 17 CFR 210.2-01(c)(7)(i)(C).
    (6) If greater than 50 percent, disclose the percentage of hours 
expended on the principal accountant's engagement to audit the 
registrant's financial statements for the most recent fiscal year that 
were attributed to work performed by persons other than the principal 
accountant's full-time, permanent employees.
    (7) If the registrant is an investment company, disclose the 
aggregate non-audit fees billed by the registrant's accountant for 
services rendered to the registrant, and to the registrant's investment 
adviser (not including any subadviser whose role is primarily portfolio 
management and is subcontracted with or overseen by another investment 
adviser), and any entity controlling,

[[Page 214]]

controlled by, or under common control with the adviser that provides 
ongoing services to the registrant for each of the last two fiscal years 
of the registrant.
    (8) If the registrant is an investment company, disclose whether the 
audit committee of the board of directors has considered whether the 
provision of non-audit services that were rendered to the registrant's 
investment adviser (not including any subadviser whose role is primarily 
portfolio management and is subcontracted with or overseen by another 
investment adviser), and any entity controlling, controlled by, or under 
common control with the investment adviser that provides ongoing 
services to the registrant that were not pre-approved pursuant to 17 CFR 
210.2-01(c)(7)(ii) is compatible with maintaining the principal 
accountant's independence.
    Instruction to Item 9(e).
    For purposes of Item 9(e)(2), (3), and (4), registrants that are 
investment companies must disclose fees billed for services rendered to 
the registrant and separately, disclose fees required to be approved by 
the investment company registrant's audit committee pursuant to 17 CFR 
210.2-01(c)(7)(ii). Registered investment companies must also disclose 
the fee percentages as required by item 9(e)(5)(ii) for the registrant 
and separately, disclose the fee percentages as required by item 
9(e)(5)(ii) for the fees required to be approved by the investment 
company registrant's audit committee pursuant to 17 CFR 210.2-
01(c)(7)(ii).
    Item 10. Compensation Plans. If action is to be taken with respect 
to any plan pursuant to which cash or noncash compensation may be paid 
or distributed, furnish the following information:
    (a) Plans subject to security holder action. (1) Describe briefly 
the material features of the plan being acted upon, identify each class 
of persons who will be eligible to participate therein, indicate the 
approximate number of persons in each such class, and state the basis of 
such participation.
    (2)(i) In the tabular format specified below, disclose the benefits 
or amounts that will be received by or allocated to each of the 
following under the plan being acted upon, if such benefits or amounts 
are determinable:

                            New Plan Benefits
------------------------------------------------------------------------
                                Plan name
-------------------------------------------------------------------------
         Name and position            Dollar value ($)   Number of units
------------------------------------------------------------------------
CEO................................
A..................................
B..................................
C..................................
D..................................
Executive Group....................
Non-Executive Director Group.......
Non-Executive Officer Employee
 Group.
------------------------------------------------------------------------

    (ii) The table required by paragraph (a)(2)(i) of this Item shall 
provide information as to the following persons:
    (A) Each person (stating name and position) specified in paragraph 
(a)(3) of Item 402 of Regulation S-K (Sec. 229.402(a)(3) of this 
chapter);
    Instruction: In the case of investment companies registered under 
the Investment Company Act of 1940, furnish the information for 
Compensated Persons as defined in Item 22(b)(13) of this Schedule in 
lieu of the persons specified in paragraph (a)(3) of Item 402 of 
Regulation S-K (Sec. 229.402(a)(3) of this chapter).
    (B) All current executive officers as a group;
    (C) All current directors who are not executive officers as a group; 
and
    (D) All employees, including all current officers who are not 
executive officers, as a group.

                 Instruction to New Plan Benefits Table

    Additional columns should be added for each plan with respect to 
which security holder action is to be taken.
    (iii) If the benefits or amounts specified in paragraph (a)(2)(i) of 
this item are not determinable, state the benefits or amounts which 
would have been received by or allocated to each of the following for 
the last completed fiscal year if the plan had been in effect, if such 
benefits or amounts may be determined, in the table specified in 
paragraph (a)(2)(i) of this Item:
    (A) Each person (stating name and position) specified in paragraph 
(a)(3) of Item 402 of Regulation S-K (Sec. 229.402(a)(3) of this 
chapter);
    (B) All current executive officers as a group;
    (C) All current directors who are not executive officers as a group; 
and
    (D) All employees, including all current officers who are not 
executive officers, as a group.
    (3) If the plan to be acted upon can be amended, otherwise than by a 
vote of security holders, to increase the cost thereof to the registrant 
or to alter the allocation of the benefits as between the persons and 
groups specified in paragraph (a)(2) of this item, state the nature of 
the amendments which can be so made.
    (b)(1) Additional information regarding specified plans subject to 
security holder action. With respect to any pension or retirement

[[Page 215]]

plan submitted for security holder action, state:
    (i) The approximate total amount necessary to fund the plan with 
respect to past services, the period over which such amount is to be 
paid and the estimated annual payments necessary to pay the total amount 
over such period; and
    (ii) The estimated annual payment to be made with respect to current 
services. In the case of a pension or retirement plan, information 
called for by paragraph (a)(2) of this Item may be furnished in the 
format specified by paragraph (f)(1) of Item 402 of Regulation S-K 
(Sec. 229.402(f)(1) of this chapter).
    (c) Information regarding plans and other arrangements not subject 
to security holder action. Furnish the information required by Item 
201(d) of Regulation S-K (Sec. 229.201(d) of this chapter).
    Instructions to paragraph (c).
    1. If action is to be taken as described in paragraph (a) of this 
Item with respect to the approval of a new compensation plan under which 
equity securities of the registrant are authorized for issuance, 
information about the plan shall be disclosed as required under 
paragraphs (a) and (b) of this Item and shall not be included in the 
disclosure required by Item 201(d) of Regulation S-K (Sec. 229.201(d) 
of this chapter). If action is to be taken as described in paragraph (a) 
of this Item with respect to the amendment or modification of an 
existing plan under which equity securities of the registrant are 
authorized for issuance, the registrant shall include information about 
securities previously authorized for issuance under the plan (including 
any outstanding options, warrants and rights previously granted pursuant 
to the plan and any securities remaining available for future issuance 
under the plan) in the disclosure required by Item 201(d) of Regulation 
S-K (Sec. 229.201(d) of this chapter). Any additional securities that 
are the subject of the amendments or modification of the existing plan 
shall be disclosed as required under paragraphs (a) and (b) of this Item 
and shall not be included in the Item 201(d) disclosure.
    Instruction. In the case of investment companies registered under 
the Investment Company Act of 1940, refer to instruction 4 in Item 
22(b)(13)(i) of this Schedule in lieu of paragraph (f)(1) of Item 402 of 
Regulation S-K (Sec. 229.402(f)(1) of this chapter).
    (2)(i) With respect to any specific grant of or any plan containing 
options, warrants or rights submitted for security holder action, state:
    (A) The title and amount of securities underlying such options, 
warrants or rights;
    (B) The prices, expiration dates and other material conditions upon 
which the options, warrants or rights may be exercised;
    (C) The consideration received or to be received by the registrant 
or subsidiary for the granting or extension of the options, warrants or 
rights;
    (D) The market value of the securities underlying the options, 
warrants, or rights as of the latest practicable date; and
    (E) In the case of options, the federal income tax consequences of 
the issuance and exercise of such options to the recipient and the 
registrant; and
    (ii) State separately the amount of such options received or to be 
received by the following persons if such benefits or amounts are 
determinable:
    (A) Each person (stating name and position) specified in paragraph 
(a)(3) of Item 402 of Regulation S-K (Sec. 229.402(a)(3) of this 
chapter);
    (B) All current executive officers as a group;
    (C) All current directors who are not executive officers as a group;
    (D) Each nominee for election as a director;
    (E) Each associate of any of such directors, executive officers or 
nominees;
    (F) Each other person who received or is to receive 5 percent of 
such options, warrants or rights; and
    (G) All employees, including all current officers who are not 
executive officers, as a group.

                              Instructions

    1. The term ``plan'' as used in this Item means any plan as defined 
in paragraph (a)(7)(ii) of Item 402 of Regulation S-K (Sec. 
229.402(a)(7)(ii) of this chapter).
    2. If action is to be taken with respect to a material amendment or 
modification of an existing plan, the item shall be answered with 
respect to the plan as proposed to be amended or modified and shall 
indicate any material differences from the existing plan.
    3. If the plan to be acted upon is set forth in a written document, 
three copies thereof shall be filed with the Commission at the time 
copies of the proxy statement and form of proxy are first filed pursuant 
to paragraph (a) or (b) of Sec. 240.14a-6. Electronic filers shall file 
with the Commission a copy of such written plan document in electronic 
format as an appendix to the proxy statement. It need not be provided to 
security holders unless it is a part of the proxy statement.
    4. Paragraph (b)(2)(ii) does not apply to warrants or rights to be 
issued to security holders as such on a pro rata basis.
    5. The Commission shall be informed, as supplemental information, 
when the proxy statement is first filed, as to when the options, 
warrants or rights and the shares called for thereby will be registered 
under the Securities Act or, if such registration is not contemplated, 
the section of the Securities Act or rule of the Commission under which 
exemption from such registration is

[[Page 216]]

claimed and the facts relied upon to make the exemption available.
    Item 11. Authorization or issuance of securities otherwise than for 
exchange. If action is to be taken with respect to the authorization or 
issuance of any securities otherwise than for exchange for outstanding 
securities of the registrant, furnish the following information:
    (a) State the title and amount of securities to be authorized or 
issued.
    (b) Furnish the information required by Item 202 of Regulation S-K 
(Sec. 229.202 of this chapter). If the terms of the securities cannot 
be stated or estimated with respect to any or all of the securities to 
be authorized, because no offering thereof is contemplated in the 
proximate future, and if no further authorization by security holders 
for the issuance thereof is to be obtained, it should be stated that the 
terms of the securities to be authorized, including dividend or interest 
rates, conversion prices, voting rights, redemption prices, maturity 
dates, and similar matters will be determined by the board of directors. 
If the securities are additional shares of common stock of a class 
outstanding, the description may be omitted except for a statement of 
the preemptive rights, if any. Where the statutory provisions with 
respect to preemptive rights are so indefinite or complex that they 
cannot be stated in summarized form, it will suffice to make a statement 
in the form of an opinion of counsel as to the existence and extent of 
such rights.
    (c) Describe briefly the transaction in which the securities are to 
be issued including a statement as to (1) the nature and approximate 
amount of consideration received or to be received by the registrant and 
(2) the approximate amount devoted to each purpose so far as 
determinable for which the net proceeds have been or are to be used. If 
it is impracticable to describe the transaction in which the securities 
are to be issued, state the reason, indicate the purpose of the 
authorization of the securities, and state whether further authorization 
for the issuance of the securities by a vote of security holders will be 
solicited prior to such issuance.
    (d) If the securities are to be issued otherwise than in a public 
offering for cash, state the reasons for the proposed authorization or 
issuance and the general effect thereof upon the rights of existing 
security holders.
    (e) Furnish the information required by Item 13(a) of this schedule.
    Item 12. Modification or exchange of securities. If action is to be 
taken with respect to the modification of any class of securities of the 
registrant, or the issuance or authorization for issuance of securities 
of the registrant in exchange for outstanding securities of the 
registrant furnish the following information:
    (a) If outstanding securities are to be modified, state the title 
and amount thereof. If securities are to be issued in exchange for 
outstanding securities, state the title and amount of securities to be 
so issued, the title and amount of outstanding securities to be 
exchanged therefor and the basis of the exchange.
    (b) Describe any material differences between the outstanding 
securities and the modified or new securities in respect of any of the 
matters concerning which information would be required in the 
description of the securities in Item 202 of Regulation S-K (Sec. 
229.202 of this chapter).
    (c) State the reasons for the proposed modification or exchange and 
the general effect thereof upon the rights of existing security holders.
    (d) Furnish a brief statement as to arrears in dividends or as to 
defaults in principal or interest in respect to the outstanding 
securities which are to be modified or exchanged and such other 
information as may be appropriate in the particular case to disclose 
adequately the nature and effect of the proposed action.
    (e) Outline briefly any other material features of the proposed 
modification or exchange. If the plan of proposed action is set forth in 
a written document, file copies thereof with the Commission in 
accordance with Sec. 240.14a-6.
    (f) Furnish the information required by Item 13(a) of this Schedule.
    Instruction. If the existing security is presently listed and 
registered on a national securities exchange, state whether the 
registrant intends to apply for listing and registration of the new or 
reclassified security on such exchange or any other exchange. If the 
registrant does not intend to make such application, state the effect of 
the termination of such listing and registration.
    Item 13. Financial and other information. (See Notes D and E at the 
beginning of this Schedule.)
    (a) Information required. If action is to be taken with respect to 
any matter specified in Item 11 or 12, furnish the following 
information:
    (1) Financial statements meeting the requirements of Regulation S-X, 
including financial information required by Rule 3-05 and Article 11 of 
Regulation S-X with respect to transactions other than that pursuant to 
which action is to be taken as described in this proxy statement;
    (2) Item 302 of Regulation S-K, supplementary financial information;
    (3) Item 303 of Regulation S-K, management's discussion and analysis 
of financial condition and results of operations;
    (4) Item 304 of Regulation S-K, changes in and disagreements with 
accountants on accounting and financial disclosure;

[[Page 217]]

    (5) Item 305 of Regulation S-K, quantitative and qualitative 
disclosures about market risk; and
    (6) A statement as to whether or not representatives of the 
principal accountants for the current year and for the most recently 
completed fiscal year:
    (i) Are expected to be present at the security holders' meeting;
    (ii) Will have the opportunity to make a statement if they desire to 
do so; and
    (iii) Are expected to be available to respond to appropriate 
questions.
    (b) Incorporation by reference. The information required pursuant to 
paragraph (a) of this Item may be incorporated by reference into the 
proxy statement as follows:
    (1) S-3 registrants. If the registrant meets the requirements of 
Form S-3( see Note E to this Schedule), it may incorporate by reference 
to previously-filed documents any of the information required by 
paragraph (a) of this Item, provided that the requirements of paragraph 
(c) are met. Where the registrant meets the requirements of Form S-3 and 
has elected to furnish the required information by incorporation by 
reference, the registrant may elect to update the information so 
incorporated by reference to information in subsequently-filed 
documents.
    (2) All registrants. The registrant may incorporate by reference any 
of the information required by paragraph (a) of this Item, provided that 
the information is contained in an annual report to security holders or 
a previously-filed statement or report, such report or statement is 
delivered to security holders with the proxy statement and the 
requirements of paragraph (c) are met.
    (c) Certain conditions applicable to incorporation by reference. 
Registrants eligible to incorporate by reference into the proxy 
statement the information required by paragraph (a) of this Item in the 
manner specified by paragraphs (b)(1) and (b)(2) may do so only if:
    (1) The information is not required to be included in the proxy 
statement pursuant to the requirement of another Item;
    (2) The proxy statement identifies on the last page(s) the 
information incorporated by reference; and
    (3) The material incorporated by reference substantially meets the 
requirements of this Item or the appropriate portions of this Item.
    Instructions to Item 13.
    1. Notwithstanding the provisions of this Item, any or all of the 
information required by paragraph (a) of this Item not material for the 
exercise of prudent judgment in regard to the matter to be acted upon 
may be omitted. In the usual case the information is deemed material to 
the exercise of prudent judgment where the matter to be acted upon is 
the authorization or issuance of a material amount of senior securities, 
but the information is not deemed material where the matter to be acted 
upon is the authorization or issuance of common stock, otherwise than in 
an exchange, merger, consolidation, acquisition or similar transaction, 
the authorization of preferred stock without present intent to issue or 
the authorization of preferred stock for issuance for cash in an amount 
constituting fair value.
    2. In order to facilitate compliance with Rule 2-02(a) of Regulation 
S-X, one copy of the definitive proxy statement filed with the 
Commission shall include a manually signed copy of the accountant's 
report. If the financial statements are incorporated by reference, a 
manually signed copy of the accountant's report shall be filed with the 
definitive proxy statement.
    3. Notwithstanding the provisions of Regulation S-X, no schedules 
other than those prepared in accordance with Rules 12-15, 12-28 and 12-
29 (or, for management investment companies, Rules 12-12 through 12-14) 
of that regulation need be furnished in the proxy statement.
    4. Unless registered on a national securities exchange or otherwise 
required to furnish such information, registered investment companies 
need not furnish the information required by paragraph (a)(2) or (3) of 
this Item.
    5. If the registrant submits preliminary proxy material 
incorporating by reference financial statements required by this Item, 
the registrant should furnish a draft of the financial statements if the 
document from which they are incorporated has not been filed with or 
furnished to the Commission.
    6. A registered investment company need not comply with items 
(a)(2), (a)(3), and (a)(5) of this Item 13.
    Item 14. Mergers, consolidations, acquisitions and similar matters. 
(See Notes A and D at the beginning of this Schedule)
    Instructions to Item 14:
    1. In transactions in which the consideration offered to security 
holders consists wholly or in part of securities registered under the 
Securities Act of 1933, furnish the information required by Form S-4 
(Sec. 239.25 of this chapter), Form F-4 (Sec. 239.34 of this chapter), 
or Form N-14 (Sec. 239.23 of this chapter), as applicable, instead of 
this Item. Only a Form S-4, Form F-4, or Form N-14 must be filed in 
accordance with Sec. 240.14a-6(j).
    2. (a) In transactions in which the consideration offered to 
security holders consists wholly of cash, the information required by 
paragraph (c)(1) of this Item for the acquiring company need not be 
provided unless the information is material to an informed voting 
decision (e.g., the security holders of the target company are voting 
and financing is not assured).
    (b) Additionally, if only the security holders of the target company 
are voting:
    i. The financial information in paragraphs (b)(8)--(11) of this Item 
for the acquiring

[[Page 218]]

company and the target need not be provided; and
    ii. The information in paragraph (c)(2) of this Item for the target 
company need not be provided.
    If, however, the transaction is a going-private transaction (as 
defined by Sec. 240.13e-3), then the information required by paragraph 
(c)(2) of this Item must be provided and to the extent that the going-
private rules require the information specified in paragraph (b)(8)--
(b)(11) of this Item, that information must be provided as well.
    3. In transactions in which the consideration offered to security 
holders consists wholly of securities exempt from registration under the 
Securities Act of 1933 or a combination of exempt securities and cash, 
information about the acquiring company required by paragraph (c)(1) of 
this Item need not be provided if only the security holders of the 
acquiring company are voting, unless the information is material to an 
informed voting decision. If only the security holders of the target 
company are voting, information about the target company in paragraph 
(c)(2) of this Item need not be provided. However, the information 
required by paragraph (c)(2) of this Item must be provided if the 
transaction is a going-private (as defined by Sec. 240.13e-3) or roll-
up (as described by Item 901 of Regulation S-K (Sec. 229.901 of this 
chapter)) transaction.
    4. The information required by paragraphs (b)(8)--(11) and (c) need 
not be provided if the plan being voted on involves only the acquiring 
company and one or more of its totally held subsidiaries and does not 
involve a liquidation or a spin off.
    5. To facilitate compliance with Rule 2-02(a) of Regulation S-X 
(Sec. 210.2-02(a) of this chapter) (technical requirements relating to 
accountants' reports), one copy of the definitive proxy statement filed 
with the Commission must include a signed copy of the accountant's 
report. If the financial statements are incorporated by reference, a 
signed copy of the accountant's report must be filed with the definitive 
proxy statement. Signatures may be typed if the document is filed 
electronically on EDGAR. See Rule 302 of Regulation S-T (Sec. 232.302 
of this chapter).
    6. Notwithstanding the provisions of Regulation S-X, no schedules 
other than those prepared in accordance with Sec. 210.12-15, Sec. 
210.12-28 and Sec. 210.12-29 of this chapter (or, for management 
investment companies, Sec. Sec. 210.12-12 through 210.12-14 of this 
chapter) of that regulation need be furnished in the proxy statement.
    7. If the preliminary proxy material incorporates by reference 
financial statements required by this Item, a draft of the financial 
statements must be furnished to the Commission staff upon request if the 
document from which they are incorporated has not been filed with or 
furnished to the Commission.
    (a) Applicability. If action is to be taken with respect to any of 
the following transactions, provide the information required by this 
Item:
    (1) A merger or consolidation;
    (2) An acquisition of securities of another person;
    (3) An acquisition of any other going business or the assets of a 
going business;
    (4) A sale or other transfer of all or any substantial part of 
assets; or
    (5) A liquidation or dissolution.
    (b) Transaction information. Provide the following information for 
each of the parties to the transaction unless otherwise specified:
    (1) Summary term sheet. The information required by Item 1001 of 
Regulation M-A (Sec. 229.1001 of this chapter).
    (2) Contact information. The name, complete mailing address and 
telephone number of the principal executive offices.
    (3) Business conducted. A brief description of the general nature of 
the business conducted.
    (4) Terms of the transaction. The information required by Item 
1004(a)(2) of Regulation M-A (Sec. 229.1004 of this chapter).
    (5) Regulatory approvals. A statement as to whether any federal or 
state regulatory requirements must be complied with or approval must be 
obtained in connection with the transaction and, if so, the status of 
the compliance or approval.
    (6) Reports, opinions, appraisals. If a report, opinion or appraisal 
materially relating to the transaction has been received from an outside 
party, and is referred to in the proxy statement, furnish the 
information required by Item 1015(b) of Regulation M-A (Sec. 229.1015 
of this chapter).
    (7) Past contacts, transactions or negotiations. The information 
required by Items 1005(b) and 1011(a)(1) of Regulation M-A (Sec. 
229.1005 of this chapter and Sec. 229.1011 of this chapter), for the 
parties to the transaction and their affiliates during the periods for 
which financial statements are presented or incorporated by reference 
under this Item.
    (8) Selected financial data. The selected financial data required by 
Item 301 of Regulation S-K (Sec. 229.301 of this chapter).
    (9) Pro forma selected financial data. If material, the information 
required by Item 301 of Regulation S-K (Sec. 229.301 of this chapter) 
for the acquiring company, showing the pro forma effect of the 
transaction.
    (10) Pro forma information. In a table designed to facilitate 
comparison, historical and pro forma per share data of the acquiring 
company and historical and equivalent pro forma per share data of the 
target company for the following Items:
    (i) Book value per share as of the date financial data is presented 
pursuant to Item

[[Page 219]]

301 of Regulation S-K (Sec. 229.301 of this chapter);
    (ii) Cash dividends declared per share for the periods for which 
financial data is presented pursuant to Item 301 of Regulation S-K 
(Sec. 229.301 of this chapter); and
    (iii) Income (loss) per share from continuing operations for the 
periods for which financial data is presented pursuant to Item 301 of 
Regulation S-K (Sec. 229.301 of this chapter).
    Instructions to paragraphs (b)(8), (b)(9) and (b)(10):
    1. For a business combination accounted for as a purchase, present 
the financial information required by paragraphs (b)(9) and (b)(10) only 
for the most recent fiscal year and interim period. For a business 
combination accounted for as a pooling, present the financial 
information required by paragraphs (b)(9) and (b)(10) (except for 
information with regard to book value) for the most recent three fiscal 
years and interim period. For purposes of these paragraphs, book value 
information need only be provided for the most recent balance sheet 
date.
    2. Calculate the equivalent pro forma per share amounts for one 
share of the company being acquired by multiplying the exchange ratio 
times each of:
    (i) The pro forma income (loss) per share before non-recurring 
charges or credits directly attributable to the transaction;
    (ii) The pro forma book value per share; and
    (iii) The pro forma dividends per share of the acquiring company.
    3. Unless registered on a national securities exchange or otherwise 
required to furnish such information, registered investment companies 
need not furnish the information required by paragraphs (b)(8) and 
(b)(9) of this Item.
    (11) Financial information. If material, financial information 
required by Article 11 of Regulation S-X (Sec. Sec. 210.10-01 through 
229.11-03 of this chapter) with respect to this transaction.
    Instructions to paragraph (b)(11):
    1. Present any Article 11 information required with respect to 
transactions other than those being voted upon (where not incorporated 
by reference) together with the pro forma information relating to the 
transaction being voted upon. In presenting this information, you must 
clearly distinguish between the transaction being voted upon and any 
other transaction.
    2. If current pro forma financial information with respect to all 
other transactions is incorporated by reference, you need only present 
the pro forma effect of this transaction.
    (c) Information about the parties to the transaction.
    (1) Acquiring company. Furnish the information required by Part B 
(Registrant Information) of Form S-4 (Sec. 239.25 of this chapter) or 
Form F-4 (Sec. 239.34 of this chapter), as applicable, for the 
acquiring company. However, financial statements need only be presented 
for the latest two fiscal years and interim periods.
    (2) Acquired company. Furnish the information required by Part C 
(Information with Respect to the Company Being Acquired) of Form S-4 
(Sec. 239.25 of this chapter) or Form F-4 (Sec. 239.34 of this 
chapter), as applicable.
    (d) Information about parties to the transaction: registered 
investment companies and business development companies. If the 
acquiring company or the acquired company is an investment company 
registered under the Investment Company Act of 1940 or a business 
development company as defined by Section 2(a)(48) of the Investment 
Company Act of 1940, provide the following information for that company 
instead of the information specified by paragraph (c) of this Item:
    (1) Information required by Item 101 of Regulation S-K (Sec. 
229.101 of this chapter), description of business;
    (2) Information required by Item 102 of Regulation S-K (Sec. 
229.102 of this chapter), description of property;
    (3) Information required by Item 103 of Regulation S-K (Sec. 
229.103 of this chapter), legal proceedings;
    (4) Information required by Item 201(a), (b) and (c) of Regulation 
S-K (Sec. 229.201(a), (b) and (c) of this chapter), market price of and 
dividends on the registrant's common equity and related stockholder 
matters;
    (5) Financial statements meeting the requirements of Regulation S-X, 
including financial information required by Rule 3-05 and Article 11 of 
Regulation S-X (Sec. 210.3-05 and Sec. 210.11-01 through Sec. 210.11-
03 of this chapter) with respect to transactions other than that as to 
which action is to be taken as described in this proxy statement;
    (6) Information required by Item 301 of Regulation S-K (Sec. 
229.301 of this chapter), selected financial data;
    (7) Information required by Item 302 of Regulation S-K (Sec. 
229.302 of this chapter), supplementary financial information;
    (8) Information required by Item 303 of Regulation S-K (Sec. 
229.303 of this chapter), management's discussion and analysis of 
financial condition and results of operations; and
    (9) Information required by Item 304 of Regulation S-K (Sec. 
229.304 of this chapter), changes in and disagreements with accountants 
on accounting and financial disclosure.
    Instruction to paragraph (d) of Item 14: Unless registered on a 
national securities exchange or otherwise required to furnish such 
information, registered investment companies need not furnish the 
information required by paragraphs (d)(6), (d)(7) and (d)(8) of this 
Item.
    (e) Incorporation by reference.

[[Page 220]]

    (1) The information required by paragraph (c) of this section may be 
incorporated by reference into the proxy statement to the same extent as 
would be permitted by Form S-4 (Sec. 239.25 of this chapter) or Form F-
4 (Sec. 239.34 of this chapter), as applicable.
    (2) Alternatively, the registrant may incorporate by reference into 
the proxy statement the information required by paragraph (c) of this 
Item if it is contained in an annual report sent to security holders in 
accordance with Sec. 240.14a-3 of this chapter with respect to the same 
meeting or solicitation of consents or authorizations that the proxy 
statement relates to and the information substantially meets the 
disclosure requirements of Item 14 or Item 17 of Form S-4 (Sec. 239.25 
of this chapter) or Form F-4 (Sec. 239.34 of this chapter), as 
applicable.
    Item 15. Acquisition or disposition of property. If action is to be 
taken with respect to the acquisition or disposition of any property, 
furnish the following information:
    (a) Describe briefly the general character and location of the 
property.
    (b) State the nature and amount of consideration to be paid or 
received by the registrant or any subsidiary. To the extent practicable, 
outline briefly the facts bearing upon the question of the fairness of 
the consideration.
    (c) State the name and address of the transferer or transferee, as 
the case may be and the nature of any material relationship of such 
person to the registrant or any affiliate of the registrant.
    (d) Outline briefly any other material features of the contract or 
transaction.
    Item 16. Restatement of accounts. If action is to be taken with 
respect to the restatement of any asset, capital, or surplus account of 
the registrant furnish the following information:
    (a) State the nature of the restatement and the date as of which it 
is to be effective.
    (b) Outline briefly the reasons for the restatement and for the 
selection of the particular effective date.
    (c) State the name and amount of each account (including any reserve 
accounts) affected by the restatement and the effect of the restatement 
thereon. Tabular presentation of the amounts shall be made when 
appropriate, particularly in the case of recapitalizations.
    (d) To the extent practicable, state whether and the extent, if any, 
to which, the restatement will, as of the date thereof, alter the amount 
available for distribution to the holders of equity securities.
    Item 17. Action with respect to reports. If action is to be taken 
with respect to any report of the registrant or of its directors, 
officers or committees or any minutes of a meeting of its security 
holders, furnish the following information:
    (a) State whether or not such action is to constitute approval or 
disapproval of any of the matters referred to in such reports or 
minutes.
    (b) Identify each of such matters which it is intended will be 
approved or disapproved, and furnish the information required by the 
appropriate item or items of this schedule with respect to each such 
matter.
    Item 18. Matters not required to be submitted. If action is to be 
taken with respect to any matter which is not required to be submitted 
to a vote of security holders, state the nature of such matter, the 
reasons for submitting it to a vote of security holders and what action 
is intended to be taken by the registrant in the event of a negative 
vote on the matter by the security holders.
    Item 19. Amendment of character, bylaws or other documents. If 
action is to be taken with respect to any amendment of the registrant's 
charter, bylaws or other documents as to which information is not 
required above, state briefly the reasons for and the general effect of 
such amendment.
    Instructions. 1. Where the matter to be acted upon is the 
classification of directors, state whether vacancies which occur during 
the year may be filled by the board of directors to serve only until the 
next annual meeting or may be so filled for the remainder of the full 
term.
    2. Attention is directed to the discussion of disclosure regarding 
anti-takeover and similar proposals in Release No. 34-15230 (October 13, 
1978).
    Item 20. Other proposed action. If action is to be taken on any 
matter not specifically referred to in this Schedule 14A, describe 
briefly the substance of each such matter in substantially the same 
degree of detail as is required by Items 5 to 19, inclusive, of this 
Schedule, and, with respect to investment companies registered under the 
Investment Company Act of 1940, Item 22 of this Schedule.
    Item 21. Voting procedures. As to each matter which is to be 
submitted to a vote of security holders, furnish the following 
information:
    (a) State the vote required for approval or election, other than for 
the approval of auditors.
    (b) Disclose the method by which votes will be counted, including 
the treatment and effect of abstentions and broker non-votes under 
applicable state law as well as registrant charter and by-law 
provisions.
    Item 22. Information required in investment company proxy statement. 
(a) General.
    (1) Definitions. Unless the context otherwise requires, terms used 
in this Item that are defined in Sec. 240.14a-1 (with respect to proxy 
soliciting material), in Sec. 240.14c-1 (with respect to information 
statements), and in the Investment Company Act of 1940 shall

[[Page 221]]

have the same meanings provided therein and the following terms shall 
also apply:
    (i) Administrator. The term ``Administrator'' shall mean any person 
who provides significant administrative or business affairs management 
services to a Fund.
    (ii) Affiliated broker. The term ``Affiliated Broker'' shall mean 
any broker:
    (A) That is an affiliated person of the Fund;
    (B) That is an affiliated person of such person; or
    (C) An affiliated person of which is an affiliated person of the 
Fund, its investment adviser, principal underwriter, or Administrator.
    (iii) Distribution plan. The term ``Distribution Plan'' shall mean a 
plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 
1940 (Sec. 270.12b-1 of this chapter).
    (iv) Family of Investment Companies. The term ``Family of Investment 
Companies'' shall mean any two or more registered investment companies 
that:
    (A) Share the same investment adviser or principal underwriter; and
    (B) Hold themselves out to investors as related companies for 
purposes of investment and investor services.
    (v) Fund. The term ``Fund'' shall mean a Registrant or, where the 
Registrant is a series company, a separate portfolio of the Registrant.
    (vi) Fund complex. The term ``Fund Complex'' shall mean two or more 
Funds that:
    (A) Hold themselves out to investors as related companies for 
purposes of investment and investor services; or
    (B) Have a common investment adviser or have an investment adviser 
that is an affiliated person of the investment adviser of any of the 
other Funds.
    (vii) Immediate Family Member. The term ``Immediate Family Member'' 
shall mean a person's spouse; child residing in the person's household 
(including step and adoptive children); and any dependent of the person, 
as defined in section 152 of the Internal Revenue Code (26 U.S.C. 152).
    (viii) Officer. The term ``Officer'' shall mean the president, vice-
president, secretary, treasurer, controller, or any other officer who 
performs policy-making functions.
    (ix) Parent. The term ``Parent'' shall mean the affiliated person of 
a specified person who controls the specified person directly or 
indirectly through one or more intermediaries.
    (x) Registrant. The term ``Registrant'' shall mean an investment 
company registered under the Investment Company Act of 1940 (15 U.S.C. 
80a) or a business development company as defined by section 2(a)(48) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)).
    (xi) Sponsoring Insurance Company. The term ``Sponsoring Insurance 
Company'' of a Fund that is a separate account shall mean the insurance 
company that establishes and maintains the separate account and that 
owns the assets of the separate account.
    (xii) Subsidiary. The term ``Subsidiary'' shall mean an affiliated 
person of a specified person who is controlled by the specified person 
directly, or indirectly through one or more intermediaries.
    (2) [Reserved]
    (3) General disclosure. Furnish the following information in the 
proxy statement of a Fund or Funds:
    (i) State the name and address of the Fund's investment adviser, 
principal underwriter, and Administrator.
    (ii) When a Fund proxy statement solicits a vote on proposals 
affecting more than one Fund or class of securities of a Fund (unless 
the proposal or proposals are the same and affect all Fund or class 
shareholders), present a summary of all of the proposals in tabular form 
on one of the first three pages of the proxy statement and indicate 
which Fund or class shareholders are solicited with respect to each 
proposal.
    (iii) Unless the proxy statement is accompanied by a copy of the 
Fund's most recent annual report, state prominently in the proxy 
statement that the Fund will furnish, without charge, a copy of the 
annual report and the most recent semi-annual report succeeding the 
annual report, if any, to a shareholder upon request, providing the 
name, address, and toll-free telephone number of the person to whom such 
request shall be directed (or, if no toll-free telephone number is 
provided, a self-addressed postage paid card for requesting the annual 
report). The Fund should provide a copy of the annual report and the 
most recent semi-annual report succeeding the annual report, if any, to 
the requesting shareholder by first class mail, or other means designed 
to assure prompt delivery, within three business days of the request.
    (iv) If the action to be taken would, directly or indirectly, 
establish a new fee or expense or increase any existing fee or expense 
to be paid by the Fund or its shareholders, provide a table showing the 
current and pro forma fees (with the required examples) using the format 
prescribed in the appropriate registration statement form under the 
Investment Company Act of 1940 (for open-end management investment 
companies, Item 3 of Form N-1A (Sec. 239.15A); for closed-end 
management investment companies, Item 3 of Form N-2 (Sec. 239.14); and 
for separate accounts that offer variable annuity contracts, Item 3 of 
Form N-3 (Sec. 239.17a)).
    Instructions. 1. Where approval is sought only for a change in asset 
breakpoints for a pre-existing fee that would not have increased the fee 
for the previous year (or have the effect of increasing fees or 
expenses, but for any other reason would not be reflected

[[Page 222]]

in a pro forma fee table), describe the likely effect of the change in 
lieu of providing pro forma fee information.
    2. An action would indirectly establish or increase a fee or expense 
where, for example, the approval of a new investment advisory contract 
would result in higher custodial or transfer agency fees.
    3. The tables should be prepared in a manner designed to facilitate 
understanding of the impact of any change in fees or expenses.
    4. A Fund that offers its shares exclusively to one or more separate 
accounts and thus is not required to include a fee table in its 
prospectus (see Item 3 of Form N-1A (Sec. 239.15A)) should nonetheless 
prepare a table showing current and pro forma expenses and disclose that 
the table does not reflect separate account expenses, including sales 
load.
    (v) If action is to be taken with respect to the election of 
directors or the approval of an advisory contract, describe any 
purchases or sales of securities of the investment adviser or its 
Parents, or Subsidiaries of either, since the beginning of the most 
recently completed fiscal year by any director or any nominee for 
election as a director of the Fund.
    Instructions. 1. Identify the parties, state the consideration, the 
terms of payment and describe any arrangement or understanding with 
respect to the composition of the board of directors of the Fund or of 
the investment adviser, or with respect to the selection of appointment 
of any person to any office with either such company.
    2. Transactions involving securities in an amount not exceeding one 
percent of the outstanding securities of any class of the investment 
adviser or any of its Parents or Subsidiaries may be omitted.
    (b) Election of Directors. If action is to be taken with respect to 
the election of directors of a Fund, furnish the following information 
in the proxy statement in addition to the information (and in the 
format) required by paragraphs (d)(2) (other than (d)(2)(ii)(D)), 
(d)(3), (f), (g), and (h) of Item 7 of Schedule 14A.
    Instructions to introductory text of paragraph (b). 1. Furnish 
information with respect to a prospective investment adviser to the 
extent applicable.
    2. If the solicitation is made by or on behalf of a person other 
than the Fund or an investment adviser of the Fund, provide information 
only as to nominees of the person making the solicitation.
    3. When providing information about directors and nominees for 
election as directors in response to this Item 22(b), furnish 
information for directors or nominees who are or would be ``interested 
persons'' of the Fund within the meaning of section 2(a)(19) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)) separately from 
the information for directors or nominees who are not or would not be 
interested persons of the Fund. For example, when furnishing information 
in a table, you should provide separate tables (or separate sections of 
a single table) for directors and nominees who are or would be 
interested persons and for directors or nominees who are not or would 
not be interested persons. When furnishing information in narrative 
form, indicate by heading or otherwise the directors or nominees who are 
or would be interested persons and the directors or nominees who are not 
or would not be interested persons.
    4. No information need be given about any director whose term of 
office as a director will not continue after the meeting to which the 
proxy statement relates.
    (1) Provide the information required by the following table for each 
director, nominee for election as director, Officer of the Fund, person 
chosen to become an Officer of the Fund, and, if the Fund has an 
advisory board, member of the board. Explain in a footnote to the table 
any family relationship between the persons listed.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                (1)                            (2)                     (3)                    (4)                    (5)                    (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name, Address, and Age.............  Position(s) Held with   Term of Office and      Principal              Number of Portfolios   Other Directorships
                                      Fund.                   Length of Time Served.  Occupation(s) During   in Fund Complex        Held by Director or
                                                                                      Past 5 Years.          Overseen by Director   Nominee for Director
                                                                                                             or Nominee for
                                                                                                             Director.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Instructions to paragraph (b)(1). 1. For purposes of this paragraph, 
the term ``family relationship'' means any relationship by blood, 
marriage, or adoption, not more remote than first cousin.
    2. No nominee or person chosen to become a director or Officer who 
has not consented to act as such may be named in response to this Item. 
In this regard, see Rule 14a-4(d) under the Exchange Act (Sec. 240.14a-
4(d)).
    3. If fewer nominees are named than the number fixed by or pursuant 
to the governing instruments, state the reasons for this procedure and 
that the proxies cannot be voted for a greater number of persons than 
the number of nominees named.
    4. For each director or nominee for election as director who is or 
would be an ``interested person'' of the Fund within the meaning of 
section 2(a)(19) of the Investment

[[Page 223]]

Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), describe, in a footnote or 
otherwise, the relationship, events, or transactions by reason of which 
the director or nominee is or would be an interested person.
    5. State the principal business of any company listed under column 
(4) unless the principal business is implicit in its name.
    6. Include in column (5) the total number of separate portfolios 
that a nominee for election as director would oversee if he were 
elected.
    7. Indicate in column (6) directorships not included in column (5) 
that are held by a director or nominee for election as director in any 
company with a class of securities registered pursuant to section 12 of 
the Exchange Act (15 U.S.C. 78l), or subject to the requirements of 
section 15(d) of the Exchange Act (15 U.S.C. 78o(d)), or any company 
registered as an investment company under the Investment Company Act of 
1940, (15 U.S.C. 80a), as amended, and name the companies in which the 
directorships are held. Where the other directorships include 
directorships overseeing two or more portfolios in the same Fund 
Complex, identify the Fund Complex and provide the number of portfolios 
overseen as a director in the Fund Complex rather than listing each 
portfolio separately.
    (2) For each individual listed in column (1) of the table required 
by paragraph (b)(1) of this Item, except for any director or nominee for 
election as director who is not or would not be an ``interested person'' 
of the Fund within the meaning of section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), describe any positions, 
including as an officer, employee, director, or general partner, held 
with affiliated persons or principal underwriters of the Fund.
    Instruction to paragraph (b)(2). When an individual holds the same 
position(s) with two or more registered investment companies that are 
part of the same Fund Complex, identify the Fund Complex and provide the 
number of registered investment companies for which the position(s) are 
held rather than listing each registered investment company separately.
    (3) Describe briefly any arrangement or understanding between any 
director, nominee for election as director, Officer, or person chosen to 
become an Officer, and any other person(s) (naming the person(s)) 
pursuant to which he was or is to be selected as a director, nominee, or 
Officer.
    Instruction to paragraph (b)(3). Do not include arrangements or 
understandings with directors or Officers acting solely in their 
capacities as such.
    (4) Unless disclosed in the table required by paragraph (b)(1) of 
this Item, describe any positions, including as an officer, employee, 
director, or general partner, held by any director or nominee for 
election as director, who is not or would not be an ``interested 
person'' of the Fund within the meaning of section 2(a)(19) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate 
Family Member of the director or nominee, during the past five years, 
with:
    (i) The Fund;
    (ii) An investment company, or a person that would be an investment 
company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and 
(c)(7)), having the same investment adviser, principal underwriter, or 
Sponsoring Insurance Company as the Fund or having an investment 
adviser, principal underwriter, or Sponsoring Insurance Company that 
directly or indirectly controls, is controlled by, or is under common 
control with an investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund;
    (iii) An investment adviser, principal underwriter, Sponsoring 
Insurance Company, or affiliated person of the Fund; or
    (iv) Any person directly or indirectly controlling, controlled by, 
or under common control with an investment adviser, principal 
underwriter, or Sponsoring Insurance Company of the Fund.
    Instruction to paragraph (b)(4). When an individual holds the same 
position(s) with two or more portfolios that are part of the same Fund 
Complex, identify the Fund Complex and provide the number of portfolios 
for which the position(s) are held rather than listing each portfolio 
separately.
    (5) For each director or nominee for election as director, state the 
dollar range of equity securities beneficially owned by the director or 
nominee as required by the following table:
    (i) In the Fund; and
    (ii) On an aggregate basis, in any registered investment companies 
overseen or to be overseen by the director or nominee within the same 
Family of Investment Companies as the Fund.

------------------------------------------------------------------------
               (1)                        (2)                 (3)
------------------------------------------------------------------------
Name of Director or Nominee.....  Dollar Range of     Aggregate Dollar
                                   Equity Securities   Range of Equity
                                   in the Fund.        Securities in All
                                                       Funds Overseen or
                                                       to be Overseen by
                                                       Director or
                                                       Nominee in Family
                                                       of Investment
                                                       Companies
------------------------------------------------------------------------

    Instructions to paragraph (b)(5). 1. Information should be provided 
as of the most recent practicable date. Specify the valuation date by 
footnote or otherwise.
    2. Determine ``beneficial ownership'' in accordance with rule 16a-
1(a)(2) under the Exchange Act (Sec. 240.16a-1(a)(2)).
    3. If action is to be taken with respect to more than one Fund, 
disclose in column (2)

[[Page 224]]

the dollar range of equity securities beneficially owned by a director 
or nominee in each such Fund overseen or to be overseen by the director 
or nominee.
    4. In disclosing the dollar range of equity securities beneficially 
owned by a director or nominee in columns (2) and (3), use the following 
ranges: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over 
$100,000.
    (6) For each director or nominee for election as director who is not 
or would not be an ``interested person'' of the Fund within the meaning 
of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(19), and his Immediate Family Members, furnish the information 
required by the following table as to each class of securities owned 
beneficially or of record in:
    (i) An investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund; or
    (ii) A person (other than a registered investment company) directly 
or indirectly controlling, controlled by, or under common control with 
an investment adviser, principal underwriter, or Sponsoring Insurance 
Company of the Fund:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                (1)                            (2)                     (3)                    (4)                    (5)                    (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Director or Nominee........  Name of Owners and      Company...............  Title of Class.......  Value of Securities..  Percent of Class
                                      Relationships to
                                      Director or Nominee.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Instructions to paragraph (b)(6). 1. Information should be provided 
as of the most recent practicable date. Specify the valuation date by 
footnote or otherwise.
    2. An individual is a ``beneficial owner'' of a security if he is a 
``beneficial owner'' under either rule 13d-3 or rule 16a-1(a)(2) under 
the Exchange Act (Sec. Sec. 240.13d-3 or 240.16a-1(a)(2)).
    3. Identify the company in which the director, nominee, or Immediate 
Family Member of the director or nominee owns securities in column (3). 
When the company is a person directly or indirectly controlling, 
controlled by, or under common control with an investment adviser, 
principal underwriter, or Sponsoring Insurance Company, describe the 
company's relationship with the investment adviser, principal 
underwriter, or Sponsoring Insurance Company.
    4. Provide the information required by columns (5) and (6) on an 
aggregate basis for each director (or nominee) and his Immediate Family 
Members.
    (7) Unless disclosed in response to paragraph (b)(6) of this Item, 
describe any direct or indirect interest, the value of which exceeds 
$60,000, of each director or nominee for election as director who is not 
or would not be an ``interested person'' of the Fund within the meaning 
of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(19)), or Immediate Family Member of the director or nominee, 
during the past five years, in:
    (i) An investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund; or
    (ii) A person (other than a registered investment company) directly 
or indirectly controlling, controlled by, or under common control with 
an investment adviser, principal underwriter, or Sponsoring Insurance 
Company of the Fund.
    Instructions to paragraph (b)(7). 1. A director, nominee, or 
Immediate Family Member has an interest in a company if he is a party to 
a contract, arrangement, or understanding with respect to any securities 
of, or interest in, the company.
    2. The interest of the director (or nominee) and the interests of 
his Immediate Family Members should be aggregated in determining whether 
the value exceeds $60,000.
    (8) Describe briefly any material interest, direct or indirect, of 
any director or nominee for election as director who is not or would not 
be an ``interested person'' of the Fund within the meaning of section 
2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), 
or Immediate Family Member of the director or nominee, in any 
transaction, or series of similar transactions, since the beginning of 
the last two completed fiscal years of the Fund, or in any currently 
proposed transaction, or series of similar transactions, in which the 
amount involved exceeds $60,000 and to which any of the following 
persons was or is to be a party:
    (i) The Fund;
    (ii) An Officer of the Fund;
    (iii) An investment company, or a person that would be an investment 
company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and 
(c)(7)), having the same investment adviser, principal underwriter, or 
Sponsoring Insurance Company as the Fund or having an investment 
adviser, principal underwriter, or Sponsoring Insurance Company that 
directly or indirectly controls, is controlled by, or is under common 
control with an investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund;
    (iv) An Officer of an investment company, or a person that would be 
an investment company but for the exclusions provided by

[[Page 225]]

sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 (15 
U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser, 
principal underwriter, or Sponsoring Insurance Company as the Fund or 
having an investment adviser, principal underwriter, or Sponsoring 
Insurance Company that directly or indirectly controls, is controlled 
by, or is under common control with an investment adviser, principal 
underwriter, or Sponsoring Insurance Company of the Fund;
    (v) An investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund;
    (vi) An Officer of an investment adviser, principal underwriter, or 
Sponsoring Insurance Company of the Fund;
    (vii) A person directly or indirectly controlling, controlled by, or 
under common control with an investment adviser, principal underwriter, 
or Sponsoring Insurance Company of the Fund; or
    (viii) An Officer of a person directly or indirectly controlling, 
controlled by, or under common control with an investment adviser, 
principal underwriter, or Sponsoring Insurance Company of the Fund.
    Instructions to paragraph (b)(8). 1. Include the name of each 
director, nominee, or Immediate Family Member whose interest in any 
transaction or series of similar transactions is described and the 
nature of the circumstances by reason of which the interest is required 
to be described.
    2. State the nature of the interest, the approximate dollar amount 
involved in the transaction, and, where practicable, the approximate 
dollar amount of the interest.
    3. In computing the amount involved in the transaction or series of 
similar transactions, include all periodic payments in the case of any 
lease or other agreement providing for periodic payments.
    4. Compute the amount of the interest of any director, nominee, or 
Immediate Family Member of the director or nominee without regard to the 
amount of profit or loss involved in the transaction(s).
    5. As to any transaction involving the purchase or sale of assets, 
state the cost of the assets to the purchaser and, if acquired by the 
seller within two years prior to the transaction, the cost to the 
seller. Describe the method used in determining the purchase or sale 
price and the name of the person making the determination.
    6. If the proxy statement relates to multiple portfolios of a series 
Fund with different fiscal years, then, in determining the date that is 
the beginning of the last two completed fiscal years of the Fund, use 
the earliest date of any series covered by the proxy statement.
    7. Disclose indirect, as well as direct, material interests in 
transactions. A person who has a position or relationship with, or 
interest in, a company that engages in a transaction with one of the 
persons listed in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item 
may have an indirect interest in the transaction by reason of the 
position, relationship, or interest. The interest in the transaction, 
however, will not be deemed ``material'' within the meaning of paragraph 
(b)(8) of this Item where the interest of the director, nominee, or 
Immediate Family Member arises solely from the holding of an equity 
interest (including a limited partnership interest, but excluding a 
general partnership interest) or a creditor interest in a company that 
is a party to the transaction with one of the persons specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item, and the 
transaction is not material to the company.
    8. The materiality of any interest is to be determined on the basis 
of the significance of the information to investors in light of all the 
circumstances of the particular case. The importance of the interest to 
the person having the interest, the relationship of the parties to the 
transaction with each other, and the amount involved in the transaction 
are among the factors to be considered in determining the significance 
of the information to investors.
    9. No information need be given as to any transaction where the 
interest of the director, nominee, or Immediate Family Member arises 
solely from the ownership of securities of a person specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item and the director, 
nominee, or Immediate Family Member receives no extra or special benefit 
not shared on a pro rata basis by all holders of the class of 
securities.
    10. Transactions include loans, lines of credit, and other 
indebtedness. For indebtedness, indicate the largest aggregate amount of 
indebtedness outstanding at any time during the period, the nature of 
the indebtedness and the transaction in which it was incurred, the 
amount outstanding as of the latest practicable date, and the rate of 
interest paid or charged.
    11. No information need be given as to any routine, retail 
transaction. For example, the Fund need not disclose that a director has 
a credit card, bank or brokerage account, residential mortgage, or 
insurance policy with a person specified in paragraphs (b)(8)(i) through 
(b)(8)(viii) of this Item unless the director is accorded special 
treatment.
    (9) Describe briefly any direct or indirect relationship, in which 
the amount involved exceeds $60,000, of any director or nominee for 
election as director who is not or would not be an ``interested person'' 
of the Fund within the meaning of section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member 
of the director or nominee, that exists, or has existed at any time 
since the beginning of the last two completed fiscal years of the

[[Page 226]]

Fund, or is currently proposed, with any of the persons specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item. Relationships 
include:
    (i) Payments for property or services to or from any person 
specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item;
    (ii) Provision of legal services to any person specified in 
paragraphs (b)(8)(i) through (b)(8)(viii) of this Item;
    (iii) Provision of investment banking services to any person 
specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item, 
other than as a participating underwriter in a syndicate; and
    (iv) Any consulting or other relationship that is substantially 
similar in nature and scope to the relationships listed in paragraphs 
(b)(9)(i) through (b)(9)(iii) of this Item.
    Instructions to paragraph (b)(9). 1. Include the name of each 
director, nominee, or Immediate Family Member whose relationship is 
described and the nature of the circumstances by reason of which the 
relationship is required to be described.
    2. State the nature of the relationship and the amount of business 
conducted between the director, nominee, or Immediate Family Member and 
the person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of 
this Item as a result of the relationship since the beginning of the 
last two completed fiscal years of the Fund or proposed to be done 
during the Fund's current fiscal year.
    3. In computing the amount involved in a relationship, include all 
periodic payments in the case of any agreement providing for periodic 
payments.
    4. If the proxy statement relates to multiple portfolios of a series 
Fund with different fiscal years, then, in determining the date that is 
the beginning of the last two completed fiscal years of the Fund, use 
the earliest date of any series covered by the proxy statement.
    5. Disclose indirect, as well as direct, relationships. A person who 
has a position or relationship with, or interest in, a company that has 
a relationship with one of the persons listed in paragraphs (b)(8)(i) 
through (b)(8)(viii) of this Item may have an indirect relationship by 
reason of the position, relationship, or interest.
    6. In determining whether the amount involved in a relationship 
exceeds $60,000, amounts involved in a relationship of the director (or 
nominee) should be aggregated with those of his Immediate Family 
Members.
    7. In the case of an indirect interest, identify the company with 
which a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of 
this Item has a relationship; the name of the director, nominee, or 
Immediate Family Member affiliated with the company and the nature of 
the affiliation; and the amount of business conducted between the 
company and the person specified in paragraphs (b)(8)(i) through 
(b)(8)(viii) of this Item since the beginning of the last two completed 
fiscal years of the Fund or proposed to be done during the Fund's 
current fiscal year.
    8. In calculating payments for property and services for purposes of 
paragraph (b)(9)(i) of this Item, the following may be excluded:
    A. Payments where the transaction involves the rendering of services 
as a common contract carrier, or public utility, at rates or charges 
fixed in conformity with law or governmental authority; or
    B. Payments that arise solely from the ownership of securities of a 
person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this 
Item and no extra or special benefit not shared on a pro rata basis by 
all holders of the class of securities is received.
    9. No information need be given as to any routine, retail 
relationship. For example, the Fund need not disclose that a director 
has a credit card, bank or brokerage account, residential mortgage, or 
insurance policy with a person specified in paragraphs (b)(8)(i) through 
(b)(8)(viii) of this Item unless the director is accorded special 
treatment.
    (10) If an Officer of an investment adviser, principal underwriter, 
or Sponsoring Insurance Company of the Fund, or an Officer of a person 
directly or indirectly controlling, controlled by, or under common 
control with an investment adviser, principal underwriter, or Sponsoring 
Insurance Company of the Fund, serves, or has served since the beginning 
of the last two completed fiscal years of the Fund, on the board of 
directors of a company where a director of the Fund or nominee for 
election as director who is not or would not be an ``interested person'' 
of the Fund within the meaning of section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member 
of the director or nominee, is, or was since the beginning of the last 
two completed fiscal years of the Fund, an Officer, identify:
    (i) The company;
    (ii) The individual who serves or has served as a director of the 
company and the period of service as director;
    (iii)The investment adviser, principal underwriter, or Sponsoring 
Insurance Company or person controlling, controlled by, or under common 
control with the investment adviser, principal underwriter, or 
Sponsoring Insurance Company where the individual named in paragraph 
(b)(10)(ii) of this Item holds or held office and the office held; and
    (iv) The director of the Fund, nominee for election as director, or 
Immediate Family Member who is or was an Officer of the company; the 
office held; and the period of holding the office.

[[Page 227]]

    Instruction to paragraph (b)(10). If the proxy statement relates to 
multiple portfolios of a series Fund with different fiscal years, then, 
in determining the date that is the beginning of the last two completed 
fiscal years of the Fund, use the earliest date of any series covered by 
the proxy statement.
    (11) Provide in tabular form, to the extent practicable, the 
information required by Items 401(f) and (g), 404(a) and (c), and 405 of 
Regulation S-K (Sec. Sec. 229.401(f) and (g), 229.404(a) and (c), and 
229.405 of this chapter).
    Instruction to paragraph (b)(11). Information provided under 
paragraph (b)(8) of this Item 22 is deemed to satisfy the requirements 
of Items 404(a) and (c) of Regulation S-K for information about 
directors, nominees for election as directors, and Immediate Family 
Members of directors and nominees, and need not be provided under this 
paragraph (b)(11).
    (12) Describe briefly any material pending legal proceedings, other 
than ordinary routine litigation incidental to the Fund's business, to 
which any director or nominee for director or affiliated person of such 
director or nominee is a party adverse to the Fund or any of its 
affiliated persons or has a material interest adverse to the Fund or any 
of its affiliated persons. Include the name of the court where the case 
is pending, the date instituted, the principal parties, a description of 
the factual basis alleged to underlie the proceeding, and the relief 
sought.
    (13) For all directors, and for each of the three highest-paid 
Officers that have aggregate compensation from the Fund for the most 
recently completed fiscal year in excess of $60,000 (``Compensated 
Persons''):
    (i) Furnish the information required by the following table for the 
last fiscal year:

                                               Compensation Table
----------------------------------------------------------------------------------------------------------------
               (1)                        (2)                 (3)                 (4)                 (5)
----------------------------------------------------------------------------------------------------------------
Name of Person, Position........  Aggregate           Pension or          Estimated Annual    Total Compensation
                                   Compensation From   Retirement          Benefits Upon       From Fund and
                                   Fund.               Benefits Accrued    Retirement.         Complex Paid to
                                                       as Part of Fund                         Directors
                                                       Expenses.
----------------------------------------------------------------------------------------------------------------

    Instructions to paragraph (b)(13)(i). 1. For column (1), indicate, 
if necessary, the capacity in which the remuneration is received. For 
Compensated Persons that are directors of the Fund, compensation is 
amounts received for service as a director.
    2. If the Fund has not completed its first full year since its 
organization, furnish the information for the current fiscal year, 
estimating future payments that would be made pursuant to an existing 
agreement or understanding. Disclose in a footnote to the Compensation 
Table the period for which the information is furnished.
    3. Include in column (2) amounts deferred at the election of the 
Compensated Person, whether pursuant to a plan established under Section 
401(k) of the Internal Revenue Code (26 U.S.C. 401(k)) or otherwise, for 
the fiscal year in which earned. Disclose in a footnote to the 
Compensation Table the total amount of deferred compensation (including 
interest) payable to or accrued for any Compensated Person.
    4. Include in columns (3) and (4) all pension or retirement benefits 
proposed to be paid under any existing plan in the event of retirement 
at normal retirement date, directly or indirectly, by the Fund or any of 
its Subsidiaries, or by other companies in the Fund Complex. Omit column 
(4) where retirement benefits are not determinable.
    5. For any defined benefit or actuarial plan under which benefits 
are determined primarily by final compensation (or average final 
compensation) and years of service, provide the information required in 
column (4) in a separate table showing estimated annual benefits payable 
upon retirement (including amounts attributable to any defined benefit 
supplementary or excess pension award plans) in specified compensation 
and years of service classifications. Also provide the estimated 
credited years of service for each Compensated Person.
    6. Include in column (5) only aggregate compensation paid to a 
director for service on the board and other boards of investment 
companies in a Fund Complex specifying the number of such other 
investment companies.
    (ii) Describe briefly the material provisions of any pension, 
retirement, or other plan or any arrangement other than fee arrangements 
disclosed in paragraph (b)(13)(i) of this Item pursuant to which 
Compensated Persons are or may be compensated for any services provided, 
including amounts paid, if any, to the Compensated Person under any such 
arrangements during the most recently completed fiscal year. 
Specifically include the criteria used to determine amounts payable 
under any plan, the length of service or vesting period required by the 
plan, the retirement age or other event that gives rise to payments 
under the plan, and whether the payment of benefits is secured or funded 
by the Fund.
    (iii) With respect to each Compensated Person, business development 
companies must include the information required by Items 402(b)(2)(iv) 
and 402(c) of Regulation S-

[[Page 228]]

K (Sec. Sec. 229.402(b)(2)(iv) and 229.402(c) of this chapter).
    (14) State whether or not the Fund has a separately designated audit 
committee established in accordance with section 3(a)(58)(A) of the Act 
(15 U.S.C. 78c(a)(58)(A)). If the entire board of directors is acting as 
the Fund's audit committee as specified in section 3(a)(58)(B) of the 
Act (15 U.S.C. 78c(a)(58)(B)), so state. If applicable, provide the 
disclosure required by Sec. 240.10A-3(d) regarding an exemption from 
the listing standards for audit committees. Identify the other standing 
committees of the Fund's board of directors, and provide the following 
information about each committee, including any separately designated 
audit committee and any nominating committee:
    (i) A concise statement of the functions of the committee;
    (ii) The members of the committee and, in the case of a nominating 
committee, whether or not the members of the committee are ``interested 
persons'' of the Fund as defined in section 2(a)(19) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)); and
    (iii) The number of committee meetings held during the last fiscal 
year.
    Instruction to paragraph (b)(14): For purposes of Item 22(b)(14), 
the term ``nominating committee'' refers not only to nominating 
committees and committees performing similar functions, but also to 
groups of directors fulfilling the role of a nominating committee, 
including the entire board of directors.
    (c) Approval of investment advisory contract. If action is to be 
taken with respect to an investment advisory contract, include the 
following information in the proxy statement.
    Instruction. Furnish information with respect to a prospective 
investment adviser to the extent applicable (including the name and 
address of the prospective investment adviser).
    (1) With respect to the existing investment advisory contract:
    (i) State the date of the contract and the date on which it was last 
submitted to a vote of security holders of the Fund, including the 
purpose of such submission;
    (ii) Briefly describe the terms of the contract, including the rate 
of compensation of the investment adviser;
    (iii) State the aggregate amount of the investment adviser's fee and 
the amount and purpose of any other material payments by the Fund to the 
investment adviser, or any affiliated person of the investment adviser, 
during the last fiscal year of the Fund;
    (iv) If any person is acting as an investment adviser of the Fund 
other than pursuant to a written contract that has been approved by the 
security holders of the company, identify the person and describe the 
nature of the services and arrangements;
    (v) Describe any action taken with respect to the investment 
advisory contract since the beginning of the Fund's last fiscal year by 
the board of directors of the Fund (unless described in response to 
paragraph (c)(1)(vi)) of this Item 22); and
    (vi) If an investment advisory contract was terminated or not 
renewed for any reason, state the date of such termination or non-
renewal, identify the parties involved, and describe the circumstances 
of such termination or non-renewal.
    (2) State the name, address and principal occupation of the 
principal executive officer and each director or general partner of the 
investment adviser.
    Instruction. If the investment adviser is a partnership with more 
than ten general partners, name:
    (i) The general partners with the five largest economic interests in 
the partnership, and, if different, those general partners comprising 
the management or executive committee of the partnership or exercising 
similar authority;
    (ii) The general partners with significant management 
responsibilities relating to the fund.
    (3) State the names and addresses of all Parents of the investment 
adviser and show the basis of control of the investment adviser and each 
Parent by its immediate Parent.
    Instructions. 1. If any person named is a corporation, include the 
percentage of its voting securities owned by its immediate Parent.
    2. If any person named is a partnership, name the general partners 
having the three largest partnership interests (computed by whatever 
method is appropriate in the particular case).
    (4) If the investment adviser is a corporation and if, to the 
knowledge of the persons making the solicitation or the persons on whose 
behalf the solicitation is made, any person not named in answer to 
paragraph (c)(3) of this Item 22 owns, of record or beneficially, ten 
percent or more of the outstanding voting securities of the investment 
adviser, indicate that fact and state the name and address of each such 
person.
    (5) Name each officer or director of the Fund who is an officer, 
employee, director, general partner or shareholder of the investment 
adviser. As to any officer or director who is not a director or general 
partner of the investment adviser and who owns securities or has any 
other material direct or indirect interest in the investment adviser or 
any other person controlling, controlled by or under common control with 
the investment adviser, describe the nature of such interest.

[[Page 229]]

    (6) Describe briefly and state the approximate amount of, where 
practicable, any material interest, direct or indirect, of any director 
of the Fund in any material transactions since the beginning of the most 
recently completed fiscal year, or in any material proposed 
transactions, to which the investment adviser of the Fund, any Parent or 
Subsidiary of the investment adviser (other than another Fund), or any 
Subsidiary of the Parent of such entities was or is to be a party.
    Instructions. 1. Include the name of each person whose interest in 
any transaction is described and the nature of the relationship by 
reason of which such interest is required to be described. Where it is 
not practicable to state the approximate amount of the interest, 
indicate the approximate amount involved in the transaction.
    2. As to any transaction involving the purchase or sale of assets by 
or to the investment adviser, state the cost of the assets to the 
purchaser and the cost thereof to the seller if acquired by the seller 
within two years prior to the transaction.
    3. If the interest of any person arises from the position of the 
person as a partner in a partnership, the proportionate interest of such 
person in transactions to which the partnership is a party need not be 
set forth, but state the amount involved in the transaction with the 
partnership.
    4. No information need be given in response to this paragraph (c)(6) 
of Item 22 with respect to any transaction that is not related to the 
business or operations of the Fund and to which neither the Fund nor any 
of its Parents or Subsidiaries is a party.
    (7) Disclose any financial condition of the investment adviser that 
is reasonably likely to impair the financial ability of the adviser to 
fulfill its commitment to the fund under the proposed investment 
advisory contract.
    (8) Describe the nature of the action to be taken on the investment 
advisory contract and the reasons therefor, the terms of the contract to 
be acted upon, and, if the action is an amendment to, or a replacement 
of, an investment advisory contract, the material differences between 
the current and proposed contract.
    (9) If a change in the investment advisory fee is sought, state:
    (i) The aggregate amount of the investment adviser's fee during the 
last year;
    (ii) The amount that the adviser would have received had the 
proposed fee been in effect; and
    (iii) The difference between the aggregate amounts stated in 
response to paragraphs (i) and (ii) of this item (c)(9) as a percentage 
of the amount stated in response to paragraph (i) of this item (c)(9).
    (10) If the investment adviser acts as such with respect to any 
other Fund having a similar investment objective, identify and state the 
size of such other Fund and the rate of the investment adviser's 
compensation. Also indicate for any Fund identified whether the 
investment adviser has waived, reduced, or otherwise agreed to reduce 
its compensation under any applicable contract.
    Instruction. Furnish the information in response to this paragraph 
(c)(10) of Item 22 in tabular form.
    (11) Discuss in reasonable detail the material factors and the 
conclusions with respect thereto which form the basis for the 
recommendation of the board of directors that the shareholders approve 
an investment advisory contract. If applicable, include a discussion of 
any benefits derived or to be derived by the investment adviser from the 
relationship with the Fund such as soft dollar arrangements by which 
brokers provide research to the Fund or its investment adviser in return 
for allocating fund brokerage.
    Instruction. Conclusory statements or a list of factors will not be 
considered sufficient disclosure. The discussion should relate the 
factors to the specific circumstances of the fund and the investment 
advisory contract for which approval is sought.
    (12) Describe any arrangement or understanding made in connection 
with the proposed investment advisory contract with respect to the 
composition of the board of directors of the Fund or the investment 
adviser or with respect to the selection or appointment of any person to 
any office with either such company.
    (13) For the most recently completed fiscal year, state:
    (i) The aggregate amount of commissions paid to any Affiliated 
Broker; and
    (ii) The percentage of the Fund's aggregate brokerage commissions 
paid to any such Affiliated Broker.
    Instruction. Identify each Affiliated Broker and the relationships 
that cause the broker to be an Affiliated Broker.
    (14) Disclose the amount of any fees paid by the Fund to the 
investment adviser, its affiliated persons or any affiliated person of 
such person during the most recent fiscal year for services provided to 
the Fund (other than under the investment advisory contract or for 
brokerage commissions). State whether these services will continue to be 
provided after the investment advisory contract is approved.
    (d) Approval of distribution plan. If action is to be taken with 
respect to a Distribution Plan, include the following information in the 
proxy statement.
    Instruction. Furnish information on a prospective basis to the 
extent applicable.
    (1) Describe the nature of the action to be taken on the 
Distribution Plan and the reason therefor, the terms of the Distribution 
Plan to be acted upon, and, if the action is

[[Page 230]]

an amendment to, or a replacement of, a Distribution Plan, the material 
differences between the current and proposed Distribution Plan.
    (2) If the Fund has a Distribution Plan in effect:
    (i) Provide the date that the Distribution Plan was adopted and the 
date of the last amendment, if any;
    (ii) Disclose the persons to whom payments may be made under the 
Distribution Plan, the rate of the distribution fee and the purposes for 
which such fee may be used;
    (iii) Disclose the amount of distribution fees paid by the Fund 
pursuant to the plan during its most recent fiscal year, both in the 
aggregate and as a percentage of the Fund's average net assets during 
the period;
    (iv) Disclose the name of, and the amount of any payments made under 
the Distribution Plan by the Fund during its most recent fiscal year to, 
any person who is an affiliated person of the Fund, its investment 
adviser, principal underwriter, or Administrator, an affiliated person 
of such person, or a person that during the most recent fiscal year 
received 10% or more of the aggregate amount paid under the Distribution 
Plan by the Fund;
    (v) Describe any action taken with respect to the Distribution Plan 
since the beginning of the Fund's most recent fiscal year by the board 
of directors of the Fund; and
    (vi) If a Distribution Plan was or is to be terminated or not 
renewed for any reason, state the date or prospective date of such 
termination or non-renewal, identify the parties involved, and describe 
the circumstances of such termination or non-renewal.
    (3) Describe briefly and state the approximate amount of, where 
practicable, any material interest, direct or indirect, of any director 
or nominee for election as a director of the Fund in any material 
transactions since the beginning of the most recently completed fiscal 
year, or in any material proposed transactions, to which any person 
identified in response to Item 22(d)(2)(iv) was or is to be a party.
    Instructions. 1. Include the name of each person whose interest in 
any transaction is described and the nature of the relationship by 
reason of which such interest is required to be described. Where it is 
not practicable to state the approximate amount of the interest, 
indicate the approximate amount involved in the transaction.
    2. As to any transaction involving the purchase or sale of assets, 
state the cost of the assets to the purchaser and the cost thereof to 
the seller if acquired by the seller within two years prior to the 
transaction.
    3. If the interest of any person arises from the position of the 
person as a partner in a partnership, the proportionate interest of such 
person in transactions to which the partnership is a party need not be 
set forth but state the amount involved in the transaction with the 
partnership.
    4. No information need be given in response to this paragraph (d)(3) 
of Item 22 with respect to any transaction that is not related to the 
business or operations of the Fund and to which neither the Fund nor any 
of its Parents or Subsidiaries is a party.
    (4) Discuss in reasonable detail the material factors and the 
conclusions with respect thereto which form the basis for the conclusion 
of the board of directors that there is a reasonable likelihood that the 
proposed Distribution Plan (or amendment thereto) will benefit the Fund 
and its shareholders.
    Instruction. Conclusory statements or a list of factors will not be 
considered sufficient disclosure.
    Item 23. Delivery of documents to security holders sharing an 
address. If one annual report or proxy statement is being delivered to 
two or more security holders who share an address in accordance with 
Sec. 240.14a-3(e)(1), furnish the following information:
    (a) State that only one annual report or proxy statement, as 
applicable, is being delivered to multiple security holders sharing an 
address unless the registrant has received contrary instructions from 
one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report or proxy statement, as applicable, to 
a security holder at a shared address to which a single copy of the 
documents was delivered and provide instructions as to how a security 
holder can notify the registrant that the security holder wishes to 
receive a separate copy of an annual report or proxy statement, as 
applicable;
    (c) Provide the phone number and mailing address to which a security 
holder can direct a notification to the registrant that the security 
holder wishes to receive a separate annual report or proxy statement, as 
applicable, in the future; and
    (d) Provide instructions how security holders sharing an address can 
request delivery of a single copy of annual reports or proxy statements 
if they are receiving multiple copies of annual reports or proxy 
statements.

[51 FR 42063, Nov. 20, 1986; 51 FR 45576, Dec. 19, 1986]

    Editorial Note: For Federal Register citations affecting Sec. 
240.14a-101, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.

[[Page 231]]



Sec. 240.14a-102  [Reserved]



Sec. 240.14a-103  Notice of Exempt Solicitation. Information to be included 
in statements submitted by or on behalf of a person pursuant to Sec. 240.14a-6(g).

      U.S. Securities and Exchange Commission Washington, DC 20549

                      Notice of Exempt Solicitation

1. Name of the Registrant:
________________________________________________________________________
2. Name of person relying on exemption:
________________________________________________________________________
3. Address of person relying on exemption:
________________________________________________________________________
4. Written materials. Attach written material required to be submitted 
          pursuant to Rule 14a-6(g)(1) [Sec. 240.14a-6(g)(1)].

[57 FR 48294, Oct. 22, 1992]



Sec. 240.14a-104  Notice of Exempt Preliminary Roll-up Communication. 

Information regarding ownership interests and any potential conflicts 
of interest to be included in statements submitted by or on behalf 
of a person pursuant to Sec. 240.14a-2(b)(4) and Sec. 240.14a-6(n).

 United States Securities and Exchange Commission Washington, D.C. 20549

           Notice of Exempt Preliminary Roll-Up Communication

1. Name of registrant appearing on Securities Act of 1933 registration 
          statement for the roll-up transaction (or, if registration 
          statement has not been filed, name of entity into which 
          partnerships are to be rolled up):
________________________________________________________________________
2. Name of partnership that is the subject of the proposed roll-up 
          transaction:
________________________________________________________________________
3. Name of person relying on exemption:
________________________________________________________________________
4. Address of person relying on exemption:
________________________________________________________________________
5. Ownership interest of security holder in partnership that is the 
          subject of the proposed roll-up transaction:
________________________________________________________________________
________________________________________________________________________
    Note: To the extent that the holder owns securities in any other 
entities involved in this roll-up transaction, disclosure of these 
interests also should be made.
6. Describe any and all relations of the holder to the parties to the 
          transaction or to the transaction itself:
a. The holder is engaged in the business of buying and selling limited 
          partnership interests in the secondary market would be 
          adversely affected if the roll-up transaction were completed.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
b. The holder would suffer direct (or indirect) material financial 
          injury if the roll-up transaction were completed since it is a 
          service provider to an affected limited partnership.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
c. The holder is engaged in another transaction that may be competitive 
          with the pending roll-up transaction.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
d. Any other relations to the parties involved in the transaction or to 
          the transaction itself, or any benefits enjoyed by the holder 
          not shared on a pro rata basis by all other holders of the 
          same class of securities of the partnership that is the 
          subject of the proposed roll-up transaction.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[59 FR 63685, Dec. 8, 1994]



Sec. 240.14b-1  Obligation of registered brokers and dealers in connection 
with the prompt forwarding of certain communications to beneficial owners.

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section shall have the same meanings as in the Act and, 
with respect to proxy soliciting material, as in Sec. 240.14a-1 
thereunder and, with respect to information statements, as in Sec. 
240.14c-1 thereunder. In addition, as used in this section, the term 
``registrant'' means:
    (1) The issuer of a class of securities registered pursuant to 
section 12 of the Act; or
    (2) An investment company registered under the Investment Company 
Act of 1940.
    (b) Dissemination and beneficial owner information requirements. A 
broker or dealer registered under Section 15 of the Act shall comply 
with the following requirements for disseminating certain communications 
to beneficial owners and providing beneficial owner information to 
registrants.
    (1) The broker or dealer shall respond, by first class mail or other

[[Page 232]]

equally prompt means, directly to the registrant no later than seven 
business days after the date it receives an inquiry made in accordance 
with Sec. 240.14a-13(a) or Sec. 240.14c-7(a) by indicting, by means of 
a search card or otherwise:
    (i) The approximate number of customers of the broker or dealer who 
are beneficial owners of the registrant's securities that are held of 
record by the broker, dealer, or its nominee;
    (ii) The number of customers of the broker or dealer who are 
beneficial owners of the registrant's securities who have objected to 
disclosure of their names, addresses,and securities positions if the 
registrant has indicated, pursuant to Sec. 240.14a-13(a)(1)(ii)(A) or 
Sec. 240.14c-7(a)(1)(ii)(A), that it will distribute the annual report 
to security holders to beneficial owners of its securities whose names, 
addresses and securities positions are disclosed pursuant to paragraph 
(b)(3) of this section; and
    (iii) The identity of the designated agent of the broker or dealer, 
if any, acting on its behalf in fulfilling its obligations under 
paragraph (b)(3) of this section; Provided, however, that if the broker 
or dealer has informed the registrant that a designated office(s) or 
department(s) is to receive such inquiries, receipt for purposes of 
paragraph (b)(1) of this section shall mean receipt by such designated 
office(s) or department(s).
    (2) The broker or dealer shall, upon receipt of the proxy, other 
proxy soliciting material, information statement, and/or annual reports 
to security holders, forward such materials to its customers who are 
beneficial owners of the registrant's securities no later than five 
business days after receipt of the proxy material, information statement 
or annual reports.

    Note to paragraph (b)(2):
    At the request of a registrant, or on its own initiative so long as 
the registrant does not object, a broker or dealer may, but is not 
required to, deliver one annual report, proxy statement or information 
statement to more than one beneficial owner sharing an address if the 
requirements set forth in Sec. 240.14a-3(e)(1) (with respect to annual 
reports and proxy statements) and Sec. 240.14c-3(c) (with respect to 
annual reports and information statements) applicable to registrants, 
with the exception of Sec. 240.14a-3(e)(1)(i)(E), are satisfied instead 
by the broker or dealer.

    (3) The broker or dealer shall, through its agent or directly:
    (i) Provide the registrant, upon the registrant's request, with the 
names, addresses, and securities positions, compiled as of a date 
specified in the registrant's request which is no earlier than five 
business days after the date the registrant's request is received, of 
its customers who are beneficial owners of the registrant's securities 
and who have not objected to disclosure of such information; Provided , 
however, that if the broker or dealer has informed the registrant that a 
designated office(s) or department(s) is to receive such requests, 
receipt shall mean receipt by such designated office(s) or 
department(s); and
    (ii) Transmit the data specified in paragraph (b)(3)(i) of this 
section to the registrant no later than five business days after the 
record date or other date specified by the registrant.

    Note 1: Where a broker or dealer employs a designated agent to act 
on its behalf in performing the obligations imposed on the broker or 
dealer by paragraph (b)(3) of this section, the five business day time 
period for determining the date as of which the beneficial owner 
information is to be compiled is calculated from the date the designated 
agent receives the registrant's request. In complying with the 
registrant's request for beneficial owner information under paragraph 
(b)(3) of this section, a broker or dealer need only supply the 
registrant with the names, addresses, and securities positions of non-
objecting beneficial owners.
    Note 2: If a broker or dealer receives a registrant's request less 
than five business days before the requested compilation date, it must 
provide a list compiled as of a date that is no more than five business 
days after receipt and transmit the list within five business days after 
the compilation date.

    (c) Exceptions to dissemination and beneficial owner information 
requirements. A broker or dealer registered under section 15 of the Act 
shall be subject to the following with respect to its dissemination and 
beneficial owner information requirements.
    (1) With regard to beneficial owners of exempt employee benefit plan 
securities, the broker or dealer shall:
    (i) Not include information in its response pursuant to paragraph 
(b)(1) of

[[Page 233]]

this section or forward proxies (or in lieu thereof requests for voting 
instructions), proxy soliciting material, information statements, or 
annual reports to security holders pursuant to paragraph (b)(2) of this 
section to such beneficial owners; and
    (ii) Not include in its response, pursuant to paragraph (b)(3) of 
this section, data concerning such beneficial owners.
    (2) A broker or dealer need not satisfy:
    (i) Its obligations under paragraphs (b)(2) and (b)(3) of this 
section if a registrant does not provide assurance of reimbursement of 
the broker's or dealer's reasonable expenses, both direct and indirect, 
incurred in connection with performing the obligations imposed by 
paragraphs (b)(2) and (b)(3) of this section; or
    (ii) Its obligation under paragraph (b)(2) of this section to 
forward annual reports to non-objecting beneficial owners identified by 
the broker or dealer, through its agent or directly, pursuant to 
paragraph (b)(3) of this section if the registrant notifies the broker 
or dealer pursuant to Sec. 240.14a-13(c) or Sec. 240.14c-7(c) that the 
registrant will mail the annual report to such non-objecting beneficial 
owners identified by the broker or dealer and delivered in a list to the 
registrant pursuant to paragraph (b)(3) of this section.
    (3) In its response pursuant to paragraph (b)(1) of this section, a 
broker or dealer shall not include information about annual reports, 
proxy statements or information statements that will not be delivered to 
security holders sharing an address because of the broker or dealer's 
reliance on the procedures referred to in the Note to paragraph (b)(2) 
of this section.

[57 FR 1099, Jan. 10, 1992, as amended at 65 FR 65751, Nov. 2, 2000]



Sec. 240.14b-2  Obligation of banks, associations and other entities 

that exercise fiduciary powers in connection with the prompt forwarding 
of certain communications to beneficial owners.

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section shall have the same meanings as in the Act and, 
with respect to proxy soliciting material, as in Sec. 240.14a-1 
thereunder and, with respect to information statements, as in Sec. 
240.14c-1 thereunder. In addition, as used in this section, the 
following terms shall apply:
    (1) The term bank means a bank, association, or other entity that 
exercises fiduciary powers.
    (2) The term beneficial owner includes any person who has or shares, 
pursuant to an instrument, agreement, or otherwise, the power to vote, 
or to direct the voting of a security.

    Note 1: If more than one person shares voting power, the provisions 
of the instrument creating that voting power shall govern with respect 
to whether consent to disclosure of beneficial owner information has 
been given.
    Note 2: If more than one person shares voting power or if the 
instrument creating that voting power provides that such power shall be 
exercised by different persons depending on the nature of the corporate 
action involved, all persons entitled to exercise such power shall be 
deemed beneficial owners; Provided, however, that only one such 
beneficial owner need be designated among the beneficial owners to 
receive proxies or requests for voting instructions, other proxy 
soliciting material, information statements, and/or annual reports to 
security holders, if the person so designated assumes the obligation to 
disseminate, in a timely manner, such materials to the other beneficial 
owners.

    (3) The term registrant means:
    (i) The issuer of a class of securities registered pursuant to 
section 12 of the Act; or
    (ii) An investment company registered under the Investment Company 
Act of 1940.
    (b) Dissemination and beneficial owner information requirements. A 
bank shall comply with the following requirements for disseminating 
certain communications to beneficial owners and providing beneficial 
owner information to registrants.
    (1) The bank shall:
    (i) Respond, by first class mail or other equally prompt means, 
directly to the registrant, no later than one business day after the 
date it receives an inquiry made in accordance with Sec. 240.14a-13(a) 
or Sec. 240.14c-7(a) by indicating the name and address of each of its 
respondent banks that holds the registrant's securities on behalf of 
beneficial owners, if any; and

[[Page 234]]

    (ii) Respond, by first class mail or other equally prompt means, 
directly to the registrant no later than seven business days after the 
date it receives an inquiry made in accordance with Sec. 240.14a-13(a) 
or Sec. 240.14c-7(a) by indicating, by means of a search card or 
otherwise:
    (A) The approximate number of customers of the bank who are 
beneficial owners of the registrant's securities that are held of record 
by the bank or its nominee;
    (B) If the registrant has indicated, pursuant to Sec. 240.14a-
13(a)(1)(ii)(A) or Sec. 240.14c-7(a)(1)(ii)(A), that it will distribute 
the annual report to security holders to beneficial owners of its 
securities whose names, addresses, and securities positions are 
disclosed pursuant to paragraphs (b)(4) (ii) and (iii) of this section:
    (1) With respect to customer accounts opened on or before December 
28, 1986, the number of beneficial owners of the registrant's securities 
who have affirmatively consented to disclosure of their names, 
addresses, and securities positions; and
    (2) With respect to customer accounts opened after December 28, 
1986, the number of beneficial owners of the registrant's securities who 
have not objected to disclosure of their names, addresses, and 
securities positions; and
    (C) The identity of its designated agent, if any, acting on its 
behalf in fulfilling its obligations under paragraphs (b)(4) (ii) and 
(iii) of this section;

Provided, however, that, if the bank or respondent bank has informed the 
registrant that a designated office(s) or department(s) is to receive 
such inquiries, receipt for purposes of paragraphs (b)(1) (i) and (ii) 
of this section shall mean receipt by such designated office(s) or 
department(s).
    (2) Where proxies are solicited, the bank shall, within five 
business days after the record date:
    (i) Execute an omnibus proxy, including a power of substitution, in 
favor of its respondent banks and forward such proxy to the registrant; 
and
    (ii) Furnish a notice to each respondent bank in whose favor an 
omnibus proxy has been executed that it has executed such a proxy, 
including a power of substitution, in its favor pursuant to paragraph 
(b)(2)(i) of this section.
    (3) Upon receipt of the proxy, other proxy soliciting material, 
information statement, and/or annual reports to security holders, the 
bank shall forward such materials to each beneficial owner on whose 
behalf it holds securities, no later than five business days after the 
date it receives such material and, where a proxy is solicited, the bank 
shall forward, with the other proxy soliciting material and/or the 
annual report, either:
    (i) A properly executed proxy:
    (A) Indicating the number of securities held for such beneficial 
owner;
    (B) Bearing the beneficial owner's account number or other form of 
identification, together with instructions as to the procedures to vote 
the securities;
    (C) Briefly stating which other proxies, if any, are required to 
permit securities to be voted under the terms of the instrument creating 
that voting power or applicable state law; and
    (D) Being accompanied by an envelope addressed to the registrant or 
its agent, if not provided by the registrant; or
    (ii) A request for voting instructions (for which registrant's form 
of proxy may be used and which shall be voted by the record holder bank 
or respondent bank in accordance with the instructions received), 
together with an envelope addressed to the record holder bank or 
respondent bank.

    Note to paragraph (b)(3):
    At the request of a registrant, or on its own initiative so long as 
the registrant does not object, a bank may, but is not required to, 
deliver one annual report, proxy statement or information statement to 
more than one beneficial owner sharing an address if the requirements 
set forth in Sec. 240.14a-3(e)(1) (with respect to annual reports and 
proxy statements) and Sec. 240.14c-3(c) (with respect to annual reports 
and information statements) applicable to registrants, with the 
exception of Sec. 240.14a-3(e)(1)(i)(E), are satisfied instead by the 
bank.

    (4) The bank shall:
    (i) Respond, by first class mail or other equally prompt means, 
directly to the registrant no later than one business day after the date 
it receives an inquiry made in accordance with Sec. 240.14a-13(b)(1) or 
Sec. 240.14c-7(b)(1) by

[[Page 235]]

indicating the name and address of each of its respondent banks that 
holds the registrant's securities on behalf of beneficial owners, if 
any;
    (ii) Through its agent or directly, provide the registrant, upon the 
registrant's request, and within the time specified in paragraph 
(b)(4)(iii) of this section, with the names, addresses, and securities 
position, compiled as of a date specified in the registrant's request 
which is no earlier than five business days after the date the 
registrant's request is received, of:
    (A) With respect to customer accounts opened on or before December 
28, 1986, beneficial owners of the registrant's securities on whose 
behalf it holds securities who have consented affirmatively to 
disclosure of such information, subject to paragraph (b)(5) of this 
section; and
    (B) With respect to customer accounts opened after December 28, 
1986, beneficial owners of the registrant's securities on whose behalf 
it holds securities who have not objected to disclosure of such 
information;

Provided, however, that if the record holder bank or respondent bank has 
informed the registrant that a designated office(s) or department(s) is 
to receive such requests, receipt for purposes of paragraphs (b)(4) (i) 
and (ii) of this section shall mean receipt by such designated office(s) 
or department(s); and
    (iii) Through its agent or directly, transmit the data specified in 
paragraph (b)(4)(ii) of this section to the registrant no later than 
five business days after the date specified by the registrant.

    Note 1: Where a record holder bank or respondent bank employs a 
designated agent to act on its behalf in performing the obligations 
imposed on it by paragraphs (b)(4) (ii) and (iii) of this section, the 
five business day time period for determining the date as of which the 
beneficial owner information is to be compiled is calculated from the 
date the designated agent receives the registrant's request. In 
complying with the registrant's request for beneficial owner information 
under paragraphs (b)(4) (ii) and (iii) of this section, a record holder 
bank or respondent bank need only supply the registrant with the names, 
addresses and securities positions of affirmatively consenting and non-
objecting beneficial owners.
    Note 2: If a record holder bank or respondent bank receives a 
registrant's request less than five business days before the requested 
compilation date, it must provide a list compiled as of a date that is 
no more than five business days after receipt and transmit the list 
within five business days after the compilation date.

    (5) For customer accounts opened on or before December 28, 1986, 
unless the bank has made a good faith effort to obtain affirmative 
consent to disclosure of beneficial owner information pursuant to 
paragraph (b)(4)(ii) of this section, the bank shall provide such 
information as to beneficial owners who do not object to disclosure of 
such information. A good faith effort to obtain affirmative consent to 
disclosure of beneficial owner information shall include, but shall not 
be limited to, making an inquiry:
    (i) Phrased in neutral language, explaining the purpose of the 
disclosure and the limitations on the registrant's use thereof;
    (ii) Either in at least one mailing separate from other account 
mailings or in repeated mailings; and
    (iii) In a mailing that includes a return card, postage paid 
enclosure.
    (c) Exceptions to dissemination and beneficial owner information 
requirements. The bank shall be subject to the following respect to its 
dissemination and beneficial owner requirements.
    (1) With regard to beneficial owners of exempt employee benefit plan 
securities, the bank shall not:
    (i) Include information in its response pursuant to paragraph (b)(1) 
of this section; or forward proxies (or in lieu thereof requests for 
voting instructions), proxy soliciting material, information statements, 
or annual reports to security holders pursuant to paragraph (b)(3) of 
this section to such beneficial owners; or
    (ii) Include in its response pursuant to paragraphs (b)(4) and 
(b)(5) of this section data concerning such beneficial owners.
    (2) The bank need not satisfy:
    (i) Its obligations under paragraphs (b)(2), (b)(3), and (b)(4) of 
this section if a registrant does not provide assurance of reimbursement 
of its reasonable expenses, both direct and indirect, incurred in 
connection with performing the obligations imposed by paragraphs

[[Page 236]]

(b)(2), (b)(3), and (b)(4) of this section; or
    (ii) Its obligation under paragraph (b)(3) of this section to 
forward annual reports to consenting and non-objecting beneficial owners 
identified pursuant to paragraphs (b)(4) (ii) and (iii) of this section 
if the registrant notifies the record holder bank or respondent bank, 
pursuant to Sec. 240.14a-13(c) or Sec. 240.14c-7(c), that the 
registrant will mail the annual report to beneficial owners whose names 
addresses and securities positions are disclosed pursuant to paragraphs 
(b)(4) (ii) and (iii) of this section.
    (3) For the purposes of determining the fees which may be charged to 
registrants pursuant to Sec. 240.14a-13(b)(5), Sec. 240.14c-7(a)(5), 
and paragraph (c)(2) of this section for performing obligations under 
paragraphs (b)(2), (b)(3), and (b)(4) of this section, an amount no 
greater than that permitted to be charged by brokers or dealers for 
reimbursement of their reasonable expenses, both direct and indirect, 
incurred in connection with performing the obligations imposed by 
paragraphs (b)(2) and (b)(3) of Sec. 240.14b-1, shall be deemed to be 
reasonable.
    (4) In its response pursuant to paragraph (b)(1)(ii)(A) of this 
section, a bank shall not include information about annual reports, 
proxy statements or information statements that will not be delivered to 
security holders sharing an address because of the bank's reliance on 
the procedures referred to in the Note to paragraph (b)(3) of this 
section.

[57 FR 1100, Jan. 10, 1992, as amended at 65 FR 65751, Nov. 2, 2000]

  Regulation 14C: Distribution of Information Pursuant to Section 14(c)

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec. 240.14c-1  Definitions.

    Unless the context otherwise requires, all terms used in this 
regulation have the same meanings as in the Act or elsewhere in the 
general rules and regulations thereunder. In addition, the following 
definitions apply unless the context otherwise requires:
    (a) Associate. The term ``associate,'' used to indicate a 
relationship with any person, means:
    (1) Any corporation or organization (other than the registrant or a 
majority owned subsidiary of the registrant) of which such person is an 
officer or partner or is, directly or indirectly, the beneficial owner 
of 10 percent or more of any class of equity securities;
    (2) Any trust or other estate in which such person has a substantial 
beneficial interest or as to which such person serves as trustee or in a 
similar fidiciary capacity; and
    (3) Any relative or spouse of such person, or any relative of such 
spouse, who has the same home as such person or who is a director or 
officer of the registrant or any of its parents or subsidiaries.
    (b) Employee benefit plan. For purposes of Sec. 240.14c-7, the term 
``employee benefit plan'' means any purchase, savings, option, bonus, 
appreciation, profit sharing, thrift, incentive, pension or similar plan 
primarily for employees, directors, trustees or officers.
    (c) Entity that exercises fiduciary powers. The term ``entity that 
exercises fiduciary powers'' means any entity that holds securities in 
nominee name or otherwise on behalf of a beneficial owner but does not 
include a clearing agency registered pursuant to section 17A of the Act, 
or a broker or a dealer.
    (d) Exempt employee benefit plan securities. For purposes of Sec. 
240.14c-7, the term ``exempt employee benefit plan securities'' means:
    (1) Securities of the registrant held by an employee benefit plan, 
as defined in paragraph (b) of this section, where such plan is 
established by the registrant; or
    (2) If notice regarding the current distribution of information 
statements has been given pursuant to Sec. 240.14c-

[[Page 237]]

7(a)(1)(ii)(C) or if notice regarding the current request for a list of 
names, addresses and securities positions of beneficial owners has been 
given pursuant to Sec. 240.14c-7(b)(3), securities of the registrant 
held by an employee benefit plan, as defined in paragraph (b) of this 
section, where such plan is established by an affiliate of the 
registrant.
    (e) Information statement. The term ``information statement'' means 
the statement required by Sec. 240.14c-2, whether or not contained in a 
single document.
    (f) Last fiscal year. The term ``last fiscal year'' of the 
registrant means the last fiscal year of the registrant ending prior to 
the date of the meeting with respect to which an information statement 
is required to be distributed, or if the information statement involves 
consents or authorizations in lieu of a meeting, the earliest date on 
which they may be used to effect corporate action.
    (g) Proxy. The term ``proxy'' includes every proxy, consent or 
authorization within the meaning of section 14(a) of the Act. The 
consent or authorization may take the form of failure to object or to 
dissent.
    (h) Record date. The term ``record date'' means the date as of which 
the record holders of securities entitled to vote at a meeting or by 
written consent or authorization shall be determined.
    (i) Record holder. For purposes of Sec. 240.14c-7, the term 
``record holder'' means any broker, dealer, voting trustee, bank, 
association or other entity that exercises fiduciary powers which holds 
securities of record in nominee name or otherwise or as a participant in 
a clearing agency registered pursuant to section 17A of the Act.
    (j) Registrant. The term ``registrant'' means:
    (1) The issuer of a class of securities registered pursuant to 
section 12 of the Act; or
    (2) An investment company registered under the Investment Company 
Act of 1940 that has made a public offering of its securities.
    (k) Respondent bank. For purposes of Sec. 240.14c-7, the term 
``respondent bank'' means any bank, association or other entity that 
exercises fiduciary powers which holds securities on behalf of 
beneficial owners and deposits such securities for safekeeping with 
another bank, association or other entity that exercises fiduciary 
powers.

[51 FR 44279, Dec. 9, 1986, as amended at 52 FR 23649, June 24, 1987; 53 
FR 16406, May 9, 1988; 57 FR 1101, Jan. 10, 1992]



Sec. 240.14c-2  Distribution of information statement.

    (a) In connection with every annual or other meeting of the holders 
of the class of securities registered pursuant to section 12 of the Act 
or of a class of securities issued by an investment company registered 
under the Investment Company Act of 1940 that has made a public offering 
of securities, including the taking of corporate action by the written 
authorization or consent of security holders, the registrant shall 
transmit a written information statement containing the information 
specified in Schedule 14C (Sec. 240.14c-101) or written information 
statements included in registration statements filed under the 
Securities Act of 1933 on Form S-4 or F-4 (Sec. 239.25 or Sec. 239.34 
of this chapter) or Form N-14 (Sec. 239.23 of this chapter), and 
containing the information specified in such form, to every security 
holder of the class that is entitled to vote or give an authorization or 
consent in regard to any matter to be acted upon and from whom proxy 
authorization or consent is not solicited on behalf of the registrant 
pursuant to Section 14(a) of the Act, Provided however, That:
    (1) In the case of a class of securities in unregistered or bearer 
form, such statements need be transmitted only to those security holders 
whose names are known to the registrant, and
    (2) No such statements need to be transmitted to a security holder 
if a registrant would be excused from delivery of an annual report or a 
proxy statement under Rule 14a-3(e)(2) (Sec. 240.14a-3(e)(2)) if such 
section were applicable.
    (b) The information statement shall be sent or given at least 20 
calendar days prior to the meeting date or, in the case of corporate 
action taken pursuant to the consents or authorizations of security 
holders, at least 20 calendar

[[Page 238]]

days prior to the earliest date on which the corporate action may be 
taken.
    (c) If a transaction is a roll-up transaction as defined in Item 
901(c) of Regulation S-K (17 CFR 229.901(c)) and is registered (or 
authorized to be registered) on Form S-4 (17 CFR 229.25) or Form F-4 (17 
CFR 229.34), the information statement must be distributed to security 
holders no later than the lesser of 60 calendar days prior to the date 
on which the meeting of security holders is held or action is taken, or 
the maximum number of days permitted for giving notice under applicable 
state law.

[51 FR 42070, Nov. 20, 1986, as amended at 56 FR 57254, Nov. 8, 1991; 57 
FR 1102, Jan. 10, 1992; 57 FR 48295, Oct. 22, 1992]



Sec. 240.14c-3  Annual report to be furnished security holders.

    (a) If the information statement relates to an annual (or special 
meeting in lieu of the annual) meeting, or written consent in lieu of 
such meeting, of security holders at which directors of the registrant, 
other than an investment company registered under the Investment Company 
Act of 1940, are to be elected, it shall be accompanied or preceded by 
an annual report to security holders:
    (1) The annual report shall contain the information specified in 
paragraphs (b)(1) through (b)(11) of Rule 14a-3 (Sec. 240.14a-3 of this 
chapter.)
    (2) [Reserved]

    Note to Small Business Issuers --In responding to the disclosure 
items under paragraph (b) of Rule 14a-3, (Sec. 240.14a-3 of this 
chapter) a ``small business issuer,'' defined under Rule 12b-2 of the 
Exchange Act (Sec. 240.12b-2), shall refer to the disclosure items in 
Regulation S-B (Sec. 228.10--702 of this chapter) rather than 
Regulation S-K (Sec. 229.10--702 of this chapter). If there is no 
comparable disclosure item in Regulation S-B, a small business issuer 
need not provide the information requested. A small business issuer 
shall provide the information in Item 310(a) of Regulation S-B in lieu 
of the financial information required by Rule 14a-3(b)(1) (Sec. 
240.14a-3(b)(1)). Small business issuers using the transitional small 
business issuers disclosure format in the filing of their most recent 
annual report on Form 10-KSB (Sec. 249.310b of this chapter) need not 
provide the information required by paragraph (b) of Rule 14a-3. Rather, 
those small business issuers shall provide only the financial statements 
required to be filed in their most recent Form 10-KSB. The inclusion of 
additional information, including information required of non-
transitional small business issuers, in the annual report to security 
holders will not cause the issuer to be ineligible for the transitional 
disclosure forms.

    (b) Seven copies of the report sent to security holders pursuant to 
this rule shall be mailed to the Commission, solely for its information, 
not later than the date on which such report is first sent or given to 
security holders or the date on which preliminary copies, or definitive 
copies, if preliminary filing was not required, of the information 
statement are filed with the Commission pursuant to Rule 14c-5, 
whichever date is later. The report is not deemed to be ``filed'' with 
the Commission or subject to this regulation otherwise than as provided 
in this rule, or to the liabilities of section 18 of the Act, except to 
the extent that the registrant specifically requests that it be treated 
as a part of the information statement or incorporates it in the 
information statement or other filed report by reference.
    (c) A registrant will be considered to have delivered an annual 
report or information statement to security holders of record who share 
an address if the requirements set forth in Sec. 240.14a-3(e)(1) are 
satisfied with respect to the annual report or information statement, as 
applicable.

(Secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85; secs. 12, 13, 14, 
15(d), 23(a), 48 Stat. 892, 894, 901; secs. 205, 209, 48 Stat. 906, 908; 
sec. 203(a), 49 Stat. 704; secs. 1, 3, 8, 49 Stat. 1375, 1377, 1379; 
sec. 301, 54 Stat. 857; secs. 8, 202, 68 Stat. 685, 686; secs. 3, 4, 5, 
6, 78 Stat. 565-568, 569, 570-574; sec. 1, 79 Stat. 1051; secs. 1, 2, 3, 
82 Stat. 454, 455; secs. 1, 2, 3-5, 28(c), 84 Stat. 1435, 1497; sec. 
105(b), 88 Stat. 1503; secs. 8, 9, 10, 11, 18, 89 Stat. 117, 118, 119, 
121, 155; 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 78l, 78m, 78n, 78l(d), 
78w(a))

[39 FR 40770, Nov. 20, 1974, as amended at 45 FR 63647, Sept. 25, 1980; 
51 FR 42071, Nov. 20, 1986; 52 FR 48984, Dec. 29, 1987; 58 FR 26519, May 
4, 1993; 59 FR 52700, Oct. 19, 1994; 59 FR 67765, Dec. 30, 1994; 64 FR 
62547, Nov. 16, 1999; 65 FR 65751, Nov. 2, 2000]



Sec. 240.14c-4  Presentation of information in information statement.

    (a) The information included in the information statement shall be 
clearly presented and the statements made

[[Page 239]]

shall be divided into groups according to subject matter and the various 
groups of statements shall be preceded by appropriate headings. The 
order of items and sub-items in the schedule need not be followed. Where 
practicable and appropriate, the information shall be presented in 
tabular form. All amounts shall be stated in figures. Information 
required by more than one applicable item need not be repeated. No 
statement need be made in response to any item or sub-item which is 
inapplicable.
    (b) Any information required to be included in the information 
statement as to terms of securities or other subject matters which from 
a standpoint of practical necessity must be determined in the future may 
be stated in terms of present knowledge and intention. Subject to the 
foregoing, information which is not known to the registrant and which it 
is not reasonably within the power of the registrant to ascertain or 
procure may be omitted, if a brief statement of the circumstances 
rendering such information unavailable is made.
    (c) All printed information statements shall be in roman type at 
least as large and as legible as 10-point modern type except that to the 
extent necessary for convenient presentation, financial statements and 
other tabular data, but not the notes thereto, may be in roman type at 
least as large and as legible as 8-point modern type. All such type 
shall be leaded at least 2 points.
    (d) Where an information statement is delivered through an 
electronic medium, issuers may satisfy legibility requirements 
applicable to printed documents, such as type size and font, by 
presenting all required information in a format readily communicated to 
investors.

[31 FR 262, Jan. 8, 1966, as amended at 36 FR 8935, May 15, 1971; 51 FR 
42071, Nov. 20, 1986; 61 FR 24657, May 15, 1996]



Sec. 240.14c-5  Filing requirements.

    (a) Preliminary information statement. Five preliminary copies of 
the information statement shall be filed with the Commission at least 10 
calendar days prior to the date definitive copies of such statement are 
first sent or given to security holders, or such shorter period prior to 
that date as the Commission may authorize upon a showing of good cause 
therefor. In computing the 10-day period, the filing date of the 
preliminary copies is to be counted as the first day and the 11th day is 
the date on which definitive copies of the information statement may be 
mailed to security holders. A registrant, however, shall not file with 
the Commission a preliminary information statement if it relates to an 
annual (or special meeting in lieu of the annual) meeting, of security 
holders at which the only matters to be acted upon are:
    (1) The election of directors;
    (2) The election, approval or ratification of accountant(s);
    (3) A security holder proposal identified in the registrant's 
information statement pursuant to Item 4 of Schedule 14C (Sec. 240.14c-
101); and/or
    (4) The approval or ratification of a plan as defined in paragraph 
(a)(7)(ii) of Item 402 of Regulation S-K (Sec. 229.402(a)(7)(ii) of 
this chapter) or amendments to such a plan.

This exclusion from filing a preliminary information statement does not 
apply if the registrant comments upon or refers to a solicitation in 
opposition in connection with the meeting in its information statement.

    Note 1: The filing of revised material does not recommence the ten 
day time period unless the revised material contains material revisions 
or material new proposal(s) that constitute a fundamental change in the 
information statement.
    Note 2: The officials responsible for the preparation of the 
information statement should make every effort to verify the accuracy 
and completeness of the information required by the applicable rules. 
The preliminary statement should be filed with the Commission at the 
earliest practicable date.
    Note 3: Solicitation in Opposition--For purposes of the exclusion 
from filing a preliminary information statement, a ``solicitation in 
opposition'' includes: (a) Any solicitation opposing a proposal 
supported by the registrant; and (b) any solicitation supporting a 
proposal that the registrant does not expressly support, other than a 
security holder proposal identified in the registrant's information 
statement pursuant to Item 4 of Schedule 14C (Sec. 240.14c-101 of this 
chapter). The identification of a security holder proposal in the 
registrant's information statement does not constitute a ``solicitation 
in opposition,'' even if the registrant opposes

[[Page 240]]

the proposal and/or includes a statement in opposition to the proposal.
    Note 4: A registrant that is filing an information statement in 
preliminary form only because the registrant has commented on or 
referred to an opposing solicitation should indicate that fact in a 
transmittal letter when filing the preliminary material with the 
Commission.

    (b) Definitive information statement. Eight definitive copies of the 
information statement, in the form in which it is furnished to security 
holders, must be filed with the Commission no later than the date the 
information statement is first sent or given to security holders. Three 
copies of these materials also must be filed with, or mailed for filing 
to, each national securities exchange on which the registrant has a 
class of securities listed and registered.
    (c) Release dates. All preliminary material filed pursuant to 
paragraph (a) of this section shall be accompanied by a statement of the 
date on which copies thereof filed pursuant to paragraph (b) of this 
section are intended to be released to security holders. All definitive 
material filed pursuant to paragraph (b) of this section shall be 
accompanied by a statement of the date on which copies of such material 
have been released to security holders or, if not released, the date on 
which copies thereof are intended to be released.
    (d)(1) Public availability of information. All copies of material 
filed pursuant to paragraph (a) of this section shall be clearly marked 
``Preliminary Copies,'' and shall be deemed immediately available for 
public inspection unless confidential treatment is obtained pursuant to 
paragraph (d)(2) of this section.
    (2) Confidential treatment. If action will be taken on any matter 
specified in Item 14 of Schedule 14A (Sec. 240.14a-101), all copies of 
the preliminary information statement filed under paragraph (a) of this 
section will be for the information of the Commission only and will not 
be deemed available for public inspection until filed with the 
Commission in definitive form so long as:
    (i) The information statement does not relate to a matter or 
proposal subject to Sec. 240.13e-3 or a roll-up transaction as defined 
in Item 901(c) of Regulation S-K (Sec. 229.901(c) of this chapter);
    (ii) Neither the parties to the transaction nor any persons 
authorized to act on their behalf have made any public communications 
relating to the transaction except for statements where the content is 
limited to the information specified in Sec. 230.135 of this chapter; 
and
    (iii) The materials are filed in paper and marked ``Confidential, 
For Use of the Commission Only''. In all cases, the materials may be 
disclosed to any department or agency of the United States Government 
and to the Congress, and the Commission may make any inquiries or 
investigation into the materials as may be necessary to conduct an 
adequate review by the Commission.

    Instruction to paragraph (d)(2): If communications are made publicly 
that go beyond the information specified in Sec. 230.135, the materials 
must be re-filed publicly with the Commission.

    (e) Revised information statements. Where any information statement 
filed pursuant to this section is amended or revised, two of the copies 
of such amended or revised material filed pursuant to this section shall 
be marked to indicate clearly and precisely the changes effected 
therein. If the amendment or revision alters the text of the material, 
the changes in such text shall be indicated by means of underscoring or 
in some other appropriate manner.
    (f) Merger material. Notwithstanding the foregoing provisions of 
this section, any information statement or other material included in a 
registration statement filed under the Securities Act of 1933 on Form N-
14, S-4, or F-4 (Sec. 239.23, Sec. 239.25 or Sec. 239.34 of this 
chapter) shall be deemed filed both for the purposes of that Act and for 
the purposes of this section, but separate copies of such material need 
not be furnished pursuant to this section, nor shall any fee be required 
under paragraph (a) of this section. However, any additional material 
used after the effective date of the registration statement on Form N-
14, S-4, or F-4 shall be filed in accordance with this section, unless 
separate copies of such material are required to be filed as an 
amendment of such registration statement.

[[Page 241]]

    (g) Fees. At the time of filing a preliminary information statement 
regarding an acquisition, merger, spinoff, consolidation or proposed 
sale or other disposition of substantially all the assets of the 
company, the registrant shall pay the Commission a fee, no part of which 
shall be refunded, established in accordance with Sec. 240.0-11.
    (h) Cover page. Each information statement filed with the Commission 
shall include a cover page in the form set forth in Schedule 14C (Sec. 
240.14c-101). The cover page required by this paragraph need not be 
distributed to security holders.

[51 FR 42071, Nov. 20, 1986, as amended at 52 FR 48984, Dec. 29, 1987; 
57 FR 48295, Oct. 22, 1992; 58 FR 14684, Mar. 18, 1993; 58 FR 69226, 
Dec. 30, 1993; 59 FR 67765, Dec. 30, 1994; 61 FR 49960, Sept. 24, 1996; 
64 FR 61459, Nov. 10, 1999]



Sec. 240.14c-6  False or misleading statements.

    (a) No information statement shall contain any statement which, at 
the time and in the light of the circumstances under which it is made, 
is false or misleading with respect to any material fact, or which omits 
to state any material fact necessary in order to make the statements 
therein not false or misleading or necessary to correct any statement in 
any earlier communication with respect to the same meeting or subject 
matter which has become false or misleading.
    (b) The fact that an information statement has been filed with or 
examined by the Commission shall not be deemed a finding by the 
Commission that such material is accurate or complete or not false or 
misleading, or that the Commission has passed upon the merits of or 
approved any statement contained therein or any matter to be acted upon 
by security holders. No representation contrary to the foregoing shall 
be made.

[31 FR 262, Jan. 8, 1966]



Sec. 240.14c-7  Providing copies of material for certain beneficial owners.

    (a) If the registrant knows that securities of any class entitled to 
vote at a meeting, or by written authorizations or consents if no 
meeting is held, are held of record by a broker, dealer, voting trustee, 
or bank, association, or other entity that exercises fiduciary powers in 
nominee name or otherwise, the registrant shall:
    (1) By first class mail or other equally prompt means:
    (i) Inquire of each such record holder:
    (A) Whether other persons are the beneficial owners of such 
securities and, if so, the number of copies of the information statement 
necessary to supply such material to such beneficial owners;
    (B) In the case of an annual (or special meeting in lieu of the 
annual) meeting, or written consents in lieu of such meeting, at which 
directors are to be elected, the number of copies of the annual report 
to security holders, necessary to supply such report to such beneficial 
owners for whom proxy material has not been and is not to be made 
available and to whom such reports are to be distributed by such record 
holder or its nominee and not by the registrant;
    (C) If the record holder or respondent bank has an obligation under 
Sec. 240.14b-1(b)(3) or Sec. 240.14b-2(b)(4) (ii) and (iii), whether 
an agent has been designated to act on its behalf in fulfilling such 
obligation, and, if so, the name and address of such agent; and
    (D) Whether it holds the registrant's securities on behalf of any 
respondent bank and, if so, the name and address of each such respondent 
bank; and
    (ii) Indicate to each such record holder:
    (A) Whether the registrant pursuant to paragraph (c) of this 
section, intends to distribute the annual report to security holders to 
beneficial owners of its securities whose names, addresses and 
securities positions are disclosed pursuant to Sec. 240.14b-1(b)(3) and 
Sec. 240.14b-2(b)(4) (ii) and (iii);
    (B) The record date; and
    (C) At the option of the registrant, any employee benefit plan 
established by an affiliate of the registrant that holds securities of 
the registrant that the registrant elects to treat as exempt employee 
benefit plan securities;
    (2) Upon receipt of a record holder's or respondent bank's response 
indicating, pursuant to Sec. 240.14b-2(a)(1), the names and addresses 
of its respondent banks, within one business day after the date such 
response is received,

[[Page 242]]

make an inquiry of and give notification to each such respondent bank in 
the same manner required by paragraph (a)(1) of this section; Provided, 
however, the inquiry required by paragraphs (a)(1) and (a)(2) of this 
section shall not cover beneficial owners of exempt employee benefit 
plan securities;
    (3) Make the inquiry required by paragraph (a)(1) of this section on 
the earlier of:
    (i) At least 20 business days prior to the record date of the 
meeting of security holders or the record date of written consents in 
lieu of a meeting; or
    (ii) At least 20 business days prior to the date the information 
statement is required to be sent or given pursuant to Sec. 240.14c-
2(b);


Provided, however, That, if a record holder or respondent bank has 
informed the registrant that a designated office(s) or department(s) is 
to receive such inquiries, the inquiry shall be made to such designated 
office(s) or department(s);
    (4) Supply, in a timely manner, each record holder and respondent 
bank of whom the inquiries required by paragraphs (a)(1) and (a)(2) of 
this section are made with copies of the information statement and/or 
the annual report to security holders, in such quantities, assembled in 
such form and at such place(s), as the record holder or respondent bank 
may reasonably request in order to send such material to each beneficial 
owner of securities who is to be furnished with such material by the 
record holder or respondent bank; and
    (5) Upon the request of any record holder or respondent bank that is 
supplied with information statements and/or annual reports to security 
holders pursuant to paragraph (a)(3) of this section, pay its reasonable 
expenses for completing the mailing of such material to beneficial 
owners.

    Note 1: If the registrant's list of security holders indicates that 
some of its securities are registered in the name of a clearing agency 
registered pursuant to section 17A of the Act (e.g., ``Cede & Co.,'' 
nominee for the Depository Trust Company), the registrant shall make 
appropriate inquiry of the clearing agency and thereafter of the 
participants in such clearing agency who may hold on behalf of a 
beneficial owner or respondent bank, and shall comply with the above 
paragraph with respect to any such participant (see Sec. 240.14c-1 
(h)).
    Note 2: The attention of registrants is called to the fact that each 
broker, dealer, bank, association, and other entity that exercises 
fiduciary powers has an obligation pursuant to Sec. 240.14b-1 and Sec. 
240.14b-2 (except as provided therein with respect to exempt employee 
benefit plan securities held in nominee name) and, with respect to 
brokers and dealers, applicable self-regulatory organization 
requirements to obtain and forward, within the time periods prescribed 
therein, (a) information statements to beneficial owners on whose behalf 
it holds securities, and (b) annual reports to security holders to 
beneficial owners on whose behalf it holds securities, unless the 
registrant has notified the record holder or respondent bank that it has 
assumed responsibility to mail such material to beneficial owners whose 
names, addresses, and securities positions are disclosed pursuant to 
Sec. 240.14b-1(b)(3) and Sec. 240.14b-2(b)(4) (ii) and (iii).
    Note 3:  The attention of registrants is called to the fact that 
registrants have an obligation, pursuant to paragraph (d) of this 
section, to cause information statements and annual reports to security 
holders to be furnished, in accordance with Sec. 240.14c-2, to 
beneficial owners of exempt employee benefit plan securities.

    (b) Any registrant requesting pursuant to Sec. 240.14b-1(b)(3) and 
Sec. 240.14b-2(b)(4) (ii) and (iii) a list of names, addresses and 
securities positions of beneficial owners of its securities who either 
have consented or have not objected to disclosure of such information 
shall:
    (1) By first class mail or other equally prompt means, inquire of 
each record holder and each respondent bank identified to the registrant 
pursuant to Sec. 240.14b-2(e)(1) whether such record holder or 
respondent bank holds the registrant's securities on behalf of any 
respondent banks and, if so, the name and address of each such 
respondent bank;
    (2) Request such list be compiled as of a date no earlier than five 
business days after the date the registant's request is received by the 
record holder or respondent bank; Provided, however, That if the record 
holder or respondent bank has informed the registrant that a designated 
office(s) or department(s) is to receive such requests, the request 
shall be made to such designated office(s) or department(s);

[[Page 243]]

    (3) Make such request to the following persons that hold the 
registrant's securities on behalf of beneficial owners: all brokers, 
dealers, banks, associations and other entities that exercise fiduciary 
powers; Provided, however, such request shall not cover beneficial 
owners of exempt employee benefit plan securities as defined in Sec. 
240.14a-1(d)(1); and, at the option of the registrant, such request may 
give notice of any employee benefit plan established by an affiliate of 
the registrant that holds securities of the registrant that the 
registrant elects to treat as exempt employee benefit plan securities;
    (4) Use the information furnished in response to such request 
exclusively for purposes of corporate communications; and
    (5) Upon the request of any record holder or respondent bank to whom 
such request is made, pay the reasonable expenses, both direct and 
indirect, of providing beneficial owner information.

    Note: A registrant will be deemed to have satisfied its obligations 
under paragraph (b) of this section by requesting consenting and non-
objecting beneficial owner lists from a designated agent acting on 
behalf of the record holder or respondent bank and paying to that 
designated agent the reasonable expenses of providing the beneficial 
owner information.

    (c) A registrant, at its option, may send by mail or other equally 
prompt means, its annual report to security holders to the beneficial 
owners whose identifying information is provided by record holders and 
respondent banks, pursuant to Sec. 240.14b-1(b)(3) and Sec. 240.14b-
2(b)(4) (ii) and (iii), provided that such registrant notifies the 
record holders and respondent banks at the time it makes the inquiry 
required by paragraph (a) of this section that the registrant will send 
the annual report to security holders to the beneficial owners so 
identified.
    (d) If a registrant furnishes information statements to record 
holders and respondent banks who hold securities on behalf of beneficial 
owners, the registrant shall cause information statements and annual 
reports to security holders to be furnished, in accordance with Sec. 
240.14c-2, to beneficial owners of exempt employee benefit plan 
securities.

[51 FR 44280, Dec. 9, 1986, as amended at 52 FR 23649, June 24, 1987; 53 
FR 16406, May 9, 1988; 57 FR 1102, Jan. 10, 1992; 61 FR 24657, May 15, 
1996; 64 FR 62547, Nov. 16, 1999]



Sec. 240.14c-101  Schedule 14C. Information required in information statement.

                        Schedule 14C Information

   Information Statement Pursuant to Section 14(c) of the Securities 
                          Exchange Act of 1934

                            (Amendment No. )

Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 
          14c-5(d)(2))
[ ] Definitive Information Statement
________________________________________________________________________
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
    (1) Title of each class of securities to which transaction applies:
________________________________________________________________________
    (2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
    (3) Per unit price or other underlying value of transaction computed 
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the 
filing fee is calculated and state how it was determined):
________________________________________________________________________
    (4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
    (5) Total fee paid:
________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange 
          Act Rule 0-11(a)(2) and identify the filing for which the 
          offsetting fee was paid previously. Identify the previous 
          filing by registration statement number, or the Form or 
          Schedule and the date of its filing.
    (1) Amount Previously Paid:
________________________________________________________________________
    (2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
    (3) Filing Party:
________________________________________________________________________
    (4) Date Filed:
________________________________________________________________________

[[Page 244]]

                                  Note

    Note: Where any item, other than Item 4, calls for information with 
respect to any matter to be acted upon at the meeting or, if no meeting 
is being held, by written authorization or consent, such item need be 
answered only with respect to proposals to be made by the registrant. 
Registrants and acquirees that meet the definition of ``small business 
issuer'' under Rule 12b-2 of the Exchange Act (Sec. 240.12b-2) shall 
refer to the disclosure items in Regulation S-B (Sec. 228.10 et seq. of 
this chapter) and not Regulation S-K (Sec. 229.10 et seq. of this 
chapter). If there is no comparable disclosure item in Regulation S-B, 
small business issuers need not provide the information requested. Small 
business issuers shall provide the financial information in Item 310 of 
Regulation S-B in lieu of any financial statements required by Item 1 of 
Sec. 240.14c-101.
    Item 1. Information required by Items of Schedule 14A (17 CFR 
240.14a-101). Furnish the information called for by all of the items of 
Schedule 14A of Regulation 14A (17 CFR 240.14a-101) (other than Items 
1(c). 2, 4 and 5 thereof) which would be applicable to any matter to be 
acted upon at the meeting if proxies were to be solicited in connection 
with the meeting. Notes A, C, D, and E to Schedule 14A are also 
applicable to Schedule 14C.
    Item 2. Statement that proxies are not solicited. The following 
statement shall be set forth on the first page of the information 
statement in bold-face type:

We Are Not Asking You for a Proxy and You are Requested Not To Send Us a 
                                  Proxy

    Item 3. Interest of certain persons in or opposition to matters to 
be acted upon. (a) Describe briefly any substantial interest, direct or 
indirect, by security holdings or otherwise, of each of the following 
persons in any matter to be acted upon, other than elections to office:
    (1) Each person who has been a director or officer of the registrant 
at any time since the beginning of the last fiscal year;
    (2) Each nominee for election as a director of the registrant;
    (3) Each associate of any of the foregoing persons.
    (b) Give the name of any director of the registrant who has informed 
the registrant in writing that he intends to oppose any action to be 
taken by the registrant at the meeting and indicate the action which he 
intends to oppose.
    Item 4. Proposals by security holders. If any security holder 
entitled to vote at the meeting or by written authorization or consent 
has submitted to the registrant a reasonable time before the information 
statement is to be transmitted to security holders a proposal, other 
than elections to office, which is accompanied by notice of his 
intention to present the proposal for action at the meeting the 
registrant shall, if a meeting is held, make a statement to that effect, 
identify the proposal and indicate the disposition proposed to be made 
of the proposal by the registrant at the meeting.
    Instructions. 1. This item need not be answered as to any proposal 
submitted with respect to an annual meeting if such proposal is 
submitted less than 60 days in advance of a day corresponding to the 
date of mailing a proxy statement or information statement in connection 
with the last annual meeting of security holders.
    2. If the registrant intends to rule a proposal out of order, the 
Commission shall be so advised 20 calendar days prior to the date the 
definitive copies of the information statement are filed with the 
Commission, together with a statement of the reasons why the proposal is 
not deemed to be a proper subject for action by security holders.
    Item 5. Delivery of documents to security holders sharing an 
address. If one annual report or information statement is being 
delivered to two or more security holders who share an address, furnish 
the following information in accordance with Sec. 240.14a-3(e)(1):
    (a) State that only one annual report or information statement, as 
applicable, is being delivered to multiple security holders sharing an 
address unless the registrant has received contrary instructions from 
one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report or information statement, as 
applicable, to a security holder at a shared address to which a single 
copy of the documents was delivered and provide instructions as to how a 
security holder can notify the registrant that the security holder 
wishes to receive a separate copy of an annual report or information 
statement, as applicable;
    (c) Provide the phone number and mailing address to which a security 
holder can direct a notification to the registrant that the security 
holder wishes to receive a separate annual report or proxy statement, as 
applicable, in the future; and
    (d) Provide instructions how security holders sharing an address can 
request delivery of a single copy of annual reports or information 
statements if they

[[Page 245]]

are receiving multiple copies of annual reports or information 
statements.

[51 FR 42072, Nov. 20, 1986, as amended at 52 FR 48984, Dec. 29, 1987; 
57 FR 36495, Aug. 13, 1992; 58 FR 14684, Mar. 18, 1993; 59 FR 67765, 
Dec. 30, 1994; 61 FR 49960, Sept. 24, 1996; 65 FR 65752, Nov. 2, 2000]

                             Regulation 14D

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec. 240.14d-1  Scope of and definitions applicable to Regulations 14D and 14E.

    (a) Scope. Regulation 14D (Sec. Sec. 240.14d-1 through 240.14d-101) 
shall apply to any tender offer which is subject to section 14(d)(1) of 
the Act, including, but not limited to, any tender offer for securities 
of a class described in that section which is made by an affiliate of 
the issuer of such class. Regulation 14E (Sec. Sec. 240.14e-1 and 
240.14e-2) shall apply to any tender offer for securities (other than 
exempted securities) unless otherwise noted therein.
    (b) The requirements imposed by sections 14(d)(1) through 14(d)(7) 
of the Act, Regulation 14D and Schedules TO and 14D-9 thereunder, and 
Rule 14e-1 of Regulation 14E under the Act, shall be deemed satisfied 
with respect to any tender offer, including any exchange offer, for the 
securities of an issuer incorporated or organized under the laws of 
Canada or any Canadian province or territory, if such issuer is a 
foreign private issuer and is not an investment company registered or 
required to be registered under the Investment Company Act of 1940, if 
less than 40 percent of the class of securities outstanding that is the 
subject of the tender offer is held by U.S. holders, and the tender 
offer is subject to, and the bidder complies with, the laws, regulations 
and policies of Canada and/or any of its provinces or territories 
governing the conduct of the offer (unless the bidder has received an 
exemption(s) from, and the tender offer does not comply with, 
requirements that otherwise would be prescribed by Regulation 14D or 
14E), provided that:
    (1) In the case of tender offers subject to section 14(d)(1) of the 
Act, where the consideration for a tender offer subject to this section 
consists solely of cash, the entire disclosure document or documents 
required to be furnished to holders of the class of securities to be 
acquired shall be filed with the Commission on Schedule 14D-1F (Sec. 
240.14d-102) and disseminated to shareholders of the subject company 
residing in the United States in accordance with such Canadian laws, 
regulations and policies; or
    (2) Where the consideration for a tender offer subject to this 
section includes securities of the bidder to be issued pursuant to the 
offer, any registration statement and/or prospectus relating thereto 
shall be filed with the Commission along with the Schedule 14D-1F 
referred to in paragraph (b)(1) of this section, and shall be 
disseminated, together with the home jurisdiction document(s) 
accompanying such Schedule, to shareholders of the subject company 
residing in the United States in accordance with such Canadian laws, 
regulations and policies.

    Notes: 1. For purposes of any tender offer, including any exchange 
offer, otherwise eligible to proceed in accordance with Rule 14d-1(b) 
under the Act, the issuer of the subject securities will be presumed to 
be a foreign private issuer and U.S. holders will be presumed to hold 
less than 40 percent of such outstanding securities, unless (a) the 
aggregate trading volume of that class on national securities exchanges 
in the United States and on NASDAQ exceeded its aggregate trading volume 
on securities exchanges in Canada and on the Canadian Dealing Network, 
Inc. (``CDN'') over the 12 calendar month period prior to commencement 
of this offer, or if commenced in response to a prior offer, over the 12 
calendar month period prior to the commencement of the initial offer 
(based on volume figures published by such exchanges and NASDAQ and 
CDN); (b) the most recent annual report or annual information form filed 
or submitted by the issuer with securities regulators of Ontario, 
Quebec, British Columbia or Alberta (or, if the issuer of the subject 
securities is not a reporting issuer in any of such provinces, with any

[[Page 246]]

other Canadian securities regulator) or with the Commission indicates 
that U.S. holders hold 40 percent or more of the outstanding subject 
class of securities; or (c) the offeror has actual knowledge that the 
level of U.S. ownership equals or exceeds 40 percent of such securities.
    2. Notwithstanding the grant of an exemption from one or more of the 
applicable Canadian regulatory provisions imposing requirements that 
otherwise would be prescribed by Regulation 14D or 14E, the tender offer 
will be eligible to proceed in accordance with the requirements of this 
section if the Commission by order determines that the applicable 
Canadian regulatory provisions are adequate to protect the interest of 
investors.

    (c) Tier I. Any tender offer for the securities of a foreign private 
issuer as defined in Sec. 240.3b-4 is exempt from the requirements of 
sections 14(d)(1) through 14(d)(7) of the Act (15 U.S.C. 78n(d)(1) 
through 78n(d)(7)), Regulation 14D (Sec. Sec. 240.14d-1 through 
240.14d-10) and Schedules TO (Sec. 240.14d-100) and 14D-9 (Sec. 
240.14d-101) thereunder, and Sec. 240.14e-1 and Sec. 240.14e-2 of 
Regulation 14E under the Act if the following conditions are satisfied:
    (1) U.S. ownership limitation. Except in the case of a tender offer 
which is commenced during the pendency of a tender offer made by a prior 
bidder in reliance on this paragraph or Sec. 240.13e-4(h)(8), U.S. 
holders do not hold more than 10 percent of the class of securities 
sought in the offer (as determined under Instruction 2 to paragraphs (c) 
and (d) of this section).
    (2) Equal treatment. The bidder must permit U.S. holders to 
participate in the offer on terms at least as favorable as those offered 
any other holder of the same class of securities that is the subject of 
the tender offer; however:
    (i) Registered exchange offers. If the bidder offers securities 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
bidder need not extend the offer to security holders in those states or 
jurisdictions that prohibit the offer or sale of the securities after 
the bidder has made a good faith effort to register or qualify the offer 
and sale of securities in that state or jurisdiction, except that the 
bidder must offer the same cash alternative to security holders in any 
such state or jurisdiction that it has offered to security holders in 
any other state or jurisdiction.
    (ii) Exempt exchange offers. If the bidder offers securities exempt 
from registration under Sec. 230.802 of this chapter, the bidder need 
not extend the offer to security holders in those states or 
jurisdictions that require registration or qualification, except that 
the bidder must offer the same cash alternative to security holders in 
any such state or jurisdiction that it has offered to security holders 
in any other state or jurisdiction.
    (iii) Cash only consideration. The bidder may offer U.S. holders 
only a cash consideration for the tender of the subject securities, 
notwithstanding the fact that the bidder is offering security holders 
outside the United States a consideration that consists in whole or in 
part of securities of the bidder, so long as the bidder has a reasonable 
basis for believing that the amount of cash is substantially equivalent 
to the value of the consideration offered to non-U.S. holders, and 
either of the following conditions are satisfied:
    (A) The offered security is a ``margin security'' within the meaning 
of Regulation T (12 CFR 220.2) and the issuer undertakes to provide, 
upon the request of any U.S. holder or the Commission staff, the closing 
price and daily trading volume of the security on the principal trading 
market for the security as of the last trading day of each of the six 
months preceding the announcement of the offer and each of the trading 
days thereafter; or
    (B) If the offered security is not a ``margin security'' within the 
meaning of Regulation T (12 CFR 220.2) the issuer undertakes to provide, 
upon the request of any U.S. holder or the Commission staff, an opinion 
of an independent expert stating that the cash consideration offered to 
U.S. holders is substantially equivalent to the value of the 
consideration offered security holders outside the United States.
    (iv) Disparate tax treatment. If the bidder offers loan notes solely 
to offer sellers tax advantages not available in the United States and 
these notes are neither listed on any organized securities market nor 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
loan notes need not be offered to U.S. holders.

[[Page 247]]

    (3) Informational documents. (i) The bidder must disseminate any 
informational document to U.S. holders, including any amendments 
thereto, in English, on a comparable basis to that provided to security 
holders in the home jurisdiction.
    (ii) If the bidder disseminates by publication in its home 
jurisdiction, the bidder must publish the information in the United 
States in a manner reasonably calculated to inform U.S. holders of the 
offer.
    (iii) In the case of tender offers for securities described in 
section 14(d)(1) of the Act (15 U.S.C. 78n(d)(1)), if the bidder 
publishes or otherwise disseminates an informational document to the 
holders of the securities in connection with the tender offer, the 
bidder must furnish that informational document, including any 
amendments thereto, in English, to the Commission on Form CB (Sec. 
249.480 of this chapter) by the first business day after publication or 
dissemination. If the bidder is a foreign company, it must also file a 
Form F-X (Sec. 239.42 of this chapter) with the Commission at the same 
time as the submission of Form CB to appoint an agent for service in the 
United States.
    (4) Investment companies. The issuer of the securities that are the 
subject of the tender offer is not an investment company registered or 
required to be registered under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.), other than a registered closed-end investment 
company.
    (d) Tier II. A person conducting a tender offer (including any 
exchange offer) that meets the conditions in paragraph (d)(1) of this 
section shall be entitled to the exemptive relief specified in paragraph 
(d)(2) of this section provided that such tender offer complies with all 
the requirements of this section other than those for which an exemption 
has been specifically provided in paragraph (d)(2) of this section:
    (1) Conditions. (i) The subject company is a foreign private issuer 
as defined in Sec. 240.3b-4 and is not an investment company registered 
or required to be registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment 
company;
    (ii) Except in the case of a tender offer which is commenced during 
the pendency of a tender offer made by a prior bidder in reliance on 
this paragraph or Sec. 240.13e-4(i), U.S. holders do not hold more than 
40 percent of the class of securities sought in the offer (as determined 
under Instruction 2 to paragraphs (c) and (d) of this section); and
    (iii) The bidder complies with all applicable U.S. tender offer laws 
and regulations, other than those for which an exemption has been 
provided for in paragraph (d)(2) of this section.
    (2) Exemptions--(i) Equal treatment--loan notes. If the bidder 
offers loan notes solely to offer sellers tax advantages not available 
in the United States and these notes are neither listed on any organized 
securities market nor registered under the Securities Act of 1933 (15 
U.S.C. 77a et seq.), the loan notes need not be offered to U.S. holders, 
notwithstanding Sec. 240.14d-10.
    (ii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of Sec. 240.14d-10, a bidder conducting 
a tender offer meeting the conditions of paragraph (d)(1) of this 
section may separate the offer into two offers: one offer made only to 
U.S. holders and another offer made only to non-U.S. holders. The offer 
to U.S. holders must be made on terms at least as favorable as those 
offered any other holder of the same class of securities that is the 
subject of the tender offers.
    (iii) Notice of extensions. Notice of extensions made in accordance 
with the requirements of the home jurisdiction law or practice will 
satisfy the requirements of Sec. 240.14e-1(d).
    (iv) Prompt payment. Payment made in accordance with the 
requirements of the home jurisdiction law or practice will satisfy the 
requirements of Sec. 240.14e-1(c).
    (v) Subsequent offering period/Withdrawal rights. A bidder will 
satisfy the announcement and prompt payment requirements of Sec. 
240.14d-11(d), if the bidder announces the results of the tender offer, 
including the approximate number of securities deposited to date, and 
pays for tendered securities in accordance with the requirements of the 
home jurisdiction law or practice and

[[Page 248]]

the subsequent offering period commences immediately following such 
announcement. Notwithstanding section 14(d)(5) of the Act (15 U.S.C. 
78n(d)(5)), the bidder need not extend withdrawal rights following the 
close of the offer and prior to the commencement of the subsequent 
offering period.

    Instructions to paragraphs (c) and (d):
    1. Home jurisdiction means both the jurisdiction of the subject 
company's incorporation, organization or chartering and the principal 
foreign market where the subject company's securities are listed or 
quoted.
    2. U.S. holder means any security holder resident in the United 
States. Except as otherwise provided in Instruction 3 below, to 
determine the percentage of outstanding securities held by U.S. holders:
    i. Calculate the U.S. ownership as of 30 days before the 
commencement of the tender offer;
    ii. Include securities underlying American Depositary Shares 
convertible or exchangeable into the securities that are the subject of 
the tender offer when calculating the number of subject securities 
outstanding, as well as the number held by U.S. holders. Exclude from 
the calculations other types of securities that are convertible or 
exchangeable into the securities that are the subject of the tender 
offer, such as warrants, options and convertible securities. Exclude 
from those calculations securities held by persons who hold more than 10 
percent of the subject securities, or that are held by the bidder;
    iii. Use the method of calculating record ownership in Rule 12g3-
2(a) under the Act (Sec. 240.12g3-2(a) of this chapter), except that 
your inquiry as to the amount of securities represented by accounts of 
customers resident in the United States may be limited to brokers, 
dealers, banks and other nominees located in the United States, the 
subject company's jurisdiction of incorporation or that of each 
participant in a business combination, and the jurisdiction that is the 
primary trading market for the subject securities, if different than the 
subject company's jurisdiction of incorporation;
    iv. If, after reasonable inquiry, you are unable to obtain 
information about the amount of securities represented by accounts of 
customers resident in the United States, you may assume, for purposes of 
this definition, that the customers are residents of the jurisdiction in 
which the nominee has its principal place of business; and
    v. Count securities as beneficially owned by residents of the United 
States as reported on reports of beneficial ownership that are provided 
to you or publicly filed and based on information otherwise provided to 
you.
    3. In a tender offer by a bidder other than an affiliate of the 
issuer of the subject securities, the issuer of the subject securities 
will be presumed to be a foreign private issuer and U.S. holders will be 
presumed to hold 10 percent or less (40 percent or less in the case of 
14d-1(d)) of such outstanding securities, unless:
    i. The tender offer is made pursuant to an agreement with the issuer 
of the subject securities;
    ii. The aggregate trading volume of the subject class of securities 
on all national securities exchanges in the United States, on the Nasdaq 
market, or on the OTC market, as reported to the NASD, over the 12-
calendar-month period ending 30 days before commencement of the offer, 
exceeds 10 percent (40 percent in the case of 14d-1(d)) of the worldwide 
aggregate trading volume of that class of securities over the same 
period;
    iii. The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission indicates that U.S. holders hold 
more than 10 percent (40 percent in the case of 14d-1(d)) of the 
outstanding subject class of securities; or
    iv. The bidder knows or has reason to know that the level of U.S. 
ownership exceeds 10 percent (40 percent in the case of 14d-1(d)) of 
such securities.
    4. United States. United States means the United States of America, 
its territories and possessions, any State of the United States, and the 
District of Columbia.
    5. The exemptions provided by paragraphs (c) and (d) of this section 
are not available for any securities transaction or series of 
transactions that technically complies with paragraph (c) or (d) of this 
section but are part of a plan or scheme to evade the provisions of 
Regulations 14D or 14E.
    (e) Notwithstanding paragraph (a) of this section, the requirements 
imposed by sections 14(d)(1) through 14(d)(7) of the Act [15 U.S.C. 
78n(d)(1) through 78n(d)(7)], Regulation 14D promulgated thereunder 
(Sec. Sec. 240.14d-1 through 240.14d-10), and Sec. Sec. 240.14e-1 and 
240.14e-2 shall not apply by virtue of the fact that a bidder for the 
securities of a foreign private issuer, as defined in Sec. 240.3b-4, 
the subject company of such a tender offer, their representatives, or 
any other person specified in Sec. 240.14d-9(d), provides any 
journalist with access to its press conferences held outside of the 
United States, to meetings with its representatives conducted outside of 
the United States, or to written press-related materials released 
outside the United States, at or in which a present or proposed tender 
offer is discussed, if:

[[Page 249]]

    (1) Access is provided to both U.S. and foreign journalists; and
    (2) With respect to any written press-related materials released by 
the bidder or its representatives that discuss a present or proposed 
tender offer for equity securities registered under Section 12 of the 
Act [15 U.S.C. 78l], the written press-related materials must state that 
these written press-related materials are not an extension of a tender 
offer in the United States for a class of equity securities of the 
subject company. If the bidder intends to extend the tender offer in the 
United States at some future time, a statement regarding this intention, 
and that the procedural and filing requirements of the Williams Act will 
be satisfied at that time, also must be included in these written press-
related materials. No means to tender securities, or coupons that could 
be returned to indicate interest in the tender offer, may be provided as 
part of, or attached to, these written press-related materials.
    (f) For the purpose of Sec. 240.14d-1(e), a bidder may presume that 
a target company qualifies as a foreign private issuer if the target 
company is a foreign issuer and files registration statements or reports 
on the disclosure forms specifically designated for foreign private 
issuers, claims the exemption from registration under the Act pursuant 
to Sec. 240.12g3-2(b), or is not reporting in the United States.
    (g) Definitions. Unless the context otherwise requires, all terms 
used in Regulation 14D and Regulation 14E have the same meaning as in 
the Act and in Rule 12b-2 (Sec. 240.12b-2) promulgated thereunder. In 
addition, for purposes of sections 14(d) and 14(e) of the Act and 
Regulations 14D and 14E, the following definitions apply:
    (1) The term beneficial owner shall have the same meaning as that 
set forth in Rule 13d-3: Provided, however, That, except with respect to 
Rule 14d-3, Rule 14d-9(d), the term shall not include a person who does 
not have or share investment power or who is deemed to be a beneficial 
owner by virtue of Rule 13d-3(d)(1) (Sec. 240.13d-3(d)(1));
    (2) The term bidder means any person who makes a tender offer or on 
whose behalf a tender offer is made: Provided, however, That the term 
does not include an issuer which makes a tender offer for securities of 
any class of which it is the issuer;
    (3) The term business day means any day, other than Saturday, Sunday 
or a federal holiday, and shall consist of the time period from 12:01 
a.m. through 12:00 midnight Eastern time. In computing any time period 
under section 14(d)(5) or section 14(d)(6) of the Act or under 
Regulation 14D or Regulation 14E, the date of the event which begins the 
running of such time period shall be included except that if such event 
occurs on other than a business day such period shall begin to run on 
and shall include the first business day thereafter; and
    (4) The term initial offering period means the period from the time 
the offer commences until all minimum time periods, including 
extensions, required by Regulations 14D (Sec. Sec. 240.14d-1 through 
240.14d-103) and 14E (Sec. Sec. 240.14e-1 through 240.14e-8) have been 
satisfied and all conditions to the offer have been satisfied or waived 
within these time periods.
    (5) The term security holders means holders of record and beneficial 
owners of securities which are the subject of a tender offer;
    (6) The term security position listing means, with respect to 
securities of any issuer held by a registered clearing agency in the 
name of the clearing agency or its nominee, a list of those participants 
in the clearing agency on whose behalf the clearing agency holds the 
issuer's securities and of the participants' respective positions in 
such securities as of a specified date.
    (7) The term subject company means any issuer of securities which 
are sought by a bidder pursuant to a tender offer;
    (8) The term subsequent offering period means the period immediately 
following the initial offering period meeting the conditions specified 
in Sec. 240.14d-11.
    (9) The term tender offer material means:
    (i) The bidder's formal offer, including all the material terms and 
conditions of the tender offer and all amendments thereto;

[[Page 250]]

    (ii) The related transmittal letter (whereby securities of the 
subject company which are sought in the tender offer may be transmitted 
to the bidder or its depositary) and all amendments thereto; and
    (iii) Press releases, advertisements, letters and other documents 
published by the bidder or sent or given by the bidder to security 
holders which, directly or indirectly, solicit, invite or request 
tenders of the securities being sought in the tender offer;
    (h) Signatures. Where the Act or the rules, forms, reports or 
schedules thereunder require a document filed with or furnished to the 
Commission to be signed, such document shall be manually signed, or 
signed using either typed signatures or duplicated or facsimile versions 
of manual signatures. Where typed, duplicated or facsimile signatures 
are used, each signatory to the filing shall manually sign a signature 
page or other document authenticating, acknowledging or otherwise 
adopting his or her signature that appears in the filing. Such document 
shall be executed before or at the time the filing is made and shall be 
retained by the filer for a period of five years. Upon request, the 
filer shall furnish to the Commission or its staff a copy of any or all 
documents retained pursuant to this section.

[44 FR 70340, Dec. 6, 1979, as amended at 47 FR 11470, Mar. 16, 1982; 56 
FR 30071, July 1, 1991; 60 FR 26622, May 17, 1995; 61 FR 30403, June 14, 
1996; 62 FR 53955, Oct. 17, 1997; 64 FR 61404, 61459, Nov. 10, 1999]



Sec. 240.14d-2  Commencement of a tender offer.

    (a) Date of commencement. A bidder will have commenced its tender 
offer for purposes of section 14(d) of the Act (15 U.S.C. 78n) and the 
rules under that section at 12:01 a.m. on the date when the bidder has 
first published, sent or given the means to tender to security holders. 
For purposes of this section, the means to tender includes the 
transmittal form or a statement regarding how the transmittal form may 
be obtained.
    (b) Pre-commencement communications. A communication by the bidder 
will not be deemed to constitute commencement of a tender offer if:
    (1) It does not include the means for security holders to tender 
their shares into the offer; and
    (2) All written communications relating to the tender offer, from 
and including the first public announcement, are filed under cover of 
Schedule TO (Sec. 240.14d-100) with the Commission no later than the 
date of the communication. The bidder also must deliver to the subject 
company and any other bidder for the same class of securities the first 
communication relating to the transaction that is filed, or required to 
be filed, with the Commission.

    Instructions to paragraph (b)(2):
    1. The box on the front of Schedule TO indicating that the filing 
contains pre-commencement communications must be checked.
    2. Any communications made in connection with an exchange offer 
registered under the Securities Act of 1933 need only be filed under 
Sec. 230.425 of this chapter and will be deemed filed under this 
section.
    3. Each pre-commencement written communication must include a 
prominent legend in clear, plain language advising security holders to 
read the tender offer statement when it is available because it contains 
important information. The legend also must advise investors that they 
can get the tender offer statement and other filed documents for free at 
the Commission's web site and explain which documents are free from the 
offeror.
    4. See Sec. Sec. 230.135, 230.165 and 230.166 of this chapter for 
pre-commencement communications made in connection with registered 
exchange offers.
    5. ``Public announcement'' is any oral or written communication by 
the bidder, or any person authorized to act on the bidder's behalf, that 
is reasonably designed to, or has the effect of, informing the public or 
security holders in general about the tender offer.

    (c) Filing and other obligations triggered by commencement. As soon 
as practicable on the date of commencement, a bidder must comply with 
the filing requirements of Sec. 240.14d-3(a), the dissemination 
requirements of Sec. 240.14d-4(a) or (b), and the disclosure 
requirements of Sec. 240.14d-6(a).

[64 FR 61459, Nov. 10, 1999]

[[Page 251]]



Sec. 240.14d-3  Filing and transmission of tender offer statement.

    (a) Filing and transmittal. No bidder shall make a tender offer if, 
after consummation thereof, such bidder would be the beneficial owner of 
more than 5 percent of the class of the subject company's securities for 
which the tender offer is made, unless as soon as practicable on the 
date of the commencement of the tender offer such bidder:
    (1) Files with the Commission a Tender Offer Statement on Schedule 
TO (Sec. 240.14d-100), including all exhibits thereto;
    (2) Delivers a copy of such Schedule TO, including all exhibits 
thereto:
    (i) To the subject company at its principal executive office; and
    (ii) To any other bidder, which has filed a Schedule TO with the 
Commission relating to a tender offer which has not yet terminated for 
the same class of securities of the subject company, at such bidder's 
principal executive office or at the address of the person authorized to 
receive notices and communications (which is disclosed on the cover 
sheet of such other bidder's Schedule TO);
    (3) Gives telephonic notice of the information required by Rule 14d-
6(e)(2) (i) and (ii) (Sec. 240.14d-6(e)(2) (i) and (ii)) and mails by 
means of first class mail a copy of such Schedule TO, including all 
exhibits thereto:
    (i) To each national securities exchange where such class of the 
subject company's securities is registered and listed for trading (which 
may be based upon information contained in the subject company's most 
recent Annual Report on Form 10-K and Form 10-KSB (Sec. 249.310) filed 
with the Commission unless the bidder has reason to believe that such 
information is not current) which telephonic notice shall be made when 
practicable prior to the opening of each such exchange; and
    (ii) To the National Association of Securities Dealers, Inc. 
(``NASD'') if such class of the subject company's securities is 
authorized for quotation in the NASDAQ interdealer quotation system.
    (b) Post-commencement amendments and additional materials. The 
bidder making the tender offer must file with the Commission:
    (1) An amendment to Schedule TO (Sec. 240.14d-100) reporting 
promptly any material changes in the information set forth in the 
schedule previously filed and including copies of any additional tender 
offer materials as exhibits; and
    (2) A final amendment to Schedule TO (Sec. 240.14d-100) reporting 
promptly the results of the tender offer.

    Instruction to paragraph (b): A copy of any additional tender offer 
materials or amendment filed under this section must be sent promptly to 
the subject company and to any exchange and/or NASD, as required by 
paragraph (a) of this section, but in no event later than the date the 
materials are first published, sent or given to security holders.

    (c) Certain announcements. Notwithstanding the provisions of 
paragraph (b) of this section, if the additional tender offer material 
or an amendment to Schedule TO discloses only the number of shares 
deposited to date, and/or announces an extension of the time during 
which shares may be tendered, then the bidder may file such tender offer 
material or amendment and send a copy of such tender offer material or 
amendment to the subject company, any exchange and/or the NASD, as 
required by paragraph (a) of this section, promptly after the date such 
tender offer material is first published or sent or given to security 
holders.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81, 85; secs. 205, 209, 48 Stat. 906, 
908; sec. 8, 68 Stat. 685; sec. 308(a)(2), 90 Stat. 57, secs. 3(b), 
10(b), 13, 14, 23(a), 48 Stat. 882, 891, 894, 895, 901; sec. 203(a), 49 
Stat. 704; sec. 8, 49 Stat. 1379; secs. 4, 5, 78 Stat. 569, 570; secs. 
2, 3, 82 Stat. 454, 455; secs. 1, 2, 3-5, 84 Stat. 1497; secs. 3, 10, 
18, 89 Stat. 97, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 91 
Stat. 1494, 1498, 1499; sec. 20, 49 Stat. 833; sec. 319(a), 53 Stat. 
1173; sec. 38(a), 54 Stat. 841; 15 U.S.C. 77g, 77j, 77s(a), 78c(b), 
78j(b), 78m, 78n, 78w(a), 79t, 77ttt(a), 80a-37(a))

[44 FR 70341, Dec. 6, 1979; 64 FR 61460, Nov. 10, 1999]



Sec. 240.14d-4  Dissemination of tender offers to security holders.

    As soon as practicable on the date of commencement of a tender 
offer, the bidder must publish, send or give the disclosure required by 
Sec. 240.14d-6 to security holders of the class of securities

[[Page 252]]

that is the subject of the offer, by complying with all of the 
requirements of any of the following:
    (a) Cash tender offers and exempt securities offers. For tender 
offers in which the consideration consists solely of cash and/or 
securities exempt from registration under section 3 of the Securities 
Act of 1933 (15 U.S.C. 77c):
    (1) Long-form publication. The bidder makes adequate publication in 
a newspaper or newspapers of long-form publication of the tender offer.
    (2) Summary publication. (i) If the tender offer is not subject to 
Rule 13e-3 (Sec. 240.13e-3), the bidder makes adequate publication in a 
newspaper or newspapers of a summary advertisement of the tender offer; 
and
    (ii) Mails by first class mail or otherwise furnishes with 
reasonable promptness the bidder's tender offer materials to any 
security holder who requests such tender offer materials pursuant to the 
summary advertisement or otherwise.
    (3) Use of stockholder lists and security position listings. Any 
bidder using stockholder lists and security position listings under 
Sec. 240.14d-5 must comply with paragraph (a)(1) or (2) of this section 
on or before the date of the bidder's request under Sec. 240.14d-5(a).

    Instruction to paragraph (a): Tender offers may be published or sent 
or given to security holders by other methods, but with respect to 
summary publication and the use of stockholder lists and security 
position listings under Sec. 240.14d-5, paragraphs (a)(2) and (a)(3) of 
this section are exclusive.

    (b) Registered securities offers. For tender offers in which the 
consideration consists solely or partially of securities registered 
under the Securities Act of 1933, a registration statement containing 
all of the required information, including pricing information, has been 
filed and a preliminary prospectus or a prospectus that meets the 
requirements of section 10(a) of the Securities Act (15 U.S.C. 77j(a)), 
including a letter of transmittal, is delivered to security holders. 
However, for going-private transactions (as defined by Sec. 240.13e-3) 
and roll-up transactions (as described by Item 901 of Regulation S-K 
(Sec. 229.901 of this chapter)), a registration statement registering 
the securities to be offered must have become effective and only a 
prospectus that meets the requirements of section 10(a) of the 
Securities Act may be delivered to security holders on the date of 
commencement.

    Instructions to paragraph (b):
    1. If the prospectus is being delivered by mail, mailing on the date 
of commencement is sufficient.
    2. A preliminary prospectus used under this section may not omit 
information under Sec. Sec. 230.430 or 230.430A of this chapter.
    3. If a preliminary prospectus is used under this section and the 
bidder must disseminate material changes, the tender offer must remain 
open for the period specified in paragraph (d)(2) of this section.
    4. If a preliminary prospectus is used under this section, tenders 
may be requested in accordance with Sec. 230.162(a) of this chapter.

    (c) Adequate publication. Depending on the facts and circumstances 
involved, adequate publication of a tender offer pursuant to this 
section may require publication in a newspaper with a national 
circulation or may only require publication in a newspaper with 
metropolitan or regional circulation or may require publication in a 
combination thereof: Provided, however, That publication in all editions 
of a daily newspaper with a national circulation shall be deemed to 
constitute adequate publication.
    (d) Publication of changes and extension of the offer. (1) If a 
tender offer has been published or sent or given to security holders by 
one or more of the methods enumerated in this section, a material change 
in the information published or sent or given to security holders shall 
be promptly disseminated to security holders in a manner reasonably 
designed to inform security holders of such change; Provided, however, 
That if the bidder has elected pursuant to rule 14d-5 (f)(1) of this 
section to require the subject company to disseminate amendments 
disclosing material changes to the tender offer materials pursuant to 
Rule 14d-5, the bidder shall disseminate material changes in the 
information published or sent or given to security holders at least 
pursuant to Rule 14d-5.
    (2) In a registered securities offer where the bidder disseminates 
the preliminary prospectus as permitted by paragraph (b) of this 
section, the offer must remain open from the date that material changes 
to the tender offer

[[Page 253]]

materials are disseminated to security holders, as follows:
    (i) Five business days for a prospectus supplement containing a 
material change other than price or share levels;
    (ii) Ten business days for a prospectus supplement containing a 
change in price, the amount of securities sought, the dealer's 
soliciting fee, or other similarly significant change;
    (iii) Ten business days for a prospectus supplement included as part 
of a post-effective amendment; and
    (iv) Twenty business days for a revised prospectus when the initial 
prospectus was materially deficient.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81, 85; secs. 205, 209, 48 Stat. 906, 
908; sec. 8, 68 Stat. 685; sec. 308(a)(2), 90 Stat. 57, secs. 3(b), 
10(b), 13, 14, 23(a), 48 Stat. 882, 891, 894, 895, 901; sec. 203(a), 49 
Stat. 704; sec. 8, 49 Stat. 1379; secs. 4, 5, 78 Stat. 569, 570; secs. 
2, 3, 82 Stat. 454, 455; secs. 1, 2, 3-5, 84 Stat. 1497; secs. 3, 10, 
18, 89 Stat. 97, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 91 
Stat. 1494, 1498, 1499; sec. 20, 49 Stat. 833; sec. 319(a), 53 Stat. 
1173; sec. 38(a), 54 Stat. 841; 15 U.S.C. 77g, 77j, 77s(a), 78c(b), 
78j(b), 78m, 78n, 78w(a), 79t, 77ttt(a), 80a-37(a))

[44 FR 70341, Dec. 6, 1979, as amended at 64 FR 61460, Nov. 10, 1999]



Sec. 240.14d-5  Dissemination of certain tender offers by the use of 
stockholder lists and security position listings.

    (a) Obligations of the subject company. Upon receipt by a subject 
company at its principal executive offices of a bidder's written 
request, meeting the requirements of paragraph (e) of this section, the 
subject company shall comply with the following sub-paragraphs.
    (1) The subject company shall notify promptly transfer agents and 
any other person who will assist the subject company in complying with 
the requirements of this section of the receipt by the subject company 
of a request by a bidder pursuant to this section.
    (2) The subject company shall promptly ascertain whether the most 
recently prepared stockholder list, written or otherwise, within the 
access of the subject company was prepared as of a date earlier than ten 
business days before the date of the bidder's request and, if so, the 
subject company shall promptly prepare or cause to be prepared a 
stockholder list as of the most recent practicable date which shall not 
be more than ten business days before the date of the bidder's request.
    (3) The subject company shall make an election to comply and shall 
comply with all of the provisions of either paragraph (b) or paragraph 
(c) of this section. The subject company's election once made shall not 
be modified or revoked during the bidder's tender offer and extensions 
thereof.
    (4) No later than the second business day after the date of the 
bidder's request, the subject company shall orally notify the bidder, 
which notification shall be confirmed in writing, of the subject 
company's election made pursuant to paragraph (a)(3) of this section. 
Such notification shall indicate (i) the approximate number of security 
holders of the class of securities being sought by the bidder and, (ii) 
if the subject company elects to comply with paragraph (b) of this 
section, appropriate information concerning the location for delivery of 
the bidder's tender offer materials and the approximate direct costs 
incidental to the mailing to security holders of the bidder's tender 
offer materials computed in accordance with paragraph (g)(2) of this 
section.
    (b) Mailing of tender offer materials by the subject company. A 
subject company which elects pursuant to paragraph (a)(3) of this 
section to comply with the provisions of this paragraph shall perform 
the acts prescribed by the following paragraphs.
    (1) The subject company shall promptly contact each participant 
named on the most recent security position listing of any clearing 
agency within the access of the subject company and make inquiry of each 
such participant as to the approximate number of beneficial owners of 
the subject company securities being sought in the tender offer held by 
each such participant.
    (2) No later than the third business day after delivery of the 
bidder's tender offer materials pursuant to paragraph (g)(1) of this 
section, the subject company shall begin to mail or cause to be mailed 
by means of first class mail a copy of the bidder's tender offer 
materials to each person whose name

[[Page 254]]

appears as a record holder of the class of securities for which the 
offer is made on the most recent stockholder list referred to in 
paragraph (a)(2) of this section. The subject company shall use its best 
efforts to complete the mailing in a timely manner but in no event shall 
such mailing be completed in a substantially greater period of time than 
the subject company would complete a mailing to security holders of its 
own materials relating to the tender offer.
    (3) No later than the third business day after the delivery of the 
bidder's tender offer materials pursuant to paragraph (g)(1) of this 
section, the subject company shall begin to transmit or cause to be 
transmitted a sufficient number of sets of the bidder's tender offer 
materials to the participants named on the security position listings 
described in paragraph (b)(1) of this section. The subject company shall 
use its best efforts to complete the transmittal in a timely manner but 
in no event shall such transmittal be completed in a substantially 
greater period of time than the subject company would complete a 
transmittal to such participants pursuant to security position listings 
of clearing agencies of its own material relating to the tender offer.
    (4) The subject company shall promptly give oral notification to the 
bidder, which notification shall be confirmed in writing, of the 
commencement of the mailing pursuant to paragraph (b)(2) of this section 
and of the transmittal pursuant to paragraph (b)(3) of this section.
    (5) During the tender offer and any extension thereof the subject 
company shall use reasonable efforts to update the stockholder list and 
shall mail or cause to be mailed promptly following each update a copy 
of the bidder's tender offer materials (to the extent sufficient sets of 
such materials have been furnished by the bidder) to each person who has 
become a record holder since the later of (i) the date of preparation of 
the most recent stockholder list referred to in paragraph (a)(2) of this 
section or (ii) the last preceding update.
    (6) If the bidder has elected pursuant to paragraph (f)(1) of this 
section to require the subject company to disseminate amendments 
disclosing material changes to the tender offer materials pursuant to 
this section, the subject company, promptly following delivery of each 
such amendment, shall mail or cause to be mailed a copy of each such 
amendment to each record holder whose name appears on the shareholder 
list described in paragraphs (a)(2) and (b)(5) of this section and shall 
transmit or cause to be transmitted sufficient copies of such amendment 
to each participant named on security position listings who received 
sets of the bidder's tender offer materials pursuant to paragraph (b)(3) 
of this section.
    (7) The subject company shall not include any communication other 
than the bidder's tender offer materials or amendments thereto in the 
envelopes or other containers furnished by the bidder.
    (8) Promptly following the termination of the tender offer, the 
subject company shall reimburse the bidder the excess, if any, of the 
amounts advanced pursuant to paragraph (f)(3)(iii) over the direct costs 
incidental to compliance by the subject company and its agents in 
performing the acts required by this section computed in accordance with 
paragraph (g)(2) of this section.
    (c) Delivery of stockholder lists and security position listings. A 
subject company which elects pursuant to paragraph (a)(3) of this 
section to comply with the provisions of this paragraph shall perform 
the acts prescribed by the following paragraphs.
    (1) No later than the third business day after the date of the 
bidder's request, the subject company must furnish to the bidder at the 
subject company's principal executive office a copy of the names and 
addresses of the record holders on the most recent stockholder list 
referred to in paragraph (a)(2) of this section; the names and addresses 
of participants identified on the most recent security position listing 
of any clearing agency that is within the access of the subject company; 
and the most recent list of names, addresses and security positions of 
beneficial owners as specified in Sec. 240.14a-13(b), in the possession 
of the subject company, or that subsequently comes into its possession. 
All security holder list information must

[[Page 255]]

be in the format requested by the bidder to the extent the format is 
available to the subject company without undue burden or expense.
    (2) If the bidder has elected pursuant to paragraph (f)(1) of this 
section to require the subject company to disseminate amendments 
disclosing material changes to the tender offer materials, the subject 
company shall update the stockholder list by furnishing the bidder with 
the name and address of each record holder named on the stockholder 
list, and not previously furnished to the bidder, promptly after such 
information becomes available to the subject company during the tender 
offer and any extensions thereof.
    (d) Liability of subject company and others. Neither the subject 
company nor any affiliate or agent of the subject company nor any 
clearing agency shall be:
    (1) Deemed to have made a solicitation or recommendation respecting 
the tender offer within the meaning of section 14(d)(4) based solely 
upon the compliance or noncompliance by the subject company or any 
affiliate or agent of the subject company with one or more requirements 
of this section;
    (2) Liable under any provision of the Federal securities laws to the 
bidder or to any security holder based solely upon the inaccuracy of the 
current names or addresses on the stockholder list or security position 
listing, unless such inaccuracy results from a lack of reasonable care 
on the part of the subject company or any affiliate or agent of the 
subject company;
    (3) Deemed to be an ``underwriter'' within the meaning of section 
(2)(11) of the Securities Act of 1933 for any purpose of that Act or any 
rule or regulation promulgated thereunder based solely upon the 
compliance or noncompliance by the subject company or any affiliate or 
agent of the subject company with one or more of the requirements of 
this section;
    (4) Liable under any provision of the Federal securities laws for 
the disclosure in the bidder's tender offer materials, including any 
amendment thereto, based solely upon the compliance or noncompliance by 
the subject company or any affiliate or agent of the subject company 
with one or more of the requirements of this section.
    (e) Content of the bidder's request. The bidder's written request 
referred to in paragraph (a) of this section shall include the 
following:
    (1) The identity of the bidder;
    (2) The title of the class of securities which is the subject of the 
bidder's tender offer;
    (3) A statement that the bidder is making a request to the subject 
company pursuant to paragraph (a) of this section for the use of the 
stockholder list and security position listings for the purpose of 
disseminating a tender offer to security holders;
    (4) A statement that the bidder is aware of and will comply with the 
provisions of paragraph (f) of this section;
    (5) A statement as to whether or not it has elected pursuant to 
paragraph (f)(1) of this section to disseminate amendments disclosing 
material changes to the tender offer materials pursuant to this section; 
and
    (6) The name, address and telephone number of the person whom the 
subject company shall contact pursuant to paragraph (a)(4) of this 
section.
    (f) Obligations of the bidder. Any bidder who requests that a 
subject company comply with the provisions of paragraph (a) of this 
section shall comply with the following paragraphs.
    (1) The bidder shall make an election whether or not to require the 
subject company to disseminate amendments disclosing material changes to 
the tender offer materials pursuant to this section, which election 
shall be included in the request referred to in paragraph (a) of this 
section and shall not be revocable by the bidder during the tender offer 
and extensions thereof.
    (2) With respect to a tender offer subject to section 14(d)(1) of 
the Act in which the consideration consists solely of cash and/or 
securities exempt from registration under section 3 of the Securities 
Act of 1933, the bidder shall comply with the requirements of Rule 14d-
4(a)(3).
    (3) If the subject company elects to comply with paragraph (b) of 
this section,
    (i) The bidder shall promptly deliver the tender offer materials 
after receipt of the notification from the subject

[[Page 256]]

company as provided in paragraph (a)(4) of this section;
    (ii) The bidder shall promptly notify the subject company of any 
amendment to the bidder's tender offer materials requiring compliance by 
the subject company with paragraph (b)(6) of this section and shall 
promptly deliver such amendment to the subject company pursuant to 
paragraph (g)(1) of this section;
    (iii) The bidder shall advance to the subject company an amount 
equal to the approximate cost of conducting mailings to security holders 
computed in accordance with paragraph (g)(2) of this section;
    (iv) The bidder shall promptly reimburse the subject company for the 
direct costs incidental to compliance by the subject company and its 
agents in performing the acts required by this section computed in 
accordance with paragraph (g)(2) of this section which are in excess of 
the amount advanced pursuant to paragraph (f)(2)(iii) of this section; 
and
    (v) The bidder shall mail by means of first class mail or otherwise 
furnish with reasonable promptness the tender offer materials to any 
security holder who requests such materials.
    (4) If the subject company elects to comply with paragraph (c) of 
this section,
    (i) The bidder shall use the stockholder list and security position 
listings furnished to the bidder pursuant to paragraph (c) of this 
section exclusively in the dissemination of tender offer materials to 
security holders in connection with the bidder's tender offer and 
extensions thereof;
    (ii) The bidder shall return the stockholder lists and security 
position listings furnished to the bidder pursuant to paragraph (c) of 
this section promptly after the termination of the bidder's tender 
offer;
    (iii) The bidder shall accept, handle and return the stockholder 
lists and security position listings furnished to the bidder pursuant to 
paragraph (c) of this section to the subject company on a confidential 
basis;
    (iv) The bidder shall not retain any stockholder list or security 
position listing furnished by the subject company pursuant to paragraph 
(c) of this section, or any copy thereof, nor retain any information 
derived from any such list or listing or copy thereof after the 
termination of the bidder's tender offer;
    (v) The bidder shall mail by means of first class mail, at its own 
expense, a copy of its tender offer materials to each person whose 
identity appears on the stockholder list as furnished and updated by the 
subject company pursuant to paragraphs (c)(1) and (2) of this section;
    (vi) The bidder shall contact the participants named on the security 
position listing of any clearing agency, make inquiry of each 
participant as to the approximate number of sets of tender offer 
materials required by each such participant, and furnish, at its own 
expense, sufficient sets of tender offer materials and any amendment 
thereto to each such participant for subsequent transmission to the 
beneficial owners of the securities being sought by the bidder;
    (vii) The bidder shall mail by means of first class mail or 
otherwise furnish with reasonable promptness the tender offer materials 
to any security holder who requests such materials; and
    (viii) The bidder shall promptly reimburse the subject company for 
direct costs incidental to compliance by the subject company and its 
agents in performing the acts required by this section computed in 
accordance with paragraph (g)(2) of this section.
    (g) Delivery of materials, computation of direct costs. (1) Whenever 
the bidder is required to deliver tender offer materials or amendments 
to tender offer materials, the bidder shall deliver to the subject 
company at the location specified by the subject company in its notice 
given pursuant to paragraph (a)(4) of this section a number of sets of 
the materials or of the amendment, as the case may be, at least equal to 
the approximate number of security holders specified by the subject 
company in such notice, together with appropriate envelopes or other 
containers therefor: Provided, however, That such delivery shall be 
deemed not to have been made unless the bidder has complied with 
paragraph (f)(3)(iii) of this section at the time the materials or 
amendments, as the case may be, are delivered.

[[Page 257]]

    (2) The approximate direct cost of mailing the bidder's tender offer 
materials shall be computed by adding (i) the direct cost incidental to 
the mailing of the subject company's last annual report to shareholders 
(excluding employee time), less the costs of preparation and printing of 
the report, and postage, plus (ii) the amount of first class postage 
required to mail the bidder's tender offer materials. The approximate 
direct costs incidental to the mailing of the amendments to the bidder's 
tender offer materials shall be computed by adding (iii) the estimated 
direct costs of preparing mailing labels, of updating shareholder lists 
and of third party handling charges plus (iv) the amount of first class 
postage required to mail the bidder's amendment. Direct costs incidental 
to the mailing of the bidder's tender offer materials and amendments 
thereto when finally computed may include all reasonable charges paid by 
the subject company to third parties for supplies or services, including 
costs attendant to preparing shareholder lists, mailing labels, handling 
the bidder's materials, contacting participants named on security 
position listings and for postage, but shall exclude indirect costs, 
such as employee time which is devoted to either contesting or 
supporting the tender offer on behalf of the subject company. The final 
billing for direct costs shall be accompanied by an appropriate 
accounting in reasonable detail.

    Note to Sec. 240.14d-5. Reasonably prompt methods of distribution 
to security holders may be used instead of mailing. If alternative 
methods are chosen, the approximate direct costs of distribution shall 
be computed by adding the estimated direct costs of preparing the 
document for distribution through the chosen medium (including updating 
of shareholder lists) plus the estimated reasonable cost of distribution 
through that medium. Direct costs incidental to the distribution of 
tender offer materials and amendments thereto may include all reasonable 
charges paid by the subject company to third parties for supplies or 
services, including costs attendant to preparing shareholder lists, 
handling the bidder's materials, and contacting participants named on 
security position listings, but shall not include indirect costs, such 
as employee time which is devoted to either contesting or supporting the 
tender offer on behalf of the subject company.

[44 FR 70342, Dec. 6, 1979, as amended at 61 FR 24657, May 15, 1996; 64 
FR 61460, Nov. 10, 1999]



Sec. 240.14d-6  Disclosure of tender offer information to security holders.

    (a) Information required on date of commencement--(1) Long-form 
publication. If a tender offer is published, sent or given to security 
holders on the date of commencement by means of long-form publication 
under Sec. 240.14d-4(a)(1), the long-form publication must include the 
information required by paragraph (d)(1) of this section.
    (2) Summary publication. If a tender offer is published, sent or 
given to security holders on the date of commencement by means of 
summary publication under Sec. 240.14d-4(a)(2):
    (i) The summary advertisement must contain at least the information 
required by paragraph (d)(2) of this section; and
    (ii) The tender offer materials furnished by the bidder upon request 
of any security holder must include the information required by 
paragraph (d)(1) of this section.
    (3) Use of stockholder lists and security position listings. If a 
tender offer is published, sent or given to security holders on the date 
of commencement by the use of stockholder lists and security position 
listings under Sec. 240.14d-4(a)(3):
    (i) The summary advertisement must contain at least the information 
required by paragraph (d)(2) of this section; and
    (ii) The tender offer materials transmitted to security holders 
pursuant to such lists and security position listings and furnished by 
the bidder upon the request of any security holder must include the 
information required by paragraph (d)(1) of this section.
    (4) Other tender offers. If a tender offer is published or sent or 
given to security holders other than pursuant to Sec. 240.14d-4(a), the 
tender offer materials that are published or sent or given to security 
holders on the date of commencement of such offer must include the 
information required by paragraph (d)(1) of this section.

[[Page 258]]

    (b) Information required in other tender offer materials published 
after commencement. Except for tender offer materials described in 
paragraphs (a)(2)(ii) and (a)(3)(ii) of this section, additional tender 
offer materials published, sent or given to security holders after 
commencement must include:
    (1) The identities of the bidder and subject company;
    (2) The amount and class of securities being sought;
    (3) The type and amount of consideration being offered; and
    (4) The scheduled expiration date of the tender offer, whether the 
tender offer may be extended and, if so, the procedures for extension of 
the tender offer.

    Instruction to paragraph (b): If the additional tender offer 
materials are summary advertisements, they also must include the 
information required by paragraphs (d)(2)(v) of this section.

    (c) Material changes. A material change in the information published 
or sent or given to security holders must be promptly disclosed to 
security holders in additional tender offer materials.
    (d) Information to be included--(1) Tender offer materials other 
than summary publication. The following information is required by 
paragraphs (a)(1), (a)(2)(ii), (a)(3)(ii) and (a)(4) of this section:
    (i) The information required by Item 1 of Schedule TO (Sec. 
240.14d-100) (Summary Term Sheet); and
    (ii) The information required by the remaining items of Schedule TO 
(Sec. 240.14d-100) for third-party tender offers, except for Item 12 
(exhibits) of Schedule TO (Sec. 240.14d-100), or a fair and adequate 
summary of the information.
    (2) Summary Publication. The following information is required in a 
summary advertisement under paragraphs (a)(2)(i) and (a)(3)(i) of this 
section:
    (i) The identity of the bidder and the subject company;
    (ii) The information required by Item 1004(a)(1) of Regulation M-A 
(Sec. 229.1004(a)(1) of this chapter);
    (iii) If the tender offer is for less than all of the outstanding 
securities of a class of equity securities, a statement as to whether 
the purpose or one of the purposes of the tender offer is to acquire or 
influence control of the business of the subject company;
    (iv) A statement that the information required by paragraph (d)(1) 
of this section is incorporated by reference into the summary 
advertisement;
    (v) Appropriate instructions as to how security holders may obtain 
promptly, at the bidder's expense, the bidder's tender offer materials; 
and
    (vi) In a tender offer published or sent or given to security 
holders by use of stockholder lists and security position listings under 
Sec. 240.14d-4(a)(3), a statement that a request is being made for such 
lists and listings. The summary publication also must state that tender 
offer materials will be mailed to record holders and will be furnished 
to brokers, banks and similar persons whose name appears or whose 
nominee appears on the list of security holders or, if applicable, who 
are listed as participants in a clearing agency's security position 
listing for subsequent transmittal to beneficial owners of such 
securities. If the list furnished to the bidder also included beneficial 
owners pursuant to Sec. 240.14d-5(c)(1) and tender offer materials will 
be mailed directly to beneficial holders, include a statement to that 
effect.
    (3) No transmittal letter. Neither the initial summary advertisement 
nor any subsequent summary advertisement may include a transmittal 
letter (the letter furnished to security holders for transmission of 
securities sought in the tender offer) or any amendment to the 
transmittal letter.

[64 FR 61460, Nov. 10, 1999]



Sec. 240.14d-7  Additional withdrawal rights.

    (a) Rights. (1) In addition to the provisions of section 14(d)(5) of 
the Act, any person who has deposited securities pursuant to a tender 
offer has the right to withdraw any such securities during the period 
such offer request or invitation remains open.
    (2) Exemption during subsequent offering period. Notwithstanding the 
provisions of section 14(d)(5) of the Act (15 U.S.C. 78n(d)(5)) and 
paragraph (a) of this section, the bidder need not offer

[[Page 259]]

withdrawal rights during a subsequent offering period.
    (b) Notice of withdrawal. Notice of withdrawal pursuant to this 
section shall be deemed to be timely upon the receipt by the bidder's 
depositary of a written notice of withdrawal specifying the name(s) of 
the tendering stockholder(s), the number or amount of the securities to 
be withdrawn and the name(s) in which the certificate(s) is (are) 
registered, if different from that of the tendering security holder(s). 
A bidder may impose other reasonable requirements, including certificate 
numbers and a signed request for withdrawal accompained by a signature 
guarantee, as conditions precedent to the physical release of withdrawn 
securities.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81, 85; secs. 205, 209, 48 Stat. 906, 
908; sec. 8, 68 Stat. 685; sec. 308(a)(2), 90 Stat. 57; secs. 3(b), 
10(b), 13, 14, 23(a), 48 Stat. 882, 891, 894, 895, 901; sec. 203(a), 49 
Stat. 704; sec. 8, 49 Stat. 1379; secs. 4, 5, 78 Stat. 569, 570; secs. 
2, 3, 82 Stat. 454, 455; secs. 1, 2, 3-5, 84 Stat. 1497; secs. 3, 10, 
18, 89 Stat. 97, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 91 
Stat. 1494, 1498, 1499; sec. 20, 49 Stat. 833; sec. 319(a), 53 Stat. 
1173; sec. 38(a), 54 Stat. 841; 15 U.S.C. 77g, 77j, 77s(a), 78c(b), 
78j(b), 78m, 78n, 78w(a), 79t, 77ttt(a), 80a-37(a))

[44 FR 70345, Dec. 6, 1979, as amended at 51 FR 25882, July 17, 1986; 51 
FR 32630, Sept. 15, 1986; 64 FR 61461, Nov. 10, 1999]



Sec. 240.14d-8  Exemption from statutory pro rata requirements.

    Notwithstanding the pro rata provisions of section 14(d)(6) of the 
Act, if any person makes a tender offer or request or invitation for 
tenders, for less than all of the outstanding equity securities of a 
class, and if a greater number of securities are deposited pursuant 
thereto than such person is bound or willing to take up and pay for, the 
securities taken up and paid for shall be taken up and paid for as 
nearly as may be pro rata, disregarding fractions, according to the 
number of securities deposited by each depositor during the period such 
offer, request or invitation remains open.

(Sec. 23, 48 Stat. 901; sec. 203(a), 49 Stat. 704; sec. 8, 49 Stat. 
1379; sec. 10, 78 Stat. 580; sec. 3, 82 Stat. 455; secs. 3-5, 84 Stat. 
1497; sec. 18, 89 Stat. 155; 15 U.S.C. 78n(e), 78w(a))

[47 FR 57680, Dec. 28, 1982]



Sec. 240.14d-9  Recommendation or solicitation by the subject company and others.

    (a) Pre-commencement communications. A communication by a person 
described in paragraph (e) of this section with respect to a tender 
offer will not be deemed to constitute a recommendation or solicitation 
under this section if:
    (1) The tender offer has not commenced under Sec. 240.14d-2; and
    (2) The communication is filed under cover of Schedule 14D-9 (Sec. 
240.14d-101) with the Commission no later than the date of the 
communication.

    Instructions to paragraph (a)(2):
    1. The box on the front of Schedule 14D-9 (Sec. 240.14d-101) 
indicating that the filing contains pre-commencement communications must 
be checked.
    2. Any communications made in connection with an exchange offer 
registered under the Securities Act of 1933 need only be filed under 
Sec. 230.425 of this chapter and will be deemed filed under this 
section.
    3. Each pre-commencement written communication must include a 
prominent legend in clear, plain language advising security holders to 
read the company's solicitation/recommendation statement when it is 
available because it contains important information. The legend also 
must advise investors that they can get the recommendation and other 
filed documents for free at the Commission's web site and explain which 
documents are free from the filer.
    4. See Sec. Sec. 230.135, 230.165 and 230.166 of this chapter for 
pre-commencement communications made in connection with registered 
exchange offers.

    (b) Post-commencement communications. After commencement by a bidder 
under Sec. 240.14d-2, no solicitation or recommendation to security 
holders may be made by any person described in paragraph (e) of this 
section with respect to a tender offer for such securities unless as 
soon as practicable on the date such solicitation or recommendation is 
first published or sent or given to security holders such person 
complies with the following:
    (1) Such person shall file with the Commission a Tender Offer 
Solicitation/Recommendation Statement on Schedule 14D-9 (Sec. 240.14d-
101), including all exhibits thereto; and
    (2) If such person is either the subject company or an affiliate of 
the subject company,

[[Page 260]]

    (i) Such person shall hand deliver a copy of the Schedule 14D-9 to 
the bidder at its principal office or at the address of the person 
authorized to receive notices and communications (which is set forth on 
the cover sheet of the bidder's Schedule TO (Sec. 240.14d-100) filed 
with the Commission; and
    (ii) Such person shall give telephonic notice (which notice to the 
extent possible shall be given prior to the opening of the market) of 
the information required by Items 1003(d) and 1012(a) of Regulation M--A 
(Sec. 229.1003(d) and Sec. 229.1012(a)) and shall mail a copy of the 
Schedule to each national securities exchange where the class of 
securities is registered and listed for trading and, if the class is 
authorized for quotation in the NASDAQ interdealer quotation system, to 
the National Association of Securities Dealers, Inc. (``NASD'').
    (3) If such person is neither the subject company nor an affiliate 
of the subject company,
    (i) Such person shall mail a copy of the schedule to the bidder at 
its principal office or at the address of the person authorized to 
receive notices and communications (which is set forth on the cover 
sheet of the bidder's Schedule TO (Sec. 240.14d-100) filed with the 
Commission); and
    (ii) Such person shall mail a copy of the Schedule to the subject 
company at its principal office.
    (c) Amendments. If any material change occurs in the informaion set 
forth in the Schedule 14D-9 (Sec. 240.14d-101) required by this 
section, the person who filed such Schedule 14D-9 shall:
    (1) File with the Commission eight copies of an amendment on 
Schedule 14D-9 (Sec. 240.14d-101) disclosing such change promptly, but 
not later than the date such material is first published, sent or given 
to security holders; and
    (2) Promptly deliver copies and give notice of the amendment in the 
same manner as that specified in paragraph (b)(2) or (3) of this 
section, whichever is applicable; and
    (3) Promptly disclose and disseminate such change in a manner 
reasonably designed to inform security holders of such change.
    (d) Information required in solicitation or recommendation. Any 
solicitation or recommendation to holders of a class of securities 
referred to in section 14(d)(1) of the Act with respect to a tender 
offer for such securities shall include the name of the person making 
such solicitation or recommendation and the information required by 
Items 1 through 8 of Schedule 14D-9 (Sec. 240.14d-101) or a fair and 
adequate summary thereof: Provided, however, That such solicitation or 
recommendation may omit any of such information previously furnished to 
security holders of such class of securities by such person with respect 
to such tender offer.
    (e) Applicability. (1) Except as is provided in paragraphs (e)(2) 
and (f) of this section, this section shall only apply to the following 
persons:
    (i) The subject company, any director, officer, employee, affiliate 
or subsidiary of the subject company;
    (ii) Any record holder or beneficial owner of any security issued by 
the subject company, by the bidder, or by any affiliate of either the 
subject company or the bidder; and
    (iii) Any person who makes a solicitation or recommendation to 
security holders on behalf of any of the foregoing or on behalf of the 
bidder other than by means of a solicitation or recommendation to 
security holders which has been filed with the Commission pursuant to 
this section or Rule 14d-3 (Sec. 240.14d-3).
    (2) Notwithstanding paragraph (e)(1) of this section, this section 
shall not apply to the following persons:
    (i) A bidder who has filed a Schedule TO (Sec. 240.14d-100) 
pursuant to Rule 14d-3 (Sec. 240.14d-3);
    (ii) Attorneys, banks, brokers, fiduciaries or investment advisers 
who are not participating in a tender offer in more than a ministerial 
capacity and who furnish information and/or advice regarding such tender 
offer to their customers or clients on the unsolicited request of such 
customers or clients or solely pursuant to a contract or a relationship 
providing for advice to the customer or client to whom the information 
and/or advice is given.
    (iii) Any person specified in paragraph (e)(1) of this section if:

[[Page 261]]

    (A) The subject company is the subject of a tender offer conducted 
under Sec. 240.14d-1(c);
    (B) Any person specified in paragraph (e)(1) of this section 
furnishes to the Commission on Form CB (Sec. 249.480 of this chapter) 
the entire informational document it publishes or otherwise disseminates 
to holders of the class of securities in connection with the tender 
offer no later than the next business day after publication or 
dissemination;
    (C) Any person specified in paragraph (e)(1) of this section 
disseminates any informational document to U.S. holders, including any 
amendments thereto, in English, on a comparable basis to that provided 
to security holders in the issuer's home jurisdiction; and
    (D) Any person specified in paragraph (e)(1) of this section 
disseminates by publication in its home jurisdiction, such person must 
publish the information in the United States in a manner reasonably 
calculated to inform U.S. security holders of the offer.
    (f) Stop-look-and-listen communication. This section shall not apply 
to the subject company with respect to a communication by the subject 
company to its security holders which only:
    (1) Identifies the tender offer by the bidder;
    (2) States that such tender offer is under consideration by the 
subject company's board of directors and/or management;
    (3) States that on or before a specified date (which shall be no 
later than 10 business days from the date of commencement of such tender 
offer) the subject company will advise such security holders of (i) 
whether the subject company recommends acceptance or rejection of such 
tender offer; expresses no opinion and remains neutral toward such 
tender offer; or is unable to take a position with respect to such 
tender offer and (ii) the reason(s) for the position taken by the 
subject company with respect to the tender offer (including the 
inability to take a position); and
    (4) Requests such security holders to defer making a determination 
whether to accept or reject such tender offer until they have been 
advised of the subject company's position with respect thereto pursuant 
to paragraph (f)(3) of this section.
    (g) Statement of management's position. A statement by the subject 
company's of its position with respect to a tender offer which is 
required to be published or sent or given to security holders pursuant 
to Rule 14e-2 shall be deemed to constitute a solicitation or 
recommendation within the meaning of this section and section 14(d)(4) 
of the Act.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81, 85; secs. 205, 209, 48 Stat. 906, 
908; sec. 8, 68 Stat. 685; sec. 308(a)(2), 90 Stat. 57; secs. 3(b), 
10(b), 13, 14, 23(a), 48 Stat. 882, 891, 894, 895, 901; sec. 203(a), 49 
Stat. 704; sec. 8, 49 Stat. 1379; secs. 4, 5, 78 Stat. 569, 570; secs. 
2, 3, 82 Stat. 454, 455; secs. 1, 2, 3-5, 84 Stat. 1497; secs. 3, 10, 
18, 89 Stat. 97, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 91 
Stat. 1494, 1498, 1499; sec. 20, 49 Stat. 833; sec. 319(a), 53 Stat. 
1173; sec. 38(a), 54 Stat. 841; 15 U.S.C. 77g, 77j, 77s(a), 78c(b), 
78j(b), 78m, 78n, 78w(a), 79t, 77ttt(a), 80a-37(a))

[44 FR 70345, Dec. 6, 1979, as amended at 64 FR 61406, 61461-61462, Nov. 
10, 1999]



Sec. 240.14d-10  Equal treatment of security holders.

    (a) No bidder shall make a tender offer unless:
    (1) The tender offer is open to all security holders of the class of 
securities subject to the tender offer; and
    (2) The consideration paid to any security holder pursuant to the 
tender offer is the highest consideration paid to any other security 
holder during such tender offer.
    (b) Paragraph (a)(1) of this section shall not:
    (1) Affect dissemination under Rule 14d-4 (Sec. 240.14d-4); or
    (2) Prohibit a bidder from making a tender offer excluding all 
security holders in a state where the bidder is prohibited from making 
the tender offer by administrative or judicial action pursuant to a 
state statute after a good faith effort by the bidder to comply with 
such statute.
    (c) Paragraph (a)(2) of this section shall not prohibit the offer of 
more than one type of consideration in a tender offer, Provided, That:
    (1) Security holders are afforded equal right to elect among each of 
the types of consideration offered; and

[[Page 262]]

    (2) The highest consideration of each type paid to any security 
holder is paid to any other security holder receiving that type of 
consideration.
    (d) If the offer and sale of securities constituting consideration 
offered in a tender offer is prohibited by the appropriate authority of 
a state after a good faith effort by the bidder to register or qualify 
the offer and sale of such securities in such state:
    (1) The bidder may offer security holders in such state an 
alternative form of consideration; and
    (2) Paragraph (c) of this section shall not operate to require the 
bidder to offer or pay the alternative form of consideration to security 
holders in any other state.
    (e) This section shall not apply to any tender offer with respect to 
which the Commission, upon written request or upon its own motion, 
either unconditionally or on specified terms and conditions, determines 
that compliance with this section is not necessary or appropriate in the 
public interest or for the protection of investors.

[51 FR 25882, July 17, 1986]



Sec. 240.14d-11  Subsequent offering period.

    A bidder may elect to provide a subsequent offering period of three 
business days to 20 business days during which tenders will be accepted 
if:
    (a) The initial offering period of at least 20 business days has 
expired;
    (b) The offer is for all outstanding securities of the class that is 
the subject of the tender offer, and if the bidder is offering security 
holders a choice of different forms of consideration, there is no 
ceiling on any form of consideration offered;
    (c) The bidder immediately accepts and promptly pays for all 
securities tendered during the initial offering period;
    (d) The bidder announces the results of the tender offer, including 
the approximate number and percentage of securities deposited to date, 
no later than 9:00 a.m. Eastern time on the next business day after the 
expiration date of the initial offering period and immediately begins 
the subsequent offering period;
    (e) The bidder immediately accepts and promptly pays for all 
securities as they are tendered during the subsequent offering period; 
and
    (f) The bidder offers the same form and amount of consideration to 
security holders in both the initial and the subsequent offering period.

    Note to Sec. 240.14d-11:
    No withdrawal rights apply during the subsequent offering period in 
accordance with Sec. 240.14d-7(a)(2).

[64 FR 61462, Nov. 10, 1999]



Sec. 240.14d-100  Schedule TO. Tender offer statement under section 
14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934.

Securities and Exchange Commission,
Washington, D.C. 20549

Schedule TO

Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the 
Securities Exchange Act of 1934

(Amendment No. ------)*

________________________________________________________________________
(Name of Subject Company (issuer))

________________________________________________________________________
(Names of Filing Persons (identifying status as offeror, issuer or other 
person))

________________________________________________________________________
(Title of Class of Securities)

________________________________________________________________________
(CUSIP Number of Class of Securities)

(Name, address, and telephone numbers of person authorized to receive 
notices and communications on behalf of filing persons)

                        Calculation of Filing Fee
------------------------------------------------------------------------
          Transaction valuation*                Amount of filing fee
------------------------------------------------------------------------
 
------------------------------------------------------------------------
*Set forth the amount on which the filing fee is calculated and state
  how it was determined.

    [ ] Check the box if any part of the fee is offset as provided by 
Rule 0-11(a)(2) and identify the filing with which the offsetting fee 
was previously paid. Identify the previous filing by registration 
statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:_________________________________________________
Form or Registration No.:_______________________________________________
Filing Party:___________________________________________________________
Date Filed:_____________________________________________________________
    [ ] Check the box if the filing relates solely to preliminary 
communications made before the commencement of a tender offer.
    Check the appropriate boxes below to designate any transactions to 
which the statement relates:

[[Page 263]]

    [ ] third-party tender offer subject to Rule 14d-1.
    [ ] issuer tender offer subject to Rule 13e-4.
    [ ] going-private transaction subject to Rule 13e-3.
    [ ] amendment to Schedule 13D under Rule 13d-2.
    Check the following box if the filing is a final amendment reporting 
the results of the tender offer: [ ]
    General Instructions:
    A. File eight copies of the statement, including all exhibits, with 
the Commission if paper filing is permitted.
    B. This filing must be accompanied by a fee payable to the 
Commission as required by Sec. 240.0-11.
    C. If the statement is filed by a general or limited partnership, 
syndicate or other group, the information called for by Items 3 and 5-8 
for a third-party tender offer and Items 5-8 for an issuer tender offer 
must be given with respect to: (i) Each partner of the general 
partnership; (ii) each partner who is, or functions as, a general 
partner of the limited partnership; (iii) each member of the syndicate 
or group; and (iv) each person controlling the partner or member. If the 
statement is filed by a corporation or if a person referred to in (i), 
(ii), (iii) or (iv) of this Instruction is a corporation, the 
information called for by the items specified above must be given with 
respect to: (a) Each executive officer and director of the corporation; 
(b) each person controlling the corporation; and (c) each executive 
officer and director of any corporation or other person ultimately in 
control of the corporation.
    D. If the filing contains only preliminary communications made 
before the commencement of a tender offer, no signature or filing fee is 
required. The filer need not respond to the items in the schedule. Any 
pre-commencement communications that are filed under cover of this 
schedule need not be incorporated by reference into the schedule.
    E. If an item is inapplicable or the answer is in the negative, so 
state. The statement published, sent or given to security holders may 
omit negative and not applicable responses. If the schedule includes any 
information that is not published, sent or given to security holders, 
provide that information or specifically incorporate it by reference 
under the appropriate item number and heading in the schedule. Do not 
recite the text of disclosure requirements in the schedule or any 
document published, sent or given to security holders. Indicate clearly 
the coverage of the requirements without referring to the text of the 
items.
    F. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item unless 
it would render the answer misleading, incomplete, unclear or confusing. 
A copy of any information that is incorporated by reference or a copy of 
the pertinent pages of a document containing the information must be 
submitted with this statement as an exhibit, unless it was previously 
filed with the Commission electronically on EDGAR. If an exhibit 
contains information responding to more than one item in the schedule, 
all information in that exhibit may be incorporated by reference once in 
response to the several items in the schedule for which it provides an 
answer. Information incorporated by reference is deemed filed with the 
Commission for all purposes of the Act.
    G. A filing person may amend its previously filed Schedule 13D 
(Sec. 240.13d-101) on Schedule TO (Sec. 240.14d-100) if the 
appropriate box on the cover page is checked to indicate a combined 
filing and the information called for by the fourteen disclosure items 
on the cover page of Schedule 13D (Sec. 240.13d-101) is provided on the 
cover page of the combined filing with respect to each filing person.
    H. The final amendment required by Sec. 240.14d-3(b)(2) and Sec. 
240.13e-4(c)(4) will satisfy the reporting requirements of section 13(d) 
of the Act with respect to all securities acquired by the offeror in the 
tender offer.
    I. Amendments disclosing a material change in the information set 
forth in this statement may omit any information previously disclosed in 
this statement.
    J. If the tender offer disclosed on this statement involves a going-
private transaction, a combined Schedule TO (Sec. 240.14d-100) and 
Schedule 13E-3 (Sec. 240.13e-100) may be filed with the Commission 
under cover of Schedule TO. The Rule 13e-3 box on the cover page of the 
Schedule TO must be checked to indicate a combined filing. All 
information called for by both schedules must be provided except that 
Items 1--3, 5, 8 and 9 of Schedule TO may be omitted to the extent those 
items call for information that duplicates the item requirements in 
Schedule 13E-3.
    K. For purposes of this statement, the following definitions apply:
    (1) The term offeror means any person who makes a tender offer or on 
whose behalf a tender offer is made;
    (2) The term issuer tender offer has the same meaning as in Rule 
13e-4(a)(2); and
    (3) The term third-party tender offer means a tender offer that is 
not an issuer tender offer.

           Special Instructions for Complying With Schedule TO

    Under Sections 13(e), 14(d) and 23 of the Act and the rules and 
regulations of the Act, the Commission is authorized to solicit the 
information required to be supplied by this schedule.
    Disclosure of the information specified in this schedule is 
mandatory, except for I.R.S. identification numbers, disclosure of which

[[Page 264]]

is voluntary. The information will be used for the primary purpose of 
disclosing tender offer and going-private transactions. This statement 
will be made a matter of public record. Therefore, any information given 
will be available for inspection by any member of the public.
    Because of the public nature of the information, the Commission can 
use it for a variety of purposes, including referral to other 
governmental authorities or securities self-regulatory organizations for 
investigatory purposes or in connection with litigation involving the 
Federal securities laws or other civil, criminal or regulatory statutes 
or provisions. I.R.S. identification numbers, if furnished, will assist 
the Commission in identifying security holders and, therefore, in 
promptly processing tender offer and going-private statements.
    Failure to disclose the information required by this schedule, 
except for I.R.S. identification numbers, may result in civil or 
criminal action against the persons involved for violation of the 
Federal securities laws and rules.

                       Item 1. Summary Term Sheet

    Furnish the information required by Item 1001 of Regulation M-A 
(Sec. 229.1001 of this chapter) unless information is disclosed to 
security holders in a prospectus that meets the requirements of Sec. 
230.421(d) of this chapter.

                   Item 2. Subject Company Information

    Furnish the information required by Item 1002(a) through (c) of 
Regulation M-A (Sec. 229.1002 of this chapter).

            Item 3. Identity and Background of Filing Person

    Furnish the information required by Item 1003(a) through (c) of 
Regulation M-A (Sec. 229.1003 of this chapter) for a third-party tender 
offer and the information required by Item 1003(a) of Regulation M-A 
(Sec. 229.1003 of this chapter) for an issuer tender offer.

                    Item 4. Terms of the Transaction

    Furnish the information required by Item 1004(a) of Regulation M-A 
(Sec. 229.1004 of this chapter) for a third-party tender offer and the 
information required by Item 1004(a) through (b) of Regulation M-A 
(Sec. 229.1004 of this chapter) for an issuer tender offer.

    Item 5. Past Contacts, Transactions, Negotiations and Agreements

    Furnish the information required by Item 1005(a) and (b) of 
Regulation M-A (Sec. 229.1005 of this chapter) for a third-party tender 
offer and the information required by Item 1005(e) of Regulation M-A 
(Sec. 229.1005) for an issuer tender offer.

       Item 6. Purposes of the Transaction and Plans or Proposals

    Furnish the information required by Item 1006(a) and (c)(1) through 
(7) of Regulation M-A (Sec. 229.1006 of this chapter) for a third-party 
tender offer and the information required by Item 1006(a) through (c) of 
Regulation M-A (Sec. 229.1006 of this chapter) for an issuer tender 
offer.

        Item 7. Source and Amount of Funds or Other Consideration

    Furnish the information required by Item 1007(a), (b) and (d) of 
Regulation M-A (Sec. 229.1007 of this chapter).

          Item 8. Interest in Securities of the Subject Company

    Furnish the information required by Item 1008 of Regulation M-A 
(Sec. 229.1008 of this chapter).

     Item 9. Persons/Assets, Retained, Employed, Compensated or Used

    Furnish the information required by Item 1009(a) of Regulation M-A 
(Sec. 229.1009 of this chapter).

                      Item 10. Financial Statements

    If material, furnish the information required by Item 1010(a) and 
(b) of Regulation M-A (Sec. 229.1010 of this chapter) for the issuer in 
an issuer tender offer and for the offeror in a third-party tender 
offer.
    Instructions to Item 10:
    1. Financial statements must be provided when the offeror's 
financial condition is material to security holder's decision whether to 
sell, tender or hold the securities sought. The facts and circumstances 
of a tender offer, particularly the terms of the tender offer, may 
influence a determination as to whether financial statements are 
material, and thus required to be disclosed.
    2. Financial statements are not considered material when: (a) The 
consideration offered consists solely of cash; (b) the offer is not 
subject to any financing condition; and either: (c) the offeror is a 
public reporting company under Section 13(a) or 15(d) of the Act that 
files reports electronically on EDGAR, or (d) the offer is for all 
outstanding securities of the subject class. Financial information may 
be required, however, in a two-tier transaction. See Instruction 5 
below.
    3. The filing person may incorporate by reference financial 
statements contained in any document filed with the Commission, solely 
for the purposes of this schedule, if: (a) The financial statements 
substantially meet the requirements of this item; (b) an express 
statement is made that the financial statements are incorporated by 
reference; (c) the information incorporated by reference is

[[Page 265]]

clearly identified by page, paragraph, caption or otherwise; and (d) if 
the information incorporated by reference is not filed with this 
schedule, an indication is made where the information may be inspected 
and copies obtained. Financial statements that are required to be 
presented in comparative form for two or more fiscal years or periods 
may not be incorporated by reference unless the material incorporated by 
reference includes the entire period for which the comparative data is 
required to be given. See General Instruction F to this schedule.
    4. If the offeror in a third-party tender offer is a natural person, 
and such person's financial information is material, disclose the net 
worth of the offeror. If the offeror's net worth is derived from 
material amounts of assets that are not readily marketable or there are 
material guarantees and contingencies, disclose the nature and 
approximate amount of the individual's net worth that consists of 
illiquid assets and the magnitude of any guarantees or contingencies 
that may negatively affect the natural person's net worth.
    5. Pro forma financial information is required in a negotiated 
third-party cash tender offer when securities are intended to be offered 
in a subsequent merger or other transaction in which remaining target 
securities are acquired and the acquisition of the subject company is 
significant to the offeror under Sec. 210.11-01(b)(1) of this chapter. 
The offeror must disclose the financial information specified in Item 
3(f) and Item 5 of Form S-4 (Sec. 239.25 of this chapter) in the 
schedule filed with the Commission, but may furnish only the summary 
financial information specified in Item 3(d), (e) and (f) of Form S-4 in 
the disclosure document sent to security holders. If pro forma financial 
information is required by this instruction, the historical financial 
statements specified in Item 1010 of Regulation M-A (Sec. 229.1010 of 
this chapter) are required for the bidder.
    6. The disclosure materials disseminated to security holders may 
contain the summarized financial information specified by Item 1010(c) 
of Regulation M-A (Sec. 229.1010 of this chapter) instead of the 
financial information required by Item 1010(a) and (b). In that case, 
the financial information required by Item 1010(a) and (b) of Regulation 
M-A must be disclosed in the statement. If summarized financial 
information is disseminated to security holders, include appropriate 
instructions on how more complete financial information can be obtained. 
If the summarized financial information is prepared on the basis of a 
comprehensive body of accounting principles other than U.S. GAAP, the 
summarized financial information must be accompanied by a reconciliation 
as described in Instruction 8 of this Item.
    7. If the offeror is not subject to the periodic reporting 
requirements of the Act, the financial statements required by this Item 
need not be audited if audited financial statements are not available or 
obtainable without unreasonable cost or expense. Make a statement to 
that effect and the reasons for their unavailability.
    8. If the financial statements required by this Item are prepared on 
the basis of a comprehensive body of accounting principles other than 
U.S. GAAP, provide a reconciliation to U.S. GAAP in accordance with Item 
17 of Form 20-F (Sec. 249.220f of this chapter), unless a 
reconciliation is unavailable or not obtainable without unreasonable 
cost or expense. At a minimum, however, when financial statements are 
prepared on a basis other than U.S. GAAP, a narrative description of all 
material variations in accounting principles, practices and methods used 
in preparing the non-U.S. GAAP financial statements from those accepted 
in the U.S. must be presented.

                     Item 11. Additional Information

    Furnish the information required by Item 1011 of Regulation M-A 
(Sec. 229.1011 of this chapter).

                            Item 12. Exhibits

    File as an exhibit to the Schedule all documents specified by Item 
1016 (a), (b), (d), (g) and (h) of Regulation M-A (Sec. 229.1016 of 
this chapter).

             Item 13. Information Required by Schedule 13E-3

    If the Schedule TO is combined with Schedule 13E-3 (Sec. 240.13e-
100), set forth the information required by Schedule 13E-3 that is not 
included or covered by the items in Schedule TO.

Signature. After due inquiry and to the best of my knowledge and belief, 
I certify that the information set forth in this statement is true, 
complete and correct.

________________________________________________________________________
(Signature)

________________________________________________________________________
(Name and title)

________________________________________________________________________
(Date)

    Instruction to Signature: The statement must be signed by the filing 
person or that person's authorized representative. If the statement is 
signed on behalf of a person by an authorized representative (other than 
an executive officer of a corporation or general partner of a 
partnership), evidence of the representative's authority to sign on 
behalf of the person must be filed with the statement. The name and any 
title of each person who signs the statement must be typed or printed 
beneath the signature. See Sec. Sec. 240.12b-

[[Page 266]]

11 and 240.14d-1(f) with respect to signature requirements.

[64 FR 61462, Nov. 10, 1999]



Sec. 240.14d-101  Schedule 14D-9.

Securities and Exchange Commission,
Washington, D.C. 20549

Schedule 14D-9

Solicitation/Recommendation Statement under Section 14(d)(4) of the 
Securities Exchange Act of 1934

(Amendment No. ------)

________________________________________________________________________
(Name of Subject Company)

________________________________________________________________________
(Names of Persons Filing Statement)

________________________________________________________________________
(Title of Class of Securities)

________________________________________________________________________
(CUSIP Number of Class of Securities)

________________________________________________________________________
(Name, address, and telephone numbers of person authorized to receive 
notices and communications on behalf of the persons filing statement)

    [ ] Check the box if the filing relates solely to preliminary 
communications made before the commencement of a tender offer.
    General Instructions:
    A. File eight copies of the statement, including all exhibits, with 
the Commission if paper filing is permitted.
    B. If the filing contains only preliminary communications made 
before the commencement of a tender offer, no signature is required. The 
filer need not respond to the items in the schedule. Any pre-
commencement communications that are filed under cover of this schedule 
need not be incorporated by reference into the schedule.
    C. If an item is inapplicable or the answer is in the negative, so 
state. The statement published, sent or given to security holders may 
omit negative and not applicable responses. If the schedule includes any 
information that is not published, sent or given to security holders, 
provide that information or specifically incorporate it by reference 
under the appropriate item number and heading in the schedule. Do not 
recite the text of disclosure requirements in the schedule or any 
document published, sent or given to security holders. Indicate clearly 
the coverage of the requirements without referring to the text of the 
items.
    D. Information contained in exhibits to the statement may be 
incorporated by reference in answer or partial answer to any item unless 
it would render the answer misleading, incomplete, unclear or confusing. 
A copy of any information that is incorporated by reference or a copy of 
the pertinent pages of a document containing the information must be 
submitted with this statement as an exhibit, unless it was previously 
filed with the Commission electronically on EDGAR. If an exhibit 
contains information responding to more than one item in the schedule, 
all information in that exhibit may be incorporated by reference once in 
response to the several items in the schedule for which it provides an 
answer. Information incorporated by reference is deemed filed with the 
Commission for all purposes of the Act.
    E. Amendments disclosing a material change in the information set 
forth in this statement may omit any information previously disclosed in 
this statement.

                   Item 1. Subject Company Information

    Furnish the information required by Item 1002(a) and (b) of 
Regulation M-A (Sec. 229.1002 of this chapter).

            Item 2. Identity and Background of Filing Person

    Furnish the information required by Item 1003(a) and (d) of 
Regulation M-A (Sec. 229.1003 of this chapter).

    Item 3. Past Contacts, Transactions, Negotiations and Agreements

    Furnish the information required by Item 1005(d) of Regulation M-A 
(Sec. 229.1005 of this chapter).

               Item 4. The Solicitation or Recommendation

    Furnish the information required by Item 1012(a) through (c) of 
Regulation M-A (Sec. 229.1012 of this chapter).

     Item 5. Person/Assets, Retained, Employed, Compensated or Used

    Furnish the information required by Item 1009(a) of Regulation M-A 
(Sec. 229.1009 of this chapter).

          Item 6. Interest in Securities of the Subject Company

    Furnish the information required by Item 1008(b) of Regulation M-A 
(Sec. 229.1008 of this chapter).

       Item 7. Purposes of the Transaction and Plans or Proposals

    Furnish the information required by Item 1006(d) of Regulation M-A 
(Sec. 229.1006 of this chapter).

                     Item 8. Additional Information

    Furnish the information required by Item 1011(b) of Regulation M-A 
(Sec. 229.1011 of this chapter).

                            Item 9. Exhibits

    File as an exhibit to the Schedule all documents specified by Item 
1016(a), (e) and (g) of Regulation M-A (Sec. 229.1016 of this chapter).

[[Page 267]]

    Signature. After due inquiry and to the best of my knowledge and 
belief, I certify that the information set forth in this statement is 
true, complete and correct.

________________________________________________________________________
(Signature)

________________________________________________________________________
(Name and title)

________________________________________________________________________
(Date)

    Instruction to Signature: The statement must be signed by the filing 
person or that person's authorized representative. If the statement is 
signed on behalf of a person by an authorized representative (other than 
an executive officer of a corporation or general partner of a 
partnership), evidence of the representative's authority to sign on 
behalf of the person must be filed with the statement. The name and any 
title of each person who signs the statement must be typed or printed 
beneath the signature. See Sec. 240.14d-1(f) with respect to signature 
requirements.

[64 FR 61464, Nov. 10, 1999]



Sec. 240.14d-102  Schedule 14D-1F. Tender offer statement pursuant to 
rule 14d-1(b) under the Securities Exchange Act of 1934.

                   Securities and Exchange Commission

                             Washington, DC

                             Schedule 14D-1F

 Tender Offer Statement Pursuant to Rule 14d-1(b) Under the Securities 
                          Exchange Act of 1934

                        [Amendment No. --------]

________________________________________________________________________
(Name of Subject Company [Issuer])
________________________________________________________________________
(Translation of Subject Company's [Issuer's] name into English (if 
applicable))
________________________________________________________________________
(Jurisdiction of Subject Company's [Issuer's] Incorporation or 
Organization)
________________________________________________________________________
(Bidder)
________________________________________________________________________
(Title of Class of Securities)
________________________________________________________________________
(CUSIP Number of Class of Securities (if applicable))
________________________________________________________________________
(Name, address (including zip code) and telephone number (including area 
code) of person(s) authorized to receive notices and communications on 
behalf of bidder)
________________________________________________________________________
(Date tender offer first published, sent or given to securityholders)

Calculation of Filing Fee*
    Transaction Valuation
    Amount of Filing Fee

    * Set forth the amount on which the filing fee is calculated and 
state how it was determined. See General Instruction II. C. for rules 
governing the calculation of the filing fee.

[ ] Check box if any part of the fee is offset as provided by Rule 0-
          11(a) (2) and identify the filing with which the offsetting 
          fee was previously paid. Identify the previous filing by 
          registration statement number, or the Form or Schedule and the 
          date of its filing.

Amount Previously Paid:_________________________________________________

Registration No.:_______________________________________________________
Filing Party:___________________________________________________________

Form:___________________________________________________________________

Date Filed:_____________________________________________________________

                          General Instructions

         I. Eligibility Requirements for Use of Schedule 14D-1F

    A. Schedule 14D-1F may be used by any person making a cash tender or 
exchange offer (the ``bidder'') for securities of any issuer 
incorporated or organized under the laws of Canada or any Canadian 
province or territory that is a foreign private issuer, where less than 
40 percent of the outstanding class of such issuer's securities that is 
the subject of the offer is held by U.S. holders. The calculation of 
U.S. holders shall be made as of the end of the subject issuer's last 
quarter or, if such quarter terminated within 60 days of the filing 
date, as of the end of such issuer's preceding quarter.

                              Instructions

    1. For purposes of this Schedule, ``foreign private issuer'' shall 
be construed in accordance with Rule 405 under the Securities Act.
    2. For purposes of this Schedule, the term ``U. S. holder'' shall 
mean any person whose address appears on the records of the issuer, any 
voting trustee, any depositary, any share transfer agent or any person 
acting in a similar capacity on behalf of the issuer as being located in 
the United States.
    3. With respect to any tender offer, including any exchange offer, 
otherwise eligible to proceed in accordance with Rule 14d-1(b) under the 
Securities Exchange Act of 1934 (the ``Exchange Act''), the issuer of 
the subject securities will be presumed to be a foreign private issuer 
and U. S. holders will be presumed to hold less than 40 percent of such 
outstanding securities, unless (a) the aggregate trading volume of that 
class on national securities exchanges in the United States and on 
NASDAQ exceeded its aggregate trading volume on securities exchanges in 
Canada and on the Canadian Dealing Network, Inc. (``CDN'') over the 12 
calendar month period prior to commencement of this offer, or if 
commenced in response to a prior offer,

[[Page 268]]

over the 12 calendar month period prior to commencement of the initial 
offer (based on volume figures published by such exchanges and NASDAQ 
and CDN) ; (b) the most recent annual report or annual information form 
filed or submitted by the issuer with securities regulators of Ontario, 
Quebec, British Columbia or Alberta (or, if the issuer of the subject 
securities is not a reporting issuer in any of such provinces, with any 
other Canadian securities regulator) or with the Commission indicates 
that U. S. holders hold 40 percent or more of the subject class of 
securities; or (c) the offeror has actual knowledge that the level of U. 
S. ownership equals or exceeds 40 percent of such securities.
    4. If this Schedule is filed during the pendency of one or more 
ongoing cash tender or exchange offers for securities of the class 
subject to this offer that was commenced or was eligible to be commenced 
on Schedule 13E-4F, Schedule 14D-1F and/or Form F-8 or Form F-80, the 
date for calculation of U. S. ownership for purposes of this Schedule 
shall be the same as that date used by the initial bidder or issuer.
    5. For purposes of this Schedule, the class of subject securities 
shall not include any securities that may be converted into or are 
exchangeable for the subject securities.
    B. Any bidder using this Schedule must extend the cash tender or 
exchange offer to U. S. holders of securities of the subject company 
upon terms and conditions not less favorable than those extended to any 
other holder of such securities, and must comply with the requirements 
of any Canadian federal, provincial and/or territorial law, regulation 
or policy relating to the terms and conditions of the offer.
    C. This Schedule shall not be used if the subject company is an 
investment company registered or required to be registered under the 
Investment Company Act of 1940.
    D. This Schedule shall not be used to comply with the reporting 
requirements of section 13(d) of the Exchange Act. Persons using this 
Schedule are reminded of their obligation to file or update a Schedule 
13D where required by section 13(d)(1) of the Exchange Act and the 
Commission's rules and regulations thereunder.

                     II. Filing Instructions and Fee

    A.(1) The bidder must file this Schedule and any amendment to the 
Schedule (see Part I, Item 1.(b)), including all exhibits and other 
documents filed as part of the Schedule or amendment, in electronic 
format via the Commission's Electronic Data Gathering, Analysis, and 
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in 
Regulation S-T (17 CFR Part 232). For assistance with technical 
questions about EDGAR or to request an access code, call the EDGAR Filer 
Support Office at (202) 942-8900. For assistance with the EDGAR rules, 
call the Office of EDGAR and Information Analysis at (202) 942-2940.
    (2) If filing the Schedule in paper under a hardship exemption in 17 
CFR 232.201 or 232.202 of Regulation S-T, or as otherwise permitted, the 
bidder must file with the Commission at its principal office five copies 
of the complete Schedule and any amendment, including exhibits and all 
other documents filed as a part of the Schedule or amendment. The bidder 
must bind, staple or otherwise compile each copy in one or more parts 
without stiff covers. The bidder must further bind the Schedule or 
amendment on the side or stitching margin in a manner that leaves the 
reading matter legible. The bidder must provide three additional copies 
of the Schedule or amendment without exhibits to the Commission.
    B. An electronic filer must provide the signatures required for the 
Schedule or amendment in accordance with 17 CFR 232.302 of Regulation S-
T. A bidder filing in paper must have the original and at least one copy 
of the Schedule and any amendment signed in accordance with Exchange Act 
Rule 12b-11(d) (17 CFR 12b-11(d)) by the persons whose signatures are 
required for this Schedule or amendment. The bidder must also conform 
the unsigned copies.
    C. At the time of filing this Schedule with the Commission, the 
bidder shall pay to the Commission in accordance with Rule 0-11 of the 
Exchange Act, a fee in U. S. dollars in the amount prescribed by section 
14(g)(3) of the Exchange Act. See also Rule 0-9 under the Exchange Act.
    (1) Where the bidder is offering securities or other non-cash 
consideration for some or all of the securities to be acquired, whether 
or not in combination with a cash payment for the same securities, the 
value of the consideration shall be based on the market value of the 
securities to be received by the bidder as established by paragraph 3 of 
this section.
    (2) If there is no market for the securities to be acquired by the 
bidder, the book value of such securities computed as of the latest 
practicable date prior to the date of filing the Schedule shall be used, 
unless the issuer of such securities is in bankruptcy or receivership or 
has an accumulated capital deficit, in which case one-third of the 
principal amount, par value or stated value of such securities shall be 
used.
    (3) When the fee is based upon the market value of the securities, 
such market value shall be calculated upon the basis of either the 
average of the high and low prices reported in the consolidated 
reporting system (for exchange traded securities and last sale reported 
for over-the-counter securities) or the average of the bid and asked 
price (for other over-the-counter securities) as of a specified date 
within five business days prior to the date of filing the Schedule.

[[Page 269]]

    D. If at any time after the initial payment of the fee the aggregate 
consideration offered is increased, an additional filing fee based upon 
such increase shall be paid with the required amended filing.
    E. The bidder must file the Schedule or amendment in electronic 
format in the English language in accordance with 17 CFR 232.306 of 
Regulation S-T. The bidder may file part of the Schedule or amendment, 
or exhibit or other attachment to the Schedule or amendment, in both 
French and English if the bidder included the French text to comply with 
the requirements of the Canadian securities administrator or other 
Canadian authority and, for an electronic filing, if the filing is an 
HTML document, as defined in 17 CFR 232.11 of Regulation S-T. For both 
an electronic filing and a paper filing, the bidder may provide an 
English translation or English summary of a foreign language document as 
an exhibit or other attachment to the Schedule or amendment as permitted 
by the rules of the applicable Canadian securities administrator.
    F. A paper filer must number sequentially the signed original of the 
Schedule or amendment (in addition to any internal numbering that 
otherwise may be present) by handwritten, typed, printed or other 
legible form of notation from the first page through the last page of 
the Schedule or amendment, including any exhibits or attachments. A 
paper filer must disclose the total number of pages on the first page of 
the sequentially numbered Schedule or amendment.

                  III. Compliance With the Exchange Act

    A. Pursuant to Rule 14d-1(b) under the Exchange Act, the bidder 
shall be deemed to comply with the requirements of sections 14(d)(1) 
through 14(d)(7) of the Exchange Act, Regulation 14D under the Exchange 
Act and Schedule 14D-1 thereunder, and Rule 14e-1 under Regulation 14E 
of the Exchange Act, in connection with a cash tender or exchange offer 
for securities that may be made pursuant to this Schedule; provided 
that, if an exemption has been granted from requirements of Canadian 
federal, provincial, and/or territorial laws, regulations or policies, 
and the tender offer does not comply with requirements that otherwise 
would be prescribed by Regulation 14D or 14E, the bidder (absent an 
order from the Commission) shall comply with the provisions of sections 
14(d)(1) through 14(d)(7), Regulation 14D and Schedule 14D-1 thereunder, 
and Rule 14e-1 under Regulation 14E.
    B. Any cash tender or exchange offer made pursuant to this Schedule 
is not exempt from the antifraud provisions of section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder, and section 14(e) of the 
Exchange Act and Rule 14e-3 thereunder, and this Schedule shall be 
deemed ``filed'' for purposes of section 18 of the Exchange Act.
    C. The bidder's attention is directed to Regulation M (Sec. Sec. 
242.100 through 242.105 of this chapter) in the case of an exchange 
offer, and to Rule 10b-13 under the Exchange Act (Sec. 240.10b-13) for 
any exchange or cash tender offer. [See Exchange Act Release No. 29355 
(June 21, 1991) containing an exemption from Rule 10b-13.]

         PART I--INFORMATION REQUIRED TO BE SENT TO SHAREHOLDERS

                   Item 1. Home Jurisdiction Documents

    (a) This Schedule shall be accompanied by the entire disclosure 
document or documents required to be delivered to holders of securities 
to be acquired in the proposed transaction by the bidder pursuant to the 
laws, regulations or policies of Canada and/or any of its provinces or 
territories governing the conduct of the tender offer. It shall not 
include any documents incorporated by reference into such disclosure 
document(s) and not distributed to offerees pursuant to any such law, 
regulation or policy.
    (b) Any amendment made by the bidder to a home jurisdiction document 
or documents shall be filed with the Commission under cover of this 
Schedule, which must indicate on the cover page the number of the 
amendment.
    (c) In an exchange offer where securities of the bidder have been or 
are to be offered or cancelled in the transaction, such securities shall 
be registered on forms promulgated by the Commission under the 
Securities Act of 1933 including, where available, the Commission's Form 
F-8 or F-80 providing for inclusion in that registration statement of 
the home jurisdiction prospectus.

                      Item 2. Informational Legends

    The following legends, to the extent applicable, shall appear on the 
outside front cover page of the home-jurisdiction document(s) in bold-
face roman type at least as high as ten-point modern type and at least 
two points leaded:
    ``This tender offer is made for the securities of a foreign issuer 
and while the offer is subject to disclosure requirements of the country 
in which the subject company is incorporated or organized, investors 
should be aware that these requirements are different from those of the 
United States. Financial statements included herein, if any, have been 
prepared in accordance with foreign generally accepted accounting 
principles and thus may not be comparable to financial statements of 
United States companies.
    ``The enforcement by investors of civil liabilities under the 
federal securities laws may be affected adversely by the fact that the 
subject company is located in a foreign country, and that some or all of 
its officers

[[Page 270]]

and directors are residents of a foreign country.
    ``Investors should be aware that the bidder or its affiliates, 
directly or indirectly, may bid for or make purchases of the issuer's 
securities subject to the offer, or of the issuer's related securities, 
during the period of the tender offer, as permitted by applicable 
Canadian laws or provincial laws or regulations. ''
    In the case of an exchange offer:
    ``Investors should be aware that the bidder or its affiliates, 
directly or indirectly, may bid for or make purchases of the issuer's 
securities subject to the offer or of the issuer's related securities, 
or of the bidder's securities to be distributed or of the bidder's 
related securities, during the period of the tender offer, as permitted 
by applicable Canadian laws or provincial laws or regulations. ''
    Note to Item 2. If the home-jurisdiction document(s) are delivered 
through an electronic medium, the issuer may satisfy the legibility 
requirements for the required legends relating to type size and font by 
presenting the legend in any manner reasonably calculated to draw 
security holder attention to it.

      PART II--INFORMATION NOT REQUIRED TO BE SENT TO SHAREHOLDERS

    The exhibits specified below shall be filed as part of the Schedule, 
but are not required to be sent to shareholders unless so required 
pursuant to the laws, regulations or policies of Canada and/or any of 
its provinces or territories. Exhibits shall be appropriately lettered 
or numbered for convenient reference.
    (1) File any reports or information that, in accordance with the 
requirements of the home jurisdiction(s), must be made publicly 
available by the bidder in connection with the transaction but need not 
be disseminated to shareholders.
    (2) File copies of any documents incorporated by reference into the 
home jurisdiction document(s).
    (3) If any name is signed to this Schedule pursuant to power of 
attorney, manually signed copies of any such power of attorney shall be 
filed. If the name of any officer signing on behalf of the bidder is 
signed pursuant to a power of attorney, certified copies of the bidder's 
board of directors authorizing such signature also shall be filed.

        PART III--UNDERTAKINGS AND CONSENT TO SERVICE OF PROCESS

    1. Undertakings
    The Schedule shall set forth the following undertakings of the 
bidder:
    a. The bidder undertakes to make available, in person or by 
telephone, representatives to respond to inquiries made by the 
Commission staff, and to furnish promptly, when requested to do so by 
the Commission staff, information relating to this Schedule or to 
transactions in said securities.
    b. The bidder undertakes to disclose in the United States, on the 
same basis as it is required to make such disclosure pursuant to 
applicable Canadian federal and/or provincial or territorial laws, 
regulations or policies, or otherwise discloses, information regarding 
purchases of the issuer's securities in connection with the cash tender 
or exchange offer covered by this Schedule. Such information shall be 
set forth in amendments to this Schedule.
    c. In the case of an exchange offer:
    The bidder undertakes to disclose in the United States, on the same 
basis as it is required to make such disclosure pursuant to any 
applicable Canadian federal and/or provincial or territorial law, 
regulation or policy, or otherwise discloses, information regarding 
purchases of the issuer's or bidder's securities in connection with the 
offer.
    2. Consent to Service of Process
    (a) At the time of filing this Schedule, the bidder (if a non-U. S. 
person) shall file with the Commission a written irrevocable consent and 
power of attorney on Form F-X.
    (b) Any change to the name or address of a registrant's agent for 
service shall be communicated promptly to the Commission by amendment to 
Form F-X referencing the file number of the registrant.

                           PART IV--SIGNATURES

    A. The Schedule shall be signed by each person on whose behalf the 
Schedule is filed or its authorized representative. If the Schedule is 
signed on behalf of a person by his authorized representative (other 
than an executive officer or general partner of the bidder), evidence of 
the representative's authority shall be filed with the Schedule.
    B. The name and any title of each person who signs the Schedule 
shall be typed or printed beneath his signature.
    C. By signing this Schedule, the bidder consents without power of 
revocation that any administrative subpoena may be served, or any 
administrative proceeding, civil suit or civil action where the cause of 
action arises out of or relates to or concerns any offering made or 
purported to be made in connection with the filing on Schedule 14D-1F or 
any purchases or sales of any security in connection therewith, may be 
commenced against it in any administrative tribunal or in any 
appropriate court in any place subject to the jurisdiction of any state 
or of the United States by service of said subpoena or process upon the 
registrant's designated agent.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
________________________________________________________________________
    (Signature)

[[Page 271]]

________________________________________________________________________
    (Name and Title)
________________________________________________________________________
    (Date)

[56 FR 30071, July 1, 1991; 57 FR 10615, Mar. 27, 1992, as amended at 61 
FR 24657, May 15, 1996; 62 FR 544, Jan. 3, 1997; 67 FR 36705, May 24, 
2002]



Sec. 240.14d-103  Schedule 14D-9F. Solicitation/recommendation statement 

pursuant to section 14(d)(4) of the Securities Exchange Act of 1934 and 
rules 14d-1(b) and 14e-2(c) thereunder.

Securities and Exchange Commission Washington, DC 20549
Schedule 14D-9F
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of 
the Securities Exchange Act of 1934 and Rules 14d-1(b) and 14e-2(c) 
Thereunder
[Amendment No. ----]
________________________________________________________________________
    (Name of Subject Company [Issuer])
________________________________________________________________________
    (Translation of Subject Company's [Issuer's] Name into English (if 
applicable))
________________________________________________________________________
    (Jurisdiction of Subject Company's [Issuer's] Incorporation or 
Organization)
________________________________________________________________________
    (Name(s) of Person(s) Filing Statement)
________________________________________________________________________
    (Title of Class of Securities)
________________________________________________________________________
    (CUSIP Number of Class of Securities (if applicable) )
________________________________________________________________________
    (Name, address (including zip code) and telephone number (including 
area code) of person(s) authorized to receive notices and communications 
on behalf of the person(s) filing statement)

                          General Instructions

         I. Eligibility Requirements for Use of Schedule 14D-9F

    A. Schedule 14D-9F is used by any issuer incorporated or organized 
under the laws of Canada or any Canadian province or territory that is a 
foreign private issuer (the ``subject company'') , or by any director or 
officer of such issuer, where the issuer is the subject of a cash tender 
or exchange offer for a class of its securities filed on Schedule 14D-
1F.
    For purposes of this Schedule, ``foreign private issuer'' shall be 
construed in accordance with Rule 405 under the Securities Act.
    B. Any person(s) using this Schedule must comply with the 
requirements of any Canadian federal, provincial and/or territorial law, 
regulation or policy relating to a recommendation by the subject 
issuer's board of directors, or any director or officer thereof, with 
respect to the offer.

                         II. Filing Instructions

    A.(1) The subject issuer must file this Schedule and any amendment 
to the Schedule (see Part I, Item 1.(b)), including all exhibits and 
other documents filed as part of the Schedule or amendment, in 
electronic format via the Commission's Electronic Data Gathering, 
Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR 
rules set forth in Regulation S-T (17 CFR Part 232). For assistance with 
technical questions about EDGAR or to request an access code, call the 
EDGAR Filer Support Office at (202) 942-8900. For assistance with the 
EDGAR rules, call the Office of EDGAR and Information Analysis at (202) 
942-2940.
    (2) If filing the Schedule in paper under a hardship exemption in 17 
CFR 232.201 or 232.202 of Regulation S-T, or as otherwise permitted, the 
subject issuer must file with the Commission at its principal office 
five copies of the complete Schedule and any amendment, including 
exhibits and all other documents filed as a part of the Schedule or 
amendment. The subject issuer must bind, staple or otherwise compile 
each copy in one or more parts without stiff covers. The subject issuer 
must further bind the Schedule or amendment on the side or stitching 
margin in a manner that leaves the reading matter legible. The subject 
issuer must provide three additional copies of the Schedule or amendment 
without exhibits to the Commission.
    B. An electronic filer must provide the signatures required for the 
Schedule or amendment in accordance with 17 CFR 232.302 of Regulation S-
T. A subject issuer filing in paper must have the original and at least 
one copy of the Schedule and any amendment signed in accordance with 
Exchange Act Rule 12b-11(d) (17 CFR 12b-11(d)) by the persons whose 
signatures are required for this Schedule or amendment. The subject 
issuer must also conform the unsigned copies.
    C. The subject issuer must file the Schedule or amendment in 
electronic format in the English language in accordance with 17 CFR 
232.306 of Regulation S-T. The subject issuer may file part of the 
Schedule or amendment, or exhibit or other attachment to the Schedule or 
amendment, in both French and English if the bidder included the French 
text to comply with the requirements of the Canadian securities 
administrator or other Canadian authority and, for an electronic filing, 
if the filing is an HTML document, as defined in 17 CFR 232.11 of 
Regulation S-T. For both an electronic filing and a paper filing, the 
subject issuer may provide an English translation or English summary of 
a foreign language document as

[[Page 272]]

an exhibit or other attachment to the Schedule or amendment as permitted 
by the rules of the applicable Canadian securities administrator.
    D. A paper filer must number sequentially the signed original of the 
Schedule or amendment (in addition to any internal numbering that 
otherwise may be present) by handwritten, typed, printed or other 
legible form of notation from the first page through the last page of 
the Schedule or amendment, including any exhibits or attachments. A 
paper filer must disclose the total number of pages on the first page of 
the sequentially numbered Schedule or amendment.

                  III. Compliance with the Exchange Act

    A. Pursuant to Rule 14e-2(c) under the Securities Exchange Act of 
1934 (the ``Exchange Act''), this Schedule shall be filed by an issuer, 
a class of the securities of which is the subject of a cash tender or 
exchange offer filed on Schedule 14D-1F, and may be filed by any 
director or officer of such issuer.
    B. Any recommendation with respect to a cash tender or exchange 
offer for a class of securities of the subject company made pursuant to 
this Schedule is not exempt from the antifraud provisions of section 
10(b) of the Exchange Act and Rule 10b-5 thereunder and section 14(e) of 
the Exchange Act and Rule 14e-3 thereunder, and this Schedule shall be 
deemed ``filed'' with the Commission for purposes of section 18 of the 
Exchange Act.

         Part I--Information Required To Be Sent to Shareholders

                   Item 1. Home Jurisdiction Documents

    (a) This Schedule shall be accompanied by the entire disclosure 
document or documents required to be delivered to holders of securities 
to be acquired in the proposed transaction pursuant to the laws, 
regulations or policies of Canada and/or any of its provinces or 
territories governing the conduct of the offer. It shall not include any 
documents incorporated by reference into such disclosure document(s) and 
not distributed to offerees pursuant to any such law, regulation or 
policy.
    (b) Any amendment made to a home jurisdiction document or documents 
shall be filed with the Commission under cover of this Schedule, which 
must indicate on the cover page the number of the amendment.

                      Item 2. Informational Legends

    The following legends, to the extent applicable, shall appear on the 
outside front cover page of the home jurisdiction document(s) in bold-
face roman type at least as high as ten-point modern type and at least 
two points leaded:
    ``This tender offer is made for the securities of a foreign issuer 
and while the offer is subject to disclosure requirements of the country 
in which the subject issuer is incorporated or organized, investors 
should be aware that these requirements are different from those of the 
United States. Financial statements included herein, if any, have been 
prepared in accordance with foreign generally accepted accounting 
principles and thus may not be comparable to financial statements of 
United States companies.
    ``The enforcement by investors of civil liabilities under the 
federal securities laws may be affected adversely by the fact that the 
issuer is located in a foreign country, and that some or all of its 
officers and directors are residents of a foreign country.''
    Note to Item 2. If the home jurisdiction document(s) are delivered 
through an electronic medium, the issuer may satisfy the legibility 
requirements for the required legends relating to type size and font by 
presenting the legend in any manner reasonably calculated to draw 
security holder attention to it.

      Part II--Information Not Required To Be Sent to Shareholders

    The exhibits specified below shall be filed as part of the Schedule, 
but are not required to be sent to shareholders unless so required 
pursuant to the laws, or regulations or policies of Canada and/or any of 
its provinces or territories. Exhibits shall be appropriately lettered 
or numbered for convenient reference.
    (1) File any reports or information that, in accordance with the 
requirements of the home jurisdiction(s), must be made publicly 
available by the person(s) filing this Schedule in connection with the 
transaction, but need not be disseminated to shareholders.
    (2) File copies of any documents incorporated by reference into the 
home jurisdiction document(s) .
    (3) If any name is signed to the Schedule pursuant to power of 
attorney, manually signed copies of any such power of attorney shall be 
filed. If the name of any officer signing on behalf of the issuer is 
signed pursuant to a power of attorney, certified copies of a resolution 
of the issuer's board of directors authorizing such signature also shall 
be filed.

    Part III--Undertaking and Consent to Service of Process

    1. Undertaking
    The Schedule shall set forth the following undertaking of the person 
filing it:
    The person(s) filing this Schedule undertakes to make available, in 
person or by telephone, representatives to respond to inquiries made by 
the Commission staff, and to furnish promptly, when requested to do so 
by the Commission staff, information relating

[[Page 273]]

to this Schedule or to transactions in said securities.
    2. Consent to Service of Process.
    (a) At the time of filing this Schedule, the person(s) (if a non-U. 
S. person) so filing shall file with the Commission a written 
irrevocable consent and power of attorney on Form F-X.
    (b) Any change to the name or address of a registrant's agent for 
service shall be communicated promptly to the Commission by amendment to 
Form F-X referencing the file number of the registrant.

                           Part IV--Signatures

    A. The Schedule shall be signed by each person on whose behalf the 
Schedule is filed or its authorized representative. If the Schedule is 
signed on behalf of a person by his authorized representative (other 
than an executive officer or general partner of the subject company), 
evidence of the representative's authority shall be filed with the 
Schedule.
    B. The name and any title of each person who signs the Schedule 
shall be typed or printed beneath his signature.
    C. By signing this Schedule, the persons signing consent without 
power of revocation that any administrative subpoena may be served, or 
any administrative proceeding, civil suit or civil action where the 
cause of action arises out of or relates to or concerns any offering 
made or purported to be made in connection with filing on this Schedule 
14D-9F or any purchases or sales of any security in connection 
therewith, may be commenced against them in any administrative tribunal 
or in any appropriate court in any place subject to the jurisdiction of 
any state or of the United States by service of said subpoena or process 
upon the registrant's designated agent.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
________________________________________________________________________
    (Signature)
________________________________________________________________________
    (Name and Title)
________________________________________________________________________
    (Date)

[56 FR 30073, July 1, 1991, as amended at 61 FR 24657, May 15, 1996; 67 
FR 36706, May 24, 2002]

                             Regulation 14E

    Note: For the scope of and definitions applicable to Regulation 14E, 
refer to Sec. 240.14d-1.



Sec. 240.14e-1  Unlawful tender offer practices.

    As a means reasonably designed to prevent fraudulent, deceptive or 
manipulative acts or practices within the meaning of section 14(e) of 
the Act, no person who makes a tender offer shall:
    (a) Hold such tender offer open for less than twenty business days 
from the date such tender offer is first published or sent to security 
holders; provided, however, that if the tender offer involves a roll-up 
transaction as defined in Item 901(c) of Regulation S-K (17 CFR 
229.901(c)) and the securities being offered are registered (or 
authorized to be registered) on Form S-4 (17 CFR 229.25) or Form F-4 (17 
CFR 229.34), the offer shall not be open for less than sixty calendar 
days from the date the tender offer is first published or sent to 
security holders;
    (b) Increase or decrease the percentage of the class of securities 
being sought or the consideration offered or the dealer's soliciting fee 
to be given in a tender offer unless such tender offer remains open for 
at least ten business days from the date that notice of such increase or 
decrease is first published or sent or given to security holders.

Provided, however, That, for purposes of this paragraph, the acceptance 
for payment of an additional amount of securities not to exceed two 
percent of the class of securities that is the subject of the tender 
offer shall not be deemed to be an increase. For purposes of this 
paragraph, the percentage of a class of securities shall be calculated 
in accordance with section 14(d)(3) of the Act.
    (c) Fail to pay the consideration offered or return the securities 
deposited by or on behalf of security holders promptly after the 
termination or withdrawal of a tender offer. This paragraph does not 
prohibit a bidder electing to offer a subsequent offering period under 
Sec. 240.14d-11 from paying for securities during the subsequent 
offering period in accordance with that section.
    (d) Extend the length of a tender offer without issuing a notice of 
such extension by press release or other public announcement, which 
notice shall include disclosure of the approximate number of securities 
deposited to date and shall be issued no later than the

[[Page 274]]

earlier of: (i) 9:00 a.m. Eastern time, on the next business day after 
the scheduled expiration date of the offer or (ii), if the class of 
securities which is the subject of the tender offer is registered on one 
or more national securities exchanges, the first opening of any one of 
such exchanges on the next business day after the scheduled expiration 
date of the offer.
    (e) The periods of time required by paragraphs (a) and (b) of this 
section shall be tolled for any period during which the bidder has 
failed to file in electronic format, absent a hardship exemption 
(Sec. Sec. 232.201 and 232.202 of this chapter), the Schedule 14D-1 
Tender Offer Statement (Sec. 240.14d-100 of this chapter), any tender 
offer material specified in paragraph (a) of Item 11 of that Schedule, 
and any amendments thereto. If such documents were filed in paper 
pursuant to a hardship exemption (see Sec. 232.201 and Sec. 232.202(d) 
of this chapter), the minimum offering periods shall be tolled for any 
period during which a required confirming electronic copy of such 
Schedule and tender offer material is delinquent.

[44 FR 70348, Dec. 6, 1979, as amended at 51 FR 3035, Jan. 23, 1986; 51 
FR 25883, July 17, 1986; 51 FR 32630, Sept. 15, 1986; 56 FR 57255, Nov. 
8, 1991; 58 FR 14682, 14685, Mar. 18, 1993; 59 FR 67765, Dec. 30, 1994; 
62 FR 36459, July 8, 1997; 64 FR 61465, Nov. 10, 1999]



Sec. 240.14e-2  Position of subject company with respect to a tender offer.

    (a) Position of subject company. As a means reasonably designed to 
prevent fraudulent, deceptive or manipulative acts or practices withing 
the meaning of section 14(e) of the Act, the subject company, no later 
than 10 business days from the date the tender offer is first published 
or sent or given, shall publish, send or give to security holders a 
statement disclosing that the subject company:
    (1) Recommends acceptance or rejection of the bidder's tender offer;
    (2) Expresses no opinion and is remaining neutral toward the 
bidder's tender offer; or
    (3) Is unable to take a position with respect to the bidder's tender 
offer. Such statement shall also include the reason(s) for the position 
(including the inability to take a position) disclosed therein.
    (b) Material change. If any material change occurs in the disclosure 
required by paragraph (a) of this section, the subject company shall 
promptly publish or send or give a statement disclosing such material 
change to security holders.
    (c) Any issuer, a class of the securities of which is the subject of 
a tender offer filed with the Commission on Schedule 14D-1F and 
conducted in reliance upon and in conformity with Rule 14d-1(b) under 
the Act, and any director or officer of such issuer where so required by 
the laws, regulations and policies of Canada and/or any of its provinces 
or territories, in lieu of the statements called for by paragraph (a) of 
this section and Rule 14d-9 under the Act, shall file with the 
Commission on Schedule 14D-9F the entire disclosure document(s) required 
to be furnished to holders of securities of the subject issuer by the 
laws, regulations and policies of Canada and/or any of its provinces or 
territories governing the conduct of the tender offer, and shall 
disseminate such document(s) in the United States in accordance with 
such laws, regulations and policies.
    (d) Exemption for cross-border tender offers. The subject company 
shall be exempt from this section with respect to a tender offer 
conducted under Sec. 240.14d-1(c).

[44 FR 70348, Dec. 6, 1979, as amended at 56 FR 30075, July 1, 1991; 64 
FR 61406, Nov. 10, 1999]



Sec. 240.14e-3  Transactions in securities on the basis of material, 
nonpublic information in the context of tender offers.

    (a) If any person has taken a substantial step or steps to commence, 
or has commenced, a tender offer (the ``offering person''), it shall 
constitute a fraudulent, deceptive or manipulative act or practice 
within the meaning of section 14(e) of the Act for any other person who 
is in possession of material information relating to such tender offer 
which information he knows or has reason to know is nonpublic and which 
he knows or has reason to know has been acquired directly or indirectly 
from:

[[Page 275]]

    (1) The offering person,
    (2) The issuer of the securities sought or to be sought by such 
tender offer, or
    (3) Any officer, director, partner or employee or any other person 
acting on behalf of the offering person or such issuer, to purchase or 
sell or cause to be purchased or sold any of such securities or any 
securities convertible into or exchangeable for any such securities or 
any option or right to obtain or to dispose of any of the foregoing 
securities, unless within a reasonable time prior to any purchase or 
sale such information and its source are publicly disclosed by press 
release or otherwise.
    (b) A person other than a natural person shall not violate paragraph 
(a) of this section if such person shows that:
    (1) The individual(s) making the investment decision on behalf of 
such person to purchase or sell any security described in paragraph (a) 
of this section or to cause any such security to be purchased or sold by 
or on behalf of others did not know the material, nonpublic information; 
and
    (2) Such person had implemented one or a combination of policies and 
procedures, reasonable under the circumstances, taking into 
consideration the nature of the person's business, to ensure that 
individual(s) making investment decision(s) would not violate paragraph 
(a) of this section, which policies and procedures may include, but are 
not limited to, (i) those which restrict any purchase, sale and causing 
any purchase and sale of any such security or (ii) those which prevent 
such individual(s) from knowing such information.
    (c) Notwithstanding anything in paragraph (a) of this section to 
contrary, the following transactions shall not be violations of 
paragraph (a) of this section:
    (1) Purchase(s) of any security described in paragraph (a) of this 
section by a broker or by another agent on behalf of an offering person; 
or
    (2) Sale(s) by any person of any security described in paragraph (a) 
of this section to the offering person.
    (d)(1) As a means reasonably designed to prevent fraudulent, 
deceptive or manipulative acts or practices within the meaning of 
section 14(e) of the Act, it shall be unlawful for any person described 
in paragraph (d)(2) of this section to communicate material, nonpublic 
information relating to a tender offer to any other person under 
circumstances in which it is reasonably foreseeable that such 
communication is likely to result in a violation of this section except 
that this paragraph shall not apply to a communication made in good 
faith,
    (i) To the officers, directors, partners or employees of the 
offering person, to its advisors or to other persons, involved in the 
planning, financing, preparation or execution of such tender offer;
    (ii) To the issuer whose securities are sought or to be sought by 
such tender offer, to its officers, directors, partners, employees or 
advisors or to other persons, involved in the planning, financing, 
preparation or execution of the activities of the issuer with respect to 
such tender offer; or
    (iii) To any person pursuant to a requirement of any statute or rule 
or regulation promulgated thereunder.
    (2) The persons referred to in paragraph (d)(1) of this section are:
    (i) The offering person or its officers, directors, partners, 
employees or advisors;
    (ii) The issuer of the securities sought or to be sought by such 
tender offer or its officers, directors, partners, employees or 
advisors;
    (iii) Anyone acting on behalf of the persons in paragraph (d)(2)(i) 
of this section or the issuer or persons in paragraph (d)(2)(ii) of this 
section; and
    (iv) Any person in possession of material information relating to a 
tender offer which information he knows or has reason to know is 
nonpublic and which he knows or has reason to know has been acquired 
directly or indirectly from any of the above.

[45 FR 60418, Sept. 12, 1980]



Sec. 240.14e-4  Prohibited transactions in connection with partial tender offers.

    (a) Definitions. For purposes of this section:
    (1) The amount of a person's ``net long position'' in a subject 
security shall equal the excess, if any, of such

[[Page 276]]

person's ``long position'' over such person's ``short position.'' For 
the purposes of determining the net long position as of the end of the 
proration period and for tendering concurrently to two or more partial 
tender offers, securities that have been tendered in accordance with the 
rule and not withdrawn are deemed to be part of the person's long 
position.
    (i) Such person's long position is the amount of subject securities 
that such person:
    (A) Or his agent has title to or would have title to but for having 
lent such securities; or
    (B) Has purchased, or has entered into an unconditional contract, 
binding on both parties thereto, to purchase but has not yet received; 
or
    (C) Has exercised a standardized call option for; or
    (D) Has converted, exchanged, or exercised an equivalent security 
for; or
    (E) Is entitled to receive upon conversion, exchange, or exercise of 
an equivalent security.
    (ii) Such person's short position, is the amount of subject 
securities or subject securities underlying equivalent securities that 
such person:
    (A) Has sold, or has entered into an unconditional contract, binding 
on both parties thereto, to sell; or
    (B) Has borrowed; or
    (C) Has written a non-standardized call option, or granted any other 
right pursuant to which his shares may be tendered by another person; or
    (D) Is obligated to deliver upon exercise of a standardized call 
option sold on or after the date that a tender offer is first publicly 
announced or otherwise made known by the bidder to holders of the 
security to be acquired, if the exercise price of such option is lower 
than the highest tender offer price or stated amount of the 
consideration offered for the subject security. For the purpose of this 
paragraph, if one or more tender offers for the same security are 
ongoing on such date, the announcement date shall be that of the first 
announced offer.
    (2) The term equivalent security means:
    (i) Any security (including any option, warrant, or other right to 
purchase the subject security), issued by the person whose securities 
are the subject of the offer, that is immediately convertible into, or 
exchangeable or exercisable for, a subject security, or
    (ii) Any other right or option (other than a standardized call 
option) that entitles the holder thereof to acquire a subject security, 
but only if the holder thereof reasonably believes that the maker or 
writer of the right or option has title to and possession of the subject 
security and upon exercise will promptly deliver the subject security.
    (3) The term subject security means a security that is the subject 
of any tender offer or request or invitation for tenders.
    (4) For purposes of this rule, a person shall be deemed to 
``tender'' a security if he:
    (i) Delivers a subject security pursuant to an offer,
    (ii) Causes such delivery to be made,
    (iii) Guarantees delivery of a subject security pursuant to a tender 
offer,
    (iv) Causes a guarantee of such delivery to be given by another 
person, or
    (v) Uses any other method by which acceptance of a tender offer may 
be made.
    (5) The term partial tender offer means a tender offer or request or 
invitation for tenders for less than all of the outstanding securities 
subject to the offer in which tenders are accepted either by lot or on a 
pro rata basis for a specified period, or a tender offer for all of the 
outstanding shares that offers a choice of consideration in which 
tenders for different forms of consideration may be accepted either by 
lot or on a pro rata basis for a specified period.
    (6) The term standardized call option means any call option that is 
traded on an exchange, or for which quotation information is 
disseminated in an electronic interdealer quotation system of a 
registered national securities association.
    (b) It shall be unlawful for any person acting alone or in concert 
with others, directly or indirectly, to tender any subject security in a 
partial tender offer:
    (1) For his own account unless at the time of tender, and at the end 
of the proration period or period during which

[[Page 277]]

securities are accepted by lot (including any extensions thereof), he 
has a net long position equal to or greater than the amount tendered in:
    (i) The subject security and will deliver or cause to be delivered 
such security for the purpose of tender to the person making the offer 
within the period specified in the offer; or
    (ii) An equivalent security and, upon the acceptance of his tender 
will acquire the subject security by conversion, exchange, or exercise 
of such equivalent security to the extent required by the terms of the 
offer, and will deliver or cause to be delivered the subject security so 
acquired for the purpose of tender to the person making the offer within 
the period specified in the offer; or
    (2) For the account of another person unless the person making the 
tender:
    (i) Possesses the subject security or an equivalent security, or
    (ii) Has a reasonable belief that, upon information furnished by the 
person on whose behalf the tender is made, such person owns the subject 
security or an equivalent security and will promptly deliver the subject 
security or such equivalent security for the purpose of tender to the 
person making the tender.
    (c) This rule shall not prohibit any transaction or transactions 
which the Commission, upon written request or upon its own motion, 
exempts, either unconditionally or on specified terms and conditions.

[49 FR 13870, Apr. 9, 1984, as amended at 50 FR 8102, Feb. 28, 1985. 
Redesignated and amended at 55 FR 50320, Dec. 6, 1990]



Sec. 240.14e-5  Prohibiting purchases outside of a tender offer.

    (a) Unlawful activity. As a means reasonably designed to prevent 
fraudulent, deceptive or manipulative acts or practices in connection 
with a tender offer for equity securities, no covered person may 
directly or indirectly purchase or arrange to purchase any subject 
securities or any related securities except as part of the tender offer. 
This prohibition applies from the time of public announcement of the 
tender offer until the tender offer expires. This prohibition does not 
apply to any purchases or arrangements to purchase made during the time 
of any subsequent offering period as provided for in Sec. 240.14d-11 if 
the consideration paid or to be paid for the purchases or arrangements 
to purchase is the same in form and amount as the consideration offered 
in the tender offer.
    (b) Excepted activity. The following transactions in subject 
securities or related securities are not prohibited by paragraph (a) of 
this section:
    (1) Exercises of securities. Transactions by covered persons to 
convert, exchange, or exercise related securities into subject 
securities, if the covered person owned the related securities before 
public announcement;
    (2) Purchases for plans. Purchases or arrangements to purchase by or 
for a plan that are made by an agent independent of the issuer;
    (3) Purchases during odd-lot offers. Purchases or arrangements to 
purchase if the tender offer is excepted under Sec. 240.13e-4(h)(5);
    (4) Purchases as intermediary. Purchases by or through a dealer-
manager or its affiliates that are made in the ordinary course of 
business and made either:
    (i) On an agency basis not for a covered person; or
    (ii) As principal for its own account if the dealer-manager or its 
affiliate is not a market maker, and the purchase is made to offset a 
contemporaneous sale after having received an unsolicited order to buy 
from a customer who is not a covered person;
    (5) Basket transactions. Purchases or arrangements to purchase a 
basket of securities containing a subject security or a related security 
if the following conditions are satisfied:
    (i) The purchase or arrangement to purchase is made in the ordinary 
course of business and not to facilitate the tender offer;
    (ii) The basket contains 20 or more securities; and
    (iii) Covered securities and related securities do not comprise more 
than 5% of the value of the basket;
    (6) Covering transactions. Purchases or arrangements to purchase 
that are made to satisfy an obligation to deliver a subject security or 
a related security arising from a short sale or from the

[[Page 278]]

exercise of an option by a non-covered person if:
    (i) The short sale or option transaction was made in the ordinary 
course of business and not to facilitate the offer;
    (ii) In the case of a short sale, the short sale was entered into 
before public announcement of the tender offer; and
    (iii) In the case of an exercise of an option, the covered person 
wrote the option before public announcement of the tender offer;
    (7) Purchases pursuant to contractual obligations. Purchases or 
arrangements to purchase pursuant to a contract if the following 
conditions are satisfied:
    (i) The contract was entered into before public announcement of the 
tender offer;
    (ii) The contract is unconditional and binding on both parties; and
    (iii) The existence of the contract and all material terms including 
quantity, price and parties are disclosed in the offering materials;
    (8) Purchases or arrangements to purchase by an affiliate of the 
dealer-manager. Purchases or arrangements to purchase by an affiliate of 
a dealer-manager if the following conditions are satisfied:
    (i) The dealer-manager maintains and enforces written policies and 
procedures reasonably designed to prevent the flow of information to or 
from the affiliate that might result in a violation of the federal 
securities laws and regulations;
    (ii) The dealer-manager is registered as a broker or dealer under 
Section 15(a) of the Act;
    (iii) The affiliate has no officers (or persons performing similar 
functions) or employees (other than clerical, ministerial, or support 
personnel) in common with the dealer-manager that direct, effect, or 
recommend transactions in securities; and
    (iv) The purchases or arrangements to purchase are not made to 
facilitate the tender offer;
    (9) Purchases by connected exempt market makers or connected exempt 
principal traders. Purchases or arrangements to purchase if the 
following conditions are satisfied:
    (i) The issuer of the subject security is a foreign private issuer, 
as defined in Sec. 240.3b-4(c);
    (ii) The tender offer is subject to the United Kingdom's City Code 
on Takeovers and Mergers;
    (iii) The purchase or arrangement to purchase is effected by a 
connected exempt market maker or a connected exempt principal trader, as 
those terms are used in the United Kingdom's City Code on Takeovers and 
Mergers;
    (iv) The connected exempt market maker or the connected exempt 
principal trader complies with the applicable provisions of the United 
Kingdom's City Code on Takeovers and Mergers; and
    (v) The tender offer documents disclose the identity of the 
connected exempt market maker or the connected exempt principal trader 
and disclose, or describe how U.S. security holders can obtain, 
information regarding market making or principal purchases by such 
market maker or principal trader to the extent that this information is 
required to be made public in the United Kingdom; and
    (10) Purchases during cross-border tender offers. Purchases or 
arrangements to purchase if the following conditions are satisfied:
    (i) The tender offer is excepted under Sec. 240.13e-4(h)(8) or 
Sec. 240.14d-1(c);
    (ii) The offering documents furnished to U.S. holders prominently 
disclose the possibility of any purchases, or arrangements to purchase, 
or the intent to make such purchases;
    (iii) The offering documents disclose the manner in which any 
information about any such purchases or arrangements to purchase will be 
disclosed;
    (iv) The offeror discloses information in the United States about 
any such purchases or arrangements to purchase in a manner comparable to 
the disclosure made in the home jurisdiction, as defined in Sec. 
240.13e-4(i)(3); and
    (v) The purchases comply with the applicable tender offer laws and 
regulations of the home jurisdiction.
    (c) Definitions. For purposes of this section, the term:
    (1) Affiliate has the same meaning as in Sec. 240.12b-2;

[[Page 279]]

    (2) Agent independent of the issuer has the same meaning as in Sec. 
242.100(b) of this chapter;
    (3) Covered person means:
    (i) The offeror and its affiliates;
    (ii) The offeror's dealer-manager and its affiliates;
    (iii) Any advisor to any of the persons specified in paragraph 
(c)(3)(i) and (ii) of this section, whose compensation is dependent on 
the completion of the offer; and
    (iv) Any person acting, directly or indirectly, in concert with any 
of the persons specified in this paragraph (c)(3) in connection with any 
purchase or arrangement to purchase any subject securities or any 
related securities;
    (4) Plan has the same meaning as in Sec. 242.100(b) of this 
chapter;
    (5) Public announcement is any oral or written communication by the 
offeror or any person authorized to act on the offeror's behalf that is 
reasonably designed to, or has the effect of, informing the public or 
security holders in general about the tender offer;
    (6) Related securities means securities that are immediately 
convertible into, exchangeable for, or exercisable for subject 
securities; and
    (7) Subject securities has the same meaning as in Sec. 229.1000 of 
this chapter.
    (d) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms or 
conditions, to any transaction or class of transactions or any security 
or class of security, or any person or class of persons.

[64 FR 61465, Nov. 10, 1999]



Sec. 240.14e-6  Repurchase offers by certain closed-end registered 
investment companies.

    Sections 240.14e-1 and 240.14e-2 shall not apply to any offer by a 
closed-end management investment company to repurchase equity securities 
of which it is the issuer pursuant to Sec. 270.23c-3 of this chapter.

[58 FR 19343, Apr. 14, 1993]



Sec. 240.14e-7  Unlawful tender offer practices in connection with roll-ups.

    In order to implement section 14(h) of the Act (15 U.S.C. 78n(h)):
    (a)(1) It shall be unlawful for any person to receive compensation 
for soliciting tenders directly from security holders in connection with 
a roll-up transaction as provided in paragraph (a)(2) of this section, 
if the compensation is:
    (i) Based on whether the solicited person participates in the tender 
offer; or
    (ii) Contingent on the success of the tender offer.
    (2) Paragraph (a)(1) of this section is applicable to a roll-up 
transaction as defined in Item 901(c) of Regulation S-K (Sec. 
229.901(c) of this chapter), structured as a tender offer, except for a 
transaction involving only:
    (i) Finite-life entities that are not limited partnerships;
    (ii) Partnerships whose investors will receive new securities or 
securities in another entity that are not reported under a transaction 
reporting plan declared effective before December 17, 1993 by the 
Commission under section 11A of the Act (15 U.S.C. 78k-1); or
    (iii) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under section 11A of the Act (15 U.S.C. 78k-1).
    (b)(1) It shall be unlawful for any finite-life entity that is the 
subject of a roll-up transaction as provided in paragraph (b)(2) of this 
section to fail to provide a security holder list or mail communications 
related to a tender offer that is in furtherance of the roll-up 
transaction, at the option of a requesting security holder, pursuant to 
the procedures set forth in Sec. 240.14a-7.
    (2) Paragraph (b)(1) of this section is applicable to a roll-up 
transaction as defined in Item 901(c) of Regulation S-K (Sec. 
229.901(c) of this chapter), structured as a tender offer, that 
involves:
    (i) An entity with securities registered pursuant to section 12 of 
the Act (15 U.S.C. 78l); or
    (ii) A limited partnership, unless the transaction involves only:
    (A) Partnerships whose investors will receive new securities or 
securities in

[[Page 280]]

another entity that are not reported under a transaction reporting plan 
declared effective before December 17, 1993 by the Commission under 
section 11A of the Act (15 U.S.C. 78k-1); or
    (B) Partnerships whose investors' securities are reported under a 
transaction reporting plan declared effective before December 17, 1993 
by the Commission under section 11A of the Act (15 U.S.C. 78k-1).

[59 FR 63685, Dec. 8, 1994]



Sec. 240.14e-8  Prohibited conduct in connection with pre-commencement 
communications.

    It is a fraudulent, deceptive or manipulative act or practice within 
the meaning of section 14(e) of the Act (15 U.S.C. 78n) for any person 
to publicly announce that the person (or a party on whose behalf the 
person is acting) plans to make a tender offer that has not yet been 
commenced, if the person:
    (a) Is making the announcement of a potential tender offer without 
the intention to commence the offer within a reasonable time and 
complete the offer;
    (b) Intends, directly or indirectly, for the announcement to 
manipulate the market price of the stock of the bidder or subject 
company; or
    (c) Does not have the reasonable belief that the person will have 
the means to purchase securities to complete the offer.

[64 FR 61466, Nov. 10, 1999]



Sec. 240.14f-1  Change in majority of directors.

    If, pursuant to any arrangement or understanding with the person or 
persons acquiring securities in a transaction subject to section 13(d) 
or 14(d) of the Act, any persons are to be elected or designated as 
directors of the issuer, otherwise than at a meeting of security 
holders, and the persons so elected or designated will constitute a 
majority of the directors of the issuer, then, not less than 10 days 
prior to the date any such person take office as a director, or such 
shorter period prior to that date as the Commission may authorize upon a 
showing of good cause therefor, the issuer shall file with the 
Commission and transmit to all holders of record of securities of the 
issuer who would be entitled to vote at a meeting for election of 
directors, information substantially equivalent to the information which 
would be required by Items 6 (a), (d) and (e), 7 and 8 of Schedule 14A 
of Regulation 14A (Sec. 240.14a-101 of this chapter) to be transmitted 
if such person or persons were nominees for election as directors at a 
meeting of such security holders. Eight copies of such information shall 
be filed with the Commission.

[33 FR 11017, Aug. 2, 1968, as amended at 34 FR 6101, Apr. 4, 1969; 51 
FR 42072, Nov. 20, 1986]

              Exemption of Certain OTC Derivatives Dealers



Sec. 240.15a-1  Securities activities of OTC derivatives dealers.

    Preliminary Note: OTC derivatives dealers are a special class of 
broker-dealers that are exempt from certain broker-dealer requirements, 
including membership in a self-regulatory organization (Sec. 240.15b9-
2), regular broker-dealer margin rules (Sec. 240.36a1-1), and 
application of the Securities Investor Protection Act of 1970 (Sec. 
240.36a1-2). OTC derivative dealers are subject to special requirements, 
including limitations on the scope of their securities activities (Sec. 
240.15a-1), specified internal risk management control systems (Sec. 
240.15c3-4), recordkeeping obligations (Sec. 240.17a-3(a)(10)), and 
reporting responsibilities (Sec. 240.17a-12). They are also subject to 
alternative net capital treatment (Sec. 240.15c3-1(a)(5)). This rule 
15a-1 uses a number of defined terms in setting forth the securities 
activities in which an OTC derivatives dealer may engage: ``OTC 
derivatives dealer,'' ``eligible OTC derivative instrument,'' ``cash 
management securities activities,'' and ``ancillary portfolio management 
securities activities.'' These terms are defined under Rules 3b-12 
through 3b-15 (Sec. 240.3b-12 through Sec. 240.3b-15).

    (a) The securities activities of an OTC derivatives dealer shall:
    (1) Be limited to:
    (i) Engaging in dealer activities in eligible OTC derivative 
instruments that are securities;
    (ii) Issuing and reacquiring securities that are issued by the 
dealer, including warrants on securities, hybrid securities, and 
structured notes;
    (iii) Engaging in cash management securities activities;
    (iv) Engaging in ancillary portfolio management securities 
activities; and

[[Page 281]]

    (v) Engaging in such other securities activities that the Commission 
designates by order pursuant to paragraph (b)(1) of this section; and
    (2) Consist primarily of the activities described in paragraphs 
(a)(1)(i), (a)(1)(ii), and (a)(1)(iii) of this section; and
    (3) Not consist of any other securities activities, including 
engaging in any transaction in any security that is not an eligible OTC 
derivative instrument, except as permitted under paragraphs (a)(1)(iii), 
(a)(1)(iv), and (a)(1)(v) of this section.
    (b) The Commission, by order, entered upon its own initiative or 
after considering an application for exemptive relief, may clarify or 
expand the scope of eligible OTC derivative instruments and the scope of 
permissible securities activities of an OTC derivatives dealer. Such 
orders may:
    (1) Identify other permissible securities activities;
    (2) Determine that a class of fungible instruments that are 
standardized as to their material economic terms is within the scope of 
eligible OTC derivative instrument;
    (3) Clarify whether certain contracts, agreements, or transactions 
are within the scope of eligible OTC derivative instrument; or
    (4) Clarify whether certain securities activities are within the 
scope of ancillary portfolio management securities activities.
    (c) To the extent an OTC derivatives dealer engages in any 
securities transaction pursuant to paragraphs (a)(1)(i) through 
(a)(1)(v) of this section, such transaction shall be effected through a 
registered broker or dealer (other than an OTC derivatives dealer) that, 
in the case of any securities transaction pursuant to paragraphs 
(a)(1)(i), or (a)(1)(iii) through (a)(1)(v) of this section, is an 
affiliate of the OTC derivatives dealer, except that this paragraph (c) 
shall not apply if:
    (1) The counterparty to the transaction with the OTC derivatives 
dealer is acting as principal and is:
    (i) A registered broker or dealer;
    (ii) A bank acting in a dealer capacity, as permitted by U.S. law;
    (iii) A foreign broker or dealer; or
    (iv) An affiliate of the OTC derivatives dealer; or
    (2) The OTC derivatives dealer is engaging in an ancillary portfolio 
management securities activity, and the transaction is in a foreign 
security, and a registered broker or dealer, a bank, or a foreign broker 
or dealer is acting as agent for the OTC derivatives dealer.
    (d) To the extent an OTC derivatives dealer induces or attempts to 
induce any counterparty to enter into any securities transaction 
pursuant to paragraphs (a)(1)(i) through (a)(1)(v) of this section, any 
communication or contact with the counterparty concerning the 
transaction (other than clerical and ministerial activities conducted by 
an associated person of the OTC derivatives dealer) shall be conducted 
by one or more registered persons that, in the case of any securities 
transaction pursuant to paragraphs (a)(1)(i), or (a)(1)(iii) through 
(a)(1)(v) of this section, is associated with an affiliate of the OTC 
derivatives dealer, except that this paragraph (d) shall not apply if 
the counterparty to the transaction with the OTC derivatives dealer is:
    (1) A registered broker or dealer;
    (2) A bank acting in a dealer capacity, as permitted by U.S. law;
    (3) A foreign broker or dealer; or
    (4) An affiliate of the OTC derivatives dealer.
    (e) For purposes of this section, the term hybrid security means a 
security that incorporates payment features economically similar to 
options, forwards, futures, swap agreements, or collars involving 
currencies, interest or other rates, commodities, securities, indices, 
quantitative measures, or other financial or economic interests or 
property of any kind, or any payment or delivery that is dependent on 
the occurrence or nonoccurrence of any event associated with a potential 
financial, economic, or commercial consequence (or any combination, 
permutation, or derivative of such contract or underlying interest).
    (f) For purposes of this section, the term affiliate means any 
organization (whether incorporated or unincorporated) that directly or 
indirectly controls, is controlled by, or is under

[[Page 282]]

common control with, the OTC derivatives dealer.
    (g) For purposes of this section, the term foreign broker or dealer 
means any person not resident in the United States (including any U.S. 
person engaged in business as a broker or dealer entirely outside the 
United States, except as otherwise permitted by Sec. 240.15a-6) that is 
not an office or branch of, or a natural person associated with, a 
registered broker or dealer, whose securities activities, if conducted 
in the United States, would be described by the definition of ``broker'' 
in section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) or ``dealer'' in 
section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)).
    (h) For purposes of this section, the term foreign security means 
any security (including a depositary share issued by a United States 
bank, provided that the depositary share is initially offered and sold 
outside the United States in accordance with Regulation S (17 CFR 
230.901 through 230.904)) issued by a person not organized or 
incorporated under the laws of the United States, provided the 
transaction that involves such security is not effected on a national 
securities exchange or on a market operated by a registered national 
securities association; or a debt security (including a convertible debt 
security) issued by an issuer organized or incorporated under the laws 
of the United States that is initially offered and sold outside the 
United States in accordance with Regulation S (17 CFR 230.901 through 
230.904).
    (i) For purposes of this section, the term registered person is:
    (A) A natural person who is associated with a registered broker or 
dealer and is registered or approved under the rules of a self-
regulatory organization of which such broker or dealer is a member; or
    (B) If the counterparty to the transaction with the OTC derivatives 
dealer is a resident of a jurisdiction other than the United States, a 
natural person who is not resident in the United States and is 
associated with a broker or dealer that is registered or licensed by a 
foreign financial regulatory authority in the jurisdiction in which such 
counterparty is resident or in which such natural person is located, in 
accordance with applicable legal requirements, if any.

[63 FR 59396, Nov. 3, 1998]

           Exemption of Certain Securities From Section 15(a)



Sec. 240.15a-2  Exemption of certain securities of cooperative apartment 
houses from section 15(a).

    Shares of a corporation which represent ownership, or entitle the 
holders thereof to possession and occupancy, of specific apartment units 
in property owned by such corporations and organized and operated on a 
cooperative basis are hereby exempted from the operation of section 
15(a) of the Securities Exchange Act of 1934, when such shares are sold 
by or through a real estate broker licensed under the laws of the 
political subdivision in which the property is located.

(Secs. 3, 48 Stat. 882, as amended, 895, as amended; 15 U.S.C. 78c, 78o)

[13 FR 8204, Dec. 22, 1948]



Sec. 240.15a-3  [Reserved]



Sec. 240.15a-4  Forty-five day exemption from registration for certain 
members of national securities exchanges.

    (a) A natural person who is a member of a national securities 
exchange shall, upon termination of his association with a registered 
broker-dealer, be exempt, for a period of forty-five days after such 
termination, from the registration requirement of section 15(a) of the 
Act solely for the purpose of continuing to effect transactions on the 
floor of such exchange if (1) such person has filed with the Commission 
an application for registration as a broker-dealer and such person 
complies in all material respects with rules of the Commission 
applicable to registered brokers and dealers and (2) such exchange has 
filed with the Commission a statement that it has reviewed such 
application and that there do not appear to be grounds for its denial.

[[Page 283]]

    (b) The exemption from registration provided by this rule shall not 
be available to any person while there is pending before the Commission 
any proceeding involving any such person pursuant to section 15(b)(1)(B) 
of the Act.

[41 FR 18290, May 3, 1976]



Sec. 240.15a-5  Exemption of certain nonbank lenders.

    A lender approved under the rules and regulations of the Small 
Business Administration shall be exempt from the registration 
requirement of section 15(a) (1) of the Act if it does not engage in the 
business of effecting transactions in securities or of buying and 
selling securities for its own account except in respect of receiving 
notes evidencing loans to small business concerns and selling the 
portion of such notes guaranteed by the Small Business Administration 
through or to a registered broker or dealer or to a bank, a savings 
institution, an insurance company, or an account over which an 
investment adviser registered pursuant to the Investment Advisers Act of 
1940 exercises investment discretion.

[41 FR 50645, Nov. 17, 1976]

                   Registration of Brokers and Dealers



Sec. 240.15a-6  Exemption of certain foreign brokers or dealers.

    (a) A foreign broker or dealer shall be exempt from the registration 
requirements of sections 15(a)(1) or 15B(a)(1) of the Act to the extent 
that the foreign broker or dealer:
    (1) Effects transactions in securities with or for persons that have 
not been solicited by the foreign broker or dealer; or
    (2) Furnishes research reports to major U.S. institutional 
investors, and effects transactions in the securities discussed in the 
research reports with or for those major U.S. institutional investors, 
provided that:
    (i) The research reports do not recommend the use of the foreign 
broker or dealer to effect trades in any security;
    (ii) The foreign broker or dealer does not initiate contact with 
those major U.S. institutional investors to follow up on the research 
reports, and does not otherwise induce or attempt to induce the purchase 
or sale of any security by those major U.S. institutional investors;

    (iii) If the foreign broker or dealer has a relationship with a 
registered broker or dealer that satisfies the requirements of paragraph 
(a)(3) of this section, any transactions with the foreign broker or 
dealer in securities discussed in the research reports are effected only 
through that registered broker or dealer, pursuant to the provisions of 
paragraph (a)(3) of this section; and

    (iv) The foreign broker or dealer does not provide research to U.S. 
persons pursuant to any express or implied understanding that those U.S. 
persons will direct commission income to the foreign broker or dealer; 
or

    (3) Induces or attempts to induce the purchase or sale of any 
security by a U.S. institutional investor or a major U.S. institutional 
investor, provided that:

    (i) The foreign broker or dealer:

    (A) Effects any resulting transactions with or for the U.S. 
institutional investor or the major U.S. institutional investor through 
a registered broker or dealer in the manner described by paragraph 
(a)(3)(iii) of this section; and

    (B) Provides the Commission (upon request or pursuant to agreements 
reached between any foreign securities authority, including any foreign 
government, as specified in section 3(a)(50) of the Act, and the 
Commission or the U.S. Government) with any information or documents 
within the possession, custody, or control of the foreign broker or 
dealer, any testimony of foreign associated persons, and any assistance 
in taking the evidence of other persons, wherever located, that the 
Commission requests and that relates to transactions under paragraph 
(a)(3) of this section, except that if, after the foreign broker or 
dealer has exercised

[[Page 284]]

its best efforts to provide the information, documents, testimony, or 
assistance, including requesting the appropriate governmental body and, 
if legally necessary, its customers (with respect to customer 
information) to permit the foreign broker or dealer to provide the 
information, documents, testimony, or assistance to the Commission, the 
foreign broker or dealer is prohibited from providing this information, 
documents, testimony, or assistance by applicable foreign law or 
regulations, then this paragraph (a)(3)(i)(B) shall not apply and the 
foreign broker or dealer will be subject to paragraph (c) of this 
section;
    (ii) The foreign associated person of the foreign broker or dealer 
effecting transactions with the U.S. institutional investor or the major 
U.S. institutional investor:
    (A) Conducts all securities activities from outside the U.S., except 
that the foreign associated persons may conduct visits to U.S. 
institutional investors and major U.S. institutional investors within 
the United States, provided that:
    (1) The foreign associated person is accompanied on these visits by 
an associated person of a registered broker or dealer that accepts 
responsibility for the foreign associated person's communications with 
the U.S. institutional investor or the major U.S institutional investor; 
and
    (2) Transactions in any securities discussed during the visit by the 
foreign associated person are effected only through the registered 
broker or dealer, pursuant to paragraph (a)(3) of this section; and
    (B) Is determined by the registered broker or dealer to:
    (1) Not be subject to a statutory disqualification specified in 
section 3(a)(39) of the Act, or any substantially equivalent foreign
    (i) Expulsion or suspension from membership,
    (ii) Bar or suspension from association,
    (iii) Denial of trading privileges,
    (iv) Order denying, suspending, or revoking registration or barring 
or suspending association, or
    (v) Finding with respect to causing any such effective foreign 
suspension, expulsion, or order;
    (2) Not to have been convicted of any foreign offense, enjoined from 
any foreign act, conduct, or practice, or found to have committed any 
foreign act substantially equivalent to any of those listed in sections 
15(b)(4) (B), (C), (D), or (E) of the Act; and
    (3) Not to have been found to have made or caused to be made any 
false foreign statement or omission substantially equivalent to any of 
those listed in section 3(a)(39)(E) of the Act; and
    (iii) The registered broker or dealer through which the transaction 
with the U.S. institutional investor or the major U.S. institutional 
investor is effected:
    (A) Is responsible for:
    (1) Effecting the transactions conducted under paragraph (a)(3) of 
this section, other than negotiating their terms;
    (2) Issuing all required confirmations and statements to the U.S. 
institutional investor or the major U.S. institutional investor;
    (3) As between the foreign broker or dealer and the registered 
broker or dealer, extending or arranging for the extension of any credit 
to the U.S. institutional investor or the major U.S. institutional 
investor in connection with the transactions;
    (4) Maintaining required books and records relating to the 
transactions, including those required by Rules 17a-3 and 17a-4 under 
the Act (17 CFR 2410.17a-3 and l7a-4);
    (5) Complying with Rule 15c3-1 under the Act (17 CFR 240.15c3-1) 
with respect to the transactions; and
    (6) Receiving, delivering, and safeguarding funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or the major U.S. institutional investor in compliance with 
Rule 15c3-3 under the Act (17 CFR 240.15c3-3);
    (B) Participates through an associated person in all oral 
communications between the foreign associated person and the U.S. 
institutional investor, other than a major U.S. institutional investor;
    (C) Has obtained from the foreign broker or dealer, with respect to 
each

[[Page 285]]

foreign associated person, the types of information specified in Rule 
l7a-3(a)(12) under the Act (17 CFR 240.17a-3(a)(12)), provided that the 
information required by paragraph (a)(12)(d) of that Rule shall include 
sanctions imposed by foreign securities authorities, exchanges, or 
associations, including without limitation those described in paragraph 
(a)(3)(ii)(B) of this section;
    (D) Has obtained from the foreign broker or dealer and each foreign 
associated person written consent to service of process for any civil 
action brought by or proceeding before the Commission or a self-
regulatory organization (as defined in section 3(a)(26) of the Act), 
providing that process may be served on them by service on the 
registered broker or dealer in the manner set forth on the registered 
broker's or dealer's current Form BD; and
    (E) Maintains a written record of the information and consents 
required by paragraphs (a)(3)(iii) (C) and (D) of this section, and all 
records in connection with trading activities of the U.S. institutional 
investor or the major U.S. institutional investor involving the foreign 
broker or dealer conducted under paragraph (a)(3) of this section, in an 
office of the registered broker or dealer located in the United States 
(with respect to nonresident registered brokers or dealers, pursuant to 
Rule 17a-7(a) under the Act (17 CFR 240.17a-7(a))), and makes these 
records available to the Commission upon request; or
    (4) Effects transactions in securities with or for, or induces or 
attempts to induce the purchase or sale of any security by:
    (i) A registered broker or dealer, whether the registered broker or 
dealer is acting as principal for its own account or as agent for 
others, or a bank acting in a broker or dealer capacity as permitted by 
U.S. law;
    (ii) The African Development Bank, the Asian Development Bank, the 
Inter-American Development Bank, the International Bank for 
Reconstruction and Development, the International Monetary Fund, the 
United Nations, and their agencies, affiliates, and pension funds;
    (iii) A foreign person temporarily present in the United States, 
with whom the foreign broker or dealer had a bona fide, pre-existing 
relationship before the foreign person entered the United States;
    (iv) Any agency or branch of a U.S. person permanently located 
outside the United States, provided that the transactions occur outside 
the United States; or
    (v) U.S. citizens resident outside the United States, provided that 
the transactions occur outside the United States, and that the foreign 
broker or dealer does not direct its selling efforts toward identifiable 
groups of U.S. citizens resident abroad.
    (b) When used in this rule,
    (1) The term family of investment companies shall mean:
    (i) Except for insurance company separate accounts, any two or more 
separately registered investment companies under the Investment Company 
Act of 1940 that share the same investment adviser or principal 
underwriter and hold themselves out to investors as related companies 
for purposes of investment and investor services; and
    (ii) With respect to insurance company separate accounts, any two or 
more separately registered separate accounts under the Investment 
Company Act of 1940 that share the same investment adviser or principal 
underwriter and function under operational or accounting or control 
systems that are substantially similar.
    (2) The term foreign associated person shall mean any natural person 
domiciled outside the United States who is an associated person, as 
defined in section 3(a)(18) of the Act, of the foreign broker or dealer, 
and who participates in the solicitation of a U.S. institutional 
investor or a major U.S. institutional investor under paragraph (a)(3) 
of this section.
    (3) The term foreign broker or dealer shall mean any non-U.S. 
resident person (including any U.S. person engaged in business as a 
broker or dealer entirely outside the United States, except as otherwise 
permitted by this rule) that is not an office or branch of, or a natural 
person associated with, a registered broker or dealer, whose securities 
activities, if conducted in the United States, would be described by

[[Page 286]]

the definition of ``broker'' or ``dealer'' in sections 3(a)(4) or 
3(a)(5) of the Act.
    (4) The term major U.S. institutional investor shall mean a person 
that is:
    (i) A U.S. institutional investor that has, or has under management, 
total assets in excess of $100 million; provided, however, that for 
purposes of determining the total assets of an investment company under 
this rule, the investment company may include the assets of any family 
of investment companies of which it is a part; or
    (ii) An investment adviser registered with the Commission under 
section 203 of the Investment Advisers Act of 1940 that has total assets 
under management in excess of $100 million.
    (5) The term registered broker or dealer shall mean a person that is 
registered with the Commission under sections 15(b), 15B(a)(2), or 
15C(a)(2) of the Act.
    (6) The term United States shall mean the United States of America, 
including the States and any territories and other areas subject to its 
jurisdiction.
    (7) The term U.S. institutional investor shall mean a person that 
is:
    (i) An investment company registered with the Commission under 
section 8 of the Investment Company Act of 1940; or
    (ii) A bank, savings and loan association, insurance company, 
business development company, small business investment company, or 
employee benefit plan defined in Rule 501(a)(1) of Regulation D under 
the Securities Act of 1933 (17 CFR 230.501(a)(1)); a private business 
development company defined in Rule 501(a)(2) (17 CFR 230.501(a)(2)); an 
organization described in section 501(c)(3) of the Internal Revenue 
Code, as defined in Rule 501(a)(3) (17 CFR 230.501(a)(3)); or a trust 
defined in Rule 501(a)(7) (17 CFR 230.501(a)(7)).
    (c) The Commission, by order after notice and opportunity for 
hearing, may withdraw the exemption provided in paragraph (a)(3) of this 
section with respect to the subsequent activities of a foreign broker or 
dealer or class of foreign brokers or dealers conducted from a foreign 
country, if the Commission finds that the laws or regulations of that 
foreign country have prohibited the foreign broker or dealer, or one of 
a class of foreign brokers or dealers, from providing, in response to a 
request from the Commission, information or documents within its 
possession, custody, or control, testimony of foreign associated 
persons, or assistance in taking the evidence of other persons, wherever 
located, related to activities exempted by paragraph (a)(3) of this 
section.

[54 FR 30031, July 18, 1989]



Sec. 240.15a-7  Exemption from the definitions of ``broker'' or ``dealer'' 
for banks for limited period of time.

    (a) A bank is exempt from the definitions of the term ``broker'' 
under Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) and the term 
``dealer'' under Section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5) until 
October 1, 2001; and
    (b) A bank is exempt from the definition of the term ``broker'' 
under Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) until January 1, 
2002, for activities that meet the conditions of an exception or 
exemption for banks from the definition of the term ``broker'' except 
for those conditions of Section 3(a)(4) of the Act (15 U.S.C. 78c(a)(4)) 
and the rules thereunder relating to compensation of the bank or its 
employees.

[66 FR 27799, May 18, 2001]



Sec. 240.15a-8  Exemption for banks from Section 29 liability.

    (a) No contract entered into before January 1, 2003 shall be void or 
considered voidable by reason of section 29 of the Act (15 U.S.C. 78cc) 
because any bank that is a party to the contract violated the 
registration requirements of section 15(a) of the Act (15 U.S.C. 78o(a)) 
or any applicable provision of the Act (15 U.S.C. 78a et seq.) and the 
rules and regulations thereunder based solely on the bank's status as a 
broker or dealer when the contract was created.
    (b) No contract entered into before March 31, 2005, shall be void or 
considered voidable by reason of section 29 of the Act (15 U.S.C. 78cc) 
because any bank that is a party to the contract violated the 
registration requirements of section 15(a) of the Act (15 U.S.C. 78o(a)) 
or any applicable provision of the Act (15 U.S.C. 78a et seq.) and the 
rules and regulations thereunder based

[[Page 287]]

solely on the bank's status as a dealer when the contract was created.

[68 FR 8701, Feb. 24, 2003]



Sec. 240.15a-9  Exemption from the definitions of ``broker'' and ``dealer'' 
for savings associations and savings banks.

    Any savings association or savings bank that has deposits insured by 
the Federal Deposit Insurance Corporation under the FDIA (12 U.S.C. 1811 
et seq.), and is not operated for the purpose of evading the provisions 
of the Act (15 U.S.C. 78a et seq.), is exempt from the definitions of 
the terms ``broker'' and ``dealer'' under Sections 3(a)(4) and 3(a)(5) 
of the Act (15 U.S.C. 78c(a)(4) and 15 U.S.C. 78c(a)(5)), based solely 
on the savings association's or savings bank's status as a broker or 
dealer on the same terms and under the same conditions that banks are 
excepted or exempted, provided that if a savings association or savings 
bank acts as a municipal securities dealer, it shall be considered a 
bank municipal securities dealer for purposes of the Act (15 U.S.C. 78a 
et seq.) and the rules thereunder, including the rules of the Municipal 
Securities Rulemaking Board.

[66 FR 27799, May 18, 2001]



Sec. 240.15a-10  Exemption of certain brokers or dealers with respect 
to security futures products.

    (a) A broker or dealer that is registered by notice with the 
Commission pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) and that is not a member of either a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or a national securities association registered pursuant to 
section 15A(a) of the Act (15 U.S.C. 78o-3(a)) will be exempt from the 
registration requirement of section 15(a)(1) of the Act (15 U.S.C. 
78o(a)(1)) solely to act as a broker or a dealer in security futures 
products.
    (b) A broker or dealer that is registered by notice with the 
Commission pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) and that is a member of either a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or a national securities association registered pursuant to 
section 15A(a) of the Act (15 U.S.C. 78o-3(a)) will be exempt from the 
registration requirement of section 15(a)(1) of the Act (15 U.S.C. 
78o(a)(1)) solely to act as a broker or a dealer in security futures 
products, if:
    (1) The rules of any such exchange or association of which the 
broker or dealer is a member provides specifically for a broker or 
dealer that is registered by notice with the Commission pursuant to 
section 15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) to become a 
member of such exchange or association; and
    (2) The broker or dealer complies with section 11(a)-(c) of the Act 
(15 U.S.C. 78k(a)-(c)) with respect to any transactions in security 
futures products on a national securities exchange registered pursuant 
to section 6(a) of the Act (15 U.S.C. 78f(a)) of which it is a member, 
notwithstanding section 15(b)(11)(B)(ii) of the Act (15 U.S.C. 
78o(b)(11)(B)(ii)).

[66 FR 45146, Aug 27, 2001]



Sec. 240.15a-11  Exemption from the definitions of ``broker'' and 
``dealer'' for banks engaging in securities lending transactions.

    (a) A bank is exempt from the definitions of the terms ``broker'' 
and ``dealer'' under sections 3(a)(4) and 3(a)(5) of the Act (15 U.S.C. 
78c(a)(4) and (a)(5)), to the extent that, as a conduit lender, or as an 
agent, it engages in or effects securities lending transactions, and any 
securities lending services in connection with such transactions, with 
or on behalf of a person the bank reasonably believes to be:
    (1) A qualified investor as defined in section 3(a)(54)(A) of the 
Act (15 U.S.C. 78c(a)(54)(A)); or
    (2) Any employee benefit plan that owns and invests on a 
discretionary basis, not less than $25,000,000 in investments.
    (b) Securities lending transaction means a transaction in which the 
owner of a security lends the security temporarily to another party 
pursuant to a written securities lending agreement under which the 
lender retains the economic interests of an owner of such securities, 
and has the right to terminate the transaction and to recall

[[Page 288]]

the loaned securities on terms agreed by the parties.
    (c) Securities lending services means:
    (1) Selecting and negotiating with a borrower and executing, or 
directing the execution of the loan with the borrower;
    (2) Receiving, delivering, or directing the receipt or delivery of 
loaned securities;
    (3) Receiving, delivering, or directing the receipt or delivery of 
collateral;
    (4) Providing mark-to-market, corporate action, recordkeeping or 
other services incidental to the administration of the securities 
lending transaction;
    (5) Investing, or directing the investment of, cash collateral; or
    (6) Indemnifying the lender of securities with respect to various 
matters.
    (d) For the purposes of this section, the term conduit lender means 
a bank that borrows or loans securities, as principal, for its own 
account, and contemporaneously loans or borrows the same securities, as 
principal, for its own account. A bank that qualifies under this 
definition as a conduit lender at the commencement of a transaction will 
continue to qualify, notwithstanding whether:
    (1) The lending or borrowing transaction terminates and so long as 
the transaction is replaced within one business day by another lending 
or borrowing transaction involving the same securities; and
    (2) Any substitutions of collateral occur.

[68 FR 8701, Feb. 24, 2003]



Sec. 240.15b1-1  Application for registration of brokers or dealers.

    (a) An application for registration of a broker or dealer that is 
filed pursuant to section 15(b) of the Act (15 U.S.C. 78o(b)) shall be 
filed on Form BD (Sec. 249.501 of this chapter) in accordance with the 
instructions to the form. A broker or dealer that is an OTC derivatives 
dealer shall indicate where appropriate on Form BD that the type of 
business in which it is engaged is that of acting as an OTC derivatives 
dealer.
    (b) Every application for registration of a broker or dealer that is 
filed on or after January 25, 1993, shall be filed with the Central 
Registration Depository operated by the National Association of 
Securities Dealers, Inc.
    (c) An application for registration that is filed with the Central 
Registration Depository pursuant to this section shall be considered a 
``report'' filed with the Commission for purposes of Sections 15(b), 
17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and 
other applicable provisions of the Act.

(Secs. 15, 17, 48 Stat. 895, as amended, 897, as amended; 15 U.S.C. 78o, 
78q)

[19 FR 1041, Feb. 24, 1954. Redesignated at 30 FR 11851, Sept. 16, 1965, 
and amended at 58 FR 14, Jan. 4, 1993; 63 FR 59397, Nov. 3, 1998; 64 FR 
25147, May 10, 1999]



Sec. 240.15b1-2  [Reserved]



Sec. 240.15b1-3  Registration of successor to registered broker or dealer.

    (a) In the event that a broker or dealer succeeds to and continues 
the business of a broker or dealer registered pursuant to section 15(b) 
of the Act, the registration of the predecessor shall be deemed to 
remain effective as the registration of the successor if the successor, 
within 30 days after such succession, files an application for 
registration on Form BD, and the predecessor files a notice of 
withdrawal from registration on Form BDW; Provided, however, That the 
registration of the predecessor broker or dealer will cease to be 
effective as the registration of the successor broker or dealer 45 days 
after the application for registration on Form BD is filed by such 
successor.
    (b) Notwithstanding paragraph (a) of this section, if a broker or 
dealer succeeds to and continues the business of a registered 
predecessor broker or dealer, and the succession is based solely on a 
change in the predecessor's date or state of incorporation, form of 
organization, or composition of a partnership, the successor may, within 
30 days after the succession, amend the registration of the predecessor 
broker or dealer on Form BD to reflect these changes. This amendment 
shall be deemed an application for registration filed by the predecessor 
and adopted by the successor.

[58 FR 10, Jan. 4, 1993]

[[Page 289]]



Sec. 240.15b1-4  Registration of fiduciaries.

    The registration of a broker or dealer shall be deemed to be the 
registration of any executor, administrator, guardian, conservator, 
assignee for the benefit of creditors, receiver, trustee in insolvency 
or bankruptcy, or other fiduciary, appointed or qualified by order, 
judgment, or decree of a court of competent jurisdiction to continue the 
business of such registered broker or dealer; Provided, That such 
fiduciary files with the Commission, within 30 days after entering upon 
the performance of his duties, a statement setting forth as to such 
fiduciary substantially the information required by Form BD.

(Secs. 15, 17, 48 Stat. 895, as amended, 897 as amended; 15 U.S.C. 78o, 
78q)

[19 FR 1041, Feb. 24, 1954. Redesignated at 30 FR 11851, Sept. 16, 1965]



Sec. 240.15b1-5  Consent to service of process to be furnished by 

nonresident brokers or dealers and by nonresident general partners 
or managing agents of brokers or dealers.

    (a) Each nonresident broker or dealer registered or applying for 
registration pursuant to section 15(b) of the Securities Exchange Act of 
1934, each nonresident general partner of a broker or dealer partnership 
which is registered or applying for registration, and each nonresident 
managing agent of any other unincorporated broker or dealer which is 
registered or applying for registration, shall furnish to the 
Commission, in a form prescribed by or acceptable to it, a written 
irrevocable consent and power of attorney which (1) designates the 
Securities and Exchange Commission as an agent upon whom may be served 
any process, pleadings, or other papers in any civil suit or action 
brought in any appropriate court in any place subject to the 
jurisdiction of the United States, with respect to any cause of action 
(i) which accrues during the period beginning when such broker or dealer 
becomes registered pursuant to section 15 of the Securities Exchange Act 
of 1934 and the rules and regulations thereunder and ending either when 
such registration is cancelled or revoked, or when the Commission 
receives from such broker or dealer a notice to withdraw from such 
registration, whichever is earlier, (ii) which arises out of any 
activity, in any place subject to the jurisdiction of the United States, 
occurring in connection with the conduct of business of a broker or 
dealer, and (iii) which is founded directly or indirectly, upon the 
provisions of the Securities Act of 1933, the Securities Exchange Act of 
1934, the Trust Indenture Act of 1939, the Investment Company Act of 
1940, the Investment Advisers Act of 1940, or any rule or regulation 
under any of said Acts; and (2) stipulates and agrees that any such 
civil suit or action may be commended by the service of process upon the 
Commission and the forwarding of a copy thereof as provided in paragraph 
(c) of this section, and that the service as aforesaid of any such 
process, pleadings, or other papers upon the Commission shall be taken 
and held in all courts to be as valid and binding as if due personal 
service thereof had been made.
    (b) The required consent and power of attorney shall be furnished to 
the Commission within the following period of time:
    (1) Each nonresident broker or dealer registered at the time this 
section becomes effective, and each nonresident general partner or 
managing agent of an unincorporated broker or dealer registered at the 
time this section becomes effective, shall furnish such consent and 
power of attorney within 60 days after such date;
    (2) Each broker or dealer applying for registration after the 
effective date of this section shall furnish, at the time of filing such 
application, all the consents and powers of attorney required to be 
furnished by such broker or dealer and by each general partner or 
managing agent thereof; Provided, however, That where an application for 
registration of a broker or dealer is pending at the time this section 
becomes effective such consents and powers of attorney shall be 
furnished within 30 days after this section becomes effective.
    (3) Each broker or dealer registered or applying for registration 
who or which becomes a nonresident broker or dealer after the effective 
date of this section, and each general partner or managing agent, of an 
unincorporated

[[Page 290]]

broker or dealer registered or applying for registration, who becomes a 
nonresident after the effective date of this section, shall furnish such 
consent and power of attorney within 30 days thereafter.
    (c) Service of any process, pleadings or other papers on the 
Commission under this part shall be made by delivering the requisite 
number of copies thereof to the Secretary of the Commission or to such 
other person as the Commission may authorize to act in its behalf. 
Whenever any process, pleadings or other papers as aforesaid are served 
upon the Commission, it shall promptly forward a copy thereof by 
registered or certified mail to the appropriate defendants at their last 
address of record filed with the Commission. The Commission shall be 
furnished a sufficient number of copies for such purpose, and one copy 
for its file.
    (d) For purposes of this section the following definitions shall 
apply:
    (1) The term broker shall have the meaning set out in section 
3(a)(4) of the Securities Exchange Act of 1934.
    (2) The term dealer shall have the meaning set out in section 
3(a)(5) of the Securities Exchange Act of 1934.
    (3) The term managing agent shall mean any person, including a 
trustee, who directs or manages or who participated in the directing or 
managing of the affairs of any unincoprorated organization or 
association which is not a partnership.
    (4) The term nonresident broker or dealer shall mean (i) in the case 
of an individual, one who resides in or has his principal place of 
business in any place not subject to the jurisdiction of the United 
States; (ii) in the case of a corporation, one incorporated in or having 
its principal place of business in any place not subject to the 
jurisdiction of the United States; (iii) in the case of a partnership or 
other unincoporated organization or association, one having its 
principal place of business in any place not subject to the jurisdiction 
of the United States.
    (5) A general partner or managing agent of a broker or dealer shall 
be deemed to be a nonresident if he resides in any place not subject to 
the jurisdiction of the United States.

(Sec. 319, 53 Stat. 1173, secs. 38, 211, 54 Stat. 641, 855; 15 U.S.C. 
77sss, 80a-37, 80b-11)

[18 FR 2578, May 2, 1953, as amended at 23 FR 9691, Dec. 16, 1958; 29 FR 
16982, Dec. 11, 1964. Redesignated at 30 FR 11851, Sept. 16, 1965]



Sec. 240.15b2-2  Inspection of newly registered brokers and dealers.

    (a) Definition. For the purpose of this section the term applicable 
financial responsibility rules shall include:
    (1) Any rule adopted by the Commission pursuant to sections 8, 
15(c)(3), 17(a), or 17(e)(1)(A) of the Act;
    (2) Any rule adopted by the Commission relating to hypothecation or 
lending of customer securities;
    (3) Any other rule adopted by the Commission relating to the 
protection of funds or securities; and
    (4) Any rule adopted by the Secretary of the Treasury pursuant to 
section 15C(b)(1) of the Act.
    (b) Each self-regulatory organization that has responsibility for 
examining a broker or dealer member (including members that are 
government securities brokers or government securities dealers 
registered pursuant to section 15C(a)(1)(A) of the Act) for compliance 
with applicable financial responsibility rules is authorized and 
directed to conduct an inspection of the member, within six months of 
the member's registration with the Commission, to determine whether the 
member is operating in conformity with applicable financial 
responsibility rules.
    (c) The examining self-regulatory organization is further authorized 
and directed to conduct an inspection of the member no later than twelve 
months from the member's registration with the Commission, to determine 
whether the member is operating in conformity with all other applicable 
provisions of the Act and rules thereunder.
    (d) In each case where the examining self-regulatory organization 
determines that a broker or dealer member has not commenced actual 
operations within six months of the member's registration with the 
Commission, it shall delay the inspection pursuant to this section until 
the second six month period from the member's registration with the 
Commission.

[[Page 291]]

    (e) No inspection need be conducted as provided for in paragraphs 
(b) and (c) of this section if:
    (1) The member was registered with the Commission prior to April 26, 
1982;
    (2) an inspection of the member has already been conducted by 
another self-regulatory organization pursuant to this section;
    (3) an inspection of the member has already been conducted by the 
Commission pursuant to section 15(b)(2)(C) of the Act.; or
    (4) The member is registered with the Commission pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)).

[47 FR 11269, Mar. 16, 1982, as amended at 52 FR 16838, May 6, 1987; 53 
FR 4121, Feb. 12, 1988; 66 FR 45147, Aug. 27, 2001]



Sec. 240.15b3-1  Amendments to application.

    (a) If the information contained in any application for registration 
as a broker or dealer, or in any amendment thereto, is or becomes 
inaccurate for any reason, the broker or dealer shall promptly file with 
the Central Registration Depository (operated by the National 
Association of Securities Dealers, Inc.) an amendment on Form BD 
correcting such information.
    (b) Every amendment filed with the Central Registration Depository 
pursuant to this section shall constitute a ``report'' filed with the 
Commission within the meaning of Sections 15(b), 17(a), 18(a), 32(a) (15 
U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and other applicable provisions 
of the Act.
    (c) Temporary re-filing instructions. (1) Except as provided in 
paragraph (c)(3) of this section, every registered broker-dealer shall 
re-file with the Central Registration Depository, at the time the 
broker-dealer submits its first amendment on or after August 16, 1999 
but, in any event, no later than December 15, 1999, the following 
information from its current Form BD (17 CFR 249.501):
    (i) Question 8 (if answered ``Yes'', the broker-dealer must also 
complete relevant items in Section IV of Schedule D);
    (ii) Question 9 (if answered ``Yes'', the broker-dealer must also 
complete relevant items in Section IV of Schedule D);
    (iii) Question 10(a) (if answered ``Yes'', the broker-dealer must 
also complete relevant items in Section V of Schedule D);
    (iv) Question 10(b) (if answered ``Yes'', the broker-dealer must 
also complete relevant items in Section VI of Schedule D);
    (v) Question 11 (if any item in Question 11 is answered ``Yes'', the 
broker-dealer must also complete the relevant DRP(s)); and
    (vi) Schedules A and B.
    (2) Every registered broker-dealer, at the time it re-files the 
information required by paragraph (c)(1) of this section, shall review, 
and amend as necessary, the information in Form BD that was transferred 
by the National Association of Securities Dealers to the Central 
Registration Depository prior to August 16, 1999.
    (3) Every registered broker-dealer that has not completed the re-
filing requirements provided in paragraphs (c)(1) and (c)(2) of this 
section, during the period from August 16, 1999 to December 15, 1999, 
shall submit in paper format to the Central Registration Depository all 
Schedule E amendments to Form BD. A Schedule E filed pursuant to this 
paragraph (c) shall not be deemed an ``amendment'' for purposes of 
paragraphs (a) and (b) of this section.
    (4) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BD (17 CFR 249.501) and 
paragraphs (c)(1), (c)(2), and (c)(3) of this section under conditions 
that differ from the filing instructions contained in Form BD and 
paragraphs (c)(1), (c)(2), and (c)(3) of this section.

[58 FR 14, Jan. 4, 1993, as amended at 64 FR 25147, May 10, 1999; 64 FR 
37593, July 12, 1999; 64 FR 42595, Aug. 5, 1999]



Sec. 240.15b5-1  Extension of registration for purposes of the Securities 
Investor Protection Act of 1970 after cancellation or revocation.

    Commission revocation or cancellation of the registration of a 
broker or dealer pursuant to section 15(b) of the Act: (i) shall be 
effective for all purposes, except as hereinafter provided,

[[Page 292]]

on the date of the order of revocation or cancellation or, if such order 
is stayed, on the date the stay is terminated; and (ii) shall be 
effective six months after the date of the order of revocation or 
cancellation (or, if such order is stayed, the date the stay is 
terminated) with respect to a broker's or dealer's registration status 
as a member within the meaning of Section 3(a)(2) of the Securities 
Investor Protection Act of 1970 for purposes of the application of 
sections 5, 6, and 7 thereof to customer claims arising prior to the 
date of the order of revocation or cancellation (or, if such order is 
stayed, the date the stay is terminated).

[39 FR 37485, Oct. 22, 1974]



Sec. 240.15b6-1  Withdrawal from registration.

    (a) Notice of withdrawal from registration as a broker or dealer 
pursuant to Section 15(b) of the Act shall be filed on Form BDW (17 CFR 
249.501a) in accordance with the instructions contained therein. Every 
notice of withdrawal from registration as a broker or dealer shall be 
filed with the Central Registration Depository (operated by the National 
Association of Securities Dealers, Inc.) in accordance with applicable 
filing requirements. Prior to filing a notice of withdrawal from 
registration on Form BDW (17 CFR 249.501a), a broker or dealer shall 
amend Form BD (17 CFR 249.501) in accordance with Sec. 240.15b3-1(a) to 
update any inaccurate information.
    (b) A notice of withdrawal from registration filed by a broker or 
dealer pursuant to Section 15(b) of the Act (15 U.S.C. 78o(b)) shall 
become effective for all matters (except as provided in this paragraph 
(b) and in paragraph (c) of this section) on the 60th day after the 
filing thereof with the Commission, within such longer period of time as 
to which such broker or dealer consents or which the Commission by order 
may determine as necessary or appropriate in the public interest or for 
the protection of investors, or within such shorter period of time as 
the Commission may determine. If a notice of withdrawal from 
registration is filed with the Commission at any time subsequent to the 
date of the issuance of a Commission order instituting proceedings 
pursuant to Section 15(b) of the Act (15 U.S.C. 78o(b)) to censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of, such broker or dealer, or if 
prior to the effective date of the notice of withdrawal pursuant to this 
paragraph (b), the Commission institutes such a proceeding or a 
proceeding to impose terms or conditions upon such withdrawal, the 
notice of withdrawal shall not become effective pursuant to this 
paragraph (b) except at such time and upon such terms and conditions as 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors.
    (c) With respect to a broker's or dealer's registration status as a 
member within the meaning of Section 3(a)(2) of the Securities Investor 
Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)) for purposes of the 
application of Sections 5, 6, and 7 (15 U.S.C. 78eee, 78fff, and 78fff-
1) thereof to customer claims arising prior to the effective date of 
withdrawal pursuant to paragraph (b) of this section, the effective date 
of a broker's or dealer's withdrawal from registration pursuant to this 
paragraph (c) shall be six months after the effective date of withdrawal 
pursuant to paragraph (b) of this section or such shorter period of time 
as the Commission may determine.
    (d) Every notice of withdrawal filed with the Central Registration 
Depository pursuant to this section shall constitute a ``report'' filed 
with the Commission within the meaning of Sections 15(b), 17(a), 18(a), 
32(a) (15 U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and other applicable 
provisions of the Act.
    (e) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BDW (17 CFR 249.501a) under 
conditions that differ from the filing instructions contained in Form 
BDW.

[64 FR 25147, May 10, 1999, as amended at 64 FR 42595, Aug. 5, 1999]



Sec. 240.15b7-1  Compliance with qualification requirements of 
self-regulatory organizations.

    No registered broker or dealer shall effect any transaction in, or 
induce the

[[Page 293]]

purchase or sale of, any security unless any natural person associated 
with such broker or dealer who effects or is involved in effecting such 
transaction is registered or approved in accordance with the standards 
of training, experience, competence, and other qualification standards 
(including but not limited to submitting and maintaining all required 
forms, paying all required fees, and passing any required examinations) 
established by the rules of any national securities exchange or national 
securities association of which such broker or dealer is a member or 
under the rules of the Municipal Securities Rulemaking Board (if it is 
subject to the rules of that organization).

[58 FR 27658, May 11, 1993]



Sec. 240.15b7-3T  Operational capability in a Year 2000 environment.

    (a) This section applies to every broker or dealer registered 
pursuant to Section 15 of the Act, (15 U.S.C. 78o) that uses computers 
in the conduct of its business as a broker or dealer. If you have a 
material Year 2000 problem, then you do not have operational capability 
within the meaning of Section 15(b)(7) of the Act (15 U.S.C. 78o(b)(7)).
    (b)(1) You have a material Year 2000 problem under paragraph (a) of 
this section if, at any time on or after August 31, 1999:
    (i) Any of your mission critical computer systems incorrectly 
identifies any date in the Year 1999 or the Year 2000; and
    (ii) The error impairs or, if uncorrected, is likely to impair, any 
of your mission critical systems.
    (2) You will be presumed to have a material Year 2000 problem if, at 
any time on or after August 31, 1999, you:
    (i) Do not have written procedures reasonably designed to identify, 
assess, and remediate any Year 2000 problems in mission critical systems 
under your control;
    (ii) Have not verified your Year 2000 remediation efforts through 
reasonable internal testing of mission critical systems under your 
control;
    (iii) Have not verified your Year 2000 remediation efforts by 
satisfying Year 2000 testing requirements imposed by self-regulatory 
organizations to which you are subject; or
    (iv) Have not remediated all exceptions related to your mission 
critical systems contained in any independent public accountant's report 
prepared on your behalf pursuant to Sec. 240.17a-5(e)(5)(vi).
    (c) If you have or are presumed to have a material Year 2000 
problem, you must immediately notify the Commission and your designated 
examining authority of the problem. You must send this notice to the 
Commission by overnight delivery to the Division of Market Regulation, 
U.S. Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-1002 Attention: Y2K Compliance.
    (d)(1) If you are a broker or dealer that is not operationally 
capable because you have or are presumed to have a material Year 2000 
problem, you may not, on or after August 31, 1999:
    (i) Effect any transaction in, or induce the purchase or sale of, 
any security; or
    (ii) Receive or hold customer funds or securities, or carry customer 
accounts.
    (2) Notwithstanding paragraph (d)(1) of this section, you may 
continue to effect transactions in, or induce the purchase or sale of, a 
security, receive or hold customer funds or securities, or carry 
customer accounts:
    (i) Until December 1, 1999, if you have submitted a certificate to 
the Commission in compliance with paragraph (e) of this section; or
    (ii) Solely to the extent necessary to effect an orderly cessation 
or transfer of these functions.
    (e)(1)(i) If you are a broker or dealer that is not operationally 
capable because you have or are presumed to have a material Year 2000 
problem, you may, in addition to providing the Commission the notice 
required by paragraph (c) of this section, provide the Commission and 
your designated examining authority a certificate signed by your chief 
executive officer (or an individual with similar authority) stating:
    (A) You are in the process of remediating your material Year 2000 
problem;
    (B) You have scheduled testing of your affected mission critical 
systems to verify that the material Year 2000 problem has been 
remediated, and specify the testing dates;

[[Page 294]]

    (C) The date by which you anticipate completing remediation of the 
material Year 2000 problem in your mission critical systems, and will 
therefore be operationally capable; and
    (D) Based on inquiries and to the best of the chief executive 
officer's knowledge, you do not anticipate that the existence of the 
material Year 2000 problem in your mission critical systems will impair 
your ability, depending on the nature of your business, to ensure prompt 
and accurate processing of securities transactions, including order 
entry, execution, comparison, allocation, clearance and settlement of 
securities transactions, the maintenance of customer accounts, or the 
delivery of funds and securities; and you anticipate that the steps 
referred to in paragraphs (e)(1)(i)(A) through (C) of this section will 
result in remedying the material Year 2000 problem on or before November 
15, 1999.
    (ii) If the information contained in any certificate provided to the 
Commission pursuant to paragraph (e) of this section is or becomes 
misleading or inaccurate for any reason, you must promptly file an 
updated certificate correcting such information. In addition to the 
information contained in the certificate, you may provide the Commission 
with any other information necessary to establish that your mission 
critical systems will not have material Year 2000 problems on or after 
November 15, 1999.
    (2) If you have submitted a certificate pursuant to paragraph (e)(1) 
of this section, you must submit a certificate to the Commission and 
your designated examining authority signed by your chief executive 
officer (or an individual with similar authority) on or before November 
15, 1999, stating that, based on inquiries and to the best of the chief 
executive officer's knowledge, you have remediated your Year 2000 
problem or that you will cease operations. This certificate must be sent 
to the Commission by overnight delivery to the Division of Market 
Regulation, U.S. Securities and Exchange Commission, 450 Fifth Street, 
NW, Washington, DC 20549-1002 Attention: Y2K Compliance.
    (f) Notwithstanding paragraph (d)(2) of this section, you must 
comply with the requirements of paragraph (d)(1) of this section if you 
have been so ordered by the Commission or by a court.
    (g) For the purposes of this section:
    (1) The term mission critical system means any system that is 
necessary, depending on the nature of your business, to ensure prompt 
and accurate processing of securities transactions, including order 
entry, execution, comparison, allocation, clearance and settlement of 
securities transactions, the maintenance of customer accounts, and the 
delivery of funds and securities; and
    (2) The term customer includes a broker or dealer.
    (h) This temporary section will expire on July 1, 2001.

[64 FR 42028, Aug. 3, 1999]



Sec. 240.15b9-1  Exemption for certain exchange members.

    (a) Any broker or dealer required by section 15(b)(8) of the Act to 
become a member of a registered national securities association shall be 
exempt from such requirement if it: (1) Is a member of a national 
securities exchange, (2) carries no customer accounts, and (3) has 
annual gross income derived from purchases and sales of securities 
otherwise than on a national securities exchange of which it is a member 
in an amount no greater than $1,000.
    (b) The gross income limitation contained in paragraph (a) of this 
section, shall not apply to income derived from transactions (1) for the 
dealer's own account with or through another registered broker or dealer 
or (2) through the Intermarket Trading System.
    (c) For purposes of this section, the term Intermarket Trading 
System shall mean the intermarket communications linkage operated 
jointly by certain self-regulatory organizations pursuant to a plan 
filed with, and approved by, the Commission pursuant to Sec. 240.11Aa3-
2 (Rule 11Aa3-2 under the Act).

(15 U.S.C. 78a et seq., as amended by Pub. L. 84-29 (June 4, 1975) and 
by Pub. L. 98-38 (June 6, 1983), particularly secs. 11A, 15, 19 and 23 
thereof (15 U.S.C. 78k-1, 78o, 78s and 78w))

[48 FR 53691, Nov. 29, 1983]

[[Page 295]]



Sec. 240.15b9-2  Exemption from SRO membership for OTC derivatives dealers.

    An OTC derivatives dealer, as defined in Sec. 240.3b-12, shall be 
exempt from any requirement under section 15(b)(8) of the Act (15 U.S.C. 
78o(b)(8)) to become a member of a registered national securities 
association.

[63 FR 59397, Nov. 3, 1998]



Sec. 240.15b11-1  Registration by notice of security futures product 
broker-dealers.

    (a) A broker or dealer may register by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) if it:
    (1) Is registered with the Commodity Futures Trading Commission as a 
futures commission merchant or an introducing broker, as those terms are 
defined in the Commodity Exchange Act (7 U.S.C. 1, et seq.), 
respectively;
    (2) Is a member of the National Futures Association or another 
national securities association registered under section 15A(k) of the 
Act (15 U.S.C. 78o-3(k)); and
    (3) Is not required to register as a broker or dealer in connection 
with transactions in securities other than security futures products.
    (b) A broker or dealer registering by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) must file Form BD-N 
(17 CFR 249.501b) in accordance with the instructions to the form. A 
broker or dealer registering by notice pursuant to this section must 
indicate where appropriate on Form BD-N that it satisfies all of the 
conditions in paragraph (a) of this section.
    (c) If the information contained in any notice of registration filed 
on Form BD-N (17 CFR 249.501b) pursuant to this section is or becomes 
inaccurate for any reason, the broker or dealer shall promptly file an 
amendment on Form BD-N correcting such information.
    (d) An application for registration by notice, and any amendments 
thereto, that are filed on Form BD-N (17 CFR 249.501b) pursuant to this 
section will be considered a ``report'' filed with the Commission for 
purposes of sections 15(b), 17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 
78q(a), 78r(a), 78ff(a)) and other applicable provisions of the Act.

[66 FR 45146, Aug. 27, 2001]

               Rules Relating to Over-the-Counter Markets



Sec. 240.15c1-1  Definitions.

    As used in any rule adopted pursuant to section 15(c)(1) of the Act:
    (a) The term customer shall not include a broker or dealer or a 
municipal securities dealer; provided, however, that the term 
``customer'' shall include a municipal securities dealer (other than a 
broker or dealer) with respect to transactions in securities other than 
municipal securities.
    (b) The term the completion of the transaction means:
    (1) In the case of a customer who purchases a security through or 
from a broker, dealer or municipal securities dealer, except as provided 
in paragraph (b)(2) of this section, the time when such customer pays 
the broker, dealer or municipal securities dealer any part of the 
purchase price, or, if payment is effected by a bookkeeping entry, the 
time when such bookkeeping entry is made by the broker, dealer or 
municipal securities dealer for any part of the purchase price;
    (2) In the case of a customer who purchases a security through or 
from a broker, dealer or municipal securities dealer and who makes 
payment therefor prior to the time when payment is requested or 
notification is given that payment is due, the time when such broker, 
dealer or municipal securities dealer delivers the security to or into 
the account of such customer;
    (3) In the case of a customer who sells a security through or to a 
broker, dealer or municipal securities dealer except as provided in 
paragraph (b)(4) of this section, if the security is not in the custody 
of the broker, dealer or municipal securities dealer at the time of 
sale, the time when the security is delivered to the broker, dealer or 
municipal securities dealer, and if the security is in the custody of 
the broker, dealer or municipal securities dealer at the time of sale, 
the time when the broker, dealer or municipal securities dealer 
transfers the security from the account of such customer;

[[Page 296]]

    (4) In the case of a customer who sells a security through or to a 
broker, dealer or municipal securities dealer and who delivers such 
security to such broker, dealer or municipal securities dealer prior to 
the time when delivery is requested or notification is given that 
delivery is due, the time when such broker, dealer or municipal 
securities dealer makes payment to or into the account of such customer.

[41 FR 22825, June 7, 1976]



Sec. 240.15c1-2  Fraud and misrepresentation.

    (a) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act (section 2, 52 Stat. 
1075; 15 U.S.C. 78o(c)(1), is hereby defined to include any act, 
practice, or course of business which operates or would operate as a 
fraud or deceit upon any person.
    (b) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any untrue statement of a material fact and any omission to 
state a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they are made, not 
misleading, which statement or omission is made with knowledge or 
reasonable grounds to believe that it is untrue or misleading.
    (c) The scope of this section shall not be limited by any specific 
definitions of the term ``manipulative, deceptive, or other fraudulent 
device or contrivance'' contained in other rules adopted pursuant to 
section 15(c)(1) of the act.

(Sec. 2, 52 Stat. 1075; 15 U.S.C. 78o)

    Cross Reference: For regulation prohibiting employment of 
manipulative and deceptive devices as such term is used in section 15 of 
the Act, by any broker or dealer, see Sec. 240.10b-3.

[13 FR 8205, Dec. 22, 1948]



Sec. 240.15c1-3  Misrepresentation by brokers, dealers and municipal 
securities dealers as to registration.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any representation by a broker, dealer or municipal 
securities dealer that the registration of a broker or dealer, pursuant 
to section 15(b) of the Act, or the registration of a municipal 
securities dealer pursuant to section 15B(a) of the Act, or the failure 
of the Commission to deny or revoke such registration, indicates in any 
way that the Commission has passed upon or approved the financial 
standing, business, or conduct of such registered broker, dealer or 
municipal securities dealer or the merits of any security or any 
transaction or transactions therein.

[41 FR 22825, June 7, 1976]



Sec. 240.15c1-4  [Reserved]



Sec. 240.15c1-5  Disclosure of control.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any act of any broker, dealer or municipal securities dealer 
controlled by, controlling, or under common control with, the issuer of 
any security, designed to effect with or for the account of a customer 
any transaction in, or to induce the purchase or sale by such customer 
of, such security unless such broker, dealer or municipal securities 
dealer, before entering into any contract with or for such customer for 
the purchase or sale of such security, discloses to such customer the 
existence of such control, and unless such disclosure, if not made in 
writing, is supplemented by the giving or sending of written disclosure 
at or before the completion of the transaction.

[41 FR 22825, June 7, 1976]



Sec. 240.15c1-6  Disclosure of interest in distribution.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any act of any broker who is acting for a customer or for 
both such customer and some other person, or of any dealer or municipal 
securities dealer who receives or has promise of receiving a fee from a 
customer for advising such customer with respect to securities, designed 
to effect with or for the account of such customer any transaction in, 
or

[[Page 297]]

to induce the purchase or sale by such customer of, any security in the 
primary or secondary distribution of which such broker, dealer or 
municipal securities dealer is participating or is otherwise financially 
interested unless such broker, dealer or municipal securities dealer, at 
or before the completion of each such transaction gives or sends to such 
customer written notification of the existence of such participation or 
interest.

[41 FR 22826, June 7, 1976]



Sec. 240.15c1-7  Discretionary accounts.

    (a) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c) of the Act, is hereby defined to 
include any act of any broker, dealer or municipal securities dealer 
designed to effect with or for any customer's account in respect to 
which such broker, dealer or municipal securities dealer or his agent or 
employee is vested with any discretionary power any transactions or 
purchase or sale which are excessive in size or frequency in view of the 
financial resources and character of such account.
    (b) The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any act of any broker, dealer or municipal securities dealer 
designed to effect with or for any customer's account in respect to 
which such broker, dealer or municipal securities dealer or his agent or 
employee is vested with any discretionary power any transaction of 
purchase or sale unless immediately after effecting such transaction 
such broker, dealer or municipal securities dealer makes a record of 
such transaction which record includes the name of such customer, the 
name, amount and price of the security, and the date and time when such 
transaction took place.

[41 FR 22826, June 7, 1976]



Sec. 240.15c1-8  Sales at the market.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include any representation made to a customer by a broker, dealer or 
municipal securities dealer who is participating or otherwise 
financially interested in the primary or secondary distribution of any 
security which is not admitted to trading on a national securities 
exchange that such security is being offered to such customer ``at the 
market'' or at a price related to the market price unless such broker, 
dealer or municipal securities dealer knows or has reasonable grounds to 
believe that a market for such security exists other than that made, 
created, or controlled by him, or by any person for whom he is acting or 
with whom he is associated in such distribution, or by any person 
controlled by, controlling or under common control with him.

[41 FR 22826, June 7, 1976]



Sec. 240.15c1-9  Use of pro forma balance sheets.

    The term manipulative, deceptive, or other fraudulent device or 
contrivance, as used in section 15(c)(1) of the Act, is hereby defined 
to include the use of financial statements purporting to give effect to 
the receipt and application of any part of the proceeds from the sale or 
exchange of securities, unless the assumptions upon which each such 
financial statement is based are clearly set forth as part of the 
caption to each such statement in type at least as large as that used 
generally in the body of the statement.

(Sec. 2, 52 Stat. 1075; 15 U.S.C. 78o)

[13 FR 8205, Dec. 22, 1948]



Sec. 240.15c2-1  Hypothecation of customers' securities.

    (a) General provisions. The term fraudulent, deceptive, or 
manipulative act or practice, as used in section 15(c) (2) of the Act, 
is hereby defined to include the direct or indirect hypothecation by a 
broker or dealer, or his arranging for or permitting, directly or 
indirectly, the continued hypothecation of any securities carried for 
the account of any customer under circumstances:
    (1) That will permit the commingling of securities carried for the 
account of any such customer with securities carried for the account of 
any other customer, without first obtaining the written consent of each 
such customer to such hypothecation;

[[Page 298]]

    (2) That will permit such securities to be commingled with 
securities carried for the account of any person other than a bona fide 
customer of such broker or dealer under a lien for a loan made to such 
broker or dealer; or
    (3) That will permit securities carried for the account of customers 
to be hypothecated, or subjected to any lien or liens or claims or 
claims of the pledgee or pledgees, for a sum which exceeds the aggregate 
indebtedness of all customers in respect of securities carried for their 
accounts; except that this clause shall not be deemed to be violated by 
reason of an excess arising on any day through the reduction of the 
aggregate indebtedness of customers on such day, provided that funds or 
securities in an amount sufficient to eliminate such excess are paid or 
placed in transfer to pledgees for the purpose of reducing the sum of 
the liens or claims to which securities carried for the account of 
customers are subject as promptly as practicable after such reduction 
occurs, but before the lapse of one half hour after the commencement of 
banking hours on the next banking day at the place where the largest 
principal amount of loans of such broker or dealer are payable and, in 
any event, before such broker or dealer on such day has obtained or 
increased any bank loan collateralized by securities carried for the 
account of customers.
    (b) Definitions. For the purposes of this section:
    (1) The term customer shall not include any general or special 
partner or any director or officer of such broker or dealer, or any 
participant, as such, in any joint, group or syndicate account with such 
broker or dealer or with any partner, officer or director thereof. The 
term also shall not include a counterparty who has delivered collateral 
to an OTC derivatives dealer pursuant to a transaction in an eligible 
OTC derivative instrument, or pursuant to the OTC derivatives dealer's 
cash management securities activities or ancillary portfolio management 
securities activities, and who has received a prominent written notice 
from the OTC derivatives dealer that:
    (i) Except as otherwise agreed in writing by the OTC derivatives 
dealer and the counterparty, the dealer may repledge or otherwise use 
the collateral in its business;
    (ii) In the event of the OTC derivatives dealer's failure, the 
counterparty will likely be considered an unsecured creditor of the 
dealer as to that collateral;
    (iii) The Securities Investor Protection Act of 1970 (15 U.S.C 78aaa 
through 78lll) does not protect the counterparty; and
    (iv) The collateral will not be subject to the requirements of Sec. 
240.8c-1, Sec. 240.15c2-1, Sec. 240.15c3-2, or Sec. 240.15c3-3;
    (2) The term securities carried for the account of any customer 
shall be deemed to mean:
    (i) Securities received by or on behalf of such broker or dealer for 
the account of any customer;
    (ii) Securities sold and appropriated by such broker or dealer to a 
customer, except that if such securities were subject to a lien when 
appropriated to a customer they shall not be deemed to be ``securities 
carried for the account of any customer'' pending their release from 
such lien as promptly as practicable;
    (iii) Securities sold, but not appropriated, by such broker or 
dealer to a customer who has made any payment therefor, to the extent 
that such broker or dealer owns and has received delivery of securities 
of like kind, except that if such securities were subject to a lien when 
such payment was made they shall not be deemed to be ``securities 
carried for the account of any customer'' pending their release from 
such lien as promptly as practicable;
    (3) Aggregate indebtedness shall not be deemed to be reduced by 
reason of uncollected items. In computing aggregate indebtedness, 
related guaranteed and guarantor accounts shall be treated as a single 
account and considered on a consolidated basis, and balances in accounts 
carrying both long and short positions shall be adjusted by treating the 
market value of the securities required to cover such short positions as 
though such market value were a debit; and
    (4) In computing the sum of the liens or claims to which securities 
carried for the account of customers of a

[[Page 299]]

broker or dealer are subject, any rehypothecation of such securities by 
another broker or dealer who is subject to this section or to Sec. 
240.8c-1 shall be disregarded.
    (c) Exemption for cash accounts. The provisions of paragraph (a)(1) 
of this section shall not apply to any hypothecation of securities 
carried for the account of a customer in a special cash account within 
the meaning of 12 CFR 220.4(c): Provided, That at or before the 
completion of the transaction of purchase of such securities for, or of 
sale of such securities to, such customer, written notice is given or 
sent to such customer disclosing that such securities are or may be 
hypothecated under circumstances which will permit the commingling 
thereof with securities carried for the account of other customers. The 
term the completion of the transaction shall have the meaning given to 
such term by Sec. 240.15c1-1(b).
    (d) Exemption for clearing house liens. The provisions of paragraphs 
(a)(2), (a)(3), and (f) of this section shall not apply to any lien or 
claim of the clearing corporation, or similar department or association, 
of a national securities exchange or a registered national securities 
association, for a loan made and to be repaid on the same calendar day, 
which is incidental to the clearing of transactions in securities or 
loans through such corporation, department, or association: Provided, 
however, That for the purpose of paragraph (a)(3) of this section, 
``aggregate indebtedness of all customers in respect of securities 
carried for their accounts'' shall not include indebtedness in respect 
of any securities subject to any lien or claim exempted by this 
paragraph.
    (e) Exemption for certain liens on securities of noncustomers. The 
provisions of paragraph (a)(2) of this section shall not be deemed to 
prevent such broker or dealer from permitting securities not carried for 
the account of a customer to be subjected (1) to a lien for a loan made 
against securities carried for the account of customers, or (2) to a 
lien for a loan made and to be repaid on the same calendar day. For the 
purpose of this exemption, a loan shall be deemed to be ``made against 
securities carried for the account of customers'' if only securities 
carried for the account of customers are used to obtain or to increase 
such loan or as substitutes for other securities carried for the account 
of customers.
    (f) Notice and certification requirements. No person subject to this 
section shall hypothecate any security carried for the account of a 
customer unless, at or prior to the time of each such hypothecation, he 
gives written notice to the pledgee that the security pledged is carried 
for the account of a customer and that such hypothecation does not 
contravene any provision of this section, except that in the case of an 
omnibus account the broker or dealer for whom such account is carried 
may furnish a signed statement to the person carrying such account that 
all securities carried therein by such broker or dealer will be 
securities carried for the account of his customers and that the 
hypothecation thereof by such broker or dealer will not contravene any 
provision of this section. The provisions of this paragraph shall not 
apply to any hypothecation of securities under any lien or claim of a 
pledgee securing a loan made and to be repaid on the same calendar day.
    (g) The fact that securities carried for the accounts of customers 
and securities carried for the accounts of others are represented by one 
or more certificates in the custody of a clearing corporation or other 
subsidiary organization of either a national securities exchange or of a 
registered national securities association, or of a custodian bank, in 
accordance with a system for the central handling of securities 
established by a national securities exchange or a registered national 
securities association, pursuant to which system the hypothecation of 
such securities is effected by bookkeeping entries without physical 
delivery of such securities, shall not, in and of itself, result in a 
commingling of securities prohibited by paragraph (a)(1) or (a)(2) of 
this section, whenever a participating member, broker or dealer 
hypothecates securities in accordance with such system: Provided, 
however, That (1) any such custodian of any securities held by or for 
such system shall agree that it will not for any reason, including the 
assertion of any claim, right or lien of any kind, refuse or refrain 
from

[[Page 300]]

promptly delivering any such securities (other than securities then 
hypothecated in accordance with such system) to such clearing 
corporation or other subsidiary organization or as directed by it, 
except that nothing in such agreement shall be deemed to require the 
custodian to deliver any securities in contravention of any notice of 
levy, seizure or similar notice, or order or judgment, issued or 
directed by a governmental agency or court, or officer thereof, having 
jurisdiction over such custodian, which on its face affects such 
securities; (2) such systems shall have safeguards in the handling, 
transfer and delivery of securities and provisions for fidelity bond 
coverage of the employees and agents of the clearing corporation or 
other subsidiary organization and for periodic examinations by 
independent public accountants; and (3) the provisions of this paragraph 
(g) shall not be effective with respect to any particular system unless 
the agreement required by paragraph (g)(1) of this section and the 
safeguards and provisions required by paragraph (g)(2) of this section 
shall have been deemed adequate by the Commission for the protection of 
investors, and unless any subsequent amendments to such agreement, 
safeguards or provisions shall have been deemed adequate by the 
Commission for the protection of investors.

(Secs. 8, 15, 48 Stat. 888, 895, sec. 2, 52 Stat. 1075; 15 U.S.C. 78b. 
78o)

    Cross Reference: For interpretative releases applicable to Sec. 
240.15c2-1, see Nos. 2690 and 2822 in tabulation, part 241 of this 
chapter.

[13 FR 8205, Dec. 22, 1948, as amended at 31 FR 7741, June 1, 1966; 37 
FR 73, Jan. 5, 1972; 63 FR 59397, Nov. 3, 1998]



Sec. 240.15c2-3  [Reserved]



Sec. 240.15c2-4  Transmission or maintenance of payments received in 
connection with underwritings.

    It shall constitute a ``fraudulent, deceptive, or manipulative act 
or practice'' as used in section 15(c)(2) of the Act, for any broker, 
dealer or municipal securities dealer participating in any distribution 
of securities, other than a firm-commitment underwriting, to accept any 
part of the sale price of any security being distributed unless:
    (a) The money or other consideration received is promptly 
transmitted to the persons entitled thereto; or
    (b) If the distribution is being made on an ``all-or-none'' basis, 
or on any other basis which contemplates that payment is not to be made 
to the person on whose behalf the distribution is being made until some 
further event or contingency occurs, (1) the money or other 
consideration received is promptly deposited in a separate bank account, 
as agent or trustee for the persons who have the beneficial interests 
therein, until the appropriate event or contingency has occurred, and 
then the funds are promptly transmitted or returned to the persons 
entitled thereto, or (2) all such funds are promptly transmitted to a 
bank which has agreed in writing to hold all such funds in escrow for 
the persons who have the beneficial interests therein and to transmit or 
return such funds directly to the persons entitled thereto when the 
appropriate event or contingency has occurred.

[41 FR 22826, June 7, 1976]



Sec. 240.15c2-5  Disclosure and other requirements when extending or 
arranging credit in certain transactions.

    (a) It shall constitute a ``fraudulent, deceptive, or manipulative 
act or practice'' as used in section 15(c)(2) of the Act for any broker 
or dealer to offer or sell any security to, or to attempt to induce the 
purchase of any security by, any person, in connection with which such 
broker or dealer directly or indirectly offers to extend any credit to 
or to arrange any loan for such person, or extends to or participates in 
arranging any loan for such person, unless such broker or dealer, before 
any purchase, loan or other related element of the transaction is 
entered into:
    (1) Delivers to such person a written statement setting forth the 
exact nature and extent of (i) such person's obligations under the 
particular loan arrangement, including among other things, the specific 
charges which such person will incur under such loan in each period 
during which the loan may continue or be extended, (ii) the risks

[[Page 301]]

and disadvantages which such person will incur in the entire 
transaction, including the loan arrangement, (iii) all commissions, 
discounts, and other remuneration received and to be received in 
connection with the entire transaction including the loan arrangment, by 
the broker or dealer, by any person controlling, controlled by, or under 
common control with the broker or dealer, and by any other person 
participating in the transaction; Provided, however, That the broker or 
dealer shall be deemed to be in compliance with this paragraph if the 
customer, before any purchase, loan, or other related element of the 
transaction is entered into in a manner legally binding upon the 
customer, receives a statement from the lender, or receives a prospectus 
or offering circular from the broker or dealer, which statement, 
prospectus or offering circular contains the information required by 
this paragraph; and
    (2) Obtains from such person information concerning his financial 
situation and needs, reasonably determines that the entire transaction, 
including the loan arrangement, is suitable for such person, and retains 
in his files a written statement setting forth the basis upon which the 
broker or dealer made such determination; Provided, however, That the 
written statement referred to in this paragraph must be made available 
to the customer on request.
    (b) This section shall not apply to any credit extended or any loan 
arranged by any broker or dealer subject to the provisions of Regulation 
T (12 CFR part 220) if such credit is extended or such loan is arranged, 
in compliance with the requirements of such regulation, only for the 
purpose of purchasing or carrying the security offered or sold: 
Provided, however, That notwithstanding this paragraph, the provisions 
of paragraph (a) shall apply in full force with respect to any 
transaction involving the extension of or arrangement for credit by a 
broker or dealer (i) in a special insurance premium funding account 
within the meaning of section 4(k) of Regulation T (12 CFR 220.4(k)) or 
(ii) in compliance with the terms of Sec. 240.3a12-5 of this chapter.
    (c) This section shall not apply to any offer to extend credit or 
arrange any loan, or to any credit extended or loan arranged, in 
connection with any offer or sale, or attempt to induce the purchase, of 
any municipal security.
    (d) This section shall not apply to a transaction involving the 
extension of credit by an OTC derivatives dealer, as defined in Sec. 
240.3b-12, if the transaction is exempt from the provisions of Section 
7(c) of the Act (15 U.S.C. 78g(c)) pursuant to Sec. 240.36a1-1.

(Sec. 3(a)(12), 48 Stat. 882, as amended, 84 Stat. 718, 1435, 1499 (15 
U.S.C. 78c(12)); sec. 7(c), 48 Stat. 886, as amended, 82 Stat. 452 (15 
U.S.C. 78g(c)); sec. 11(d)(1), 48 Stat. 891 as amended, 68 Stat. 686 (15 
U.S.C. 78k(d)(1)); sec. 15(c), 48 Stat. 895, as amended, 52 Stat. 1075, 
84 Stat. 1653 (15 U.S.C. 78o(c)); sec. 23(a), 48 Stat. 901, as amended, 
49 Stat. 704, 1379 (15 U.S.C. 78w(a))

[40 FR 6646, Feb. 13, 1975, as amended at 41 FR 22826, June 7, 1976; 63 
FR 59397, Nov. 3, 1998]



Sec. 240.15c2-6  [Reserved]



Sec. 240.15c2-7  Identification of quotations.

    (a) It shall constitute an attempt to induce the purchase or sale of 
a security by making a ``fictitious quotation'' within the meaning of 
section 15(c)(2) of the Act, for any broker or dealer to furnish or 
submit, directly or indirectly, any quotation for a security (other than 
a municipal security) to an inter-dealer quotation system unless:
    (1) The inter-dealer-quotation-system is informed, if such is the 
case, that the quotation is furnished or submitted;
    (i) By a correspondent broker or dealer for the account or in behalf 
of another broker or dealer, and if so, the identity of such other 
broker or dealer; and/or
    (ii) In furtherance of one or more other arrangements (including a 
joint account, guarantee of profit, guarantee against loss, commission, 
markup, markdown, indication of interest and accommodation arrangement) 
between or among brokers or dealers, and if so, the identity of each 
broker or dealer participating in any such arrangement or arrangements: 
Provided, however, That the provisions of this subparagraph shall not 
apply if only one of the brokers or dealers participating in any

[[Page 302]]

such arrangment or arrangements furnishes or submits a quotation with 
respect to the security to an inter-dealer-quotation-system.
    (2) The inter-dealer-quotation-system to which the quotation is 
furnished or submitted makes it a general practice to disclose with each 
published quotation, by appropriate symbol or otherwise, the category or 
categories (paragraph (a)(1)(i) and/or (ii) of this section) in 
furtherance of which the quotation is submitted, and the identities of 
all other brokers and dealers referred to in paragraph (a)(1) of this 
section where such information is supplied to the inter-dealer-
quotation-system under the provisions of paragraph (a)(1) of this 
section.
    (b) It shall constitute an attempt to induce the purchase or sale of 
a security by making a ``fictitious quotation,'' within the meaning of 
section 15(c)(2) of the Act, for a broker or dealer to enter into any 
correspondent or other arrangement (including a joint account, guarantee 
of profit, guarantee against loss, commission, markup, markdown, 
indication of interest and accommodation arrangement) in furtherance of 
which two or more brokers or dealers furnish or submit quotations with 
respect to a particular security unless such broker or dealer informs 
all brokers or dealers furnishing or submitting such quotations of the 
existence of such correspondent and other arrangments, and the identity 
of the parties thereto.
    (c) For purposes of this section:
    (1) The term inter-dealer-quotation-system shall mean any system of 
general circulation to brokers and dealers which regularly disseminates 
quotations of identified brokers or dealers but shall not include a 
quotation sheet prepared and distributed by a broker or dealer in the 
regular course of his business and containing only quotations of such 
broker or dealer.
    (2) The term quotation shall mean any bid or offer, or any 
indication of interest (such as OW or BW) in any bid or offer.
    (3) The term correspondent shall mean a broker or dealer who has a 
direct line of communication to another broker or dealer located in a 
different city or geographic area.

(Sec. 15, 48 Stat. 895, as amended; 15 U.S.C. 78o)

[29 FR 11530, Aug. 12, 1964, as amended at 41 FR 22826, June 7, 1976]



Sec. 240.15c2-8  Delivery of prospectus.

    (a) It shall constitute a deceptive act or practice, as those terms 
are used in section 15(c)(2) of the Act, for a broker or dealer to 
participate in a distribution of securities with respect to which a 
registration statement has been filed under the Securities Act of 1933 
unless he complies with the requirements set forth in paragraphs (b) 
through (g) of this section. For the purposes of this section, a broker 
or dealer participating in the distribution shall mean any underwriter 
and any member or proposed member of the selling group.
    (b) In connection with an issue of securities, the issuer of which 
has not previously been required to file reports pursuant to sections 
13(a) or 15(d) of the Securities Exchange Act of 1934, unless such 
issuer has been exempted from the requirement to file reports thereunder 
pursuant to section 12(h) of the Act, such broker or dealer shall 
deliver a copy of the preliminary prospectus to any person who is 
expected to receive a confirmation of sale at least 48 hours prior to 
the sending of such confirmation.
    (c) Such broker or dealer shall take reasonable steps to furnish to 
any person who makes written request for a preliminary prospectus 
between the filing date and a reasonable time prior to the effective 
date of the registration statement to which such prospectus relates, a 
copy of the latest preliminary prospectus on file with the Commission. 
Reasonable steps shall include receiving an undertaking by the managing 
underwriter or underwriters to send such copy to the address given in 
the requests.
    (d) Such broker or dealer shall take reasonable steps to comply 
promptly with the written request of any person for a copy of the final 
prospectus relating to such securities during the period between the 
effective date of the registration statement and the later of either the 
termination of such distribution, or the expiration of the applicable

[[Page 303]]

40- or 90-day period under section 4(3) of the Securities Act of 1933. 
Reasonable steps shall include receiving an undertaking by the managing 
underwriter or underwriters to send such copy to the address given in 
the requests. (The 40-day and 90-day periods referred to above shall be 
deemed to apply for purposes of this rule irrespective of the provisions 
of paragraphs (b) and (d) of Sec. 230.174 of this chapter).
    (e) Such broker or dealer shall take reasonable steps (1) to make 
available a copy of the preliminary prospectus relating to such 
securities to each of his associated persons who is expected, prior to 
the effective date, to solicit customers' order for such securities 
before the making of any such solicitation by such associated persons 
and (2) to make available to each such associated person a copy of any 
amended preliminary prospectus promptly after the filing thereof.
    (f) Such broker or dealer shall take reasonable steps to make 
available a copy of the final prospectus relating to such securities to 
each of his associated persons who is expected, after the effective 
date, to solicit customers orders for such securities prior to the 
making of any such solicitation by such associated persons, unless a 
preliminary prospectus which is substantially the same as the final 
prospectus except for matters relating to the price of the stocks, has 
been so made available.
    (g) If the broker or dealer is a managing underwriter of such 
distribution, he shall take reasonable steps to see to it that all other 
brokers or dealers participating in such distribution are promptly 
furnished with sufficient copies, as requested by them, of each 
preliminary prospectus, each amended preliminary prospectus and the 
final prospectus to enable them to comply with paragraphs (b), (c), (d), 
and (e) of this section.
    (h) If the broker or dealer is a managing underwriter of such 
distribution, he shall take reasonable steps to see that any broker or 
dealer participating in the distribution or trading in the registered 
security is furnished reasonable quantities of the final prospectus 
relating to such securities, as requested by him, in order to enable him 
to comply with the prospectus delivery requirements of section 5(b) (1) 
and (2) of the Securities Act of 1933.
    (i) This section shall not require the furnishing of prospectuses in 
any state where such furnishing would be unlawful under the laws of such 
state: Provided, however, That this provision is not to be construed to 
relieve a broker or dealer from complying with the requirements of 
section 5(b)(1) and (2) of the Securities Act of 1933.
    (j) For purposes of this section, the term preliminary prospectus 
shall include the term prospectus subject to completion as used in 17 
CFR 230.434(a), and the term final prospectus shall include the term 
Section 10(a) prospectus as used in 17 CFR 230.434(a).

[35 FR 18457, Dec. 4, 1970, as amended at 47 FR 11470, Mar. 16, 1982; 53 
FR 11845, Apr. 11, 1988; 60 FR 26622, May 17, 1995]



Sec. 240.15c2-11  Initiation or resumption of quotations without 
specific information.

    Preliminary Note: Brokers and dealers may wish to refer to 
Securities Exchange Act Release No. 29094 (April 17, 1991), for a 
discussion of procedures for gathering and reviewing the information 
required by this rule and the requirement that a broker or dealer have a 
reasonable basis for believing that the information is accurate and 
obtained from reliable sources.

    (a) As a means reasonably designed to prevent fraudulent, deceptive, 
or manipulative acts or practices, it shall be unlawful for a broker or 
dealer to publish any quotation for a security or, directly or 
indirectly, to submit any such quotation for publication, in any 
quotation medium (as defined in this section) unless such broker or 
dealer has in its records the documents and information required by this 
paragraph (for purposes of this section, ``paragraph (a) information''), 
and, based upon a review of the paragraph (a) information together with 
any other documents and information required by paragraph (b) of this 
section, has a reasonable basis under the circumstances for believing 
that the paragraph (a) information is accurate in all material respects, 
and that the sources of the paragraph (a) information are reliable. The 
information required pursuant to this paragraph is:

[[Page 304]]

    (1) A copy of the prospectus specified by section 10(a) of the 
Securities Act of 1933 for an issuer that has filed a registration 
statement under the Securities Act of 1933, other than a registration 
statement on Form F-6, which became effective less than 90 calendar days 
prior to the day on which such broker or dealer publishes or submits the 
quotation to the quotation medium, Provided That such registration 
statement has not thereafter been the subject of a stop order which is 
still in effect when the quotation is published or submitted; or
    (2) A copy of the offering circular provided for under Regulation A 
under the Securities Act of 1933 for an issuer that has filed a 
notification under Regulation A and was authorized to commence the 
offering less than 40 calendar days prior to the day on which such 
broker or dealer publishes or submits the quotation to the quotation 
medium, Provided That the offering circular provided for under 
Regulation A has not thereafter become the subject of a suspension order 
which is still in effect when the quotation is published or submitted; 
or
    (3) A copy of the issuer's most recent annual report filed pursuant 
to section 13 or 15(d) of the Act or a copy of the annual statement 
referred to in section 12(g)(2)(G)(i) of the Act, in the case of an 
issuer required to file reports pursuant to section 13 or 15(d) of the 
Act or an issuer of a security covered by section 12(g)(2)(B) or (G) of 
the Act, together with any quarterly and current reports that have been 
filed under the provisions of the Act by the issuer after such annual 
report or annual statement; Provided, however, That until such issuer 
has filed its first annual report pursuant to section 13 or 15(d) of the 
Act or annual statement referred to in section 12(g)(2)(G)(i) of the 
Act, the broker or dealer has in its records a copy of the prospectus 
specified by section 10(a) of the Securities Act of 1933 included in a 
registration statement filed by the issuer under the Securities Act of 
1933, other than a registration statement on Form F-6, that became 
effective within the prior 16 months, or a copy of any registration 
statement filed by the issuer under section 12 of the Act that became 
effective within the prior 16 months, together with any quarterly and 
current reports filed thereafter under section 13 or 15(d) of the Act; 
and Provided further, That the broker or dealer has a reasonable basis 
under the circumstances for believing that the issuer is current in 
filing annual, quarterly, and current reports filed pursuant to section 
13 or 15(d) of the Act, or, in the case of an insurance company exempted 
from section 12(g) of the Act by reason of section 12(g)(2)(G) thereof, 
the annual statement referred to in section 12(g)(2)(G)(i) of the Act; 
or
    (4) The information furnished to the Commission pursuant to Sec. 
240.12g3-2(b) since the beginning of the issuer's last fiscal year, in 
the case of an issuer exempt from section 12(g) of the Act by reason of 
compliance with the provisions of Sec. 240.12g3-2(b), which information 
the broker or dealer shall make reasonably available upon request to any 
person expressing an interest in a proposed transaction in the security 
with such broker or dealer; or
    (5) The following information, which shall be reasonably current in 
relation to the day the quotation is submitted and which the broker or 
dealer shall make reasonably available upon request to any person 
expressing an interest in a proposed transaction in the security with 
such broker or dealer:
    (i) The exact name of the issuer and its predecessor (if any);
    (ii) The address of its principal executive offices;
    (iii) The state of incorporation, if it is a corporation;
    (iv) The exact title and class of the security;
    (v) The par or stated value of the security;
    (vi) The number of shares or total amount of the securities 
outstanding as of the end of the issuer's most recent fiscal year;
    (vii) The name and address of the transfer agent;
    (viii) The nature of the issuer's business;
    (ix) The nature of products or services offered;
    (x) The nature and extent of the issuer's facilities;

[[Page 305]]

    (xi) The name of the chief executive officer and members of the 
board of directors;
    (xii) The issuer's most recent balance sheet and profit and loss and 
retained earnings statements;
    (xiii) Similar financial information for such part of the 2 
preceding fiscal years as the issuer or its predecessor has been in 
existence;
    (xiv) Whether the broker or dealer or any associated person is 
affiliated, directly or indirectly with the issuer;
    (xv) Whether the quotation is being published or submitted on behalf 
of any other broker or dealer, and, if so, the name of such broker or 
dealer; and
    (xvi) Whether the quotation is being submitted or published directly 
or indirectly on behalf of the issuer, or any director, officer or any 
person, directly or indirectly the beneficial owner of more than 10 
percent of the outstanding units or shares of any equity security of the 
issuer, and, if so, the name of such person, and the basis for any 
exemption under the federal securities laws for any sales of such 
securities on behalf of such person.

If such information is made available to others upon request pursuant to 
this paragraph, such delivery, unless otherwise represented, shall not 
constitute a representation by such broker or dealer that such 
information is accurate, but shall constitute a representation by such 
broker or dealer that the information is reasonably current in relation 
to the day the quotation is submitted, that the broker or dealer has a 
reasonable basis under the circumstances for believing the information 
is accurate in all material respects, and that the information was 
obtained from sources which the broker or dealer has a reasonable basis 
for believing are reliable. This paragraph (a)(5) shall not apply to any 
security of an issuer included in paragraph (a)(3) of this section 
unless a report or statement of such issuer described in paragraph 
(a)(3) of this section is not reasonably available to the broker or 
dealer. A report or statement of an issuer described in paragraph (a)(3) 
of this section shall be ``reasonably available'' when such report or 
statement is filed with the Commission.
    (b) With respect to any security the quotation of which is within 
the provisions of this section, the broker or dealer submitting or 
publishing such quotation shall have in its records the following 
documents and information:
    (1) A record of the circumstances involved in the submission of 
publication of such quotation, including the identity of the person or 
persons for whom the quotation is being submitted or published and any 
information regarding the transactions provided to the broker or dealer 
by such person or persons;
    (2) A copy of any trading suspension order issued by the Commission 
pursuant to section 12(k) of the Act respecting any securities of the 
issuer or its predecessor (if any) during the 12 months preceding the 
date of the publication or submission of the quotation, or a copy of the 
public release issued by the Commission announcing such trading 
suspension order; and
    (3) A copy or a written record of any other material information 
(including adverse information) regarding the issuer which comes to the 
broker's or dealer's knowledge or possession before the publication or 
submission of the quotation.
    (c) The broker or dealer shall preserve the documents and 
information required under paragraphs (a) and (b) of this section for a 
period of not less than three years, the first two years in an easily 
accessible place.
    (d)(1) For any security of an issuer included in paragraph (a)(5) of 
this section, the broker or dealer submitting the quotation shall 
furnish to the interdealer quotation system (as defined in paragraph 
(e)(2) of this section), in such form as such system shall prescribe, at 
least 3 business days before the quotation is published or submitted, 
the information regarding the security and the issuer which such broker 
or dealer is required to maintain pursuant to said paragraph (a)(5) of 
this section.
    (2) For any security of an issuer included in paragraph (a)(3) of 
this section,
    (i) A broker-dealer shall be in compliance with the requirement to 
obtain current reports filed by the issuer if the broker-dealer obtains 
all current

[[Page 306]]

reports filed with the Commission by the issuer as of a date up to five 
business days in advance of the earlier of the date of submission of the 
quotation to the quotation medium and the date of submission of the 
paragraph (a) information pursuant to Schedule H of the By-Laws of the 
National Association of Securities Dealers, Inc.; and
    (ii) A broker-dealer shall be in compliance with the requirement to 
obtain the annual, quarterly, and current reports filed by the issuer, 
if the broker-dealer has made arrangements to receive all such reports 
when filed by the issuer and it has regularly received reports from the 
issuer on a timely basis, unless the broker-dealer has a reasonable 
basis under the circumstances for believing that the issuer has failed 
to file a required report or has filed a report but has not sent it to 
the broker-dealer.
    (e) For purposes of this section:
    (1) Quotation medium shall mean any ``interdealer quotation system'' 
or any publication or electronic communications network or other device 
which is used by brokers or dealers to make known to others their 
interest in transactions in any security, including offers to buy or 
sell at a stated price or otherwise, or invitations of offers to buy or 
sell.
    (2) Interdealer quotation system shall mean any system of general 
circulation to brokers or dealers which regularly disseminates 
quotations of identified brokers or dealers.
    (3) Except as otherwise specified in this rule, quotation shall mean 
any bid or offer at a specified price with respect to a security, or any 
indication of interest by a broker or dealer in receiving bids or offers 
from others for a security, or any indication by a broker or dealer that 
he wishes to advertise his general interest in buying or selling a 
particular security.
    (4) Issuer, in the case of quotations for American Depositary 
Receipts, shall mean the issuer of the deposited shares represented by 
such American Depositary Receipts.
    (f) The provisions of this section shall not apply to:
    (1) The publication or submission of a quotation respecting a 
security admitted to trading on a national securities exchange and which 
is traded on such an exchange on the same day as, or on the business day 
next preceding, the day the quotation is published or submitted.
    (2) The publication or submission by a broker or dealer, solely on 
behalf of a customer (other than a person acting as or for a dealer), of 
a quotation that represents the customer's indication of interest and 
does not involve the solicitation of the customer's interest; Provided, 
however, That this paragraph (f)(2) shall not apply to a quotation 
consisting of both a bid and an offer, each of which is at a specified 
price, unless the quotation medium specifically identifies the quotation 
as representing such an unsolicited customer interest.
    (3)(i) The publication or submission, in an interdealer quotation 
system that specifically identifies as such unsolicited customer 
indications of interest of the kind described in paragraph (f)(2) of 
this section, of a quotation respecting a security which has been the 
subject of quotations (exclusive of any identified customer interests) 
in such a system on each of at least 12 days within the previous 30 
calendar days, with no more than 4 business days in succession without a 
quotation; or
    (ii) The publication or submission, in an interdealer quotation 
system that does not so identify any such unsolicited customer 
indications of interest, of a quotation respecting a security which has 
been the subject of both bid and ask quotations in an interdealer 
quotation system at specified prices on each of at least 12 days within 
the previous 30 calendar days, with no more than 4 business days in 
succession without such a two-way quotation;
    (iii) A dealer acting in the capacity of market maker, as defined in 
section 3(a)(38) of the Act, that has published or submitted a quotation 
respecting a security in an interdealer quotation system and such 
quotation has qualified for an exception provided in this paragraph 
(f)(3), may continue to publish or submit quotations for such security 
in the interdealer quotation system without compliance with this section 
unless and until such dealer ceases to submit or publish a quotation or

[[Page 307]]

ceases to act in the capacity of market maker respecting such security.
    (4) The publication or submission of a quotation respecting a 
municipal security.
    (5) The publication or submission of a quotation respecting a 
security that is authorized for quotation in the NASDAQ system (as 
defined in Sec. 240.11Ac1-2(a)(3) of this chapter), and such 
authorization is not suspended, terminated, or prohibited.
    (g) The requirement in paragraph (a)(5) of this section that the 
information with respect to the issuer be ``reasonably current'' will be 
presumed to be satisfied, unless the broker or dealer has information to 
the contrary, if:
    (1) The balance sheet is as of a date less than 16 months before the 
publication or submission of the quotation, the statements of profit and 
loss and retained earnings are for the 12 months preceding the date of 
such balance sheet, and if such balance sheet is not as of a date less 
than 6 months before the publication or submission of the quotation, it 
shall be accompanied by additional statements of profit and loss and 
retained earnings for the period from the date of such balance sheet to 
a date less than 6 months before the publication or submission of the 
quotation.
    (2) Other information regarding the issuer specified in paragraph 
(a)(5) of this section is as of a date within 12 months prior to the 
publication or submission of the quotation.
    (h) This section shall not prohibit any publication or submission of 
any quotation if the Commission, upon written request or upon its own 
motion, exempts such quotation either unconditionally or on specified 
terms and conditions, as not constituting a fraudulent, manipulative or 
deceptive practice comprehended within the purpose of this section.

[36 FR 18641, Sept. 18, 1971, as amended at 41 FR 22826, June 7, 1976; 
49 FR 45123, Nov. 15, 1984; 56 FR 19156, Apr. 25, 1991]



Sec. 240.15c2-12  Municipal securities disclosure.

    Preliminary Note: For a discussion of disclosure obligations 
relating to municipal securities, issuers, brokers, dealers, and 
municipal securities dealers should refer to Securities Act Release No. 
7049, Securities Exchange Act Release No. 33741, FR-42 (March 9, 1994). 
For a discussion of the obligations of underwriters to have a reasonable 
basis for recommending municipal securities, brokers, dealers, and 
municipal securities dealers should refer to Securities Exchange Act 
Release No. 26100 (Sept. 22, 1988) and Securities Exchange Act Release 
No. 26985 (June 28, 1989).

    (a) General. As a means reasonably designed to prevent fraudulent, 
deceptive, or manipulative acts or practices, it shall be unlawful for 
any broker, dealer, or municipal securities dealer (a ``Participating 
Underwriter'' when used in connection with an Offering) to act as an 
underwriter in a primary offering of municipal securities with an 
aggregate principal amount of $1,000,000 or more (an ``Offering'') 
unless the Participating Underwriter complies with the requirements of 
this section or is exempted from the provisions of this section.
    (b) Requirements. (1) Prior to the time the Participating 
Underwriter bids for, purchases, offers, or sells municipal securities 
in an Offering, the Participating Underwriter shall obtain and review an 
official statement that an issuer of such securities deems final as of 
its date, except for the omission of no more than the following 
information: The offering price(s), interest rate(s), selling 
compensation, aggregate principal amount, principal amount per maturity, 
delivery dates, any other terms or provisions required by an issuer of 
such securities to be specified in a competitive bid, ratings, other 
terms of the securities depending on such matters, and the identity of 
the underwriter(s).
    (2) Except in competitively bid offerings, from the time the 
Participating Underwriter has reached an understanding with an issuer of 
municipal securities that it will become a Participating Underwriter in 
an Offering until a final official statement is available, the 
Participating Underwriter shall send no later than the next business 
day, by first-class mail or other equally prompt means, to any potential 
customer, on request, a single copy of the most recent preliminary 
official statement, if any.

[[Page 308]]

    (3) The Participating Underwriter shall contract with an issuer of 
municipal securities or its designated agent to receive, within seven 
business days after any final agreement to purchase, offer, or sell the 
municipal securities in an Offering and in sufficient time to accompany 
any confirmation that requests payment from any customer, copies of a 
final official statement in sufficient quantity to comply with paragraph 
(b)(4) of this rule and the rules of the Municipal Securities Rulemaking 
Board.
    (4) From the time the final official statement becomes available 
until the earlier of--
    (i) Ninety days from the end of the underwriting period or
    (ii) The time when the official statement is available to any person 
from a nationally recognized municipal securities information 
repository, but in no case less than twenty-five days following the end 
of the underwriting period, the Participating Underwriter in an Offering 
shall send no later than the next business day, by first-class mail or 
other equally prompt means, to any potential customer, on request, a 
single copy of the final official statement.
    (5)(i) A Participating Underwriter shall not purchase or sell 
municipal securities in connection with an Offering unless the 
Participating Underwriter has reasonably determined that an issuer of 
municipal securities, or an obligated person for whom financial or 
operating data is presented in the final official statement has 
undertaken, either individually or in combination with other issuers of 
such municipal securities or obligated persons, in a written agreement 
or contract for the benefit of holders of such securities, to provide, 
either directly or indirectly through an indenture trustee or a 
designated agent:
    (A) To each nationally recognized municipal securities information 
repository and to the appropriate state information depository, if any, 
annual financial information for each obligated person for whom 
financial information or operating data is presented in the final 
official statement, or, for each obligated person meeting the objective 
criteria specified in the undertaking and used to select the obligated 
persons for whom financial information or operating data is presented in 
the final official statement, except that, in the case of pooled 
obligations, the undertaking shall specify such objective criteria;
    (B) If not submitted as part of the annual financial information, 
then when and if available, to each nationally recognized municipal 
securities information repository and to the appropriate state 
information depository, audited financial statements for each obligated 
person covered by paragraph (b)(5)(i)(A) of this section;
    (C) In a timely manner, to each nationally recognized municipal 
securities information repository or to the Municipal Securities 
Rulemaking Board, and to the appropriate state information depository, 
if any, notice of any of the following events with respect to the 
securities being offered in the Offering, if material:
    (1) Principal and interest payment delinquencies;
    (2) Non-payment related defaults;
    (3) Unscheduled draws on debt service reserves reflecting financial 
difficulties;
    (4) Unscheduled draws on credit enhancements reflecting financial 
difficulties;
    (5) Substitution of credit or liquidity providers, or their failure 
to perform;
    (6) Adverse tax opinions or events affecting the tax-exempt status 
of the security;
    (7) Modifications to rights of security holders;
    (8) Bond calls;
    (9) Defeasances;
    (10) Release, substitution, or sale of property securing repayment 
of the securities;
    (11) Rating changes; and
    (D) In a timely manner, to each nationally recognized municipal 
securities information repository or to the Municipal Securities 
Rulemaking Board, and to the appropriate state information depository, 
if any, notice of a failure of any person specified in paragraph 
(b)(5)(i)(A) of this section to provide required annual financial 
information, on or before the date specified in the written agreement or 
contract.
    (ii) The written agreement or contract for the benefit of holders of 
such

[[Page 309]]

securities also shall identify each person for whom annual financial 
information and notices of material events will be provided, either by 
name or by the objective criteria used to select such persons, and, for 
each such person shall:
    (A) Specify, in reasonable detail, the type of financial information 
and operating data to be provided as part of annual financial 
information;
    (B) Specify, in reasonable detail, the accounting principles 
pursuant to which financial statements will be prepared, and whether the 
financial statements will be audited; and
    (C) Specify the date on which the annual financial information for 
the preceding fiscal year will be provided, and to whom it will be 
provided.
    (iii) Such written agreement or contract for the benefit of holders 
of such securities also may provide that the continuing obligation to 
provide annual financial information and notices of events may be 
terminated with respect to any obligated person, if and when such 
obligated person no longer remains an obligated person with respect to 
such municipal securities.
    (c) Recommendations. As a means reasonably designed to prevent 
fraudulent, deceptive, or manipulative acts or practices, it shall be 
unlawful for any broker, dealer, or municipal securities dealer to 
recommend the purchase or sale of a municipal security unless such 
broker, dealer, or municipal securities dealer has procedures in place 
that provide reasonable assurance that it will receive prompt notice of 
any event disclosed pursuant to paragraph (b)(5)(i)(C), paragraph 
(b)(5)(i)(D), and paragraph (d)(2)(ii)(B) of this section with respect 
to that security.
    (d) Exemptions. (1) This section shall not apply to a primary 
offering of municipal securities in authorized denominations of $100,000 
or more, if such securities:
    (i) Are sold to no more than thirty-five persons each of whom the 
Participating Underwriter reasonably believes:
    (A) Has such knowledge and experience in financial and business 
matters that it is capable of evaluating the merits and risks of the 
prospective investment; and
    (B) Is not purchasing for more than one account or with a view to 
distributing the securities; or
    (ii) Have a maturity of nine months or less; or
    (iii) At the option of the holder thereof may be tendered to an 
issuer of such securities or its designated agent for redemption or 
purchase at par value or more at least as frequently as every nine 
months until maturity, earlier redemption, or purchase by an issuer or 
its designated agent.
    (2) Paragraph (b)(5) of this section shall not apply to an Offering 
of municipal securities if, at such time as an issuer of such municipal 
securities delivers the securities to the Participating Underwriters:
    (i) No obligated person will be an obligated person with respect to 
more than $10,000,000 in aggregate amount of outstanding municipal 
securities, including the offered securities and excluding municipal 
securities that were offered in a transaction exempt from this section 
pursuant to paragraph (d)(1) of this section;
    (ii) An issuer of municipal securities or obligated person has 
undertaken, either individually or in combination with other issuers of 
municipal securities or obligated persons, in a written agreement or 
contract for the benefit of holders of such municipal securities, to 
provide:
    (A) Upon request to any person or at least annually to the 
appropriate state information depository, if any, financial information 
or operating data regarding each obligated person for which financial 
information or operating data is presented in the final official 
statement, as specified in the undertaking, which financial information 
and operating data shall include, at a minimum, that financial 
information and operating data which is customarily prepared by such 
obligated person and is publicly available; and
    (B) In a timely manner, to each nationally recognized municipal 
securities information repository or to the Municipal Securities 
Rulemaking Board, and to the appropriate state information depository, 
if any, notice of events specified in paragraph (b)(5)(i)(C) of this 
section with respect

[[Page 310]]

to the securities that are the subject of the Offering, if material; and
    (iii) The final official statement identifies by name, address, and 
telephone number the persons from which the foregoing information, data, 
and notices can be obtained.
    (3) The provisions of paragraph (b)(5) of this section, other than 
paragraph (b)(5)(i)(C) of this section, shall not apply to an Offering 
of municipal securities, if such municipal securities have a stated 
maturity of 18 months or less.
    (4) The provisions of paragraph (c) of this section shall not apply 
to municipal securities:
    (i) Sold in an Offering to which paragraph (b)(5) of this section 
did not apply, other than Offerings exempt under paragraph (d)(2)(ii) of 
this section; or
    (ii) Sold in an Offering exempt from this section under paragraph 
(d)(1) of this section.
    (e) Exemptive authority. The Commission, upon written request, or 
upon its own motion, may exempt any broker, dealer, or municipal 
securities dealer, whether acting in the capacity of a Participating 
Underwriter or otherwise, that is a participant in a transaction or 
class of transactions from any requirement of this section, either 
unconditionally or on specified terms and conditions, if the Commission 
determines that such an exemption is consistent with the public interest 
and the protection of investors.
    (f) Definitions. For the purposes of this rule--(1) The term 
authorized denominations of $100,000 or more means municipal securities 
with a principal amount of $100,000 or more and with restrictions that 
prevent the sale or transfer of such securities in principal amounts of 
less than $100,000 other than through a primary offering; except that, 
for municipal securities with an original issue discount of 10 percent 
or more, the term means municipal securities with a minimum purchase 
price of $100,000 or more and with restrictions that prevent the sale or 
transfer of such securities, in principal amounts that are less than the 
original principal amount at the time of the primary offering, other 
than through a primary offering.
    (2) The term end of the underwriting period means the later of such 
time as
    (i) The issuer of municipal securities delivers the securities to 
the Participating Underwriters or
    (ii) The Participating Underwriter does not retain, directly or as a 
member or an underwriting syndicate, an unsold balance of the securities 
for sale to the public.
    (3) The term final official statement means a document or set of 
documents prepared by an issuer of municipal securities or its 
representatives that is complete as of the date delivered to the 
Participating Underwriter(s) and that sets forth information concerning 
the terms of the proposed issue of securities; information, including 
financial information or operating data, concerning such issuers of 
municipal securities and those other entities, enterprises, funds, 
accounts, and other persons material to an evaluation of the Offering; 
and a description of the undertakings to be provided pursuant to 
paragraph (b)(5)(i), paragraph (d)(2)(ii), and paragraph (d)(2)(iii) of 
this section, if applicable, and of any instances in the previous five 
years in which each person specified pursuant to paragraph (b)(5)(ii) of 
this section failed to comply, in all material respects, with any 
previous undertakings in a written contract or agreement specified in 
paragraph (b)(5)(i) of this section. Financial information or operating 
data may be set forth in the document or set of documents, or may be 
included by specific reference to documents previously provided to each 
nationally recognized municipal securities information repository, and 
to a state information depository, if any, or filed with the Commission. 
If the document is a final official statement, it must be available from 
the Municipal Securities Rulemaking Board.
    (4) The term issuer of municipal securities means the governmental 
issuer specified in section 3(a)(29) of the Act and the issuer of any 
separate security, including a sepatate security as defined in rule 3b-
5(a) under the Act.
    (5) The term potential customer means (i) Any person contacted by 
the Participating Underwriter concerning the purchase of municipal 
securities that are intended to be offered or have been

[[Page 311]]

sold in an offering, (ii) Any person who has expressed an interest to 
the Participating Underwriter in possibly purchasing such municipal 
securities, and (iii) Any person who has a customer account with the 
Participating Underwriter.
    (6) The term preliminary official statement means an official 
statement prepared by or for an issuer of municipal securities for 
dissemination to potential customers prior to the availability of the 
final official statement.
    (7) The term primary offering means an offering of municipal 
securities directly or indirectly by or on behalf of an issuer of such 
securities, including any remarketing of municipal securities.
    (i) That is accompanied by a change in the authorized denomination 
of such securities from $100,000 or more to less than $100,000, or
    (ii) That is accompanied by a change in the period during which such 
securities may be tendered to an issuer of such securities or its 
designated agent for redemption or purchase from a period of nine months 
or less to a period of more than nine months.
    (8) The term underwriter means any person who has purchased from an 
issuer of municipal securities with a view to, or offers or sells for an 
issuer of municipal securities in connection with, the offering of any 
municipal security, or participates or has a direct or indirect 
participation in any such undertaking, or participates or has a 
participation in the direct or indirect underwriting of any such 
undertaking; except, that such term shall not include a person whose 
interest is limited to a commission, concession, or allowance from an 
underwriter, broker, dealer, or municipal securities dealer not in 
excess of the usual and customary distributors' or sellers' commission, 
concession, or allowance.
    (9) The term annual financial information means financial 
information or operating data, provided at least annually, of the type 
included in the final official statement with respect to an obligated 
person, or in the case where no financial information or operating data 
was provided in the final official statement with respect to such 
obligated person, of the type included in the final official statement 
with respect to those obligated persons that meet the objective criteria 
applied to select the persons for which financial information or 
operating data will be provided on an annual basis. Financial 
information or operating data may be set forth in the document or set of 
documents, or may be included by specific reference to documents 
previously provided to each nationally recognized municipal securities 
information repository, and to a state information depository, if any, 
or filed with the Commission. If the document is a final official 
statement, it must be available from the Municipal Securities Rulemaking 
Board.
    (10) The term obligated person means any person, including an issuer 
of municipal securities, who is either generally or through an 
enterprise, fund, or account of such person committed by contract or 
other arrangement to support payment of all, or part of the obligations 
on the municipal securities to be sold in the Offering (other than 
providers of municipal bond insurance, letters of credit, or other 
liquidity facilities).
    (g) Transitional provision. If on July 28, 1989, a Participating 
Underwriter was contractually committed to act as underwriter in an 
Offering of municipal securities originally issued before July 29, 1989, 
the requirements of paragraphs (b)(3) and (b)(4) shall not apply to the 
Participating Underwriter in connection with such an Offering. Paragraph 
(b)(5) of this section shall not apply to a Participating Underwriter 
that has contractually committed to act as an underwriter in an Offering 
of municipal securities before July 3, 1995; except that paragraph 
(b)(5)(i)(A) and paragraph (b)(5)(i)(B) shall not apply with respect to 
fiscal years ending prior to January 1, 1996. Paragraph (c) shall become 
effective on January 1, 1996. Paragraph (d)(2)(ii) and paragraph 
(d)(2)(iii) of this section shall not apply to an Offering of municipal 
securities commencing prior to January 1, 1996.

[54 FR 28813, July 10, 1989, as amended at 59 FR 59609, Nov. 17, 1994]

[[Page 312]]



Sec. 240.15c3-1  Net capital requirements for brokers or dealers.

    (a) Every broker or dealer shall at all times have and maintain net 
capital no less than the greater of the highest minimum requirement 
applicable to its ratio requirement under paragraph (a)(1) of this 
section, or to any of its activities under paragraph (a)(2) of this 
section. In lieu of applying paragraphs (a)(1) and (a)(2) of this 
section, an OTC derivatives dealer shall maintain net capital pursuant 
to paragraph (a)(5) of this section. Each broker or dealer also shall 
comply with the supplemental requirements of paragraphs (a)(4) and 
(a)(9) of this section, to the extent either paragraph is applicable to 
its activities. In addition, a broker or dealer shall maintain net 
capital of not less than its own net capital requirement plus the sum of 
each broker's or dealer's subsidiary or affiliate minimum net capital 
requirements, which is consolidated pursuant to Appendix C, Sec. 
240.15c3-1c.

                           Ratio Requirements

                     Aggregate Indebtedness Standard

    (1)(i) No broker or dealer, other than one that elects the 
provisions of paragraph (a)(1)(ii) of this section, shall permit its 
aggregate indebtedness to all other persons to exceed 1500 percent of 
its net capital (or 800 percent of its net capital for 12 months after 
commencing business as a broker or dealer).

                          Alternative Standard

    (ii) A broker or dealer may elect not to be subject to the Aggregate 
Indebtedness Standard of paragraph (a)(1)(i) of this section. That 
broker or dealer shall not permit its net capital to be less than the 
greater of $250,000 or 2 percent of aggregate debit items computed in 
accordance with the Formula for Determination of Reserve Requirements 
for Brokers and Dealers (Exhibit A to Rule 15c3-3, Sec. 240.15c3-3a). 
Such broker or dealer shall notify its Examining Authority, in writing, 
of its election to operate under this paragraph (a)(1)(ii). Once a 
broker or dealer has notified its Examining Authority, it shall continue 
to operate under this paragraph unless a change is approved upon 
application to the Commission. A broker or dealer that elects this 
standard and is not exempt from Rule 15c3-3 shall:
    (A) Make the computation required by Sec. 240.15c3-3(e) and set 
forth in Exhibit A, Sec. 240.15c3-3a, on a weekly basis and, in lieu of 
the 1 percent reduction of certain debit items required by Note E (3) in 
the computation of its Exhibit A requirement, reduce aggregate debit 
items in such computation by 3 percent;
    (B) Include in Items 7 and 8 of Exhibit A, Sec. 240.15c3-3a, the 
market value of items specified therein more than 7 business days old;
    (C) Exclude credit balances in accounts representing amounts payable 
for securities not yet received from the issuer or its agent which 
securities are specified in paragraphs (c)(2)(vi) (A) and (E) of this 
section and any related debit items from the Exhibit A requirement for 3 
business days; and
    (D) Deduct from net worth in computing net capital 1 percent of the 
contract value of all failed to deliver contracts or securities borrowed 
that were allocated to failed to receive contracts of the same issue and 
which thereby were excluded from Items 11 or 12 of Exhibit A, Sec. 
240.15c3-3a.

                      Futures Commission Merchants

    (iii) No broker or dealer registered as a futures commission 
merchant shall permit its net capital to be less than the greater of its 
requirement under paragraph (a)(1) (i) or (ii) of this section, or 4 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the customer's account).

                          Minimum Requirements

    See Appendix E (Sec. 240.15c3-1E) for temporary minimum 
requirements.

[[Page 313]]

             Brokers or Dealers That Carry Customer Accounts

    (2)(i) A broker or dealer (other than one described in paragraphs 
(a)(2)(ii) or (a)(8) of this section) shall maintain net capital of not 
less than $250,000 if it carries customer or broker or dealer accounts 
and receives or holds funds or securities for those persons. A broker or 
dealer shall be deemed to receive funds, or to carry customer or broker 
or dealer accounts and to receive funds from those persons if, in 
connection with its activities as a broker or dealer, it receives 
checks, drafts, or other evidences of indebtedness made payable to 
itself or persons other than the requisite registered broker or dealer 
carrying the account of a customer, escrow agent, issuer, underwriter, 
sponsor, or other distributor of securities. A broker or dealer shall be 
deemed to hold securities for, or to carry customer or broker or dealer 
accounts, and hold securities of, those persons if it does not promptly 
forward or promptly deliver all of the securities of customers or of 
other brokers or dealers received by the firm in connection with its 
activities as a broker or dealer. A broker or dealer, without complying 
with this paragraph (a)(2)(i), may receive securities only if its 
activities conform with the provisions of paragraphs (a)(2) (iv) or (v) 
of this section, and may receive funds only in connection with the 
activities described in paragraph (a)(2)(v) of this section.
    (ii) A broker or dealer that is exempt from the provisions of Sec. 
240.15c3-3 pursuant to paragraph (k)(2)(i) thereof shall maintain net 
capital of not less than $100,000.

                                 Dealers

    (iii) A dealer shall maintain net capital of not less than $100,000. 
For the purposes of this section, the term ``dealer'' includes:
    (A) Any broker or dealer that endorses or writes options otherwise 
than on a registered national securities exchange or a facility of a 
registered national securities association; and
    (B) Any broker or dealer that effects more than ten transactions in 
any one calendar year for its own investment account. This section shall 
not apply to those persons engaging in activities described in 
paragraphs (a)(2)(v), (a)(2)(vi) or (a)(8) of this section, or to those 
persons whose underwriting activities are limited solely to acting as 
underwriters in best efforts or all or none underwritings in conformity 
with paragraph (b)(2) of Sec. 240.15c2-4, so long as those persons 
engage in no other dealer activities.

    Brokers or Dealers That Introduce Customer Accounts And Receive 
                               Securities

    (iv) A broker or dealer shall maintain net capital of not less than 
$50,000 if it introduces transactions and accounts of customers or other 
brokers or dealers to another registered broker or dealer that carries 
such accounts on a fully disclosed basis, and if the broker or dealer 
receives but does not hold customer or other broker or dealer 
securities. A broker or dealer operating under this paragraph (a)(2)(iv) 
of this section may participate in a firm commitment underwriting 
without being subject to the provisions of paragraph (a)(2)(iii) of this 
section, but may not enter into a commitment for the purchase of shares 
related to that underwriting.

     Brokers or Dealers Engaged in the Sale of Redeemable Shares of 
    Registered Investment Companies and Certain Other Share Accounts

    (v) A broker or dealer shall maintain net capital of not less than 
$25,000 if it acts as a broker or dealer with respect to the purchase, 
sale and redemption of redeemable shares of registered investment 
companies or of interests or participations in an insurance company 
separate account directly from or to the issuer on other than a 
subscription way basis. A broker or dealer operating under this section 
may sell securities for the account of a customer to obtain funds for 
the immediate reinvestment in redeemable securities of registered 
investment companies. A broker or dealer operating under this paragraph 
(a)(2)(v) must promptly transmit all funds and promptly deliver all 
securities received in connection with its activities as a broker or 
dealer, and may not otherwise hold funds or securities

[[Page 314]]

for, or owe money or securities to, customers.

                        Other Brokers or Dealers

    (vi) A broker or dealer that does not receive, directly or 
indirectly, or hold funds or securities for, or owe funds or securities 
to, customers and does not carry accounts of, or for, customers and does 
not engage in any of the activities described in paragraphs (a)(2) (i) 
through (v) of this section shall maintain net capital of not less than 
$5,000. A broker or dealer operating under this paragraph may engage in 
the following dealer activities without being subject to the 
requirements of paragraph (a)(2)(iii) of this section:
    (A) In the case of a buy order, prior to executing such customer's 
order, it purchases as principal the same number of shares or purchases 
shares to accumulate the number of shares necessary to complete the 
order, which shall be cleared through another registered broker or 
dealer or
    (B) In the case of a sell order, prior to executing such customer's 
order, it sells as principal the same number of shares or a portion 
thereof, which shall be cleared through another registered broker or 
dealer.
    (3) [Reserved]

                 Capital Requirements for Market Makers

    (4) A broker or dealer engaged in activities as a market maker as 
defined in paragraph (c)(8) of this section shall maintain net capital 
in an amount not less than $2,500 for each security in which it makes a 
market (unless a security in which it makes a market has a market value 
of $5 or less, in which event the amount of net capital shall be not 
less than $1,000 for each such security) based on the average number of 
such markets made by such broker or dealer during the 30 days 
immediately preceding the computation date. Under no circumstances shall 
it have net capital less than that required by the provisions of 
paragraph (a) of this section, or be required to maintain net capital of 
more than $1,000,000 unless required by paragraph (a) of this section.
    (5) In accordance with Appendix F to this section (Sec. 240.15c3-
1f), the Commission may grant an application by an OTC derivatives 
dealer when calculating net capital to use the market risk standards of 
Appendix F as to some or all of its positions in lieu of the provisions 
of paragraph (c)(2)(vi) of this section and the credit risk standards of 
Appendix F to its receivables (including counterparty net exposure) 
arising from transactions in eligible OTC derivative instruments in lieu 
of the requirements of paragraph (c)(2)(iv) of this section. An OTC 
derivatives dealer shall at all times maintain tentative net capital of 
not less than $100 million and net capital of not less than $20 million.

          Market Makers, Specialists and Certain Other Dealers

    (6)(i) A dealer who meets the conditions of paragraph (a)(6)(ii) of 
this section may elect to operate under this paragraph (a)(6) and 
thereby not apply, except to the extent required by this paragraph 
(a)(6), the provisions of paragraphs (c)(2)(vi) or Appendix A (Sec. 
240.15c3-1a) of this section to market maker and specialist transactions 
and, in lieu thereof, apply thereto the provisions of paragraph 
(a)(6)(iii) of this section.
    (ii) This paragraph (a)(6) shall be available to a dealer who does 
not effect transactions with other than brokers or dealers, who does not 
carry customer accounts, who does not effect transactions in options not 
listed on a registered national securities exchange or facility of a 
registered national securities association, and whose market maker or 
specialist transactions are effected through and carried in a market 
maker or specialist account cleared by another broker or dealer as 
provided in paragraph (a)(6)(iv) of this section.
    (iii) A dealer who elects to operate pursuant to this paragraph 
(a)(6) shall at all times maintain a liquidating equity in respect of 
securities positions in his market maker or specialist account at least 
equal to:
    (A) An amount equal to 25 percent (5 percent in the case of exempted 
securities) of the market value of the long positions and 30 percent of 
the market value of the short positions; provided, however, in the case 
of long or short positions in options and long or short positions in 
securities other than options which relate to a bona fide

[[Page 315]]

hedged position as defined in paragraph (c)(2)(x)(C) of this section, 
such amount shall equal the deductions in respect of such positions 
specified by paragraph (c)(2)(x)(A) (1) through (9) of this section.
    (B) Such lesser requirement as may be approved by the Commission 
under specified terms and conditions upon written application of the 
dealer and the carrying broker or dealer.
    (C) For purposes of this paragraph (a)(6)(iii), equity in such 
specialist or market maker account shall be computed by (1) marking all 
securities positions long or short in the account to their respective 
current market values, (2) adding (deducting in the case of a debit 
balance) the credit balance carried in such specialist or market maker 
account, and (3) adding (deducting in the case of short positions) the 
market value of positions long in such account.
    (iv) The dealer shall obtain from the broker or dealer carrying the 
market maker or specialist account a written undertaking which shall be 
designated ``Notice Pursuant to Sec. 240.15c3-1(a)(6) of Intention to 
Carry Specialist or Market Maker Account.'' Said undertaking shall 
contain the representations required by paragraph (a)(6) of this section 
and shall be filed with the Commission's Washington, DC, Office, the 
regional or district office of the Commission for the region or district 
in which the broker or dealer has its principal place of business and 
the Designated Examining Authorities of both firms prior to effecting 
any transactions in said account. The broker or dealer carrying such 
account:
    (A) Shall mark the account to the market not less than daily and 
shall issue appropriate calls for additional equity which shall be met 
by noon of the following business day;
    (B) Shall notify by telegraph the Commission and the Designated 
Examining Authorities pursuant to 17 CFR 240.17a-11, if the market maker 
or specialist fails to deposit any required equity within the time 
prescribed in paragraph (a)(6)(iv)(A) of this section; said telegraphic 
notice shall be received by the Commission and the Designated Examining 
Authorities not later than the close of business on the day said call is 
not met;
    (C) Shall not extend further credit in the account if the equity in 
the account falls below that prescribed in paragraph (a)(6)(iii) of this 
section, and
    (D) Shall take steps to liquidate promptly existing positions in the 
account in the event of a failure to meet a call for equity.
    (v) No such carrying broker or dealer shall permit the sum of (A) 
the deductions required by paragraph (c)(2)(x)(A) of this section in 
respect of all transactions in market maker accounts guaranteed, 
indorsed or carried by such broker or dealer pursuant to paragraph 
(c)(2)(x) of this section and (B) the equity required by paragraph (iii) 
of this paragraph (a)(6) in respect of all transactions in the accounts 
of specialists of market makers in options carried by such broker or 
dealer pursuant to this paragraph (a)(6) to exceed 1,000 percent of such 
broker's or dealer's net capital as defined in paragraph (c)(2) of this 
section for any period exceeding five business days; Provided, That 
solely for purposes of this paragraph (a)(6)(v), deductions or equity 
required in a specialist or market maker account in respect of positions 
in fully paid securities (other than options), which do not underlie 
options listed on the national securities exchange or facility of a 
national securities association of which the specialist or market marker 
is a member, need not be recognized. Provided further, That if at any 
time such sum exceeds 1,000 percent of such broker's or dealer's net 
capital, then the broker or dealer shall immediately transmit 
telegraphic notice of such event to the principal office of the 
Commission in Washington, DC, the regional or district office of the 
Commission for the region or district in which the broker or dealer 
maintains its principal place of business, and such broker's or dealer's 
Designated Examining Authority. Provided further, That if at any time 
such sum exceeds 1,000 percent of such broker's or dealer's net capital, 
then such broker or dealer shall be subject to the prohibitions against 
withdrawal of equity capital set forth in paragraph (e) of this section, 
and to the prohibitions against reduction, prepayment and repayment of 
subordination agreements set forth in paragraph (b)(11) of Sec. 
240.15c3-1d, as if

[[Page 316]]

such broker or dealer's net capital were below the minimum standards 
specified by each of the aforementioned paragraphs.

                    Self-Clearing Options Specialists

    (7) [Reserved]
    (8) Municipal securities brokers' brokers. (i) A municipal 
securities brokers' brokers, as defined in subsection (ii) of this 
paragraph (a)(8), may elect not to be subject to the limitations of 
paragraph (c)(2)(ix) of this section provided that such brokers' broker 
complies with the requirements set out in paragraphs (a)(8) (iii), (iv) 
and (v) of this section.
    (ii) The term municipal securities brokers' broker shall mean a 
municipal securities broker or dealer who acts exclusively as an 
undisclosed agent in the purchase or sale of municipal securities for a 
registered broker or dealer or registered municipal securities dealer, 
who has no ``customers'' as defined in this rule and who does not have 
or maintain any municipal securities in its proprietary or other 
accounts.
    (iii) In order to qualify to operate under this paragraph (a)(8), a 
brokers' broker shall at all times have and maintain net capital of not 
less than $150,000.
    (iv) For purposes of this paragraph (a)(8), a brokers' broker shall 
deduct from net worth 1% of the contract value of each municipal failed 
to deliver contract which is outstanding 21 business days or longer. 
Such deduction shall be increased by any excess of the contract price of 
the fail to deliver over the market value of the underlying security.
    (v) For purposes of this paragraph (a)(8), a brokers' broker may 
exclude from its aggregate indebtedness computation indebtedness 
adequately collateralized by municipal securities outstanding for not 
more than one business day and offset by municipal securities failed to 
deliver of the same issue and quantity. In no event may a brokers' 
broker exclude any overnight bank loan attributable to the same 
municipal securities failed to deliver contract for more than one 
business day. A brokers' broker need not deduct from net worth the 
amount by which the market value of securities failed to receive 
outstanding longer than thirty (30) calendar days exceeds the contract 
value of those failed to receive as required by Rule 15c3-
1(c)(2)(iv)(E).

Certain Additional Capital Requirements for Brokers or Dealers Engaging 
                    in Reverse Repurchase Agreements

    (9) A broker or dealer shall maintain net capital in addition to the 
amounts required under paragraph (a) of this section in an amount equal 
to 10 percent of:
    (i) The excess of the market value of United States Treasury Bills, 
Bonds and Notes subject to reverse repurchase agreements with any one 
party over 105 percent of the contract prices (including accrued 
interest) for reverse repurchase agreements with that party;
    (ii) The excess of the market value of securities issued or 
guaranteed as to principal or interest by an agency of the United States 
or mortgage related securities as defined in section 3(a)(41) of the Act 
subject to reverse repurchase agreements with any one party over 110 
percent of the contract prices (including accrued interest) for reverse 
repurchase agreements with that party; and
    (iii) The excess of the market value of other securities subject to 
reverse repurchase agreements with any one party over 120 percent of the 
contract prices (including accrued interest) for reverse repurchase 
agreements with that party.
    (b) Exemptions:
    (1) The provisions of this section shall not apply to any 
specialist:
    (i) Whose securities business, except for an occasional non-
specialist related securities transaction for its own account, is 
limited to that of acting as an options market maker on a national 
securities exchange;
    (ii) That is a member in good standing and subject to the capital 
requirements of a national securities exchange;
    (iii) That does not transact a business in securities with other 
than a broker or dealer registered with the Commission under section 15 
or section 15C of the Act or a member of a national securities exchange; 
and

[[Page 317]]

    (iv) That is not a clearing member of The Options Clearing 
Corporation and whose securities transactions are effected through and 
carried in an account cleared by another broker or dealer registered 
with the Commission under section 15 of the Act.
    (2) A member in good standing of a national securities exchange who 
acts as a floor broker (and whose activities do not require compliance 
with other provisions of this rule), may elect to comply, in lieu of the 
other provisions of this section, with the following financial 
responsibility standard: The value of the exchange membership of the 
member (based on the lesser of the most recent sale price or current bid 
price for an exchange membership) is not less than $15,000, or an amount 
equal to the excess of $15,000 over the value of the exchange membership 
is held by an independent agent in escrow: Provided, That the rules of 
such exchange require that the proceeds from the sale of the exchange 
membership of the member and the amount held in escrow pursuant to this 
paragraph shall be subject to the prior claims of the exchange and its 
clearing corporation and those arising directly from the closing out of 
contracts entered into on the floor of such exchanges.
    (3) The Commission may, upon written application, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any broker or dealer who satisfies the Commission that, 
because of the special nature of its business, its financial position, 
and the safeguards it has established for the protection of customers' 
funds and securities, it is not necessary in the public interest or for 
the protection of investors to subject the particular broker or dealer 
to the provisions of this section.
    (c) Definitions. For the purpose of this section:

                         Aggregate Indebtedness

    (1) The term aggregate indebtedness shall be deemed to mean the 
total money liabilities of a broker or dealer arising in connection with 
any transaction whatsoever and includes, among other things, money 
borrowed, money payable against securities loaned and securities 
``failed to receive,'' the market value of securities borrowed to the 
extent to which no equivalent value is paid or credited (other than the 
market value of margin securities borrowed from customers in accordance 
with the provisions of 17 CFR 240.15c3-3 and margin securities borrowed 
from non-customers), customers' and non-customers' free credit balances, 
credit balances in customers' and non-customers' accounts having short 
positions in securities, equities in customers' and non-customers' 
future commodities accounts and credit balances in customers' and non-
customers' commodities accounts, but excluding:

                 Exclusions From Aggregate Indebtedness

    (i) Indebtedness adequately collateralized by securities which are 
carried long by the broker or dealer and which have not been sold or by 
securities which collateralize a secured demand note pursuant to 
Appendix (D) to this section 17 CFR 240.15c3-1d; indebtedness adequately 
collateralized by spot commodities which are carried long by the broker 
or dealer and which have not been sold; or, until October 1, 1976, 
indebtedness adequately collateralized by municipal securities 
outstanding for not more than one business day and offset by municipal 
securities failed to deliver of the same issue and quantity, where such 
indebtedness is incurred by a broker or dealer effecting transactions 
solely in municipal securities who is either registered with the 
Commission or temporarily exempt from such registration pursuant to 17 
CFR 240.15a-1(T) or 17 CFR 240.15Ba2-3(T);
    (ii) Amounts payable against securities loaned, which securities are 
carried long by the broker or dealer and which have not been sold or 
which securities collateralize a secured demand note pursuant to 
Appendix (D) (17 CFR 240.15c)
    (iii) Amounts payable against securities failed to receive which 
securities are carried long by the broker or dealer and which have not 
been sold or which securities collateralize a secured demand note 
pursuant to Appendix (D)

[[Page 318]]

(17 CFR 240.15c3-1d) or amounts payable against securities failed to 
receive for which the broker or dealer also has a receivable related to 
securities of the same issue and quantity thereof which are either fails 
to deliver or securities borrowed by the broker or dealer;
    (iv) Credit balances in accounts representing amounts payable for 
securities or money market instruments not yet received from the issuer 
or its agent which securities are specified in paragraph (c)(2)(vi)(E) 
and which amounts are outstanding in such accounts not more than three 
(3) business days;
    (v) Equities in customers' and non-customers' accounts segregated in 
accordance with the provisions of the Commodity Exchange Act and the 
rules and regulations thereunder;
    (vi) Liability reserves established and maintained for refunds of 
charges required by section 27(d) of the Investment Company Act of 1940, 
but only to the extent of amounts on deposit in a segregated trust 
account in accordance with 17 CFR 270.27d-1 under the Investment Company 
Act of 1940;
    (vii) Amounts payable to the extent funds and qualified securities 
are required to be on deposit and are deposited in a ``Special Reserve 
Bank Account for the Exclusive Benefit of Customers'' pursuant to 17 CFR 
240.15c3-3 under the Securities Exchange Act of 1934;
    (viii) Fixed liabilities adequately secured by assets acquired for 
use in the ordinary course of the trade or business of a broker or 
dealer but no other fixed liabilities secured by assets of the broker or 
dealer shall be so excluded unless the sole recourse of the creditor for 
nonpayment of such liability is to such asset;
    (ix) Liabilities on open contractual commitments;
    (x) Indebtedness subordinated to the claims of creditors pursuant to 
a satisfactory subordination agreement, as defined in Appendix (D) (17 
CFR 240.15c3-1d);
    (xi) Liabilities which are effectively subordinated to the claims of 
creditors (but which are not subject to a satisfactory subordination 
agreement as defined in Appendix (D) (17 CFR 240.15c3-1d)) by non-
customers of the broker or dealer prior to such subordination, except 
such subordinations by customers as may be approved by the Examining 
Authority for such broker or dealer;
    (xii) Credit balances in accounts of general partners;
    (xiii) Deferred tax liabilities;
    (xiv) Eighty-five percent of amounts payable to a registered 
investment company related to fail to deliver receivables of the same 
quantity arising out of purchases of shares of those registered 
investment companies; and
    (xv) Eighty-five percent of amounts payable against securities 
loaned for which the broker or dealer has receivables related to 
securities of the same class and issue and quantity that are securities 
borrowed by the broker or dealer.

                               Net Capital

    (2) The term net capital shall be deemed to mean the net worth of a 
broker or dealer, adjusted by:
    (i) Adjustments to net worth related to unrealized profit or loss 
and deferred tax provisions. (A) Adding unrealized profits (or deducting 
unrealized losses) in the accounts of the broker or dealer;
    (B)(1) In determining net worth, all long and all short positions in 
listed options shall be marked to their market value and all long and 
all short securities and commodities positions shall be marked to their 
market value.
    (2) In determining net worth, the value attributed to any unlisted 
option shall be the difference between the option's exercise value and 
the market value of the underlying security. In the case of an unlisted 
call, if the market value of the underlying security is less than the 
exercise value of such call it shall be given no value and in the case 
of an unlisted put if the market value of the underlying security is 
more than the exercise value of the unlisted put it shall be given no 
value.
    (C) Adding to net worth the lesser of any deferred income tax 
liability related to the items in (1), (2), and (3) below, or the sum of 
(1), (2) and (3) below;
    (1) The aggregate amount resulting from applying to the amount of 
the deductions computed in accordance with paragraph (c)(2)(vi) of this 
section and Appendices A and B, Sec. 240.15c3-1a and

[[Page 319]]

240.15c3-1b, the appropriate Federal and State tax rate(s) applicable to 
any unrealized gain on the asset on which the deduction was computed;
    (2) Any deferred tax liability related to income accrued which is 
directly related to an asset otherwise deducted pursuant to this 
section;
    (3) Any deferred tax liability related to unrealized appreciation in 
value of any asset(s) which has been otherwise deducted from net worth 
in accordance with the provisions of this section; and,
    (D) Adding, in the case of future income tax benefits arising as a 
result of unrealized losses, the amount of such benefits not to exceed 
the amount of income tax liabilities accrued on the books and records of 
the broker or dealer, but only to the extent such benefits could have 
been applied to reduce accrued tax liabilities on the date of the 
capital computation, had the related unrealized losses been realized on 
that date.
    (E) Adding to net worth any actual tax liability related to income 
accrued which is directly related to an asset otherwise deducted 
pursuant to this section.
    (ii) Subordinated Liabilities. Excluding liabilities of the broker 
or dealer which are subordinated to the claims of creditors pursuant to 
a satisfactory subordination agreement, as defined in Appendix (D) (17 
CFR 240.15c3-1d).
    (iii) Sole Proprietors. Deducting, in the case of a broker or dealer 
who is a sole proprietor, the excess of liabilities which have not been 
incurred in the course of business as a broker or dealer over assets not 
used in the business.
    (iv) Assets Not Readily Convertible Into Cash. Deducting fixed 
assets and assets which cannot be readily converted into cash (less any 
indebtedness excluded in accordance with subdivision (c)(1)(viii) of 
this section) including, among other things:
    (A) Fixed Assets and Prepaid Items. Real estate; furniture and 
fixtures; exchange memberships; prepaid rent, insurance and other 
expenses; goodwill, organization expenses;

            Certain Unsecured and Partly Secured Receivables

    (B) All unsecured advances and loans; deficits in customers' and 
non-customers' unsecured and partly secured notes; deficits in special 
omnibus accounts maintained in compliance with the requirements of 12 
CFR 220.10 of Regulation T under the Securities Exchange Act of 1934, or 
similar accounts carried on behalf of another broker or dealer, after 
application of calls for margin, marks to the market or other required 
deposits that are outstanding 5 business days or less; deficits in 
customers' and non-customers' unsecured and partly secured accounts 
after application of calls for margin, marks to the market or other 
required deposits that are outstanding 5 business days or less, except 
deficits in cash accounts as defined in 12 CFR 220.8 of Regulation T 
under the Securities Exchange Act of 1934 for which not more than one 
extension respecting a specified securities transaction has been 
requested and granted, and deducting for securities carried in any of 
such accounts the percentages specified in paragraph (c)(2)(vi) of this 
section or Appendix A (Sec. 240.15c3-1a); the market value of stock 
loaned in excess of the value of any collateral received therefor; 
receivables arising out of free shipments of securities (other than 
mutual fund redemptions) in excess of $5,000 per shipment and all free 
shipments (other than mutual fund redemptions) outstanding more than 7 
business days, and mutual fund redemptions outstanding more than 16 
business days; any collateral deficiencies in secured demand notes as 
defined in Appendix D (Sec. 240.15c3-1d);
    (C) Interest receivable, floor brokerage receivable, commissions 
receivable from other brokers or dealers (other than syndicate profits 
which shall be treated as required in paragraph (c)(2)(iv)(E) of this 
section), mutual fund concessions receivable and management fees 
receivable from registered investment companies, all of which 
receivables are outstanding longer than thirty (30) days from the date 
they arise; dividends receivable outstanding longer than thirty (30) 
days from the payable date; good faith deposits arising in connection 
with a non-municipal securities underwriting, outstanding longer than 
eleven (11) business days from the settlement of

[[Page 320]]

the underwriting with the issuer; receivables due from participation in 
municipal securities underwriting syndicates and municipal securities 
joint underwriting accounts which are outstanding longer than sixty (60) 
days from settlement of the underwriting with the issuer and good faith 
deposits arising in connection with an underwriting of municipal 
securities, outstanding longer than sixty (60) days from settlement of 
the underwriting with the issuer; and receivables due from participation 
in municipal securities secondary trading joint accounts, which are 
outstanding longer than sixty (60) days from the date all securities 
have been delivered by the account manager to the account members;
    (D) Insurance Claims. Insurance claims which, after seven (7) 
business days from the date the loss giving rise to the claim is 
discovered, are not covered by an opinion of outside counsel that the 
claim is valid and is covered by insurance policies presently in effect; 
insurance claims which after twenty (20) business days from the date the 
loss giving rise to the claim is discovered and which are accompanied by 
an opinion of outside counsel described above, have not been 
acknowledged in writing by the insurance carrier as due and payable; and 
insurance claims acknowledged in writing by the carrier as due and 
payable outstanding longer than twenty (20) business days from the date 
they are so acknowledged by the carrier; and,
    (E) Other Deductions. All other unsecured receivables; all assets 
doubtful of collection less any reserves established therefor; the 
amount by which the market value of securities failed to receive 
outstanding longer than thirty (30) calendar days exceeds the contract 
value of such fails to receive, and the funds on deposit in a 
``segregated trust account'' in accordance with 17 CFR 270.27d-1 under 
the Investment Company Act of 1940, but only to the extent that the 
amount on deposit in such segregated trust account exceeds the amount of 
liability reserves established and maintained for refunds of charges 
required by sections 27(d) and 27(f) of the Investment Company Act of 
1940; Provided, That any amount deposited in the ``Special Reserve Bank 
Account for the Exclusive Benefit of Customers'' established pursuant to 
17 CFR 240.15c3-3 and clearing deposits shall not be so deducted.
    (F)(1) For purposes of this paragraph:
    (i) The term reverse repurchase agreement deficit shall mean the 
difference between the contract price for resale of the securities under 
a reverse repurchase agreement and the market value of those securities 
(if less than the contract price).
    (ii) The term repurchase agreement deficit shall mean the difference 
between the market value of securities subject to the repurchase 
agreement and the contract price for repurchase of the securities (if 
less than the market value of the securities).
    (iii) As used in paragraph (c)(2)(iv)(F)(1) of this section, the 
term contract price shall include accrued interest.
    (iv) Reverse repurchase agreement deficits and the repurchase 
agreement deficits where the counterparty is the Federal Reserve Bank of 
New York shall be disregarded.
    (2)(i) In the case of a reverse repurchase agreement, the deduction 
shall be equal to the reverse repurchase agreement deficit.
    (ii) In determining the required deductions under paragraph 
(c)(2)(iv)(F)(2)(i) of this section, the broker or dealer may reduce the 
reverse repurchase agreement deficit by:
    (A) Any margin or other deposits held by the broker or dealer on 
account of the reverse repurchase agreement;
    (B) Any excess market value of the securities over the contract 
price for resale of those securities under any other reverse repurchase 
agreement with the same party;
    (C) The difference between the contract price for resale and the 
market value of securities subject to repurchase agreements with the 
same party (if the market value of those securities is less than the 
contract price); and
    (D) Calls for margin, marks to the market, or other required 
deposits which are outstanding one business day or less.
    (3) (i) In the case of repurchase agreements, the deduction shall 
be:
    (A) The excess of the repurchase agreement deficit over 5 percent of 
the

[[Page 321]]

contract price for resale of United States Treasury Bills, Notes and 
Bonds, 10 percent of the contract price for the resale of securities 
issued or guaranteed as to principal or interest by an agency of the 
United States or mortgage related securities as defined in section 
3(a)(41) of the Act and 20 percent of the contract price for the resale 
of other securities and;
    (B) The excess of the aggregate repurchase agreement deficits with 
any one party over 25 percent of the broker or dealer's net capital 
before the application of paragraph (c)(2)(vi) of this section (less any 
deduction taken with respect to repurchase agreements with that party 
under paragraph (c)(2)(iv)(F)(3)(i)(A) of this section) or, if greater;
    (C) The excess of the aggregate repurchase agreement deficits over 
300 percent of the broker's or dealer's net capital before the 
application of paragraph (c)(2)(vi) of this section.
    (ii) In determining the required deduction under paragraph 
(c)(2)(iv)(F)(3)(i) of this section, the broker or dealer may reduce a 
repurchase agreement deficit by:
    (A) Any margin or other deposits held by the broker or dealer on 
account of a reverse repurchase agreement with the same party to the 
extent not otherwise used to reduce a reverse repurchase deficit;
    (B) The difference between the contract price and the market value 
of securities subject to other repurchase agreements with the same party 
(if the market value of those securities is less than the contract 
price) not otherwise used to reduce a reverse repurchase agreement 
deficit; and
    (C) Calls for margin, marks to the market, or other required 
deposits which are outstanding one business day or less to the extent 
not otherwise used to reduce a reverse repurchase agreement deficit.
    (G) Securities borrowed. 1 percent of the market value of securities 
borrowed collateralized by an irrevocable letter of credit.
    (H) Any receivable from an affiliate of the broker or dealer (not 
otherwise deducted from net worth) and the market value of any 
collateral given to an affiliate (not otherwise deducted from net worth) 
to secure a liability over the amount of the liability of the broker or 
dealer unless the books and records of the affiliate are made available 
for examination when requested by the representatives of the Commission 
or the Examining Authority for the broker or dealer in order to 
demonstrate the validity of the receivable or payable. The provisions of 
this subsection shall not apply where the affiliate is a registered 
broker or dealer, registered government securities broker or dealer or 
bank as defined in section 3(a)(6) of the Act or insurance company as 
defined in section 3(a)(19) of the Act or investment company registered 
under the Investment Company Act of 1940 or federally insured savings 
and loan association or futures commission merchant registered pursuant 
to the Commodity Exchange Act.
    (v)(A) Deducting the market value of all short securities 
differences (which shall include securities positions reflected on the 
securities record which are not susceptible to either count or 
confirmation) unresolved after discovery in accordance with the 
following schedule:

------------------------------------------------------------------------
                                                              Numbers of
                                                               business
                       Differences \1\                        days after
                                                               discovery
------------------------------------------------------------------------
25 percent..................................................           7
50 percent..................................................          14
75 percent..................................................          21
100 percent.................................................          28
------------------------------------------------------------------------
\1\ Percentage of market value of short securities differences.

    (B) Deducting the market value of any long securities differences, 
where such securities have been sold by the broker or dealer before they 
are adequately resolved, less any reserves established therefor;
    (C) The designated examining authority for a broker or dealer may 
extend the periods in (v)(A) of this section for up to 10 business days 
if it finds that exceptional circumstances warrant an extension.

                           Securities Haircuts

    (vi) Deducting the percentages specified in paragraphs (c)(2)(vi) 
(A) through (M) of this section (or the deductions prescribed for 
securities positions set forth in Appendix A (Sec. 240.15c3-1a) of

[[Page 322]]

the market value of all securities, money market instruments or options 
in the proprietary or other accounts of the broker or dealer.
    (A)(1) In the case of a security issued or guaranteed as to 
principal or interest by the United States or any agency thereof, the 
applicable percentages of the market value of the net long or short 
position in each of the categories specified below are:

                               Category 1

    (i) Less than 3 months to maturity--0 percent.
    (ii) 3 months but less than 6 months to maturity--\1/2\ of 1 
percent.
    (iii) 6 months but less than 9 months to maturity--\3/4\ of 1 
percent.
    (iv) 9 months but less than 12 months to maturity--1 percent.

                               Category 2

    (i) 1 year but less than 2 years to maturity--1\1/2\ percent.
    (ii) 2 years but less than 3 years to maturity--2 percent.

                               Category 3

    (i) 3 years but less than 5 years to maturity--3%.
    (ii) 5 years but less than 10 years to maturity--4%.

                               Category 4

    (i) 10 years but less than 15 years to maturity--4\1/2\%.
    (ii) 15 years but less than 20 years to maturity--5%.
    (iii) 20 years but less than 25 years to maturity--5\1/2\%.
    (iv) 25 years or more to maturity--6%.


Brokers or dealers shall compute a deduction for each category above as 
follows: Compute the deductions for the net long or short positions in 
each subcategory above. The deduction for the category shall be the net 
of the aggregate deductions on the long positions and the aggregate 
deductions on the short positions in each category plus 50% of the 
lesser of the aggregate deductions on the long or short positions.
    (2) A broker or dealer may elect to deduct, in lieu of the 
computation required under paragraph (c)(2)(vi)(A)(1) of this section, 
the applicable percentages of the market value of the net long or short 
positions in each of the subcategories specified in paragraph 
(c)(2)(vi)(A)(1) of this section.
    (3) In computing deductions under paragraph (c)(2)(vi)(A)(1) of this 
section, a broker or dealer may elect to exclude the market value of a 
long or short security from one category and a security from another 
category, Provided, That:
    (i) Such securities have maturity dates:
    (A) Between 9 months and 15 months and within 3 months of one 
another.
    (B) Between 2 years and 4 years and within 1 year of one another; or
    (C) Between 8 years and 12 years and within 2 years of one another.
    (ii) The net market value of the two excluded securities shall 
remain in the category of the security with the higher market value.
    (4) In computing deductions under paragraph (c)(2)(vi)(A)(1) of this 
section, a broker or dealer may include in the categories specified in 
paragraph (c)(2)(vi)(A)(1) of this section, long or short positions in 
securities issued by the United States or any agency thereof that are 
deliverable against long or short positions in futures contracts 
relating to Government securities, traded on a recognized contract 
market approved by the Commodity Futures Trading Commission, which are 
held in the proprietary or other accounts of the broker or dealer. The 
value of the long or short positions included in the categories shall be 
determined by the contract value of the futures contract held in the 
account. The provisions of Appendix B to Rule 15c3-1 (17 CFR 240.15c3-
1b) will in any event apply to the positions in futures contracts.
    (5) In the case of a Government securities dealer that reports to 
the Federal Reserve System, that transacts business directly with the 
Federal Reserve System, and that maintains at all times a minimum net 
capital of at least $50,000,000, before application of the deductions 
provided for in paragraph (c)(2)(vi) of this section, the deduction for 
a security issued or guaranteed as to principal or interest by the 
United States or any agency thereof shall be 75 percent of the deduction 
otherwise computed under paragraph (c)(2)(vi)(A) of this section.
    (B)(1) In the case of any municipal security which has a scheduled 
maturity at date of issue of 731 days or less and

[[Page 323]]

which is issued at par value and pays interest at maturity, or which is 
issued at a discount, and which is not traded flat or in default as to 
principal or interest, the applicable percentages of the market value on 
the greater of the long or short position in each of the categories 
specified below are:
    (i) Less than 30 days to maturity--0%.
    (ii) 30 days but less than 91 days to maturity--\1/8\ of 1%.
    (iii) 91 days but less than 181 days to maturity--\1/4\ of 1%.
    (iv) 181 days but less than 271 days to maturity--\3/8\ of 1%.
    (v) 271 days but less than 366 days to maturity--\1/2\ of 1%.
    (vi) 366 days but less than 456 days to maturity--\3/4\ of 1%.
    (vii) 456 days but less than 732 days to maturity--1%.
    (2) In the case of any municipal security, other than those 
specified in paragraph (c)(2)(vi)(B)(1), which is not traded flat or in 
default as to principal or interest, the applicable percentages of the 
market value of the greater of the long or short position in each of the 
categories specified below are:
    (i) Less than 1 year to maturity--1%.
    (ii) 1 year but less than 2 years to maturity--2%.
    (iii) 2 years but less than 3\1/2\ years to maturity--3%.
    (iv) 3\1/2\ years but less than 5 years to maturity--4%.
    (v) 5 years but less than 7 years to maturity--5%.
    (vi) 7 years but less than 10 years to maturity--5\1/2\%.
    (vii) 10 years but less than 15 years to maturity--6%.
    (viii) 15 years but less than 20 years to maturity--6\1/2\%.
    (ix) 20 years or more to maturity--7%.
    (C) Canadian Debt Obligations. In the case of any security issued or 
unconditionally guaranteed as to principal and interest by the 
Government of Canada, the percentages of market value to be deducted 
shall be the same as in paragraph (A) of this section.
    (D)(1) In the case of redeemable securities of an investment company 
registered under the Investment Company Act of 1940, which assets 
consist of cash or money market instruments and which is generally known 
as a ``money market fund,'' the deduction shall be 2% of the market 
value of the greater of the long or short position.
    (2) In the case of redeemable securities of an investment company 
registered under the Investment Company Act of 1940, which assets are in 
the form of cash or securities or money market instruments of any 
maturity which are described in paragraph (c)(2)(vi) (A) through (C) or 
(E) of this section, the deduction shall be 7% of the market value of 
the greater of the long or short positions.
    (3) In the case of redeemable securities of an investment company 
registered under the Investment Company Act of 1940, which assets are in 
the form of cash or securities or money market instruments which are 
described in paragraphs (c)(2)(vi) (A) through (C) or (E) and (F) of 
this section, the deduction shall be 9% of the market value of the long 
or short position.
    (E) Commercial paper, bankers acceptances and certificates of 
deposit. In the case of any short term promissory note or evidence of 
indebtedness which has a fixed rate of interest or is sold at a 
discount, and which has a maturity date at date of issuance not 
exceeding nine months exclusive of days of grace, or any renewal 
thereof, the maturity of which is likewise limited and is rated in one 
of the three highest categories by at least two of the nationally 
recognized statistical rating organizations (Provided, That effective 
January 1, 1977, and until September 1, 1977, this paragraph shall be 
deemed to require only one such rating), or in the case of any 
negotiable certificates of deposit or bankers acceptance or similar type 
of instrument issued or guaranteed by any bank as defined in section 
3(a)(6) of the Securities Exchange Act of 1934, the applicable 
percentage of the market value of the greater of the long or short 
position in each of the categories specified below are:
    (1) Less than 30 days to maturity--0 percent.
    (2) 30 days but less than 91 days to maturity \1/8\ of 1 percent.
    (3) 91 days but less than 181 days to maturity \1/4\ of 1 percent.

[[Page 324]]

    (4) 181 days but less than 271 days to maturity \3/8\ of 1 percent.
    (5) 271 days but less than 1 year to maturity \1/2\ of 1 percent; 
and
    (6) With respect to any negotiable certificate of deposit or bankers 
acceptance or similar type of instrument issued or guaranteed by any 
bank, as defined above, having 1 year or more to maturity, the deduction 
shall be on the greater of the long or short position and shall be the 
same percentage as that prescribed in paragraph (c)(2)(vi)(A) of this 
section.
    (F) (1) Nonconvertible debt securities. In the case of 
nonconvertible debt securities having a fixed interest rate and a fixed 
maturity date and which are not traded flat or in default as to 
principal or interest and which are rated in one of the four highest 
rating categories by at least two of the nationally recognized 
statistical rating organizations, the applicable percentages of the 
market value of the greater of the long or short position in each of the 
categories specified below are:
    (i) Less than 1 year to maturity--2%
    (ii) 1 year but less than 2 years to maturity--3%
    (iii) 2 years but less than 3 years to maturity--5%
    (iv) 3 years but less than 5 years to maturity--6%
    (v) 5 years but less than 10 years to maturity--7%
    (vi) 10 years but less than 15 years to maturity--7\1/2\%
    (vii) 15 years but less than 20 years to maturity--8%
    (viii) 20 years but less than 25 years to maturity--8\1/2\%
    (ix) 25 years or more to maturity--9%
    (2) A broker or dealer may elect to exclude from the above 
categories long or short positions that are hedged with short or long 
positions in securities issued by the United States or any agency 
thereof or nonconvertible debt securities having a fixed interest rate 
and a fixed maturity date and which are not traded flat or in default as 
to principal or interest and which are rated in one of the four highest 
rating categories by at least two of the nationally recognized 
statistical rating organizations if such securities have maturity dates:
    (i) Less than five years and within 6 months of each other;
    (ii) Between 5 years and 10 years and within 9 months of each other;
    (iii) Between 10 years and 15 years and within 2 years of each 
other; or
    (iv) 15 years or more and within 10 years of each other.


The broker-dealer shall deduct the amounts specified in paragraphs 
(c)(2)(vi)(F) (3) and (4) of this section.
    (3) With respect to those positions described in paragraph 
(c)(2)(vi)(F)(2) of this section that include a long or short position 
in securities issued by the United States or any agency thereof, the 
broker or dealer shall exclude the hedging short or long United States 
or agency securities position from the applicable haircut category under 
paragraph (c)(2)(vi)(A) of this section. The broker or dealer shall 
deduct the percentage of the market value of the hedged long or short 
position in nonconvertible debt securities as specified in each of the 
categories below:
    (i) Less than 5 years to maturity--1\1/2\%
    (ii) 5 years but less than 10 years to maturity--2\1/2\%
    (iii) 10 years but less than 15 years to maturity-- 2\3/4\%
    (iv) 15 years or more to maturity--3%
    (4) With respect to those positions described in paragraph 
(c)(2)(vi)(F)(2) of this section that include offsetting long and short 
positions in nonconvertible debt securities, the broker or dealer shall 
deduct a percentage of the market value of the hedged long or short 
position in nonconvertible debt securities as specified in each of the 
categories below:
    (i) Less than 5 years to maturity--1\3/4\%
    (ii) 5 years but less than 10 years to maturity--3%
    (iii) 10 years but less than 15 years to maturity--3\1/4\%
    (iv) 15 years or more to maturity--3\1/2\%
    (5) In computing deductions under paragraph (c)(2)(vi)(F)(3) of this 
section, a broker or dealer may include in the categories specified in 
paragraph (c)(2)(vi)(F)(3) of this section, long or short positions in 
securities issued by

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the United States or any agency thereof that are deliverable against 
long or short positions in futures contracts relating to Government 
securities, traded on a recognized contract market approved by the 
Commodity Futures Trading Commission, which are held in the proprietary 
or other accounts of the broker or dealer. The value of the long or 
short positions included in the categories shall be determined by the 
contract value of the futures contract held in the account.
    (6) The provisions of Appendix B to Rule 15c3-1 (17 CFR 240.15c3-1b) 
will in any event apply to the positions in futures contracts.
    (G) Convertible Debt Securities. In the case of a debt security not 
in default which has a fixed rate of interest and a fixed maturity date 
and which is convertible into an equity security, the deductions shall 
be as follows: If the market value is 100 percent or more of the 
principal amount, the deduction shall be determined as specified in 
paragraph (c)(2)(vi)(J) of this section; if the market value is less 
than the principal amount, the deduction shall be determined as 
specified in paragraph (F) of this section; if such securities are rated 
as required of paragraph (F) of this section;
    (H) In the case of cumulative, nonconvertible preferred stock 
ranking prior to all other classes of stock of the same issuer, which is 
rated in one of the four highest rating categories by at least two of 
the nationally recognized statistical rating organizations and which are 
not in arrears as to dividends, the deduction shall be 10% of the market 
value of the greater of the long or short position.
    (I) [Reserved]

                          All Other Securities

    (J) In the case of all securities or evidences of indebtedness, 
except those described in Appendix A, Sec. 240.15c3-1a, which are not 
included in any of the percentage categories enumerated in paragraphs 
(c)(2)(vi) (A) through (H) of this section or paragraph 
(c)(2)(vi)(K)(ii) of this section, the deduction shall be 15 percent of 
the market value of the greater of the long or short positions and to 
the extent the market value of the lesser of the long or short positions 
exceeds 25 percent of the market value of the greater of the long or 
short positions, the percentage deduction on such excess shall be 15 
percent of the market value of such excess. No deduction need be made in 
the case of:
    (1) A security that is convertible into or exchangeable for another 
security within a period of 90 days, subject to no conditions other than 
the payment of money, and the other securities into which such security 
is convertible or for which it is exchangeable, are short in the 
accounts of such broker or dealer; or
    (2) A security that has been called for redemption and that is 
redeemable within 90 days.
    (K) Securities with a Limited Market. In the case of securities 
(other than exempted securities, nonconvertible debt securities, and 
cumulative nonconvertible preferred stock) which are not: (1) Traded on 
a national securities exchange; (2) designated as ``OTC Margin Stock'' 
pursuant to Regulation T under the Securities Exchange Act of 1934; (3) 
quoted on ``NASDAQ''; or (4) redeemable shares of investment companies 
registered under the Investment Company Act of 1940, the deduction shall 
be as follows:
    (i) In the case where there are regular quotations in an inter-
dealer quotations system for the securities by three or more independent 
market-makers (exclusive of the computing broker or dealer) and where 
each such quotation represents a bona fide offer to brokers or dealers 
to both buy and sell in reasonable quantities at stated prices, or where 
a ready market as defined in paragraph (c)(11) (ii) is deemed to exist, 
the deduction shall be determined in accordance with paragraph 
(c)(2)(vi)(J) of this section;
    (ii) In the case where there are regular quotations in an inter-
dealer quotations system for the securities by only one or two 
independent market-makers (exclusive of the computing broker or dealer) 
and where each such quotation represents a bona fide offer to brokers or 
dealers both to buy and sell in reasonable quantities, at stated prices, 
the deduction on both the long and short position shall be 40 percent.

[[Page 326]]

    (L) Where a broker or dealer demonstrates that there is sufficient 
liquidity for any securities long or short in the proprietary or other 
accounts of the broker or dealer which are subject to a deduction 
required by paragraph (c)(2)(vi)(K) of this section, such deduction, 
upon a proper showing to the Examining Authority for the broker or 
dealer, may be appropriately decreased, but in no case shall such 
deduction be less than that prescribed in paragraph (c)(2)(vi)(J) of 
this section.

                           Undue Concentration

    (M)(1) In the case of money market instruments, or securities of a 
single class or series of an issuer, including any option written, 
endorsed or held to purchase or sell securities of such a single class 
or series of an issuer (other than ``exempted securities'' and 
redeemable securities of an investment company registered pursuant to 
the Investment Company Act of 1940), and securities underwritten (in 
which case the deduction provided for herein shall be applied after 11 
business days), which are long or short in the proprietary or other 
accounts of a broker or dealer, including securities that are collateral 
to secured demand notes defined in Appendix D, Sec. 240.15c3-1d, and 
that have a market value of more than 10 percent of the ``net capital'' 
of a broker or dealer before the application of paragraph (c)(2)(vi) of 
this section or Appendix A, Sec. 240.15c3-1a, there shall be an 
additional deduction from net worth and/or the Collateral Value for 
securities collateralizing a secured demand note defined in Appendix D, 
Sec. 240.15c3-1d, equal to 50 percent of the percentage deduction 
otherwise provided by this paragraph (c)(2)(vi) of this section or 
Appendix A, Sec. 240.15c3-1a, on that portion of the securities 
position in excess of 10 percent of the ``net capital'' of the broker or 
dealer before the application of paragraph (c)(2)(vi) of this section 
and Appendix A, Sec. 240.15c3-1a. In the case of securities described 
in paragraph (c)(2)(vi)(J), the additional deduction required by this 
paragraph (c)(2)(vi)(M) shall be 15 percent.
    (2) This paragraph (c)(2)(vi)(M) shall apply notwithstanding any 
long or short position exemption provided for in paragraph (c)(2)(vi)(J) 
of this section (except for long or short position exemptions arising 
out of the first proviso to paragraph (c)(2)(vi)(J)) and the deduction 
on any such exempted position shall be 15 percent of that portion of the 
securities position in excess of 10 percent of the broker or dealer's 
net capital before the application of paragraph (c)(2)(vi) of this 
section and Appendix A, Sec. 240.15c3-1a.
    (3) This paragraph (c)(2)(vi)(M) shall be applied to an issue of 
equity securities only on the market value of such securities in excess 
of $10,000 or the market value of 500 shares, whichever is greater, or 
$25,000 in the case of a debt security.
    (4) This paragraph (c)(2)(vi)(M) will be applied to an issue of 
municipal securities having the same security provisions, date of issue, 
interest rate, day, month and year of maturity only if such securities 
have a market value in excess of $500,000 in bonds ($5,000,000 in notes) 
or 10 percent of tentative net capital, whichever is greater, and are 
held in position longer than 20 business days from the date the 
securities are received by the syndicate manager from the issuer.
    (5) Any specialist that is subject to a deduction required by this 
paragraph (c)(2)(vi)(M), respecting its specialty stock, that can 
demonstrate to the satisfaction of the Examining Authority for such 
broker or dealer that there is sufficient liquidity for such 
specialist's specialty stock and that such deduction need not be applied 
in the public interest for the protection of investors, may upon a 
proper showing to such Examining Authority have such undue concentration 
deduction appropriately decreased, but in no case shall the deduction 
prescribed in paragraph (c)(2)(vi)(J) of this section above be reduced. 
Each such Examining Authority shall make and preserve for a period of 
not less than 3 years a record of each application granted pursuant to 
this paragraph (c)(2)(vi)(M)(5), which shall contain a summary of the 
justification for the granting of the application.
    (N) Any specialist that limits its securities business to that of a 
specialist (except for an occasional non-specialist related securities 
transaction for its own account), that does not transact a business in 
securities with other than a

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broker or dealer registered with the Commission under section 15 or 15C 
of the Act or a member of a national securities exchange, and that is 
not a clearing member of The Options Clearing Corporation need not 
deduct from net worth in computing net capital those deductions, as to 
its specialty securities, set forth in paragraph (c)(2)(vi) of this 
section or Appendix A to this section, except for paragraph (e) of this 
section limiting withdrawals of equity capital and Appendix D to this 
section relating to satisfactory subordination agreements. As to a 
specialist that is solely an options specialist, in paragraph (e) the 
term ``net capital'' shall be deemed to mean ``net capital before the 
application of paragraph (c)(2)(vi) of this section or Appendix A to 
this section'' and ``excess net capital'' shall be deemed to be the 
amount of net capital before the application of paragraph (c)(2)(vi) of 
this section or Appendix A to this section in excess of the amount of 
net capital required under paragraph (a) of this section. In reports 
filed pursuant to Sec. 240.17a-5 and in making the record required by 
Sec. 240.17a-3(a)(11) each specialists shall include the deductions 
that would otherwise have been required by paragraph (c)(2)(vi) of this 
section or Appendix A to this section in the absence of this paragraph 
(c)(2)(vi)(N).

    (vii) Non-Marketable Securities. Deducting 100 percent of the 
carrying value in the case of securities or evidence of indebtedness in 
the proprietary or other accounts of the broker or dealer, for which 
there is no ready market, as defined in paragraph (c)(11) of this 
section, and securities, in the proprietary or other accounts of the 
broker or dealer, which cannot be publicly offered or sold because of 
statutory, regulatory or contractual arrangements or other restrictions.

                      Open Contractual Commitments

    (viii) Deducting, in the case of a broker or dealer that has open 
contractual commitments (other than those option positions subject to 
Appendix A, Sec. 240.15c3-1a), the respective deductions as specified 
in paragraph (c)(2)(vi) of this section or Appendix B, Sec. 240.15c3-
1b, from the value (which shall be the market value whenever there is a 
market) of each net long and each net short position contemplated by any 
open contractual commitment in the proprietary or other accounts of the 
broker or dealer.

    (A) The deduction for contractual commitments in those securities 
that are treated in paragraph (c)(2)(vi)(J) of this section shall be 30 
percent unless the class and issue of the securities subject to the open 
contractual commitment deduction are listed for trading on a national 
securities exchange or are designated as NASDAQ National Market System 
Securities.

    (B) A broker or dealer that maintains in excess of $250,000 of net 
capital may add back to net worth up to $150,000 of any deduction 
computed under this paragraph (c)(2)(viii)(B).

    (C) The deduction with respect to any single commitment shall be 
reduced by the unrealized profit in such commitment, in an amount not 
greater than the deduction provided for by this paragraph (or increased 
by the unrealized loss), in such commitment, and in no event shall an 
unrealized profit on any closed transactions operate to increase net 
capital.

    (ix) Deducting from the contract value of each failed to deliver 
contract that is outstanding five business days or longer (21 business 
days or longer in the case of municipal securities) the percentages of 
the market value of the underlying security that would be required by 
application of the deduction required by paragraph (c)(2)(vi) of this 
section. Such deduction, however, shall be increased by any excess of 
the contract price of the failed to deliver contract over the market 
value of the underlying security or reduced by any excess of the market 
value of the underlying security over the contract value of the failed 
to deliver contract, but not to exceed the amount of such deduction. The 
designated examining authority for the broker or dealer may, upon 
application of the broker or dealer, extend for a period up to 5 
business days, any period herein specified when

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it is satisfied that the extension is warranted. The designated 
examining authority upon expiration of the extension may extend for one 
additional period of up to 5 business days, any period herein specified 
when it is satisfied that the extension is warranted.

   Brokers or Dealers Carrying Accounts of Listed Options Specialists

    (x)(A) With respect to any transaction of a specialist in listed 
options, who is either not otherwise subject to the provisions of this 
section or is described in paragraph (c)(2)(vi)(N) of this section, for 
whose specialist account a broker or dealer acts as a guarantor, 
endorser, or carrying broker or dealer, such broker or dealer shall 
adjust its net worth by deducting as of noon of each business day the 
amounts computed as of the prior business day pursuant to Sec. 
240.15c3-1a. The required deductions may be reduced by any liquidating 
equity that exists in such specialist's market-maker account as of that 
time and shall be increased to the extent of any liquidating deficit in 
such account. Noon shall be determined according to the local time where 
the broker or dealer is headquartered. In no event shall excess equity 
in the specialist's market-maker account result in an increase of the 
net capital of any such guarantor, endorser, or carrying broker or 
dealer.
    (B) Definitions. (1) The term listed option shall mean any option 
traded on a registered national securities exchange or automated 
facility of a registered national securities association.
    (2) For purposes of this section, the equity in an individual 
specialist's market-maker account shall be computed by:
    (i) Marking all securities positions long or short in the account to 
their respective current market values;
    (ii) Adding (deducting in the case of a debit balance) the credit 
balance carried in such specialist's market-maker account; and
    (iii) Adding (deducting in the case of short positions) the market 
value of positions long in such account.
    (C) No guarantor, endorser, or carrying broker or dealer shall 
permit the sum of the deductions required pursuant to Sec. 240.15c3-1a 
in respect of all transactions in specialists' market-maker accounts 
guaranteed, endorsed, or carried by such broker or dealer to exceed 
1,000 percent of such broker's or dealer's net capital as defined in 
Sec. 240.15c3-1(c)(2) for any period exceeding three business days. If 
at any time such sum exceeds 1,000 percent of such broker's or dealer's 
net capital, then the broker or dealer shall:
    (1) Immediately transmit telegraphic or facsimile notice of such 
event to the Division of Market Regulation in the headquarters office of 
the Commission in Washington, D.C., to the district or regional office 
of the Commission for the district or region in which the broker or 
dealer maintains its principal place of business, and to its examining 
authority designated pursuant to section 17(d) of the Act (15 U.S.C. 
78q(d)) (``Designated Examining Authority''); and
    (2) Be subject to the prohibitions against withdrawal of equity 
capital set forth in Sec. 240.15c3-1(e) and to the prohibitions against 
reduction, prepayment, and repayment of subordination agreements set 
forth in paragraph (b)(11) of Sec. 240.15c3-1d, as if such broker or 
dealer's net capital were below the minimum standards specified by each 
of those paragraphs.
    (D) If at any time there is a liquidating deficit in a specialist's 
market-maker account, then the broker or dealer guaranteeing, endorsing, 
or carrying listed options transactions in such specialist's market-
maker account may not extend any further credit in that account, and 
shall take steps to liquidate promptly existing positions in the 
account. This paragraph shall not prevent the broker or dealer from, 
upon approval by the broker's or dealer's Designated Examining 
Authority, entering into hedging positions in the specialist's market-
maker account. The broker or dealer also shall transmit telegraphic or 
facsimile notice of the deficit and its amount by the close of business 
of the following business day to its Designated Examining Authority and 
the Designated Examining Authority of the specialist, if different from 
its own.
    (E) Upon written application to the Commission by the specialist and 
the

[[Page 329]]

broker or dealer guaranteeing, endorsing, or carrying options 
transactions in such specialist's market-maker account, the Commission 
may approve upon specified terms and conditions lesser adjustments to 
net worth than those specified in Sec. 240.15c3-1a.
    (xi) Brokers or Dealers Carrying Specialists or Market Makers 
Accounts. With respect to a broker or dealer who carries a market maker 
or specialist account, or with respect to any transaction in options 
listed on a registered national securities exchange for which a broker 
or dealer acts as a guarantor or endorser of options written by a 
specialist in a specialist account, the broker or dealer shall deduct, 
for each account carried or for each class or series of options 
guaranteed or endorsed, any deficiency in collateral required by 
paragraph (a)(6) of this section.
    (xii) Deduction from net worth for certain undermargined accounts. 
Deducting the amount of cash required in each customer's or non-
customer's account to meet the maintenance margin requirements of the 
Examining Authority for the broker or dealer, after application of calls 
for margin, marks to the market or other required deposits which are 
outstanding 5 business days or less.
    (xiii) Deduction from net worth for indebtedness collateralized by 
exempted securities. Deducting, at the option of the broker or dealer, 
in lieu of including such amounts in aggregate indebtedness, 4 percent 
of the amount of any indebtedness secured by exempted securities or 
municipal securities if such indebtedness would otherwise be includable 
in aggregate indebtedness.

                           Exempted Securities

    (3) The term exempted securities shall mean those securities deemed 
exempted securities by section 3(a)(12) of the Securities Exchange Act 
of 1934 and rules thereunder.

                         Contractual Commitments

    (4) The term contractual commitments shall include underwriting, 
when issued, when distributed and delayed delivery contracts, the 
writing or endorsement of puts and calls and combinations thereof, 
commitments in foreign currencies, and spot (cash) commodities 
contracts, but shall not include uncleared regular way purchases and 
sales of securities and contracts in commodities futures. A series of 
contracts of purchase or sale of the same security conditioned, if at 
all, only upon issuance may be treated as an individual commitment.

                           Adequately Secured

    (5) Indebtedness shall be deemed to be adequately secured within the 
meaning of this section when the excess of the market value of the 
collateral over the amount of the indebtedness is sufficient to make the 
loan acceptable as a fully secured loan to banks regularly making 
secured loans to brokers or dealers.

                                Customer

    (6) The term customer shall mean any person from whom, or on whose 
behalf, a broker or dealer has received, acquired or holds funds or 
securities for the account of such person, but shall not include a 
broker or dealer or a registered municipal securities dealer, or a 
general, special or limited partner or director or officer of the broker 
or dealer, or any person to the extent that such person has a claim for 
property or funds which by contract, agreement, or understanding, or by 
operation of law, is part of the capital of the broker or dealer. 
Provided, however, That the term ``customer'' shall also include a 
broker or dealer, but only insofar as such broker or dealer maintains a 
special omnibus account carried with another broker or dealer in 
compliance with 12 CFR 220.4(b) of Regulation T under the Securities 
Exchange Act of 1934.

                              Non-Customer

    (7) The term non-customer means a broker or dealer, registered 
municipal securities dealer, general partner, limited partner, officer, 
director and persons to the extent their claims are subordinated to the 
claims of creditors of the broker or dealer.

                              Market Maker

    (8) The term market maker shall mean a dealer who, with respect to a 
particular security, (i) regularly publishes

[[Page 330]]

bona fide, competitive bid and offer quotations in a recognized 
interdealer quotation system; or (ii) furnishes bona fide competitive 
bid and offer quotations on request; and, (iii) is ready, willing and 
able to effect transactions in reasonable quantities at his quoted 
prices with other brokers or dealers.

                      Promptly Transmit and Deliver

    (9) A broker or dealer is deemed to ``promptly transmit'' all funds 
and to ``promptly deliver'' all securities within the meaning of 
paragraphs (a)(2)(i) and (a)(2)(v) of this section where such 
transmission or delivery is made no later than noon of the next business 
day after the receipt of such funds or securities; provided, however, 
that such prompt transmission or delivery shall not be required to be 
effected prior to the settlement date for such transaction.

                            Promptly Forward

    (10) A broker or dealer is deemed to ``promptly forward'' funds or 
securities within the meaning of paragraph (a)(2)(i) of this section 
only when such forwarding occurs no later than noon of the next business 
day following receipt of such funds or securities.

                              Ready Market

    (11)(i) The term ready market shall include a recognized established 
securities market in which there exists independent bona fide offers to 
buy and sell so that a price reasonably related to the last sales price 
or current bona fide competitive bid and offer quotations can be 
determined for a particular security almost instantaneously and where 
payment will be received in settlement of a sale at such price within a 
relatively short time conforming to trade custom.
    (ii) A ready market shall also be deemed to exist where securities 
have been accepted as collateral for a loan by a bank as defined in 
section 3(a)(6) of the Securities Exchange Act of 1934 and where the 
broker or dealer demonstrates to its Examining Authority that such 
securities adequately secure such loans as that term is defined in 
paragraph (c)(5) of this section.

                           Examining Authority

    (12) The term Examining Authority of a broker or dealer shall mean 
for the purposes of 17 CFR 240.15c3-1 and 240.15c3-1a-d the national 
securities exchange or national securities association of which the 
broker or dealer is a member or, if the broker or dealer is a member of 
more than one such self-regulatory organization, the organization 
designated by the Commission as the Examining Authority for such broker 
or dealer, or if the broker or dealer is not a member of any such self-
regulatory organization, the Regional or District Office of the 
Commission where such broker or dealer has its principal place of 
business.

                                 Equity

    (13) [Reserved]
    (14) The term municipal securities shall mean those securities 
included within the definition of ``municipal securities'' in section 
3(a)(29) of the Securities Exchange Act of 1934.
    (15) The term tentative net capital shall mean the net capital of a 
broker or dealer before deducting the securities haircuts computed 
pursuant to paragraph (c)(2)(vi) of this section and the charges on 
inventory computed pursuant to Appendix B to this section (Sec. 
240.15c3-1b). However, for purposes of paragraph (a)(5) of this section, 
the term tentative net capital means the net capital of an OTC 
derivatives dealer before deducting the charges for market and credit 
risk as computed pursuant to Appendix F to this section (Sec. 240.15c3-
1f) or paragraph (c)(2)(vi) of this section, if applicable, and 
increased by the balance sheet value (including counterparty net 
exposure) resulting from transactions in eligible OTC derivative 
instruments which would otherwise be deducted by virtue of paragraph 
(c)(2)(iv) of this section.
    (d) Debt-equity requirements. No broker or dealer shall permit the 
total of outstanding principal amounts of its satisfactory subordination 
agreements (other than such agreements which qualify under this 
paragraph (d) as equity capital) to exceed 70 percent of its debt-equity 
total, as hereinafter defined, for a period in excess of 90 days or for 
such longer period which the

[[Page 331]]

Commission may, upon application of the broker or dealer, grant in the 
public interest or for the protection of investors. In the case of a 
corporation, the debt-equity total shall be the sum of its outstanding 
principal amounts of satisfactory subordination agreements, par or 
stated value of capital stock, paid in capital in excess of par, 
retained earnings, unrealized profit and loss or other capital accounts. 
In the case of a partnership, the debt-equity total shall be the sum of 
its outstanding principal amounts of satisfactory subordination 
agreements, capital accounts of partners (exclusive of such partners' 
securities accounts) subject to the provisions of paragraph (e) of this 
section, and unrealized profit and loss. In the case of a sole 
proprietorship, the debt-equity total shall include the sum of its 
outstanding principal amounts of satisfactory subordination agreements, 
capital accounts of the sole proprietorship and unrealized profit and 
loss. Provided, however, That a satisfactory subordination agreement 
entered into by a partner or stockholder which has an initial term of at 
least three years and has a remaining term of not less than 12 months 
shall be considered equity for the purposes of this paragraph (d) if:
    (1) It does not have any of the provisions for accelerated maturity 
provided for by paragraphs (b)(9)(i), (10)(i) or (10)(ii) of Appendix 
(D) (17 CFR 240.15c3-1d) and is maintained as capital subject to the 
provisions restricting the withdrawal thereof required by paragraph (e) 
of this section or
    (2) The partnership agreement provides that capital contributed 
pursuant to a satisfactory subordination agreement as defined in 
Appendix (D) (17 CFR 240.15c3-1d) shall in all respects be partnership 
capital subject to the provisions restricting the withdrawal thereof 
required by paragraph (e) of this section.
    (e)(1) Notice provisions relating to limitations on the withdrawal 
of equity capital. No equity capital of the broker or dealer or a 
subsidiary or affiliate consolidated pursuant to appendix C (17 CFR 
240.15c3-1c) may be withdrawn by action of a stockholder or a partner or 
by redemption or repurchase of shares of stock by any of the 
consolidated entities or through the payment of dividends or any similar 
distribution, nor may any unsecured advance or loan be made to a 
stockholder, partner, sole proprietor, employee or affiliate without 
written notice given in accordance with paragraph (e)(1)(iv) of this 
section:
    (i) Two business days prior to any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 30 percent of the broker or 
dealer's excess net capital. A broker or dealer, in an emergency 
situation, may make withdrawals, advances or loans that on a net basis 
exceed 30 percent of the broker or dealer's excess net capital in any 30 
calendar day period without giving the advance notice required by this 
paragraph, with the prior approval of its Examining Authority. Where a 
broker or dealer makes a withdrawal with the consent of its Examining 
Authority, it shall in any event comply with paragraph (e)(1)(ii) of 
this section; or
    (ii) Two business days after any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 20 percent of the broker or 
dealer's excess net capital.
    (iii) This paragraph (e)(1) does not apply to:
    (A) Securities or commodities transactions in the ordinary course of 
business between a broker or dealer and an affiliate where the broker or 
dealer makes payment to or on behalf of such affiliate for such 
transaction and then receives payment from such affiliate for the 
securities or commodities transaction within two business days from the 
date of the transaction; or
    (B) Withdrawals, advances or loans which in the aggregate in any 
thirty calendar day period, on a net basis, equal $500,000 or less.
    (iv) Each required notice shall be effective when received by the 
Commission in Washington, DC, the regional or district office of the 
Commission for the region or district in which the broker or dealer has 
its principal place of business, the broker or dealer's Examining 
Authority and the Commodity

[[Page 332]]

Futures Trading Commission if such broker or dealer is registered with 
that Commission.
    (2) Limitations on Withdrawal of equity capital. No equity capital 
of the broker or dealer or a subsidiary or affiliate consolidated 
pursuant to appendix C (17 CFR 240.15c3-1c) may be withdrawn by action 
of a stockholder or a partner or by redemption or repurchase of shares 
of stock by any of the consolidated entities or through the payment of 
dividends or any similar distribution, nor may any unsecured advance or 
loan be made to a stockholder, partner, sole proprietor, employee or 
affiliate, if after giving effect thereto and to any other such 
withdrawals, advances or loans and any Payments of Payment Obligations 
(as defined in appendix D (17 CFR 240.15c3-1d)) under satisfactory 
subordination agreements which are scheduled to occur within 180 days 
following such withdrawal, advance or loan if:
    (i) The broker or dealer's net capital would be less than 120 
percent of the minimum dollar amount required by paragraph (a) of this 
section;
    (ii) The broker-dealer is registered as a futures commission 
merchant, its net capital would be less than 7 percent of the funds 
required to be segregated pursuant to the Commodity Exchange Act and the 
regulations thereunder (less the market value of commodity options 
purchased by option customers on or subject to the rules of a contract 
market, each such deduction not to exceed the amount of funds in the 
option customer's account);
    (iii) The broker-dealer's net capital would be less than 25 percent 
of deductions from net worth in computing net capital required by 
paragraphs (c)(2)(vi), (f) and appendix A, of this section, unless the 
broker or dealer has the prior approval of the Commission to make such 
withdrawal;
    (iv) The total outstanding principal amounts of satisfactory 
subordination agreements of the broker or dealer and any subsidiaries or 
affiliates consolidated pursuant to appendix C (17 CFR 240.15c3-1c) 
(other than such agreements which qualify as equity under paragraph (d) 
of this section) would exceed 70% of the debt-equity total as defined in 
paragraph (d) of this section;
    (v) The broker or dealer is subject to the aggregate indebtedness 
limitations of paragraph (a) of this section, the aggregate indebtedness 
of any of the consolidated entities exceeds 1000 percent of its net 
capital; or
    (vi) The broker or dealer is subject to the alternative net capital 
requirement of paragraph (f) of this section, its net capital would be 
less than 5 percent of aggregate debit items computed in accordance with 
17 CFR 240.15c3-3a.
    (3)(i) Temporary Restrictions on Withdrawal of Net Capital. The 
Commission may by order restrict, for a period up to twenty business 
days, any withdrawal by the broker or dealer of equity capital or 
unsecured loan or advance to a stockholder, partner, sole proprietor, 
employee or affiliate if such withdrawal, advance or loan:
    (A) When aggregated with all other withdrawals, advances or loans on 
a net basis during a 30 calendar day period exceeds 30 percent of the 
broker or dealer's excess net capital; and
    (B) The Commission, based on the facts and information available, 
concludes that the withdrawal, advance or loan may be detrimental to the 
financial integrity of the broker or dealer, or may unduly jeopardize 
the broker or dealer's ability to repay its customer claims or other 
liabilities which may cause a significant impact on the markets or 
expose the customers or creditors of the broker or dealer to loss 
without taking into account the application of the Securities Investor 
Protection Act.
    (ii) An order temporarily prohibiting the withdrawal of capital 
shall be rescinded if the Commission determines that the restriction on 
capital withdrawal should not remain in effect. The hearing will be held 
within two business days from the date of the request in writing by the 
broker or dealer.
    (4)(i) Miscellaneous provisions. Excess net capital is that amount 
in excess of the amount required under paragraph (a) of this section. 
For the purposes of paragraphs (e)(1) and (e)(2) of this section, a 
broker or dealer may use the amount of excess net capital and deductions 
required under paragraphs

[[Page 333]]

(c)(2)(vi), (f) and appendix A of this section reported in its most 
recently required filed Form X-17A-5 for the purposes of calculating the 
effect of a projected withdrawal, advance or loan relative to excess net 
capital or deductions. The broker or dealer must assure itself that the 
excess net capital or the deductions reported on the most recently 
required filed Form X-17A-5 have not materially changed since the time 
such report was filed.
    (ii) The term equity capital includes capital contributions by 
partners, par or stated value of capital stock, paid-in capital in 
excess of par, retained earnings or other capital accounts. The term 
equity capital does not include securities in the securities accounts of 
partners and balances in limited partners' capital accounts in excess of 
their stated capital contributions.
    (iii) Paragraphs (e)(1) and (e)(2) of this section shall not 
preclude a broker or dealer from making required tax payments or 
preclude the payment to partners of reasonable compensation, and such 
payments shall not be included in the calculation of withdrawals, 
advances, or loans for purposes of paragraphs (e)(1) and (e)(2) of this 
section.
    (iv) For the purpose of this paragraph (e) of this section, any 
transaction between a broker or dealer and a stockholder, partner, sole 
proprietor, employee or affiliate that results in a diminution of the 
broker or dealer's net capital shall be deemed to be an advance or loan 
of net capital.

(Secs. 15(c)(3), 17(a) and 23(a), 15 U.S.C. 78o(c)(3), 78q(a), and 
78w(a))

[40 FR 29799, July 16, 1975]

    Editorial Note: For Federal Register citations affecting Sec. 
240.15c3-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 240.15c3-1a  Options (Appendix A to 17 CFR 240.15c3-1).

    (a) Definitions. (1) The term unlisted option shall mean any option 
not included in the definition of listed option provided in paragraph 
(c)(2)(x) of Sec. 240.15c3-1.
    (2) The term option series refers to listed option contracts of the 
same type (either a call or a put) and exercise style, covering the same 
underlying security with the same exercise price, expiration date, and 
number of underlying units.
    (3) The term related instrument within an option class or product 
group refers to futures contracts and options on futures contracts 
covering the same underlying instrument. In relation to options on 
foreign currencies a related instrument within an option class also 
shall include forward contracts on the same underlying currency.
    (4) The term underlying instrument refers to long and short 
positions, as appropriate, covering the same foreign currency, the same 
security, or a security which is exchangeable for or convertible into 
the underlying security within a period of 90 days. If the exchange or 
conversion requires the payment of money or results in a loss upon 
conversion at the time when the security is deemed an underlying 
instrument for purposes of this Appendix A, the broker or dealer will 
deduct from net worth the full amount of the conversion loss. The term 
underlying instrument shall not be deemed to include securities options, 
futures contracts, options on futures contracts, qualified stock 
baskets, or unlisted instruments.
    (5) The term options class refers to all options contracts covering 
the same underlying instrument.
    (6) The term product group refers to two or more option classes, 
related instruments, underlying instruments, and qualified stock baskets 
in the same portfolio type (see paragraph (b)(1)(ii) of this section) 
for which it has been determined that a percentage of offsetting profits 
may be applied to losses at the same valuation point.
    (b) The deduction under this Appendix A to Sec. 240.15c3-1 shall 
equal the sum of the deductions specified in paragraphs (b)(1)(v)(C) or 
(b)(2) of this section.

                       Theoretical Pricing Charges

    (1)(i) Definitions. (A) The terms theoretical gains and losses shall 
mean the gain and loss in the value of individual option series, the 
value of underlying instruments, related instruments, and qualified 
stock baskets within that option's class, at 10 equidistant intervals

[[Page 334]]

(valuation points) ranging from an assumed movement (both up and down) 
in the current market value of the underlying instrument equal to the 
percentage corresponding to the deductions otherwise required under 
Sec. 240.15c3-1 for the underlying instrument (See paragraph 
(a)(1)(iii) of this section). Theoretical gains and losses shall be 
calculated using a theoretical options pricing model that satisfies the 
criteria set forth in paragraph (a)(1)(i)(B) of this section.
    (B) The term theoretical options pricing model shall mean any 
mathematical model, other than a broker-dealer proprietary model, 
approved by a Designated Examining Authority. Such Designated Examining 
Authority shall submit the model to the Commission, together with a 
description of its methods for approving models. Any such model shall 
calculate theoretical gains and losses as described in paragraph 
(a)(1)(i)(A) of this section for all series and issues of equity, index 
and foreign currency options and related instruments, and shall be made 
available equally and on the same terms to all registered brokers or 
dealers. Its procedures shall include the arrangement of the vendor to 
supply accurate and timely data to each broker-dealer with respect to 
its services, and the fees for distribution of the services. The data 
provided to brokers or dealers shall also contain the minimum 
requirements set forth in paragraphs (b)(1)(v)(C) of this section and 
the product group offsets set forth in paragraphs (b)(1)(v)(B) of this 
section. At a minimum, the model shall consider the following factors in 
pricing the option:
    (1) The current spot price of the underlying asset;
    (2) The exercise price of the option;
    (3) The remaining time until the option's expiration;
    (4) The volatility of the underlying asset;
    (5) Any cash flows associated with ownership of the underlying asset 
that can reasonably be expected to occur during the remaining life of 
the option; and
    (6) The current term structure of interest rates.
    (C) The term major market foreign currency shall mean the currency 
of a sovereign nation whose short-term debt is rated in one of the two 
highest categories by at least two nationally recognized statistical 
rating organizations and for which there is a substantial inter-bank 
forward currency market. For purposes of this section, the European 
Currency Unit (ECU) shall be deemed a major market foreign currency.
    (D) The term qualified stock basket shall mean a set or basket of 
stock positions which represents no less than 50% of the capitalization 
for a high-capitalization or non-high-capitalization diversified market 
index, or, in the case of a narrow-based index, no less than 95% of the 
capitalization for such narrow-based index.
    (ii) With respect to positions involving listed options in a single 
specialist's market-maker account, and, separately, with respect to 
positions involving listed option positions in its proprietary or other 
account, the broker or dealer shall group long and short positions into 
the following portfolio types:
    (A) Equity options on the same underlying instrument and positions 
in that underlying instrument;
    (B) Options on the same major market foreign currency, positions in 
that major market foreign currency, and related instruments within those 
options' classes;
    (C) High-capitalization diversified market index options, related 
instruments within the option's class, and qualified stock baskets in 
the same index;
    (D) Non-high-capitalization diversified index options, related 
instruments within the index option's class, and qualified stock baskets 
in the same index; and
    (E) Narrow-based index options, related instruments within the index 
option's class, and qualified stock baskets in the same index.
    (iii) Before making the computation, each broker or dealer shall 
obtain the theoretical gains and losses for each options series and for 
the related and underlying instruments within those

[[Page 335]]

options' class in each specialist's market-maker account guaranteed, 
endorsed, or carried by a broker or dealer, or in the proprietary or 
other accounts of that broker or dealer. For each option series, the 
theoretical options pricing model shall calculate theoretical prices at 
10 equidistant valuation points within a range consisting of an increase 
or a decrease of the following percentages of the daily market price of 
the underlying instrument:
    (A) +(-)15% for equity securities with a ready market, narrow-based 
indexes, and non-high-capitalization diversified indexes;
    (B) +(-)6% for major market foreign currencies;
    (C) +(-) 20% for all other currencies; and
    (D) +(-)10% for high-capitalization diversified indexes.
    (iv)(A) As to non-clearing option specialists and market-makers, the 
percentages of the daily market price of the underlying instrument shall 
be:
    (1) +(-) 4\1/2\% for major market foreign currencies; and
    (2) +6(-)8% for high-capitalization diversified indexes.
    (3) +(-) 10% for a non-clearing market-maker, or specialist in non-
high capitalization diversified index product group.
    (B) The provisions of this paragraph (b)(1)(iv) shall expire two 
years from September 1, 1997, unless otherwise extended by the 
Commission.
    (v)(A) The broker or dealer shall multiply the corresponding 
theoretical gains and losses at each of the 10 equidistant valuation 
points by the number of positions held in a particular options series, 
the related instruments and qualified stock baskets within the option's 
class, and the positions in the same underlying instrument.
    (B) In determining the aggregate profit or loss for each portfolio 
type, the broker or dealer will be allowed the following offsets in the 
following order, provided, that in the case of qualified stock baskets, 
the broker or dealer may elect to net individual stocks between 
qualified stock baskets and take the appropriate deduction on the 
remaining, if any, securities:
    (1) First, a broker or dealer is allowed the following offsets 
within an option's class:
    (i) Between options on the same underlying instrument, positions 
covering the same underlying instrument, and related instruments within 
the option's class, 100% of a position's gain shall offset another 
position's loss at the same valuation point;
    (ii) Between index options, related instruments within the option's 
class, and qualified stock baskets on the same index, 95%, or such other 
amount as designated by the Commission, of gains shall offset losses at 
the same valuation point;
    (2) Second, a broker-dealer is allowed the following offsets within 
an index product group:
    (i) Among positions involving different high-capitalization 
diversified index option classes within the same product group, 90% of 
the gain in a high-capitalization diversified market index option, 
related instruments, and qualified stock baskets within that index 
option's class shall offset the loss at the same valuation point in a 
different high-capitalization diversified market index option, related 
instruments, and qualified stock baskets within that index option's 
class;
    (ii) Among positions involving different non-high-capitalization 
diversified index option classes within the same product group, 75% of 
the gain in a non-high-capitalization diversified market index option, 
related instruments, and qualified stock baskets within that index 
option's class shall offset the loss at the same valuation point in 
another non-high-capitalization diversified market index option, related 
instruments, and qualified stock baskets within that index option's 
class or product group;
    (iii) Among positions involving different narrow-based index option 
classes within the same product group, 90% of the gain in a narrow-based 
market index option, related instruments, and qualified stock baskets 
within that index option's class shall offset the loss at the same 
valuation point in another narrow-based market index option, related 
instruments, and qualified stock baskets within that index option's 
class or product group;

[[Page 336]]

    (iv) No qualified stock basket should offset another qualified stock 
basket; and
    (3) Third, a broker-dealer is allowed the following offsets between 
product groups: Among positions involving different diversified index 
product groups within the same market group, 50% of the gain in a 
diversified market index option, a related instrument, or a qualified 
stock basket within that index option's product group shall offset the 
loss at the same valuation point in another product group;
    (C) For each portfolio type, the total deduction shall be the larger 
of:
    (1) The amount for any of the 10 equidistant valuation points 
representing the largest theoretical loss after applying the offsets 
provided in paragraph (b)(1)(v)(B) if this section; or
    (2) A minimum charge equal to 25% times the multiplier for each 
equity and index option contract and each related instrument within the 
option's class or product group, or $25 for each option on a major 
market foreign currency with the minimum charge for futures contracts 
and options on futures contracts adjusted for contract size 
differentials, not to exceed market value in the case of long positions 
in options and options on futures contracts; plus
    (3) In the case of portfolio types involving index options and 
related instruments offset by a qualified stock basket, there will be a 
minimum charge of 5% of the market value of the qualified stock basket 
for high-capitalization diversified and narrow-based indexes; and
    (4) In the case of portfolio types involving index options and 
related instruments offset by a qualified stock basket, there will be a 
minimum charge of 7\1/2\% of the market value of the qualified stock 
basket for non-high-capitalization diversified indexes.

                    Alternative Strategy Based Method

    (2) A broker or dealer may elect to apply the alternative strategy 
based method in accordance with the provisions of this paragraph (b)(2).
    (i) Definitions. (A) The term intrinsic value or in-the-money amount 
shall mean the amount by which the exercise value, in the case of a 
call, is less than the current market value of the underlying 
instrument, and, in the case of a put, is greater than the current 
market value of the underlying instrument.
    (B) The term out-of-the-money amount shall mean the amount by which 
the exercise value, in the case of a call, is greater than the current 
market value of the underlying instrument, and, in the case of a put, is 
less than the current market value of the underlying instrument.
    (C) The term time value shall mean the current market value of an 
option contract that is in excess of its intrinsic value.
    (ii) Every broker or dealer electing to calculate adjustments to net 
worth in accordance with the provisions of this paragraph (b)(2) must 
make the following adjustments to net worth:
    (A) Add the time value of a short position in a listed option; and
    (B) Deduct the time value of a long position in a listed option, 
which relates to a position in the same underlying instrument or in a 
related instrument within the option class or product group as 
recognized in the strategies enumerated in paragraph (b)(2)(iii)(D) of 
this section; and
    (C) Add the net short market value or deduct the long market value 
of listed options as recognized in the strategies enumerated in 
paragraphs (b)(2)(iii)(E)(1) and (2) of this section.
    (iii) In computing net capital after the adjustments provided for in 
paragraph (b)(2)(ii) of this section, every broker or dealer shall 
deduct the percentages specified in this paragraph (b)(2)(iii) for all 
listed option positions, positions covering the same underlying 
instrument and related instruments within the options' class or product 
group.

                             Uncovered Calls

    (A) Where a broker or dealer is short a call, deducting the 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec. 
240.15c3-1 of the current market value of the underlying instrument for 
such option reduced by its out-of-the-money amount, to the extent that 
such reduction does not operate to increase net capital. In no event 
shall this deduction be less than the

[[Page 337]]

greater of $250 for each short call option contract for 100 shares or 
50% of the aforementioned percentage.

                             Uncovered Puts

    (B) Where a broker or dealer is short a put, deducting the 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec. 
240.15c3-1 of the current market value of the underlying instrument for 
such option reduced by its out-of-the-money amount, to the extent that 
such reduction does not operate to increase net capital. In no event 
shall the deduction provided by this paragraph be less than the greater 
of $250 for each short put option contract for 100 shares or 50% of the 
aforementioned percentage.

                             Long Positions

    (C) Where a broker or dealer is long puts or calls, deducting 50 
percent of the market value of the net long put and call positions in 
the same options series.

           Certain Security Positions With Offsetting Options

    (D)(1) Where a broker or dealer is long a put for which it has an 
offsetting long position in the same number of units of the same 
underlying instrument, deducting the percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec. 240.15c3-1 of the current market 
value of the underlying instrument for the long offsetting position, not 
to exceed the out-of-the-money amount of the option. In no event shall 
the deduction provided by this paragraph be less than $25 for each 
option contract for 100 shares, provided that the minimum charge need 
not exceed the intrinsic value of the option.
    (2) Where a broker or dealer is long a call for which it has an 
offsetting short position in the same number of units of the same 
underlying instrument, deducting the percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec. 240.15c3-1 of the current market 
value of the underlying instrument for the short offsetting position, 
not to exceed the out-of-the-money amount of the option. In no event 
shall the deduction provided by this paragraph be less than $25 for each 
option contract for 100 shares, provided that the minimum charge need 
not exceed the intrinsic value of the option.
    (3) Where a broker or dealer is short a call for which it has an 
offsetting long position in the same number of units of the same 
underlying instrument, deducting the percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec. 240.15c3-1 of the current market 
value of the underlying instrument for the offsetting long position 
reduced by the short call's intrinsic value. In no event shall the 
deduction provided by this paragraph be less than $25 for each option 
contract for 100 shares.

                        Certain Spread Positions

    (E)(1) Where a broker or dealer is short a listed call and is also 
long a listed call in the same class of options contracts and the long 
option expires on the same date as or subsequent to the short option, 
the deduction, after adjustments required in paragraph (b) of this 
section, shall be the amount by which the exercise value of the long 
call exceeds the exercise value of the short call. If the exercise value 
of the long call is less than or equal to the exercise value of the 
short call, no deduction is required.
    (2) Where a broker or dealer is short a listed put and is also long 
a listed put in the same class of options contracts and the long option 
expires on the same date as or subsequent to the short option, the 
deduction, after the adjustments required in paragraph (b) of this 
section, shall be the amount by which the exercise value of the short 
put exceeds the exercise value of the long put. If the exercise value of 
the long put is equal to or greater than the exercise value of the short 
put, no deduction is required.
    (c) With respect to transactions involving unlisted options, every 
broker or dealer shall determine the value of unlisted option positions 
in accordance with the provision of paragraph (c)(2)(i) of Sec. 
240.15c3-1, and shall deduct the percentages of all securities positions 
or unlisted options in the proprietary or other accounts of the broker 
or dealer specified in this paragraph (c). However, where computing the 
deduction required for a security position as if

[[Page 338]]

the security position had no related unlisted option position and 
positions in unlisted options as if uncovered would result in a lesser 
deduction from net worth, the broker or dealer may compute such 
deductions separately.

                             Uncovered Calls

    (1) Where a broker or dealer is short a call, deducting 15 percent 
(or such other percentage required by paragraphs (c)(2)(vi) (A) through 
(K) of Sec. 240.15c3-1) of the current market value of the security 
underlying such option reduced by any excess of the exercise value of 
the call over the current market value of the underlying security. In no 
event shall the deduction provided by this paragraph be less than $250 
for each option contract for 100 shares.

                             Uncovered Puts

    (2) Where a broker or dealer is short a put, deducting 15 percent 
(or such other percentage required by paragraphs (c)(2)(vi) (A) through 
(K) of Sec. 240.15c3-1) of the current market value of the security 
underlying the option reduced by any excess of the market value of the 
underlying security over the exercise value of the put. In no event 
shall the deduction provided by this paragraph be less than $250 for 
each option contract for 100 shares.

                              Covered Calls

    (3) Where a broker or dealer is short a call and long equivalent 
units of the underlying security, deducting 15 percent (or such other 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec. 
240.15c3-1) of the current market value of the underlying security 
reduced by any excess of the current market value of the underlying 
security over the exercise value of the call. No reduction under this 
paragraph shall have the effect of increasing net capital.

                              Covered Puts

    (4) Where a broker or dealer is short a put and short equivalent 
units of the underlying security, deducting 15 percent (or such other 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec. 
240.15c3-1) of the current market value of the underlying security 
reduced by any excess of the exercise value of the put over the market 
value of the underlying security. No such reduction shall have the 
effect of increasing net capital.

                           Conversion Accounts

    (5) Where a broker or dealer is long equivalent units of the 
underlying security, long a put written or endorsed by a broker or 
dealer and short a call in its proprietary or other accounts, deducting 
5 percent (or 50 percent of such other percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec. 240.15c3-1) of the current market 
value of the underlying security.
    (6) Where a broker or dealer is short equivalent units of the 
underlying security, long a call written or endorsed by a broker or 
dealer and short a put in his proprietary or other accounts, deducting 5 
percent (or 50 percent of such other percentage required by paragraphs 
(c)(2)(vi) (A) through (K) of Sec. 240.15c3-1) of the market value of 
the underlying security.

                              Long Options

    (7) Where a broker or dealer is long a put or call endorsed or 
written by a broker or dealer, deducting 15 percent (or such other 
percentage required by paragraphs (c)(2)(vi) (A) through (K) of Sec. 
240.15c3-1) of the market value of the underlying security, not to 
exceed any value attributed to such option in paragraph (c)(2)(i) of 
Sec. 240.15c3-1.

[62 FR 6481, Feb. 12, 1997]



Sec. 240.15c3-1b  Adjustments to net worth and aggregate indebtedness 
for certain commodities transactions (Appendix B to 17 CFR 240.15c3-1).

    (a) Every broker or dealer in computing net capital pursuant to 17 
CFR 240.15c3-1 shall comply with the following:
    (1) Where a broker or dealer has an asset or liability which is 
treated or defined in paragraph (c) of 17 CFR 240.15c3-1, the inclusion 
or exclusion of all or part of such asset or liability for

[[Page 339]]

the computation of aggregate indebtedness and net capital shall be in 
accordance with paragraph (c) of 17 CFR 240.15c3-1, except as 
specifically provided otherwise in this Appendix B. Where a commodity 
related asset or liability is specifically treated or defined in 17 CFR 
1.17 and is not generally or specifically treated or defined in 17 CFR 
240.15c3-1 or this Appendix B, the inclusion or exclusion of all or part 
of such asset or liability for the computation of aggregate indebtedness 
and net capital shall be in accordance with 17 CFR 1.17.

                         Aggregate Indebtedness

    (2) The term aggregate indebtedness as defined in paragraph (c)(1) 
of this section shall exclude with respect to commodity-related 
transactions:
    (i) Indebtedness arising in connection with an advance to a non-
proprietary account when such indebtedness is adequately collateralized 
by spot commodities eligible for delivery on a contract market and when 
such spot commodities are covered.
    (ii) Advances received by the broker or dealer against bills of 
lading issued in connection with the shipment of commodities sold by the 
broker or dealer; and
    (iii) Equity balances in the accounts of general partners.

                               Net Capital

    (3) In computing net capital as defined in paragraph (c)(2) of this 
section, the net worth of a broker or dealer shall be adjusted as 
follows with respect to commodity-related transactions:
    (i) Unrealized profit or loss for certain commodities transactions. 
(A) Unrealized profits shall be added and unrealized losses shall be 
deducted in the commodities accounts of the broker or dealer, including 
unrealized profits and losses on fixed price commitments and forward 
contracts; and
    (B) The value attributed to any commodity option which is not traded 
on a contract market shall be the difference between the option's strike 
price and the market value for the physical or futures contract which is 
the subject of the option. In the case of a long call commodity option, 
if the market value for the physical or futures contract which is the 
subject of the option is less than the strike price of the option, it 
shall be given no value. In the case of a long put commodity option, if 
the market value for the physical commodity or futures contract which is 
the subject of the option is more than the striking price of the option, 
it shall be given no value.
    (ii) Deduct any unsecured commodity futures or option account 
containing a ledger balance and open trades, the combination of which 
liquidates to a deficit or containing a debit ledger balance only: 
Provided, however, Deficits or debit ledger balances in unsecured 
customers', non-customers' and proprietary accounts, which are the 
subject of calls for margin or other required deposits need not be 
deducted until the close of business on the business day following the 
date on which such deficit or debit ledger balance originated;
    (iii) Deduct all unsecured receivables, advances and loans except 
for:
    (A) Management fees receivable from commodity pools outstanding no 
longer than thirty (30) days from the date they are due;
    (B) Receivables from foreign clearing organizations;
    (C) Receivables from registered futures commission merchants or 
brokers, resulting from commodity futures or option transactions, except 
those specifically excluded under paragraph (3)(ii) of this Appendix B. 
In the case of an introducing broker or an applicant for registration as 
an introducing broker, include 50 percent of the value of a guarantee or 
security deposit with a futures commission merchant which carries or 
intends to carry accounts for the customers of the introducing broker.
    (iv) Deduct all inventories (including work in process, finished 
goods, raw materials and inventories held for resale) except for readily 
marketable spot commodities; or spot commodities which adequately 
collateralize indebtedness under paragraph (c)(7) of 17 CFR 1.17;
    (v) Guarantee deposits with commodities clearing organizations are 
not required to be deducted from net worth;

[[Page 340]]

    (vi) Stock in commodities clearing organizations to the extent of 
its margin value is not required to be deducted from net worth;
    (vii) Deduct from net worth the amount by which any advances paid by 
the broker or dealer on cash commodity contracts and used in computing 
net capital exceeds 95 percent of the market value of the commodities 
covered by such contracts.
    (viii) Do not include equity in the commodity accounts of partners 
in net worth.
    (ix) In the case of all inventory, fixed price commitments and 
forward contracts, except for inventory and forward contracts in the 
inter-bank market in those foreign currencies which are purchased or 
sold for further delivery on or subject to the rules of a contract 
market and covered by an open futures contract for which there will be 
no charge, deduct the applicable percentage of the net position 
specified below:
    (A) Inventory which is currently registered as deliverable on a 
contract market and covered by an open futures contract or by a 
commodity option on a physical--No charge.
    (B) Inventory which is covered by an open futures contract or 
commodity option--5% of the market value.
    (C) Inventory which is not covered--20% of the market value.
    (D) Fixed price commitments (open purchases and sales) and forward 
contracts which are covered by an open futures contract or commodity 
option--10% of the market value.
    (E) Fixed price commitments (open purchases and sales) and forward 
contracts which are not covered by an open futures contract or commodity 
option--20% of the market value.
    (x) Deduct 4% of the market value of commodity options granted 
(sold) by option customers on or subject to the rules of a contract 
market.
    (xi) [Reserved]
    (xii) Deduct for undermargined customer commodity futures accounts 
the amount of funds required in each such account to meet maintenance 
margin requirements of the applicable board of trade or, if there are no 
such maintenance margin requirements, clearing organization margin 
requirements applicable to such positions, after application of calls 
for margin, or other required deposits which are outstanding three 
business days or less. If there are no such maintenance margin 
requirements or clearing organization margin requirements on such 
accounts, then deduct the amount of funds required to provide margin 
equal to the amount necessary after application of calls for margin, or 
other required deposits outstanding three days or less to restore 
original margin when the original margin has been depleted by 50 percent 
or more. Provided, To the extent a deficit is deducted from net worth in 
accordance with paragraph (a)(3)(ii) of this Appendix B, such amount 
shall not also be deducted under this paragraph (a)(3)(xii). In the 
event that an owner of a customer account has deposited an asset other 
than cash to margin, guarantee or secure his account, the value 
attributable to such asset for purposes of this paragraph shall be the 
lesser of (A) the value attributable to such asset pursuant to the 
margin rules of the applicable board of trade, or (B) the market value 
of such asset after application of the percentage deductions specified 
in paragraph (a)(3)(ix) of this Appendix B or, where appropriate, 
specified in paragraph (c)(2)(vi) or (c)(2)(vii) of Sec. 240.15c3-1 
this chapter;
    (xiii) Deduct for undermargined non-customer and omnibus commodity 
futures accounts the amount of funds required in each such account to 
meet maintenance margin requirements of the applicable board of trade 
or, if there are no such maintenance margin requirements, clearing 
organization margin requirements applicable to such positions, after 
application of calls for margin, or other required deposits which are 
outstanding two business days or less. If there are no such maintenance 
margin requirements or clearing organization margin requirements, then 
deduct the amount of funds required to provide margin equal to the 
amount necessary after application of calls for margin, or other 
required deposits outstanding two days or less to restore original 
margin when the original margin has been depleted by 50 percent or more. 
Provided, To the extent a deficit is deducted from net worth in 
accordance with paragraph

[[Page 341]]

(a)(3)(ii) of this Appendix B such amount shall not also be deducted 
under this paragraph (a)(3)(xiii). In the event that an owner of a non-
customer or omnibus account has deposited an asset other than cash to 
margin, guarantee or secure his account, the value attributable to such 
asset for purposes of this paragraph shall be the lesser of (A) the 
value attributable to such asset pursuant to the margin rules of the 
applicable board of trade, or (B) the market value of such asset after 
application of the percentage deductions specified in paragraph 
(a)(3)(ix) of this Appendix B or, where appropriate, specified in 
paragraph (c)(2)(vi) or (c)(2)(vii) of Sec. 240.15c3-1 of this chapter;
    (xiv) In the case of open futures contracts and granted (sold) 
commodity options held in proprietary accounts carried by the broker or 
dealer which are not covered by a position held by the broker or dealer 
or which are not the result of a ``changer trade made in accordance with 
the rules of a contract market, deduct:
    (A) For a broker or dealer which is a clearing member of a contract 
market for the positions on such contract market cleared by such member, 
the applicable margin requirement of the applicable clearing 
organization;
    (B) For a broker or dealer which is a member of a self-regulatory 
organization 150% of the applicable maintenance margin requirement of 
the applicable board of trade or clearing organization, whichever is 
greater; or
    (C) For all other brokers or dealers, 200% of the applicable 
maintenance margin requirement of the applicable board of trade or 
clearing organization, whichever is greater; or
    (D) For open contracts or granted (sold) commodity options for which 
there are no applicable maintenance margin requirements, 200% of the 
applicable initial margin requirement;
    Provided, the equity in any such proprietary account shall reduce 
the deduction required by this paragraph (a)(3)(xiv) if such equity is 
not otherwise includable in net capital.
    (xv) In the case of a broker or dealer which is a purchaser of a 
commodity option which is traded on a contract market the deduction 
shall be the same safety factor as if the broker or dealer were the 
grantor of such option in accordance with paragraph (a)(3)(xiv), but in 
no event shall the safety factor be greater than the market value 
attributed to such option.
    (xvi) In the case of a broker or dealer which is a purchaser of a 
commodity option not traded on a contract market which has value and 
such value is used to increase net capital, the deduction is ten percent 
of the market value of the physical or futures contract which is the 
subject of such option but in no event more than the value attributed to 
such option.
    (xvii) Deduction 5% of all unsecured receivables includable under 
paragraph (a)(3)(iii)(C) of this Appendix B used by the broker or dealer 
in computing ``net capital'' and which are not receivable from (A) a 
futures commission merchant registered as such with the Commodity 
Futures Trading Commission, or (B) a broker or dealer which is 
registered as such with the Securities and Exchange Commission.
    (xviii) A loan or advance or any other form of receivable shall not 
be considered ``secured'' for the purposes of paragraph (a)(3) of this 
Appendix B unless the following conditions exist:
    (A) The receivable is secured by readily marketable collateral which 
is otherwise unencumbered and which can be readily converted into cash: 
Provided, however, That the receivable will be considered secured only 
to the extent of the market value of such collateral after application 
of the percentage deductions specified in paragraph (a)(3)(ix) of this 
Appendix B; and
    (B)(1) The readily marketable collateral is in the possession or 
control of the broker or dealer; or
    (2) The broker or dealer has a legally enforceable, written security 
agreement, signed by the debtor, and has a perfected security interest 
in the readily marketable collateral within the meaning of the laws of 
the State in which the readily marketable collateral is located.
    (xix) The term cover for purposes of this Appendix B shall mean 
cover as defined in 17 CFR 1.17(j).
    (xx) The term customer for purposes of this Appendix B shall mean 
customer as defined in 17 CFR 1.17(b)(2). The term ``non-customer'' for 
purposes

[[Page 342]]

of this Appendix B shall mean non-customer as defined in 17 CFR 
1.17(b)(4).

(Secs. 15(c)(3), 17(a) and 23(a), 15 U.S.C. 78o(c)(3), 78q(a), and 
78w(a))

[44 FR 34886, June 15, 1979, as amended at 46 FR 37041, July 17, 1981; 
49 FR 31848, Aug. 9, 1984]



Sec. 240.15c3-1c  Consolidated computations of net capital and aggregate 

indebtedness for certain subsidiaries and affiliates (Appendix C to 
17 CFR 240.15c3-1).

    (a) Flow Through Capital Benefits. Every broker or dealer in 
computing its net capital and aggregate indebtedness pursuant to 17 CFR 
240.15c3-1 shall, subject to the provisions of paragraphs (b) and (d) of 
this Appendix, consolidate in a single computation assets and 
liabilities of any subsidiary or affiliate for which it guarantees, 
endorses or assumes directly or indirectly the obligations or 
liabilities. The assets and liabilities of a subsidiary or affiliate 
whose liabilities and obligations have not been guaranteed, endorsed, or 
assumed directly or indirectly by the broker or dealer may also be so 
consolidated if an opinion of counsel is obtained as provided for in 
paragraph (b) of this section.
    (b) Required Counsel Opinions.(1) If the consolidation, provided for 
in paragraph (a) of this section, of any such subsidiary or affiliate 
results in the increase of the broker's or dealers's net capital and/or 
the decrease of the broker's or dealer's minimum net capital requirement 
under paragraph (a) of Sec. 240.15c3-1 and an opinion of counsel 
described in paragraph (b)(2) of this section has not been obtained, 
such benefits shall not be recognized in the broker's or dealer's 
computation required by this section.
    (2) Except as provided for in paragraph (b)(1) of this section, 
consolidation shall be permitted with respect to any subsidiaries or 
affiliates which are majority owned and controlled by the broker or 
dealer for which the broker or dealer can demonstrate to the 
satisfaction of the Commission, through the Examining Authority, by an 
opinion of counsel that the net asset values, or the portion thereof 
related to the parent's ownership interest in the subsidiary or 
affiliate may be caused by the broker or dealer or a trustee appointed 
pursuant to the Securities Investor Protection Act of 1970 or otherwise, 
to be distributed to the broker or dealer within 30 calendar days. Such 
opinion shall also set forth the actions necessary to cause such a 
distribution to be made, identify the parties having the authority to 
take such actions, identify and describe the rights of other parties or 
classes of parties, including but not limited to customers, general 
creditors, subordinated lenders, minority shareholders, employees, 
litigants and governmental or regulatory authorities, who may delay or 
prevent such a distribution and such other assurances as the Commission 
or the Examining Authority by rule or interpretation may require. Such 
opinion shall be current and periodically renewed in connection with the 
broker's or dealer's annual audit pursuant to 17 CFR 240.17a-5 under the 
Securities Exchange Act of 1934 or upon any material change in 
circumstances.
    (c) Principles of Consolidation. In preparing a consolidated 
computation of net capital and/or aggregate indebtedness pursuant to 
this section, the following minimum and non-exclusive requirements shall 
be observed:
    (1) Consolidated net worth shall be reduced by the estimated amount 
of any tax reasonably anticipated to be incurred upon distribution of 
the assets of the subsidiary or affiliate.
    (2) Liabilities of a consolidated subsidiary or affiliate which are 
subordinated to the claims of present and future creditors pursuant to a 
satisfactory subordination agreement shall not be added to consolidated 
net worth unless such subordination extends also to the claims of 
present or future creditors of the parent broker or dealer and all 
consolidated subsidiaries.
    (3) Subordinated liabilities of a consolidated subsidiary or 
affiliate which are consolidated in accordance with paragraph (c)(2) of 
this section may not be prepaid, repaid or accelerated if any of the 
entities included in such consolidation would otherwise be unable to 
comply with the provisions of Appendix (D), 17 CFR 240.15c3-1d.
    (4) Each broker or dealer included within the consolidation shall at 
all times be in compliance with the net

[[Page 343]]

capital requirement to which it is subject.
    (d) Certain Precluded Acts. No broker or dealer shall guarantee, 
endorse or assume directly or indirectly any obligation or liability of 
a subsidiary or affiliate unless the obligation or liability is 
reflected in the computation of net capital and/or aggregate 
indebtedness pursuant to 17 CFR 240.15c3-1 or this Appendix (C), except 
as provided in paragraph (b)(1) of this section.

[40 FR 29808, July 16, 1975, as amended at 57 FR 56988, Dec. 2, 1992]



Sec. 240.15c3-1d  Satisfactory Subordination Agreements (Appendix D to 
17 CFR 240.15c3-1).

    (a) Introduction. (1) This Appendix sets forth minimum and non-
exclusive requirements for satisfactory subordination agreements 
(hereinafter ``subordination agreement''). The Examining Authority may 
require or the broker or dealer may include such other provisions as 
deemed necessary or appropriate to the extent such provisions do not 
cause the subordination agreement to fail to meet the minimum 
requirements of this Appendix (D).
    (2) Certain Definitions. For purposes of 17 CFR 240.15c3-1 and this 
Appendix (D):
    (i) A subordination agreement may be either a subordinated loan 
agreement or a secured demand note agreement.
    (ii) The term subordinated loan agreement shall mean the agreement 
or agreements evidencing or governing a subordinated borrowing of cash.
    (iii) The term Collateral Value of any securities pledged to secure 
a secured demand note shall mean the market value of such securities 
after giving effect to the percentage deductions set forth in paragraph 
(c)(2)(vi) of Sec. 240.15c3-1 except for paragraph (c)(2)(vi)(J). In 
lieu of the deduction under (c)(2)(vi)(J), the broker or dealer shall 
reduce the market value of the securities pledged to secure the secured 
demand note by 30 percent.
    (iv) The term Payment Obligation shall mean the obligation of a 
broker or dealer in respect to any subordination agreement (A) to repay 
cash loaned to the broker or dealer pursuant to a subordinated loan 
agreement or (B) to return a secured demand note contributed to the 
broker or dealer or reduce the unpaid principal amount thereof and to 
return cash or securities pledged as collateral to secure the secured 
demand note and (C) ``Payment'' shall mean the performance by a broker 
or dealer of a Payment Obligation.
    (v)(A) The term secured demand note agreement shall mean an 
agreement (including the related secured demand note) evidencing or 
governing the contribution of a secured demand note to a broker or 
dealer and the pledge of securities and/or cash with the broker or 
dealer as collateral to secure payment of such secured demand note. The 
secured demand note agreement may provide that neither the lender, his 
heirs, executors, administrators or assigns shall be personally liable 
on such note and that in the event of default the broker or dealer shall 
look for payment of such note solely to the collateral then pledged to 
secure the same.
    (B) The secured demand note shall be a promissory note executed by 
the lender and shall be payable on the demand of the broker or dealer to 
which it is contributed; provided, however, that the making of such 
demand may be conditioned upon the occurrence of any of certain events 
which are acceptable to the Commission and to the Examining Authority 
for such broker or dealer.
    (C) If such note is not paid upon presentment and demand as provided 
for therein, the broker or dealer shall have the right to liquidate all 
or any part of the securities then pledged as collateral to secure 
payment of the same and to apply the net proceeds of such liquidation, 
together with any cash then included in the collateral, in payment of 
such note. Subject to the prior rights of the broker or dealer as 
pledgee, the lender, as defined herein, may retain ownership of the 
collateral and have the benefit of any increases and bear the risks of 
any decreases in the value of the collateral and may retain the right to 
vote securities contained within the collateral and any right to income 
therefrom or distributions thereon, except the broker or dealer shall 
have the right to receive and hold

[[Page 344]]

as pledgee all dividends payable in securities and all partial and 
complete liquidating dividends.
    (D) Subject to the prior rights of the broker or dealer as pledgee, 
the lender may have the right to direct the sale of any securities 
included in the collateral, to direct the purchases of securities with 
any cash included therein, to withdraw excess collateral or to 
substitute cash or other securities as collateral, provided that the net 
proceeds of any such sale and the cash so substituted and the securities 
so purchased or substituted are held by the broker or dealer, as 
pledgee, and are included within the collateral to secure payment of the 
secured demand note, and provided further that no such transaction shall 
be permitted if, after giving effect thereto, the sum of the amount of 
any cash, plus the Collateral Value of the securities, then pledged as 
collateral to secure the secured demand note would be less than the 
unpaid principal amount of the secured demand note.
    (E) Upon payment by the lender, as distinguished from a reduction by 
the lender which is provided for in (b)(6)(iii) or reduction by the 
broker or dealer as provided for in subparagraph (b)(7) of this Appendix 
(D), of all or any part of the unpaid principal amount of the secured 
demand note, a broker or dealer shall issue to the lender a subordinated 
loan agreement in the amount of such payment (or in the case of a broker 
or dealer that is a partnership credit a capital account of the lender) 
or issue preferred or common stock of the broker or dealer in the amount 
of such payment, or any combination of the foregoing, as provided for in 
the secured demand note agreement.
    (F) The term lender shall mean the person who lends cash to a broker 
or dealer pursuant to a subordinated loan agreement and the person who 
contributes a secured demand note to a broker or dealer pursuant to a 
secured demand note agreement.
    (b) Minimum Requirements for Subordination Agreements. (1) Subject 
to paragraph (a) of this section, a subordination agreement shall mean a 
written agreement between the broker or dealer and the lender, which (i) 
has a minimum term of one year, except for temporary subordination 
agreements provided for in paragraph (c)(5) of this Appendix (D), and 
(ii) is a valid and binding obligation enforceable in accordance with 
its terms (subject as to enforcement to applicable bankruptcy, 
insolvency, reorganization, moratorium and other similar laws) against 
the broker or dealer and the lender and their respective heirs, 
executors, administrators, successors and assigns.
    (2) Specific Amount. All subordination agreements shall be for a 
specific dollar amount which shall not be reduced for the duration of 
the agreement except by installments as specifically provided for 
therein and except as otherwise provided in this Appendix (D).
    (3) Effective Subordination. The subordination agreement shall 
effectively subordinate any right of the lender to receive any Payment 
with respect thereto, together with accrued interest or compensation, to 
the prior payment or provision for payment in full of all claims of all 
present and future creditors of the broker or dealer arising out of any 
matter occurring prior to the date on which the related Payment 
Obligation matures consistent with the provisions of 17 CFR 240.15c3-1 
and 240.15c3-1d, except for claims which are the subject of 
subordination agreements which rank on the same priority as or junior to 
the claim of the lender under such subordination agreements.
    (4) Proceeds of Subordinated Loan Agreements. The subordinated loan 
agreement shall provide that the cash proceeds thereof shall be used and 
dealt with by the broker or dealer as part of its capital and shall be 
subject to the risks of the business.
    (5) Certain Rights of the Broker or Dealer. The subordination 
agreement shall provide that the broker or dealer shall have the right 
to:
    (i) Deposit any cash proceeds of a subordinated loan agreement and 
any cash pledged as collateral to secure a secured demand note in an 
account or accounts in its own name in any bank or trust company;
    (ii) Pledge, repledge, hypothecate and rehypothecate, any or all of 
the securities pledged as collateral to secure a secured demand note, 
without notice, separately or in common with other securities or 
property for the purpose of

[[Page 345]]

securing any indebtedness of the broker or dealer; and
    (iii) Lend to itself or others any or all of the securities and cash 
pledged as collateral to secure a secured demand note.
    (6) Collateral for Secured Demand Notes. Only cash and securities 
which are fully paid for and which may be publicly offered or sold 
without registration under the Securities Act of 1933, and the offer, 
sale and transfer of which are not otherwise restricted, may be pledged 
as collateral to secure a secured demand note. The secured demand note 
agreement shall provide that if at any time the sum of the amount of any 
cash, plus the Collateral Value of any securities, then pledged as 
collateral to secure the secured demand note is less than the unpaid 
principal amount of the secured demand note, the broker or dealer must 
immediately transmit written notice to that effect to the lender and the 
Examining Authority for such broker or dealer. The secured demand note 
agreement shall also require that following such transmittal:
    (i) The lender, prior to noon of the business day next succeeding 
the transmittal of such notice, may pledge as collateral additional cash 
or securities sufficient, after giving effect to such pledge, to bring 
the sum of the amount of any cash plus the Collateral Value of any 
securities, then pledged as collateral to secure the secured demand 
note, up to an amount not less than the unpaid principal amount of the 
secured demand note; and
    (ii) Unless additional cash or securities are pledged by the lender 
as provided in paragraph (b)(6)(i) of this section, the broker or dealer 
at noon on the business day next succeeding the transmittal of notice to 
the lender must commence sale, for the account of the lender, of such of 
the securities then pledged as collateral to secure the secured demand 
note and apply so much of the net proceeds thereof, together with such 
of the cash then pledged as collateral to secure the secured demand note 
as may be necessary to eliminate the unpaid principal amount of the 
secured demand note; Provided, however, That the unpaid principal amount 
of the secured demand note need not be reduced below the sum of the 
amount of any remaining cash, plus the Collateral Value of the remaining 
securities, then pledged as collateral to secure the secured demand 
note. The broker or dealer may not purchase for its own account any 
securities subject to such a sale.
    (iii) The secured demand note agreement also may provide that, in 
lieu of the procedures specified in the provisions required by paragraph 
(b)(6)(ii) of this section, the lender with the prior written consent of 
the broker or dealer and the Examining Authority for the broker or 
dealer may reduce the unpaid principal amount of the secured demand 
note. After giving effect to such reduction, the aggregate indebtedness 
of the broker or dealer may not exceed 1000 percent of its net capital 
or, in the case of a broker or dealer operating pursuant to paragraph 
(a)(1)(ii) of Sec. 240.15c3-1, net capital may not be less than 5 
percent of aggregate debit items computed in accordance with Sec. 
240.15c3-3a, or, if registered as a futures commission merchant, 7 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers subject to the rules of 
a contract market, each such deduction not to exceed the amount of funds 
in the option customer's account), if greater. No single secured demand 
note shall be permitted to be reduced by more than 15 percent of its 
original principal amount and after such reduction no excess collateral 
may be withdrawn. No Examining Authority shall consent to a reduction of 
the principal amount of a secured demand note if, after giving effect to 
such reduction, net capital would be less than 120 percent of the 
minimum dollar amount required by Sec. 240.15c3-1.

                         Permissive Prepayments

    (7) A broker or dealer at its option but not at the option of the 
lender may, if the subordination agreement so provides, make a Payment 
of all or any portion of the Payment Obligation thereunder prior to the 
scheduled maturity date of such Payment Obligation

[[Page 346]]

(hereinafter referred to as a ``Prepayment''), but in no event may any 
Prepayment be made before the expiration of one year from the date such 
subordination agreement became effective. This restriction shall not 
apply to temporary subordination agreements that comply with the 
provisions of paragraph (c)(5) of this Appendix D. No Prepayment shall 
be made, if, after giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding the 
maturity or accelerated maturities of which are scheduled to fall due 
within six months after the date such Prepayment is to occur pursuant to 
this provision or on or prior to the date on which the Payment 
Obligation in respect of such Prepayment is scheduled to mature 
disregarding this provision, whichever date is earlier) without 
reference to any projected profit or loss of the broker or dealer, 
either aggregate indebtedness of the broker or dealer would exceed 1000 
percent of its net capital or its net capital would be less than 120 
percent of the minimum dollar amount required by Sec. 240.15c3-1 or, in 
the case of a broker or dealer operating pursuant to paragraph 
(a)(1)(ii) of Sec. 240.15c3-1, its net capital would be less than 5 
percent of its aggregate debit items computed in accordance with Sec. 
240.15c3-3a, or if registered as a futures commission merchant, 7 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers subject to the rules of 
a contract market, each such deduction not to exceed the amount of funds 
in the option customer's account), if greater, or its net capital would 
be less than 120 percent of the minimum dollar amount required by 
paragraph (a)(1)(ii) of Sec. 240.15c3-1. Notwithstanding the above, no 
Prepayment shall occur without the prior written approval of the 
Examining Authority for such broker or dealer.

                           Suspended Repayment

    (8)(i) The Payment Obligation of the broker or dealer in respect of 
any subordination agreement shall be suspended and shall not mature if, 
after giving effect to Payment of such Payment Obligation (and to all 
Payments of Payment Obligations of such broker or dealer under any other 
subordination agreement(s) then outstanding that are scheduled to mature 
on or before such Payment Obligation) either (A) the aggregate 
indebtedness of the broker or dealer would exceed 1200 percent of its 
net capital, or in the case of a broker or dealer operating pursuant to 
paragraph (a)(1)(ii) of Sec. 240.15c3-1, its net capital would be less 
than 5 percent of aggregate debit items computed in accordance with 
Sec. 240.15c3-3a or, if registered as a futures commission merchant, 6 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the option customer's account), if greater, or (B) its net 
capital would be less than 120 percent of the minimum dollar amount 
required by Sec. 240.15c3-1 including paragraph (a)(1)(ii), if 
applicable. The subordination agreement may provide that if the Payment 
Obligation of the broker or dealer thereunder does not mature and is 
suspended as a result of the requirement of this paragraph (b)(8) for a 
period of not less than six months, the broker or dealer shall thereupon 
commence the rapid and orderly liquidation of its business, but the 
right of the lender to receive Payment, together with accrued interest 
or compensation, shall remain subordinate as required by the provisions 
of Sec. 240.15c3-1 and Sec. 240.15c3-1d.
    (9) Accelerated Maturity-Obligation to Repay to Remain Subordinate. 
(i) Subject to the provisions of paragraph (b)(8) of this appendix, a 
subordination agreement may provide that the lender may, upon prior 
written notice to the broker or dealer and the Examining Authority given 
not earlier than six months after the effective date of such 
subordination agreement, accelerate the date on which the Payment 
Obligation of the broker or dealer, together with accrued interest or 
compensation, is scheduled to mature to a date not earlier than six 
months after the giving of such notice,

[[Page 347]]

but the right of the lender to receive Payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.
    (ii) Notwithstanding the provisions of paragraph (b)(8) of this 
appendix, the Payment Obligation of the broker or dealer with respect to 
a subordination agreement, together with accrued interest and 
compensation, shall mature in the event of any receivership, insolvency, 
liquidation pursuant to the Securities Investor Protection Act of 1970 
or otherwise, bankruptcy, assignment for the benefit of creditors, 
reorganization whether or not pursuant to the bankruptcy laws, or any 
other marshalling of the assets and liabilities of the broker or dealer 
but the right of the lender to receive Payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.
    (10)(i) Accelerated Maturity of Subordination Agreements on Event of 
Default and Event of Acceleration--Obligation to Repay to Remain 
Subordinate. A subordination agreement may provide that the lender may, 
upon prior written notice to the broker or dealer and the Examining 
Authority of the broker or dealer of the occurrence of any Event of 
Acceleration (as hereinafter defined) given no sooner than six months 
after the effective date of such subordination agreement, accelerate the 
date on which the Payment Obligation of the broker or dealer, together 
with accrued interest or compensation, is scheduled to mature, to the 
last business day of a calendar month which is not less than six months 
after notice of acceleration is received by the broker or dealer and the 
Examining Authority for the broker or dealer. Any subordination 
agreement containing such Events of Acceleration may also provide, that 
if upon such accelerated maturity date the Payment Obligation of the 
broker or dealer is suspended as required by paragraph (b)(8) of this 
Appendix (D) and liquidation of the broker or dealer has not commenced 
on or prior to such accelerated maturity date, then notwithstanding 
paragraph (b)(8) of this appendix the Payment Obligation of the broker 
or dealer with respect to such subordination agreement shall mature on 
the day immediately following such accelerated maturity date and in any 
such event the Payment Obligations of the broker or dealer with respect 
to all other subordination agreements then outstanding shall also mature 
at the same time but the rights of the respective lenders to receive 
Payment, together with accrued interest or compensation, shall remain 
subordinate as required by the provisions of this Appendix (D). Events 
of Acceleration which may be included in a subordination agreement 
complying with this paragraph (b)(10) shall be limited to:
    (A) Failure to pay interest or any installment of principal on a 
subordination agreement as scheduled;
    (B) Failure to pay when due other money obligations of a specified 
material amount;
    (C) Discovery that any material, specified representation or 
warranty of the broker or dealer which is included in the subordination 
agreement and on which the subordination agreement was based or 
continued was inaccurate in a material respect at the time made;
    (D) Any specified and clearly measurable event which is included in 
the subordination agreement and which the lender and the broker or 
dealer agree (1) is a significant indication that the financial position 
of the broker or dealer has changed materially and adversely from agreed 
upon specified norms or (2) could materially and adversely affect the 
ability of the broker or dealer to conduct its business as conducted on 
the date the subordination agreement was made; or (3) is a significant 
change in the senior management of the broker or dealer or in the 
general business conducted by the broker or dealer from that which 
obtained on the date the subordination agreement became effective;
    (E) Any continued failure to perform agreed covenants included in 
the subordination agreement relating to the conduct of the business of 
the broker or dealer or relating to the maintenance and reporting of its 
financial position; and
    (ii) Notwithstanding the provisions of paragraph (b)(8) of this 
appendix, a subordination agreement may provide

[[Page 348]]

that, if liquidation of the business of the broker or dealer has not 
already commenced, the Payment Obligation of the broker or dealer shall 
mature, together with accrued interest or compensation, upon the 
occurrence of an Event of Default (as hereinafter defined). Such 
agreement may also provide that, if liquidation of the business of the 
broker or dealer has not already commenced, the rapid and orderly 
liquidation of the business of the broker or dealer shall then commence 
upon the happening of an Event of Default. Any subordination agreement 
which so provides for maturity of the Payment Obligation upon the 
occurrence of an Event of Default shall also provide that the date on 
which such Event of Default occurs shall, if liquidation of the broker 
or dealer has not already commenced, be the date on which the Payment 
Obligations of the broker or dealer with respect to all other 
subordination agreements then outstanding shall mature but the rights of 
the respective lenders to receive Payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of this Appendix (D). Events of Default which may be included 
in a subordination agreement shall be limited to:
    (A) The making of an application by the Securities Investor 
Protection Corporation for a decree adjudicating that customers of the 
broker or dealer are in need of protection under the Securities Investor 
Protection Act of 1970 and the failure of the broker or dealer to obtain 
the dismissal of such application within 30 days;
    (B) The aggregate indebtedness of the broker or dealer exceeding 
1500 percent of its net capital or, in the case of a broker or dealer 
that has elected to operate under paragraph (a)(1)(ii) of Sec. 
240.15c3-1, its net capital computed in accordance therewith is less 
than 2 percent of its aggregate debit items computed in accordance with 
Sec. 240.15c3-3a or, if registered as a futures commission merchant, 4 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the option customer's account), if greater, throughout a 
period of 15 consecutive business days, commencing on the day the broker 
or dealer first determines and notifies the Examining Authority for the 
broker or dealer, or the Examining Authority or the Commission first 
determines and notifies the broker or dealer of such fact;
    (C) The Commission shall revoke the registration of the broker or 
dealer;
    (D) The Examining Authority shall suspend (and not reinstate within 
10 days) or revoke the broker's or dealer's status as a member thereof;
    (E) Any receivership, insolvency, liquidation pursuant to the 
Securities Investor Protection Act of 1970 or otherwise, bankruptcy, 
assignment for the benefit of creditors, reorganization whether or not 
pursuant to bankruptcy laws, or any other marshalling of the assets and 
liabilities of the broker or dealer.

A subordination agreement which contains any of the provisions permitted 
by this paragraph (b)(10) shall not contain the provision otherwise 
permitted by clause (i) of paragraph (b)(9).

  Brokers and Dealers Carrying the Accounts of Specialists and Market 
                        Makers in Listed Options

    (11) A subordination agreement which becomes effective on or after 
August 1, 1977 in favor of a broker or dealer who guarantees, endorses, 
carries or clears specialist or market maker transactions in options 
listed on a national securities exchange or facility of a national 
securities association shall provide that reduction, prepayment or 
repayment of the unpaid principal amount thereof, pursuant to those 
terms of the agreement required or permitted by paragraphs (b)(6)(iii), 
(b)(7), or (b)(8)(i) of this section, shall not occur in contravention 
of paragraphs (a)(6)(v), (a)(7)(iv), or (c)(2)(x)(B)(1) of Sec. 
240.15c3-1 insofar as they apply to such broker or dealer.
    (c) Miscellaneous Provisions--(1) Prohibited Cancellation. The 
subordination agreement shall not be subject to cancellation by either 
party; no Payment shall be made with respect thereto and the agreement 
shall not be terminated,

[[Page 349]]

rescinded or modified by mutual consent or otherwise if the effect 
thereof would be inconsistent with the requirements of 17 CFR 240.15c3-1 
and 240.15c3-1d.
    (2) Every broker or dealer shall immediately notify the Examining 
Authority for such broker or dealer if, after giving effect to all 
Payments of Payment Obligations under subordination agreements then 
outstanding that are then due or mature within the following six months 
without reference to any projected profit or loss of the broker or 
dealer either the aggregate indebtedness of the broker or dealer would 
exceed 1200 percent of its net capital or its net capital would be less 
than 120 percent of the minimum dollar amount required by Sec. 
240.15c3-1, or, in the case of a broker or dealer operating pursuant to 
paragraph (a)(1)(ii) of Sec. 240.15c3-1, its net capital would be less 
than 5 percent of aggregate debit items computed in accordance with 
Sec. 240.15c3-3a, or, if registered as a futures commission merchant, 6 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the option customer's account), if greater, or less than 120 
percent of the minimum dollar amount required by paragraph (a)(1)(ii) of 
Sec. 240.15c3-1.
    (3) Certain Legends. If all the provisions of a satisfactory 
subordination agreement do not appear in a single instrument, then the 
debenture or other evidence of indebtedness shall bear on its face an 
appropriate legend stating that it is issued subject to the provisions 
of a satisfactory subordination agreement which shall be adequately 
referred to and incorporated by reference.
    (4) Legal Title to Securities. All securities pledged as collateral 
to secure a secured demand note must be in bearer form, or registered in 
the name of the broker or dealer or the name of its nominee or 
custodian.

            Temporary and Revolving Subordination Agreements

    (5)(i) For the purpose of enabling a broker or dealer to participate 
as an underwriter of securities or other extraordinary activities in 
compliance with the net capital requirements of Sec. 240.15c3-1, a 
broker or dealer shall be permitted, on no more than three occasions in 
any 12 month period, to enter into a subordination agreement on a 
temporary basis that has a stated term of no more than 45 days from the 
date such subordination agreement became effective. This temporary 
relief shall not apply to a broker or dealer if, within the preceding 
thirty calendar days, it has given notice pursuant to Sec. 240.17a-11, 
or if immediately prior to entering into such subordination agreement, 
either:
    (A) The aggregate indebtedness of the broker or dealer exceeds 1000 
percent of its net capital or its net capital is less than 120 percent 
of the minimum dollar amount required by Sec. 240.15c3-1, or
    (B) In the case of a broker or dealer operating pursuant to 
paragraph (a)(1)(ii) of Sec. 240.15c3-1, its net capital is less than 5 
percent of aggregate debits computed in accordance with Sec. 240.15c3-
1, or, if registered as a futures commission merchant, less than 7 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the option customer's account), if greater, or less than 120 
percent of the minimum dollar amount required by paragraph (a)(1)(ii) of 
this section, or
    (C) The amount of its then outstanding subordination agreements 
exceeds the limits specified in paragraph (d) of Sec. 240.15c3-1. Such 
temporary subordination agreement shall be subject to all other 
provisions of this Appendix D.
    (ii) A broker or dealer shall be permitted to enter into a revolving 
subordinated loan agreement which provides for prepayment within less 
than one year of all or any portion of the Payment Obligation thereunder 
at the option of the broker or dealer upon the

[[Page 350]]

prior written approval of the Examining Authority for the broker or 
dealer. The Examining Authority, however, shall not approve any 
prepayment if:
    (A) After giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding, 
the maturity or accelerated maturities of which are scheduled to fall 
due within six months after the date such prepayment is to occur 
pursuant to this provision or on or prior to the date on which the 
Payment Obligation in respect of such prepayment is scheduled to mature 
disregarding this provision, whichever date is earlier) without 
reference to any projected profit or loss of the broker or dealer, 
either aggregate indebtedness of the broker or dealer would exceed 900 
percent of its net capital or its net capital would be less than 200 
percent of the minimum dollar amount required by Sec. 240.15c3-1 or, in 
the case of a broker or dealer operating pursuant to paragraph 
(a)(1)(ii) of Sec. 240.15c3-1, its net capital would be less than 6 
percent of aggregate debit items computed in accordance with Sec. 
240.15c3-3a, or, if registered as a futures commission merchant, 10 
percent of the funds required to be segregated pursuant to the Commodity 
Exchange Act and the regulations thereunder (less the market value of 
commodity options purchased by option customers on or subject to the 
rules of a contract market, each such deduction not to exceed the amount 
of funds in the option customer's account), if greater, or its net 
capital would be less than 200 percent of the minimum dollar amount 
required by paragraph (a)(1)(ii) of this section or
    (B) Pre-tax losses during the latest three-month period equalled 
more than 15% of current excess net capital.

Any subordination agreement entered into pursuant to this paragraph 
(c)(5)(ii) shall be subject to all the other provisions of this Appendix 
D. Any such subordination agreement shall not be considered equity for 
purposes of subsection (d) of section 15c3-1, despite the length of the 
initial term of the loan.
    (6)(i) Filing. Two copies of any proposed subordination agreement 
(including nonconforming subordination agreements) shall be filed at 
least 10 days prior to the proposed execution date of the agreement with 
the Commission's Regional or District Office for the region or district 
in which the broker or dealer maintains its principal place of business 
or at such other time as the Regional or District Office for good cause 
shall accept such filing. Copies of the proposed agreement shall also be 
filed with the Examining Authority in such quantities and at such time 
as the Examining Authority may require. The broker or dealer shall also 
file with said parties a statement setting forth the name and address of 
the lender, the business relationship of the lender to the broker or 
dealer, and whether the broker or dealer carried funds or securities for 
the lender at or about the time the proposed agreement was so filed. All 
agreements shall be examined by the Commission's Regional or District 
Office or the Examining Authority with whom such agreement is required 
to be filed prior to their becoming effective. No proposed agreement 
shall be a satisfactory subordination agreement for the purposes of this 
section unless and until the Examining Authority has found the agreement 
acceptable and such agreement has become effective in the form found 
acceptable.
    (ii) The broker or dealer need not file with the Regional or 
District Office for the region or district in which the broker or dealer 
maintains its principal place of business (if a Regional or District 
Office is not its Examining Authority) copies of any proposed 
subordination agreement or the statement described above if the 
Examining Authority for that broker or dealer has consented to file with 
the Commission periodic reports (not less than monthly) summarizing for 
the period, on a firm-by-firm basis, the subordination agreements it has 
approved for that period. Such reports should include at the minimum, 
the amount of the loan and its duration, the name of the lender and the 
business relationship of the lender to the broker or dealer.
    (7) Subordination Agreements in Effect Prior to Adoption. Any 
subordination agreement which has been entered into prior to December 
20, 1978 and which has been deemed to be satisfactorily

[[Page 351]]

subordinated pursuant to 17 CFR 240.15c3-1 as in effect prior to 
December 20, 1978, shall continue to be deemed a satisfactory 
subordination agreement until the maturity of such agreement. Provided, 
That no renewal of an agreement which provides for automatic or optional 
renewal by the broker or dealer or lender shall be deemed to be a 
satisfactory subordination agreement unless such renewed agreement meets 
the requirements of this Appendix within 6 months from December 20, 
1978. Provided, further, That all subordination agreements must meet the 
requirements of this Appendix within 5 years of December 20, 1978.

(Secs. 15(c)(3), 17(a) and 23(a), 15 U.S.C. 78o(c)(3), 78q(a), and 
78w(a))

[40 FR 29808, July 16, 1975, as amended at 42 FR 31778, June 23, 1977; 
44 FR 34887, June 15, 1979; 46 FR 35635, July 10, 1981; 47 FR 21775, May 
20, 1982; 49 FR 31848, Aug. 9, 1984; 57 FR 56988, Dec. 2, 1992; 58 FR 
37657, July 13, 1993; 59 FR 5945, Feb. 9, 1994]



Sec. 240.15c3-1e  Temporary Minimum Requirements (Appendix E to 17 CFR 240.15c3-1e).

 Brokers or Dealers That Carry Customer Accounts Aggregate Indebtedness 
                                Standard

    (a) A broker or dealer that falls within the provisions of paragraph 
(a)(2)(i) of Sec. 240.15c3-1 and computes its required net capital 
under Sec. 240.15c3-1(a)(1)(i) shall maintain net capital not less than 
the greater of the amount computed under the paragraph (a)(1)(i) or:
    (1) $25,000 until June 30, 1993;
    (2) $100,000 on July 1, 1993, until December 31, 1993;
    (3) $175,000 on January 1, 1994, until June 30, 1994; and
    (4) $250,000 on July 1, 1994.

         Brokers or Dealers That Elect the Alternative Standard

    (b) A broker or dealer that elects the provisions of Sec. 240.15c3-
1(a)(1)(ii) shall maintain net capital of not less than the greater of 
the amount computed under the paragraph (a)(1)(ii) or:
    (1) $100,000 until June 30, 1993;
    (2) $150,000 on July 1, 1993, until December 31, 1993;
    (3) $200,000 on January 1, 1994, until June 30, 1994; and
    (4) $250,000 on July 1, 1994.

  Broker or Dealers That are Exempt From Securities Exchange Act Rule 
              15c3-3 Under Paragraph (k)(2)(i) and Dealers

    (c) A broker or dealer that falls within the provisions of Sec. 
240.15c3-1(a)(2) (ii) or (iii) and computes its required net capital 
under Sec. 240.15c3-1(a)(1)(i) shall maintain net capital not less than 
the greater of the same computed under Sec. 240.15c3-1(a)(1)(i) or:
    (1) $25,000 until June 30, 1993;
    (2) $50,000 on July 1, 1993, until December 31, 1993;
    (3) $75,000 on January 1, 1994, until June 30, 1994; and
    (4) $100,000 on July 1, 1994.

    Brokers or Dealers That Introduce Customer Accounts and Receive 
                               Securities

    (d) An introducing broker that falls within the provisions of Sec. 
240.15c3-1(a)(2)(iv) and computes its required net capital under Sec. 
240.15c3-1(a)(1)(i) shall maintain net capital of not less than the 
greater of the amount computed under Sec. 240.15c3-1(a)(1)(i) or:
    (1) $5,000 until June 30, 1993;
    (2) $20,000 on July 1, 1993, until December 31, 1993;
    (3) $35,000 on January 1, 1994, until June 30, 1994; and
    (4) $50,000 on July 1, 1994.

     Brokers or Dealers Engaged in the Sale of Redeemable Shares of 
    Registered Investment Companies and Certain Other Share Accounts

    (e) A broker or dealer that falls within the provisions of Sec. 
240.15c3-1(a)(2)(v) and computes its required net capital under Sec. 
240.15c3-1(a)(1)(i) shall maintain net capital of not less than the 
greater of the amount computed under Sec. 240.15c3-1(a)(1)(i) or:
    (1) $2,500 until June 30, 1993;
    (2) $10,000 on July 1, 1993, until December 31, 1993;
    (3) $17,500 on January 1, 1994, until June 30, 1994; and
    (4) $25,000 on July 1, 1994.

                        Other Brokers or Dealers

    (f) A broker or dealer that falls within the provisions of Sec. 
240.15c3-1(a)(2)(vi), computes its required net capital under Sec. 
240.15c3-1(a)(1)(i) and is not otherwise

[[Page 352]]

subject to a $5,000 minimum net capital requirement shall maintain net 
capital of not less than the greater of the amount computed under Sec. 
240.15c3-1(a)(1)(i) or:
    (1) $2,500 until June 30, 1993;
    (2) $3,300 on July 1, 1993, until December 31, 1993;
    (3) $4,100 on January 1, 1994, until June 30, 1994; and
    (4) $5,000 on July 1, 1994.

[57 FR 56990, Dec. 2, 1992]



Sec. 240.15c3-1f  Optional market and credit risk requirements for OTC 
derivatives dealers (Appendix F to 17 CFR 240.15c3-1).

                        Application Requirements

    (a) An OTC derivatives dealer may apply to the Commission for 
authorization to compute capital charges for market and credit risk 
pursuant to this Appendix F in lieu of computing securities haircuts 
pursuant to Sec. 240.15c3-1(c)(2)(vi).
    (1) An OTC derivatives dealer's application shall contain the 
following information:
    (i) Executive summary. An OTC derivatives dealer shall include in 
its application an Executive Summary of information provided to the 
Commission.
    (ii) Description of methods for computing market risk charges. An 
OTC derivatives dealer shall provide a description of all statistical 
models used for pricing OTC derivative instruments and for computing 
value-at-risk (``VAR''), a description of the applicant's controls over 
those models, and a statement regarding whether the firm has developed 
its own internal VAR models. If the OTC derivatives dealer's VAR model 
incorporates empirical correlations across risk categories, the dealer 
shall describe its process for measuring correlations and describe the 
qualitative and quantitative aspects of the model which at a minimum 
must adhere to the criteria set forth in paragraph (e) of this Appendix 
F. The application shall further state whether the OTC derivatives 
dealer intends to use an alternative method for computing its market 
risk charge for equity instruments and, if applicable, a description of 
how its own theoretical pricing model contains the minimum pricing 
factors set forth in Appendix A (Sec. 240.15c3-1a). The application 
shall also describe any category of securities having no ready market or 
any category of debt securities which are below investment grade for 
which the OTC derivatives dealer wishes to use its VAR model to 
calculate its market risk charge or for which it wishes to use an 
alternative method for computing this charge and a description of how 
those charges would be determined.
    (iii) Internal risk management control systems. An OTC derivatives 
dealer shall provide a comprehensive description of its internal risk 
management control systems and how those systems adhere to the 
requirements set forth in Sec. 240.15c3-4(a) through (d).
    (2) The Commission may approve the application after reviewing the 
application to determine whether the OTC derivatives dealer:
    (i) Has adopted internal risk management control systems that meet 
the requirements set forth in Sec. 240.15c3-4; and
    (ii) Has adopted a VAR model that meets the requirements set forth 
in paragraphs (e)(1) and (e)(2) of this Appendix F.
    (3) If the OTC derivatives dealer materially amends its VAR model or 
internal risk management control systems as described in its 
application, including any material change in the categories of non-
marketable securities that it wishes to include in its VAR model, the 
dealer shall file an application describing the changes which must be 
approved by the Commission before the changes may be implemented. After 
reviewing the application for changes to the dealer's VAR model or 
internal risk management control systems to determine whether, with the 
changes, the OTC derivatives dealer's VAR model and internal risk 
management control systems would meet the requirements set forth in this 
Appendix F and Sec. 240.15c3-4, the Commission may approve the 
application.
    (4) The applications provided for in this paragraph (a) shall be 
considered filed when received at the Commission's principal office in 
Washington, DC. All applications filed pursuant to this paragraph (a) 
shall be deemed to be confidential.

[[Page 353]]

                    Compliance With Sec. 240.15c3-4

    (b) An OTC derivatives dealer must be in compliance in all material 
respects with Sec. 240.15c3-4 regarding its internal risk management 
control systems in order to be in compliance with Sec. 240.15c3-1.

                               Market Risk

    (c) An OTC derivatives dealer electing to apply this Appendix F 
shall compute a capital charge for market risk which shall be the 
aggregate of the charges computed below:
    (1) Value-at-Risk. An OTC derivatives dealer shall deduct from net 
worth an amount for market risk for eligible OTC derivative instruments 
and other positions in its proprietary or other accounts equal to the 
VAR of these positions obtained from its proprietary VAR model, 
multiplied by the appropriate multiplication factor in paragraph 
(e)(1)(iv)(C) of this Appendix F. The OTC derivatives dealer may not 
elect to calculate its capital charges under this paragraph (c)(1) until 
its application to use the VAR model has been approved by the 
Commission.
    (2) Alternative method for equities. An OTC derivatives dealer may 
elect to use this alternative method to calculate its market risk for 
equity instruments, including OTC options, upon approval by the 
Commission on application by the dealer. Under this alternative method, 
the deduction for market risk must be the amount computed pursuant to 
Appendix A to Rule 15c3-1

(Sec. 240.15c3-1a). In this computation, the OTC derivatives dealer may 
use its own theoretical pricing model provided that it contains the 
minimum pricing factors set forth in Appendix A.
    (3) Non-marketable securities. An OTC derivatives dealer may not use 
a VAR model to determine a capital charge for any category of securities 
having no ready market or any category of debt securities which are 
below investment grade or any derivative instrument based on the value 
of these categories of securities, unless the Commission has granted, 
pursuant to paragraph (a)(1) of this Appendix F, its application to use 
its VAR model for any such category of securities. The dealer in any 
event may apply, pursuant to paragraph (a)(1) of this Appendix F, for an 
alternative treatment for any such category of securities, rather than 
calculate the market risk capital charge for such category of securities 
under Sec. 240.15c3-1(c)(2)(vi) and (vii).
    (4) Residual positions. To the extent that a position has not been 
included in the calculation of the market risk charge in paragraphs 
(c)(1) through (c)(3) of this section, the market risk charge for the 
position shall be computed under Sec. 240.15c3-1(c)(2)(vi).

                               Credit Risk

    (d) The capital charge for credit risk arising from an OTC 
derivatives dealer's transactions in eligible OTC derivative instruments 
shall be:
    (1) The net replacement value in the account of a counterparty 
(including the effect of legally enforceable netting agreements and the 
application of liquid collateral) that is insolvent, or in bankruptcy, 
or that has senior unsecured long-term debt in default;
    (2) As to a counterparty not otherwise described in paragraph (d)(1) 
of this section, the net replacement value in the account of the 
counterparty (including the effect of legally enforceable netting 
agreements and the application of liquid collateral) multiplied by 8%, 
and further multiplied by the counterparty factor. The counterparty 
factors are:
    (i) 20% for counterparties with ratings for senior unsecured long-
term debt or commercial paper in the two highest rating categories by a 
nationally recognized statistical rating organization (``NRSRO'');
    (ii) 50% for counterparties with ratings for senior unsecured long-
term debt in the third and fourth highest ratings categories by an 
NRSRO; and
    (iii) 100% for counterparties with ratings for senior unsecured 
long-term debt below the four highest rating categories; and
    (3) A concentration charge where the net replacement value in the 
account of any one counterparty (other than a counterparty described in 
paragraph (d)(1) of this section) exceeds 25% of the OTC derivatives 
dealer's tentative net capital, calculated as follows:

[[Page 354]]

    (i) For counterparties with ratings for senior unsecured long-term 
debt or commercial paper in the two highest rating categories by an 
NRSRO, 5% of the amount of the net replacement value in excess of 25% of 
the OTC derivatives dealer's tentative net capital;
    (ii) For counterparties with ratings for senior unsecured long-term 
debt in the third and fourth highest rating categories by an NRSRO, 20% 
of the amount of the net replacement value in excess of 25% of the OTC 
derivatives dealer's tentative net capital; and
    (iii) For counterparties with ratings for senior unsecured long-term 
debt below the four highest rating categories, 50% of the amount of the 
net replacement value in excess of 25% of the OTC derivatives dealer's 
tentative net capital.
    (4) Counterparties that are not rated by an NRSRO may be rated by 
the OTC derivatives dealer, or by an affiliated bank or affiliated 
broker-dealer of the OTC derivatives dealer, upon approval by the 
Commission on application by the OTC derivatives dealer. After reviewing 
the application to determine whether the credit rating procedures and 
rating categories are equivalent to those used by NRSROs and that such 
ratings are current, the Commission may approve the application. The OTC 
derivatives dealer must make and keep current a record of the basis for 
the credit rating for each counterparty. The record must be preserved 
for a period of not less than three years, the first two years in an 
easily accessible place.

                               VAR Models

    (e) An OTC derivatives dealer's VAR model must meet the following 
qualitative and quantitative requirements:
    (1) Qualitative requirements. An OTC derivatives dealerapplying this 
Appendix F must have a VAR model that meets the following minimum 
qualitative requirements:
    (i) The OTC derivatives dealer's VAR model must be integrated into 
the firm's daily risk management process;
    (ii) The OTC derivatives dealer must conduct appropriate stress 
tests of the VAR model, and develop appropriate procedures to follow in 
response to the results of such tests;
    (iii) The OTC derivatives dealer must conduct periodic reviews 
(which may be performed by internal audit staff) of its VAR model. The 
OTC derivatives dealer's VAR model also must be subject to annual 
reviews conducted by independent public accountants; and
    (iv) The OTC derivatives dealer must conduct backtesting of the VAR 
model pursuant to the following procedures:
    (A) Beginning one year after the OTC derivatives dealer begins using 
its VAR model to calculate its net capital, the OTC derivatives dealer 
must conduct backtesting by comparing each of its most recent 250 
business days' actual net trading profit or loss with the corresponding 
daily VAR measures generated for determining market risk capital charges 
and calibrated to a one-day holding period and a 99 percent, one-tailed 
confidence level;
    (B) Once each quarter, the OTC derivatives dealer must identify the 
number of exceptions, that is, the number of business days for which the 
actual daily net trading loss, if any, exceeded the corresponding daily 
VAR measure; and
    (C) An OTC derivatives dealer must use the multiplication factor 
indicated in Table 1 of this Appendix F in determining its capital 
charge for market risk until it obtains the next quarter's backtesting 
results, unless the Commission determines that a different adjustment or 
other action is appropriate.

     Table 5--Multiplication Factor Based on Results of Backtesting
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
 4 or fewer.............................................         3.00
 5......................................................         3.40
 6......................................................         3.50
 7......................................................         3.65
 8......................................................         3.75
 9......................................................         3.85
10 or more..............................................         4.00
------------------------------------------------------------------------

    (2) Quantitative requirements. An OTC derivatives dealer applying 
this Appendix F must have a VAR model that meets the following minimum 
quantitative requirements:
    (i) The VAR measures must be calculated on a daily basis using a 99 
percent, one-tailed confidence level with a

[[Page 355]]

price change equivalent to a ten-business day movement in rates and 
prices;
    (ii) The effective historical observation period for VAR measures 
must be at least one year, and the weighted average time lag of the 
individual observations cannot be less than six months. Historical data 
sets must be updated at least every three months and reassessed whenever 
market prices or volatilities are subject to large changes;
    (iii) The VAR measures must include the risks arising from the non-
linear price characteristics of options positions and the sensitivity of 
the market value of the positions to changes in the volatility of the 
underlying rates or prices. An OTC derivatives dealer must measure the 
volatility of options positions by different maturities;
    (iv) The VAR measures may incorporate empirical correlations within 
and across risk categories, provided that the OTC derivatives dealer has 
described its process for measuring correlations in its application to 
apply this Appendix F and the Commission has approved its application. 
In the event that the VAR measures do not incorporate empirical 
correlations across risk categories, the OTC derivatives dealer must add 
the separate VAR measures for the four major risk categories in 
paragraph (e)(2)(v) of this Appendix F to determine its aggregate VAR 
measure; and
    (v) The OTC derivatives dealer's VAR model must use risk factors 
sufficient to measure the market risk inherent in all covered positions. 
The risk factors must address, at a minimum, the following major risk 
categories: interest rate risk, equity price risk, foreign exchange rate 
risk, and commodity price risk. For material exposures in the major 
currencies and markets, modeling techniques must capture, at a minimum, 
spread risk and must incorporate enough segments of the yield curve to 
capture differences in volatility and less-than-perfect correlation of 
rates along the yield curve. An OTC derivatives dealer must provide the 
Commission with evidence that the OTC derivatives dealer's VAR model 
takes account of specific risk in positions, including specific equity 
risk, if the OTC derivatives dealer intends to utilize its VAR model to 
compute capital charges for equity price risk.

[63 FR 59398, Nov. 3, 1998]



Sec. 240.15c3-2  Customers' free credit balances.

    No broker or dealer shall use any funds arising out of any free 
credit balance carried for the account of any customer in connection 
with the operation of the business of such broker or dealer unless such 
broker or dealer has established adequate procedures pursuant to which 
each customer for whom a free credit balance is carried will be given or 
sent, together with or as a part of the customer's statement of account, 
whenever sent but not less frequently than once every three months, a 
written statement informing such customer of the amount due to the 
customer by such broker or dealer on the date of such statement, and 
containing a written notice that (a) such funds are not segregated and 
may be used in the operation of the business of such broker or dealer, 
and (b) such funds are payable on the demand of the customer: Provided, 
however, That this section shall not apply to a broker or dealer which 
is also a banking institution supervised and examined by State or 
Federal authority having supervision over banks. For the purpose of this 
section the term customer shall mean every person other than a broker or 
dealer.

(Sec. 15, 48 Stat. 895; 15 U.S.C. 78o)

[29 FR 7240, June 3, 1964]



Sec. 240.15c3-3  Customer protection--reserves and custody of securities.

    (a) Definitions. For the purpose of this section:
    (1) The term customer shall mean any person from whom or on whose 
behalf a broker or dealer has received or acquired or holds funds or 
securities for the account of that person. The term shall not include a 
broker or dealer, a municipal securities dealer, or a government 
securities broker or government securities dealer. The term shall, 
however, include another broker or dealer to the extent that broker or 
dealer maintains an omnibus account for the account of customers with 
the broker or dealer in compliance with

[[Page 356]]

Regulation T (12 CFR 220.1 through 220.19). The term shall not include a 
general partner or director or principal officer of the broker or dealer 
or any other person to the extent that person has a claim for property 
or funds which by contract, agreement or understanding, or by operation 
of law, is part of the capital of the broker or dealer or is 
subordinated to the claims of creditors of the broker or dealer. In 
addition, the term shall not include a person to the extent that the 
person has a claim for security futures products held in a futures 
account, or any security futures product and any futures product held in 
a ``proprietary account'' as defined by the Commodity Futures Trading 
Commission in Sec. 1.3(y) of this chapter. The term also shall not 
include a counterparty who has delivered collateral to an OTC 
derivatives dealer pursuant to a transaction in an eligible OTC 
derivative instrument, or pursuant to the OTC derivatives dealer's cash 
management securities activities or ancillary portfolio management 
securities activities, and who has received a prominent written notice 
from the OTC derivatives dealer that:
    (i) Except as otherwise agreed in writing by the OTC derivatives 
dealer and the counterparty, the dealer may repledge or otherwise use 
the collateral in its business;
    (ii) In the event of the OTC derivatives dealer's failure, the 
counterparty will likely be considered an unsecured creditor of the 
dealer as to that collateral;
    (iii) The Securities Investor Protection Act of 1970 (15 U.S.C. 
78aaa et seq.) does not protect the counterparty; and
    (iv) The collateral will not be subject to the requirements of Sec. 
240.8c-1, Sec. 240.15c2-1, Sec. 240.15c3-2, or Sec. 240.15c3-3;
    (2) The term securities carried for the account of a customer 
(hereinafter also ``customer securities'') shall mean:
    (i) Securities received by or on behalf of a broker or dealer for 
the account of any customer and securities carried long by a broker or 
dealer for the account of any customer; and
    (ii) Securities sold to, or bought for, a customer by a broker or 
dealer.
    (3) The term fully paid securities shall include all securities 
carried for the account of a customer in a special cash account as 
defined in Regulation T promulgated by the Board of Governors of the 
Federal Reserve System, as well as margin equity securities within the 
meaning of Regulation T which are carried for the account of a customer 
in a general account or any special account under Regulation T during 
any period when section 8 of Regulation T (12 CFR 220.8) specifies that 
margin equity securities shall have no loan value in a general account 
or special convertible debt security account, and all such margin equity 
securities in such account if they are fully paid: Provided, however, 
That the term ``fully paid securities'' shall not apply to any 
securities which are purchased in transactions for which the customer 
has not made full payment.
    (4) The term margin securities shall mean those securities carried 
for the account of a customer in a general account as defined in 
Regulation T, as well as securities carried in any special account (such 
general or special accounts hereinafter referred to as ``margin 
accounts'') other than the securities referred to in paragraph (a)(3) of 
this section.
    (5) The term excess margin securities shall mean those securities 
referred to in paragraph (a)(4) of this section carried for the account 
of a customer having a market value in excess of 140 percent of the 
total of the debit balances in the customer's account or accounts 
encompassed by paragraph (a)(4) of this section which the broker or 
dealer identifies as not constituting margin securities.
    (6) The term qualified security shall mean a security issued by the 
United States or a security in respect of which the principal and 
interest are guaranteed by the United States.
    (7) The term bank shall mean a bank as defined in section 3(a)(6) of 
the Act and shall also mean any building and loan, savings and loan or 
similar banking institution subject to supervision by a Federal banking 
authority. With respect to a broker or dealer who maintains his 
principal place of business in the Dominion of Canada, the term ``bank'' 
shall also mean a Canadian bank subject to supervision by an authority 
of the Dominion of Canada.

[[Page 357]]

    (8) The term free credit balances shall mean liabilities of a broker 
or dealer to customers which are subject to immediate cash payment to 
customers on demand, whether resulting from sales of securities, 
dividends, interest, deposits or otherwise, excluding, however, funds in 
commodity accounts which are segregated in accordance with the Commodity 
Exchange Act or in a similar manner.
    (9) The term other credit balances shall mean cash liabilities of a 
broker or dealer to customers other than free credit balances and funds 
in commodities accounts segregated as aforesaid.
    (10) The term funds carried for the account of any customer 
(hereinafter also ``customer funds'') shall mean all free credit and 
other credit balances carried for the account of the customer.
    (11) The term principal officer shall mean the president, executive 
vice president, treasurer, secretary or any other person performing a 
similar function with the broker or dealer.
    (12) The term household members and other persons related to 
principals includes husbands or wives, children, sons-in-law or 
daughters-in-law and any household relative to whose support a principal 
contributes directly or indirectly. For purposes of this paragraph 
(a)(12), a principal shall be deemed to be a director, general partner, 
or principal officer of the broker or dealer.
    (13) The term affiliated person includes any person who directly or 
indirectly controls a broker or dealer or any person who is directly or 
indirectly controlled by or under common control with the broker or 
dealer. Ownership of 10% or more of the common stock of the relevant 
entity will be deemed prima facie control of that entity for purposes of 
this paragraph.
    (14) The term securities account shall mean an account that is 
maintained in accordance with the requirements of section 15(c)(3) of 
the Act (15 U.S.C. 78o(c)(3)) and Sec. 240.15c3-3.
    (15) The term futures account (also referred to as ``commodity 
account'') shall mean an account that is maintained in accordance with 
the segregation requirements of section 4d of the Commodity Exchange Act 
(7 U.S.C. 6d) and the rules thereunder.
    (b) Physical possession or control of securities. (1) A broker or 
dealer shall promptly obtain and shall thereafter maintain the physical 
possession or control of all fully-paid securities and excess margin 
securities carried by a broker or dealer for the account of customers.
    (2) A broker or dealer shall not be deemed to be in violation of the 
provisions of paragraph (b)(1) of this section regarding physical 
possession or control of customers' securities if, solely as the result 
of normal business operations, temporary lags occur between the time 
when a security is required to be in the possession or control of the 
broker or dealer and the time that it is placed in his physical 
possession or under his control, provided that the broker or dealer 
takes timely steps in good faith to establish prompt physical possession 
or control. The burden of proof shall be on the broker or dealer to 
establish that the failure to obtain physical possession or control of 
securities carried for the account of customers as required by paragraph 
(b)(1) of this section is merely temporary and solely the result of 
normal business operations including same day receipt and redelivery 
(turnaround), and to establish that he has taken timely steps in good 
faith to place them in his physical possession or control.
    (3) A broker or dealer shall not be deemed to be in violation of the 
provisions of paragraph (b)(1) of this section regarding physical 
possession or control of fully-paid or excess margin securities borrowed 
from any person, provided that the broker or dealer and the lender, at 
or before the time of the loan, enter into a written agreement that, at 
a minimum;
    (i) Sets forth in a separate schedule or schedules the basis of 
compensation for any loan and generally the rights and liabilities of 
the parties as to the borrowed securities;
    (ii) Provides that the lender will be given a schedule of the 
securities actually borrowed at the time of the borrowing of the 
securities;
    (iii) Specifies that the broker or dealer:
    (A) Must provide to the lender, upon the execution of the agreement 
or by the close of the business day of the

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loan if the loan occurs subsequent to the execution of the agreement, 
collateral, which fully secures the loan of securities, consisting 
exclusively of cash or United States Treasury bills and Treasury notes 
or an irrevocable letter of credit issued by a bank as defined in 
section 3(a)(6)(A)-(C) of the Act (15 U.S.C. 78c(a)(6)(A)-(C)) or such 
other collateral as the Commission designates as permissible by order as 
necessary or appropriate in the public interest and consistent with the 
protection of investors after giving consideration to the collateral's 
liquidity, volatility, market depth and location, and the issuer's 
creditworthiness; and
    (B) Must mark the loan to the market not less than daily and, in the 
event that the market value of all the outstanding securities loaned at 
the close of trading at the end of the business day exceeds 100 percent 
of the collateral then held by the lender, the borrowing broker or 
dealer must provide additional collateral of the type described in 
paragraph (b)(3)(iii)(A) of this section to the lender by the close of 
the next business day as necessary to equal, together with the 
collateral then held by the lender, not less than 100 percent of the 
market value of the securities loaned; and
    (iv) Contains a prominent notice that the provisions of the 
Securities Investor Protection Act of 1970 may not protect the lender 
with respect to the securities loan transaction and that, therefore, the 
collateral delivered to the lender may constitute the only source of 
satisfaction of the broker's or dealer's obligation in the event the 
broker or dealer fails to return the securities.
    (4)(i) Notwithstanding paragraph (k)(2)(i) of this section, a broker 
or dealer that retains custody of securities that are the subject of a 
repurchase agreement between the broker or dealer and a counterparty 
shall:
    (A) Obtain the repurchase agreement in writing;
    (B) Confirm in writing the specific securities that are the subject 
of a repurchase transaction pursuant to such agreement at the end of the 
trading day on which the transaction is intitiated and at the end of any 
other day during which other securities are substituted if the 
substitution results in a change to issuer, maturity date, par amount or 
coupon rate as specified in the previous confirmation;
    (C) Advise the counterparty in the repurchase agreement that the 
Securities Investor Protection Corporation has taken the position that 
the provisions of the Securities Investor Protection Act of 1970 do not 
protect the counterparty with respect to the repurchase agreement;
    (D) Maintain possession or control of securities that are the 
subject of the agreement.
    (ii) For purpose of this paragraph (b)(4), securities are in the 
broker's or dealer's control only if they are in the control of the 
broker or dealer within the meaning of Sec. 240.15c3-3 (c)(1), (c)(3), 
(c)(5) or (c)(6) of this title.
    (iii) A broker or dealer shall not be in violation of the 
requirement to maintain possession or control pursuant to paragraph 
(b)(4)(i)(D) during the trading day if:
    (A) In the written repurchase agreement, the counterparty grants the 
broker or dealer the right to substitute other securities for those 
subject to the agreement; and
    (B) The provision in the written repurchase agreement governing the 
right, if any, to substitute is immediately preceded by the following 
disclosure statement, which must be prominently displayed:

                           Required Disclosure

    The [seller] is not permitted to substitute other securities for 
those subject to this agreement and therefore must keep the [buyer's] 
securities segregated at all times, unless in this agreement the [buyer] 
grants the [seller] the right to substitute other securities. If the 
[buyer] grants the right to substitute, this means that the [buyer's] 
securities will likely be commingled with the [seller's] own securities 
during the trading day. The [buyer] is advised that, during any trading 
day that the [buyer's] securities are commingled with the [seller's] 
securities, they will be subject to liens granted by the [seller] to its 
clearing bank and may be used by the [seller] for deliveries on other 
securities transactions. Whenever the securities are commingled, the 
[seller's] ability to resegregate substitute securities for the [buyer] 
will be subject to the [seller's] ability to satisfy the clearing lien 
or to obtain substitute securities.


[[Page 359]]


    (iv) A confirmation issued in accordance with paragraph (b)(4)(i)(B) 
of this section shall specify the issuer, maturity date, coupon rate, 
par amount and market value of the security and shall further identify a 
CUSIP or mortgage-backed security pool number, as appropriate, except 
that a CUSIP or a pool number is not required on the confirmation if it 
is identified in internal records of the broker or dealer that designate 
the specific security of the counterparty. For purposes of this 
paragraph (b)(4)(iv), the market value of any security that is the 
subject of the repurchase transaction shall be the most recently 
available bid price plus accrued interest, obtained by any reasonable 
and consistent methodology.
    (v) This paragraph (b)(4) shall not apply to a repurchase agreement 
between the broker or dealer and another broker or dealer (including a 
government securities broker or dealer), a registered municipal 
securities dealer, or a general partner or director or principal officer 
of the broker or dealer or any person to the extent that his claim is 
explicitly subordinated to the claims of creditors of the broker or 
dealer.
    (c) Control of securities. Securities under the control of a broker 
or dealer shall be deemed to be securities which:
    (1) Are represented by one or more certificates in the custody or 
control of a clearing corporation or other subsidiary organization of 
either national securities exchanges or of a registered national 
securities association, or of a custodian bank in accordance with a 
system for the central handling of securities complying with the 
provisions of Sec. Sec. 240.8c-1(g) and 240.15c2-1(g) the delivery of 
which certificates to the broker or dealer does not require the payment 
of money or value, and if the books or records of the broker or dealer 
identify the customers entitled to receive specified quantities or units 
of the securities so held for such customers collectively; or
    (2) Are carried for the account of any customer by a broker or 
dealer and are carried in a special omnibus account in the name of such 
broker or dealer with another broker or dealer in compliance with the 
requirements of section 4(b) of Regulation T under the Act (12 CFR 
220.4(b)), such securities being deemed to be under the control of such 
broker or dealer to the extent that he has instructed such carrying 
broker or dealer to maintain physical possession or control of them free 
of any charge, lien, or claim of any kind in favor of such carrying 
broker or dealer or any persons claiming through such carrying broker or 
dealer; or
    (3) Are the subject of bona fide items of transfer; provided that 
securities shall be deemed not to be the subject of bona fide items of 
transfer if, within 40 calendar days after they have been transmitted 
for transfer by the broker or dealer to the issuer or its transfer 
agent, new certificates conforming to the instructions of the broker or 
dealer have not been received by him, he has not received a written 
statement by the issuer or its transfer agent acknowledging the transfer 
instructions and the possession of the securities or he has not obtained 
a revalidation of a window ticket from a transfer agent with respect to 
the certificate delivered for transfer; or
    (4) Are in the custody of a foreign depository, foreign clearing 
agency or foreign custodian bank which the Commission upon application 
from a broker or dealer, a registered national securities exchange or a 
registered national securities association, or upon its own motion shall 
designate as a satisfactory control location for securities; or
    (5) Are in the custody or control of a bank as defined in section 
3(a)(6) of the Act, the delivery of which securities to the broker or 
dealer does not require the payment of money or value and the bank 
having acknowledged in writing that the securities in its custody or 
control are not subject to any right, charge, security interest, lien or 
claim of any kind in favor of a bank or any person claiming through the 
bank; or
    (6)(i) Are held in or are in transit between offices of the broker 
or dealer; or (ii) are held by a corporate subsidiary if the broker or 
dealer owns and exercises a majority of the voting rights of all of the 
voting securities of such subsidiary, assumes or guarantees all of the 
subsidiary's obligations and liabilities, operates the subsidiary as a 
branch office of the broker or dealer, and assumes full responsibility 
for compliance by the subsidiary and all of

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its associated persons with the provisions of the Federal securities 
laws as well as for all of the other acts of the subsidiary and such 
associated persons; or
    (7) Are held in such other locations as the Commission shall upon 
application from a broker or dealer find and designate to be adequate 
for the protection of customer securities.
    (d) Requirement to reduce securities to possession or control. Not 
later than the next business day, a broker or dealer, as of the close of 
the preceding business day, shall determine from his books or records 
the quantity of fully paid securities and excess margin securities in 
his possession or control and the quantity of fully paid securities and 
excess margin securities not in his possession or control. In making 
this daily determination inactive margin accounts (accounts having no 
activity by reason of purchase or sale of securities, receipt or 
delivery of cash or securities or similar type events) may be computed 
not less than once weekly. If such books or records indicate, as of such 
close of the business day, that such broker or dealer has not obtained 
physical possession or control of all fully paid and excess margin 
securities as required by this section and there are securities of the 
same issue and class in any of the following noncontrol locations:
    (1) Securities subject to a lien securing moneys borrowed by the 
broker or dealer or securities loaned to another broker or dealer or a 
clearing corporation, then the broker or dealer shall, not later than 
the business day following the day on which such determination is made, 
issue instructions for the release of such securities from the lien or 
return of such loaned securities and shall obtain physical possession or 
control of such securities within two business days following the date 
of issuance of the instructions in the case of securities subject to 
lien securing borrowed moneys and within five business days following 
the date of issuance of instructions in the case of securities loaned; 
or
    (2) Securities included on his books or records as failed to receive 
more than 30 calendar days, then the broker or dealer shall, not later 
than the business day following the day on which such determination is 
made, take prompt steps to obtain physical possession or control of 
securities so failed to receive through a buy-in procedure or otherwise; 
or
    (3) Securities receivable by the broker or dealer as a security 
dividend receivable, stock split or similar distribution for more than 
45 calendar days, then the broker or dealer shall, not later than the 
business day following the day on which such determination is made, take 
prompt steps to obtain physical possession or control of securities so 
receivable through a buy-in procedure or otherwise.
    (4) A broker or dealer which is subject to the requirements of Sec. 
240.15c3-3 with respect to physical possession or control of fully paid 
and excess margin securities shall prepare and maintain a current and 
detailed description of the procedures which it utilizes to comply with 
the possession or control requirements set forth in this section. The 
records required herein shall be made available upon request to the 
Commission and to the designated examining authority for such broker or 
dealer.
    (e) Special reserve bank account for the exclusive benefit of 
customers. (1) Every broker or dealer shall maintain with a bank or 
banks at all times when deposits are required or hereinafter specified a 
``Special Reserve Bank Account for the Exclusive Benefit of Customers'' 
(hereinafter referred to as the ``Reserve Bank Account''), and it shall 
be separate from any other bank account of the broker or dealer. Such 
broker or dealer shall at all times maintain in such Reserve Bank 
Account, through deposits made therein, cash and/or qualified securities 
in an amount not less than the amount computed in accordance with the 
formula set forth in Sec. 240.15c3-3a.
    (2) It shall be unlawful for any broker or dealer to accept or use 
any of the amounts under items comprising Total Credits under the 
formula referred to in paragraph (e)(1) of this section except for the 
specified purposes indicated under items comprising Total Debits under 
the formula, and, to the extent Total Credits exceed Total Debits, at 
least the net amount thereof shall be maintained in the Reserve

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Bank Account pursuant to paragraph (e)(1) of this section.
    (3) Computations necessary to determine the amount required to be 
deposited as specified in paragraph (e)(1) of this section shall be made 
weekly, as of the close of the last business day of the week, and the 
deposit so computed shall be made no later than 1 hour after the opening 
of banking business on the second following business day; provided, 
however, a broker or dealer which has aggregate indebtedness not 
exceeding 800 percent of net capital (as defined in Sec. 240.15c3-1 or 
in the capital rules of a national securities exchange of which it is a 
member and exempt from Sec. 240.15c3-1 by paragraph (b)(2) thereof) and 
which carries aggregate customer funds (as defined in paragraph (a)(10) 
of this section), as computed at the last required computation pursuant 
to this section, not exceeding $1 million, may in the alternative make 
the computation monthly, as of the close of the last business day of the 
month, and, in such event, shall deposit not less than 105 percent of 
the amount so computed no later than 1 hour after the opening of banking 
business on the second following business day. If a broker or dealer, 
computing on a monthly basis, has, at the time of any required 
computation, aggregate indebtedness in excess of 800 percent of net 
capital, such broker or dealer shall thereafter compute weekly as 
aforesaid until four successive weekly computations are made, none of 
which were made at a time when his aggregate indebtedness exceeded 800 
percent of his net capital. Computations in addition to the computations 
required in this paragraph (3), may be made as of the close of any other 
business day, and the deposits so computed shall be made no later than 1 
hour after the opening of banking business on the second following 
business day. The broker or dealer shall make and maintain a record of 
each such computation made pursuant to this paragraph (3) or otherwise 
and preserve each such record in accordance with Sec. 240.17a-4.
    (f) Notification of banks. A broker or dealer required to maintain 
the reserve bank account prescribed by this section or who maintains a 
special account referred to in paragraph (k) of this section shall 
obtain and preserve in accordance with Sec. 240.17a-4 written 
notification from each bank in which he has his reserve bank account or 
special account that the bank was informed that all cash and/or 
qualified securities deposited therein are being held by the bank for 
the exclusive benefit of customers of the broker or dealer in accordance 
with the regulations of the Commission, and are being kept separate from 
any other accounts maintained by the broker or dealer with the bank, and 
the broker or dealer shall have a written contract with the bank which 
provides that the cash and/or qualified securities shall at no time be 
used directly or indirectly as security for a loan to the broker or 
dealer by the bank and, shall be subject to no right, charge, security 
interest, lien, or claim of any kind in favor of the bank or any person 
claiming through the bank.
    (g) Withdrawals from the reserve bank account. A broker or dealer 
may make withdrawals from his reserve bank account if and to the extent 
that at the time of the withdrawal the amount remaining in the reserve 
bank account is not less than the amount then required by paragraph (e) 
of this section. A bank may presume that any request for withdrawal from 
a reserve bank account is in conformity and compliance with this 
paragraph (g). On any business day on which a withdrawal is made, the 
broker or dealer shall make a record of the computation on the basis of 
which he makes such withdrawal, and he shall preserve such computation 
in accordance with Sec. 240.17a-4.
    (h) Buy-in of short security differences. A broker or dealer shall 
within 45 calendar days after the date of the examination, count, 
verification and comparison of securities pursuant to Sec. 240.17a-13 
or otherwise or to the annual report of financial condition in 
accordance with Sec. 240.17a-5 or 240.17a-12, buy-in all short security 
differences which are not resolved during the 45-day period.
    (i) Notification in the event of failure to make a required deposit. 
If a broker or dealer shall fail to make in his reserve bank account or 
special account a deposit, as required by this section, the

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broker or dealer shall by telegram immediately notify the Commission and 
the regulatory authority for the broker or dealer, which examines such 
broker or dealer as to financial responsibility and shall promptly 
thereafter confirm such notification in writing.
    (j) [Reserved]
    (k) Exemptions. (1) The provisions of this section shall not be 
applicable to a broker or dealer meeting all of the following 
conditions:
    (i) His dealer transactions (as principal for his own account) are 
limited to the purchase, sale, and redemption of redeemable securities 
of registered investment companies or of interests or participations in 
an insurance company separate account, whether or not registered as an 
investment company; except that a broker or dealer transacting business 
as a sole proprietor may also effect occasional transactions in other 
securities for his own account with or through another registered broker 
or dealer;
    (ii) His transactions as broker (agent) are limited to: (a) The sale 
and redemption of redeemable securities of registered investment 
companies or of interests or participations in an insurance company 
separate account, whether or not registered as an investment company; 
(b) the solicitation of share accounts for savings and loan associations 
insured by an instrumentality of the United States; and (c) the sale of 
securities for the account of a customer to obtain funds for immediate 
reinvestment in redeemable securities of registered investment 
companies; and
    (iii) He promptly transmits all funds and delivers all securities 
received in connection with his activities as a broker or dealer, and 
does not otherwise hold funds or securities for, or owe money or 
securities to, customers.
    (iv) Notwithstanding the foregoing, this section shall not apply to 
any insurance company which is a registered broker-dealer, and which 
otherwise meets all of the conditions in paragraphs (k)(1) (i), (ii), 
and (iii) of this section, solely by reason of its participation in 
transactions that are a part of the business of insurance, including the 
purchasing, selling, or holding of securities for or on behalf of such 
company's general and separate accounts.
    (2) The provisions of this section shall not be applicable to a 
broker or dealer:
    (i) Who carries no margin accounts, promptly transmits all customer 
funds and delivers all securities received in connection with his 
activities as a broker or dealer, does not otherwise hold funds or 
securities for, or owe money or securities to, customers and effectuates 
all financial transactions between the broker or dealer and his 
customers through one or more bank accounts, each to be designated as 
``Special Account for the Exclusive Benefit of Customers of (name of the 
broker or dealer)''; or
    (ii) Who, as an introducing broker or dealer, clears all 
transactions with and for customers on a fully disclosed basis with a 
clearing broker or dealer, and who promptly transmits all customer funds 
and securities to the clearing broker or dealer which carries all of the 
accounts of such customers and maintains and preserves such books and 
records pertaining thereto pursuant to the requirements of Sec. Sec. 
240.17a-3 and 240.17a-4 of this chapter, as are customarily made and 
kept by a clearing broker or dealer.
    (3) Upon written application by a broker or dealer, the Commission 
may exempt such broker or dealer from the provisions of this section, 
either unconditionally or on specified terms and conditions, if the 
Commission finds that the broker or dealer has established safeguards 
for the protection of funds and securities of customers comparable with 
those provided for by this section and that it is not necessary in the 
public interest or for the protection of investors to subject the 
particular broker or dealer to the provisions of this section.
    (l) Delivery of securities. Nothing stated in this section shall be 
construed as affecting the absolute right of a customer of a broker or 
dealer to receive in the course of normal business operations following 
demand made on the broker or dealer, the physical delivery of 
certificates for:
    (1) Fully-paid securities to which he is entitled, and,

[[Page 363]]

    (2) Margin securities upon full payment by such customer to the 
broker or dealer of his indebtedness to the broker or dealer; and, 
subject to the right of the broker or dealer under Sec. 220.7(b) of 
Regulation T [12 CFR 220.7(b)] to retain collateral for his own 
protection beyond the requirements of Regulation T, excess margin 
securities not reasonably required to collateralize such customer's 
indebtedness to the broker or dealer.
    (m) Completion of sell orders on behalf of customers. If a broker or 
dealer executes a sell order of a customer (other than an order to 
execute a sale of securities which the seller does not own) and if for 
any reason whatever the broker or dealer has not obtained possession of 
the securities from the customer within 10 business days after the 
settlement date, the broker or dealer shall immediately thereafter close 
the transaction with the customer by purchasing securities of like kind 
and quantity: Provided, however, The term customer for the purpose of 
this paragraph (m) shall not include a broker or dealer who maintains a 
special omnibus account with another broker or dealer in compliance with 
section 4(b) of Regulation T [12 CFR 220.4(b)].
    Note: See 38 FR 12103, May 9, 1973 for an order suspending 
indefinitely the operation of paragraph (m) as to sell orders for 
exempted securities (e.g., U.S. Government and municipal obligations).
    (n) Extensions of time. If a registered national securities exchange 
or a registered national securities association is satisfied that a 
broker or dealer is acting in good faith in making the application and 
that exceptional circumstances warrant such action, such exchange or 
association, on application of the broker or dealer, may extend any 
period specified in paragraphs (d) (2) and (3), (h) and (m) of this 
section, relating to the requirement that such broker or dealer take 
action within a designated period of time to buy-in a security, for one 
or more limited periods commensurate with the circumstances. Each such 
exchange or association shall make and preserve for a period of not less 
than 3 years a record of each extension granted pursuant to paragraph 
(n) of this section which shall contain a summary of the justification 
for the granting of the extension.
    (o) Security futures products.--(1) Where security futures products 
shall be held. A broker or dealer registered with the Commission 
pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is 
also a futures commission merchant registered with the Commodity Futures 
Trading Commission pursuant to section 4f(a)(1) of the Commodity 
Exchange Act (7 U.S.C. 6f(a)(1)):
    (i) Shall hold a customer's security futures products in either a 
securities account or a futures account; and
    (ii) Shall establish written policies or procedures for determining 
whether customer security futures products will be placed in a 
securities account or a futures account and, if applicable, the process 
by which a customer may elect the type or types of account in which 
security futures products will be held (including the procedure to be 
followed if a customer fails to make an election of account type).
    (2) Disclosure and record requirements.--(i) Except as provided in 
paragraph (o)(2)(ii), before a broker or dealer registered with the 
Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) 
accepts the first order for a security futures product from or on behalf 
of a customer, the broker or dealer shall furnish the customer with a 
disclosure document containing the following information:
    (A) A description of the protections provided by the requirements 
set forth under this section and the Securities Investor Protection Act 
of 1970 (15 U.S.C. 78aaa et seq.) applicable to a securities account;
    (B) A description of the protections provided by the requirements 
set forth under section 4d of the Commodity Exchange Act (7 U.S.C. 6d) 
applicable to a futures account;
    (C) A statement indicating whether the customer's security futures 
products will be held in a securities account or a futures account, or 
whether the firm permits customers to make or change an election of 
account type; and
    (D) A statement that, with respect to holding the customer's 
security futures products in a securities account or a futures account, 
the alternative regulatory scheme is not available to the

[[Page 364]]

customer with relation to that account.
    (ii) Where a customer account containing an open security futures 
product position is transferred to a broker or dealer registered with 
the Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 
78o(b)(1)), that broker or dealer may instead provide the statements 
described in paragraphs (o)(2)(i)(C) and (o)(2)(i)(D) of this section no 
later than ten business days after the date the account is received.
    (3) Changes in account type. A broker or dealer registered with the 
Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) 
that is also a futures commission merchant registered pursuant to 
section 4f(a)(1) of the Commodity Exchange Act (7 U.S.C. 6f(a)(1)) may 
change the type of account in which a customer's security futures 
products will be held; provided that:
    (i) The broker or dealer creates a record of each change in account 
type, including the name of the customer, the account number, the date 
the broker or dealer received the customer's request to change the 
account type, if applicable, and the date the change in account type 
became effective; and
    (ii) The broker or dealer, at least ten days before the customer's 
account type is changed:
    (A) Notifies the customer in writing of the date that the change 
will become effective; and
    (B) Provides the customer with the disclosures described in 
paragraph (o)(2)(i) of this section.

[37 FR 25226, Nov. 29, 1972; 38 FR 6277, Mar. 8, 1973, as amended at 42 
FR 23790, May 10, 1977; 44 FR 1975, Jan. 9, 1979; 45 FR 37688, June 4, 
1980; 47 FR 21775, May 20, 1982; 47 FR 23920, June 2, 1982; 50 FR 41340, 
Oct. 10, 1985; 52 FR 30333, Aug. 14, 1987; 63 FR 59400, Nov. 3, 1998; 67 
FR 58299, Sept. 13, 2002; 68 FR 12783, Mar. 17, 2003]



Sec. 240.15c3-3a  Exhibit A--formula for determination reserve requirement 
of brokers and dealers under Sec. 240.15c3-3.

------------------------------------------------------------------------
                                                       Credits   Debits
------------------------------------------------------------------------
1. Free credit balances and other credit balances in      $XXX  ........
 customers' security accounts. (See Note A).........
2. Monies borrowed collateralized by securities            XXX  ........
 carried for the accounts of customers (See Note B.)
3. Monies payable against customers' securities            XXX  ........
 loaned (See Note C.)...............................
4. Customers' securities failed to receive (See Note       XXX  ........
 D.)................................................
5. Credit balances in firm accounts which are              XXX  ........
 attributable to principal sales to customers.......
6. Market value of stock dividends, stock splits and       XXX  ........
 similar distributions receivable outstanding over
 30 calendar days...................................
7. Market value of short security count differences        XXX  ........
 over 30 calendar days old..........................
8. Market value of short securities and credits (not       XXX  ........
 to be offset by longs or by debits) in all suspense
 accounts over 30 calendar days.....................
9. Market value of securities which are in transfer   ........       XXX
 in excess of 40 calendar days and have not been
 confirmed to be in transfer by the transfer agent
 or the issuer during the 40 days...................
10. Debit balances in customers' cash and margin      ........       XXX
 accounts excluding unsecured accounts and accounts
 doubtful of collection. (See Note E.)..............
11. Securities borrowed to effectuate short sales by  ........       XXX
 customers and securities borrowed to make delivery
 on customers' securities failed to deliver.........
12. Failed to deliver of customers' securities not    ........       XXX
 older than 30 calendar days........................
13. Margin required and on deposit with the Options   ........       XXX
 Clearing Corp. for all option contracts written or
 purchased in customer accounts. (See Note F.)......
                                                     -----------
  Total credits.....................................  ........  ........
  Total debits......................................  ........  ........
                                                     ===========
14. Excess of total credits (sum of items 1-9) over   ........       XXX
 total debits (sum of items 10-13) required to be on
 deposit in the ``Reserve Bank Account'' (Sec.
 240.15c3-3(e)). If the computation is made monthly
 as permitted by this section, the deposit shall be
 not less than 105 percent of the excess of total
 credits over total debits..........................
------------------------------------------------------------------------
Note A. Item 1 shall include all outstanding drafts payable to customers
  which have been applied against free credit balances or other credit
  balances and shall also include checks drawn in excess of bank
  balances per the records of the broker or dealer.
Note B. Item 2 shall include the amount of Letters of Credit obtained by
  a member of Options Clearing Corporation which are collateralized by
  customers' securities, to the extent of the member's margin
  requirement at Options Clearing Corp.
Note C. Item 3 shall include in addition to monies payable against
  customer's securities loaned the amount by which the market value of
  securities loaned exceeds the collateral value received from the
  lending of such securities.
Note D. Item 4 shall include in addition to customers' securities failed
  to receive the amount by which the market value of securities failed
  to receive and outstanding more than thirty (30) calendar days exceeds
  their contract value.

[[Page 365]]

 
Note E. (1) Debit balances in margin accounts shall be reduced by the
  amount by which a specific security (other than an exempted security)
  which is collateral for margin accounts exceeds in aggregate value 15
  percent of the aggregate value of all securities which collateralize
  all margin accounts receivable; provided, however, the required
  reduction shall not be in excess of the amount of the debit balance
  required to be excluded because of this concentration rule. A
  specified security is deemed to be collateral for a margin account
  only to the extent it represents in value not more than 140 percent of
  the customer debit balance in a margin account.
 
(2) Debit balances in special omnibus accounts, maintained in compliance
  with the requirements of section 4(b) of Regulation T under the Act
  (12 CFR 220.4(b) or similar accounts carried on behalf of another
  broker or dealer, shall be reduced by any deficits in such accounts
  (or if a credit, such credit shall be increased) less any calls for
  margin, marks to the market, or other required deposits which are
  outstanding 5 business days or less.
 
(3) Debit balances in customers' cash and margin accounts included in
  the formula under item 10 shall be reduced by an amount equal to 1
  percent of their aggregate value.
 
(4) Debit balances in cash and margin accounts of household members and
  other persons related to principals of a broker or dealer and debit
  balances in cash and margin accounts of affiliated persons of a broker
  or dealer shall be excluded from the Reserve Formula, unless the
  broker or dealer can demonstrate that such debit balances are directly
  related to credit items in the formula.
 
(5) Debit balances in margin accounts (other than omnibus accounts)
  shall be reduced by the amount by which any single customer's debit
  balance exceeds 25% (to the extent such amount is greater than
  $50,000) of the broker-dealer's tentative net capital (i.e., net
  capital prior to securities haircuts) unless the broker or dealer can
  demonstrate that the debit balance is directly related to credit items
  in the Reserve Formula. Related accounts (e.g., the separate accounts
  of an individual, accounts under common control or subject to cross
  guarantees) shall be deemed to be a single customer's accounts for
  purposes of this provision.
 
If the registered national securities exchange or the registered
  national securities association having responsibility for examining
  the broker or dealer (``designated examining authority'') is
  satisfied, after taking into account the circumstances of the
  concentrated account including the quality, diversity, and
  marketability of the collateral securing the debit balances or margin
  accounts subject to this provision, that the concentration of debit
  balances is appropriate, then such designated examining authority may
  grant a partial or plenary exception from this provision.
 
The debit balance may be included in the reserve formula computation for
  five business days from the day the request is made.
 
(6) Debit balances of joint accounts, custodian accounts, participations
  in hedge funds or limited partnerships or similar type accounts or
  arrangements of a person who would be excluded from the definition of
  customer (``non-customer'') which persons includible in the definition
  of customer shall be included in the Reserve Formula in the following
  manner: if the percentage ownership of the non-customer is less than 5
  percent then the entire debit balance shall be included in the
  formula; if such percentage ownership is between 5 percent and 50
  percent then the portion of the debit balance attributable to the non-
  customer shall be excluded from the formula unless the broker or
  dealer can demonstrate that the debit balance is directly related to
  credit items in the formula; if such percentage ownership is greater
  than 50 percent, then the entire debit balance shall be excluded from
  the formula unless the broker or dealer can demonstrate that the debit
  balance is directly related to credit items in the formula.
 
Note F. Item 13 shall include the amount of margin required and on
  deposit with Options Clearing Corporation to the extent such margin is
  represented by cash, proprietary qualified securities, and letters of
  credit collateralized by customers' securities.



[42 FR 27224, May 27, 1977, as amended at 50 FR 41340, Oct. 10, 1985; 52 
FR 30334, Aug. 14, 1987]



Sec. 240.15c3-4  Internal risk management control systems for OTC 
derivatives dealers.

    (a) An OTC derivatives dealer shall establish, document, and 
maintain a system of internal risk management controls to assist it in 
managing the risks associated with its business activities, including 
market, credit, leverage, liquidity, legal, and operational risks.
    (b) An OTC derivatives dealer shall consider the following when 
adopting its internal control system guidelines, policies, and 
procedures:
    (1) The ownership and governance structure of the OTC derivatives 
dealer;
    (2) The composition of the governing body of the OTC derivatives 
dealer;
    (3) The management philosophy of the OTC derivatives dealer;
    (4) The scope and nature of established risk management guidelines;
    (5) The scope and nature of the permissible OTC derivatives 
activities;
    (6) The sophistication and experience of relevant trading, risk 
management, and internal audit personnel;
    (7) The sophistication and functionality of information and 
reporting systems; and
    (8) The scope and frequency of monitoring, reporting, and auditing 
activities.
    (c) An OTC derivatives dealer's internal risk management control 
system shall include the following elements:
    (1) A risk control unit that reports directly to senior management 
and is independent from business trading units;
    (2) Separation of duties between personnel responsible for entering 
into a transaction and those responsible for recording the transaction 
in the books and records of the OTC derivatives dealer;
    (3) Periodic reviews (which may be performed by internal audit 
staff) and annual reviews (which must be conducted by independent 
certified public accountants) of the OTC derivatives dealer's risk 
management systems;
    (4) Definitions of risk, risk monitoring, and risk management; and
    (5) Written guidelines, approved by the OTC derivatives dealer's 
governing

[[Page 366]]

body, that include and discuss the following:
    (i) The OTC derivatives dealer's consideration of the elements in 
paragraph (b) of this section;
    (ii) The scope, and the procedures for determining the scope, of 
authorized activities or any nonquantitative limitation on the scope of 
authorized activities;
    (iii) Quantitative guidelines for managing the OTC derivatives 
dealer's overall risk exposure;
    (iv) The type, scope, and frequency of reporting by management on 
risk exposures;
    (v) The procedures for and the timing of the governing body's 
periodic review of the risk monitoring and risk management written 
guidelines, systems, and processes;
    (vi) The process for monitoring risk independent of the business or 
trading units whose activities create the risks being monitored;
    (vii) The performance of the risk management function by persons 
independent from or senior to the business or trading units whose 
activities create the risks;
    (viii) The authority and resources of the groups or persons 
performing the risk monitoring and risk management functions;
    (ix) The appropriate response by management when internal risk 
management guidelines have been exceeded;
    (x) The procedures to monitor and address the risk that an OTC 
derivatives transaction contract will be unenforceable;
    (xi) The procedures requiring the documentation of the principal 
terms of OTC derivatives transactions and other relevant information 
regarding such transactions;
    (xii) The procedures authorizing specified employees to commit the 
OTC derivatives dealer to particular types of transactions;
    (xiii) The procedures to prevent the OTC derivatives dealer from 
engaging in any securities transaction that is not permitted under Sec. 
240.15a-1; and
    (xiv) The procedures to prevent the OTC derivatives dealer from 
improperly relying on the exceptions to Sec. 240.15a-1(c) and Sec. 
240.15a-1(d), including the procedures to determine whether a 
counterparty is acting in the capacity of principal or agent.
    (d) Management must periodically review, in accordance with written 
procedures, the OTC derivatives dealer's business activities for 
consistency with risk management guidelines including that:
    (1) Risks arising from the OTC derivatives dealer's OTC derivatives 
activities are consistent with prescribed guidelines;
    (2) Risk exposure guidelines for each business unit are appropriate 
for the business unit;
    (3) The data necessary to conduct the risk monitoring and risk 
management function as well as the valuation process over the OTC 
derivatives dealer's portfolio of products is accessible on a timely 
basis and information systems are available to capture, monitor, 
analyze, and report relevant data;
    (4) Procedures are in place to enable management to take action when 
internal risk management guidelines have been exceeded;
    (5) Procedures are in place to monitor and address the risk that an 
OTC derivatives transaction contract will be unenforceable;
    (6) Procedures are in place to identify and address any deficiencies 
in the operating systems and to contain the extent of losses arising 
from unidentified deficiencies;
    (7) Procedures are in place to authorize specified employees to 
commit the OTC derivatives dealer to particular types of transactions, 
to specify any quantitative limits on such authority, and to provide for 
the oversight of their exercise of such authority;
    (8) Procedures are in place to prevent the OTC derivatives dealer 
from engaging in any securities transaction that is not permitted under 
Sec. 240.15a-1;
    (9) Procedures are in place to prevent the OTC derivatives dealer 
from improperly relying on the exceptions to Sec. 240.15a-1(c) and 
Sec. 240.15a-1(d), including procedures to determine whether a 
counterparty is acting in the capacity of principal or agent;
    (10) Procedures are in place to provide for adequate documentation 
of the principal terms of OTC derivatives

[[Page 367]]

transactions and other relevant information regarding such transactions;
    (11) Personnel resources with appropriate expertise are committed to 
implementing the risk monitoring and risk management systems and 
processes; and
    (12) Procedures are in place for the periodic internal and external 
review of the risk monitoring and risk management functions.

[63 FR 59400, Nov. 3, 1998]



Sec. 240.15c6-1  Settlement cycle.

    (a) Except as provided in paragraphs (b), (c), and (d) of this 
section, a broker or dealer shall not effect or enter into a contract 
for the purchase or sale of a security (other than an exempted security, 
government security, municipal security, commercial paper, bankers' 
acceptances, or commercial bills) that provides for payment of funds and 
delivery of securities later than the third business day after the date 
of the contract unless otherwise expressly agreed to by the parties at 
the time of the transaction.
    (b) Paragraphs (a) and (c) of this section shall not apply to 
contracts:
    (1) For the purchase or sale of limited partnership interests that 
are not listed on an exchange or for which quotations are not 
disseminated through an automated quotation system of a registered 
securities association;
    (2) For the purchase or sale of securities that the Commission may 
from time to time, taking into account then existing market practices, 
exempt by order from the requirements of paragraph (a) of this section, 
either unconditionally or on specified terms and conditions, if the 
Commission determines that such exemption is consistent with the public 
interest and the protection of investors.
    (c) Paragraph (a) of this section shall not apply to contracts for 
the sale for cash of securities that are priced after 4:30 p.m. Eastern 
time on the date such securities are priced and that are sold by an 
issuer to an underwriter pursuant to a firm commitment underwritten 
offering registered under the Securities Act of 1933 or sold to an 
initial purchaser by a broker-dealer participating in such offering 
provided that a broker or dealer shall not effect or enter into a 
contract for the purchase or sale of such securities that provides for 
payment of funds and delivery of securities later than the fourth 
business day after the date of the contract unless otherwise expressly 
agreed to by the parties at the time of the transaction.
    (d) For purposes of paragraphs (a) and (c) of this section, the 
parties to a contract shall be deemed to have expressly agreed to an 
alternate date for payment of funds and delivery of securities at the 
time of the transaction for a contract for the sale for cash of 
securities pursuant to a firm commitment offering if the managing 
underwriter and the issuer have agreed to such date for all securities 
sold pursuant to such offering and the parties to the contract have not 
expressly agreed to another date for payment of funds and delivery of 
securities at the time of the transaction.

[58 FR 52903, Oct. 13, 1993, as amended at 60 FR 26622, May 17, 1995]

 Regulation 15D: Reports of Registrants Under the Securities Act of 1933

                             Annual Reports



Sec. 240.15d-1  Requirement of annual reports.

    Every registrant under the Securities Act of 1933 shall file an 
annual report, on the appropriate form authorized or prescribed 
therefor, for the fiscal year in which the registration statement under 
the Securities Act of 1933 became effective and for each fiscal year 
thereafter, unless the registrant is exempt from such filing by section 
15(d) of the Act or rules thereunder. Annual reports shall be filed 
within the period specified in the appropriate report form.

[47 FR 17052, Apr. 21, 1982, as amended at 61 FR 49960, Sept. 24, 1996]



Sec. 240.15d-2  Special financial report.

    (a) If the registration statement under the Securities Act of 1933 
did not contain certified financial statements for the registrant's last 
full fiscal year (or for the life of the registrant if less than a full 
fiscal year) preceding the

[[Page 368]]

fiscal year in which the registration statement became effective, the 
registrant shall, within 90 days after the effective date of the 
registration statement, file a special report furnishing certified 
financial statements for such last full fiscal year or other period, as 
the case may be, meeting the requirements of the form appropriate for 
annual reports of the registrant. If the registrant is a foreign private 
issuer as defined in Sec. 230.405 of this chapter, then the special 
financial report shall be filed on the appropriate form for annual 
reports of the registrant and shall be filed by the later of 90 days 
after the date on which the registration statement became effective, or 
six months following the end of the registrant's latest full fiscal 
year.
    (b) The report shall be filed under cover of the facing sheet of the 
form appropriate for annual reports of the registrant, shall indicate on 
the facing sheet that it contains only financial statements for the 
fiscal year in question, and shall be signed in accordance with the 
requirements of the annual report form.

(15 U.S.C. 78l, 78m, 78o)

[13 FR 9326, Dec. 31, 1948, as amended at 36 FR 1891, Feb. 3, 1971; 58 
FR 60306, Nov. 15, 1993]



Sec. 240.15d-3  Reports for depositary shares registered on Form F-6.

    Annual and other reports are not required with respect to Depositary 
Shares registered on Form F-6 (Sec. 230.36 of this chapter). The 
exemption in this section does not apply to any deposited securities 
registered on any other form under the Securities Act of 1933.

[62 FR 39768, July 24, 1997]



Sec. 240.15d-4  Reporting by Form 40-F registrants.

    A registrant that is eligible to use Forms 40-F and 6-K and files 
reports in accordance therewith shall be deemed to satisfy the 
requirements of Regulation 15D (Sec. Sec. 240.15d-1 through 240.15d-21 
of this chapter).

[56 FR 30075, July 1, 1991]



Sec. 240.15d-5  Reporting by successor issuers.

    (a) Where in connection with a succession by merger, consolidation, 
exchange of securities, acquisition of assets or otherwise, securities 
of any issuer that is not required to file reports pursuant to section 
15(d) (15 U.S.C. 78o(d)) of the Act are issued to the holders of any 
class of securities of another issuer that is required to file such 
reports, the duty to file reports pursuant to such section shall be 
deemed to have been assumed by the issuer of the class of securities so 
issued. The successor issuer shall, after the consummation of the 
succession, file reports in accordance with section 15(d) of the Act (15 
U.S.C. 78o(d)) and the rules and regulations thereunder, unless that 
issuer is exempt from filing such reports or the duty to file such 
reports is suspended under section 15(d) of the Act (15 U.S.C. 78o(d)).
    (b) An issuer that is deemed to be a successor issuer according to 
paragraph (a) of this section shall file reports on the same forms as 
the predecessor issuer except as follows:
    (1) An issuer that is not a foreign issuer shall not be eligible to 
file on Form 20-F (Sec. 240.220f of this chapter).
    (2) A foreign private issuer shall be eligible to file on Form 20-F.
    (c) The provisions of paragraph (a) of this section shall not apply 
to an issuer of securities in connection with a succession that was 
registered on Form F-8 (Sec. 239.38 of this chapter), Form F-10 (Sec. 
239.40 of this chapter) or Form F-80 (Sec. 239.41 of this chapter).

[36 FR 3805, Feb. 27, 1971, as amended at 48 FR 46740, Oct. 14, 1983; 56 
FR 30075, July 1, 1991; 62 FR 39768, July 24, 1997]



Sec. 240.15d-6  Suspension of duty to file reports.

    If the duty of an issuer to file reports pursuant to section 15(d) 
of the Act as to any fiscal year is suspended as provided in section 
15(d) of the Act, such issuer shall, within 30 days after the beginning 
of the first fiscal year, file a notice on Form 15 informing the 
Commission of such suspension unless Form 15 has already been filed 
pursuant to Rule 12h-3. If the suspension resulted from the issuer's 
merger into, or consolidation with, another issuer or

[[Page 369]]

issuers, the notice shall be filed by the successor issuer.

(Secs. 12(g)(4), 12(h), 13(a), 15(d), 23(a), 48 Stat. 892, 894, 895, 
901; sec. 203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 
3, 4, 6, 78 Stat. 565-568, 569, 570-574; sec. 18, 89 Stat. 155; sec. 
204, 91 Stat. 1500; 15 U.S.C. 78l(g)(4), 78l(h), 78m(a), 78o(d), 78w(a))

[49 FR 12690, Mar. 30, 1984]

                              Other Reports



Sec. 240.15d-10  Transition reports.

    (a) Every issuer that changes its fiscal closing date shall file a 
report covering the resulting transition period between the closing date 
of its most recent fiscal year and the opening date of its new fiscal 
year; Provided, however, that an issuer shall file an annual report for 
any fiscal year that ended before the date on which the issuer 
determined to change its fiscal year end. In no event shall the 
transition report cover a period of 12 or more months.
    (b) The report pursuant to this section shall be filed for the 
transition period not more than the number of days specified in 
paragraph (j) of this section after either the close of the transition 
period or the date of the determination to change the fiscal closing 
date, whichever is later. The report shall be filed on the form 
appropriate for annual reports of the issuer, shall cover the period 
from the close of the last fiscal year end and shall indicate clearly 
the period covered. The financial statements for the transition period 
filed therewith shall be audited. Financial statements, which may be 
unaudited, shall be filed for the comparable period of the prior year, 
or a footnote, which may be unaudited, shall state for the comparable 
period of the prior year, revenues, gross profits, income taxes, income 
or loss from continuing operations before extraordinary items and 
cumulative effect of a change in accounting principles and net income or 
loss. The effects of any discontinued operations and/or extraordinary 
items as classified under the provisions of generally accepted 
accounting principles also shall be shown, if applicable. Per share data 
based upon such income or loss and net income or loss shall be presented 
in conformity with applicable accounting standards. Where called for by 
the time span to be covered, the comparable period financial statements 
or footnote shall be included in subsequent filings.
    (c) If the transition period covers a period of less than six 
months, in lieu of the report required by paragraph (b) of this section, 
a report may be filed for the transition period on Form 10-Q and Form 
10-QSB (Sec. 249.308a of this chapter) not more than the number of days 
specified in paragraph (j) of this section after either the close of the 
transition period or the date of the determination to change the fiscal 
closing date, whichever is later. The report on Form 10-Q and Form 10-
QSB shall cover the period from the close of the last fiscal year end 
and shall indicate clearly the period covered. The financial statements 
filed therewith need not be audited but, if they are not audited, the 
issuer shall file with the first annual report for the newly adopted 
fiscal year separate audited statements of income and cash flows 
covering the transition period. The notes to financial statements for 
the transition period included in such first annual report may be 
integrated with the notes to financial statements for the full fiscal 
period. A separate audited balance sheet as of the end of the transition 
period shall be filed in the annual report only if the audited balance 
sheet as of the end of the fiscal year prior to the transition period is 
not filed. Schedules need not be filed in transition reports on Form 10-
Q and Form 10-QSB.
    (d) Notwithstanding the foregoing in paragraphs (a), (b), and (c) of 
this section, if the transition period covers a period of one month or 
less, the issuer need not file a separate transition report if either:
    (1) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is an annual report, and that report covers the 
transition period as well as the fiscal year; or
    (2)(i) The issuer files with the first annual report for the newly 
adopted fiscal year separate audited statements of income and cash flows 
covering the transition period; and

[[Page 370]]

    (ii) The first report required to be filed by the issuer for the 
newly adopted fiscal year after the date of the determination to change 
the fiscal year end is a quarterly report on Form 10-Q and Form 10-QSB; 
and
    (iii) Information on the transition period is included in the 
issuer's quarterly report on Form 10-Q and Form 10-QSB for the first 
quarterly period (except the fourth quarter) of the newly adopted fiscal 
year that ends after the date of the determination to change the fiscal 
year. The information covering the transition period required by Part II 
and Item 2 of Part I may be combined with the information regarding the 
quarter. However, the financial statements required by Part I, which may 
be unaudited, shall be furnished separately for the transition period.
    (e) Every issuer required to file quarterly reports on Form 10-Q and 
Form 10-QSB pursuant to Sec. 240.15d-13 of this chapter that changes 
its fiscal year end shall:
    (1) File a quarterly report on Form 10-Q and Form 10-QSB within the 
time period specified in General Instruction A.1. to that form for any 
quarterly period (except the fourth quarter) of the old fiscal year that 
ends before the date on which the issuer determined to change its fiscal 
year end, except that the issuer need not file such quarterly report if 
the date on which the quarterly period ends also is the date on which 
the transition period ends;
    (2) File a quarterly report on Form 10-Q and Form 10-QSB within the 
time specified in General Instruction A.1. to that form for each 
quarterly period of the old fiscal year within the transition period. In 
lieu of a quarterly report for any quarter of the old fiscal year within 
the transition period, the issuer may file a quarterly report on Form 
10-Q and Form 10-QSB for any period of three months within the 
transition period that coincides with a quarter of the newly adopted 
fiscal year if the quarterly report is filed within the number of days 
specified in paragraph (j) of this section after the end of such three 
month period, provided the issuer thereafter continues filing quarterly 
reports on the basis of the quarters of the newly adopted fiscal year;
    (3) Commence filing quarterly reports for the quarters of the new 
fiscal year no later than the quarterly report for the first quarter of 
the new fiscal year that ends after the date on which the issuer 
determined to change the fiscal year end; and
    (4) Unless such information is or will be included in the transition 
report, or the first annual report on Form 10-K and Form 10-KSB for the 
newly adopted fiscal year, include in the initial quarterly report on 
Form 10-Q and Form 10-QSB for the newly adopted fiscal year information 
on any period beginning on the first day subsequent to the period 
covered by the issuer's final quarterly report on Form 10-Q and Form 10-
QSB or annual report on Form 10-K and Form 10-KSB for the old fiscal 
year. The information covering such period required by Part II and Item 
2 of Part I may be combined with the information regarding the quarter. 
However, the financial statements required by Part I, which may be 
unaudited, shall be furnished separately for such period.

    Note to paragraphs (c) and (e):
    If it is not practicable or cannot be cost-justified to furnish in a 
transition report on Form 10-Q and Form 10-QSB or a quarterly report for 
the newly adopted fiscal year financial statements for corresponding 
periods of the prior year where required, financial statements may be 
furnished for the quarters of the preceding fiscal year that most nearly 
are comparable if the issuer furnishes an adequate discussion of 
seasonal and other factors that could affect the comparability of 
information or trends reflected, an assessment of the comparability of 
the data, and a representation as to the reason recasting has not been 
undertaken.

    (f) Every successor issuer that has a different fiscal year from 
that of its predecessor(s) shall file a transition report pursuant to 
this section, containing the required information about each 
predecessor, for the transition period, if any, between the close of the 
fiscal year covered by the last annual report of each predecessor and 
the date of succession. The report shall be filed for the transition 
period on the form appropriate for annual reports of the issuer not more 
than the number of days specified in paragraph (j) of this section after 
the date of the succession,

[[Page 371]]

with financial statements in conformity with the requirements set forth 
in paragraph (b) of this section. If the transition period covers a 
period of less than six months, in lieu of a transition report on the 
form appropriate for the issuer's annual reports, the report may be 
filed for the transition period on Form 10-Q and Form 10-QSB not more 
than the number of days specified in paragraph (j) of this section after 
the date of the succession, with financial statements in conformity with 
the requirements set forth in paragraph (c) of this section. 
Notwithstanding the foregoing, if the transition period covers a period 
of one month or less, the successor issuer need not file a separate 
transition report if the information is reported by the successor issuer 
in conformity with the requirements set forth in paragraph (d) of this 
section.
    (g)(1) Paragraphs (a) through (f) of this section shall not apply to 
foreign private issuers.
    (2) Every foreign private issuer that changes its fiscal closing 
date shall file a report covering the resulting transition period 
between the closing date of its most recent year and the opening date of 
its new fiscal year. In no event shall a transition report cover a 
period longer than 12 months.
    (3) The report for the transition period shall be filed on Form 20-F 
responding to all items to which such issuer is required to respond when 
Form 20-F is used as an annual report. Such report shall be filed within 
six months after either the close of the transition period or the date 
on which the issuer made the determination to change the fiscal closing 
date, whichever is later. The financial statements for the transition 
period filed therewith shall be audited.
    (4) If the transition period covers a period of six or fewer months, 
in lieu of the report required by paragraph (g)(3) of this section, a 
report for the transition period may be filed on Form 20-F responding to 
Items 5, 8.A.7., 13, 14, and 17 or 18 within three months after either 
the close of the transition period or the date on which the issuer made 
the determination to change the fiscal closing date, whichever is later. 
The financial statements required by either Item 17 or Item 18 shall be 
furnished for the transition period. Such financial statements may be 
unaudited and condensed as permitted in Article 10 of Regulation S-X 
(Sec. 210.10-01 of this chapter), but if the financial statements are 
unaudited and condensed, the issuer shall file with the first annual 
report for the newly adopted fiscal year separate audited statements of 
income and cash flows covering the transition period.
    (5) Notwithstanding the foregoing in paragraphs (g)(2), (g)(3), and 
(g)(4) of this section, if the transition period covers a period of one 
month or less, a foreign private issuer need not file a separate 
transition report if the first annual report for the newly adopted 
fiscal year covers the transition period as well as the fiscal year.
    (h) The provisions of this rule shall not apply to investment 
companies required to file reports pursuant to Rule 30b1-1 (Sec. 
270.30b1-1 of this chapter) under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.).
    (i) No filing fee shall be required for a transition report filed 
pursuant to this section.
    (j)(1) For transition reports to be filed on the form appropriate 
for annual reports of the issuer, the number of days shall be:
    (i) For accelerated filers (as defined in Sec. 240.12b-2):
    (A) 90 days for fiscal years ending on or after December 15, 2002 
and before December 15, 2003;
    (B) 75 days for fiscal years ending on or after December 15, 2003 
and before December 15, 2004; and
    (C) 60 days for fiscal years ending on or after December 15, 2004; 
and
    (ii) 90 days for all other issuers; and
    (2) For transition reports to be filed on Form 10-Q or Form 10-QSB 
(Sec. 249.308a or Sec. 249.308b of this chapter), the number of days 
shall be:
    (i) For accelerated filers (as defined in Sec. 240.12b-2):
    (A) 45 days for fiscal years ending on or after December 15, 2002 
and before December 15, 2004;
    (B) 40 days for fiscal years ending on or after December 15, 2004 
and before December 15, 2005; and
    (C) 35 days for fiscal years ending on or after December 15, 2005; 
and

[[Page 372]]

    (ii) 45 days for all other issuers.
    Note 1: In addition to the report or reports required to be filed 
pursuant to this section, every issuer, except a foreign private issuer 
or an investment company required to file reports pursuant to Rule 30b1-
1 under the Investment Company Act of 1940, that changes its fiscal 
closing date is required to file a report on Form 8-K responding to Item 
8 thereof within the period specified in General Instruction B.1. to 
that form.
    Note 2: The report or reports to be filed pursuant to this section 
must include the certification required by Sec. 240.15d-14.

[54 FR 10318, Mar. 13, 1989, as amended at 56 FR 30075, July 1, 1991; 64 
FR 53912, Oct. 5, 1999; 67 FR 57289, Sept. 9, 2002; 67 FR 58505, Sept. 
16, 2002]

    Effective Date Note: At 69 FR 15618, Mar. 25, 2004, Sec. 240.15d-10 
was amended by revising Note 1 at the end of the section, effective Aug. 
23, 2004. For the convenience of the user, the revised text is set forth 
as follows:

Sec. 240.15d-10  Transition reports.

                                * * * * *

    Note 1: In addition to the report or reports required to be filed 
pursuant to this section, every issuer, except a foreign private issuer 
or an investment company required to file reports pursuant to Sec. 
270.30b1-1 of this chapter, that changes its fiscal closing date is 
required to file a Form 8-K (Sec. 249.308 of this chapter) report that 
includes the information required by Item 5.03 of Form 8-K within the 
period specified in General Instruction B.1. to that form.

                                * * * * *



Sec. 240.15d-11  Current reports on Form 8-K (Sec. 249.308 of this chapter).

    (a) Except as provided in paragraph (b) of this section, every 
registrant subject to Sec. 240.15d-1 shall file a current report on 
Form 8-K within the period specified in that form unless substantially 
the same information as that required by Form 8-K has been previously 
reported by the registrant.
    (b) This section shall not apply to foreign governments, foreign 
private issuers required to make reports on Form 6-K (17 CFR 249.306) 
pursuant to Sec. 240.15d-16, issuers of American Depositary Receipts 
for securities of any foreign issuer, or investment companies required 
to file periodic reports pursuant to Sec. 270.30b1-1 of this chapter 
under the Investment Company Act of 1940, except where such investment 
companies are required to file notice of a blackout period pursuant to 
Sec. 245.104 of this chapter.

[42 FR 4429, Jan. 25, 1977, as amended at 50 FR 27939, July 9, 1985; 68 
FR 4355, Jan. 28, 2002]

    Effective Date Note: At 69 FR 15618, Mar. 25, 2004, Sec. 240.15d-11 
was amended by adding paragraph (c), effective Aug. 23, 2004. For the 
convenience of the user, the added text is set forth as follows:

Sec. 240.15d-11  Current reports on Form 8-K (Sec. 249.308 of this 
          chapter).

                                * * * * *

    (c) No failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 or 4.02(a) of Form 
8-K shall be deemed to be a violation of 15 U.S.C. 78j(b) and Sec. 
240.10b-5.



Sec. 240.15d-13  Quarterly reports on Form 10-Q and Form 10-QSB 
(Sec. 249.308a and Sec. 249.308b of this chapter).

    (a) Except as provided in paragraphs (b) and (c) of this section, 
every issuer that has securities registered pursuant to the Securities 
Act of 1933 and is required to file annual reports pursuant to section 
15(d) of the Securities Exchange Act of 1934 on Form 10-K and Form 10-
KSB (Sec. 249.310 of this chapter) or U5S (Sec. 259.5s of this 
chapter) shall file a quarterly report on Form 10-Q and Form 10-QSB 
(Sec. 249.308a of this chapter) within the period specified in General 
Instruction A.1. to that form for each of the first three quarters of 
each fiscal year of the issuer, commencing with the first fiscal quarter 
following the most recent fiscal year for which full financial 
statements were included in the registration statement, or, if the 
registration statement included financial statements for an interim 
period subsequent to the most recent fiscal year end meeting the 
requirements of Article 10 of Regulation S-X, for the first fiscal 
quarter subsequent to the quarter reported upon in the registration 
statement. The first quarterly report of the issuer shall be filed 
either within 45 days after the effective date of the registration 
statement or on or before the date on which such report would have been 
required

[[Page 373]]

to be filed if the issuer had been required to file reports on Form 10-Q 
and Form 10-QSB as of its last fiscal quarter, whichever is later.
    (b) The provisions of this rule shall not apply to the following 
issuers:
    (1) Investment companies required to file reports pursuant to Sec. 
270.30b1-1;
    (2) Foreign private issuers required to file reports pursuant to 
Sec. 240.15d-16.
    (c) Part I of the quarterly reports on Form 10-Q or Form 10-QSB need 
not be filed by:
    (1) Mutual life insurance companies; or
    (2) Mining companies not in the production stage but engaged 
primarily in the exploration for the development of mineral deposits 
other than oil, gas or coal, if all of the following conditions are met:
    (i) The registrant has not been in production during the current 
fiscal year or the two years immediately prior thereto; except that 
being in production for an aggregate period of not more than eight 
months over the three-year period shall not be a violation of this 
condition.
    (ii) Receipts from the sale of mineral products or from the 
operations of mineral producing properties by the registrant and its 
subsidiaries combined have not exceeded $500,000 in any of the most 
recent six years and have not aggregated more than $1,500,000 in the 
most recent six fiscal years.
    (d) Notwithstanding the foregoing provisions of this section, the 
financial information required by Part I of Form 10-Q and Form 10-QSB 
shall not be deemed to be ``filed'' for the purpose of section 18 of the 
Act or otherwise subject to the liabilities of that section of the Act 
but shall be subject to all other provisions of the Act.
    (e) Notwithstanding the foregoing provisions of this section, the 
financial information required by Part I of Form 10-Q and Form 10-QSB, 
or financial information submitted in lieu thereof pursuant to paragraph 
(d) of this section, shall not be deemed to be ``filed'' for the purpose 
of section 18 of the Act or otherwise subject to the liabilities of that 
section of the Act but shall be subject to all other provisions of the 
Act.

(Secs. 12, 13, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; sec. 203(a), 
49 Stat. 704; secs. 1, 3, 8, 49 Stat. 1375, 1377, 1379; sec. 202, 68 
Stat. 686; secs. 3, 4, 6, 78 Stat. 565-568, 569, 570-574; secs. 1, 2, 82 
Stat. 454; secs. 1, 2, 28(c), 84 Stat. 1435, 1497; sec. 105(b), 88 Stat. 
1503; secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155; 15 U.S.C. 78l, 
78m, 78o(d), 78w(a))

[42 FR 24065, May 12, 1977, as amended at 46 FR 63255, Dec. 31, 1981; 50 
FR 27939, July 9, 1985; 54 FR 10319, Mar. 13, 1989, 61 FR 30403, June 
14, 1996]



Sec. 240.15d-14  Certification of disclosure in annual and quarterly reports.

    (a) Each report, including transition reports, filed on Form 10-Q, 
Form 10-QSB, Form 10-K, Form 10-KSB, Form 20-F or Form 40-F (Sec. Sec. 
249.308a, 249.308b, 249.310, 249.310b, 249.220f or 249.240f of this 
chapter) under section 15(d) of the Act (15 U.S.C. 78o(d)), other than a 
report filed by an Asset-Backed Issuer (as defined in paragraph (g) of 
this section), must include certifications in the form specified in the 
applicable exhibit filing requirements of such report and such 
certifications must be filed as an exhibit to such report. Each 
principal executive and principal financial officer of the issuer, or 
persons performing similar functions, at the time of filing of the 
report must sign a certification.
    (b) Each periodic report containing financial statements filed by an 
issuer pursuant to section 15(d) of the Act (15 U.S.C. 78o(d)) must be 
accompanied by the certifications required by Section 1350 of Chapter 63 
of Title 18 of the United States Code (18 U.S.C. 1350) and such 
certifications must be furnished as an exhibit to such report as 
specified in the applicable exhibit requirements for such report. Each 
principal executive and principal financial officer of the issuer (or 
equivalent thereof) must sign a certification. This requirement may be 
satisfied by a single certification signed by an issuer's principal 
executive and principal financial officers.
    (c) A person required to provide a certification specified in 
paragraph (a) or (b) of this section may not have the certification 
signed on his or her behalf pursuant to a power of attorney or other 
form of confirming authority.

[[Page 374]]

    (d) Each annual report filed by an Asset-Backed Issuer (as defined 
in paragraph (g) of this section) under section 15(d) of the Act (15 
U.S.C. 78o(d)), must include a certification addressing the following 
items:
    (1) Review by the certifying officer of the annual report and other 
reports containing distribution information for the period covered by 
the annual report;
    (2) The absence in these reports, to the best of the certifying 
officer's knowledge, of any untrue statement of material fact or 
omission of a material fact necessary to make the statements made, in 
light of the circumstances under which such statements were made, not 
misleading;
    (3) The inclusion in these reports, to the best of the certifying 
officer's knowledge, of the financial information required to be 
provided to the trustee under the governing documents of the issuer; and
    (4) Compliance by the servicer with its servicing obligations and 
minimum servicing standards.
    (e) With respect to Asset-Backed Issuers, the certification required 
by paragraph (d) of this section must be signed by the trustee of the 
trust (if the trustee signs the annual report) or the senior officer in 
charge of securitization of the depositor (if the depositor signs the 
annual report). Alternatively, the senior officer in charge of the 
servicing function of the master servicer (or entity performing the 
equivalent functions) may sign the certification.
    (f) [Reserved]
    (g) For purposes of this section, the term Asset-Backed Issuer means 
any issuer whose reporting obligation results from the offering of 
securities it issued that are primarily serviced by the cash flows of a 
discrete pool of receivables or other financial assets, either fixed or 
revolving, that by their terms convert into cash within a finite time 
period plus any rights or other assets designed to assure the servicing 
or timely distribution of proceeds to security holders.

[67 FR 57289, Sept. 9, 2002, as amended at 68 FR 36666, June 18, 2003]



Sec. 240.15d-15  Controls and procedures.

    (a) Every issuer that files reports under section 15(d) of the Act 
(15 U.S.C. 78o(d)), other than an Asset-Backed Issuer (as defined in 
Sec. 240.15d-14(g) of this chapter), a small business investment 
company registered on Form N-5 (Sec. Sec. 239.24 and 274.5 of this 
chapter), or a unit investment trust as defined in section 4(2) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-4(2)), must maintain 
disclosure controls and procedures (as defined in paragraph (e) of this 
section) and internal control over financial reporting (as defined in 
paragraph (f) of this section).
    (b) Each such issuer's management must evaluate, with the 
participation of the issuer's principal executive and principal 
financial officers, or persons performing similar functions, the 
effectiveness of the issuer's disclosure controls and procedures, as of 
the end of each fiscal quarter, except that management must perform this 
evaluation:
    (1) In the case of a foreign private issuer (as defined in Sec. 
240.3b-4) as of the end of each fiscal year; and
    (2) In the case of an investment company registered under section 8 
of the Investment Company Act of 1940 (15 U.S.C. 80a-8), within the 90-
day period prior to the filing date of each report requiring 
certification under Sec. 270.30a-2 of this chapter.
    (c) The management of each such issuer, other than an investment 
company registered under section 8 of the Investment Company Act of 
1940, must evaluate, with the participation of the issuer's principal 
executive and principal financial officers, or persons performing 
similar functions, the effectiveness, as of the end of each fiscal year, 
of the issuer's internal control over financial reporting. The framework 
on which management's evaluation of the issuer's internal control over 
financial reporting is based must be a suitable, recognized control 
framework that is established by a body or group that has followed due-
process procedures, including the broad distribution of the framework 
for public comment.
    (d) The management of each such issuer, other than an investment 
company registered under section 8 of the Investment Company Act of 
1940, must

[[Page 375]]

evaluate, with the participation of the issuer's principal executive and 
principal financial officers, or persons performing similar functions, 
any change in the issuer's internal control over financial reporting, 
that occurred during each of the issuer's fiscal quarters, or fiscal 
year in the case of a foreign private issuer, that has materially 
affected, or is reasonably likely to materially affect, the issuer's 
internal control over financial reporting.
    (e) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of an issuer that are 
designed to ensure that information required to be disclosed by the 
issuer in the reports that it files or submits under the Act (15 U.S.C. 
78a et seq.) is recorded, processed, summarized and reported, within the 
time periods specified in the Commission's rules and forms. Disclosure 
controls and procedures include, without limitation, controls and 
procedures designed to ensure that information required to be disclosed 
by an issuer in the reports that it files or submits under the Act is 
accumulated and communicated to the issuer's management, including its 
principal executive and principal financial officers, or persons 
performing similar functions, as appropriate to allow timely decisions 
regarding required disclosure.
    (f) The term internal control over financial reporting is defined as 
a process designed by, or under the supervision of, the issuer's 
principal executive and principal financial officers, or persons 
performing similar functions, and effected by the issuer's board of 
directors, management and other personnel, to provide reasonable 
assurance regarding the reliability of financial reporting and the 
preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles and includes those 
policies and procedures that:
    (1) Pertain to the maintenance of records that in reasonable detail 
accurately and fairly reflect the transactions and dispositions of the 
assets of the issuer;
    (2) Provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and 
expenditures of the issuer are being made only in accordance with 
authorizations of management and directors of the issuer; and
    (3) Provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use or disposition of the 
issuer's assets that could have a material effect on the financial 
statements.

[68 FR 36667, June 18, 2003]



Sec. 240.15d-16  Reports of foreign private issuers on Form 6-K [17 CFR 249.306].

    (a) Every foreign private issuer which is subject to Rule 15d-1 [17 
CFR 240.15d-1] shall make reports on Form 6-K, except that this rule 
shall not apply to:
    (1) Investment companies required to file reports pursuant to Rule 
30b1-1 [17 CFR 270.30b1-1];
    (2) Issuers of American depositary receipts for securities of any 
foreign issuer.
    (b) Such reports shall be transmitted promptly after the information 
required by Form 6-K is made public by the issuer, by the country of its 
domicile or under the laws of which it was incorporated or organized or 
by a foreign securities exchange with which the issuer has filed the 
information.
    (c) Reports furnished pursuant to this rule shall not be deemed to 
be ``filed'' for the purpose of section 18 of the Act or otherwise 
subject to the liabilities of that section.

[32 FR 7849, May 30, 1967, as amended at 44 FR 70137, Dec. 6, 1979; 47 
FR 54781, Dec. 6, 1982; 50 FR 27939, July 9, 1985; 56 FR 30075, July 1, 
1991]



Sec. 240.15d-17  [Reserved]

       Exemption of Certain Issuers From Section 15(d) of the Act



Sec. 240.15d-21  Reports for employee stock purchase, savings and similar plans.

    (a) Separate annual and other reports need not be filed pursuant to 
section 15(d) of the Act with respect to any employee stock purchase, 
savings or similar plan: Provided,

[[Page 376]]

    (1) The issuer of the stock or other securities offered to employees 
through their participation in the plan files annual reports on Form 10-
K and Form 10-KSB (Sec. 249.310 of this chapter) or U5S (Sec. 259.5s 
of this chapter); and
    (2) Such issuer furnishes, as a part of its annual report on such 
form or as an amendment thereto, the financial statements required by 
Form 11-K (Sec. 249.311 of this chapter) with respect to the plan.
    (b) If the procedure permitted by this Rule is followed, the 
financial statements required by Form 11-K with respect to the plan 
shall be filed within 120 days after the end of the fiscal year of the 
plan, either as a part of or as an amendment to the annual report of the 
issuer for its last fiscal year, provided that if the fiscal year of the 
plan ends within 62 days prior to the end of the fiscal year of the 
issuer, such information, financial statements and exhibits may be 
furnished as a part of the issuer's next annual report. If a plan 
subject to the Employee Retirement Income Security Act of 1974 uses the 
procedure permitted by this Rule, the financial statements required by 
Form 11-K shall be filed within 180 days after the plan's fiscal year 
end.

[27 FR 7871, Aug. 9, 1962, as amended at 55 FR 23929, June 13, 1990]



Sec. 240.15g-1  Exemptions for certain transactions.

    The following transactions shall be exempt from 17 CFR 240.15g-2, 17 
CFR 240.15g-3, 17 CFR 240.15g-4, 17 CFR 240.15g-5, and 17 CFR 240.15g-6:
    (a) Transactions by a broker or dealer:
    (1) Whose commissions, commission equivalents, mark-ups, and mark-
downs from transactions in penny stocks during each of the immediately 
preceding three months and during eleven or more of the preceding twelve 
months, or during the immediately preceding six months, did not exceed 
five percent of its total commissions, commission equivalents, mark-ups, 
and mark-downs from transactions in securities during those months; and
    (2) Who has not been a market maker in the penny stock that is the 
subject of the transaction in the immediately preceding twelve months.
    Note: Prior to April 28, 1993, commissions, commission equivalents, 
mark-ups, and mark-downs from transactions in designated securities, as 
defined in 17 CFR 240.15c2-6(d)(2) as of April 15, 1992, may be 
considered to be commissions, commission equivalents, mark-ups, and 
mark-downs from transactions in penny stocks for purposes of paragraph 
(a)(1) of this section.
    (b) Transactions in which the customer is an institutional 
accredited investor, as defined in 17 CFR 230.501(a) (1), (2), (3), (7), 
or (8).
    (c) Transactions that meet the requirements of Regulation D (17 CFR 
230.501-230.508), or transactions with an issuer not involving any 
public offering pursuant to section 4(2) of the Securities Act of 1933.
    (d) Transactions in which the customer is the issuer, or a director, 
officer, general partner, or direct or indirect beneficial owner of more 
than five percent of any class of equity security of the issuer, of the 
penny stock that is the subject of the transaction.
    (e) Transactions that are not recommended by the broker or dealer.
    (f) Any other transaction or class of transactions or persons or 
class of persons that, upon prior written request or upon its own 
motion, the Commission conditionally or unconditionally exempts by order 
as consistent with the public interest and the protection of investors.

[57 FR 18032, Apr. 28, 1992]



Sec. 240.15g-2  Risk disclosure document relating to the penny stock market.

    (a) It shall be unlawful for a broker or dealer to effect a 
transaction in any penny stock for or with the account of a customer 
unless, prior to effecting such transaction, the broker or dealer has 
furnished to the customer a document containing the information set 
forth in Schedule 15G, 17 CFR 240.15g-100, and has obtained from the 
customer a manually signed and dated written acknowledgement of receipt 
of the document.
    (b) The broker or dealer shall preserve, as part of its records, a 
copy of the written acknowledgment required by paragraph (a) of this 
section for the period specified in 17 CFR 240.17a-4(b) of this chapter.

[58 FR 37417, July 12, 1993]

[[Page 377]]



Sec. 240.15g-3  Broker or dealer disclosure of quotations and other 
information relating to the penny stock market.

    (a) Requirement. It shall be unlawful for a broker or dealer to 
effect a transaction in any penny stock with or for the account of a 
customer unless such broker or dealer discloses to such customer, within 
the time periods and in the manner required by paragraph (b) of this 
section, the following information:
    (1) The inside bid quotation and the inside offer quotation for the 
penny stock.
    (2) If paragraph (a)(1) of this section does not apply because of 
the absence of an inside bid quotation and an inside offer quotation:
    (i) With respect to a transaction effected with or for a customer on 
a principal basis (other than as provided in paragraph (a)(2)(ii) of 
this section):
    (A) The dealer shall disclose its offer price for the security:
    (1) If during the previous five days the dealer has effected no 
fewer than three bona fide sales to other dealers consistently at its 
offer price for the security current at the time of those sales, and
    (2) If the dealer reasonably believes in good faith at the time of 
the transaction with the customer that its offer price accurately 
reflects the price at which it is willing to sell one or more round lots 
to another dealer. For purposes of paragraph (a)(2)(i)(A) of this 
section, ``consistently'' shall constitute, at a minimum, seventy-five 
percent of the dealer's bona fide interdealer sales during the previous 
five-day period, and, if the dealer has effected only three bona fide 
inter-dealer sales during such period, all three of such sales.
    (B) The dealer shall disclose its bid price for the security:
    (1) If during the previous five days the dealer has effected no 
fewer than three bona fide purchases from other dealers consistently at 
its bid price for the security current at the time of those purchases, 
and
    (2) If the dealer reasonably believes in good faith at the time of 
the transaction with the customer that its bid price accurately reflects 
the price at which it is willing to buy one or more round lots from 
another dealer. For purposes of paragraph (a)(2)(i)(B) of this section, 
``consistently'' shall constitute, at a minimum, seventy-five percent of 
the dealer's bona fide interdealer purchases during the previous five-
day period, and, if the dealer has effected only three bona fide inter-
dealer purchases during such period, all three of such purchases.
    (C) If the dealer's bid or offer prices to the customer do not 
satisfy the criteria of paragraphs (a)(2)(i)(A) or (a)(2)(i)(B) of this 
section, the dealer shall disclose to the customer:
    (1) That it has not effected inter-dealer purchases or sales of the 
penny stock consistently at its bid or offer price, and
    (2) The price at which it last purchased the penny stock from, or 
sold the penny stock to, respectively, another dealer in a bona fide 
transaction.
    (ii) With respect to transactions effected by a broker or dealer 
with or for the account of the customer:
    (A) On an agency basis or
    (B) On a basis other than as a market maker in the security, where, 
after having received an order from the customer to purchase a penny 
stock, the dealer effects the purchase from another person to offset a 
contemporaneous sale of the penny stock to such customer, or, after 
having received an order from the customer to sell the penny stock, the 
dealer effects the sale to another person to offset a contemporaneous 
purchase from such customer, the broker or dealer shall disclose the 
best independent interdealer bid and offer prices for the penny stock 
that the broker or dealer obtains through reasonable diligence. A 
broker-dealer shall be deemed to have exercised reasonable diligence if 
it obtains quotations from three market makers in the security (or all 
known market makers if there are fewer than three).
    (3) With respect to bid or offer prices and transaction prices 
disclosed pursuant to paragraph (a) of this section, the broker or 
dealer shall disclose the number of shares to which the bid and offer 
prices apply.
    (b) Timing. (1) The information described in paragraph (a) of this 
section:

[[Page 378]]

    (i) Shall be provided to the customer orally or in writing prior to 
effecting any transaction with or for the customer for the purchase or 
sale of such penny stock; and
    (ii) Shall be given or sent to the customer in writing, at or prior 
to the time that any written confirmation of the transaction is given or 
sent to the customer pursuant to 17 CFR 240.10b-10 of this chapter.
    (2) A broker or dealer, at the time of making the disclosure 
pursuant to paragraph (b)(1)(i) of this section, shall make and preserve 
as part of its records, a record of such disclosure for the period 
specified in 17 CFR 240.17a-4(b).
    (c) Definitions. For purposes of this section:
    (1) The term bid price shall mean the price most recently 
communicated by the dealer to another broker or dealer at which the 
dealer is willing to purchase one or more round lots of the penny stock, 
and shall not include indications of interest.
    (2) The term offer price shall mean the price most recently 
communicated by the dealer to another broker or dealer at which the 
dealer is willing to sell one or more round lots of the penny stock, and 
shall not include indications of interest.
    (3) The term inside bid quotation for a security shall mean the 
highest bid quotation for the security displayed by a market maker in 
the security on a Qualifying Electronic Quotation System, at any time in 
which at least two market makers are contemporaneously displaying on 
such system bid and offer quotations for the security at specified 
prices.
    (4) The term inside offer quotation for a security shall mean the 
lowest offer quotation for the security displayed by a market maker in 
the security on a Qualifying Electronic Quotation System, at any time in 
which at least two market makers are contemporaneously displaying on 
such system bid and offer quotations for the security at specified 
prices.
    (5) The term Qualifying Electronic Quotation System shall mean an 
automated interdealer quotation system that has the characteristics set 
forth in section 17B(b)(2) of the Act, or such other automated 
interdealer quotation system designated by the Commission for purposes 
of this section.

[57 FR 18033, Apr. 28, 1992]



Sec. 240.15g-4  Disclosure of compensation to brokers or dealers.

    Preliminary Note: Brokers and dealers may wish to refer to 
Securities Exchange Act Release No. 30608 (April 20, 1992) for a 
discussion of the procedures for computing compensation in active and 
competitive markets, inactive and competitive markets, and dominated and 
controlled markets.

    (a) Disclosure requirement. It shall be unlawful for any broker or 
dealer to effect a transaction in any penny stock for or with the 
account of a customer unless such broker or dealer discloses to such 
customer, within the time periods and in the manner required by 
paragraph (b) of this section, the aggregate amount of any compensation 
received by such broker or dealer in connection with such transaction.
    (b) Timing. (1) The information described in paragraph (a) of this 
section:
    (i) Shall be provided to the customer orally or in writing prior to 
effecting any transaction with or for the customer for the purchase or 
sale of such penny stock; and
    (ii) Shall be given or sent to the customer in writing, at or prior 
to the time that any written confirmation of the transaction is given or 
sent to the customer pursuant to 17 CFR 240.10b-10.
    (2) A broker or dealer, at the time of making the disclosure 
pursuant to paragraph (b)(1)(i) of this section, shall make and preserve 
as part of its records, a record of such disclosure for the period 
specified in 17 CFR 240.17a-4(b).
    (c) Definition of compensation. For purposes of this section, 
compensation means, with respect to a transaction in a penny stock:
    (1) If a broker is acting as agent for a customer, the amount of any 
remuneration received or to be received by it from such customer in 
connection with such transaction;
    (2) If, after having received a buy order from a customer, a dealer 
other than a market maker purchased the penny stock as principal from 
another person to offset a contemporaneous

[[Page 379]]

sale to such customer or, after having received a sell order from a 
customer, sold the penny stock as principal to another person to offset 
a contemporaneous purchase from such customer, the difference between 
the price to the customer and such contemporaneous purchase or sale 
price; or
    (3) If the dealer otherwise is acting as principal for its own 
account, the difference between the price to the customer and the 
prevailing market price.
    (d) Active and competitive market. For purposes of this section 
only, a market may be deemed to be ``active and competitive'' in 
determining the prevailing market price with respect to a transaction by 
a market maker in a penny stock if the aggregate number of transactions 
effected by such market maker in the penny stock in the five business 
days preceding such transaction is less than twenty percent of the 
aggregate number of all transactions in the penny stock reported on a 
Qualifying Electronic Quotation System (as defined in 17 CFR 240.15g-
3(c)(5)) during such five-day period. No presumption shall arise that a 
market is not ``active and competitive'' solely by reason of a market 
maker not meeting the conditions specified in this paragraph.

[57 FR 18034, Apr. 28, 1992]



Sec. 240.15g-5  Disclosure of compensation of associated persons in 
connection with penny stock transactions.

    (a) General. It shall be unlawful for a broker or dealer to effect a 
transaction in any penny stock for or with the account of a customer 
unless the broker or dealer discloses to such customer, within the time 
periods and in the manner required by paragraph (b) of this section, the 
aggregate amount of cash compensation that any associated person of the 
broker or dealer who is a natural person and has communicated with the 
customer concerning the transaction at or prior to receipt of the 
customer's transaction order, other than any person whose function is 
solely clerical or ministerial, has received or will receive from any 
source in connection with the transaction and that is determined at or 
prior to the time of the transaction, including separate disclosure, if 
applicable, of the source and amount of such compensation that is not 
paid by the broker or dealer.
    (b) Timing. (1) The information described in paragraph (a) of this 
section:
    (i) Shall be provided to the customer orally or in writing prior to 
effecting any transaction with or for the customer for the purchase or 
sale of such penny stock; and
    (ii) Shall be given or sent to the customer in writing, at or prior 
to the time that any written confirmation of the transaction is given or 
sent to the customer pursuant to 17 CFR 240.10b-10.
    (2) A broker or dealer, at the time of making the disclosure 
pursuant to paragraph (b)(1)(i) of this section, shall make and preserve 
as part of its records, a record of such disclosure for the period 
specified in 17 CFR 240.17a-4(b).
    (c) Contingent compensation arrangements. Where a portion or all of 
the cash or other compensation that the associated person may receive in 
connection with the transaction may be determined and paid following the 
transaction based on aggregate sales volume levels or other 
contingencies, the written disclosure required by paragraph (b)(1)(ii) 
of this section shall state that fact and describe the basis upon which 
such compensation is determined.

[57 FR 18034, Apr. 28, 1992]



Sec. 240.15g-6  Account statements for penny stock customers.

    (a) Requirement. It shall be unlawful for any broker or dealer that 
has effected the sale to any customer, other than in a transaction that 
is exempt pursuant to 17 CFR 240.15g-1, of any security that is a penny 
stock on the last trading day of any calendar month, or any successor of 
such broker or dealer, to fail to give or send to such customer a 
written statement containing the information described in paragraphs (c) 
and (d) of this section with respect to each such month in which such 
security is held for the customer's account with the broker or dealer, 
within ten days following the end of such month.
    (b) Exemptions. A broker or dealer shall be exempted from the 
requirement of paragraph (a) of this section

[[Page 380]]

under either of the following circumstances:
    (1) If the broker or dealer does not effect any transactions in 
penny stocks for or with the account of the customer during a period of 
six consecutive calendar months, then the broker or dealer shall not be 
required to provide monthly statements for each quarterly period that is 
immediately subsequent to such six-month period and in which the broker 
or dealer does not effect any transaction in penny stocks for or with 
the account of the customer, provided that the broker or dealer gives or 
sends to the customer written statements containing the information 
described in paragraphs (d) and (e) of this section on a quarterly 
basis, within ten days following the end of each such quarterly period.
    (2) If, on all but five or fewer trading days of any quarterly 
period, a security has a price of five dollars or more, the broker or 
dealer shall not be required to provide a monthly statement covering the 
security for subsequent quarterly periods, until the end of any such 
subsequent quarterly period on the last trading day of which the price 
of the security is less than five dollars.
    (c) Price determinations. For purposes of paragraphs (a) and (b) of 
this section, the price of a security on any trading day shall be 
determined at the close of business in accordance with the provisions of 
17 CFR 240.3a51-1(d)(1).
    (d) Market and price information. The statement required by 
paragraph (a) of this section shall contain at least the following 
information with respect to each penny stock covered by paragraph (a) of 
this section, as of the last trading day of the period to which the 
statement relates:
    (1) The identity and number of shares or units of each such security 
held for the customer's account; and
    (2) The estimated market value of the security, to the extent that 
such estimated market value can be determined in accordance with the 
following provisions:
    (i) The highest inside bid quotation for the security on the last 
trading day of the period to which the statement relates, multiplied by 
the number of shares or units of the security held for the customer's 
account; or
    (ii) If paragraph (d)(2)(i) of this section is not applicable 
because of the absence of an inside bid quotation, and if the broker or 
dealer furnishing the statement has effected at least ten separate 
Qualifying Purchases in the security during the last five trading days 
of the period to which the statement relates, the weighted average price 
per share paid by the broker or dealer in all Qualifying Purchases 
effected during such five-day period, multiplied by the number of shares 
or units of the security held for the customer's account; or
    (iii) If neither of paragraphs (d)(2)(i) nor (d)(2)(ii) of this 
section is applicable, a statement that there is ``no estimated market 
value'' with respect to the security.
    (e) Legend. In addition to the information required by paragraph (d) 
of this section, the written statement required by paragraph (a) of this 
section shall include a conspicuous legend that is identified with the 
penny stocks described in the statement and that contains the following 
language:

    If this statement contains an estimated value, you should be aware 
that this value may be based on a limited number of trades or quotes. 
Therefore, you may not be able to sell these securities at a price equal 
or near to the value shown. However, the broker-dealer furnishing this 
statement may not refuse to accept your order to sell these securities. 
Also, the amount you receive from a sale generally will be reduced by 
the amount of any commissions or similar charges. If an estimated value 
is not shown for a security, a value could not be determined because of 
a lack of information.

    (f) Preservation of records. Any broker or dealer subject to this 
section shall preserve, as part of its records, copies of the written 
statements required by paragraph (a) of this section and keep such 
records for the periods specified in 17 CFR 240.17a-4(b).
    (g) Definitions. For purposes of this section:
    (1) The term Quarterly period shall mean any period of three 
consecutive full calendar months.
    (2) The inside bid quotation for a security shall mean the highest 
bid quotation for the security displayed by a market maker in the 
security on a

[[Page 381]]

Qualifying Electronic Quotation System, at any time in which at least 
two market makers are contemporaneously displaying on such system bid 
and offer quotations for the security at specified prices.
    (3) The term Qualifying Electronic Quotation System shall mean an 
automated interdealer quotation system that has the characteristics set 
forth in section 17B(b)(2) of the Act, or such other automated 
interdealer quotation system designated by the Commission for purposes 
of this section.
    (4) The term Qualifying Purchases shall mean bona fide purchases by 
a broker or dealer of a penny stock for its own account, each of which 
involves at least 100 shares, but excluding any block purchase involving 
more than one percent of the outstanding shares or units of the 
security.

[57 FR 18034, Apr. 28, 1992]



Sec. 240.15g-8  Sales of escrowed securities of blank check companies.

    As a means reasonably designed to prevent fraudulent, deceptive, or 
manipulative acts or practices, it shall be unlawful for any person to 
sell or offer to sell any security that is deposited and held in an 
escrow or trust account pursuant to Rule 419 under the Securities Act of 
1933 (17 CFR 230.419), or any interest in or related to such security, 
other than pursuant to a qualified domestic relations order as defined 
by the Internal Revenue Code of 1986, as amended (26 U.S.C. 1 et seq.), 
or Title I of the Employee Retirement Income Security Act (29 U.S.C. 
1001 et seq.), or the rules thereunder.

[57 FR 18045, Apr. 28, 1992]



Sec. 240.15g-9  Sales practice requirements for certain low-priced securities.

    (a) As a means reasonably designed to prevent fraudulent, deceptive, 
or manipulative acts or practices, it shall be unlawful for a broker or 
dealer to sell a penny stock to, or to effect the purchase of a penny 
stock by, any person unless:
    (1) The transaction is exempt under paragraph (c) of this section; 
or
    (2) Prior to the transaction:
    (i) The broker or dealer has approved the person's account for 
transactions in penny stocks in accordance with the procedures set forth 
in paragraph (b) of this section; and
    (ii) The broker or dealer has received from the person a written 
agreement to the transaction setting forth the identity and quantity of 
the penny stock to be purchased.
    (b) In order to approve a person's account for transactions in penny 
stocks, the broker or dealer must:
    (1) Obtain from the person information concerning the person's 
financial situation, investment experience, and investment objectives;
    (2) Reasonably determine, based on the information required by 
paragraph (b)(1) of this section and any other information known by the 
broker-dealer, that transactions in penny stocks are suitable for the 
person, and that the person (or the person's independent adviser in 
these transactions) has sufficient knowledge and experience in financial 
matters that the person (or the person's independent adviser in these 
transactions) reasonably may be expected to be capable of evaluating the 
risks of transactions in penny stocks;
    (3) Deliver to the person a written statement:
    (i) Setting forth the basis on which the broker or dealer made the 
determination required by paragraph (b)(2) of this section;
    (ii) Stating in a highlighted format that it is unlawful for the 
broker or dealer to effect a transaction in a penny stock subject to the 
provisions of paragraph (a)(2) of this section unless the broker or 
dealer has received, prior to the transaction, a written agreement to 
the transaction from the person; and
    (iii) Stating in a highlighted format immediately preceding the 
customer signature line that:
    (A) The broker or dealer is required by this section to provide the 
person with the written statement; and
    (B) The person should not sign and return the written statement to 
the broker or dealer if it does not accurately reflect the person's 
financial situation, investment experience, and investment objectives; 
and

[[Page 382]]

    (4) Obtain from the person a manually signed and dated copy of the 
written statement required by paragraph (b)(3) of this section.
    (c) For purposes of this section, the following transactions shall 
be exempt:
    (1) Transactions that are exempt under 17 CFR 240.15g-1 (a), (b), 
(d), (e), and (f).
    (2) Transactions that meet the requirements of 17 CFR 230.505 or 
230.506 (including, where applicable, the requirements of 17 CFR 230.501 
through 230.503, and 17 CFR 230.507 through 230.508), or transactions 
with an issuer not involving any public offering pursuant to section 
4(2) of the Securities Act of 1933.
    (3) Transactions in which the purchaser is an established customer 
of the broker or dealer.
    (d) For purposes of this section:
    (1) The term penny stock shall have the same meaning as in 17 CFR 
240.3a51-1.
    (2) The term established customer shall mean any person for whom the 
broker or dealer, or a clearing broker on behalf of such broker or 
dealer, carries an account, and who in such account:
    (i) Has effected a securities transaction, or made a deposit of 
funds or securities, more than one year previously; or
    (ii) Has made three purchases of penny stocks that occurred on 
separate days and involved different issuers.

[54 FR 35481, Aug. 28, 1989. Redesignated and amended at 58 FR 37417, 
July 12, 1993]



Sec. 240.15g-100  Schedule 15G--Information to be included in the 
document distributed pursuant to 17 CFR 240.15g-2.

                   Securities and Exchange Commission

                          Washington, DC 20549

                              Schedule 15G

                Under the Securities Exchange Act of 1934

                      Instructions to Schedule 15G

    A. The information contained in Schedule 15G (``Schedule'') must be 
reproduced in its entirety. No language of the document may be omitted, 
added to, or altered in any way. No material may be given to a customer 
that is intended in any way to detract from, rebut, or contradict the 
Schedule.
    B. The document entitled ``Important Information on Penny Stocks'' 
must be distributed as the first page of Schedule 15G, and on one page 
only. The remainder of Schedule 15G, entitled ``Further Information,'' 
explains the items discussed in the first page in greater detail.
    C. The disclosures made through the Schedule are in addition to any 
other disclosure(s) that are required to be made under the federal 
securities laws, including without limitation the disclosures required 
pursuant to the rules adopted under Sections 15(c)(1), 15(c)(2), and 
15(g) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(c) (1) and 
(2), and 15 U.S.C. 78o(g), respectively.
    D. The format and typeface of the document must be reproduced as 
presented in the Schedule. The document may be reproduced from the 
Schedule by photographic copying that is clear, complete, and at least 
satisfies the type-size requirements set forth below for printing. In 
the alternative, the document may be printed and must meet the following 
criteria regarding typeface:
    1. Words appearing in capital letters in the Schedule must be 
reproduced in capital letters and printed in bold-face roman type at 
least as large as ten-point modern type and at least two points leaded.
    2. Words appearing in lower-case letters must be reproduced in 
lower-case roman type at least as large as ten point modern type and at 
least two points leaded.
    3. Words that are underlined in the document must be underlined in 
reproduction and appear in bold-faced roman type at least as large as 
ten point modern type and at least two points leaded, and meet the 
criteria for lower-case or capital letters in paragraphs (1) and (2) 
above, whichever is applicable.
    E. Recipients of the document must not be charged any fee for the 
document.
    F. The content of the Schedule is as follows:

                               [next page]

                  Important Information on Penny Stocks

    This statement is required by the U.S. Securities and Exchange 
Commission (SEC) and contains important information on penny stocks. 
Your broker-dealer is required to obtain your signature to show that you 
have received this statement before your first trade in a penny stock. 
You are urged to read this statement before signing and before making a 
purchase or sale of a penny stock.
    Penny stocks can be very risky.
     Penny stocks are low-priced shares of small 
companies not traded on an exchange or quoted on NASDAQ. Prices often 
are not available. Investors in penny stocks often are unable to sell 
stock back to the dealer that sold them the stock. Thus, you may lose 
your investment. Be cautious of newly issued penny stock.

[[Page 383]]

     Your salesperson is not an impartial advisor but 
is paid to sell you the stock. Do not rely only on the salesperson, but 
seek outside advice before you buy any stock. If you have problems with 
a salesperson, contact the firm's compliance officer or the regulators 
listed below.
    Information you should get.
     Before you buy penny stock, federal law requires 
your salesperson to tell you the ``offer'' and the ``bid'' on the stock, 
and the ``compensation'' the salesperson and the firm receive for the 
trade. The firm also must mail a confirmation of these prices to you 
after the trade.
     You will need this price information to determine 
what profit, if any, you will have when you sell your stock. The offer 
price is the wholesale price at which the dealer is willing to sell 
stock to other dealers. The bid price is the wholesale price at which 
the dealer is willing to buy the stock from other dealers. In its trade 
with you, the dealer may add a retail charge to these wholesale prices 
as compensation (called a ``markup'' or ``markdown'').
     The difference between the bid and the offer 
price is the dealer's ``spread.'' A spread that is large compared with 
the purchase price can make a resale of a stock very costly. To be 
profitable when you sell, the bid price of your stock must rise above 
the amount of this spread and the compensation charged by both your 
selling and purchasing dealers. If the dealer has no bid price, you may 
not be able to sell the stock after you buy it, and may lose your whole 
investment.
    Brokers' duties and customer's rights and remedies.
     If you are a victim of fraud, you may have rights 
and remedies under state and federal law. You can get the disciplinary 
history of a salesperson or firm from the NASD at 1-800-289-9999, and 
additional information from your state securities official, at the North 
American Securities Administrators Association's central number: (202) 
737-0900. You also may contact the SEC with complaints at (202) 272-
7440.

                               [next page]

                           Further Information

    The securities being sold to you have not been approved or 
disapproved by the Securities and Exchange Commission. Moreover, the 
Securities and Exchange Commission has not passed upon the fairness or 
the merits of this transaction nor upon the accuracy or adequacy of the 
information contained in any prospectus or any other information 
provided by an issuer or a broker or dealer.
    Generally, penny stock is a security that:
     Is priced under five dollars;
     Is not traded on a national stock exchange or on 
NASDAQ (the NASD's automated quotation system for actively traded 
stocks);
     May be listed in the ``pink sheets'' or the NASD 
OTC Bulletin Board;
     Is issued by a company that has less than $5 
million in net tangible assets and has been in business less than three 
years, by a company that has under $2 million in net tangible assets and 
has been in business for at least three years, or by a company that has 
revenues of $6 million for 3 years.

               Use Caution When Investing in Penny Stocks

    1. Do not make a hurried investment decision. High-pressure sales 
techniques can be a warning sign of fraud. The salesperson is not an 
impartial advisor, but is paid for selling stock to you. The salesperson 
also does not have to watch your investment for you. Thus, you should 
think over the offer and seek outside advice. Check to see if the 
information given by the salesperson differs from other information you 
may have. Also, it is illegal for salespersons to promise that a stock 
will increase in value or is risk-free, or to guarantee against loss. If 
you think there is a problem, ask to speak with a compliance official at 
the firm, and, if necessary, any of the regulators referred to in this 
statement.
    2. Study the company issuing the stock. Be wary of companies that 
have no operating history, few assets, or no defined business purpose. 
These may be sham or ``shell'' corporations. Read the prospectus for the 
company carefully before you invest. Some dealers fraudulently solicit 
investors' money to buy stock in sham companies, artificially inflate 
the stock prices, then cash in their profits before public investors can 
sell their stock.
    3. Understand the risky nature of these stocks. You should be aware 
that you may lose part or all of your investment. Because of large 
dealer spreads, you will not be able to sell the stock immediately back 
to the dealer at the same price it sold the stock to you. In some cases, 
the stock may fall quickly in value. New companies, whose stock is sold 
in an ``initial public offering,'' often are riskier investments. Try to 
find out if the shares the salesperson wants to sell you are part of 
such an offering. Your salesperson must give you a ``prospectus'' in an 
initial public offering, but the financial condition shown in the 
prospectus of new companies can change very quickly.
    4. Know the brokerage firm and the salespeople with whom you are 
dealing. Because of the nature of the market for penny stock, you may 
have to rely solely on the original brokerage firm that sold you the 
stock for prices and to buy the stock back from you. Ask the National 
Association of Securities Dealers, Inc. (NASD) or your state securities 
regulator, which is a member of the North

[[Page 384]]

American Securities Administrators Association, Inc. (NASAA), about the 
licensing and disciplinary record of the brokerage firm and the 
salesperson contacting you. The telephone numbers of the NASD and NASAA 
are listed on the first page of this document.
    5. Be cautious if your salesperson leaves the firm. If the 
salesperson who sold you the stock leaves his or her firm, the firm may 
reassign your account to a new salesperson. If you have problems, ask to 
speak to the firm's branch office manager or a compliance officer. 
Although the departing salesperson may ask you to transfer your stock to 
his or her new firm, you do not have to do so. Get information on the 
new firm. Be wary of requests to sell your securities when the 
salesperson transfers to a new firm. Also, you have the right to get 
your stock certificate from your selling firm. You do not have to leave 
the certificate with that firm or any other firm.

                               Your Rights

    Disclosures to you. Under penalty of federal law, your brokerage 
firm must tell you the following information at two different times--
before you agree to buy or sell a penny stock, and after the trade, by 
written confirmation:
     The bid and offer price quotes for penny stock, 
and the number of shares to which the quoted prices apply. The bid and 
offer quotes are the wholesale prices at which dealers trade among 
themselves. These prices give you an idea of the market value of the 
stock. The dealer must tell you these price quotes if they appear on an 
automated quotation system approved by the SEC. If not, the dealer must 
use its own quotes or trade prices. You should calculate the spread, the 
difference between the bid and offer quotes, to help decide if buying 
the stock is a good investment.
    A lack of quotes may mean that the market among dealers is not 
active. It thus may be difficult to resell the stock. You also should be 
aware that the actual price charged to you for the stock may differ from 
the price quoted to you for 100 shares. You should therefore determine, 
before you agree to a purchase, what the actual sales price (before the 
markup) will be for the exact number of shares you want to buy.
     The brokerage firm's compensation for the trade. 
A markup is the amount a dealer adds to the wholesale offer price of the 
stock and a markdown is the amount it subtracts from the wholesale bid 
price of the stock as compensation. A markup/markdown usually serves the 
same role as a broker's commission on a trade. Most of the firms in the 
penny stock market will be dealers, not brokers.
     The compensation received by the brokerage firm's 
salesperson for the trade. The brokerage firm must disclose to you, as a 
total sum, the cash compensation of your salesperson for the trade that 
is known at the time of the trade. The firm must describe in the written 
confirmation the nature of any other compensation of your salesperson 
that is unknown at the time of the trade.
    In addition to the items listed above, your brokerage firm must send 
to you:
     Monthly account statements. In general, your 
brokerage firm must send you a monthly statement that gives an estimate 
of the value of each penny stock in your account, if there is enough 
information to make an estimate. If the firm has not bought or sold any 
penny stocks for your account for six months, it can provide these 
statements every three months.
    A Written Statement of Your Financial Situation and Investment 
Goals. In general, unless you have had an account with your brokerage 
firm for more than one year, or you have previously bought three 
different penny stocks from that firm, your brokerage firm must send you 
a written statement for you to sign that accurately describes your 
financial situation, your investment experience, and your investment 
goals, and that contains a statement of why your firm decided that penny 
stocks are a suitable investment for you. The firm also must get your 
written consent to buy the penny stock.
    Legal remedies. If penny stocks are sold to you in violation of your 
rights listed above, or other federal or state securities laws, you may 
be able to cancel your purchase and get your money back. If the stocks 
are sold in a fraudulent manner, you may be able to sue the persons and 
firms that caused the fraud for damages. If you have signed an 
arbitration agreement, however, you may have to pursue your claim 
through arbitration. You may wish to contact an attorney. The SEC is not 
authorized to represent individuals in private litigation.
    However, to protect yourself and other investors, you should report 
any violations of your brokerage firm's duties listed above and other 
securities laws to the SEC, the NASD, or your state securities 
administrator at the telephone numbers on the first page of this 
document. These bodies have the power to stop fraudulent and abusive 
activity of salespersons and firms engaged in the securities business. 
Or you can write to the SEC at 450 Fifth St., NW., Washington, DC 20549; 
the NASD at 1735 K Street, NW., Washington, DC 20006; or NASAA at 555 
New Jersey Avenue, NW., Suite 750, Washington, DC 20001. NASAA will give 
you the telephone number of your state's securities agency. If there is 
any disciplinary record of a person or a firm, the NASD, NASAA, or your 
state securities regulator will send you this information if you ask for 
it.

[[Page 385]]

                           Market Information

    The market for penny stocks. Penny stocks usually are not listed on 
an exchange or quoted on the NASDAQ system. Instead, they are traded 
between dealers on the telephone in the ``over-the-counter'' market. The 
NASD's OTC Bulletin Board also will contain information on some penny 
stocks. At times, however, price information for these stocks is not 
publicly available.
    Market domination. In some cases, only one or two dealers, acting as 
``market makers,'' may be buying and selling a given stock. You should 
first ask if a firm is acting as a broker (your agent) or as a dealer. A 
dealer buys stock itself to fill your order or already owns the stock. A 
market maker is a dealer who holds itself out as ready to buy and sell 
stock on a regular basis. If the firm is a market maker, ask how many 
other market makers are dealing in the stock to see if the firm (or 
group of firms) dominates the market. When there are only one or two 
market makers, there is a risk that the dealer or group of dealers may 
control the market in that stock and set prices that are not based on 
competitive forces. In recent years, some market makers have created 
fraudulent markets in certain penny stocks, so that stock prices rose 
suddenly, but collapsed just as quickly, at a loss to investors.
    Mark-ups and mark-downs. The actual price that the customer pays 
usually includes the mark-up or mark-down. Markups and markdowns are 
direct profits for the firm and its salespeople, so you should be aware 
of such amounts to assess the overall value of the trade.
    The ``spread.'' The difference between the bid and offer price is 
the spread. Like a mark-up or mark-down, the spread is another source of 
profit for the brokerage firm and compensates the firm for the risk of 
owning the stock. A large spread can make a trade very expensive to an 
investor. For some penny stocks, the spread between the bid and offer 
may be a large part of the purchase price of the stock. Where the bid 
price is much lower than the offer price, the market value of the stock 
must rise substantially before the stock can be sold at a profit. 
Moreover, an investor may experience substantial losses if the stock 
must be sold immediately.
    Example: If the bid is $0.04 per share and the offer is $0.10 per 
share, the spread (difference) is $0.06, which appears to be a small 
amount. But you would lose $0.06 on every share that you bought for 
$0.10 if you had to sell that stock immediately to the same firm. If you 
had invested $5,000 at the $0.10 offer price, the market maker's 
repurchase price, at $0.04 bid, would be only $2,000; thus you would 
lose $3,000, or more than half of your investment, if you decided to 
sell the stock. In addition, you would have to pay compensation (a 
``mark-up,'' ``mark-down,'' or commission) to buy and sell the stock. 
\1/4\
    In addition to the amount of the spread, the price of your stock 
must rise enough to make up for the compensation that the dealer charged 
you when it first sold you the stock. Then, when you want to resell the 
stock, a dealer again will charge compensation, in the form of a 
markdown. The dealer subtracts the markdown from the price of the stock 
when it buys the stock from you. Thus, to make a profit, the bid price 
of your stock must rise above the amount of the original spread, the 
markup, and the markdown.
    Primary offerings. Most penny stocks are sold to the public on an 
ongoing basis. However, dealers sometimes sell these stocks in initial 
public offerings. You should pay special attention to stocks of 
companies that have never been offered to the public before, because the 
market for these stocks is untested. Because the offering is on a first-
time basis, there is generally no market information about the stock to 
help determine its value. The federal securities laws generally require 
broker-dealers to give investors a ``prospectus,'' which contains 
information about the objectives, management, and financial condition of 
the issuer. In the absence of market information, investors should read 
the company's prospectus with special care to find out if the stocks are 
a good investment. However, the prospectus is only a description of the 
current condition of the company. The outlook of the start-up companies 
described in a prospectus often is very uncertain.
    For more information about penny stocks, contact the Office of 
Filings, Information, and Consumer Services of the U.S. Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549, (202) 
272-7440.

[57 FR 18035, Apr. 28, 1992, as amended at 57 FR 31446, July 16, 1992; 
58 FR 37417, July 12, 1993]

             National and Affiliated Securities Associations



Sec. 240.15Aa-1  Registration of a national or an affiliated securities 
association.

    Any application for registration of an association as a national, or 
as an affiliated, securities association shall be made in triplicate on 
Form X-15AA-1 accompanied by three copies of the exhibits prescribed by 
the Commission to be filed in connection therewith.

(Sec. 15A, 52 Stat. 1070; 15 U.S.C. 78o-3)

[13 FR 8209, Dec. 22, 1948. Redesignated at 30 FR 11851, Sept. 16, 1965]

[[Page 386]]



Sec. 240.15Aj-1  Amendments and supplements to registration statements 
of securities associations.

    Every association applying for registration or registered as a 
national securities association or as an affiliated securities 
association shall keep its registration statement up-to-date in the 
manner prescribed below:
    (a) Amendments. Promptly after the discovery of any inaccuracy in 
the registration statement or in any amendment or supplement thereto the 
association shall file with the Commission an amendment correcting such 
inaccuracy.
    (b) Current supplements. Promptly after any change which renders no 
longer accurate any information contained or incorporated in the 
registration statement or in any amendment or supplement thereto the 
association shall file with the Commission a current supplement setting 
forth such change, except that:
    (1) Supplements setting forth changes in the information called for 
in Exhibit C need not be filed until 10 days after the calendar month in 
which the changes occur.
    (2) No current supplements need be filed with respect to changes in 
the information called for in Exhibit B.
    (3) If changes in the information called for in items (1) and (2) of 
Exhibit C are reported in any record which is published at least once a 
month by the association and promptly filed in triplicate with the 
Commission, no current supplement need be filed with respect thereto.
    (c) Annual supplements. (1) Promptly after March 1 of each year, the 
association shall file with the Commission an annual consolidated 
supplement as of such date on Form X-15AJ-2 (Sec. 249.803) except that:
    (i) If the securities association publishes or cooperates in the 
publication of the information required in Items 6(a) and 6(b) of Form 
X-15AJ-2 on an annual or more frequent basis, in lieu of filing such an 
item the securities association may:
    (A) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price thereof; and
    (B) Certify to the accuracy of such information as of its date.
    (ii) Promptly after March 1, 1995, and every three years thereafter 
each association shall file complete Exhibit A to Form X-15AJ-2. The 
information contained in this exhibit shall be up to date as of the 
latest practicable date within 3 months of the date on which these 
exhibits are filed. If the association publishes or cooperates in the 
publication of the information required in this exhibit on an annual or 
more frequent basis, in lieu of filing such exhibit the association may:
    (A) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price thereof; and
    (B) Certify to the accuracy of such information as of its date. If a 
securities association keeps the information required in this exhibit up 
to date and makes it available to the Commission and the public upon 
request, in lieu of filing such an exhibit a securities association may 
certify that the information is kept up to date and is available to the 
Commission and the public upon request.
    (2) Promptly after the close of each fiscal year of the association, 
it shall file with the Commission a supplement setting forth its balance 
sheet as of the close of such year and its income and expense statement 
for such year.
    (d) Filing, dating, etc. Each amendment or supplement shall be filed 
in triplicate, at least one of which must be signed and attested, in the 
same manner as required in the case of the original registration 
statement, and must conform to the requirements of Form X-15Aj-1, except 
that the annual consolidated supplement shall be filed on Form X-15Aj-2. 
All amendments and supplements shall be dated and numbered in order of 
filing. One amendment or supplement may include any number of changes. 
In addition to the formal filing of amendments and supplements above 
described, each association shall send to the Commission three copies of 
any notices, reports, circulars, loose-leaf insertions, riders,

[[Page 387]]

new additions, lists or other records of changes covered by amendments 
or supplements when, as and if such records are made available to 
members of the association.

(Sec. 15A, 52 Stat. 1070; 15 U.S.C. 78o-3)

[13 FR 8209, Dec. 22, 1948, as amended at 18 FR 6259, Oct. 1, 1953. 
Redesignated at 30 FR 11851, Sept. 16, 1965; 59 FR 66700, Dec. 28, 1994]



Sec. 240.15Al2-1  [Reserved]



Sec. 240.15Ba2-1  Application for registration of municipal securities 

dealers which are banks or separately identifiable departments or 
divisions of banks.

    (a) An application for registration, pursuant to Section 15B(a) of 
the Act, of a municipal securities dealer which is a bank (as defined in 
section 3(a)(6) of the Act) or a separately identifiable department or 
division of a bank (as defined by the Municipal Securities Rulemaking 
Board), shall be filed with the Commission on Form MSD (Sec. 249.950 of 
this chapter), in accordance with the instructions contained therein.
    (b) If the information contained in any application for registration 
pursuant to paragraph (a) of this section, or in any amendment to such 
application, is or becomes inaccurate for any reason, applicant shall 
promptly file an amendment on Form MSD (Sec. 249.950 of this chapter) 
correcting such information.
    (c) Every amendment filed pursuant to this rule shall constitute a 
``report'' within the meaning of sections 17 and 32(a) of the Act (15 
U.S.C. 78q and 78ff (a)).

[40 FR 49776, Oct. 24, 1975]



Sec. 240.15Ba2-2  Application for registration of non-bank municipal 
securities dealers whose business is exclusively intrastate.

    (a) An application for registration, pursuant to section 15B(a) of 
the Act, of a municipal securities dealer who is not subject to the 
requirements of Sec. 240.15Ba2-1, that is filed on or after January 25, 
1993, shall be filed with the Central Registration Depository (operated 
by the National Association of Securities Dealers, Inc.) on Form BD in 
accordance with the instructions contained therein.
    (b) Every applicant shall file with its application for registration 
a statement that such applicant is filing for registration as an 
intrastate dealer in accordance with the requirements of this section. 
Such statement shall be deemed a part of the application for 
registration.
    (c) If the information contained in any application for registration 
filed pursuant to paragraph (a) of this section, or in any amendment to 
such application, is or becomes inaccurate for any reason, the dealer 
shall promptly file with the Central Registration Depository an 
amendment on Form BD correcting such information.
    (d) Every application or amendment filed with the Central 
Registration Depository pursuant to this section shall constitute a 
``report'' filed with the Commission within the meaning of Sections 
15(b), 15B(c), 17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 78o-4(c), 78q(a), 
78r(a), 78ff(a)) and other applicable provisions of the Act.
    (e) Temporary re-filing instructions. (1) Except as provided in 
paragraph (e)(3) of this section, every dealer that is registered in 
accordance with this section shall re-file with the Central Registration 
Depository, at the time the dealer submits its first amendment on or 
after August 16, 1999 but, in any event, no later than December 15, 
1999, the following information from its current Form BD:
    (i) Question 8 (if answered ``Yes,'' the broker-dealer must also 
complete relevant items in Section IV of Schedule D);
    (ii) Question 9 (if answered ``Yes,'' the broker-dealer must also 
complete relevant items in Section IV of Schedule D);
    (iii) Question 10(a) (if answered ``Yes,'' the broker-dealer must 
also complete relevant items in Section V of Schedule D);
    (iv) Question 10(b) (if answered ``Yes,'' the broker-dealer must 
also complete relevant items in Section VI of Schedule D);
    (v) Question 11 (if any item in Question 11 is answered ``Yes,'' the 
broker-dealer must also complete the relevant DRP(s)); and
    (vi) Schedules A and B.

[[Page 388]]

    (2) Every dealer that is registered in accordance with this section, 
at the time it re-files the information required by paragraph (e)(1) of 
this section, shall review, and amend as necessary, the information in 
Form BD that was transferred by the National Association of Securities 
Dealers to the Central Registration Depository prior to August 16, 1999.
    (3) Every dealer that is registered in accordance with this section 
but that has not completed the re-filing requirements provided in 
paragraphs (c)(1) and (c)(2) of this section, during the period from 
August 16, 1999 to December 15, 1999, shall submit in paper format to 
the Central Registration Depository all Schedule E amendments to Form 
BD. A Schedule E filed pursuant to this paragraph (e)(3) shall not be 
deemed an ``amendment'' for purposes of paragraphs (e)(1) and (e)(2) of 
this section.
    (4) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BD (17 CFR 249.501) and 
paragraphs (e)(1), (e)(2), and (e)(3) of this section under conditions 
that differ from the filing instructions contained in Form BD and 
paragraphs (e)(1), (e)(2), and (e)(3) of this section.

[58 FR 14, Jan. 4, 1993, as amended at 64 FR 25148, May 10, 1999; 64 FR 
37594, July 12, 1999; 64 FR 42596, Aug. 5, 1999]



Sec. 240.15Ba2-4  Registration of successor to registered municipal 
securities dealer.

    (a) In the event that a municipal securities dealer succeeds to and 
continues the business of a registered municipal securities dealer, the 
registration of the predecessor shall be deemed to remain effective as 
the registration of the successor if the successor, within 30 days after 
such succession, files an application for registration on Form MSD, in 
the case of a municipal securities dealer that is a bank or a separately 
identifiable department or division of a bank, or Form BD, in the case 
of any other municipal securities dealer, and the predecessor files a 
notice of withdrawal from registration on Form MSDW or Form BDW, as the 
case may be; Provided, however, That the registration of the predecessor 
dealer will cease to be effective as the registration of the successor 
dealer 45 days after the application for registration on Form MSD or 
Form BD is filed by such successor.
    (b) Notwithstanding paragraph (a) of this section, if a municipal 
securities dealer succeeds to and continues the business of a registered 
predecessor municipal securities dealer, and the succession is based 
solely on a change in the predecessor's date or state of incorporation, 
form of organization, or composition of a partnership, the successor 
may, within 30 days after the succession, amend the registration of the 
predecessor dealer on Form MSD, in the case of a predecessor municipal 
securities dealer that is a bank or a separately identifiable department 
or division of a bank, or on Form BD, in the case of any other municipal 
securities dealer, to reflect these changes. This amendment shall be 
deemed an application for registration filed by the predecessor and 
adopted by the successor.

[58 FR 10, Jan. 4, 1993]



Sec. 240.15Ba2-5  Registration of fiduciaries.

    The registration of a municipal securities dealer shall be deemed to 
be the registration of any executor, administrator, guardian, 
conservator, assignee for the benefit of creditors, receiver, trustee in 
insolvency or bankruptcy, or other fiduciary, appointed or qualified by 
order, judgment, or decree of a court of competent jurisdiction to 
continue the business of such registered municipal securities dealer, 
provided that such fiduciary files with the Commission, within 30 days 
after entering upon the performance of his duties, a statement setting 
forth as to such fiduciary substantially the information required by 
Form MSD, if the municipal securities dealer is a bank or a separately 
identifiable department of a bank, or Form BD, if the municipal 
securities dealer is other than a bank or a separately identifiable 
department or division of a bank.

[41 FR 28948, July 14, 1976]

[[Page 389]]



Sec. 240.15Ba2-6  [Reserved]



Sec. 240.15Bc3-1  Withdrawal from registration of municipal securities dealers.

    (a) Notice of withdrawal from registration as a municipal securities 
dealer pursuant to Section 15B(c) (15 U.S.C. 78o-4(c)) shall be filed on 
Form MSDW (17 CFR 249.1110), in the case of a municipal securities 
dealer which is a bank or a separately identifiable department or 
division of a bank, or Form BDW (17 CFR 249.501a), in the case of any 
other municipal securities dealer, in accordance with the instructions 
contained therein. Prior to filing a notice of withdrawal from 
registration on Form MSDW (17 CFR 249.1110) or Form BDW (17 CFR 
249.501a), a municipal securities dealer shall amend Form MSD (17 CFR 
249.1100) in accordance with Sec. 240.15Ba2-1(b) or amend Form BD (17 
CFR 249.501) in accordance with Sec. 240.15Ba2-2(c) to update any 
inaccurate information.
    (b) Every notice of withdrawal from registration as a municipal 
securities dealer that is filed on Form BDW (17 CFR 249.501a) shall be 
filed with the Central Registration Depository (operated by the National 
Association of Securities Dealers, Inc.) in accordance with applicable 
filing requirements. Every notice of withdrawal on Form MSDW (17 CFR 
249.1110) shall be filed with the Commission.
    (c) A notice of withdrawal from registration filed by a municipal 
securities dealer pursuant to Section 15B(c) (15 U.S.C. 78o-4(c)) shall 
become effective for all matters on the 60th day after the filing 
thereof with the Commission, within such longer period of time as to 
which such municipal securities dealer consents or which the Commission 
by order may determine as necessary or appropriate in the public 
interest or for the protection of investors, or within such shorter 
period of time as the Commission may determine. If a notice of 
withdrawal from registration is filed with the Commission at any time 
subsequent to the date of the issuance of a Commission order instituting 
proceedings pursuant to Section 15B(c) (15 U.S.C. 78o-4(c)) to censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of, such municipal securities dealer, 
or if prior to the effective date of the notice of withdrawal pursuant 
to this paragraph (c), the Commission institutes such a proceeding or a 
proceeding to impose terms or conditions upon such withdrawal, the 
notice of withdrawal shall not become effective pursuant to this 
paragraph (c) except at such time and upon such terms and conditions as 
the Commission deems necessary or appropriate in the public interest or 
for the protection of investors.
    (d) Every notice of withdrawal filed with the Central Registration 
Depository pursuant to this section shall constitute a ``report'' filed 
with the Commission within the meaning of Sections 15B(c), 17(a), 18(a), 
32(a) (15 U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a)) and other applicable 
provisions of the Act.
    (e) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BDW (17 CFR 249.501a) under 
conditions that differ from the filing instructions contained in Form 
BDW.

[64 FR 25148, May 10, 1999, as amended at 64 FR 42596, Aug. 5, 1999]



Sec. 240.15Bc7-1  Availability of examination reports.

    (a) Upon written request, copies of any report of an examination of 
a municipal securities dealer made by the Commission or furnished to it 
by an appropriate regulatory agency pursuant to section 17(c)(3) of the 
Act or by a registered securities association pursuant to section 
15B(c)(7)(B) of the Act shall be made available to the Municipal 
Securities Rulemaking Board (the ``Board'') by the Commission subject to 
the following limitations:
    (1) The Board shall establish by rule and shall maintain adequate 
procedures for ensuring the confidentiality of any information made 
available to it by the Commission pursuant to section 15B(c)(7)(B) of 
the Act;
    (2) Information made available to the Board shall not identify any 
municipal securities broker, municipal securities dealer, or associated 
person that is the subject of a non-public examination report.
    (b) If information to be made available to the Board is furnished to 
the

[[Page 390]]

Commission on a separate form prepared by an appropriate regulatory 
agency other than the Commission or by a registered securities 
association, that form, rather than a copy of any report of an 
examination, will be made available to the Board, provided that the 
conditions set forth in this paragraph are satisfied. Within sixty days 
of every six month period ending May 31 and November 30, each 
appropriate regulatory agency or registered securities association 
making available information on a separate form shall furnish to the 
Commission two copies of a form containing the information set forth in 
paragraphs (b)(1) through (b)(8) of this section. The Commission shall 
make one copy of the form promptly available to the Board. Copies of any 
forms furnished pursuant to this paragraph shall not identify any 
municipal securities broker, municipal securities dealer, or associated 
person that is the subject of an examination from which information was 
derived for the form; however, the Commission may obtain for its own 
use, upon request, the identity of any such examinee or the full 
examination reports. Furnished forms shall include the following 
information:
    (1) The report period.
    (2)(i) With respect to a registered securities association, the 
number of examinations that formed the basis of the report and, of these 
examinations, the number that were routine, special, and financial/
operational.
    (ii) With respect to an appropriate regulatory agency that is a bank 
agency, the number of examinations that formed the basis of the report 
and, of these examinations, the number that were routine, special, and 
financial/operational. The number of examinations that formed the basis 
of the report of bank dealers and the number of examinations of 
separately identifiable departments or divisions of banks effecting 
municipal securities transactions.
    (3) Indications of the violations of each Board rule found in 
examinations that formed the basis for the report.
    (4) Copies of public notices issued during the report period of any 
formal actions and non-public information regarding any actions taken on 
violations of Board rules.
    (5) Any comments concerning any questionable practices relating to 
municipal securities activities, whether or not covered by provisions of 
the Act and the rules and regulations thereunder, including the rules of 
the Board.
    (6) Descriptions of any significant or recurring customer complaints 
relating to municipal securities activities received by the appropriate 
regulatory agency or registered securities association during the report 
period or by municipal securities dealers during the 12 month period 
preceding the examination.
    (7) Description of any novel issues or interpretations arising under 
the Board's rules.
    (8) Description of any changes to existing Board rules or additional 
rules that would improve the regulatory scheme for municipal securities 
professionals or assist in the enforcement of the Board's rules.
    (c) Copies of any report of an examination of a municipal securities 
broker or municipal securities dealer made by the Commission or 
furnished to it pursuant to section 15B(c)(7)(B) or 17(c)(3) of the Act, 
or separate forms made available to the Commission pursuant to paragraph 
(b) of this section, will be maintained in a non-public file.

[50 FR 48556, Nov. 26, 1985]

Registration of Government Securities Brokers and Government Securities 
                                 Dealers

    Source: Sections 240.15.Ca1-1 through 240.15Cc1-1 appear at 52 FR 
16839, May 6, 1987, unless otherwise noted.



Sec. 240.15Ca1-1  Notice of government securities broker-dealer activities.

    (a) Every government securities broker or government securities 
dealer that is a broker or dealer registered pursuant to section 15 or 
15B of the Act (other than a financial institution as defined in section 
3(a)(46) of the Act) shall file with the Commission written notice on 
Form BD (Sec. 249.501 of this chapter) in accordance with the 
instructions contained therein that it is a government securities broker 
or government securities dealer. After July

[[Page 391]]

25, 1987, every broker or dealer subject to this paragraph shall file 
notice that it is a government securities broker or government 
securities dealer prior to or on the date it begins acting as a 
government securities broker or government securities dealer.
    (b) Every government securities broker or government securities 
dealer required to file notice under paragraph (a) of this section shall 
file with the Commission written notice on Form BD in accordance with 
the instructions contained therein when it ceases to be a government 
securities broker or government securities dealer. Notice shall be filed 
within 30 days after the date the broker or dealer has ceased acting as 
a government securities broker or a government securities dealer.
    (c) Any notice required pursuant to this section shall be considered 
filed with the Commission if it is filed with the Central Registration 
Depository (operated by the National Association of Securities Dealers, 
Inc.) in accordance with applicable filing requirements.

[52 FR 16839, May 6, 1987, as amended at 58 FR 14, Jan. 4, 1993; 64 FR 
25148, May 10, 1999]



Sec. 240.15Ca2-1  Application for registration as a government securities 
broker or government securities dealer.

    (a) An application for registration, pursuant to Section 
15C(a)(1)(A) of the Act, of a government securities broker or government 
securities dealer that is filed on or after January 25, 1993, shall be 
filed with the Central Registration Depository (operated by the National 
Association of Securities Dealers, Inc.) on Form BD in accordance with 
the instructions contained therein.
    (b) Every application or amendment filed pursuant to this section 
shall constitute a ``report'' filed with the Commission within the 
meaning of Sections 15, 15C, 17(a), 18, 32(a), and other applicable 
provisions of the Act.
    (c) Temporary re-filing instructions. (1) Except as provided in 
paragraph (c)(3) of this section, every registered government securities 
broker or government securities dealer shall re-file with the Central 
Registration Depository, at the time the broker or dealer submits its 
first amendment on or after August 16, 1999 but, in any event, no later 
than December 15, 1999, the following information from its current Form 
BD:
    (i) Question 8 (if answered ``Yes'', the broker-dealer must also 
complete relevant items in Section IV of Schedule D);
    (ii) Question 9 (if answered ``Yes'', the broker-dealer must also 
complete relevant items in Section IV of Schedule D);
    (iii) Question 10(a) (if answered ``Yes'', the broker-dealer must 
also complete relevant items in Section V of Schedule D);
    (iv) Question 10(b) (if answered ``Yes'', the broker-dealer must 
also complete relevant items in Section VI of Schedule D);
    (v) Question 11 (if any item in Question 11 is answered ``Yes'', the 
broker-dealer must also complete the relevant DRP(s)); and
    (vi) Schedules A and B.
    (2) Every registered government securities broker or dealer, at the 
time it re-files the information required by paragraph (c)(1) of this 
section, shall review, and amend as necessary, the information in Form 
BD that was transferred by the National Association of Securities 
Dealers to the Central Registration Depository prior to August 16, 1999.
    (3) Every registered government securities broker or government 
securities dealer that has not completed the re-filing requirements 
provided in paragraphs (c)(1) and (c)(2) of this section, during the 
period from August 16, 1999 to December 15, 1999, shall submit in paper 
format to the Central Registration Depository all Schedule E amendments 
to Form BD. A Schedule E filed pursuant to this paragraph (c)(3) shall 
not be deemed an ``amendment'' for purposes of paragraphs (c)(1) and 
(c)(2) of this section.
    (4) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BD (17 CFR 249.501) and 
paragraphs (c)(1), (c)(2), and (c)(3) of this section under conditions 
that differ from the filing instructions contained in Form BD and 
paragraphs (c)(1), (c)(2), and (c)(3) of this section.

[58 FR 15, Jan. 4, 1993, as amended at 64 FR 37594, July 12, 1999; 64 FR 
42596, Aug. 5, 1999]

[[Page 392]]



Sec. 240.15Ca2-2  [Reserved]



Sec. 240.15Ca2-3  Registration of successor to registered government 
securities broker or government securities dealer.

    (a) In the event that a government securities broker or government 
securities dealer succeeds to and continues the business of a government 
securities broker or government securities dealer registered pursuant to 
section 15C(a)(1)(A) of the Act, the registration of the predecessor 
shall be deemed to remain effective as the registration of the successor 
if the successor, within 30 days after such succession, files an 
application for registration on Form BD, and the predecessor files a 
notice of withdrawal from registration on Form BDW; Provided, however, 
That the registration of the predecessor government securities broker or 
government securities dealer will cease to be effective as the 
registration of the successor government securities broker or government 
securities dealer 45 days after the application for registration on Form 
BD is filed by such successor.
    (b) Notwithstanding paragraph (a) of this section, if a government 
securities broker or government securities dealer succeeds to and 
continues the business of a predecessor government securities broker or 
government securities dealer that is registered pursuant to section 
15C(a)(1)(A) of the Act, and the succession is based solely on a change 
in the predecessor's date or state of incorporation, form of 
organization, or composition of a partnership, the successor may, within 
30 days after the succession, amend the registration of the predecessor 
broker or dealer on Form BD to reflect these changes. This amendment 
shall be deemed an application for registration filed by the predecessor 
and adopted by the successor.

[58 FR 11, Jan. 4, 1993]



Sec. 240.15Ca2-4  Registration of fiduciaries.

    The registration of a government securities broker or government 
securities dealer pursuant to section 15C of the Act shall be deemed to 
be the registration of any executor, administrator, guardian, 
conservator, assignee for the benefit of creditors, receiver, trustee in 
insolvency or bankruptcy, or other fiduciary, appointed or qualified by 
order, judgment, or decree of a court of competent jurisdiction to 
continue the business of such registered government securities broker or 
government securities dealer, provided that such fiduciary files with 
the Commission, no more than 30 days after entering upon the performance 
of its duties, a statement setting forth as to such fiduciary 
substantially the information required by Form BD.



Sec. 240.15Ca2-5  Consent to service of process to be furnished by 

non-resident government securities brokers or government securities 
dealers and by non-resident general partners or managing agents of 
government securities brokers or government securities dealers.

    (a) Each non-resident government securities broker or government 
securities dealer applying for registration pursuant to section 
15C(a)(1)(A) of the Act, each non-resident general partner of a 
government securities broker or government securities dealer partnership 
that is applying for such registration, and each non-resident managing 
agent of any other unincorporated government securities broker or 
government securities dealer that is applying for registration, shall 
furnish to the Commission, in a form acceptable to the Commission, a 
written irrevocable consent and power of attorney that--
    (1) Designates the Securities and Exchange Commission as an agent of 
such government securities broker or government securities dealer upon 
whom may be served any process, pleadings, or other papers in any civil 
suit or action brought in any appropriate court in any place subject to 
the jurisdiction of the United States, with respect to any cause of 
action,
    (i) That accrues during the period beginning when such government 
securities broker or government securities dealer becomes registered 
pursuant to section 15C(a)(1)(A) of the Act and ending either when such 
registration is cancelled or revoked, or when a notice filed by such 
government securities broker or government securities dealer to withdraw 
from such registration becomes effective, whichever is earlier,

[[Page 393]]

    (ii) That arises out of any activity, in any place subject to the 
jurisdiction of the United States, occurring in connection with the 
conduct of the business of such government securities broker or 
government securities dealer, and
    (iii) That is founded, directly or indirectly, upon the Securities 
Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture 
Act of 1939, the Investment Company Act of 1940, the Investment Advisers 
Act of 1940, or any rule or regulation under any of those Acts, and
    (2) Stipulates and agrees that any such civil suit or action may be 
commenced against such government securities broker or government 
securities dealer by the service of process upon the Commission and the 
forwarding of a copy thereof as provided in paragraph (c) of this 
section and that the service as aforesaid of any such process, 
pleadings, or other papers upon the Commission shall be taken and held 
in all courts to be as valid and binding as if due process service 
thereof had been made.
    (b) Each government securities broker or government securities 
dealer registered pursuant to section 15C(a)(1)(A) of the Act that 
becomes a non-resident government securities broker or government 
securities dealer, and each general partner or managing agent of an 
unincorporated government securities broker or government securities 
dealer registered or applying for registration pursuant to section 
15C(a)(1)(A) of the Act who becomes a non-resident after such 
registration or filing of an application for such registration, shall 
furnish such consent and power of attorney no more than 30 days 
thereafter.
    (c) Service of any process, pleadings, or other papers on the 
Commission under this rule shall be made by delivering the requisite 
number of copies thereof to the Secretary of the Commission or to such 
other person as the Commission may authorize to act in its behalf. 
Whenever any process, pleadings, or other papers as aforesaid are served 
upon the Commission, it shall promptly forward a copy thereof by 
registered or certified mail to the appropriate defendants at their last 
address of record filed with the Commission; but any failure by the 
Commission to forward such a copy shall have no effect on the validity 
of the service made upon the Commission. The Commission shall be 
furnished a sufficient number of copies for such purpose, and one copy 
for its file.
    (d) For purposes of this rule the following definitions shall apply:
    (1) The term managing agent shall mean any person, including a 
trustee, who directs or manages or who participates in the directing or 
managing of the affairs of any unincorporated organization or 
association that is not a partnership.
    (2) The term non-resident government securities broker or government 
securities dealer shall mean (i) in the case of an individual, one who 
is domiciled in or has his principal place of business in any place not 
subject to the jurisdiction of the United States, (ii) in the case of a 
corporation, one incorporated in or having its principal place of 
business in any place not subject to the jurisdiction of the United 
States; (iii) in the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not subject to the jurisdiction of the United States.
    (3) A general partner or managing agent of a government securities 
broker or government securities dealer shall be deemed to be a non-
resident if he is domiciled in any place not subject to the jurisdiction 
of the United States.



Sec. 240.15Cc1-1  Withdrawal from registration of government securities 
brokers or government securities dealers.

    (a) Notice of withdrawal from registration as a government 
securities broker or government securities dealer pursuant to Section 
15C(a)(1)(A) of the Act (15 U.S.C. 78o-5(a)(1)(A)) shall be filed on 
Form BDW (17 CFR 249.501a) in accordance with the instructions contained 
therein. Every notice of withdrawal from registration as a government 
securities broker or dealer shall be filed with the Central Registration 
Depository (operated by the National Association of Securities Dealers, 
Inc.) in accordance with applicable filing requirements. Prior to filing 
a notice of

[[Page 394]]

withdrawal from registration on Form BDW (17 CFR 249.501a), a government 
securities broker or government securities dealer shall amend Form BD 
(17 CFR 249.501) in accordance with 17 CFR 400.5(a) to update any 
inaccurate information.
    (b) A notice of withdrawal from registration filed by a government 
securities broker or government securities dealer shall become effective 
for all matters on the 60th day after the filing thereof with the 
Commission, within such longer period of time as to which such 
government securities broker or government securities dealer consents or 
the Commission by order may determine as necessary or appropriate in the 
public interest or for the protection of investors, or within such 
shorter period of time as the Commission may determine. If a notice of 
withdrawal from registration is filed with the Commission at any time 
subsequent to the date of the issuance of a Commission order instituting 
proceedings pursuant to Section 15C(c) (15 U.S.C. 78o-5(c)) to censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of such government securities broker 
or government securities dealer, or if prior to the effective date of 
the notice of withdrawal pursuant to this paragraph (b), the Commission 
institutes such a proceeding or a proceeding to impose terms or 
conditions upon such withdrawal, the notice of withdrawal shall not 
become effective pursuant to this paragraph (b) except at such time and 
upon such terms and conditions as the Commission deems necessary or 
appropriate in the public interest or for the protection of investors.
    (c) Every notice of withdrawal filed with the Central Registration 
Depository pursuant to this section shall constitute a ``report'' filed 
with the Commission within the meaning of Sections 15(b), 15C(c), 17(a), 
18(a), 32(a) (15 U.S.C. 78o(b), 78o-5(c), 78q(a), 78r(a), 78ff(a)) and 
other applicable provisions of the Act.
    (d) The Commission, by order, may exempt any broker or dealer from 
the filing requirements provided in Form BDW (17 CFR 249.501a) under 
conditions that differ from the filing instructions contained in Form 
BDW.

[64 FR 25148, May 10, 1999, as amended at 64 FR 42596, Aug. 5, 1999]



Sec. 240.16a-1  Definition of terms.

    Terms defined in this rule shall apply solely to section 16 of the 
Act and the rules thereunder. These terms shall not be limited to 
section 16(a) of the Act but also shall apply to all other subsections 
under section 16 of the Act.
    (a) The term beneficial owner shall have the following applications:
    (1) Solely for purposes of determining whether a person is a 
beneficial owner of more than ten percent of any class of equity 
securities registered pursuant to section 12 of the Act, the term 
``beneficial owner'' shall mean any person who is deemed a beneficial 
owner pursuant to section 13(d) of the Act and the rules thereunder; 
provided, however, that the following institutions or persons shall not 
be deemed the beneficial owner of securities of such class held for the 
benefit of third parties or in customer or fiduciary accounts in the 
ordinary course of business (or in the case of an employee benefit plan 
specified in paragraph (a)(1)(vi) of this section, of securities of such 
class allocated to plan participants where participants have voting 
power) as long as such shares are acquired by such institutions or 
persons without the purpose or effect of changing or influencing control 
of the issuer or engaging in any arrangement subject to Rule 13d-3(b) 
(Sec. 240.13d-3(b)):
    (i) A broker or dealer registered under section 15 of the Act (15 
U.S.C. 78o);
    (ii) A bank as defined in section 3(a)(6) of the Act (15 U.S.C. 
78c);
    (iii) An insurance company as defined in section 3(a)(19) of the Act 
(15 U.S.C. 78c);
    (iv) An investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-8);
    (v) Any person registered as an investment adviser under Section 203 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) or under the 
laws of any state;
    (vi) An employee benefit plan as defined in Section 3(3) of the 
Employee

[[Page 395]]

Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001 et 
seq. (``ERISA'') that is subject to the provisions of ERISA, or any such 
plan that is not subject to ERISA that is maintained primarily for the 
benefit of the employees of a state or local government or 
instrumentality, or an endowment fund;
    (vii) A parent holding company or control person, provided the 
aggregate amount held directly by the parent or control person, and 
directly and indirectly by their subsidiaries or affiliates that are not 
persons specified in paragraphs (a)(1)(i) through (ix), does not exceed 
one percent of the securities of the subject class;
    (viii) A savings association as defined in Section 3(b) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813);
    (ix) A church plan that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-30; and
    (x) A group, provided that all the members are persons specified in 
Sec. 240.16a-1(a)(1)(i) through (ix).
    (xi) A group, provided that all the members are persons specified in 
Sec. 240.16a-1(a)(1) (i) through (vii).

    Note to paragraph (a):
    Pursuant to this section, a person deemed a beneficial owner of more 
than ten percent of any class of equity securities registered under 
section 12 of the Act would file a Form 3 (Sec. 249.103), but the 
securities holdings disclosed on Form 3, and changes in beneficial 
ownership reported on subsequent Forms 4 (Sec. 249.104) or 5 (Sec. 
249.105), would be determined by the definition of ``beneficial owner'' 
in paragraph (a)(2) of this section.

    (2) Other than for purposes of determining whether a person is a 
beneficial owner of more than ten percent of any class of equity 
securities registered under Section 12 of the Act, the term beneficial 
owner shall mean any person who, directly or indirectly, through any 
contract, arrangement, understanding, relationship or otherwise, has or 
shares a direct or indirect pecuniary interest in the equity securities, 
subject to the following:
    (i) The term pecuniary interest in any class of equity securities 
shall mean the opportunity, directly or indirectly, to profit or share 
in any profit derived from a transaction in the subject securities.
    (ii) The term indirect pecuniary interest in any class of equity 
securities shall include, but not be limited to:
    (A) Securities held by members of a person's immediate family 
sharing the same household; provided, however, that the presumption of 
such beneficial ownership may be rebutted; see also Sec. 240.16a-
1(a)(4);
    (B) A general partner's proportionate interest in the portfolio 
securities held by a general or limited partnership. The general 
partner's proportionate interest, as evidenced by the partnership 
agreement in effect at the time of the transaction and the partnership's 
most recent financial statements, shall be the greater of:
    (1) The general partner's share of the partnership's profits, 
including profits attributed to any limited partnership interests held 
by the general partner and any other interests in profits that arise 
from the purchase and sale of the partnership's portfolio securities; or
    (2) The general partner's share of the partnership capital account, 
including the share attributable to any limited partnership interest 
held by the general partner.
    (C) A performance-related fee, other than an asset-based fee, 
received by any broker, dealer, bank, insurance company, investment 
company, investment adviser, investment manager, trustee or person or 
entity performing a similar function; provided, however, that no 
pecuniary interest shall be present where:
    (1) The performance-related fee, regardless of when payable, is 
calculated based upon net capital gains and/or net capital appreciation 
generated from the portfolio or from the fiduciary's overall performance 
over a period of one year or more; and
    (2) Equity securities of the issuer do not account for more than ten 
percent of the market value of the portfolio. A right to a 
nonperformance-related fee alone shall not represent a pecuniary 
interest in the securities;
    (D) A person's right to dividends that is separated or separable 
from the underlying securities. Otherwise, a right to dividends alone 
shall not represent a pecuniary interest in the securities;

[[Page 396]]

    (E) A person's interest in securities held by a trust, as specified 
in Sec. 240.16a-8(b); and
    (F) A person's right to acquire equity securities through the 
exercise or conversion of any derivative security, whether or not 
presently exercisable.
    (iii) A shareholder shall not be deemed to have a pecuniary interest 
in the portfolio securities held by a corporation or similar entity in 
which the person owns securities if the shareholder is not a controlling 
shareholder of the entity and does not have or share investment control 
over the entity's portfolio.
    (3) Where more than one person subject to section 16 of the Act is 
deemed to be a beneficial owner of the same equity securities, all such 
persons must report as beneficial owners of the securities, either 
separately or jointly, as provided in Sec. 240.16a-3(j). In such cases, 
the amount of short-swing profit recoverable shall not be increased 
above the amount recoverable if there were only one beneficial owner.
    (4) Any person filing a statement pursuant to section 16(a) of the 
Act may state that the filing shall not be deemed an admission that such 
person is, for purposes of section 16 of the Act or otherwise, the 
beneficial owner of any equity securities covered by the statement.
    (5) The following interests are deemed not to confer beneficial 
ownership for purposes of section 16 of the Act:
    (i) Interests in portfolio securities held by any holding company 
registered under the Public Utility Holding Company Act of 1935 (15 
U.S.C. 79a et seq.);
    (ii) Interests in portfolio securities held by any investment 
company registered under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.); and
    (iii) Interests in securities comprising part of a broad-based, 
publicly traded market basket or index of stocks, approved for trading 
by the appropriate federal governmental authority.
    (b) The term call equivalent position shall mean a derivative 
security position that increases in value as the value of the underlying 
equity increases, including, but not limited to, a long convertible 
security, a long call option, and a short put option position.
    (c) The term derivative securities shall mean any option, warrant, 
convertible security, stock appreciation right, or similar right with an 
exercise or conversion privilege at a price related to an equity 
security, or similar securities with a value derived from the value of 
an equity security, but shall not include:
    (1) Rights of a pledgee of securities to sell the pledged 
securities;
    (2) Rights of all holders of a class of securities of an issuer to 
receive securities pro rata, or obligations to dispose of securities, as 
a result of a merger, exchange offer, or consolidation involving the 
issuer of the securities;
    (3) Rights or obligations to surrender a security, or have a 
security withheld, upon the receipt or exercise of a derivative security 
or the receipt or vesting of equity securities, in order to satisfy the 
exercise price or the tax withholding consequences of receipt, exercise 
or vesting;
    (4) Interests in broad-based index options, broad-based index 
futures, and broad-based publicly traded market baskets of stocks 
approved for trading by the appropriate federal governmental authority;
    (5) Interests or rights to participate in employee benefit plans of 
the issuer;
    (6) Rights with an exercise or conversion privilege at a price that 
is not fixed; or
    (7) Options granted to an underwriter in a registered public 
offering for the purpose of satisfying over-allotments in such offering.
    (d) The term equity security of such issuer shall mean any equity 
security or derivative security relating to an issuer, whether or not 
issued by that issuer.
    (e) The term immediate family shall mean any child, stepchild, 
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or 
sister-in-law, and shall include adoptive relationships.
    (f) The term ``officer'' shall mean an issuer's president, principal 
financial officer, principal accounting officer (or, if there is no such 
accounting officer, the controller), any vice-president of

[[Page 397]]

the issuer in charge of a principal business unit, division or function 
(such as sales, administration or finance), any other officer who 
performs a policy-making function, or any other person who performs 
similar policy-making functions for the issuer. Officers of the issuer's 
parent(s) or subsidiaries shall be deemed officers of the issuer if they 
perform such policy-making functions for the issuer. In addition, when 
the issuer is a limited partnership, officers or employees of the 
general partner(s) who perform policy-making functions for the limited 
partnership are deemed officers of the limited partnership. When the 
issuer is a trust, officers or employees of the trustee(s) who perform 
policy-making functions for the trust are deemed officers of the trust.
    Note: ``Policy-making function'' is not intended to include policy-
making functions that are not significant. If pursuant to Item 401(b) of 
Regulation S-K (Sec. 229.401(b)) the issuer identifies a person as an 
``executive officer,'' it is presumed that the Board of Directors has 
made that judgment and that the persons so identified are the officers 
for purposes of Section 16 of the Act, as are such other persons 
enumerated in this paragraph (f) but not in Item 401(b).
    (g) The term portfolio securities shall mean all securities owned by 
an entity, other than securities issued by the entity.
    (h) The term put equivalent position shall mean a derivative 
security position that increases in value as the value of the underlying 
equity decreases, including, but not limited to, a long put option and a 
short call option position.

[56 FR 7265, Feb. 21, 1991, as amended at 56 FR 19927, May 1, 1991; 61 
FR 30391, June 14, 1996; 63 FR 2868, Jan. 16, 1998]



Sec. 240.16a-2  Persons and transactions subject to section 16.

     Any person who is the beneficial owner, directly or indirectly, of 
more than ten percent of any class of equity securities (``ten percent 
beneficial owner'') registered pursuant to section 12 of the Act (15 
U.S.C. 78l), any director or officer of the issuer of such securities, 
and any person specified in section 17(a) of the Public Utility Holding 
Company Act of 1935 (15 U.S.C. 79q(a)) or section 30(h) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-29(h)), including any 
person specified in Sec. 240.16a-8, shall be subject to the provisions 
of section 16 of the Act (15 U.S.C. 78p). The rules under section 16 of 
the Act apply to any class of equity securities of an issuer whether or 
not registered under section 12 of the Act. The rules under section 16 
of the Act also apply to non-equity securities as provided by the Public 
Utility Holding Company Act of 1935 and the Investment Company Act of 
1940. With respect to transactions by persons subject to section 16 of 
the Act:
    (a) A transaction(s) carried out by a director or officer in the six 
months prior to the director or officer becoming subject to section 16 
of the Act shall be subject to section 16 of the Act and reported on the 
first required Form 4 only if the transaction(s) occurred within six 
months of the transaction giving rise to the Form 4 filing obligation 
and the director or officer became subject to section 16 of the Act 
solely as a result of the issuer registering a class of equity 
securities pursuant to section 12 of the Act.
    (b) A transaction(s) following the cessation of director or officer 
status shall be subject to section 16 of the Act only if:
    (1) Executed within a period of less than six months of an opposite 
transaction subject to section 16(b) of the Act that occurred while that 
person was a director or officer; and
    (2) Not otherwise exempted from section 16(b) of the Act pursuant to 
the provisions of this chapter.

    Note to Paragraph (b): For purposes of this paragraph, an 
acquisition and a disposition each shall be an opposite transaction with 
respect to the other.

    (c) The transaction that results in a person becoming a ten percent 
beneficial owner is not subject to section 16 of the Act unless the 
person otherwise is subject to section 16 of the Act. A ten percent 
beneficial owner not otherwise subject to section 16 of the Act must 
report only those transactions conducted while the beneficial owner of 
more than ten percent of a class of equity securities of the issuer 
registered pursuant to section 12 of the Act.
    (d)(1) Transactions by a person or entity shall be exempt from the 
provisions of section 16 of the Act for the 12

[[Page 398]]

months following appointment and qualification, to the extent such 
person or entity is acting as:
    (i) Executor or administrator of the estate of a decedent;
    (ii) Guardian or member of a committee for an incompetent;
    (iii) Receiver, trustee in bankruptcy, assignee for the benefit of 
creditors, conservator, liquidating agent, or other similar person duly 
authorized by law to administer the estate or assets of another person; 
or
    (iv) Fiduciary in a similar capacity.
    (2) Transactions by such person or entity acting in a capacity 
specified in paragraph (d)(1) of this section after the period specified 
in that paragraph shall be subject to section 16 of the Act only where 
the estate, trust or other entity is a beneficial owner of more than ten 
percent of any class of equity security registered pursuant to section 
12 of the Act.

[56 FR 7265, Feb. 21, 1991, as amended at 61 FR 30392, June 14, 1996; 67 
FR 43535, June 28, 2002]



Sec. 240.16a-3  Reporting transactions and holdings.

    (a) Initial statements of beneficial ownership of equity securities 
required by section 16(a) of the Act shall be filed on Form 3. 
Statements of changes in beneficial ownership required by that section 
shall be filed on Form 4. Annual statements shall be filed on Form 5. At 
the election of the reporting person, any transaction required to be 
reported on Form 5 may be reported on an earlier filed Form 4. All such 
statements shall be prepared and filed in accordance with the 
requirements of the applicable form.
    (b) A person filing statements pursuant to section 16(a) of the Act 
with respect to any class of equity securities registered pursuant to 
section 12 of the Act need not file an additional statement on Form 3:
    (1) When an additional class of equity securities of the same issuer 
becomes registered pursuant to section 12 of the Act; or
    (2) When such person assumes a different or an additional 
relationship to the same issuer (for example, when an officer becomes a 
director).
    (c) Any issuer that has equity securities listed on more than one 
national securities exchange may designate one exchange as the only 
exchange with which reports pursuant to section 16(a) of the Act need be 
filed. Such designation shall be made in writing and shall be filed with 
the Commission and with each national securities exchange on which any 
equity security of the issuer is listed at the time of such election. 
The reporting person's obligation to file reports with each national 
securities exchange on which any equity security of the issuer is listed 
shall be satisfied by filing with the exchange so designated.
    (d) Any person required to file a statement with respect to 
securities of a single issuer under both section 16(a) of the Act (15 
U.S.C. 78p(a)) and either section 17(a) of the Public Utility Holding 
Company Act of 1935 (15 U.S.C. 79q(a)) or section 30(h) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-29(h)) may file a single 
statement containing the required information, which will be deemed to 
be filed under both Acts.
    (e) Any person required to file a statement under section 16(a) of 
the Act shall, not later than the time the statement is transmitted for 
filing with the Commission, send or deliver a duplicate to the person 
designated by the issuer to receive such statements, or, in the absence 
of such a designation, to the issuer's corporate secretary or person 
performing equivalent functions.
    (f)(1) A Form 5 shall be filed by every person who at any time 
during the issuer's fiscal year was subject to section 16 of the Act 
with respect to such issuer, except as provided in paragraph (f)(2) of 
this section. The Form shall be filed within 45 days after the issuer's 
fiscal year end, and shall disclose the following holdings and 
transactions not reported previously on Forms 3, 4 or 5:
    (i) All transactions during the most recent fiscal year that were 
exempt from section 16(b) of the Act, except:
    (A) Exercises and conversions of derivative securities exempt under 
either Sec. 240.16b-3 or Sec. 240.16b-6(b), and any transaction exempt 
under Sec. 240.16b-3(d),

[[Page 399]]

Sec. 240.16b-3(e), or Sec. 240.16b-3(f) (these are required to be 
reported on Form 4);
    (B) Transactions exempt from section 16(b) of the Act pursuant to 
Sec. 240.16b-3(c), which shall be exempt from section 16(a) of the Act; 
and
    (C) Transactions exempt from section 16(a) of the Act pursuant to 
another rule;
    (ii) Transactions that constituted small acquisitions pursuant to 
Sec. 240.16a-6(a);
    (iii) All holdings and transactions that should have been reported 
during the most recent fiscal year, but were not; and
    (iv) With respect to the first Form 5 requirement for a reporting 
person, all holdings and transactions that should have been reported in 
each of the issuer's last two fiscal years but were not, based on the 
reporting person's reasonable belief in good faith in the completeness 
and accuracy of the information.
    (2) Notwithstanding the above, no Form 5 shall be required where all 
transactions otherwise required to be reported on the Form 5 have been 
reported before the due date of the Form 5.

    Persons no longer subject to section 16 of the Act, but who were 
subject to the Section at any time during the issuer's fiscal year, must 
file a Form 5 unless paragraph (f)(2) is satisfied. See also Sec. 
240.16a-2(b) regarding the reporting obligations of persons ceasing to 
be officers or directors.

    (g)(1) A Form 4 must be filed to report: All transactions not exempt 
from section 16(b) of the Act; All transactions exempt from section 
16(b) of the Act pursuant to Sec. 240.16b-3(d), Sec. 240.16b-3(e), or 
Sec. 240.16b-3(f); and all exercises and conversions of derivative 
securities, regardless of whether exempt from section 16(b) of the Act. 
Form 4 must be filed before the end of the second business day following 
the day on which the subject transaction has been executed.
    (2) Solely for purposes of section 16(a)(2)(C) of the Act and 
paragraph (g)(1) of this section, the date on which the executing 
broker, dealer or plan administrator notifies the reporting person of 
the execution of the transaction is deemed the date of execution for a 
transaction where the following conditions are satisfied:
    (i) the transaction is pursuant to a contract, instruction or 
written plan for the purchase or sale of equity securities of the issuer 
(as defined in Sec. 16a-1(d)) that satisfies the affirmative defense 
conditions of Sec. 240.10b5-1(c) of this chapter; and
    (ii) the reporting person does not select the date of execution.
    (3) Solely for purposes of section 16(a)(2)(C) of the Act and 
paragraph (g)(1) of this section, the date on which the plan 
administrator notifies the reporting person that the transaction has 
been executed is deemed the date of execution for a discretionary 
transaction (as defined in Sec. 16b-3(b)(1)) for which the reporting 
person does not select the date of execution.
    (4) In the case of the transactions described in paragraphs (g)(2) 
and (g)(3) of this section, if the notification date is later than the 
third business day following the trade date of the transaction, the date 
of execution is deemed to be the third business day following the trade 
date of the transaction.
    (5) At the option of the reporting person, transactions that are 
reportable on Form 5 may be reported on Form 4, so long as the Form 4 is 
filed no later than the due date of the Form 5 on which the transaction 
is otherwise required to be reported.
    (h) The date of filing with the Commission shall be the date of 
receipt by the Commission.
    (i) Signatures. Where Section 16 of the Act, or the rules or forms 
thereunder, require a document filed with or furnished to the Commission 
to be signed, such document shall be manually signed, or signed using 
either typed signatures or duplicated or facsimile versions of manual 
signatures. Where typed, duplicated or facsimile signatures are used, 
each signatory to the filing shall manually sign a signature page or 
other document authenticating, acknowledging or otherwise adopting his 
or her signature that appears in the filing. Such document shall be 
executed before or at the time the filing is made and shall be retained 
by the filer for a period of five years. Upon request, the filer shall 
furnish to the Commission or its staff a copy of

[[Page 400]]

any or all documents retained pursuant to this section.
    (j) Where more than one person subject to section 16 of the Act is 
deemed to be a beneficial owner of the same equity securities, all such 
persons must report as beneficial owners of the securities, either 
separately or jointly. Where persons in a group are deemed to be 
beneficial owners of equity securities pursuant to Sec. 240.16a-1(a)(1) 
due to the aggregation of holdings, a single Form 3, 4 or 5 may be filed 
on behalf of all persons in the group. Joint and group filings must 
include all required information for each beneficial owner, and such 
filings must be signed by each beneficial owner, or on behalf of such 
owner by an authorized person.
    (k) Any issuer that maintains a corporate Web site shall post on 
that Web site by the end of the business day after filing any Form 3, 4 
or 5 filed under section 16(a) of the Act as to the equity securities of 
that issuer. Each such form shall remain accessible on such issuer's Web 
site for at least a 12-month period. In the case of an issuer that is an 
investment company and that does not maintain its own Web site, if any 
of the issuer's investment adviser, sponsor, depositor, trustee, 
administrator, principal underwriter, or any affiliated person of the 
investment company maintains a Web site that includes the name of the 
issuer, the issuer shall comply with the posting requirements by posting 
the forms on one such Web site.

[56 FR 7265, Feb. 21, 1991, as amended at 60 FR 26622, May 17, 1995; 61 
FR 30392, 30404, June 14, 1996; 67 FR 43535, June 28, 2002; 67 FR 56467, 
Sept. 3, 2002; 68 FR 25799, May 13, 2003]



Sec. 240.16a-4  Derivative securities.

    (a) For purposes of section 16 of the Act, both derivative 
securities and the underlying securities to which they relate shall be 
deemed to be the same class of equity securities, except that the 
acquisition or disposition of any derivative security shall be 
separately reported.
    (b) The exercise or conversion of a call equivalent position shall 
be reported on Form 4 and treated for reporting purposes as:
    (1) A purchase of the underlying security; and
    (2) A closing of the derivative security position.
    (c) The exercise or conversion of a put equivalent position shall be 
reported on Form 4 and treated for reporting purposes as:
    (1) A sale of the underlying security; and
    (2) A closing of the derivative security position.
    (d) The disposition or closing of a long derivative security 
position, as a result of cancellation or expiration, shall be exempt 
from section 16(a) of the Act if exempt from section 16(b) of the Act 
pursuant to Sec. 240.16b-6(d).

    Note to Sec. 240.16a-4:
    A purchase or sale resulting from an exercise or conversion of a 
derivative security may be exempt from section 16(b) of the Act pursuant 
to Sec. 240.16b-3 or Sec. 240.16b-6(b).

[56 FR 7265, Feb. 21, 1991, as amended at 56 FR 19927, May 1, 1991; 61 
FR 30392, June 14, 1996]



Sec. 240.16a-5  Odd-lot dealers.

    Transactions by an odd-lot dealer (a) in odd-lots as reasonably 
necessary to carry on odd-lot transactions, or (b) in round lots to 
offset odd-lot transactions previously or simultaneously executed or 
reasonably anticipated in the usual course of business, shall be exempt 
from the provisions of section 16(a) of the Act with respect to 
participation by such odd-lot dealer in such transaction.



Sec. 240.16a-6  Small acquisitions.

    (a) Any acquisition of an equity security or the right to acquire 
such securities, other than an acquisition from the issuer (including an 
employee benefit plan sponsored by the issuer), not exceeding $10,000 in 
market value shall be reported on Form 5, subject to the following 
conditions:
    (1) Such acquisition, when aggregated with other acquisitions of 
securities of the same class (including securities underlying derivative 
securities, but excluding acquisitions exempted by rule from section 
16(b) or previously reported on Form 4 or Form 5) within the prior six 
months, does not exceed a total of $10,000 in market value; and
    (2) The person making the acquisition does not within six months 
thereafter make any disposition, other than

[[Page 401]]

by a transaction exempt from section 16(b) of the Act.
    (b) If an acquisition no longer qualifies for the reporting deferral 
in paragraph (a) of this section, all such acquisitions that have not 
yet been reported must be reported on Form 4 before the end of the 
second business day following the day on which the conditions of 
paragraph (a) of this section are no longer met.

[56 FR 7265, Feb. 21, 1991, as amended at 61 FR 30392, June 14, 1996; 67 
FR 56467, Sept. 3, 2002]



Sec. 240.16a-7  Transactions effected in connection with a distribution.

    (a) Any purchase and sale, or sale and purchase, of a security that 
is made in connection with the distribution of a substantial block of 
securities shall be exempt from the provisions of section 16(a) of the 
Act, to the extent specified in this rule, subject to the following 
conditions:
    (1) The person effecting the transaction is engaged in the business 
of distributing securities and is participating in good faith, in the 
ordinary course of such business, in the distribution of such block of 
securities; and
    (2) The security involved in the transaction is:
    (i) Part of such block of securities and is acquired by the person 
effecting the transaction, with a view to distribution thereof, from the 
issuer or other person on whose behalf such securities are being 
distributed or from a person who is participating in good faith in the 
distribution of such block of securities; or
    (ii) A security purchased in good faith by or for the account of the 
person effecting the transaction for the purpose of stabilizing the 
market price of securities of the class being distributed or to cover an 
over-allotment or other short position created in connection with such 
distribution.
    (b) Each person participating in the transaction must qualify on an 
individual basis for an exemption pursuant to this section.



Sec. 240.16a-8  Trusts.

    (a) Persons subject to section 16. (1) Trusts. A trust shall be 
subject to section 16 of the Act with respect to securities of the 
issuer if the trust is a beneficial owner, pursuant to Sec. 240.16a-
1(a)(1), of more than ten percent of any class of equity securities of 
the issuer registered pursuant to section 12 of the Act (``ten percent 
beneficial owner'').
    (i) The trust is a beneficial owner, pursuant to Sec. 240.16a-
1(a)(1), of more than ten percent of any class of equity securities of 
the issuer registered pursuant to section 12 of the Act (``ten percent 
beneficial owner''); or
    (ii) The trustee otherwise is subject to section 16 of the Act and 
exercises or shares investment control over the issuer's securities held 
by the trust, and either the trustee or a member of the trustee's 
immediate family has a pecuniary interest in the issuer's securities 
held by the trust, except where the trustee is:
    (A) An entity or person that in the ordinary course of business acts 
as trustee, and is specified in Sec. 240.16a-1(a)(1) (i) through 
(viii); or
    (B) An officer or director of the issuer serving as trustee for the 
issuer's employee benefit plan trust.
    (2) Trustees, beneficiaries, and settlors. In determining whether a 
trustee, beneficiary, or settlor is a ten percent beneficial owner with 
respect to the issuer:
    (i) Such persons shall be deemed the beneficial owner of the 
issuer's securities held by the trust, to the extent specified by Sec. 
240.16a-1(a)(1); and
    (ii) Settlors shall be deemed the beneficial owner of the issuer's 
securities held by the trust where they have the power to revoke the 
trust without the consent of another person.
    (b) Trust Holdings and Transactions. Holdings and transactions in 
the issuer's securities held by a trust shall be reported by the trustee 
on behalf of the trust, if the trust is subject to section 16 of the 
Act, except as provided below. Holdings and transactions in the issuer's 
securities held by a trust (whether or not subject to section 16 of the 
Act) may be reportable by other parties as follows:
    (1) Trusts. The trust need not report holdings and transactions in 
the issuer's securities held by the trust in an employee benefit plan 
subject to the Employee Retirement Income Security Act over which no 
trustee exercises investment control.

[[Page 402]]

    (2) Trustees. If, as provided by Sec. 240.16a-1(a)(2), a trustee 
subject to section 16 of the Act has a pecuniary interest in any holding 
or transaction in the issuer's securities held by the trust, such 
holding or transaction shall be attributed to the trustee and shall be 
reported by the trustee in the trustee's individual capacity, as well as 
on behalf of the trust. With respect to performance fees and holdings of 
the trustee's immediate family, trustees shall be deemed to have a 
pecuniary interest in the trust holdings and transactions in the 
following circumstances:
    (i) A performance fee is received that does not meet the proviso of 
Sec. 240.16a-1(a)(2)(ii)(C); or
    (ii) At least one beneficiary of the trust is a member of the 
trustee's immediate family. The pecuniary interest of the immediate 
family member(s) shall be attributed to and reported by the trustee.
    (3) Beneficiaries. A beneficiary subject to section 16 of the Act 
shall have or share reporting obligations with respect to transactions 
in the issuer's securities held by the trust, if the beneficiary is a 
beneficial owner of the securities pursuant to Sec. 240.16a-1(a)(2), as 
follows:
    (i) If a beneficiary shares investment control with the trustee with 
respect to a trust transaction, the transaction shall be attributed to 
and reported by both the beneficiary and the trust;
    (ii) If a beneficiary has investment control with respect to a trust 
transaction without consultation with the trustee, the transaction shall 
be attributed to and reported by the beneficiary only; and
    (iii) In making a determination as to whether a beneficiary is the 
beneficial owner of the securities pursuant to Sec. 240.16a-1(a)(2), 
beneficiaries shall be deemed to have a pecuniary interest in the 
issuer's securities held by the trust to the extent of their pro rata 
interest in the trust where the trustee does not exercise exclusive 
investment control.

    Note to Paragraph (b)(3):
    Transactions and holdings attributed to a trust beneficiary may be 
reported by the trustee on behalf of the beneficiary, provided that the 
report is signed by the beneficiary or other authorized person. Where 
the transactions and holdings are attributed both to the trustee and 
trust beneficiary, a joint report may be filed in accordance with Sec. 
240.16a-3(j).

    (4) Settlors. If a settlor subject to section 16 of the Act reserves 
the right to revoke the trust without the consent of another person, the 
trust holdings and transactions shall be attributed to and reported by 
the settlor instead of the trust; Provided, however, That if the settlor 
does not exercise or share investment control over the issuer's 
securities held by the trust, the trust holdings and transactions shall 
be attributed to and reported by the trust instead of the settlor.
    (c) Remainder interests. Remainder interests in a trust are deemed 
not to confer beneficial ownership for purposes of section 16 of the 
Act, provided that the persons with the remainder interests have no 
power, directly or indirectly, to exercise or share investment control 
over the trust.
    (d) A trust, trustee, beneficiary or settlor becoming subject to 
section 16(a) of the Act pursuant to this rule also shall be subject to 
sections 16(b) and 16(c) of the Act.

[56 FR 7265, Feb. 21, 1991, as amended at 56 FR 19927, May 1, 1991; 61 
FR 30392, June 14, 1996; 67 FR 56467, Sept. 3, 2002]



Sec. 240.16a-9  Stock splits, stock dividends, and pro rata rights.

    The following shall be exempt from section 16 of the Act:
    (a) The increase or decrease in the number of securities held as a 
result of a stock split or stock dividend applying equally to all 
securities of a class, including a stock dividend in which equity 
securities of a different issuer are distributed; and
    (b) The acquisition of rights, such as shareholder or pre-emptive 
rights, pursuant to a pro rata grant to all holders of the same class of 
equity securities registered under section 12 of the Act.
    Note: The exercise or sale of a pro rata right shall be reported 
pursuant to Sec. 240.16a-4 and the exercise shall be eligible for 
exemption from section 16(b) of the Act pursuant to Sec. 240.16b-6(b).

[56 FR 7265, Feb. 21, 1991, as amended at 61 FR 30393, June 14, 1996]

[[Page 403]]



Sec. 240.16a-10  Exemptions under section 16(a).

    Except as provided in Sec. 240.16a-6, any transaction exempted from 
the requirements of section 16(a) of the Act, insofar as it is otherwise 
subject to the provisions of section 16(b), shall be likewise exempt 
from section 16(b) of the Act.



Sec. 240.16a-11  Dividend or interest reinvestment plans.

    Any acquisition of securities resulting from the reinvestment of 
dividends or interest on securities of the same issuer shall be exempt 
from section 16 of the Act if the acquisition is made pursuant to a plan 
providing for the regular reinvestment of dividends or interest and the 
plan provides for broad-based participation, does not discriminate in 
favor of employees of the issuer, and operates on substantially the same 
terms for all plan participants.

[61 FR 30393, June 14, 1996]



Sec. 240.16a-12  Domestic relations orders.

    The acquisition or disposition of equity securities pursuant to a 
domestic relations order, as defined in the Internal Revenue Code or 
Title I of the Employee Retirement Income Security Act, or the rules 
thereunder, shall be exempt from section 16 of the Act.

[61 FR 30393, June 14, 1996]



Sec. 240.16a-13  Change in form of beneficial ownership.

    A transaction, other than the exercise or conversion of a derivative 
security or deposit into or withdrawal from a voting trust, that effects 
only a change in the form of beneficial ownership without changing a 
person's pecuniary interest in the subject equity securities shall be 
exempt from section 16 of the Act.

[61 FR 30393, June 14, 1996]

          Exemption of Certain Transactions From Section 16(b)

    Source: Sections 240.16b-1 through 240.16b-8 appear at 56 FR 7270, 
Feb. 21, 1991, unless otherwise noted.



Sec. 240.16b-1  Transactions approved by a regulatory authority.

    (a) Any purchase and sale, or sale and purchase, of a security shall 
be exempt from section 16(b) of the Act, if the transaction is effected 
by an investment company registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) and both the purchase and sale of such 
security have been exempted from the provisions of section 17(a) (15 
U.S.C. 80a-17(a)) of the Investment Company Act of 1940, by rule or 
order of the Commission.
    (b) Any purchase and sale, or sale and purchase, of a security shall 
be exempt from the provisions of section 16(b) of the Act if:
    (1) The person effecting the transaction is either a holding company 
registered under the Public Utility Holding Company Act of 1935 (15 
U.S.C. 79a et seq.) or a subsidiary thereof; and
    (2) Both the purchase and the sale of the security have been 
approved or permitted by the Commission pursuant to the applicable 
provisions of that Act and the rules and regulations thereunder.

[56 FR 7270, Feb. 21, 1991, as amended at 61 FR 30404, June 14, 1996]



Sec. 240.16b-2  [Reserved]



Sec. 240.16b-3  Transactions between an issuer and its officers or directors.

    (a) General. A transaction between the issuer (including an employee 
benefit plan sponsored by the issuer) and an officer or director of the 
issuer that involves issuer equity securities shall be exempt from 
section 16(b) of the Act if the transaction satisfies the applicable 
conditions set forth in this section.
    (b) Definitions. (1) A Discretionary Transaction shall mean a 
transaction pursuant to an employee benefit plan that:
    (i) Is at the volition of a plan participant;
    (ii) Is not made in connection with the participant's death, 
disability, retirement or termination of employment;
    (iii) Is not required to be made available to a plan participant 
pursuant to a provision of the Internal Revenue Code; and

[[Page 404]]

    (iv) Results in either an intra-plan transfer involving an issuer 
equity securities fund, or a cash distribution funded by a volitional 
disposition of an issuer equity security.
    (2) An Excess Benefit Plan shall mean an employee benefit plan that 
is operated in conjunction with a Qualified Plan, and provides only the 
benefits or contributions that would be provided under a Qualified Plan 
but for any benefit or contribution limitations set forth in the 
Internal Revenue Code of 1986, or any successor provisions thereof.
    (3)(i) A Non-Employee Director shall mean a director who:
    (A) Is not currently an officer (as defined in Sec. 240.16a-1(f)) 
of the issuer or a parent or subsidiary of the issuer, or otherwise 
currently employed by the issuer or a parent or subsidiary of the 
issuer;
    (B) Does not receive compensation, either directly or indirectly, 
from the issuer or a parent or subsidiary of the issuer, for services 
rendered as a consultant or in any capacity other than as a director, 
except for an amount that does not exceed the dollar amount for which 
disclosure would be required pursuant to Sec. 229.404(a) of this 
chapter;
    (C) Does not possess an interest in any other transaction for which 
disclosure would be required pursuant to Sec. 229.404(a) of this 
chapter; and
    (D) Is not engaged in a business relationship for which disclosure 
would be required pursuant to Sec. 229.404(b) of this chapter.
    (ii) Notwithstanding paragraph (b)(3)(i) of this section, a Non-
Employee Director of a closed-end investment company shall mean a 
director who is not an ``interested person'' of the issuer, as that term 
is defined in Section 2(a)(19) of the Investment Company Act of 1940.
    (4) A Qualified Plan shall mean an employee benefit plan that 
satisfies the coverage and participation requirements of sections 410 
and 401(a)(26) of the Internal Revenue Code of 1986, or any successor 
provisions thereof.
    (5) A Stock Purchase Plan shall mean an employee benefit plan that 
satisfies the coverage and participation requirements of sections 
423(b)(3) and 423(b)(5), or section 410, of the Internal Revenue Code of 
1986, or any successor provisions thereof.
    (c) Tax-conditioned plans. Any transaction (other than a 
Discretionary Transaction) pursuant to a Qualified Plan, an Excess 
Benefit Plan, or a Stock Purchase Plan shall be exempt without 
condition.
    (d) Grants, awards and other acquisitions from the issuer. Any 
transaction involving a grant, award or other acquisition from the 
issuer (other than a Discretionary Transaction) shall be exempt if:
    (1) The transaction is approved by the board of directors of the 
issuer, or a committee of the board of directors that is composed solely 
of two or more Non-Employee Directors;
    (2) The transaction is approved or ratified, in compliance with 
section 14 of the Act, by either: the affirmative votes of the holders 
of a majority of the securities of the issuer present, or represented, 
and entitled to vote at a meeting duly held in accordance with the 
applicable laws of the state or other jurisdiction in which the issuer 
is incorporated; or the written consent of the holders of a majority of 
the securities of the issuer entitled to vote; provided that such 
ratification occurs no later than the date of the next annual meeting of 
shareholders; or
    (3) The issuer equity securities so acquired are held by the officer 
or director for a period of six months following the date of such 
acquisition, provided that this condition shall be satisfied with 
respect to a derivative security if at least six months elapse from the 
date of acquisition of the derivative security to the date of 
disposition of the derivative security (other than upon exercise or 
conversion) or its underlying equity security.
    (e) Dispositions to the issuer. Any transaction involving the 
disposition to the issuer of issuer equity securities (other than a 
Discretionary Transaction) shall be exempt, provided that the terms of 
such disposition are approved in advance in the manner prescribed by 
either paragraph (d)(1) or paragraph (d)(2) of this section.
    (f) Discretionary Transactions. A Discretionary Transaction shall be 
exempt only if effected pursuant to an election made at least six months 
following the

[[Page 405]]

date of the most recent election, with respect to any plan of the 
issuer, that effected a Discretionary Transaction that was:
    (1) An acquisition, if the transaction to be exempted would be a 
disposition; or
    (2) A disposition, if the transaction to be exempted would be an 
acquisition.

                        Notes to Sec. 240.16b-3

    Note (1): The exercise or conversion of a derivative security that 
does not satisfy the conditions of this section is eligible for 
exemption from section 16(b) of the Act to the extent that the 
conditions of Sec. 240.16b-6(b) are satisfied.
    Note (2): Section 16(a) reporting requirements applicable to 
transactions exempt pursuant to this section are set forth in Sec. 
240.16a-3(f) and (g) and Sec. 240.16a-4.
    Note (3): The approval conditions of paragraphs (d)(1), (d)(2) and 
(e) of this section require the approval of each specific transaction, 
and are not satisfied by approval of a plan in its entirety except for 
the approval of a plan pursuant to which the terms and conditions of 
each transaction are fixed in advance, such as a formula plan. Where the 
terms of a subsequent transaction (such as the exercise price of an 
option, or the provision of an exercise or tax withholding right) are 
provided for in a transaction as initially approved pursuant to 
paragraphs (d)(1), (d)(2) or (e), such subsequent transaction shall not 
require further specific approval.

[61 FR 30393, June 14, 1996]



Sec. 240.16b-4  [Reserved]



Sec. 240.16b-5  Bona fide gifts and inheritance.

    Both the acquisition and the disposition of equity securities shall 
be exempt from the operation of section 16(b) of the Act if they are: 
(a) Bona fide gifts; or (b) transfers of securities by will or the laws 
of descent and distribution.



Sec. 240.16b-6  Derivative securities.

    (a) The establishment of or increase in a call equivalent position 
or liquidation of or decrease in a put equivalent position shall be 
deemed a purchase of the underlying security for purposes of section 
16(b) of the Act, and the establishment of or increase in a put 
equivalent position or liquidation of or decrease in a call equivalent 
position shall be deemed a sale of the underlying securities for 
purposes of section 16(b) of the Act: Provided, however, That if the 
increase or decrease occurs as a result of the fixing of the exercise 
price of a right initially issued without a fixed price, where the date 
the price is fixed is not known in advance and is outside the control of 
the recipient, the increase or decrease shall be exempt from section 
16(b) of the Act with respect to any offsetting transaction within the 
six months prior to the date the price is fixed.
    (b) The closing of a derivative security position as a result of its 
exercise or conversion shall be exempt from the operation of section 
16(b) of the Act, and the acquisition of underlying securities at a 
fixed exercise price due to the exercise or conversion of a call 
equivalent position or the disposition of underlying securities at a 
fixed exercise price due to the exercise of a put equivalent position 
shall be exempt from the operation of section 16(b) of the Act: 
Provided, however, That the acquisition of underlying securities from 
the exercise of an out-of-the-money option, warrant, or right shall not 
be exempt unless the exercise is necessary to comport with the 
sequential exercise provisions of the Internal Revenue Code (26 U.S.C. 
422A).

    Note to Paragraph (b):
    The exercise or conversion of a derivative security that does not 
satisfy the conditions of this section is eligible for exemption from 
section 16(b) of the Act to the extent that the conditions of Sec. 
240.16b-3 are satisfied.

    (c) In determining the short-swing profit recoverable pursuant to 
section 16(b) of the Act from transactions involving the purchase and 
sale or sale and purchase of derivative and other securities, the 
following rules apply:
    (1) Short-swing profits in transactions involving the purchase and 
sale or sale and purchase of derivative securities that have identical 
characteristics (e.g., purchases and sales of call options of the same 
strike price and expiration date, or purchases and sales of the same 
series of convertible debentures) shall be measured by the actual prices 
paid or received in the short-swing transactions.
    (2) Short-swing profits in transactions involving the purchase and 
sale

[[Page 406]]

or sale and purchase of derivative securities having different 
characteristics but related to the same underlying security (e.g., the 
purchase of a call option and the sale of a convertible debenture) or 
derivative securities and underlying securities shall not exceed the 
difference in price of the underlying security on the date of purchase 
or sale and the date of sale or purchase. Such profits may be measured 
by calculating the short-swing profits that would have been realized had 
the subject transactions involved purchases and sales solely of the 
derivative security that was purchased or solely of the derivative 
security that was sold, valued as of the time of the matching purchase 
or sale, and calculated for the lesser of the number of underlying 
securities actually purchased or sold.
    (d) Upon cancellation or expiration of an option within six months 
of the writing of the option, any profit derived from writing the option 
shall be recoverable under section 16(b) of the Act. The profit shall 
not exceed the premium received for writing the option. The disposition 
or closing of a long derivative security position, as a result of 
cancellation or expiration, shall be exempt from section 16(b) of the 
Act where no value is received from the cancellation or expiration.

[56 FR 7270, Feb. 21, 1991, as amended at 61 FR 30394, June 14, 1996]



Sec. 240.16b-7  Mergers, reclassifications, and consolidations.

    (a) The following transactions shall be exempt from the provisions 
of section 16(b) of the Act:
    (1) The acquisition of a security of a company, pursuant to a merger 
or consolidation, in exchange for a security of a company which, prior 
to the merger or consolidation, owned 85 percent or more of either
    (i) The equity securities of all other companies involved in the 
merger or consolidation, or in the case of a consolidation, the 
resulting company; or
    (ii) The combined assets of all the companies involved in the merger 
or consolidation, computed according to their book values prior to the 
merger or consolidation as determined by reference to their most recent 
available financial statements for a 12 month period prior to the merger 
or consolidation, or such shorter time as the company has been in 
existence.
    (2) The disposition of a security, pursuant to a merger or 
consolidation, of a company which, prior to the merger or consolidation, 
owned 85 percent or more of either
    (i) The equity securities of all other companies involved in the 
merger or consolidation or, in the case of a consolidation, the 
resulting company; or
    (ii) The combined assets of all the companies undergoing merger or 
consolidation, computed according to their book values prior to the 
merger or consolidation as determined by reference to their most recent 
available financial statements for a 12 month period prior to the merger 
or consolidation.
    (b) A merger within the meaning of this section shall include the 
sale or purchase of substantially all the assets of one company by 
another in exchange for equity securities which are then distributed to 
the security holders of the company that sold its assets.
    (c) Notwithstanding the foregoing, if a person subject to section 16 
of the Act makes any non-exempt purchase of a security in any company 
involved in the merger or consolidation and any non-exempt sale of a 
security in any company involved in the merger or consolidation within 
any period of less than six months during which the merger or 
consolidation took place, the exemption provided by this Rule shall be 
unavailable to the extent of such purchase and sale.



Sec. 240.16b-8  Voting trusts.

    Any acquisition or disposition of an equity security or certificate 
representing equity securities involved in the deposit or withdrawal 
from a voting trust or deposit agreement shall be exempt from section 
16(b) of the Act if substantially all of the assets held under the 
voting trust or deposit agreement immediately after the deposit or 
immediately prior to the withdrawal consisted of equity securities of 
the same class as the security deposited or withdrawn: Provided, 
however, That this exemption shall not apply if there is a non-exempt 
purchase or sale of an equity security of the class deposited

[[Page 407]]

within six months (including the date of withdrawal or deposit) of a 
non-exempt sale or purchase, respectively, of any certificate 
representing such equity security (other than the actual deposit or 
withdrawal).

          Exemption of Certain Transactions From Section 16(c)

    Source: Sections 240.16c-1 through 240.16c-4 appear at 56 FR 7273, 
Feb. 21, 1991, unless otherwise noted.



Sec. 240.16c-1  Brokers.

    Any transaction shall be exempt from section 16(c) of the Act to the 
extent necessary to render lawful the execution by a broker of an order 
for an account in which the broker has no direct or indirect interest.



Sec. 240.16c-2  Transactions effected in connection with a distribution.

    Any transaction shall be exempt from section 16(c) of the Act to the 
extent necessary to render lawful any sale made by or on behalf of a 
dealer in connection with a distribution of a substantial block of 
securities, where the sale is represented by an over-allotment in which 
the dealer is participating as a member of an underwriting group, or the 
dealer or a person acting on the dealer's behalf intends in good faith 
to offset such sale with a security to be acquired by or on behalf of 
the dealer as a participant in an underwriting, selling, or soliciting-
dealer group of which the dealer is a member at the time of the sale, 
whether or not the security to be acquired is subject to a prior 
offering to existing security holders or some other class of persons.



Sec. 240.16c-3  Exemption of sales of securities to be acquired.

    (a) Whenever any person is entitled, incident to ownership of an 
issued security and without the payment of consideration, to receive 
another security ``when issued'' or ``when distributed,'' the sale of 
the security to be acquired shall be exempt from the operation of 
section 16(c) of the Act: Provided, That:
    (1) The sale is made subject to the same conditions as those 
attaching to the right of acquisition;
    (2) Such person exercises reasonable diligence to deliver such 
security to the purchaser promptly after the right of acquisition 
matures; and
    (3) Such person reports the sale on the appropriate form for 
reporting transactions by persons subject to section 16(a) of the Act.
    (b) This section shall not exempt transactions involving both a sale 
of the issued security and a sale of a security ``when issued'' or 
``when distributed'' if the combined transactions result in a sale of 
more securities than the aggregate of issued securities owned by the 
seller plus those to be received for the other security ``when issued'' 
or ``when distributed.''



Sec. 240.16c-4  Derivative securities.

    Establishing or increasing a put equivalent position shall be exempt 
from section 16(c) of the Act, so long as the amount of securities 
underlying the put equivalent position does not exceed the amount of 
underlying securities otherwise owned.

                         Arbitrage Transactions



Sec. 240.16e-1  Arbitrage transactions under section 16.

    It shall be unlawful for any director or officer of an issuer of an 
equity security which is registered pursuant to section 12 of the Act to 
effect any foreign or domestic arbitrage transaction in any equity 
security of such issuer, whether registered or not, unless he shall 
include such transaction in the statements required by section 16(a) and 
shall account to such issuer for the profits arising from such 
transaction, as provided in section 16(b). The provision of section 
16(c) shall not apply to such arbitrage transactions. The provisions of 
section 16 shall not apply to any bona fide foreign or domestic 
arbitrage transaction insofar as it is effected by any person other than 
such director or officer of the issuer of such security.

(Secs. 4, 12, 13, 15, 16, 19, 24, 48 Stat. 77, 892, 894, 895, 896, 85, 
as amended, 901; 15 U.S.C. 77d, 78l, 78m, 78o, 78p, 77s, 78x)

[30 FR 2025, Feb. 13, 1965]

[[Page 408]]

  Preservation of Records and Reports of Certain Stabilizing Activities



Sec. 240.17a-1  Recordkeeping rule for national securities exchanges, 

national securities associations, registered clearing agencies and the 
Municipal Securities Rulemaking Board.

    (a) Every national securities exchange, national securities 
association, registered clearing agency and the Municipal Securities 
Rulemaking Board shall keep and preserve at least one copy of all 
documents, including all correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or received 
by it in the course of its business as such and in the conduct of its 
self-regulatory activity.
    (b) Every national securities exchange, national securities 
association, registered clearing agency and the Municipal Securities 
Rulemaking Board shall keep all such documents for a period of not less 
than five years, the first two years in an easily accessible place, 
subject to the destruction and disposition provisions of Rule 17a-6.
    (c) Every national securities exchange, registered securities 
association, registered clearing agency and the Municipal Securities 
Rulemaking Board shall, upon request of any representative of the 
Commission, promptly furnish to the possession of such representative 
copies of any documents required to be kept and preserved by it pursuant 
to paragraphs (a) and (b) of this section.

[45 FR 79426, Dec. 1, 1980]



Sec. 240.17a-2  Recordkeeping requirements relating to stabilizing activities.

    (a) Scope of section. This section shall apply to any person who 
effects any purchase of a security subject to Sec. 242.104 of this 
chapter for the purpose of, or who participates in a syndicate or group 
that engages in, ``stabilizing,'' as defined in Sec. 242.100 of this 
chapter, the price of any security; or effects a purchase that is a 
``syndicate covering transaction,'' as defined in Sec. 242.100 of this 
chapter; or imposes a ``penalty bid,'' as defined in Sec. 242.100 of 
this chapter:
    (1) With respect to which a registration statement has been, or is 
to be, filed pursuant to the Securities Act of 1933 (15 U.S.C. 77a et 
seq.); or
    (2) Which is being, or is to be, offered pursuant to an exemption 
from registration under Regulation A (Sec. Sec. 230.251 through 230.263 
of this chapter) adopted under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.); or
    (3) Which is being, or is to be, otherwise offered, if the aggregate 
offering price of the securities being offered exceeds $5,000,000.
    (b) Definitions. For purposes of this section, the following 
definitions shall apply:
    (1) The term manager shall mean the person stabilizing or effecting 
syndicate covering transactions or imposing a penalty bid for its sole 
account or for the account of a syndicate or group in which it is a 
participant, and who, by contract or otherwise, deals with the issuer, 
organizes the selling effort, receives some benefit from the 
underwriting that is not shared by other underwriters, or represents any 
other underwriters in such matters as maintaining the records of the 
distribution and arranging for allotments of the securities offered.
    (2) The term exempted security means an exempted security as defined 
in section 3(a)(12) of the Act, including securities issued, or 
guaranteed both as to principal and interest, by the International Bank 
for Reconstruction and Development.
    (c) Records relating to stabilizing, syndicate covering 
transactions, and penalty bids required to be maintained by manager. Any 
person subject to this section who acts as a manager and stabilizes or 
effects syndicate covering transactions or imposes a penalty bid shall:
    (1) Promptly record and maintain the following separately 
retrievable information, for a period of not less than three years, the 
first two years in an easily accessible place; Provided, however, That 
if the information is in a record required to be made pursuant to Sec. 
240.17a-3 or Sec. 240.17a-4, or otherwise preserved, such information 
need not be maintained in a separate file if the person can sort 
promptly and retrieve

[[Page 409]]

the information as if it had been kept in a separate file as a record 
made pursuant to, and preserves the information in accordance with the 
time periods specified in, this paragraph (c)(1):
    (i) The name and class of any security stabilized or any security in 
which syndicate covering transactions have been effected or a penalty 
bid has been imposed;
    (ii) The price, date, and time at which each stabilizing purchase or 
syndicate covering transaction was effected by the manager or by any 
participant in the syndicate or group, and whether any penalties were 
assessed;
    (iii) The names and the addresses of the members of the syndicate or 
group;
    (iv) Their respective commitments, or, in the case of a standby or 
contingent underwriting, the percentage participation of each member of 
the syndicate or group therein; and
    (v) The dates when any penalty bid was in effect.
    (2) Promptly furnish to each of the members of the syndicate or 
group the name and class of any security being stabilized, and the date 
and time at which the first stabilizing purchase was effected by the 
manager or by any participant in the syndicate or group; and
    (3) Promptly notify each of the members of such syndicate or group 
of the date and time when stabilizing was terminated.
    (d) Notification to manager. Any person who has a participation in a 
syndicate account but who is not a manager of such account, and who 
effects one or more stabilizing purchases or syndicate covering 
transactions for its sole account or for the account of a syndicate or 
group, shall within three business days following such purchase notify 
the manager of the price, date, and time at which such stabilizing 
purchase or syndicate covering transaction was effected, and shall in 
addition notify the manager of the date and time when such stabilizing 
purchase or syndicate covering transaction was terminated. The manager 
shall maintain such notifications in a separate file, together with the 
information required by paragraph (c)(1) of this section, for a period 
of not less than three years, the first two years in an easily 
accessible place.

(Secs. 9(a)(6), 10(b), 17(a) and 23(a) of the Act, 15 U.S.C. 78i(a)(6), 
78j(b), 78q(a) and 78w(a))

[48 FR 41378, Sept. 15, 1983, as amended at 62 FR 544, Jan. 3, 1997]



Sec. 240.17a-3  Records to be made by certain exchange members, brokers 
and dealers.

    (a) Every member of a national securities exchange who transacts a 
business in securities directly with others than members of a national 
securities exchange, and every broker or dealer who transacts a business 
in securities through the medium of any such member, and every broker or 
dealer registered pursuant to section 15 of the Securities Exchange Act 
of 1934, as amended, (48 Stat. 895, 49 Stat. 1377, 52 Stat. 1075; 15 
U.S.C. 78o) shall make and keep current the following books and records 
relating to its business:
    (1) Blotters (or other records of original entry) containing an 
itemized daily record of all purchases and sales of securities, all 
receipts and deliveries of securities (including certificate numbers), 
all receipts and disbursements of cash and all other debits and credits. 
Such records shall show the account for which each such transaction was 
effected, the name and amount of securities, the unit and aggregate 
purchase or sale price (if any), the trade date, and the name or other 
designation of the person from whom purchased or received or to whom 
sold or delivered.
    (2) Ledgers (or other records) reflecting all assets and 
liabilities, income and expense and capital accounts.
    (3) Ledger accounts (or other records) itemizing separately as to 
each cash and margin account of every customer and of such member, 
broker or dealer and partners thereof, all purchases, sales, receipts 
and deliveries of securities and commodities for such account and all 
other debits and credits to such account.
    (4) Ledgers (or other records) reflecting the following:
    (i) Securities in transfer;
    (ii) Dividends and interest received;
    (iii) Securities borrowed and securities loaned;
    (iv) Moneys borrowed and moneys loaned (together with a record of 
the

[[Page 410]]

collateral therefor and any substitutions in such collateral);
    (v) Securities failed to receive and failed to deliver;
    (vi) All long and all short securities record differences arising 
from the examination, count, verification and comparison pursuant to 
Sec. 240.17a-5, Sec. 240.17a-12, and Sec. 240.17a-13 (by date of 
examination, count, verification and comparison showing for each 
security the number of long or short count differences);
    (vii) Repurchase and reverse repurchase agreements;
    (5) A securities record or ledger reflecting separately for each 
security as of the clearance dates all ``long'' or ``short'' positions 
(including securities in safekeeping and securities that are the 
subjects of repurchase or reverse repurchase agreements) carried by such 
member, broker or dealer for its account of for the account of its 
customers or partners or others and showing the location of all 
securities long and the offsetting position to all securities short, 
including long security count differences and short security count 
differences classified by the date of the physical count and 
verification in which they were discovered, and in all cases the name or 
designation of the account in which each position is carried.
    (6)(i) A memorandum of each brokerage order, and of any other 
instruction, given or received for the purchase or sale of securities, 
whether executed or unexecuted. The memorandum shall show the terms and 
conditions of the order or instructions and of any modification or 
cancellation thereof; the account for which entered; the time the order 
was received; the time of entry; the price at which executed; the 
identity of each associated person, if any, responsible for the account; 
the identity of any other person who entered or accepted the order on 
behalf of the customer or, if a customer entered the order on an 
electronic system, a notation of that entry; and, to the extent 
feasible, the time of execution or cancellation. The memorandum need not 
show the identity of any person, other than the associated person 
responsible for the account, who may have entered or accepted the order 
if the order is entered into an electronic system that generates the 
memorandum and if that system is not capable of receiving an entry of 
the identity of any person other than the responsible associated person; 
in that circumstance, the member, broker or dealer shall produce upon 
request by a representative of a securities regulatory authority a 
separate record which identifies each other person. An order entered 
pursuant to the exercise of discretionary authority by the member, 
broker or dealer, or associated person thereof, shall be so designated. 
The term instruction shall include instructions between partners and 
employees of a member, broker or dealer. The term time of entry shall 
mean the time when the member, broker or dealer transmits the order or 
instruction for execution.
    (ii) This memorandum need not be made as to a purchase, sale or 
redemption of a security on a subscription way basis directly from or to 
the issuer, if the member, broker or dealer maintains a copy of the 
customer's subscription agreement regarding a purchase, or a copy of any 
other document required by the issuer regarding a sale or redemption.
    (7) A memorandum of each purchase and sale for the account of the 
member, broker, or dealer showing the price and, to the extent feasible, 
the time of execution; and, in addition, where the purchase or sale is 
with a customer other than a broker or dealer, a memorandum of each 
order received, showing the time of receipt; the terms and conditions of 
the order and of any modification thereof; the account for which it was 
entered; the identity of each associated person, if any, responsible for 
the account; the identity of any other person who entered or accepted 
the order on behalf of the customer or, if a customer entered the order 
on an electronic system, a notation of that entry. The memorandum need 
not show the identity of any person other than the associated person 
responsible for the account who may have entered the order if the order 
is entered into an electronic system that generates the memorandum and 
if that system is not capable of receiving an entry of the identity of 
any person other than the responsible associated person: in that

[[Page 411]]

circumstance, the member, broker or dealer shall produce upon request by 
a representative of a securities regulatory authority a separate record 
which identifies each other person. An order with a customer other than 
a member, broker or dealer entered pursuant to the exercise of 
discretionary authority by the member, broker or dealer, or associated 
person thereof, shall be so designated.
    (8) Copies of confirmations of all purchases and sales of 
securities, including all repurchase and reverse repurchase agreements, 
and copies of notices of all other debits and credits for securities, 
cash and other items for the account of customers and partners of such 
member, broker or dealer.
    (9) A record in respect of each cash and margin account with such 
member, broker or dealer indicating (i) the name and address of the 
beneficial owner of such account, and
    (ii) Except with respect to exempt employee benefit plan securities 
as defined in Sec. 240.14a-1(d), but only to the extent such securities 
are held by employee benefit plans established by the issuer of the 
securities, whether or not the beneficial owner of securities registered 
in the name of such members, brokers or dealers, or a registered 
clearing agency or its nominee objects to disclosure of his or her 
identity, address and securities positions to issuers, and (iii) in the 
case of a margin account, the signature of such owner; Provided, That, 
in the case of a joint account or an account of a corporation, such 
records are required only in respect of the person or persons authorized 
to transact business for such account.
    (10) A record of all puts, calls, spreads, straddles and other 
options in which such member, broker or dealer has any direct or 
indirect interest or which such members, broker or dealer has granted or 
guaranteed, containing, at least, an identification of the security and 
the number of units involved. An OTC derivatives dealer shall also keep 
a record of all eligible OTC derivative instruments as defined in Sec. 
240.3b-13 in which the OTC derivatives dealer has any direct or indirect 
interest or which it has written or guaranteed, containing, at a 
minimum, an identification of the security or other instrument, the 
number of units involved, and the identity of the counterparty.
    (11) A record of the proof of money balances of all ledger accounts 
in the form of trial balances, and a record of the computation of 
aggregate indebtedness and net capital, as of the trial balance date, 
pursuant to Sec. 240.15c3-1; Provided, however, (i) That such 
computation need not be made by any member, broker or dealer 
unconditionally exempt from Sec. 240.15c3-1 by paragraph (b)(1) or 
(b)(3), thereof; and (ii) that any member of an exchange whose members 
are exempt from Sec. 240.15c3-1 by paragraph (b)(2) thereof shall make 
a record of the computation of aggregate indebtedness and net capital as 
of the trial balance date in accordance with the capital rules of at 
least one of the exchanges therein listed of which it is a member. Such 
trial balances and computations shall be prepared currently at least 
once a month.
    (12)(i) A questionnaire or application for employment executed by 
each ``associated person'' (as defined in paragraph (h)(4) of this 
section) of the member, broker or dealer, which questionnaire or 
application shall be approved in writing by an authorized representative 
of the member, broker or dealer and shall contain at least the following 
information with respect to the associated person:
    (A) The associated person's name, address, social security number, 
and the starting date of the associated person's employment or other 
association with the member, broker or dealer;
    (B) The associated person's date of birth;
    (C) A complete, consecutive statement of all the associated person's 
business connections for at least the preceding ten years, including 
whether the employment was part-time or full-time;
    (D) A record of any denial of membership or registration, and of any 
disciplinary action taken, or sanction imposed, upon the associated 
person by any federal or state agency, or by any national securities 
exchange or national securities association, including any finding that 
the associated person was a cause of any disciplinary action or had 
violated any law;

[[Page 412]]

    (E) A record of any denial, suspension, expulsion or revocation of 
membership or registration of any member, broker or dealer with which 
the associated person was associated in any capacity when such action 
was taken;
    (F) A record of any permanent or temporary injunction entered 
against the associated person or any member, broker or dealer with which 
the associated person was associated in any capacity at the time such 
injunction was entered;
    (G) A record of any arrest or indictment for any felony, or any 
misdemeanor pertaining to securities, commodities, banking, insurance or 
real estate (including, but not limited to, acting or being associated 
with a broker-dealer, investment company, investment adviser, futures 
sponsor, bank, or savings and loan association), fraud, false statements 
or omissions, wrongful taking of property or bribery, forgery, 
counterfeiting or extortion, and the disposition of the foregoing.
    (H) A record of any other name or names by which the associated 
person has been known or which the associated person has used;

Provided, however, That if such associated person has been registered as 
a registered representative of such member, broker or dealer with, or 
the associated person's employment has been approved by, the National 
Association of Securities Dealers, Inc., the American Stock Exchange 
LLC, the Boston Stock Exchange, Inc., the Chicago Stock Exchange, Inc., 
the New York Stock Exchange, Inc., the Pacific Exchange, Inc., the 
Philadelphia Stock Exchange, Inc., the Chicago Board Options Exchange, 
Inc., the Cincinnati Stock Exchange, Inc. or the International 
Securities Exchange, then retention of a full, correct, and complete 
copy of any and all applications for such registration or approval shall 
be deemed to satisfy the requirements of this paragraph.
    (ii) A record listing every associated person of the member, broker 
or dealer which shows, for each associated person, every office of the 
member, broker or dealer where the associated person regularly conducts 
the business of handling funds or securities or effecting any 
transactions in, or inducing or attempting to induce the purchase or 
sale of any security for the member, broker or dealer, and the Central 
Registration Depository number, if any, and every internal 
identification number or code assigned to that person by the member, 
broker or dealer.
    (13) Records required to be maintained pursuant to paragraph (d) of 
Sec. 240.17f-2.
    (14) Copies of all Forms X-17F-1A filed pursuant to Sec. 240.17f-1, 
all agreements between reporting institutions regarding registration or 
other aspects of Sec. 240.17f-1, and all confirmations or other 
information received from the Commission or its designee as a result of 
inquiry.
    (15) Records required to be maintained pursuant to paragraph (e) of 
Sec. 240.17f-2.
    (16)(i) The following records regarding any internal broker-dealer 
system of which such a broker or dealer is the sponsor:
    (A) A record of the broker's or dealer's customers that have access 
to an internal broker-dealer system sponsored by such broker or dealer 
(identifying any affiliations between such customers and the broker or 
dealer);
    (B) Daily summaries of trading in the internal broker-dealer system, 
including:
    (1) Securities for which transactions have been executed through use 
of such system; and
    (2) Transaction volume (separately stated for trading occurring 
during hours when consolidated trade reporting facilities are and are 
not in operation):
    (i) With respect to equity securities, stated in number of trades, 
number of shares, and total U.S. dollar value;
    (ii) With respect to debt securities, stated in total settlement 
value in U.S. dollars; and
    (iii) With respect to other securities, stated in number of trades, 
number of units of securities, and in dollar value, or other appropriate 
commonly used measure of value of such securities; and
    (C) Time-sequenced records of each transaction effected through the 
internal broker-dealer system, including

[[Page 413]]

date and time executed, price, size, security traded, counterparty 
identification information, and method of execution (if internal broker-
dealer system allows alternative means or locations for execution, such 
as routing to another market, matching with limit orders, or executing 
against the quotations of the broker or dealer sponsoring the system).
    (ii) For purposes of paragraph (a) of this section, the term:
    (A) Internal broker-dealer system shall mean any facility, other 
than a national securities exchange, an exchange exempt from 
registration based on limited volume, or an alternative trading system 
as defined in Regulation ATS, Sec. Sec. 242.300 through 242.303 of this 
chapter, that provides a mechanism, automated in full or in part, for 
collecting, receiving, disseminating, or displaying system orders and 
facilitating agreement to the basic terms of a purchase or sale of a 
security between a customer and the sponsor, or between two customers of 
the sponsor, through use of the internal broker-dealer system or through 
the broker or dealer sponsor of such system;
    (B) Sponsor shall mean any broker or dealer that organizes, 
operates, administers, or otherwise directly controls an internal 
broker-dealer trading system or, if the operator of the internal broker-
dealer system is not a registered broker or dealer, any broker or dealer 
that, pursuant to contract, affiliation, or other agreement with the 
system operator, is involved on a regular basis with executing 
transactions in connection with use of the internal broker-dealer 
system, other than solely for its own account or as a customer with 
access to the internal broker-dealer system; and
    (C) System order means any order or other communication or 
indication submitted by any customer with access to the internal broker-
dealer system for entry into a trading system announcing an interest in 
purchasing or selling a security. The term ``system order'' does not 
include inquiries or indications of interest that are not entered into 
the internal broker-dealer system.
    (17) For each account with a natural person as a customer or owner:
    (i)(A) An account record including the customer's or owner's name, 
tax identification number, address, telephone number, date of birth, 
employment status (including occupation and whether the customer is an 
associated person of a member, broker or dealer), annual income, net 
worth (excluding value of primary residence), and the account's 
investment objectives. In the case of a joint account, the account 
record must include personal information for each joint owner who is a 
natural person; however, financial information for the individual joint 
owners may be combined. The account record shall indicate whether it has 
been signed by the associated person responsible for the account, if 
any, and approved or accepted by a principal of the member, broker or 
dealer. For accounts in existence on the effective date of this section, 
the member, broker or dealer must obtain this information within three 
years of the effective date of the section.
    (B) A record indicating that:
    (1) The member, broker or dealer has furnished to each customer or 
owner within three years of the effective date of this section, and to 
each customer or owner who opened an account after the effective date of 
this section within thirty days of the opening of the account, and 
thereafter at intervals no greater than thirty-six months, a copy of the 
account record or an alternate document with all information required by 
paragraph (a)(17)(i)(A) of this section. The member, broker or dealer 
may elect to send this notification with the next statement mailed to 
the customer or owner after the opening of the account. The member, 
broker or dealer may choose to exclude any tax identification number and 
date of birth from the account record or alternative document furnished 
to the customer or owner. The member, broker or dealer shall include 
with the account record or alternative document provided to each 
customer or owner an explanation of any terms regarding investment 
objectives. The account record or alternate document furnished to the 
customer or owner shall include or be accompanied by prominent 
statements that the customer or owner should mark any corrections and 
return the

[[Page 414]]

account record or alternate document to the member, broker or dealer, 
and that the customer or owner should notify the member, broker or 
dealer of any future changes to information contained in the account 
record.
    (2) For each account record updated to reflect a change in the name 
or address of the customer or owner, the member, broker or dealer 
furnished a notification of that change to the customer's old address, 
or to each joint owner, and the associated person, if any, responsible 
for that account, on or before the 30th day after the date the member, 
broker or dealer received notice of the change.
    (3) For each change in the account's investment objectives the 
member, broker or dealer has furnished to each customer or owner, and 
the associated person, if any, responsible for that account a copy of 
the updated customer account record or alternative document with all 
information required to be furnished by paragraph (a)(17)(i)(B)(1) of 
this section, on or before the 30th day after the date the member, 
broker or dealer received notice of any change, or, if the account was 
updated for some reason other than the firm receiving notice of a 
change, after the date the account record was updated. The member, 
broker or dealer may elect to send this notification with the next 
statement scheduled to be mailed to the customer or owner.
    (C) For purposes of this paragraph (a)(17), the neglect, refusal, or 
inability of a customer or owner to provide or update any account record 
information required under paragraph (a)(17)(i)(A) of this section shall 
excuse the member, broker or dealer from obtaining that required 
information.
    (D) The account record requirements in paragraph (a)(17)(i)(A) of 
this section shall only apply to accounts for which the member, broker 
or dealer is, or has within the past 36 months been, required to make a 
suitability determination under the federal securities laws or under the 
requirements of a self-regulatory organization of which it is a member. 
Additionally, the furnishing requirement in paragraph (a)(17)(i)(B)(1) 
of this section shall not be applicable to an account for which, within 
the last 36 months, the member, broker or dealer has not been required 
to make a suitability determination under the federal securities laws or 
under the requirements of a self-regulatory organization of which it is 
a member. This paragraph (a)(17)(i)(D) does not relieve a member, broker 
or dealer from any obligation arising from the rules of a self-
regulatory organization of which it is a member regarding the collection 
of information from a customer or owner.
    (ii) If an account is a discretionary account, a record containing 
the dated signature of each customer or owner granting the authority and 
the dated signature of each natural person to whom discretionary 
authority was granted.
    (iii) A record for each account indicating that each customer or 
owner was furnished with a copy of each written agreement entered into 
on or after the effective date of this paragraph pertaining to that 
account and that, if requested by the customer or owner, the customer or 
owner was furnished with a fully executed copy of each agreement.
    (18) A record:
    (i) As to each associated person of each written customer complaint 
received by the member, broker or dealer concerning that associated 
person. The record shall include the complainant's name, address, and 
account number; the date the complaint was received; the name of any 
other associated person identified in the complaint; a description of 
the nature of the complaint; and the disposition of the complaint. 
Instead of the record, a member, broker or dealer may maintain a copy of 
each original complaint in a separate file by the associated person 
named in the complaint along with a record of the disposition of the 
complaint.
    (ii) Indicating that each customer of the member, broker or dealer 
has been provided with a notice containing the address and telephone 
number of the department of the member, broker or dealer to which any 
complaints as to the account may be directed.
    (19) A record:

[[Page 415]]

    (i) As to each associated person listing each purchase and sale of a 
security attributable, for compensation purposes, to that associated 
person. The record shall include the amount of compensation if monetary 
and a description of the compensation if non-monetary. In lieu of making 
this record, a member, broker or dealer may elect to produce the 
required information promptly upon request of a representative of a 
securities regulatory authority.
    (ii) Of all agreements pertaining to the relationship between each 
associated person and the member, broker or dealer including a summary 
of each associated person's compensation arrangement or plan with the 
member, broker or dealer, including commission and concession schedules 
and, to the extent that compensation is based on factors other than 
remuneration per trade, the method by which the compensation is 
determined.
    (20) A record, which need not be separate from the advertisements, 
sales literature, or communications, documenting that the member, broker 
or dealer has complied with, or adopted policies and procedures 
reasonably designed to establish compliance with, applicable federal 
requirements and rules of a self-regulatory organization of which the 
member, broker or dealer is a member which require that advertisements, 
sales literature, or any other communications with the public by a 
member, broker or dealer or its associated persons be approved by a 
principal.
    (21) A record for each office listing, by name or title, each person 
at that office who, without delay, can explain the types of records the 
firm maintains at that office and the information contained in those 
records.
    (22) A record listing each principal of a member, broker or dealer 
responsible for establishing policies and procedures that are reasonably 
designed to ensure compliance with any applicable federal requirements 
or rules of a self-regulatory organization of which the member, broker 
or dealer is a member that require acceptance or approval of a record by 
a principal.
    (b)(1) This section shall not be deemed to require a member of a 
national securities exchange, a broker, or dealer who transacts a 
business in securities through the medium of any such member, or a 
broker or dealer registered pursuant to section 15 of the Act, to make 
or keep such records of transactions cleared for such member, broker, or 
dealer as are customarily made and kept by a clearing broker or dealer 
pursuant to the requirements of Sec. Sec. 240.17a-3 and 240.17a-4: 
Provided, That the clearing broker or dealer has and maintains net 
capital of not less than $25,000 and is otherwise in compliance with 
Sec. 240.15c3-1 or the capital rules of the exchange of which such 
clearing broker or dealer is a member if the members of such exchange 
are exempt from Sec. 240.15c3-1 by paragraph (b)(2) thereof.
    (2) This section shall not be deemed to require a member of a 
national securities exchange, a broker, or dealer who transacts a 
business in securities through the medium of any such member, or a 
broker or dealer registered pursuant to section 15 of the Act, to make 
or keep such records of transactions cleared for such member, broker or 
dealer by a bank as are customarily made and kept by a clearing broker 
or dealer pursuant to the requirements of Sec. Sec. 240.17a-3 and 
240.17a-4: Provided, That such member, broker, or dealer obtains from 
such bank an agreement in writing to the effect that the records made 
and kept by such bank are the property of the member, broker, or dealer: 
And provided further, That such bank files with the Commission a written 
undertaking in form acceptable to the Commission and signed by a duly 
authorized person, that such books and records are available for 
examination by representatives of the Commission as specified in section 
17(a) of the Act, and that it will furnish to the Commission, upon 
demand, at its principal office in Washington, DC, or at any regional or 
district office of the Commission designated in such demand, true, 
correct, complete, and current copies of any or all of such records. 
Such undertaking shall include the following provisions:

    The undersigned hereby undertakes to maintain and preserve on behalf 
of [BD] the books and records required to be maintained and preserved by 
[BD] pursuant to Rules 17a-

[[Page 416]]

3 and 17a-4 under the Securities Exchange Act of 1934 and to permit 
examination of such books and records at any time or from time to time 
during business hours by examiners or other representatives of the 
Securities and Exchange Commission, and to furnish to said Commission at 
its principal office in Washington, DC, or at any regional or district 
office of said Commission specified in a demand made by or on behalf of 
said Commission for copies of books and records, true, correct, 
complete, and current copies of any or all, or any part, of such books 
and records. This undertaking shall be binding upon the undersigned, and 
the successors and assigns of the undersigned.


Nothing herein contained shall be deemed to relieve such member, broker, 
or dealer from the responsibility that such books and records be 
accurately maintained and preserved as specified in Sec. Sec. 240.17a-3 
and 240.17a-4.
    (c) This section shall not be deemed to require a member of a 
national securities exchange, or a broker or dealer registered pursuant 
to section 15 of the Securities Exchange Act of 1934 (48 Stat. 895, 49 
Stat. 1377; 15 U.S.C. 78o) as amended, to make or keep such records as 
are required by paragraph (a) reflecting the sale of United States Tax 
Savings Notes, United States Defense Savings Stamps, or United States 
Defense Savings Bonds, Series E, F and G.
    (d) The records specified in paragraph (a) of this section shall not 
be required with respect to any cash transaction of $100 or less 
involving only subscription rights or warrants which by their terms 
expire within 90 days after the issuance thereof.
    (e) For purposes of transactions in municipal securities by 
municipal securities brokers and municipal securities dealers, 
compliance with Rule G-8 of the Municipal Securities Rulemaking Board 
will be deemed to be in compliance with this section.
    (f) Security futures products. The provisions of this section shall 
not apply to security futures product transactions and positions in a 
futures account (as that term is defined in Sec. 240.15c3-3(a)(15)); 
provided, that the Commodity Futures Trading Commission's recordkeeping 
rules apply to those transactions and positions.
    (g) Every member, broker or dealer shall make and keep current, as 
to each office, the books and records described in paragraphs (a)(1), 
(a)(6), (a)(7), (a)(12), (a)(17), (a)(18)(i), (a)(19), (a)(20), (a)(21), 
and (a)(22) of this section.
    (h) When used in this section:
    (1) The term office means any location where one or more associated 
persons regularly conduct the business of handling funds or securities 
or effecting any transactions in, or inducing or attempting to induce 
the purchase or sale of, any security.
    (2) The term principal means any individual registered with a 
registered national securities association as a principal or branch 
manager of a member, broker or dealer or any other person who has been 
delegated supervisory responsibility over associated persons by the 
member, broker or dealer.
    (3) The term securities regulatory authority means the Commission, 
any self-regulatory organization, or any securities commission (or any 
agency or office performing like functions) of the States.
    (4) The term associated person means an ``associated person of a 
member'' or ``associated person of a broker or dealer'' as defined in 
sections 3(a)(21) and 3(a)(18) of the Act (15 U.S.C. 78c(a)(21) and 
(a)(18)) respectively, but shall not include persons whose functions are 
solely clerical or ministerial.

    Cross Reference: For interpretative release applicable to Sec. 
240.17a-3, see No. 3040 in tabulation, part 241 of this chapter.

[13 FR 8212, Dec. 22, 1948]

    Editorial Note: For Federal Register citations affecting Sec. 
240.17a-3, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 240.17a-4  Records to be preserved by certain exchange members, 
brokers and dealers.

    (a) Every member, broker and dealer subject to Sec. 240.17a-3 shall 
preserve for a period of not less than six years, the first two years in 
an easily accessible place, all records required to be made pursuant to 
paragraphs Sec. 240.17a-3(a)(1), (a)(2), (a)(3), (a)(5), (a)(21), 
(a)(22), and analogous records created pursuant to paragraph Sec. 
240.17a-3(f).
    (b) Every member, broker and dealer subject to Sec. 240.17a-3 shall 
preserve for a period of not less than three years,

[[Page 417]]

the first two years in an easily accessible place:
    (1) All records required to be made pursuant to Sec. 240.17a-
3(a)(4), (a)(6), (a)(7), (a)(8), (a)(9), (a)(10), (a)(16), (a)(18), 
(a)(19), (a)(20), and analogous records created pursuant to Sec. 
240.17a-3(f).
    (2) All check books, bank statements, cancelled checks and cash 
reconciliations.
    (3) All bills receivable or payable (or copies thereof), paid or 
unpaid, relating to the business of such member, broker or dealer, as 
such.
    (4) Originals of all communications received and copies of all 
communications sent (and any approvals thereof) by the member, broker or 
dealer (including inter-office memoranda and communications) relating to 
its business as such, including all communications which are subject to 
rules of a self-regulatory organization of which the member, broker or 
dealer is a member regarding communications with the public. As used in 
this paragraph (b)(4), the term communications includes sales scripts.
    (5) All trial balances, computations of aggregate indebtedness and 
net capital (and working papers in connection therewith), financial 
statements, branch office reconciliations, and internal audit working 
papers, relating to the business of such member, broker or dealer, as 
such.
    (6) All guarantees of accounts and all powers of attorney and other 
evidence of the granting of any discretionary authority given in respect 
of any account, and copies of resolutions empowering an agent to act on 
behalf of a corporation.
    (7) All written agreements (or copies thereof) entered into by such 
member, broker or dealer relating to its business as such, including 
agreements with respect to any account.
    (8) Records which contain the following information in support of 
amounts included in the report prepared as of the audit date on Form X-
17A-5 (Sec. 249.617 of this chapter) Part II or Part IIA or Part IIB 
and in annual audited financial statements required by Sec. 240.17a-
5(d) and Sec. 240.17a-12(b):
    (i) Money balance position, long or short, including description, 
quantity, price and valuation of each security including contractual 
commitments in customers' accounts, in cash and fully secured accounts, 
partly secured accounts, unsecured accounts, and in securities accounts 
payable to customers;
    (ii) Money balance and position, long or short, including 
description, quantity, price and valuation of each security including 
contractual commitments in non-customers' accounts, in cash and fully 
secured accounts, partly secured and unsecured accounts, and in 
securities accounts payable to non-customers;
    (iii) Position, long or short, including description, quantity, 
price and valuation of each security including contractual commitments 
included in the Computation of Net Capital as commitments, securities 
owned, securities owned not readily marketable, and other investments 
owned not readily marketable;
    (iv) Amount of secured demand note, description of collateral 
securing such secured demand note including quantity, price and 
valuation of each security and cash balance securing such secured demand 
note;
    (v) Description of futures commodity contracts, contract value on 
trade date, market value, gain or loss, and liquidating equity or 
deficit in customers' and non-customers' accounts;
    (vi) Description of futures commodity contracts, contract value on 
trade date, market value, gain or loss and liquidating equity or deficit 
in trading and investment accounts;
    (vii) Description, money balance, quantity, price and valuation of 
each spot commodity position or commitments in customers' and non-
customers' accounts;
    (viii) Description, money balance, quantity, price and valuation of 
each spot commodity position or commitments in trading and investment 
accounts;
    (ix) Number of shares, description of security, exercise price, cost 
and market value of put and call options including short out of the 
money options having no market or exercise value, showing listed and 
unlisted put and call options separately;

[[Page 418]]

    (x) Quantity, price, and valuation of each security underlying the 
haircut for undue concentration made in the Computation for Net Capital;
    (xi) Description, quantity, price and valuation of each security and 
commodity position or contractual commitment, long or short, in each 
joint account in which the broker or dealer has an interest, including 
each participant's interest and margin deposit;
    (xii) Description, settlement date, contract amount, quantity, 
market price, and valuation for each aged failed to deliver requiring a 
charge in the Computation of Net Capital pursuant to Sec. 240.15c3-1;
    (xiii) Detail relating to information for possession or control 
requirements under Sec. 240.15c3-3 and reported on the schedule in Part 
II or IIA of Form X-17A-5 (Sec. 249.617 of this chapter);
    (xiv) Detail of all items, not otherwise substantiated, which are 
charged or credited in the Computation of Net Capital pursuant to Sec. 
240.15c3-1, such as cash margin deficiencies, deductions related to 
securities values and undue concentration, aged securities differences 
and insurance claims receivable; and
    (xv) Other schedules which are specifically prescribed by the 
Commission as necessary to support information reported as required by 
Sec. 240.17a-5 and Sec. 240.17a-12.
    (9) The records required to be made pursuant to Sec. 240.15c3-
3(d)(4) and (o).
    (10) The records required to be made pursuant to Sec. 240.15c3-4 
and the results of the periodic reviews conducted pursuant to Sec. 
240.15c3-4(d).
    (11) All notices relating to an internal broker-dealer system 
provided to the customers of the broker or dealer that sponsors such 
internal broker-dealer system, as defined in paragraph (a)(16)(ii)(A) of 
Sec. 240.17a-3. Notices, whether written or communicated through the 
internal broker-dealer trading system or other automated means, shall be 
preserved under this paragraph (b)(11) if they are provided to all 
customers with access to an internal broker-dealer system, or to one or 
more classes of customers. Examples of notices to be preserved under 
this paragraph (b)(11) include, but are not limited to, notices 
addressing hours of system operations, system malfunctions, changes to 
system procedures, maintenance of hardware and software, and 
instructions pertaining to access to the internal broker-dealer system.
    (c) Every member, broker and dealer subject to Sec. 240.17a-3 shall 
preserve for a period of not less than six years after the closing of 
any customer's account any account cards or records which relate to the 
terms and conditions with respect to the opening and maintenance of the 
account.
    (d) Every member, broker and dealer subject to Sec. 240.17a-3 shall 
preserve during the life of the enterprise and of any successor 
enterprise all partnership articles or, in the case of a corporation, 
all articles of incorporation or charter, minute books and stock 
certificate books (or, in the case of any other form of legal entity, 
all records such as articles of organization or formation, and minute 
books used for a purpose similar to those records required for 
corporations or partnerships), all Forms BD (Sec. 249.501 of this 
chapter), all Forms BDW (Sec. 249.501a of this chapter), all amendments 
to these forms, all licenses or other documentation showing the 
registration of the member, broker or dealer with any securities 
regulatory authority.
    (e) Every member, broker and dealer subject to Sec. 240.17a-3 shall 
maintain and preserve in an easily accessible place:
    (1) All records required under paragraph (a)(12) of Sec. 240.17a-3 
until at least three years after the associated person's employment and 
any other connection with the member, broker or dealer has terminated.
    (2) All records required under paragraph (a)(13) of Sec. 240.17a-3 
until at least three years after the termination of employment or 
association of those persons required by Sec. 240.17f-2 to be 
fingerprinted; and
    (3) All records required pursuant to paragraph (a)(15) of Sec. 
240.17a-3 for the life of the enterprise.
    (4) All records required pursuant to paragraph (a)(14) of Sec. 
240.17a-3 for three years.
    (5) All account record information required pursuant to Sec. 
240.17a-3(a)(17) until at least six years after the earlier of the date 
the account was closed or

[[Page 419]]

the date on which the information was replaced or updated.
    (6) Each report which a securities regulatory authority has 
requested or required the member, broker or dealer to make and furnish 
to it pursuant to an order or settlement, and each securities regulatory 
authority examination report until three years after the date of the 
report.
    (7) Each compliance, supervisory, and procedures manual, including 
any updates, modifications, and revisions to the manual, describing the 
policies and practices of the member, broker or dealer with respect to 
compliance with applicable laws and rules, and supervision of the 
activities of each natural person associated with the member, broker or 
dealer until three years after the termination of the use of the manual.
    (8) All reports produced to review for unusual activity in customer 
accounts until eighteen months after the date the report was generated. 
In lieu of maintaining the reports, a member, broker or dealer may 
produce promptly the reports upon request by a representative of a 
securities regulatory authority. If a report was generated in a computer 
system that has been changed in the most recent eighteen month period in 
a manner such that the report cannot be reproduced using historical data 
in the same format as it was originally generated, the report may be 
produced by using the historical data in the current system, but must be 
accompanied by a record explaining each system change which affected the 
reports. If a report is generated in a computer system that has been 
changed in the most recent eighteen month period in a manner such that 
the report cannot be reproduced in any format using historical data, the 
member, broker or dealer shall promptly produce upon request a record of 
the parameters that were used to generate the report at the time 
specified by a representative of a securities regulatory authority, 
including a record of the frequency with which the reports were 
generated.
    (f) The records required to be maintained and preserved pursuant to 
Sec. Sec. 240.17a-3 and 240.17a-4 may be immediately produced or 
reproduced on ``micrographic media'' (as defined in this section) or by 
means of ``electronic storage media'' (as defined in this section) that 
meet the conditions set forth in this paragraph and be maintained and 
preserved for the required time in that form.
    (1) For purposes of this section:
    (i) The term micrographic media means microfilm or microfiche, or 
any similar medium; and
    (ii) The term electronic storage media means any digital storage 
medium or system and, in the case of both paragraphs (f)(1)(i) and 
(f)(1)(ii) of this section, that meets the applicable conditions set 
forth in this paragraph (f).
    (2) If electronic storage media is used by a member, broker, or 
dealer, it shall comply with the following requirements:
    (i) The member, broker, or dealer must notify its examining 
authority designated pursuant to section 17(d) of the Act (15 U.S.C. 
78q(d)) prior to employing electronic storage media. If employing any 
electronic storage media other than optical disk technology (including 
CD-ROM), the member, broker, or dealer must notify its designated 
examining authority at least 90 days prior to employing such storage 
media. In either case, the member, broker, or dealer must provide its 
own representation or one from the storage medium vendor or other third 
party with appropriate expertise that the selected storage media meets 
the conditions set forth in this paragraph (f)(2).
    (ii) The electronic storage media must:
    (A) Preserve the records exclusively in a non-rewriteable, non-
erasable format;
    (B) Verify automatically the quality and accuracy of the storage 
media recording process;
    (C) Serialize the original and, if applicable, duplicate units of 
storage media, and time-date for the required period of retention the 
information placed on such electronic storage media; and
    (D) Have the capacity to readily download indexes and records 
preserved on the electronic storage media to any

[[Page 420]]

medium acceptable under this paragraph (f) as required by the Commission 
or the self-regulatory organizations of which the member, broker, or 
dealer is a member.
    (3) If a member, broker, or dealer uses micrographic media or 
electronic storage media, it shall:
    (i) At all times have available, for examination by the staffs of 
the Commission and self-regulatory organizations of which it is a 
member, facilities for immediate, easily readable projection or 
production of micrographic media or electronic storage media images and 
for producing easily readable images.
    (ii) Be ready at all times to provide, and immediately provide, any 
facsimile enlargement which the staffs of the Commission, any self-
regulatory organization of which it is a member, or any State securities 
regulator having jurisdiction over the member, broker or dealer may 
request.
    (iii) Store separately from the original, a duplicate copy of the 
record stored on any medium acceptable under Sec. 240.17a-4 for the 
time required.
    (iv) Organize and index accurately all information maintained on 
both original and any duplicate storage media.
    (A) At all times, a member, broker, or dealer must be able to have 
such indexes available for examination by the staffs of the Commission 
and the self- regulatory organizations of which the broker or dealer is 
a member.
    (B) Each index must be duplicated and the duplicate copies must be 
stored separately from the original copy of each index.
    (C) Original and duplicate indexes must be preserved for the time 
required for the indexed records.
    (v) The member, broker, or dealer must have in place an audit system 
providing for accountability regarding inputting of records required to 
be maintained and preserved pursuant to Sec. Sec. 240.17a-3 and 
240.17a-4 to electronic storage media and inputting of any changes made 
to every original and duplicate record maintained and preserved thereby.
    (A) At all times, a member, broker, or dealer must be able to have 
the results of such audit system available for examination by the staffs 
of the Commission and the self-regulatory organizations of which the 
broker or dealer is a member.
    (B) The audit results must be preserved for the time required for 
the audited records.
    (vi) The member, broker, or dealer must maintain, keep current, and 
provide promptly upon request by the staffs of the Commission or the 
self-regulatory organizations of which the member, broker, or broker-
dealer is a member all information necessary to access records and 
indexes stored on the electronic storage media; or place in escrow and 
keep current a copy of the physical and logical file format of the 
electronic storage media, the field format of all different information 
types written on the electronic storage media and the source code, 
together with the appropriate documentation and information necessary to 
access records and indexes.
    (vii) For every member, broker, or dealer exclusively using 
electronic storage media for some or all of its record preservation 
under this section, at least one third party (``the undersigned''), who 
has access to and the ability to download information from the member's, 
broker's, or dealer's electronic storage media to any acceptable medium 
under this section, shall file with the designated examining authority 
for the member, broker, or dealer the following undertakings with 
respect to such records:

    The undersigned hereby undertakes to furnish promptly to the U.S. 
Securities and Exchange Commission (``Commission''), its designees or 
representatives, any self-regulatory organization of which it is a 
member, or any State securities regulator having jurisdiction over the 
member, broker or dealer, upon reasonable request, such information as 
is deemed necessary by the staffs of the Commission, any self-regulatory 
organization of which it is a member, or any State securities regulator 
having jurisdiction over the member, broker or dealer to download 
information kept on the broker's or dealer's electronic storage media to 
any medium acceptable under Rule 17a-4.
    Furthermore, the undersigned hereby undertakes to take reasonable 
steps to provide access to information contained on the broker's or 
dealer's electronic storage media, including, as appropriate, 
arrangements for the downloading of any record required to be maintained 
and preserved by the broker or dealer pursuant to Rules 17a-3 and 17a-4

[[Page 421]]

under the Securities Exchange Act of 1934 in a format acceptable to the 
staffs of the Commission, any self-regulatory organization of which it 
is a member, or any State securities regulator having jurisdiction over 
the member, broker or dealer. Such arrangements will provide 
specifically that in the event of a failure on the part of a broker or 
dealer to download the record into a readable format and after 
reasonable notice to the broker or dealer, upon being provided with the 
appropriate electronic storage medium, the undersigned will undertake to 
do so, as the staffs of the Commission, any self-regulatory organization 
of which it is a member, or any State securities regulator having 
jurisdiction over the member, broker or dealer may request.

    (g) If a person who has been subject to Sec. 240.17a-3 ceases to 
transact a business in securities directly with others than members of a 
national securities exchange, or ceases to transact a business in 
securities through the medium of a member of a national securities 
exchange, or ceases to be registered pursuant to section 15 of the 
Securities Exchange Act of 1934 as amended (48 Stat. 895, 49 Stat. 1377; 
15 U.S.C. 78o), such person shall, for the remainder of the periods of 
time specified in this section, continue to preserve the records which 
he theretofore preserved pursuant to this section.
    (h) For purposes of transactions in municipal securities by 
municipal securities brokers and municipal securities dealers, 
compliance with Rule G-9 of the Municipal Securities Rulemaking Board 
will be deemed to be in compliance with this section.
    (i) If the records required to be maintained and preserved pursuant 
to the provisions of Sec. Sec. 240.17a-3 and 240.17a-4 are prepared or 
maintained by an outside service bureau, depository, bank which does not 
operate pursuant to Sec. 240.17a-3(b)(2), or other recordkeeping 
service on behalf of the member, broker or dealer required to maintain 
and preserve such records, such outside entity shall file with the 
Commission a written undertaking in form acceptable to the Commission, 
signed by a duly authorized person, to the effect that such records are 
the property of the member, broker or dealer required to maintain and 
preserve such records and will be surrendered promptly on request of the 
member, broker or dealer and including the following provision:

    With respect to any books and records maintained or preserved on 
behalf of [BD], the undersigned hereby undertakes to permit examination 
of such books and records at any time or from time to time during 
business hours by representatives or designees of the Securities and 
Exchange Commission, and to promptly furnish to said Commission or its 
designee true, correct, complete and current hard copy of any or all or 
any part of such books and records.


Agreement with an outside entity shall not relieve such member, broker 
or dealer from the responsibility to prepare and maintain records as 
specified in this section or in Sec. 240.17a-3.
    (j) Every member, broker and dealer subject to this section shall 
furnish promptly to a representative of the Commission legible, true, 
complete, and current copies of those records of the member, broker or 
dealer that are required to be preserved under this section, or any 
other records of the member, broker or dealer subject to examination 
under section 17(b) of the Act (15 U.S.C. 78q(b)) that are requested by 
the representative of the Commission.
    (k) Exchanges of futures for physical.
    (1) Except as provided in paragraph (k)(2) of this section, upon 
request of any designee or representative of the Commission or of any 
self-regulatory organization of which it is a member, every member, 
broker or dealer subject to this section shall request and obtain from 
its customers documentation regarding an exchange of security futures 
products for physical securities, including documentation of underlying 
cash transactions and exchanges. Upon receipt of such documentation, the 
member, broker or dealer shall promptly provide that documentation to 
the requesting designee or representative.
    (2) This paragraph (k) does not apply to an underlying cash 
transaction(s) or exchange(s) that was effected through a member, broker 
or dealer registered with the Commission and is of a type required to be 
recorded pursuant to Sec. 240.17a-3.
    (l) Records for the most recent two year period required to be made 
pursuant to Sec. 240.17a-3(g) and paragraphs (b)(4) and (e)(7) of this 
section which relate to an office shall be maintained at the office to 
which they relate. If an office is a private residence where only

[[Page 422]]

one associated person (or multiple associated persons who reside at that 
location and are members of the same immediate family) regularly 
conducts business, and it is not held out to the public as an office nor 
are funds or securities of any customer of the member, broker or dealer 
handled there, the member, broker or dealer need not maintain records at 
that office, but the records must be maintained at another location 
within the same State as the member, broker or dealer may select. Rather 
than maintain the records at each office, the member, broker or dealer 
may choose to produce the records promptly at the request of a 
representative of a securities regulatory authority at the office to 
which they relate or at another location agreed to by the 
representative.
    (m) When used in this section:
    (1) The term office shall have the meaning set forth in Sec. 
240.17a-3(h)(1).
    (2) The term principal shall have the meaning set forth in Sec. 
240.17a-3(h)(2).
    (3) The term securities regulatory authority shall have the meaning 
set forth in Sec. 240.17a-3(h)(3).
    (4) The term associated person shall have the meaning set forth in 
Sec. 240.17a-3(h)(4).

    Cross Reference: For interpretative releases applicable to Sec. 
240.17a-4, see No. 3040 and No. 8024 in tabulation, part 241 of this 
chapter.

[13 FR 8212, Dec. 22, 1948]

    Editorial Note: For Federal Register citations affecting Sec. 
240.17a-4, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 240.17a-5  Reports to be made by certain brokers and dealers.

    (a) Filing of monthly and quarterly reports. (1) This paragraph (a) 
shall apply to every broker or dealer registered pursuant to section 15 
of the Act.
    (2)(i) Every broker or dealer subject to this paragraph (a) who 
clears or carries customer accounts shall file Part I of Form X-17A-5 
(Sec. 249.617 of this chapter) within 10 business days after the end of 
each month.
    (ii) Every broker or dealer subject to this paragraph (a) who clears 
transactions or carries customer accounts shall file Part II of Form X-
17A-5 (Sec. 249.617 of this chapter) within 17 business days after the 
end of the calendar quarter and within 17 business days after the date 
selected for the annual audit of financial statements where said date is 
other than a calendar quarter. Certain of such brokers or dealers shall 
file Part IIA in lieu thereof if the nature of their business is limited 
as described in the instructions to Part II of Form X-17A-5 (Sec. 
249.617 of this chapter).
    (iii) Every broker or dealer who does not carry nor clear 
transactions nor carry customer accounts shall file Part IIA of Form X-
17A-5 (Sec. 249.617 of this chapter) within 17 business days after the 
end of each calendar quarter and within 17 business days after the date 
selected for the annual audit of financial statements where said date is 
other than the end of the calendar quarter.
    (iv) Upon receiving written notice from the Commission or the 
examining authority designated pursuant to section 17(d) of the Act, a 
broker or dealer who receives such notice shall file monthly, or at such 
times as shall be specified, Part II or Part IIA of Form X-17A-5 (Sec. 
249.617 of this chapter) and such other financial or operational 
information as shall be required by the Commission or the designated 
examining authority.
    (3) The reports provided for in this paragraph (a) shall be 
considered filed when received at the Commission's principal office in 
Washington, DC, and the regional or district office of the Commission 
for the region or district in which the broker or dealer has its 
principal place of business. All reports filed pursuant to this 
paragraph (a) shall be deemed to be confidential.
    (4) The provisions of paragraphs (a)(2) and (3) of this section 
shall not apply to a member of a national securities exchange or a 
registered national securities association if said exchange or 
association maintains records containing the information required by 
Part I, Part II or Part IIA of Form X-17A-5 (Sec. 249.617 of this 
chapter), as to such member, and transmits to the Commission a copy of 
the applicable parts of Form X-17A-5 (Sec. 249.617 of this chapter) as 
to such member, pursuant

[[Page 423]]

to a plan, the procedures and provisions of which have been submitted to 
and declared effective by the Commission. Any such plan filed by a 
national securities exchange or a registered national securities 
association may provide that when a member is also a member of one or 
more national securities exchanges, or of one or more national 
securities exchanges and a registered national securities association, 
the information required to be submitted with respect to any such member 
may be submitted by only one specified national securities exchange or 
registered national securities association. For the purposes of this 
section, a plan filed with the Commission by a national securities 
exchange or a registered national securities association shall not 
become effective unless the Commission, having due regard for the 
fulfillment of the Commission's duties and responsibilities under the 
provisions of the Act, declares the plan to be effective. Further, the 
Commission, in declaring any such plan effective, may impose such terms 
and conditions relating to the provisions of the plan and the period of 
its effectiveness as may be deemed necessary or appropriate in the 
public interest, for the protection of investors, or to carry out the 
Commission's duties and responsibilities under the Act.
    (5) Upon written application by a broker or dealer to its designated 
examining authority, the designated examining authority may extend the 
time for filing the information required by this paragraph (a). The 
designated examining authority for the broker or dealer shall maintain, 
in the manner prescribed in Sec. 240.17a-1, a record of each extension 
granted.
    (b) Report filed upon termination of membership interest. (1) If a 
broker or dealer holding any membership interest in a national 
securities exchange or registered national securities association ceases 
to be a member in good standing of such exchange or association, such 
broker or dealer shall, within two business days after such event, file 
with the Commission Part II or Part IIA of Form X-17A-5 (Sec. 249.617 
of this chapter) as determined by the standards set forth in paragraphs 
(a)(2) (ii) and (iii) of this section as of the date of such event. The 
report shall be filed at the Commission's principal office in 
Washington, DC, and with the regional or district office of the 
Commission for the region or district in which the broker or dealer has 
its principal place of business: Provided, however, That such report 
need not be made or filed if the Commission, upon written request or 
upon its own motion, exempts such broker or dealer, either 
unconditionally or on specified terms and conditions, from such 
requirement: Provided, further, That the Commission may, upon request of 
the broker or dealer, grant extensions of time for filing the report 
specified herein for good cause shown.
    (2) Attached to the report required by paragraph (b)(1) of this 
section shall be an oath or affirmation that to the best knowledge and 
belief of the individual making such oath or affirmation the information 
contained in the report is true and correct. The oath or affirmation 
shall be made before a person duly authorized to administer such oath or 
affirmation. If the broker or dealer is a sole proprietorship, the oath 
or affirmation shall be made by the proprietor; if a partnership, by a 
general partner; or if a corporation by the chief executive officer, or, 
in his absence, by the person authorized to act in his place.
    (3) For the purposes of this paragraph (b) ``membership interest'' 
shall include the following: full membership, allied membership, 
associated membership, floor privileges, and any other interest that 
entitles a broker or dealer to the exercise of any privilege on an 
exchange or with an association.
    (4) For the purposes of this paragraph (b), any broker or dealer 
shall be deemed to have ceased to be a member in good standing of such 
exchange or association when he has resigned, withdrawn, or been 
suspended or expelled from a membership interest in such exchange or 
association, or has directly or through any associated person sold or 
entered into an agreement for the sale of a membership interest which 
would on consummation thereof result in the termination of the broker's 
or dealer's membership interest in such exchange or association.

[[Page 424]]

    (5) Whenever any national securities exchange or registered national 
securities association takes any action which causes any broker or 
dealer which is a member of such exchange or association to cease to be 
a member in good standing of such exchange or association or when such 
exchange or association learns of any action by such member of any other 
person which causes such broker or dealer to cease to be a member in 
good standing of such exchange or association, such exchange or 
associaton shall report such action promptly to the Commission, 
furnishing information as to the circumstances surrounding the event, 
and shall send a copy of such notification to the broker or dealer and 
notify such broker or dealer of its responsibilities under this 
paragraph (b).
    (6) One copy of the annual audit report shall be filed at the 
regional office of the Commission for the region in which the broker or 
dealer has its principal place of business and the principal office of 
the designated examining authority for said broker or dealer. Two copies 
of said report shall be filed at the Commission's principal office in 
Washington, DC. Copies thereof shall be provided to all self-regulatory 
organizations of which said broker or dealer is a member.
    (c) Customer Statements--(1) Who must furnish the statements. Every 
broker or dealer shall file with the Commission at its principal office 
in Washington, DC, with the regional or district office of the 
Commission for the region or district in which the broker or dealer has 
its principal place of business, and with each national securities 
exchange and registered national securities association of which it is a 
member, and shall send to its customers the statements prescribed by 
paragraphs (c) (2) and (3) of this section, except as provided in 
paragraph (c)(5) of this section or if the activities of such broker or 
dealer are limited to any one or combination of the following and are 
conducted in the manner prescribed herein:
    (i) As introducing broker or dealer, the forwarding of all the 
transactions of his customers to a clearing broker or dealer on a fully 
disclosed basis: Provided, That such clearing broker or dealer reflects 
such transactions on its books and records in accounts it carries in the 
names of such customers and that the introducing broker or dealer does 
not hold funds or securities for, or owe funds or securities to, 
customers other than funds and securities promptly forwarded to the 
clearing broker or dealer or to customers;
    (ii) The prompt forwarding of subscriptions for securities to the 
issuer, underwriter or other distributor of such securities and of 
receiving checks, drafts, notes, or other evidences of indebtedness 
payable solely to the issuer, underwriter or other distributor who 
delivers the security directly to the subscriber or to a custodian bank, 
if the broker or dealer does not otherwise hold funds or securities for, 
or owe money or securities to, customers;
    (iii) The sale and redemption of redeemable shares of registered 
investment companies or the solicitation of share accounts of savings 
and loan associations in the manner contemplated by the $2,500 minimum 
net capital requirement of Sec. 240.15c3-1 or the offering to extend 
any credit to or participate in arranging a loan for a customer to 
purchase insurance in connection with the sale of redeemable shares of 
registered investment companies; or
    (iv) Conduct which would exempt the broker or dealer from the 
provisions of Sec. 240.17a-13 by reason of the provisions of paragraph 
(a) of that section.
    (2) Audited statements to be furnished. Audited statements shall be 
furnished within 105 days after the date of the audited financial 
statements required by paragraph (d) of this section. The statements may 
be furnished 30 days after that time limit has expired if the broker or 
dealer sends them with the next mailing of the broker's or dealer's 
quarterly customer statements of account. In that case, the broker or 
dealer must include a statement in that mailing of the amount of the 
broker's or dealer's net capital and its required net capital in 
accordance with Sec. 240.15c3-1, as of a fiscal month end that is 
within the 75-day period immediately preceding the date the statements 
are sent to customers. The audited statements shall include the 
following:

[[Page 425]]

    (i) A balance sheet with appropriate notes prepared in accordance 
with generally accepted accounting principles which shall be audited if 
the financial statements furnished in accordance with paragraph (d) of 
this section are required to be certified;
    (ii) A footnote containing a statement of the amount of the broker's 
or dealer's net capital and its required net capital, computed in 
accordance with Sec. 240.15c3-1. Such statement shall include summary 
financial statements of subsidiaries consolidated pursuant to Appendix C 
of Sec. 240.15c3-1, where material, and the effect thereof on the net 
capital and required net capital of the broker or dealer;
    (iii) If in connection with the most recent annual audit report 
pursuant to Sec. 240.17a-5, the independent accountant commented on any 
material inadequacies in accordance with paragraphs (g) and (h) of this 
section, and Sec. 240.17a-11(e), there shall be a statement by the 
broker or dealer that a copy of such report and comments is currently 
available for the customer's inspection at the principal office of the 
Commission in Washington, DC, and the regional or district office of the 
Commission for the region or district in which the broker or dealer has 
its principal place of business; and
    (iv) A statement indicating that the Statement of Financial 
Condition of the most recent annual audit report of the broker or dealer 
pursuant to Sec. 240.17a-5 is available for examination at the 
principal office of the broker or dealer and at the regional or district 
office of the Commission for the region or district in which the broker 
or dealer has its principal place of business.
    (3) Unaudited statements to be furnished. Unaudited statements dated 
6 months from the date of the audited statements required to be 
furnished by paragraphs (c)(1) and (2) of this section shall be 
furnished within 65 days after the date of the unaudited statements. The 
unaudited statements may be furnished 70 days after that time limit has 
expired if the broker or dealer sends them with the next mailing of the 
broker's or dealer's quarterly customer statements of account. In that 
case, the broker or dealer must include a statement in that mailing of 
the amount of the broker's or dealer's net capital and its required net 
capital in accordance with Sec. 240.15c3-1, as of a fiscal month end 
that is within the 75-day period immediately preceding the date the 
statements are sent to customers. The unaudited statements shall contain 
the information specified in paragraphs (c)(2)(i) and (ii) of this 
section.
    (4) Definition of ``customer.'' For purposes of this paragraph (c), 
the term ``customer'' includes any person other than:
    (i) Another broker or dealer who is exempted by paragraph (c)(1) of 
this section;
    (ii) A general, special or limited partner or director or officer of 
a broker or dealer; or
    (iii) Any person to the extent that such person has a claim for 
property or funds which by contract, agreement or understanding, or by 
operation of law, is part of the capital of the broker or dealer or is 
subordinated to the claims of creditors of the broker or dealer, for or 
with whom a broker or dealer has effected a securities transaction in a 
particular month, which month shall be either the month preceding the 
balance sheet date or the month following the balance sheet date in 
which the statement is sent.

The term ``customer'' also includes any person for whom the broker or 
dealer holds securities for safekeeping or as collateral or for whom the 
broker or dealer carries a free credit balance in the month in which 
customers are determined for purposes of this paragraph (c).
    (5) Exemption from sending certain financial information to 
customers. A broker or dealer is not required to send to its customers 
the statements prescribed by paragraphs (c)(2) and (c)(3) of this 
section if the following conditions are met:
    (i) The broker or dealer semi-annually sends its customers, at the 
times it otherwise is required to send its customers the statements 
prescribed by paragraphs (c)(2) and (c)(3) of this section, a financial 
disclosure statement that includes:
    (A) The amount of the broker's or dealer's net capital and its 
required net capital in accordance with Sec. 240.15c3-1,

[[Page 426]]

as of the date of the statements prescribed by paragraphs (c)(2) and 
(c)(3) of this section;
    (B) To the extent required under paragraph (c)(2)(ii) of this 
section, a description of the effect on the broker's or dealer's net 
capital and required net capital of the consolidation of the assets and 
liabilities of subsidiaries or affiliates consolidated pursuant to 
Appendix C of Sec. 240.15c3-1; and
    (C) Any statements otherwise required by paragraphs (c)(2)(iii) and 
(iv) of this section.
    (ii) The financial disclosure statement is given prominence in the 
materials delivered to customers of the broker or dealer and includes an 
appropriate caption stating that customers may obtain the statements 
prescribed by paragraphs (c)(2) and (c)(3) of this section, at no cost, 
by:
    (A) Accessing the broker's or dealer's Web site at the specified 
Internet Uniform Resource Locator (URL); or
    (B) Calling the broker's or dealer's specified toll-free telephone 
number.
    (iii) Not later than 90 days after the date of the audited 
statements prescribed by paragraph (c)(2) of this section and not later 
than 75 days after the date of the unaudited statements prescribed by 
paragraph (c)(3) of this section, the broker or dealer publishes the 
statements on its Web site, accessible by hyperlinks in either textual 
or button format, which are separate, prominent links, are clearly 
visible, and are placed in each of the following locations:
    (A) On the broker's or dealer's Web site home page; and
    (B) On each page at which a customer can enter or log on to the 
broker's or dealer's Web site; and
    (C) If the Web sites for two or more brokers or dealers can be 
accessed from the same Home page, on the Home page of the Web site of 
each broker or dealer.
    (iv) The broker or dealer maintains a toll-free telephone number 
that customers can call to request a copy of the statements prescribed 
by paragraphs (c)(2) and (c)(3) of this section.
    (v) If a customer requests a copy of the statements prescribed by 
paragraphs (c)(2) and (c)(3) of this section, the broker or dealer sends 
it promptly at no cost to the customer.
    (vi) During the year prior to the date of the statements prescribed 
by paragraphs (c)(2) and (c)(3) of this section, the broker or dealer 
was not required by paragraph (e) of Sec. 240.17a-11 to give notice and 
transmit a report to the Commission.
    (d) Annual filing of audited financial statements. (1)(i) Every 
broker or dealer registered pursuant to section 15 of the Act shall file 
annually, on a calendar or fiscal year basis, a report which shall be 
audited by an independent public accountant. Reports pursuant to this 
paragraph (d) shall be as of the same fixed or determinable date each 
year, unless a change is approved in writing by the designated examining 
authority for the broker or dealer. A copy of such written approval 
should be sent to the regional or district office of the Commission for 
the region or district in which the broker or dealer has its principal 
place of business.
    (ii) A broker or dealer succeeding to and continuing the business of 
another broker or dealer need not file a report under this paragraph as 
of a date in the fiscal or calendar year in which the succession occurs 
if the predecessor broker or dealer has filed a report in compliance 
with this paragraph as of a date in such fiscal or calendar year.
    (iii) A broker or dealer which is a member of a national securities 
exchange and has transacted a business in securities solely with or for 
other members of a national securities exchange, and has not carried any 
margin account, credit balance or security for any person who is defined 
as a ``customer'' in paragraph (c)(4) of this section, shall not be 
required to file a report under this paragraph.
    (2) The annual audited report shall contain a Statement of Financial 
Condition (in a format and on a basis which is consistent with the total 
reported on the Statement of Financial Condition contained in Form X-
17A-5 (Sec. 249.617 of this chapter) Part II or IIA), a Statement of 
Income, a Statement of Cash Flows, a Statement of Changes in 
Stockholders' or Partners' or Sole Proprietor's Equity, and Statement of 
Changes in Liabilities Subordinated to Claims of General Creditors.

[[Page 427]]

Such statements shall be in a format which is consistent with such 
statements as contained in Form X-17A-5 (Sec. 249.617 of this chapter) 
Part II or Part IIA. If the Statement of Financial Condition filed in 
accordance with instructions to Form X-17A-5, Part II or Part IIA, is 
not consolidated, a summary of financial data, including the assets, 
liabilities, and net worth or stockholders' equity, for subsidiaries not 
consolidated in the Part II or Part IIA Statement of Financial Condition 
as filed by the broker or dealer should be included in the notes to the 
consolidated statement of financial condition reported on by the 
independent public accountant.
    (3) Supporting schedules shall include, from Part II or Part IIA of 
Form X-17A-5 (Sec. 249.617 of this chapter) a Computation of Net 
Capital Under Sec. 240.15c3-1, a Computation for Determination of the 
Reserve Requirements under Exhibit A of Sec. 240.15c3-3 and Information 
Relating to the Possession or Control Requirements Under Sec. 240.15c3-
3 and shall be filed with said report.
    (4) A reconciliation, including appropriate explanations, of the 
Computation of Net Capital under Sec. 240.15c3-1 and the Computation 
for Determination of the Reserve Requirements Under Exhibit A of Sec. 
240.15c3-3 in the audit report with the broker's or dealer's 
corresponding unaudited most recent Part II or Part IIA filing shall be 
filed with said report when material differences exist. If no material 
differences exist, a statement so indicating shall be filed.
    (5) The annual audit report shall be filed not more than sixty (60) 
days after the date of the financial statements.
    (6) The annual audit report shall be filed at the regional or 
district office of the Commission for the region or district in which 
the broker or dealer has its principal place of business, the 
Commission's principal office in Washington, DC, and the principal 
office of the designated examining authority for said broker or dealer. 
Copies thereof shall be provided to all self-regulatory organizations of 
which said broker or dealer is a member.
    (e) Nature and form of reports. The financial statements filed 
pursuant to paragraph (d) of this section shall be prepared and filed in 
accordance with the following requirements:
    (1)(i) An audit shall be conducted by a public accountant who shall 
be in fact independent as defined in paragraph (f)(3) of this section 
herein, and he shall give an opinion covering the statements filed 
pursuant to paragraph (d): Provided, however, That the financial 
statements filed pursuant to paragraph (d) of this section need not be 
audited if, since the date of the previous financial statements of the 
report filed pursuant to Sec. 240.15b1-2 or this section:
    (A) The securities business of such broker or dealer has been 
limited to acting as broker (agent) for the issuer in soliciting 
subscriptions for securities of such issuer, said broker has promptly 
transmitted to such issuer all funds and promptly delivered to the 
subscriber all securities received in connection therewith, and said 
broker has not otherwise held funds or securities for or owed money or 
securities to customers; or
    (B) Its securities business has been limited to buying and selling 
evidences of indebtedness secured by mortgage, deed or trust, or other 
lien upon real estate or leasehold interests, and said broker or dealer 
has not carried any margin account, credit balance or security for any 
securities customer.
    (ii) A broker or dealer who files a report which is not covered by 
an accountant's opinion shall include in the oath or affirmation 
required by paragraph (e)(2) of this section a statement of the facts 
and circumstances relied upon as a basis for exemption from the 
requirement that financial statements and schedules filed pursuant to 
paragraph (d) of this section be covered by the opinion of an 
accountant.
    (2) Attached to the report shall be an oath or affirmation that, to 
the best knowledge and belief of the person making such oath or 
affirmation, (i) the financial statements and schedules are true and 
correct and (ii) neither the broker or dealer, nor any partner, officer, 
or director, as the case may be has any proprietary interest in any 
account classified solely as that of a customer. The oath or affirmation 
shall be

[[Page 428]]

made before a person duly authorized to administer such oaths or 
affirmations. If the broker or dealer is a sole proprietorship, the oath 
or affirmation shall be made by the proprietor; if a partnership, by a 
general partner; or if a corporation, by a duly authorized officer.
    (3) All of the statements filed pursuant to paragraph (d) of this 
section shall be public, except that, if the Statement of Financial 
Condition in a format which is consistent with Form X-17A-5 (Sec. 
249.617 of this chapter), Part II or Part IIA, is bound separately from 
the balance of the annual audited financial statements filed pursuant to 
paragraph (d)(1) of this section, the balance of the annual audited 
financial statements shall be deemed confidential, except that they 
shall be available for official use by any official or employee of the 
United States or any State, by national securities exchanges and 
registered national securities associations of which the person filing 
such a report is a member, and by any other person to whom the 
Commission authorizes disclosure of such information as being in the 
public interest. Nothing contained in this paragraph (3) shall be deemed 
to be in derogation of the rules of any registered national securities 
association or national securities exchange which give to customers of a 
member broker or dealer the right, upon request to such member broker or 
dealer, to obtain information relative to its financial condition.
    (4) The broker or dealer shall file with the report a supplemental 
report which shall be covered by an opinion of the independent public 
accountant on the status of the membership of the broker or dealer in 
the Securities Investor Protection Corporation (``SIPC'') if, pursuant 
to paragraph (e)(1) of this section, a report of the broker or dealer is 
required to be covered by an opinion of a certified public accountant or 
a public accountant who is in fact independent. The supplemental report 
shall cover the SIPC annual general assessment reconciliation or 
exclusion from membership forms not previously reported on under this 
paragraph (e)(4) which were required to be filed on or prior to the date 
of the report required by paragraph (d) of this section: Provided, That 
the broker or dealer need not file the supplemental report on the SIPC 
annual general assessment reconciliation or exclusion from membership 
form for any period during which the SIPC assessment is a minimum 
assessment as provided for in section 4(d)(1)(c) of the Securities 
Investor Protection Act of 1970, as amended. The supplemental report, an 
original of which shall be submitted to the regional or district office 
of the Commission for the region or district in which the broker or 
dealer has its principal place of business, the Commission's principal 
office in Washington, the principal office of the designated examining 
authority for such broker or dealer and the office of SIPC, shall be 
bound separately, be dated and be signed manually, and shall include the 
following:
    (i) A schedule of assessment payments also showing any overpayments 
applied and overpayments carried forward including: payment dates, 
amounts, and name of SIPC collection agent to whom mailed, or
    (ii) If exclusion from membership was claimed, a statement that the 
broker or dealer qualified for exclusion from membership under the 
Securities Investor Protection Act of 1970, and the date and name of the 
SIPC collection agent with whom a Certification of Exclusion from 
Membership (Form SIPC-3) was filed, and
    (iii) An accountant's report which shall state that in the 
accountant's opinion either the assessments were determined fairly in 
accordance with applicable instructions and forms, or that a claim for 
exclusion from membership was consistent with income reported. If 
exceptions are noted, the accountant shall state any corrective action 
taken or proposed. The accountant's review on which his report is based 
shall include as a minimum the following procedures:
    (A) Comparison of listed assessment payments with respective cash 
disbursements record entries;
    (B) For all or any portion of a fiscal year ending in 1976 and each 
fiscal year thereafter, comparison of amounts reflected in the annual 
report as required by paragraph (d) of this section, with

[[Page 429]]

amounts reported in the Annual General Assessment Reconciliation (Form 
SIPC-7);
    (C) Comparison of adjustments reported in Form SIPC-7 with 
supporting schedules and working papers supporting adjustments;
    (D) Proof of arithmetical accuracy of the calculations reflected in 
Form SIPC-7 and in the schedules and working papers supporting 
adjustments; and
    (E) Comparison of the amount of any overpayment applied with the 
Form SIPC-7 on which it was computed; or
    (F) If exclusion from membership is claimed, the accountant shall 
review the annual report required by paragraph (d) of this section for 
all or any portion of a fiscal year ending in 1976 and each fiscal year 
thereafter to ascertain that the Certification of Exclusion from 
Membership (Form SIPC-7) was consistent with the income reported.
    (5)(i) For purposes of this section, the term Year 2000 Problem 
shall include problems arising from:
    (A) Computer software incorrectly reading the date ``01/01/00'' as 
being the year 1900 or another incorrect year;
    (B) Computer software incorrectly identifying a date in the Year 
1999 or any year thereafter;
    (C) Computer software failing to detect that the Year 2000 is a leap 
year; or
    (D) Any other computer software error that is directly or indirectly 
caused by the problems set forth in paragraph (e)(5)(i)(A), (B), or (C) 
of this section.
    (ii) (A) No later than August 31, 1998, every broker or dealer 
required to maintain minimum net capital pursuant to Sec. 240.15c3-
1(a)(2) of $5,000 or greater as of July 15, 1998, shall file Part I of 
Form BD-Y2K (Sec. 249.618 of this chapter) prepared as of July 15, 
1998, and no later than April 30, 1999, every broker or dealer required 
to maintain minimum net capital pursuant to Sec. 240.15c3-1(a)(2) of 
$5,000 or greater as of March 15, 1999, shall file Part I of Form BD-Y2K 
prepared as of March 15, 1999.
    (B) Every broker or dealer that registers pursuant to section 15 of 
the Act between July 16, 1998 and December 31, 1998 or between March 16, 
1999 and October 1, 1999, and that is required to maintain net capital 
pursuant to Sec. 240.15c3-1(a)(2) of $5,000 or greater, shall file Part 
I of Form BD-Y2K (Sec. 249.18 of this chapter) no later than 30 days 
after its registration becomes effective. Part I of Form BD-Y2K shall be 
prepared as of the date its registration became effective.
    (iii)(A) No later than August 31, 1998, every broker or dealer with 
a minimum net capital requirement pursuant to Sec. 240.15c3-1(a)(2) of 
$100,000 or greater as of July 15, 1998 shall file Part II of Form BD-
Y2K (Sec. 249.618 of this chapter). Part II of Form BD-Y2K shall 
address each topic in paragraph (e)(5)(iv) of this section as of July 
15, 1998.
    (B) No later than April 30, 1999, every broker or dealer with a 
minimum net capital requirement pursuant to Sec. 240.15c3-1(a)(2) of 
$100,000 or greater as of March 15, 1999 shall file Part II of Form BD-
Y2K (Sec. 249.618 of this chapter). In addition, each broker or dealer 
subject to paragraph (e)(5)(iii)(A) of this section shall file Part II 
of Form BD-Y2K pursuant to this paragraph (e)(5)(iii)(B) regardless of 
its minimum net capital requirement. Part II of Form BD-Y2K shall 
address each topic in paragraph (e)(5)(iv) of this section as of March 
15, 1999.
    (C) Every broker or dealer that registers pursuant to section 15 of 
the Act between July 15, 1998 and December 31, 1998 or between March 16, 
1999 and October 1, 1999, and that is required to maintain net capital 
pursuant to Sec. 240.15c3-1(a)(2) of $100,000 or greater, shall file 
Part II of Form BD-Y2K (Sec. 249.18 of this chapter) no later than 30 
days after registration becomes effective. Part II of Form BD-Y2K shall 
address each topic in paragraph (e)(5)(iv) of this section as of the 
effective date of its registration.
    (iv) Part II of Form BD-Y2K (Sec. 249.618 of this chapter) prepared 
pursuant to paragraph (e)(5)(iii) of this section shall identify a 
specific person or persons that are available to discuss the contents of 
the report and shall include a discussion of the following:
    (A) Whether the board of directors (or similar body) of the broker 
or dealer has approved and funded plans for preparing and testing its 
computer systems for Year 2000 Problems;

[[Page 430]]

    (B) Whether the plans of the broker or dealer exist in writing and 
address all mission critical computer systems of the broker or dealer 
wherever located throughout the world;
    (C) Whether the broker or dealer has assigned existing employees, 
hired new employees, or engaged third parties to provide assistance in 
addressing Year 2000 Problems, and if so, a description of the work that 
these groups of individuals have performed as of the date of each 
report;
    (D) The current progress of the broker or dealer on each stage of 
preparation for potential problems caused by Year 2000 Problems. These 
stages are:
    (1) Awareness of potential Year 2000 Problems;
    (2) Assessment of what steps the broker or dealer must take to 
address Year 2000 Problems;
    (3) Implementation of the steps needed to address Year 2000 
Problems;
    (4) Internal testing of software designed to address Year 2000 
Problems, including the number and a description of the material 
exceptions resulting from such testing that are unresolved as of the 
reporting date;
    (5) Point-to-point or industry-wide testing of software designed to 
address Year 2000 Problems (including testing with other brokers or 
dealers, other financial institutions, and customers), including the 
number and a description of the material exceptions resulting from such 
testing that are unresolved as of the reporting date; and
    (6) Implementation of tested software that will address Year 2000 
Problems;
    (E) Whether the broker or dealer has written contingency plans in 
the event, that after December 31, 1999, it has problems caused by Year 
2000 Problems;
    (F) What levels of management of the broker or dealer are 
responsible for addressing potential problems caused by Year 2000 
Problems, including a description of the responsibilities for each level 
of management regarding the Year 2000 Problems;
    (G) Any additional material information concerning its management of 
Year 2000 Problems that will help the Commission and the designated 
examining authorities assess the readiness of the broker or dealer for 
the Year 2000.
    (v) The broker or dealer shall file an original and two copies of 
Form BD-Y2K (Sec. 249.618 of this chapter) prepared pursuant to 
paragraph (e)(5) of this section with the Commission's principal office 
in Washington, D.C. and one copy of Form BD-Y2K with the designated 
examining authority of the broker or dealer. The reports required by 
paragraph (e)(5) of this section shall be public.
    (vi) No later than April 30, 1999, every broker or dealer required 
to file Part II of Form BD-Y2K (Sec. 249.618 of this chapter) pursuant 
to paragraph (e)(5)(iii)(B) of this section and required to file audited 
financial statements pursuant to paragraph (d) of this section shall 
file with its Form BD-Y2K an original and two copies of a report 
prepared by an independent public accountant regarding the broker's or 
dealer's process, as of March 15, 1999, for addressing Year 2000 
Problems with the Commission's principal office in Washington, DC and 
one copy of the accountant's report with the designated examining 
authority of the broker or dealer. The independent public accountant's 
report shall be prepared in accordance with standards that have been 
reviewed by the Commission and that have been issued by a national 
organization that is responsible for promulgating authoritative 
accounting and auditing standards.
    (f)(1) Qualification of accountants. The Commission will not 
recognize any person as a certified public accountant who is not duly 
registered and in good standing as such under the laws of his place of 
residence or principal office. The Commission will not recognize any 
person as a public accountant who is not in good standing and entitled 
to practice as such under the laws of his place of residence or 
principal office.
    (2) Designation of accountant. (i) Every broker or dealer which is 
required by paragraph (d) of this section to file an annual report of 
financial statements section shall file no later than December 10 of 
each year a statement with the Commission's principal office in 
Washington, DC, the regional or district office of the Commission for

[[Page 431]]

the region or district in which its principal place of business is 
located, and the principal office of the designated examining authority 
for such broker or dealer. Such statement shall indicate the existence 
of an agreement dated no later than December first, with an independent 
public accountant covering a contractual commitment to conduct the 
broker's or dealer's annual audit during the following calendar year.
    (ii) The agreement may be of a continuing nature, providing for 
successive yearly audits, in which case no further filing is required. 
If the agreement is for a single audit, or if the continuing agreement 
previously filed has been terminated or amended, a new statement must be 
filed by the required date.
    (iii) The statement shall be headed ``Notice pursuant to Rule 17a-
5(f)(2)'' and shall contain the following information:
    (A) Name, address, telephone number and registration number of the 
broker or dealer;
    (B) Name, address and telephone number of the accounting firm; and
    (C) The audit date of the broker or dealer for the year covered by 
the agreement.
    (iv) Any broker or dealer which is exempted from the requirement to 
file an annual audited report of financial statements shall nevertheless 
file the notice specified herein indicating the date as of which the 
unaudited report will be prepared.
    (v) Notwithstanding the date of filing specified in paragraph 
(f)(2)(i) of this section, every broker or dealer shall file the notice 
provided for in paragraph (f)(2) of this section within 30 days 
following the effective date of registration as a broker or dealer.
    (3) Independence of accountant. An accountant shall be independent 
in accordance with the provisions of Sec. 210.2-01 (b) and (c) of this 
chapter.
    (4) Replacement of accountant. A broker or dealer shall file a 
notice which must be received by the Commission's principal office in 
Washington, DC, the regional or district office of the Commission for 
the region or district in which its principal place of business is 
located, and the principal office of the designated examining authority 
for such broker or dealer, not more than 15 business days after:
    (i) The broker or dealer has notified the accountant whose opinion 
covered the most recent financial statements filed under paragraph (d) 
of this section that his services will not be utilized in future 
engagements; or
    (ii) The broker or dealer has notified an accountant who was engaged 
to give an opinion covering the financial statements to be filed under 
paragraph (d) of this section that the engagement has been terminated; 
or
    (iii) An accountant has notified the broker or dealer that he would 
not continue under an engagement to give an opinion covering the 
financial statements to be filed under paragraph (d) of this section; or
    (iv) A new accountant has been engaged to give an opinion covering 
the financial statements to be filed under paragraph (d) of this section 
without any notice of termination having been given to or by the 
previously engaged accountant.

Such notice shall state (A) the date of notification of the termination 
of the engagement or engagement of the new accountant as applicable and 
(B) the details of any problems existing during the 24 months (or the 
period of the engagement, if less) preceding such termination or new 
engagement relating to any matter of accounting principles or practices, 
financial statement disclosure, auditing scope or procedure, or 
compliance with applicable rules of the Commission, which problems, if 
not resolved to the satisfaction of the former accountant, would have 
caused him to make reference to them in connection with his report on 
the subject matter of the problems. The problems required to be reported 
in response to the preceding sentence include both those resolved to the 
former accountant's satisfaction and those not resolved to the former 
accountant's satisfaction. Problems contemplated by this section are 
those which occur at the decisionmaking level--i.e., between principal 
financial officers of the broker-dealer and personnel of the accounting 
firm responsible for rendering its report. The notice shall also state 
whether the accountant's report on the financial

[[Page 432]]

statements for any of the past two years contained an adverse opinion or 
a disclaimer of opinion or was qualified as to uncertainties, audit 
scope, or accounting principles, and describe the nature of each such 
adverse opinion, disclaimer of opinion, or qualification. The broker or 
dealer shall also request the former accountant to furnish the broker or 
dealer with a letter addressed to the Commission stating whether he 
agrees with the statements contained in the notice of the broker or 
dealer and, if not, stating the respects in which he does not agree. The 
broker or dealer shall file three copies of the notice and the 
accountant's letter, one copy of which shall be manually signed by the 
sole proprietor, or a general partner or a duly authorized corporate 
officer, as appropriate, and by the accountant, respectively.
    (g) Audit objectives. (1) The audit shall be made in accordance with 
generally accepted auditing standards and shall include a review of the 
accounting system, the internal accounting control and procedures for 
safeguarding securities including appropriate tests thereof for the 
period since the prior examination date. The audit shall include all 
procedures necessary under the circumstances to enable the independent 
public accountant to express an opinion on the statement of financial 
condition, results of operations, cash flow, and the Computation of Net 
Capital under Sec. 240.15c3-1, the Computation for Determination of 
reserve Requirements for Brokers or Dealers under Exhibit A of Sec. 
240.15c3-3, and Information Relating to the Possession or Control 
Requirements under Sec. 240.15c3-3. The scope of the audit and review 
of the accounting system, the internal control and procedures for 
safeguarding securities shall be sufficient to provide reasonable 
assurance that any material inadequacies existing at the date of the 
examination in (a) the accounting system; (b) the internal accounting 
controls; (c) procedures for safeguarding securities; and (d) the 
practices and procedures whose review is specifies in (i), (ii), (iii) 
and (iv) of this paragraph would be disclosed. Additionally, as specific 
objectives, the audit shall include reviews of the practices and 
procedures followed by the client;
    (i) In making the periodic computations of aggregate indebtedness 
and net capital under Sec. 240.17a-3(a)(11) and the reserve required by 
Sec. 240.15c3-3(e);
    (ii) In making the quarterly securities examinations, counts, 
verifications and comparisons and the recordation of differences 
required by Sec. 240.17a-13;
    (iii) In complying with the requirement for prompt payment for 
securities of section 4(c) of Regulation T (Sec. 220.4(c) of chapter II 
of title 12) of the Board of Governors of the Federal Reserve System; 
and
    (iv) In obtaining and maintaining physical possession or control of 
all fully paid and excess margin securities of customers as required by 
Sec. 240.15c3-3. Such review shall include a determination as to the 
adequacy of the procedures described in the records required to be 
maintained pursuant to Sec. 240.15c3-3(d)(4).
    (2) If the broker or dealer is exempt from Sec. 240.15c3-3, the 
independent public accountant shall ascertain that the conditions of the 
exemption were being complied with as of the examination date and that 
no facts came to his attention to indicate that the exemption had not 
been complied with during the period since his last examination.
    (3) A material inadequacy in the accounting system, internal 
accounting controls, procedures for safeguarding securities, and 
practices and procedures referred to in paragraph (g)(1) of this section 
which is expected to be reported under these audit objectives includes 
any condition which has contributed substantially to or, if appropriate 
corrective action is not taken, could reasonably be expected to (i) 
inhibit a broker or dealer from promptly completing securities 
transactions or promptly discharging his responsibilities to customers, 
other broker-dealers or creditors; (ii) result in material financial 
loss; (iii) result in material misstatements of the broker's or dealer's 
financial statements; or (iv) result in violations of the Commission's 
recordkeeping or financial responsibility rules to an extent that could 
reasonably be expected to result in the conditions described in 
paragraphs (g)(3) (i), (ii), or (iii) of this section.

[[Page 433]]

    (h) Extent and timing of audit procedures. (1) The extent and timing 
of audit procedures are matters for the independent public accountant to 
determine on the basis of his review and evaluation of existing internal 
controls and other audit procedures performed in accordance with 
generally accepted auditing standards and the audit objectives set forth 
in paragraph (g) of this section. In determining the extent of testing, 
consideration shall be given to the materiality of an area and the 
possible effect on the financial statements and schedules of a material 
misstatement in a related account. The performance of auditing 
procedures involves the proper synchronization of their application and 
thus comprehends the need to consider simultaneous performance of 
procedures in certain areas such as, for example, securities counts, 
transfer verification and customer and broker confirmation in connection 
with verification of securities positions.
    (2) If, during the course of the audit or interim work, the 
independent public accountant determines that any material inadequacies 
exist in the accounting system, internal accounting control, procedures 
for safeguarding securities, or as otherwise defined in paragraph (g)(3) 
of this section, then the independent public accountant shall call it to 
the attention of the chief financial officer of the broker or dealer, 
who shall have a responsibility to inform the Commission and the 
designated examining authority by telegraphic or facsimile notice within 
24 hours thereafter as set forth in Sec. 240.17a-11 (e) and (g). The 
broker or dealer shall also furnish the accountant with a copy of said 
notice to the Commission by telegram or facsimile within said 24 hour 
period. If the accountant fails to receive such notice from the broker 
or dealer within said 24 hour period, or if the accountant disagrees 
with the statements contained in the notice of the broker or dealer, the 
accountant shall have a responsibility to inform the Commission and the 
designated examining authority by report of material inadequacy within 
24 hours thereafter as set forth in Sec. 240.17a-11(g). Such report 
from the accountant shall, if the broker or dealer failed to file a 
notice, describe any material inadequacies found to exist. If the broker 
or dealer filed a notice, the accountant shall file a report detailing 
the aspects, if any, of the broker's or dealer's notice with which the 
accountant does not agree.
    (i) Accountant's reports, general provisions--(1) Technical 
requirements. The accountant's report shall:
    (i) Be dated;
    (ii) Be signed manually;
    (iii) Indicate the city and state where issued; and
    (iv) Identify without detailed enumeration the financial statements 
and schedules covered by the report.
    (2) Representations as to the audit. The accountant's report shall:
    (i) State whether the audit was made in accordance with generally 
accepted auditing standards;
    (ii) State whether the accountant reviewed the procedures followed 
for safeguarding securities; and
    (iii) Designate any auditing procedures deemed necessary by the 
accountant under the circumstances of the particular case which have 
been omitted, and the reason for their omission.

Nothing in this section shall be construed to imply authority for the 
omission of any procedure which independent accountants would ordinarily 
employ in the course of an audit made for the purpose of expressing the 
opinions required under this section.
    (3) Opinion to be expressed. The accountant's report shall state 
clearly the opinion of the accountant: (i) In respect of the financial 
statements and schedules covered by the report and the accounting 
principles and practices reflected therein; and (ii) as to the 
consistency of the application of the accounting principles, or as to 
any changes in such principles which have a material effect on the 
financial statements.
    (4) Exceptions. Any matters to which the accountant takes exception 
shall be clearly identified, the exception thereto specifically and 
clearly stated, and, to the extent practicable, the effect of each such 
exception on the related financial statements given.

[[Page 434]]

    (5) Definitions. For the purpose of this section, the terms audit 
(or examination), accountant's report, and certified shall have the 
meanings given in Sec. 210.1-02 of this chapter.
    (j) Accountant's report on material inadequacies. The broker or 
dealer shall file concurrently with the annual audit report a 
supplemental report by the accountant describing any material 
inadequacies found to exist or found to have existed since the date of 
the previous audit. The supplemental report shall indicate any 
corrective action taken or proposed by the broker or dealer in regard 
thereto. If the audit did not disclose any material inadequacies, the 
supplemental report shall so state.
    (k) Use of certain statements filed with the Securities and Exchange 
Commission. At the request of any broker or dealer who is (1) an 
investment company registered under the Investment Company Act of 1940, 
or (2) a sponsor or depositor of such a registered investment company 
who effects transactions in securities only with, or on behalf of, such 
registered investment company, the Commission will accept the financial 
statements filed pursuant to section 13 or 15(d) of the Securities 
Exchange Act of 1934 or section 30 of the Investment Company Act of 1940 
and the rules and regulations promulgated thereunder as a filing 
pursuant to paragraph (d) of this section. Such a filing shall be deemed 
to satisfy the requirements of this section for any calendar year in 
which such financial statements are filed, provided that the statements 
so filed meet the requirements of the other rules under which they are 
filed with respect to time of filing and content.
    (l) Extentions and exemptions. (1) A broker's or dealer's designated 
examining authority may extend the period under paragraph (d) of this 
section for filing annual audit reports. The designated examining 
authority for the broker or dealer shall maintain, in the manner 
prescribed in Sec. 240.17a-1, a record of each extension granted.
    (2) Any ``bank'' as defined in section 3(a)(6) of the Act (48 Stat. 
882; 15 U.S.C. 78c) and any ``insurance company'' as defined in section 
3(a)(19) of the Act (78 Stat. 565; 15 U.S.C. 78c) registered as a broker 
or dealer to sell variable contracts but exempt from Sec. 240.15c3-1 
shall be exempt from the provisions of this section.
    (3) On written request of any national securities exchange, 
registered national securities association, broker or dealer, or on its 
own motion, the Commission may grant an extension of time or an 
exemption from any of the requirements of this section either 
unconditionally or on specified terms and conditions.
    (4) The provisions of Sec. 240.17a-5 shall not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).
    (m) Notification of change of fiscal year. (1) In the event any 
broker or dealer finds it necessary to change its fiscal year, it must 
file, with the Commission's principal office in Washington, DC, the 
regional or district office of the Commission for the region or district 
in which the broker or dealer has its principal place of business and 
the principal office of the designated examining authority for such 
broker or dealer, a notice of such change.
    (2) Such notice shall contain a detailed explanation of the reasons 
for the change. Any change in the filing period for the audit report 
must be approved by the designated examining authority pursuant to 
paragraph (d)(1)(i) of this section.
    (n) Filing requirements. For purposes of filing requirements as 
described in Sec. 240.17a-5, such filing shall be deemed to have been 
accomplished upon receipt at the Commission's principal office in 
Washington, DC, with duplicate originals simultaneously filed at the 
locations prescribed in the particular paragraph of Sec. 240.17a-5 
which is applicable.
    (o) Compliance with Sec. 240.17a-12. An OTC derivatives dealer may 
comply with Sec. 240.17a-5 by complying with the provisions of Sec. 
240.17a-12.

[[Page 435]]


    Cross Reference: For interpretative release applicable to Sec. 
240.17a-5, see No. 51 in tabulation, part 211 of this chapter.

[40 FR 59713, Dec. 30, 1975, as amended at 41 FR 5275, Feb. 5, 1976; 41 
FR 12638, Mar. 26, 1976; 42 FR 23787, May 10, 1977; 44 FR 1975, Jan. 9, 
1979; 45 FR 39842, June 12, 1980; 46 FR 13206, Feb. 20, 1981; 46 FR 
35635, July 10, 1981; 57 FR 45294, Oct. 1, 1992; 58 FR 37657, July 13, 
1993; 58 FR 45839, 45840, Aug. 31, 1993; 59 FR 5945, Feb. 9, 1994; 63 FR 
37673, July 13, 1998; 63 FR 59213, 59401, Nov. 3, 1998; 67 FR 58300, 
Sept. 13, 2002; 68 FR 46453, Aug. 6, 2003]



Sec. 240.17a-6  Right of national securities exchange, national securities 

association, registered clearing agency or the Municipal Securities 
Rulemaking Board to destroy or dispose of documents.

    (a) Any document kept by or on file with a national securities 
exchange, national securities association, registered clearing agency or 
the Municipal Securities Rulemaking Board pursuant to the Act or any 
rule or regulation thereunder may be destroyed or otherwise disposed of 
by such exchange, association, clearing agency or the Municipal 
Securities Rulemaking Board at the end of five years or at such earlier 
date as is specified in a plan for the destruction or disposition of any 
such documents if such plan has been filed with the Commission by such 
exchange, association, clearing agency or the Municipal Securities 
Rulemaking Board and has been declared effective by the Commission.
    (b) Such plan may provide that any such document may be transferred 
to microfilm or other recording medium after such time as specified in 
the plan and thereafter be maintained and preserved in that form. If a 
national securities exchange, association, clearing agency or the 
Municipal Securities Rulemaking Board uses microfilm or other recording 
medium it shall:
    (1) Be ready at all times to provide, and immediately provide, 
easily readable projection of the microfilm or other recording medium 
and easily readable hard copy thereof;
    (2) Provide indexes permitting the immediate location of any such 
document on the microfilm or other recording medium; and
    (3) In the case of microfilm, store a duplicate copy of the 
microfilm separately from the original microfilm for the time required.
    (c) For the purposes of this rule a plan filed with the Commission 
by a national securities exchange, association, clearing agency or the 
Municipal Securities Rulemaking Board shall not become effective unless 
the Commission, having due regard for the public interest and for the 
protection of investors, declares the plan to be effective. The 
Commission in its declaration may limit the applications, reports, and 
documents as to which it shall apply, and may impose any other terms and 
conditions to the plan and to the period of its effectiveness which it 
deems necessary or appropriate in the public interest or for the 
protection of investors.

[45 FR 79426, Dec. 1, 1980]



Sec. 240.17a-7  Records of non-resident brokers and dealers.

    (a)(1) Except as provided in paragraphs (b) and (c) of this section, 
each non-resident broker or dealer registered or applying for 
registration pursuant to section 15 of the Securities Exchange Act of 
1934, as amended, shall keep, maintain, and preserve, at a place within 
the United States designated in a notice from him as provided in 
paragraph (a)(2) of this section, true, correct, complete and current 
copies of the books and records which he is required to make, keep 
current, maintain or preserve pursuant to any provision of any rule or 
regulation of the Commission adopted under the act.
    (2) Except as provided in paragraph (b) of this section, each non-
resident broker or dealer subject to this section shall furnish to the 
Commission a written notice specifying the address of the place within 
the United States where the copies of the books and records required to 
be kept and preserved by him pursuant to paragraph (a)(1) of this 
section are located. Each non-resident broker or dealer registered or 
applying for registration when this section becomes effective shall file 
such notice within 30 days after such rule becomes effective. Each non-
resident broker or

[[Page 436]]

dealer who files an application for registration after this section 
becomes effective shall file such notice with such application for 
registration.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
a non-resident broker or dealer subject to this section need not keep or 
preserve within the United States copies of the books and records 
referred to in said paragraph (a) of this section, if:
    (1) Such broker or dealer files with the Commission, at the time or 
within the period provided by paragraph (a)(2) of this section, a 
written undertaking in form acceptable to the Commission and signed by a 
person thereunto duly authorized, to furnish to the Commission, upon 
demand, at its principal office in Washington, DC, or at any Regional or 
District Office of the Commission designated in such demand, true, 
correct, complete and current copies of any or all of the books and 
records which he is required to make, keep current, maintain, or 
preserve pursuant to any provision of any rule or regulation of the 
Commission adopted under the act, or any part of such books and records 
which may be specified in such demand. Such undertaking shall be in 
substantially the following form:

    The undersigned hereby undertakes to furnish at his own expense to 
the Securities and Exchange Commission at its principal office in 
Washington, DC, or at any Regional or District Office of said Commission 
specified in a demand for copies of books and records made by or on 
behalf of said Commission, true, correct, complete, and current copies 
of any or all, or any part, of the books and records which the 
undersigned is required to make, keep current or preserve pursuant to 
any provision of any rule or regulation of the Securities and Exchange 
Commission under the Securities Exchange Act of 1934. This undertaking 
shall be suspended during any period when the undersigned is making, 
keeping current, and preserving copies of all of said books and records 
at a place within the United States in compliance with Sec. 240.17a-7 
(Rule X-17A-7) under the Securities Exchange Act of 1934. This 
undertaking shall be binding upon the undersigned and the heirs, 
successors and assigns of the undersigned, and the written irrevocable 
consents and powers of attorney of the undersigned, its general partners 
and managing agents filed with the Securities and Exchange Commission 
shall extend to and cover any action to enforce same.


and
    (2) Such broker or dealer furnishes to the Commission at his own 
expense within 14 days after written demand therefor forwarded to him by 
registered mail at his last address of record filed with the Commission 
and signed by the Secretary of the Commission or such other person as 
the Commission may authorize to act in its behalf, true, correct, 
complete and current copies of any or all books and records which such 
broker or dealer is required to make, keep current or preserve pursuant 
to any provision of any rule or regulation of the Commission adopted 
under the act, or any part of such books and records which may be 
specified in said written demand. Such copies shall be furnished to the 
Commission at its principal office in Washington, DC, or at any Regional 
or District Office of the Commission which may be specified in said 
written demand.
    (c) The provisions of this section shall not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).
    (d) For purposes of this section the following definitions shall 
apply:
    (1) The term broker shall have the meaning set out in section 
3(a)(4) of the Securities Exchange Act of 1934;
    (2) The term dealer shall have the meaning set out in section 
3(a)(5) of the Securities Exchange Act of 1934;
    (3) The term non-resident broker or dealer shall mean (i) in the 
case of an individual, one who resides in or has his principal place of 
business in any place not subject to the jurisdiction of the United 
States; (ii) in the case of a corporation, one incorporated in or having 
its principal place of business in any place not subject to the 
jurisdiction of the United States; (iii) in the case of a partnership of 
other unincorporated organization or association,

[[Page 437]]

one having its principal place of business in any place not subject to 
the jurisdiction of the United States.

[21 FR 5524, July 24, 1956, as amended at 59 FR 5945, Feb. 9, 1994; 67 
FR 58300, Sept. 13, 2002]



Sec. 240.17a-8  Financial recordkeeping and reporting of currency and 
foreign transactions.

    Every registered broker or dealer who is subject to the requirements 
of the Currency and Foreign Transactions Reporting Act of 1970 shall 
comply with the reporting, recordkeeping and record retention 
requirements of part 103 of title 31 of the Code of Federal Regulations. 
Where part 103 of title 31 of the Code of Federal Regulations and Sec. 
240.17a-4 of this chapter require the same records or reports to be 
preserved for different periods of time, such records or reports shall 
be preserved for the longer period of time.

[46 FR 61455, Dec. 17, 1981]



Sec. 240.17a-9T  Records to be made and retained by certain exchange 
members, brokers and dealers.

    This section applies to every member, broker or dealer registered 
pursuant to Section 15 of the Act, (15 U.S.C. 78o), that is required to 
maintain, as of December 29, December 30 and December 31, 1999, minimum 
net capital of $250,000 pursuant to Sec. 240.15c3-1(a)(2)(i).
    (a) You must make before January 1, 2000, for each of December 29, 
December 30 and December 31, 1999, separate copies of the blotters 
pursuant to Sec. 240.17a-3(a)(1).
    (b) You must make before January 1, 2000, as of the close of 
business for each of December 29, December 30 and December 31, 1999, a 
separate copy of the securities record or ledger pursuant to Sec. 
240.17a-3(a)(5).
    (c) You must preserve these records for a period of not less than 
one year.
    (d) The provisions of Sec. 240.17a-4(i) shall apply as if part of 
this Sec. 240.17a-9T.
    (e) You may preserve these records in any format that is acceptable 
and in compliance with the conditions described in Sec. 240.17a-4(f).
    (f) You must furnish promptly to a representative of the Commission 
such legible, true and complete copies of those records, as may be 
requested.
    (g) This temporary section will expire on July 1, 2001.

[64 FR 42029, Aug. 3, 1999]



Sec. 240.17a-10  Report on revenue and expenses.

    (a)(1) Every broker or dealer exempted from the filing requirements 
of paragraph (a) of Sec. 240.17a-5 shall, not later than 17 business 
days after the close of each calendar year, file the Facing Page, a 
Statement of Income (Loss) and balance sheet from Part IIA of Form X-
17A-5 (Sec. 249.617 of this chapter) and Schedule I of Form X-17A-5 
(Sec. 249.617 of this chapter) for such calendar year.
    (2) Every broker or dealer subject to the filing requirements of 
paragraph (a) of Sec. 240.17a-5 shall submit Schedule I of Form X-17A-5 
(Sec. 249.617 of this chapter) with its Form X-17A-5 (Sec. 249.617 of 
this chapter) for the calendar quarter ending December 31 of each year.
    (b) The provisions of paragraph (a) of this section shall not apply 
to a member of a national securities exchange or a registered national 
securities association which maintains records containing the 
information required by Form X-17A-5 (Sec. 249.617 of this chapter) as 
to each of its members, and which transmits to the Commission a copy of 
the record as to each such member, pursuant to a plan the procedures and 
provisions of which have been submitted to and declared effective by the 
Commission. Any such plan filed by a national securities exchange or a 
registered national securities association may provide that when a 
member is also a member of one or more national securities exchanges, or 
of one or more national securities exchanges and a registered national 
securities association, the information required to be submitted with 
respect to any such member may be transmitted by only one specified 
national securities exchange or registered national securities 
association. For the purpose of this section, a plan filed with the 
Commission by a national securities exchange or a registered national 
securities association shall not become effective unless the Commission, 
having due regard for the public interest, for the

[[Page 438]]

protection of investors, and for the fulfillment of the Commission's 
functions under the provisions of the Act, declares the plan to be 
effective. Further, the Commission, in declaring any such plan 
effective, may impose such terms and conditions relating to the 
provisions of the plan and the period of its effectiveness as may be 
deemed necessary or appropriate in the public interest, for the 
protection of investors, or to carry out the Commission's duties under 
the Act.
    (c) Individual reports filed by, or on behalf of, brokers, dealers, 
or members of national securities exchanges pursuant to this section are 
to be considered nonpublic information, except in cases where the 
Commission determines that it is in the public interest to direct 
otherwise.
    (d) In the event any broker or dealer finds that it cannot file the 
annual report required by paragraph (a) of this section within the time 
specified without undue hardship, it may file with the Commission's 
principal office in Washington, DC, prior to the date upon which the 
report is due, an application for an extension of time to a specified 
date which shall not be later than 60 days after the close of the 
calendar year for which the report is to be made. The application shall 
state the reasons for the requested extension and shall contain an 
agreement to file the report on or before the specified date.

(Sec. 17, 48 Stat. 897; 15 U.S.C. 78q)

[33 FR 10390, July 20, 1968, as amended at 35 FR 3804, Feb. 27, 1970; 35 
FR 7644, May 16, 1970; 37 FR 13615, July 12, 1972; 40 FR 59717, Dec. 30, 
1975; 42 FR 23789, May 10, 1977; 46 FR 60193, Dec. 9, 1981]



Sec. 240.17a-11  Notification provisions for brokers and dealers.

    (a) This section shall apply to every broker or dealer registered 
with the Commission pursuant to section 15 of the Act.
    (b)(1) Every broker or dealer whose net capital declines below the 
minimum amount required pursuant to Sec. 240.15c3-1 shall give notice 
of such deficiency that same day in accordance with paragraph (g) of 
this section. The notice shall specify the broker or dealer's net 
capital requirement and its current amount of net capital. If a broker 
or dealer is informed by its designated examining authority or the 
Commission that it is, or has been, in violation of Sec. 240.15c3-1 and 
the broker or dealer has not given notice of the capital deficiency 
under this Sec. 240.17a-11, the broker or dealer, even if it does not 
agree that it is, or has been, in violation of Sec. 240.15c3-1, shall 
give notice of the claimed deficiency, which notice may specify the 
broker's or dealer's reasons for its disagreement.
    (2) In addition to the requirements of paragraph (b)(1) of this 
section, an OTC derivatives dealer shall also provide notice if its 
tentative net capital falls below the minimum amount required pursuant 
to Sec. 240.15c3-1. The notice shall specify the OTC derivatives 
dealer's net capital and tentative net capital requirements, and its 
current amount of net capital and tentative net capital.
    (c) Every broker or dealer shall send notice promptly (but within 24 
hours) after the occurrence of the events specified in paragraphs 
(c)(1), (c)(2), (c)(3) or (c)(4) of this section in accordance with 
paragraph (g) of this section:
    (1) If a computation made by a broker or dealer subject to the 
aggregate indebtedness standard of Sec. 240.15c3-1 shows that its 
aggregate indebtedness is in excess of 1,200 percent of its net capital; 
or
    (2) If a computation made by a broker or dealer, which has elected 
the alternative standard of Sec. 240.15c3-1, shows that its net capital 
is less than 5 percent of aggregate debit items computed in accordance 
with Sec. 240.15c3-3a Exhibit A: Formula for Determination Reserve 
Requirement of Brokers and Dealers under Sec. 240.15c3-3; or
    (3) If a computation made by a broker or dealer pursuant to Sec. 
240.15c3-1 shows that its total net capital is less than 120 percent of 
the broker's or dealer's required minimum net capital, or if a 
computation made by an OTC derivatives dealer pursuant to Sec. 
240.15c3-1 shows that its total tentative net capital is less than 120 
percent of the dealer's required minimum tentative net capital.
    (4) The occurrence of the fourth and each subsequent backtesting 
exception under Sec. 240.15c3-1f(e)(1)(iv) during any 250 business day 
measurement period.

[[Page 439]]

    (d) Every broker or dealer who fails to make and keep current the 
books and records required by Sec. 240.17a-3, shall give notice of this 
fact that same day in accordance with paragraph (g) of this section, 
specifying the books and records which have not been made or which are 
not current. The broker or dealer shall also transmit a report in 
accordance with paragraph (g) of this section within 48 hours of the 
notice stating what the broker or dealer has done or is doing to correct 
the situation.
    (e) Whenever any broker or dealer discovers, or is notified by an 
independent public accountant, pursuant to Sec. 240.17a-5(h)(2) or 
Sec. 240.17a-12(f)(2) of the existence of any material inadequacy as 
defined in Sec. 240.17a-5(g) or Sec. 240.17a-12(e)(2), the broker or 
dealer shall:
    (1) Give notice, in accordance with paragraph (g) of this section, 
of the material inadequacy within 24 hours of such discovery or 
notification; and
    (2) Transmit a report in accordance with paragraph (g) of this 
section within 48 hours of the notice stating what the broker or dealer 
has done or is doing to correct the situation.
    (f) Every national securities exchange or national securities 
association that learns that a member broker or dealer has failed to 
send notice or transmit a report as required by paragraphs (b), (c), 
(d), or (e) of this section, even after being advised by the securities 
exchange or the national securities association to send notice or 
transmit a report, shall immediately give notice of such failure in 
accordance with paragraph (g) of this section.
    (g) Every notice or report required to be given or transmitted by 
this section shall be given or transmitted to the principal office of 
the Commission in Washington, D.C., the regional or district office of 
the Commission for the region or district in which the broker or dealer 
has its principal place of business, the designated examining authority 
of which such broker or dealer is a member, and the Commodity Futures 
Trading Commission if the broker or dealer is registered as a futures 
commission merchant with such Commission. For the purposes of this 
section, ``notice'' shall be given or transmitted by telegraphic notice 
or facsimile transmission. The report required by paragraphs (d) or 
(e)(2) of this section may be transmitted by overnight delivery.
    (h) Other notice provisions relating to the Commission's financial 
responsibility or reporting rules are contained in Sec. 240.15c3-
1(a)(6)(iv)(B), Sec. 240.15c3-1(a)(6)(v), Sec. 240.15c3-1(a)(7)(iv), 
Sec. 240.15c3-1(c)(2)(x)(B)(1), Sec. 240.15c3-1(c)(2)(x)(F)(3), Sec. 
240.15c3-1(e), Sec. 240.15c3-1d(c)(2), Sec. 240.15c3-3(i), Sec. 
240.17a-5(h)(2), and Sec. 240.17a-12(f)(2).
    (i) The provisions of this section shall not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).

[58 FR 37657, July 13, 1993, as amended at 59 FR 5945, Feb. 9, 1994; 63 
FR 59401, Nov. 3, 1998; 67 FR 58300, Sept. 13, 2002]



Sec. 240.17a-12  Reports to be made by certain OTC derivatives dealers.

    (a) Filing of quarterly reports. (1) This paragraph (a) shall apply 
to every OTC derivatives dealer registered pursuant to Section 15 of the 
Act (15 U.S.C. 78o).
    (i) Every OTC derivatives dealer shall file Part IIB of Form X-17A-5 
(Sec. 249.617 of this chapter) within 17 business days after the end of 
each calendar quarter and within 17 business days after the date 
selected for the annual audit of financial statements where said date is 
other than the end of the calendar quarter.
    (ii) Upon receiving from the Commission written notice that 
additional reporting is required, an OTC derivatives dealer shall file 
monthly, or at such times as shall be specified, Part IIB of Form X-17A-
5 (Sec. 249.617 of this chapter) and such other financial or 
operational information as shall be required by the Commission.
    (2) The reports provided for in this paragraph (a) shall be 
considered filed when received at the Commission's principal office in 
Washington, DC. All

[[Page 440]]

reports filed pursuant to this paragraph (a) shall be deemed to be 
confidential.
    (3) Upon written application by an OTC derivatives dealer to the 
Commission, the Commission may extend the time for filing the 
information required by this paragraph (a). The written application 
shall be filed with the Commission at its principal office in Washington 
DC.
    (b) Annual filing of audited financial statements. (1)(i) Every OTC 
derivatives dealer registered pursuant to Section 15 of the Act (15 
U.S.C. 78o) shall file annually, on a calendar or fiscal year basis, a 
report which shall be audited by a certified public accountant. Reports 
filed pursuant to this paragraph (b) shall be as of the same fixed or 
determinable date each year, unless a change is approved in writing by 
the Commission.
    (ii) An OTC derivatives dealer succeeding to and continuing the 
business of another OTC derivatives dealer need not file a report under 
this paragraph (b) as of a date in the fiscal or calendar year in which 
the succession occurs if the predecessor OTC derivatives dealer has 
filed a report in compliance with this paragraph (b) as of a date in 
such fiscal or calendar year.
    (2) The annual audit report shall contain a Statement of Financial 
Condition (in a format and on a basis which is consistent with the total 
reported on the Statement of Financial Condition contained in Form X-
17A-5 (Sec. 249.617 of this chapter), Part IIB, a Statement of Income, 
a Statement of Cash Flows, a Statement of Changes in Stockholders' or 
Partners' or Sole Proprietor's Equity, and a Statement of Changes in 
Liabilities Subordinated to Claims of General Creditors. Such statements 
shall be in a format which is consistent with such statements as 
contained in Form X-17A-5 (Sec. 249.617 of this chapter), Part IIB. If 
the Statement of Financial Condition filed in accordance with 
instructions to Form X-17A-5 (Sec. 249.617 of this chapter), Part IIB, 
is not consolidated, a summary of financial data for subsidiaries not 
consolidated in the Part IIB Statement of Financial Condition as filed 
by the OTC derivatives dealer shall be included in the notes to the 
consolidated statement of financial condition reported on by the 
certified public accountant. The summary financial data shall include 
the assets, liabilities, and net worth or stockholders' equity of the 
unconsolidated subsidiaries.
    (3) Supporting schedules shall include, from Part IIB of Form X-17A-
5 (Sec. 249.617 of this chapter), a Computation of Net Capital under 
Sec. 240.15c3-1.
    (4) A reconciliation, including appropriate explanations, of the 
Computation of Net Capital under Sec. 240.15c3-1 contained in the audit 
report with the broker's or dealer's corresponding unaudited most recent 
Part IIB filing shall be filed with the report when material differences 
exist. If no material differences exist, a statement so indicating shall 
be filed.
    (5) The annual audit report shall be filed not more than sixty days 
after the date of the financial statements.
    (6) Two copies of the annual audit report shall be filed at the 
Commission's principal office in Washington, DC.
    (c) Nature and form of reports. The financial statements filed 
pursuant to paragraph (b) of this section shall be prepared and filed in 
accordance with the following requirements:
    (1) An audit shall be conducted by a certified public accountant who 
shall be in fact independent as defined in paragraph (f) of this 
section, and it shall give an opinion covering the statements filed 
pursuant to paragraph (b) of this section.
    (2) Attached to the report shall be an oath or affirmation that, to 
the best knowledge and belief of the person making such oath or 
affirmation, the financial statements and schedules are true and correct 
and neither the OTC derivatives dealer, nor any partner, officer, or 
director, as the case may be, has any significant interest in any 
counterparty or in any account classified solely as that of a 
counterparty. The oath or affirmation shall be made before a person duly 
authorized to administer such oaths or affirmations. If the OTC 
derivatives dealer is a sole proprietorship, the oath or affirmation 
shall be made by the proprietor; if a partnership, by a general partner; 
or if a corporation, by a duly authorized officer.

[[Page 441]]

    (3) All of the statements filed pursuant to paragraph (b) of this 
section shall be confidential except that they shall be available for 
use by any official or employee of the United States or by any other 
person to whom the Commission authorizes disclosure of such information 
as being in the public interest.
    (d) Qualification of accountants. The Commission will not recognize 
any person as a certified public accountant who is not duly registered 
and in good standing as such under the laws of the State of his 
principal office.
    (e) Designation of accountant. (1) Every OTC derivatives dealer 
shall file no later than December 10 of each year with the Commission's 
principal office in Washington, DC a statement indicating the existence 
of an agreement, dated no later than December 1 of that year, with a 
certified public accountant covering a contractual commitment to conduct 
the OTC derivatives dealer's annual audit during the following calendar 
year.
    (2) If the agreement is of a continuing nature, providing for 
successive yearly audits, no further filing is required. If the 
agreement is for a single audit, or if the continuing agreement 
previously filed has been terminated or amended, a new statement must be 
filed by the required date.
    (3) The statement shall be headed ``Notice pursuant to Sec. 
240.17a-12(e)'' and shall contain the following information:
    (i) Name, address, telephone number, and registration number of the 
OTC derivatives dealer;
    (ii) Name, address, and telephone number of the certified public 
accounting firm; and
    (iii) The audit date of the OTC derivatives dealer for the year 
covered by the agreement.
    (4) Notwithstanding the date of filing specified in paragraph (e)(1) 
of this section, every OTC derivatives dealer shall file the notice 
provided for in paragraph (e) of this section within 30 days following 
the effective date of registration as an OTC derivatives dealer.
    (f) Independence of accountant. A certified public accountant shall 
be independent in accordance with the provisions of Sec. 210.2-01(b) 
and (c) of this chapter.
    (g) Replacement of accountant. (1) An OTC derivatives dealer shall 
file a notice that must be received by the Commission's principal office 
in Washington, DC not more than 15 business days after:
    (i) The OTC derivatives dealer has notified the certified public 
accountant whose opinion covered the most recent financial statements 
filed under paragraph (b) of this section that the certified public 
accountant's services will not be utilized in future engagements; or
    (ii) The OTC derivatives dealer has notified a certified public 
accountant who was engaged to give an opinion covering the financial 
statements to be filed under paragraph (b) of this section that the 
engagement has been terminated; or
    (iii) A certified public accountant has notified the OTC derivatives 
dealer that it will not continue under an engagement or give an opinion 
covering the financial statements to be filed under paragraph (b) of 
this section; or
    (iv) A new certified public accountant has been engaged to give an 
opinion covering the financial statements to be filed under paragraph 
(b) of this section without any notice of termination having been given 
to or by the previously engaged certified public accountant.
    (2) Such notice shall state the date of notification of the 
termination of the engagement of the former certified public accountant 
or the engagement of the new certified public accountant, as applicable, 
and the details of any disagreements existing during the 24 months (or 
the period of the engagement, if less) preceding such termination or new 
engagement relating to any matter of accounting principles or practices, 
financial statement disclosure, auditing scope or procedure, or 
compliance with applicable rules of the Commission, which disagreements, 
if not resolved to the satisfaction of the former certified public 
accountant, would have caused the former certified public accountant to 
make reference to them in connection with the report on the subject 
matter of the disagreements. The disagreements required to

[[Page 442]]

be reported in response to the preceding sentence include both those 
resolved to the former certified public accountant's satisfaction and 
those not resolved to the former certified public accountant's 
satisfaction. Disagreements contemplated by this section are those that 
occur at the decision-making level (i.e., between principal financial 
officers of the OTC derivatives dealer and personnel of the certified 
public accounting firm responsible for rendering its report). The notice 
shall also state whether the certified public accountant's report on the 
financial statements for any of the past two years contained an adverse 
opinion or a disclaimer of opinion or was qualified as to uncertainties, 
audit scope, or accounting principles, and describe the nature of each 
such adverse opinion, disclaimer of opinion, or qualification. The OTC 
derivatives dealer shall also request the former certified public 
accountant to furnish the OTC derivatives dealer with a letter addressed 
to the Commission stating whether the former certified public accountant 
agrees with the statements contained in the notice of the OTC 
derivatives dealer and, if not, stating the respects in which the former 
certified public accountant does not agree. The OTC derivatives dealer 
shall file three copies of the notice and the certified public 
accountant's letter, one copy of which shall be manually signed by the 
sole proprietor, or a general partner or a duly authorized corporate 
officer, as appropriate, and by the certified public accountant.
    (h) Audit objectives. (1) The audit shall be made in accordance with 
U.S. Generally Accepted Auditing Standards and shall include a review of 
the accounting system, the internal accounting controls, and procedures 
for safeguarding securities including appropriate tests thereof for the 
period since the date of the prior audited financial statements. The 
audit shall include all procedures necessary under the circumstances to 
enable the certified public accountant to express an opinion on the 
statement of financial condition, results of operations, cash flows, and 
the Computation of Net Capital under Sec. 240.15c3-1. The scope of the 
audit and review of the accounting system, the internal accounting 
controls, and procedures for safeguarding securities shall be sufficient 
to provide reasonable assurance that any material inadequacies existing 
at the date of the examination in the following are disclosed:
    (i) The accounting system;
    (ii) The internal accounting controls; and
    (iii) The procedures for safeguarding securities.
    (2) A material inadequacy in the accounting system, internal 
accounting controls, procedures for safeguarding securities, and 
practices and procedures referred to in paragraph (h) (1) of this 
section that must be reported under these audit objectives includes any 
condition which has contributed substantially to or, if appropriate 
corrective action is not taken, could reasonably be expected to:
    (i) Inhibit an OTC derivatives dealer from promptly completing 
securities transactions or promptly discharging its responsibilities to 
counterparties, other brokers and dealers, or creditors;
    (ii) Result in material financial loss;
    (iii) Result in material misstatements of the OTC derivatives 
dealer's financial statements; or
    (iv) Result in violations of the Commission's recordkeeping or 
financial responsibility rules to an extent that could reasonably be 
expected to result in the conditions described in paragraphs (h)(2)(i), 
(ii), or (iii) of this section.
    (i) Extent and timing of audit procedures. (1) The extent and timing 
of audit procedures are matters for the certified public accountant to 
determine on the basis of its review and evaluation of existing internal 
controls and other audit procedures performed in accordance with U.S. 
Generally Accepted Auditing Standards and the audit objectives set forth 
in paragraph (h) of this section.
    (2) If, during the course of the audit or interim work, the 
certified public accountant determines that any material inadequacies 
exist in the accounting system, internal accounting controls, procedures 
for safeguarding securities, or as otherwise defined in paragraph (h)(2) 
of this section, then the certified public accountant shall call it

[[Page 443]]

to the attention of the chief financial officer of the OTC derivatives 
dealer, who shall inform the Commission by telegraphic or facsimile 
notice within 24 hours thereafter as set forth in Sec. 240.17a-11(e) 
and (g). The OTC derivatives dealer shall also furnish the certified 
public accountant with a copy of said notice to the Commission by 
telegram or facsimile within the same 24 hour period. If the certified 
public accountant fails to receive such notice from the OTC derivatives 
dealer within that 24 hour period, or if the certified public accountant 
disagrees with the statements contained in the notice of the OTC 
derivatives dealer, the certified public accountant shall inform the 
Commission by report of material inadequacy within 24 hours thereafter 
as set forth in Sec. 240.17a-11(g). Such report from the certified 
public accountant shall, if the OTC derivatives dealer failed to file a 
notice, describe any material inadequacies found to exist. If the OTC 
derivatives dealer filed a notice, the certified public accountant shall 
file a report detailing the aspects, if any, of the OTC derivatives 
dealer's notice with which the certified public accountant does not 
agree.
    (j) Accountant's report, general provisions--(1) Technical 
requirements. The certified public accountant's report shall be dated; 
be signed manually; indicate the city and state where issued; and 
identify without detailed enumeration the financial statements and 
schedules covered by the report.
    (2) Representations as to the audit. The certified public 
accountant's report shall state that the audit was made in accordance 
with U.S. Generally Accepted Auditing Standards; state whether the 
certified public accountant reviewed the procedures followed for 
safeguarding securities; and designate any auditing procedures deemed 
necessary by the certified public accountant under the circumstances of 
the particular case that have been omitted, and the reason for their 
omission. Nothing in this section shall be construed to imply authority 
for the omission of any procedure which certified public accountants 
would ordinarily employ in the course of an audit made for the purpose 
of expressing the opinions required under this section.
    (3) Opinion to be expressed. The certified public accountant's 
report shall state clearly the opinion of the certified public 
accountant:
    (i) In respect of the financial statements and schedules covered by 
the report and the accounting principles and practices reflected 
therein; and
    (ii) As to the consistency of the application of the accounting 
principles, or as to any changes in such principles which have a 
material effect on the financial statements.
    (4) Exceptions. Any matters to which the certified public accountant 
takes exception shall be clearly identified, explained, and, to the 
extent practicable, the effect of each such exception on the related 
financial statements shall be provided.
    (5) Definitions. For the purpose of this section, the terms audit 
(or examination), accountant's report, and certified shall have the 
meanings given in Sec. 210.1-02 of this chapter.
    (k) Accountant's report on material inadequacies and reportable 
conditions. The OTC derivatives dealer shall file concurrently with the 
annual audit report a supplemental report by the certified public 
accountant describing any material inadequacies or any matter that would 
be deemed to be a reportable condition under U.S. Generally Accepted 
Auditing Standards that are unresolved as of the date of the certified 
public accountant's report. The report shall also describe any material 
inadequacies found to have existed since the date of the previous audit. 
The supplemental report shall indicate any corrective action taken or 
proposed by the OTC derivatives dealer with regard to any identified 
material inadequacies or reportable conditions. If the audit did not 
disclose any material inadequacies or reportable conditions, the 
supplemental report shall so state.
    (l) Accountant's report on management controls. The OTC derivatives 
dealer shall file concurrently with the annual audit report a 
supplemental report by the certified public accountant indicating the 
certified public accountant's opinion on the OTC derivatives dealer's 
compliance with its internal risk management controls. The procedures 
are to be performed and the report is to be

[[Page 444]]

prepared in accordance with U.S. Generally Accepted Auditing Standards.
    (m) Accountant's report on inventory pricing and modeling. (1) The 
OTC derivatives dealer shall file concurrently with the annual audit 
report a supplemental report by the certified public accountant 
indicating the results of the certified public accountant's review of 
the broker's or dealer's inventory pricing and modeling procedures. This 
review shall be conducted in accordance with procedures agreed to by the 
OTC derivatives dealer and by the certified public accountant conducting 
the review. The purpose of the review is to confirm that the pricing and 
modeling procedures relied upon by the OTC derivatives dealer conform to 
the procedures submitted to the Commission as part of its OTC 
derivatives dealer application, and that the procedures comply with the 
qualitative and quantitative standards set forth in Sec. 240.15c3-1f.
    (2) The agreed-upon procedures are to be performed and the report is 
to be prepared in accordance with U.S. Generally Accepted Attestation 
Standards.
    (3) Every OTC derivatives dealer shall file prior to the 
commencement of the initial review, the procedures to be performed 
pursuant to paragraph (m)(1) of this section with the Commission's 
principal office in Washington, DC. Prior to the commencement of each 
subsequent review, every OTC derivatives dealer shall file with the 
Commission's principal office in Washington, DC notice of changes in the 
agreed-upon procedures.
    (n) Extensions and exemptions. Upon the written request of the OTC 
derivatives dealer, or on its own motion, the Commission may grant an 
extension of time or an exemption from any of the requirements of this 
section either unconditionally or on specified terms and conditions.
    (o) Notification of change of fiscal year. (1) In the event any OTC 
derivatives dealer finds it necessary to change its fiscal year, it must 
file a notice of such change with the Commission's principal office in 
Washington, DC.
    (2) Such notice shall contain a detailed explanation of the reasons 
for the change. Any change in the filing period for the audit report 
must be approved by the Commission.
    (p) Filing requirements. For purposes of filing requirements as 
described in Sec. 240.17a-12, these filings shall be deemed to have 
been accomplished upon receipt at the Commission's principal office in 
Washington, DC.

[63 FR 59401, Nov. 3, 1998]



Sec. 240.17a-13  Quarterly security counts to be made by certain 
exchange members, brokers, and dealers.

    (a) This section shall apply to every member of a national 
securities exchange who transacts a business in securities directly with 
or for others than members of a national securities exchange, every 
broker or dealer (other than a member) who transacts a business in 
securities through the medium of any member of a national securities 
exchange, and every broker or dealer registered pursuant to section 15 
of the Act; except that a broker or dealer meeting all of the following 
conditions shall be exempt from the provisions of this section:
    (1) His dealer transactions (as principal for his own account) are 
limited to the purchase, sale, and redemption of redeemable shares of 
registered investment companies or of interests or participations in an 
insurance company separate account, whether or not registered as an 
investment company; except that a broker or dealer transacting business 
as a sole proprietor may also effect occasional transactions in other 
securities for his own account with or through another registered 
broker-dealer;
    (2) His transactions as broker (agent) are limited to:
    (i) The sale and redemption of redeemable securities of registered 
investment companies or of interests or participations in an insurance 
company separate account, whether or not registered as an investment 
company;
    (ii) The solicitation of share accounts for savings and loan 
associations insured by an instrumentality of the United States; and
    (iii) The sale of securities for the account of a customer to obtain 
funds for immediate reinvestment in redeemable securities of registered 
investment companies; and

[[Page 445]]

    (3) He promptly transmits all funds and delivers all securities 
received in connection with his activities as a broker or dealer, and 
does not otherwise hold funds or securities for, or owe money or 
securities to, customers.

Notwithstanding the foregoing, this rule shall not apply to any 
insurance company which is a registered broker-dealer, and which 
otherwise meets all of the conditions in paragraphs (a)(1), (2), and (3) 
of this section, solely by reason of its participation in transactions 
that are a part of the business of insurance, including the purchasing, 
selling, or holding of securities for or on behalf of such company's 
general and separate accounts.
    (b) Any member, broker, or dealer who is subject to the provisions 
of this rule shall at least once in each calendar quarter-year:
    (1) Physically examine and count all securities held including 
securities that are the subjects of repurchase or reverse repurchase 
agreements;
    (2) Account for all securities in transfer, in transit, pledged, 
loaned, borrowed, deposited, failed to receive, failed to deliver, 
subject to repurchase or reverse repurchase agreements or otherwise 
subject to his control or direction but not in his physical possession 
by examination and comparison of the supporting detail records with the 
appropriate ledger control accounts;
    (3) Verify all securities in transfer, in transit, pledge, loaned, 
borrowed, deposited, failed to receive, failed to deliver, subject to 
repurchase or reverse repurchase agreements or otherwise subject to his 
control or direction but not in his physical possession, where such 
securities have been in said status for longer than thirty days;
    (4) Compare the results of the count and verification with his 
records; and
    (5) Record on the books and records of the member, broker, or dealer 
all unresolved differences setting forth the security involved and date 
of comparison in a security count difference account no later than 7 
business days after the date of each required quarterly security 
examination, count, and verification in accordance with the requirements 
provided in paragraph (c) of this section. Provided, however, That no 
examination, count, verification, and comparison for the purpose of this 
section shall be within 2 months of or more than 4 months following a 
prior examination, count, verification, and comparison made hereunder.
    (c) The examination, count, verification, and comparison may be made 
either as of a date certain or on a cyclical basis covering the entire 
list of securities. In either case the recordation shall be effected 
within 7 business days subsequent to the examination, count, 
verification, and comparison of a particular security. In the event that 
an examination, count, verification, and comparison is made on a 
cyclical basis, it shall not extend over more than 1 calendar quarter-
year, and no security shall be examined, counted, verified, or compared 
for the purpose of this rule less than 2 months or more than 4 months 
after a prior examination, count, verification, and comparison.
    (d) The examination, count, verification, and comparison shall be 
made or supervised by persons whose regular duties do not require them 
to have direct responsibility for the proper care and protection of the 
securities or the making or preservation of the subject records.
    (e) The provisions of this section shall not apply to a broker or 
dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) that is not a member of either a national securities 
exchange pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or a 
national securities association registered pursuant to section 15A(a) of 
the Act (15 U.S.C. 78o-3(a)).
    (f) The Commission may, upon written request, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any member, broker, or dealer who satisfies the 
Commission that it is not necessary in the public interest and for the 
protection of investors to subject the particular member, broker, or 
dealer to certain or all of the provisions of this section, because of 
the

[[Page 446]]

special nature of his business, the safeguards he has established for 
the protection of customers' funds and securities, or such other reason 
as the Commission deems appropriate.

[36 FR 21179, Nov. 4, 1971, as amended at 42 FR 23790, May 10, 1977; 52 
FR 22299, June 11, 1987; 67 FR 58300, Sept. 13, 2002]



Sec. 240.17a-18  [Reserved]



Sec. 240.17a-19  Form X-17A-19 Report by national securities exchanges 

and registered national securities associations of changes in the 
membership status of any of their members.

    Every national securities exchange and every registered national 
securities association shall file with the Commission at its principal 
office in Washington, DC, and with the Securities Investor Protection 
Corporation such information as is required by Sec. 249.635 of this 
chapter on Form X-17A-19 within 5 business days of the occurrence of the 
initiation of the membership of any person or the suspension or 
termination of the membership of any member. Nothing in this section 
shall be deemed to relieve a national securities exchange or a 
registered national securities association of its responsibilities under 
Sec. 240.17a-5(b)(5) except that, to the extent a national securities 
exchange or a registered national securities association promptly files 
a report on Form X-17A-19 including therewith, inter alia, information 
sufficient to satisfy the requirements of Sec. 240.17a-5(b)(5), it 
shall not be required to file a report pursuant to Sec. 240.17a-5(b). 
Upon the occurrence of the events described in this paragraph, every 
national securities exchange and every registered national securities 
association shall notify in writing such member of its responsibilities 
under Sec. 240.17a-5(b).

[45 FR 39841, June 12, 1980]



Sec. 240.17a-21  Reports of the Municipal Securities Rulemaking Board.

    (a) Annual Report of the Municipal Securities Rulemaking Board. The 
Municipal Securities Rulemaking Board shall file annual reports with the 
Commission as follows:
    (1) Prior to October 1, 1976, the Municipal Securities Rulemaking 
Board shall file with the Commission an annual report for the period 
from its formation until June 30, 1976 and shall include whatever 
information, data and recommendations it considers advisable with regard 
to matters within its jurisdiction.
    (2) Prior to December 1, 1977, the Municipal Securities Rulemaking 
Board shall file with the Commission an annual report for the period 
from July 1, 1976 until September 30, 1977 and shall include whatever 
information, data and recommendations it considers advisable with regard 
to matters within its jurisdiction.
    (3) Prior to December 1 of each year beginning in 1978, the 
Municipal Securities Rulemaking Board shall file with the Commission an 
annual report for the twelve months immediately preceding October 1 of 
that year and shall include whatever information, data and 
recommendations it considers advisable with regard to matters within its 
jurisdiction.
    (4) The Municipal Securities Rulemaking Board shall include in its 
annual report a statement and an analysis of its expenses and operations 
including:
    (i) A balance sheet as of the end of the period covered by the 
report and a statement of revenues and expenses for the Board for that 
period;
    (ii) The rules of the Board including any written interpretations of 
the rules or staff interpretive letters, except that this information 
may be included in the annual report once every three years and shall be 
up to date as of the latest practicable date within 3 months of the date 
on which this information is filed. If the Board publishes or cooperates 
in the publication of this information on an annual or more frequent 
basis, in lieu of including such information in the annual report the 
Board may:
    (A) Identify the publication in which such information is available, 
the name, address, and telephone number of the person from whom such 
publication may be obtained, and the price thereof; and
    (B) Certify to the accuracy of such information as of its date. If 
the Board keeps this information up to date and makes it available to 
the Commission

[[Page 447]]

and the public upon request, in lieu of filing such information the 
Board may certify that the information is kept up to date and is 
available to the Commission and the public upon request;
    (iii) The following information concerning members of the Board:
    (A) Name;
    (B) Dates of commencement and termination of present term of office;
    (C) Length of time each member has held such office;
    (D) Name of principal organization with which connected;
    (E) Title; and
    (F) City wherein the principal office of such organization is 
located;
    (iv) Address of the Board, the name and address of each person 
authorized to receive notices on behalf of the Board from the 
Commission, and the name and address of counsel to the Board, if any; 
and
    (v) A list, including addresses, as of the latest practicable date, 
alphabetically arranged, of all municipal securities brokers and 
municipal securities dealers which have paid to the Board fees and 
charges to defray the costs and expenses of operating the Board.
    (5) Within 10 days after the discovery of any material inaccuracy in 
its annual report or in any amendment thereto the Municipal Securities 
Rulemaking Board shall file with the Commission an amendment correcting 
such inaccuracy.
    (b) Supplemental reports of the Municipal Securities Rulemaking 
Board. The Municipal Securities Rulemaking Board shall file supplemental 
reports to the Commission as follows:
    (1) Within 10 days after issuing or making generally available to 
municipal securities brokers and municipal securities dealers any 
materials (including notices, circulars, bulletins, lists, periodicals, 
etc.), the Municipal Securities Rulemaking Board shall file with the 
Commission three copies of such material (unless such material is filed 
with the Commission pursuant to Rule 19b-4).
    (2) Within 10 days after any action is taken which renders no longer 
accurate any of the information required by paragraphs (a)(3) (iii), 
(iv), (v), and (vi) of this section to be contained in the annual report 
of the Municipal Securities Rulemaking Board (except action reported to 
the Commission pursuant to Rule 19b-4), the Board shall file with the 
Commission written notification in triplicate setting forth the nature 
of such action and the effective date thereof. Such notice may be filed 
either in the form of a letter or in the form of a notice made generally 
available to municipal securities brokers and municipal securities 
dealers.

[41 FR 36200, Aug. 27, 1976, as amended at 59 FR 66701, Dec. 28, 1994]



Sec. 240.17a-22  Supplemental material of registered clearing agencies.

    Within ten days after issuing, or making generally available, to its 
participants or to other entities with whom it has a significant 
relationship, such as pledgees, transfer agents, or self-regulatory 
organizations, any material (including, for example, manuals, notices, 
circulars, bulletins, lists, or periodicals), a registered clearing 
agency shall file three copies of such material with the Commission. A 
registered clearing agency for which the Commission is not the 
appropriate regulatory agency shall at the same time file one copy of 
such material with its appropriate regulatory agency.

[45 FR 73914, Nov. 7, 1980]



Sec. 240.17a-23  Recordkeeping and reporting requirements relating to 
broker-dealer trading systems.

    (a) Scope of section. This section shall apply to any registered 
broker or dealer that acts as the sponsor of a broker-dealer trading 
system.
    (b) Definitions. For purposes of this section:
    (1) The term registered broker or dealer shall have the meaning 
ascribed to it in Section 3(a)(48) of the Act.
    (2) The term broker-dealer trading system means any facility that 
provides a mechanism, automated in full or in part, for:
    (i) Collecting, receiving, disseminating, or displaying system 
orders; and
    (ii) Matching, crossing, or executing system orders, or otherwise 
facilitating agreement to the basic terms of a purchase or sale of a 
security between system participants, or between a system participant 
and the system sponsor,

[[Page 448]]

through use of the system or through the system sponsor.
    (3) The term sponsor means any entity that organizes, operates, 
administers, or otherwise directly controls a broker-dealer trading 
system; and, if the system operator of such broker-dealer trading system 
is not a registered broker or dealer, any registered broker or dealer 
that, pursuant to contract, affiliation, or other agreement with the 
system operator, is involved materially on a regular basis with 
executing transactions in connection with use of the broker-dealer 
trading system, other than solely for its own account or as a 
participant in the broker-dealer trading system.
    (4) The term system order means any order or other communication or 
indication submitted by any system participant for entry into a trading 
system announcing an interest in purchasing or selling a security. The 
term ``system order'' does not include inquiries or indications of 
interest that are not entered into a trading system.
    (5) The term system participant means any person that is provided 
access to a trading system (whether through computer terminal, access 
codes, or other means) by a system sponsor for the purpose of effecting 
the purchase or sale of securities through use of such system.
    (c) Recordkeeping. Every registered broker or dealer subject to this 
section pursuant to paragraph (a) of this section shall:
    (1) Make and keep current the following records relating to the 
broker-dealer trading system:
    (i) A record of participants in the broker-dealer trading system 
(identifying any affiliations between system participants and the system 
sponsor);
    (ii) Daily summaries of trading in the broker-dealer trading system, 
including:
    (A) Securities for which transactions have been executed through use 
of such system;
    (B) Transaction volume (separately stated for trading occurring 
during hours when consolidated trade reporting facilities are and are 
not in operation), expressed with respect to stock in trades, shares and 
in dollar value, and expressed with respect to other securities in 
trades, number of units of securities and in par value, dollar value, or 
other appropriate commonly used measure of value of such securities; and
    (C) Number of system orders, or other identifiable indicator that 
accurately reflects participant trading interest, as appropriate in 
light of configuration of the broker-dealer trading system (expressed 
separately for priced and unpriced orders, if applicable in light of 
system configuration);
    (iii) Time-sequenced records of each transaction effected through 
the broker-dealer trading system, including date and time executed, 
price, size, security traded, counterparty identification information, 
and method of execution (if broker-dealer trading system allows 
alternative means or locations for execution, such as routing to another 
market, matching with limit orders, or executing against the system 
sponsor's quotations); and
    (2) Preserve, for a period of not less than three years, the first 
two years in an easily accessible place, the following records relating 
to the broker-dealer trading system:
    (i) All records required to be made pursuant to paragraph (c)(1) of 
this section; and
    (ii) All notices provided by the system sponsor to system 
participants generally (or to one or more classes of system 
participant), whether written or communicated through the broker-dealer 
trading system or other automated means, including, but not limited to, 
notices addressing hours of system operations, system malfunctions, 
changes to system procedures, maintenance of hardware and software, 
instructions pertaining to access to the broker-dealer trading system.
    (d) Reporting. (1) Every registered broker or dealer subject to this 
section pursuant to paragraph (a) of this section shall:
    (i) File the information required by Part I of Form 17A-23 (Sec. 
249.636 of this chapter) at least 20 calendar days prior to operating a 
broker-dealer trading system, or, if the sponsor is operating the 
broker-dealer trading system on June 1, 1995, no later than July 1, 
1995;
    (ii) During the operation of a broker-dealer trading system of which 
the

[[Page 449]]

broker or dealer is the sponsor, file the information described in Part 
IA of Form 17A-23 (Sec. 249.636 of this chapter) regarding a material 
change to operation of the broker-dealer trading system as described in 
any filing previously made with the Commission pursuant to paragraph 
(d)(1)(i) of this section, at least 20 calendar days prior to 
implementing such material change, or, where it is commercially 
impracticable to do so, as soon as possible thereafter when the sponsor 
determines that it will implement such material change, and in any event 
no later than 10 calendar days following the implementation of such 
change;
    (iii) During the operation of a broker-dealer trading system of 
which the broker or dealer is the sponsor, file the information 
described in Part II of Form 17A-23 (Sec. 249.636 of this chapter) 
within 30 calendar days after the end of each calendar quarter in which 
the broker-dealer trading system has operated after July 1, 1995; and
    (iv) Within 10 calendar days after a broker-dealer trading system of 
which the broker or dealer is the sponsor ceases to operate, file the 
notice described in Part III of Form 17A-23 (Sec. 249.636 of this 
chapter).
    (2) The reports provided for in paragraph (d) of this section shall 
be considered filed upon receipt at the Commission's principal office in 
Washington, DC. Duplicate originals of the reports provided for in 
paragraphs (d)(1)(i), (ii), and (iv) of this section must be filed with 
surveillance personnel designated as such by the self-regulatory 
organization that is the designated examining authority for the broker 
or dealer pursuant to Sec. 240.17d-1 simultaneously with filing with 
the Commission. Duplicates of the reports required by paragraphs 
(d)(1)(iii) of this section must be provided to such surveillance 
personnel of such self-regulatory authority upon request. All reports 
filed pursuant to this paragraph (d) shall be deemed to be confidential.
    (e) Maintenance of records in alternative form. The records required 
to be maintained and preserved pursuant to this section may be produced, 
reproduced and maintained pursuant to the provisions of Sec. 240.17a-
4(f).
    (f) Compliance with other recordkeeping and reporting rules. Nothing 
in this section obviates the need for any broker or dealer to comply 
with any other applicable recordkeeping or reporting requirement in the 
Act and the rules and regulations thereunder. If the information in a 
record required to be made pursuant to this section is preserved in a 
record made pursuant to Sec. 240.17a-3 or Sec. 240.17a-4, or otherwise 
preserved by the sponsor (whether in summary or other form), paragraph 
(c) of this section shall not require the sponsor to maintain such 
information in a separate file, provided that the sponsor can promptly 
sort and retrieve the information as if it had been kept in a separate 
file as a record made pursuant to this section, and preserves the 
information in accordance with the time periods specified in paragraph 
(c)(2) of this section.
    (g) Maintenance of records by others. The records required to be 
maintained and preserved pursuant to this section may be prepared or 
maintained by a service bureau, depository, or other recordkeeping 
service on behalf of the sponsor of a broker-dealer trading system, 
provided such entity complies with the provisions of Sec. 240.17a-4(i). 
Agreement with such an entity shall not relieve the sponsor of a broker-
dealer trading system from the responsibility to prepare and maintain 
records as specified in this section.
    (h) Furnishing copies of records. Every broker or dealer subject to 
this section pursuant to paragraph (a) of this section shall furnish to 
any representative of the Commission promptly upon request, legible, 
true and complete copies of those records of the sponsor that are 
required to be preserved under this section.
    (i) Exemption from this section. The Commission, by rule or order, 
may exempt any sponsor of a broker-dealer trading system from all or any 
of the provisions of this section, either unconditionally or on 
specified terms and conditions, if the Commission determines that such 
exemption is consistent with the public interest or the protection of 
investors.

[59 FR 66709, Dec. 28, 1994]

[[Page 450]]



Sec. 240.17a-25  Electronic submission of securities transaction 
information by exchange members, brokers, and dealers.

    (a) Every member, broker, or dealer subject to Sec. 240.17a-3 
shall, upon request, electronically submit to the Commission the 
securities transaction information as required in this section:
    (1) If the transaction was a proprietary transaction effected or 
caused to be effected by the member, broker, or dealer for any account 
in which such member, broker, or dealer, or person associated with the 
member, broker, or dealer, is directly or indirectly interested, such 
member, broker or dealer shall submit the following information:
    (i) Clearing house number, or alpha symbol of the member, broker, or 
dealer submitting the information;
    (ii) Clearing house number(s), or alpha symbol(s) of the member(s), 
broker(s) or dealer(s) on the opposite side of the transaction;
    (iii) Identifying symbol assigned to the security;
    (iv) Date transaction was executed;
    (v) Number of shares, or quantity of bonds or options contracts, for 
each specific transaction; whether each transaction was a purchase, 
sale, or short sale; and, if an options contract, whether open long or 
short or close long or short;
    (vi) Transaction price;
    (vii) Account number; and
    (viii) The identity of the exchange or other market where the 
transaction was executed.
    (2) If the transaction was effected or caused to be effected by the 
member, broker, or dealer for any customer account, such member, broker, 
or dealer shall submit the following information:
    (i) Information contained in paragraphs (a)(1)(i) through 
(a)(1)(viii) of this section;
    (ii) Customer name, address(es), branch office number, registered 
representative number, whether the order was solicited or unsolicited, 
date account opened, and the customer's tax identification number(s); 
and
    (iii) If the transaction was effected for a customer of another 
member, broker, or dealer, whether the other member, broker, or dealer 
was acting as principal or agent on the transaction.
    (b) In addition to the information in paragraph (a) of this section, 
a member, broker, or dealer shall, upon request, electronically submit 
to the Commission the following securities transaction information for 
transactions involving entities that trade using multiple accounts:
    (1)(i) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise forwarded 
to one or more accounts at another member, broker, or dealer, an 
identifier for this type of transaction; and
    (ii) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise received 
from one or more other members, brokers, or dealers, an identifier for 
this type of transaction.
    (2)(i) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise received 
from another account at the reporting member, broker, or dealer, an 
identifier for this type of transaction; and
    (ii) If part or all of an account's transactions at the reporting 
member, broker, or dealer have been transferred or otherwise forwarded 
to one or more other accounts at the reporting member, broker, or 
dealer, an identifier for this type of transaction.
    (3) If an account's transaction was processed by a depository 
institution, the identifier assigned to the account by the depository 
institution.
    (c) Every member, broker, or dealer shall, upon request, submit to 
the Commission and, keep current, information containing the full name, 
title, address, telephone number(s), facsimile number(s), and 
electronic-mail address(es) for each person designated by the member, 
broker, or dealer as responsible for processing securities transaction 
information requests from the Commission.
    (d) The member, broker, or dealer should comply with the format for 
the electronic submission of the securities transaction information 
described in paragraphs (a) and (b) of this section as specified by the 
member, broker, or

[[Page 451]]

dealer's designated self-regulatory organization under Sec. 240.17d-1, 
unless otherwise specified by Commission rule.

[66 FR 35843, July 9, 2001]



Sec. 240.17d-1  Examination for compliance with applicable financial 
responsibility rules.

    (a) Where a member of SIPC is a member of more than one self-
regulatory organization, the Commission shall designate by written 
notice to one of such organizations responsibility for examining such 
member for compliance with applicable financial responsibility rules. In 
making such designations the Commission shall take into consideration 
the regulatory capabilities and procedures of the self-regulatory 
organizations, availability of staff, convenience of location, 
unnecessary regulatory duplication, and such other factors as the 
Commission may consider germane to the protection of investors, the 
cooperation and coordination among self-regulatory organizations, and 
the development of a national market system and a national system for 
the clearance and settlement of securities transactions.
    (b) Upon designation of responsibility pursuant to paragraph (a) of 
this section, all other self-regulatory organizations of which such 
person is a member shall be relieved of such responsibility to the 
extent specified.
    (c) After the Commission has acted pursuant to paragraphs (a) and 
(b) of this section, any self-regulatory organization relieved of 
responsibility with respect to a member may notify customers of, and 
persons doing business with, such member of the limited nature of its 
responsibility for such member's compliance with applicable financial 
responsibility rules.

[41 FR 18809, May 7, 1976]



Sec. 240.17d-2  Program for allocation of regulatory responsibility.

    (a) Any two or more self-regulatory organizations may file with the 
Commission within ninety (90) days of the effective date of this rule, 
and thereafter as changes in designation are necessary or appropriate, a 
plan for allocating among the self-regulatory organizations the 
responsibility to receive regulatory reports from persons who are 
members or participants of more than one of such self-regulatory 
organizations to examine such persons for compliance, or to enforce 
compliance by such persons, with specified provisions of the Securities 
Exchange Act of 1934, the rules and regulations thereunder, and the 
rules of such self-regulatory organizations, or to carry out other 
specified regulatory functions with respect to such persons.
    (b) Any plan filed hereunder may contain provisions for the 
allocation among the parties of expenses reasonably incurred by the 
self-regulatory organization having regulatory responsibilities under 
the plan.
    (c) After appropriate notice and opportunity for comment, the 
Commission may, by written notice, declare such a plan, or any part of 
the plan, effective if it finds the plan, or any part thereof, necessary 
or appropriate in the public interest and for the protection of 
investors, to foster cooperation and coordination among self-regulatory 
organizations, or to remove impediments to and foster the development of 
the national market system and a national system for the clearance and 
settlement of securities transactions and in conformity with the factors 
set forth in section 17(d) of the Securities Exchange Act of 1934.
    (d) Upon the effectiveness of such a plan or part thereof, any self-
regulatory organization which is a party to the plan shall be relieved 
of responsibility as to any person for whom such responsibility is 
allocated under the plan to another self-regulatory organization to the 
extent of such allocation.
    (e) Nothing herein shall preclude any self-regulatory organization 
from entering into more than one plan filed hereunder.
    (f) After the Commission has declared a plan or part thereof 
effective pursuant to paragraph (c) of this section or acted pursuant to 
paragraph (g) of this section, a self-regulatory organization relieved 
of responsibility may notify customers of, and persons doing business 
with, such member or participant of the limited nature of its 
responsibility for such member's or participant's acts, practices, and 
course of business.

[[Page 452]]

    (g) In the event that plans declared effective pursuant to paragraph 
(c) of this section do not provide for all members or participants or do 
not allocate all regulatory responsibilities, the Commission may, after 
due consideration of the factors enumerated in section 17(d)(1) and 
notice and opportunity for comment, designate one or more of the self-
regulatory organizations responsible for specified regulatory 
responsibilities with respect to such members or participants.

[41 FR 49093, Nov. 8, 1976]



Sec. 240.17f-1  Requirements for reporting and inquiry with respect to 
missing, lost, counterfeit or stolen securities.

    (a) Definitions. For purposes of this section:
    (1) The term reporting institution shall include every national 
securities exchange, member thereof, registered securities association, 
broker, dealer, municipal securities dealer, government securities 
broker, government securities dealer, registered transfer agent, 
registered clearing agency, participant therein, member of the Federal 
Reserve System and bank whose deposits are insured by the Federal 
Deposit Insurance Corporation;
    (2) The term uncertificated security shall mean a security not 
represented by an instrument and the transfer of which is registered 
upon books maintained for that purpose by or on behalf of the issuer;
    (3) The term global certificate securities issue shall mean a 
securities issue for which a single master certificate representing the 
entire issue is registered in the nominee name of a registered clearing 
agency and for which beneficial owners cannot receive negotiable 
securities certificates;
    (4) The term customer shall mean any person with whom the reporting 
institution has entered into at least one prior securities-related 
transaction; and
    (5) The term securities-related transaction shall mean a purpose, 
sale or pledge of investment securities, or a custodial arrangement for 
investment securities.
    (6) The term securities certificate means any physical instrument 
that represents or purports to represent ownership in a security that 
was printed by or on behalf of the issuer thereof and shall include any 
such instrument that is or was:
    (i) Printed but not issued;
    (ii) Issued and outstanding, including treasury securities;
    (iii) Cancelled, which for this purpose means either or both of the 
procedures set forth in Sec. 240.17Ad-19(a)(1); or
    (iv) Counterfeit or reasonably believed to be counterfeit.
    (7) The term issuer shall include an issuer's:
    (i) Transfer agent(s), paying agent(s), tender agent(s), and 
person(s) providing similar services; and
    (ii) Corporate predecessor(s) and successor(s).
    (8) The term missing shall include any securities certificate that:
    (i) Cannot be located or accounted for, but is not believed to be 
lost or stolen; or
    (ii) A transfer agent claims or believes was destroyed in any manner 
other than by the transfer agent's own certificate destruction 
procedures as provided in Sec. 240.17Ad-19.
    (b) Every reporting institution shall register with the Commission 
or its designee in accordance with instructions issued by the Commission 
except:
    (1) A member of a national securities exchange who effects 
securities transactions through the trading facilities of the exchange 
and has not received or held customer securities within the last six 
months;
    (2) A reporting institution that, within the last six months, 
limited its securities activities exclusively to uncertificated 
securities, global securities issues or any securities issue for which 
neither record nor beneficial owners can obtain a negotiable securities 
certificate; or
    (3) A reporting institution whose business activities, within the 
last six months, did not involve the handling of securities 
certificates.
    (c) Reporting requirements--(1) Stolen securities.
    (i) Every reporting institution shall report to the Commission or 
its designee, and to a registered transfer agent for the issue, the 
discovery of the theft or loss of any securities certificates where 
there is substantial basis

[[Page 453]]

for believing that criminal activity was involved. Such report shall be 
made within one business day of the discovery and, if the certificate 
numbers of the securities cannot be ascertained at that time, they shall 
be reported as soon thereafter as possible.
    (ii) Every reporting institution shall promptly report to the 
Federal Bureau of Investigation upon the discovery of the theft or loss 
of any securities certificate where there is substantial basis for 
believing that criminal activity was involved.
    (2) Missing or lost securities. Every reporting institution shall 
report to the Commission or its designee, and to a registered transfer 
agent for the issue, the discovery of the loss of any securities 
certificate where criminal actions are not suspected when the securities 
certificate has been missing or lost for a period of two business days. 
Such report shall be made within one business day of the end of such 
period except that:
    (i) Securities certificates lost, missing, or stolen while in 
transit to customers, transfer agents, banks, brokers or dealers shall 
be reported by the delivering institution by the later of two business 
days after notice of non-receipt or as soon after such notice as the 
certificate numbers of the securities can be ascertained.
    (ii) Where a shipment of retired securities certificates is in 
transit between any transfer agents, banks, brokers, dealers, or other 
reporting institutions, with no affiliation existing between such 
entities, and the delivering institution fails to receive notice of 
receipt or non-receipt of the certificates, the delivering institution 
shall act to determine the facts. In the event of non-delivery where the 
certificates are not recovered by the delivering institution, the 
delivering institution shall report the certificates as lost, stolen, or 
missing to the Commission or its designee within a reasonable time under 
the circumstances but in any event within twenty business days from the 
date of shipment.
    (iii) Securities certificates considered lost or missing as a result 
of securities counts or verifications required by rule, regulation or 
otherwise (e.g., dividend record date verification made as a result of 
firm policy or internal audit function report) shall be reported by the 
later of ten business days after completion of such securities count or 
verification or as soon after such count or verification as the 
certificate numbers of the securities can be ascertained.
    (iv) Securities certificates not received during the completion of 
delivery, deposit or withdrawal shall be reported in the following 
manner:
    (A) Where delivery of the securities certificates is through a 
clearing agency, the delivering institution shall supply to the 
receiving institution the certificate number of the security within two 
business days from the date of request from the receiving institution. 
The receiving institution shall report within one business day of 
notification of the certificate number;
    (B) Where the delivery of securities certificates is in person and 
where the delivering institution has a receipt, the delivering 
institution shall supply the receiving institution the certificate 
numbers of the securities within two business days from the date of 
request from the receiving institution. The receiving institution shall 
report within one business day of notification of the certificate 
number;
    (C) Where the delivery of securities certificates is in person and 
where the delivering institution has no receipt, the delivering 
institution shall report within two business days of notification of 
non-receipt by the receiving institution; or
    (D) Where delivery of securities certificates is made by mail or via 
draft, if payment is not received within ten business days, the 
delivering institution shall confirm with the receiving institution the 
failure to receive such delivery; if confirmation shows non-receipt, the 
delivering institution shall report within two business days of such 
confirmation.
    (3) Counterfeit securities. Every reporting institution shall report 
the discovery of any counterfeit securities certificate to the 
Commission or its designee, to a registered transfer agent for the 
issue, and to the Federal Bureau of Investigation within one business 
day of such discovery.

[[Page 454]]

    (4) Transfer agent reporting obligations. Every transfer agent shall 
make the reports required above only if it receives notification of the 
loss, theft or counterfeiting from a non-reporting institution or if it 
receives notification other than on a Form X-17F-1A or if the 
certificate was in its possession at the time of the loss.
    (5) Recovery. Every reporting institution that originally reported a 
lost, missing or stolen securities certificate pursuant to this Section 
shall report recovery of that securities certificate to the Commission 
or its designee and to a registered transfer agent for the issue within 
one business day of such recovery or finding. Every reporting 
institution that originally made a report in which criminality was 
indicated also shall notify the Federal Bureau of Investigation that the 
securities certificate has been recovered.
    (6) Information to be reported. All reports made pursuant to this 
Section shall include, if applicable or available, the following 
information with respect to each securities certificate:
    (i) Issuer;
    (ii) Type of security and series;
    (iii) Date of issue;
    (iv) Maturity date;
    (v) Denomination;
    (vi) Interest rate;
    (vii) Certificate number, including alphabetical prefix or suffix;
    (viii) Name in which registered;
    (ix) Distinguishing characteristics, if counterfeit;
    (x) Date of discovery of loss or recovery;
    (xi) CUSIP number;
    (xii) Financial Industry Numbering System (``FINS'') Number; and
    (xiii) Type of loss.
    (7) Forms. Reporting institutions shall make all reports to the 
Commission or its designee and to a registered transfer agent for the 
issue pursuant to this section on Form X-17F-1A. Reporting institutions 
shall make reports to the Federal Bureau of Investigation pursuant to 
this Section on Form X-17F-1A, unless the reporting institution is a 
member of the Federal Reserve System or a bank whose deposits are 
insured by the Federal Deposit Insurance Corporation, in which case 
reports may be made on the form required by the institution's 
appropriate regulatory agency for reports to the Federal Bureau of 
Investigation.
    (d) Required inquiries. (1) Every reporting institution (except a 
reporting institution that, acting in its capacity as transfer agent, 
paying agent, exchange agent or tender agent for an equity issue, or 
registrar for a bond or other debt issue, compares all transactions 
against a shareholder or bondholder list and a current list of stop 
transfers) shall inquire of the Commission or its designee with respect 
to every securities certificate which comes into its possession or 
keeping, whether by pledge, transfer or otherwise, to ascertain whether 
such securities certificate has been reported as missing, lost, 
counterfeit or stolen, unless:
    (i) The securities certificate is received directly from the issuer 
or issuing agent at issuance;
    (ii) The securities certificate is received from another reporting 
institution or from a Federal Reserve Bank or Branch;
    (iii) The securities certificate is received from a customer of the 
reporting institution; and
    (A) Is registered in the name of such customer or its nominee; or
    (B) Was previously sold to such customer, as verified by the 
internal records of the reporting institution;
    (iv) The securities certificate is received as part of a transaction 
which has an aggregate face value of $10,000 or less in the case of 
bonds, or market value of $10,000 or less in the case of stocks; or
    (v) The securities certificate is received directly from a drop 
which is affiliated with a reporting institution for the purposes of 
receiving or delivering certificates on behalf of the reporting 
institution.
    (2) Form of inquiry. Inquiries shall be made in such manner as 
prescribed by the Commission or its designee.
    (3) A reporting institution shall make required inquiries by the end 
of the fifth business day after a securities certificate comes into its 
possession or keeping, provided that such inquiries shall be made before 
the certificate is sold, used as collateral, or sent to another 
reporting institution.

[[Page 455]]

    (e) Permissive reports and inquiries. Every reporting insitution may 
report to or inquire of the Commission or its designee with respect to 
any securities certificate not otherwise required by this section to be 
the subject of a report or inquiry. The Commission on written request or 
upon its own motion may permit reports to and inquiries of the system by 
any other person or entity upon such terms and conditions as it deems 
appropriate and necessary in the public interest and for the protection 
of investors.
    (f) Exemptions. The following types of securities are not subject to 
paragraphs (c) and (d) of this section:
    (1) Security issues not assigned CUSIP numbers;
    (2) Bond coupons;
    (3) Uncertificated securities;
    (4) Global securities issues; and
    (5) Any securities issue for which neither record nor beneficial 
owners can obtain a negotiable securities certificates.
    (g) Recordkeeping. Every reporting institution shall maintain and 
preserve in an easily accessible place for three years copies of all 
Forms X-17F-1A filed pursuant to this section, all agreements between 
reporting institutions regarding registration or other aspects of this 
section, and all confirmations or other information received from the 
Commission or its designee as a result of inquiry.

(Secs. 2, 17, and 23, 15 U.S.C. 78b, 78q, 78w)

[44 FR 31503, May 31, 1979; 45 FR 14022, Mar. 3, 1980, as amended at 53 
FR 37289, Sept. 26, 1988; 53 FR 40721, Oct. 18, 1988; 68 FR 74400, Dec. 
23, 2003]



Sec. 240.17f-2  Fingerprinting of securities industry personnel.

    (a) Exemptions for the fingerprinting requirement. Except as 
otherwise provided in paragraph (a)(1) or (2) of this section, every 
member of a national securities exchange, broker, dealer, registered 
transfer agent and registered clearing agency shall require that each of 
its partners, directors, officers and employees be fingerprinted and 
shall submit, or cause to be submitted, the fingerprints of such persons 
to the Attorney General of the United States or its designee for 
identification and appropriate processing.
    (1) Permissive exemptions. Every member of a national securities 
exchange, broker, dealer, registered transfer agent and registered 
clearing agency may claim one or more of the exemptions in paragraph 
(a)(1) (i), (ii), (iii) or (iv) of this section; Provided, That all the 
requirements of paragraph (e) of this section are also satisfied.
    (i) Member of a national securities exchange, broker, dealer or 
registered clearing agency. Every person who is a partner, director, 
officer or employee of a member of a national securities exchange, 
broker, dealer, or registered clearing agency shall be exempt if that 
person:
    (A) Is not engaged in the sale of securities;
    (B) Does not regularly have access to the keeping, handling or 
processing of (1) securities, (2) monies, or (3) the original books and 
records relating to the securities or the monies; and
    (C) Does not have direct supervisory responsibility over persons 
engaged in the activities referred to in paragraphs (a)(1)(i) (A) and 
(B) of this section.
    (ii) Registered transfer agents. Every person who is a partner, 
director, officer or employee of a registered transfer agent shall be 
exempt if that person:
    (A) Is not engaged in transfer agent functions (as defined in 
section 3(a)(25) of the Securities Exchange Act of 1934) or activities 
incidental thereto; or
    (B) Meets the conditions in paragraphs (a)(1)(i) (B) and (C) of this 
section.
    (iii) Registered broker-dealers engaged in sales of certain 
securities. Every partner, director, officer and employee of a 
registered broker or dealer who satisfies paragraph (a)(1)(i)(B) of this 
section shall be exempt if that broker or dealer:
    (A) Is engaged exclusively in the sale of shares of registered open-
end management investment companies, variable contracts, or interests in 
limited partnerships, unit investment trusts or real estate investment 
trusts; Provided, That those securities ordinarily are not evidenced by 
certificates;
    (B) Is current in its continuing obligation under Sec. Sec. 
240.15b1-1 and 15b3-1(b) to update Item 10 of Form BD to disclose the 
existence of any statutory disqualification set forth in sections

[[Page 456]]

3(a)(39), 15(b)(4) and 15(b)(6) of the Securities Exchange Act of 1934;
    (C) Has insurance or bonding indemnifying it for losses to customers 
caused by the fraudulent or criminal acts of any of its partners, 
directors, officers or employees for whom an exemption is being claimed 
under paragraph (a)(1)(iii) of this section; and
    (D) Is subject to the jurisdiction of a state insurance department 
with respect to its sale of variable contracts.
    (iv) Illegible fingerprint cards. Every person who is a partner, 
director, officer or employee shall be exempt if that member of a 
national securities exchange, broker, dealer, registered transfer agent 
or registered clearing agency, on at least three occasions:
    (A) Attempts in good faith to obtain from such person a complete set 
of fingerprints acceptable to the Attorney General or its designee for 
identification and appropriate processing by requiring that person to be 
fingerprinted, by having that person's fingerprints rolled by a person 
competent to do so and by submitting the fingerprint cards for that 
person to the Attorney General of the United States or its designee in 
accordance with proper procedures;
    (B) Has that person's fingerprint cards returned to it by the 
Attorney General of the United States or its designee without that 
person's fingerprints having been identified because the fingerprints 
were illegible; and
    (C) Retains the returned fingerprint cards and any other required 
records in accordance with paragraph (d) of this section and Sec. Sec. 
240.17a-3(a)(13), 17a-4(e)(2) and 240.17Ad-7(e)(1) under the Securities 
Exchange Act of 1934.
    (2) Other exemptions by application to the Commission. The 
Commission, upon specified terms, conditions and periods, may grant 
exemptions to any class of partners, directors, officers or employees of 
any member of a national securities exchange, broker, dealer, registered 
transfer agent or registered clearing agency, if the Commission finds 
that such action is not inconsistent with the public interest or the 
protection of investors.
    (b) Fingerprinting pursuant to other law. Every member of a national 
securities exchange, broker, dealer, registered transfer agent and 
registered clearing agency may satisfy the fingerprinting requirement of 
section 17(f)(2) of the Securities Exchange Act of 1934 as to any 
partner, director, officer or employee, if:
    (1) The person, in connection with his or her present employment 
with such organization, has been fingerprinted pursuant to any other 
law, statute, rule or regulation of any state or federal government or 
agency thereof;
    (2) The fingerprint cards for that person are submitted, or are 
caused to be submitted, to the Attorney General of the United States or 
its designee for identification and appropriate processing, and the 
Attorney General or its designee has processed those fingerprint cards; 
and
    (3) The processed fingerprint cards or any substitute records, 
together with any information received from the Attorney General or its 
designee, are maintained in accordance with paragraph (d) of this 
section.
    (c) Fingerprinting plans of self-regulatory organizations. The 
fingerprinting requirement of section 17(f)(2) of the Securities 
Exchange Act of 1934 may be satisfied by submitting appropriate and 
complete fingerprint cards to a registered national securities exchange 
or to a registered national securities association which, pursuant to a 
plan filed with, and declared effective by, the Commission, forwards 
such fingerprint cards to the Attorney General of the United States or 
its designee for identification and appropriate processing. Any plan 
filed by a registered national securities exchange or a registered 
national securities association shall not become effective, unless 
declared effective by the Commission as not inconsistent with the public 
interest or the protection of investors; and, in declaring any such plan 
effective, the Commission may impose any terms and conditions relating 
to the provisions of the plan and the period of its effectiveness as it 
may deem necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Securities Exchange Act of 1934.
    (d) Record maintenance--(1) Maintenance of processed fingerprint 
cards and other related information. Every member

[[Page 457]]

of a national securities exchange, broker, dealer, registered transfer 
agent and registered clearing agency shall maintain the processed 
fingerprint card or any substitute record when such card is not returned 
after processing, together with any information received from the 
Attorney General or its designee, for every person required to be 
fingerprinted under section 17(f)(2) of the Securities Exchange Act of 
1934 and for persons who have complied with this section pursuant to 
paragraph (b) or (c) of this section. Every substitute record shall 
state the name of the person whose fingerprint card was submitted to the 
Attorney General of the United States, the name of the member of a 
national securities exchange, broker, dealer, registered transfer agent 
or registered clearing agency that submitted the fingerprint card, the 
name of the person or organization that rolled the fingerprints, the 
date on which the fingerprints were rolled, and the date the fingerprint 
card was submitted to the Attorney General of the United States. The 
processed fingerprint card and every other substitute record containing 
the information required by this paragraph, together with any 
information received from the Attorney General of the United States, 
shall be kept in an easily accessible place at the organization's 
principal office and shall be made available upon request to the 
Commission, the appropriate regulatory agency (if not the Commission) or 
other designated examining authority. The organization's principal 
office must provide to the regional, branch or satellite office actually 
employing the person written evidence that the person's fingerprints 
have been processed by the FBI, and must provide to that office a copy 
of any criminal history record information received from the FBI. All 
fingerprint cards, records and information required to be maintained 
under this paragraph shall be retained for a period of not less than 
three years after termination of that person's employment or 
relationship with the organization.
    (2) Record maintenance by designated examining authorities. The 
records required to be maintained and preserved by a member of a 
national securities exchange, broker, or dealer pursuant to the 
requirements of paragraph (d)(1) of this section may be maintained and 
preserved on behalf of that member, broker, or dealer by a self-
regulatory organization that is also the designated examining authority 
for that member, broker or dealer, Provided That the self-regulatory 
organization has filed in accordance with Sec. 240.17f-2(c) a 
fingerprinting plan or amendments to an existing plan concerning the 
storage and maintenance of records and that plan, as amended, has been 
declared effective by the Commission, and Provided Further That:
    (i) Such records are subject at any time, or from time to time, to 
reasonable periodic, special or other examinations by representatives of 
the Commission; and
    (ii) The self-regulatory organization furnishes to the Commission, 
upon demand, at either the principal office or at the regional office 
complete, correct and current hard copies of any and all such records.
    (3) Reproduction of records on microfilm. The records required to be 
maintained pursuant to paragraph (d)(1) of this section may be produced 
or reproduced on microfilm and preserved in that form. If such microfilm 
substitution for hard copy is made by a member of a national securities 
exchange, broker, dealer, registered transfer agent or registered 
clearing agency, or by a self-regulatory organization maintaining and 
storing records pursuant to paragraph (d)(2) of this section, it shall 
at all times:
    (i) Have available for examination by the Commission, the 
appropriate regulatory agency (if not the Commission) or other 
designated examining authority, facilities for the immediate, easily 
readable projection of the microfilm and for the production of easily 
readable and legible facsimile enlargements;
    (ii) File and index the films in such a manner as to permit the 
immediate location and retrieval of any particular record;
    (iii) Be ready to provide, and immediately provide, any facsimile 
enlargement which the Commission, the appropriate regulatory agency (if 
not the

[[Page 458]]

Commission) or other designated examining authority by their examiners 
or other representatives may request; and
    (iv) For the period for which the microfilm records are required to 
be maintained, store separately from the original microfilm records a 
copy of the microfilm records.
    (e) Notice requirement. Every member of a national securities 
exchange, broker, dealer, registered transfer agent and registered 
clearing agency that claims one or more of the exemptions in paragraph 
(a)(1) of this section shall make and keep current a statement entitled 
``Notice Pursuant to Rule 17f-2'' containing the information specified 
in paragraph (e)(1) of this section.
    (1) Contents of statement. The Notice required by paragraph (e) of 
this section shall:
    (i) State the name of the organization and state whether it is a 
member of a national securities exchange, broker, dealer, registered 
transfer agent, or registered clearing agency;
    (ii) Identify by division, department, class, or name and position 
within the organization all persons who are claimed to have satisfied 
the fingerprinting requirement of section 17(f)(2) of the Securities 
Exchange Act of 1934 pursuant to paragraph (b) of this section;
    (iii) Identify by division, department, class, title or position 
within the organization all persons claimed to be exempt under 
paragraphs (a)(1)(i) through (iii) of this section, and identify by name 
all persons claimed to be exempt under paragraph (a)(1)(iv). Persons 
identified under this paragraph (e)(1)(iii) shall be exempt from the 
requirement of section 17(f)(2) of the Securities Exchange Act of 1934 
unless notified to the contrary by the Commission;
    (iv) Describe, in generic terms, the nature of the duties of the 
person or classes of persons, and the nature of the functions and 
operations of the divisions and departments, identified as exempt in 
paragraph (e)(1)(iii) of this section; and
    (v) Describe the security measures utilized to ensure that only 
those persons who have been fingerprinted in accordance with the 
fingerprinting requirement of section 17(f)(2) of the Securities 
Exchange Act of 1934 or who are exempt under paragraph (a)(1)(iv) of 
this section have access to the keeping, handling or processing of 
securities or monies or the original books and records relating thereto.
    (2) Record maintenance. A copy of the Notice required to be made and 
kept current under paragraph (e) of this section shall be kept in an 
easily accessible place at the organization's principal office and at 
the office employing the persons for whom exemptions are claimed and 
shall be made available upon request for inspection by the Commission, 
appropriate regulatory agency (if not the Commission) or other 
designated examining authority.
    (3) Exemption from the notice requirement. A registered transfer 
agent that performs transfer agent functions only on behalf of itself as 
an issuer and that receives fewer than 500 items for transfer and fewer 
than 500 items for processing during any six consecutive months shall be 
exempt from the notice requirement of paragraph (c) of this section.

[47 FR 54060, Dec. 1, 1982]



Sec. 240.17h-1T  Risk assessment recordkeeping requirements for associated 
persons of brokers and dealers.

    (a) Requirement to maintain and preserve information. (1) Every 
broker or dealer registered with the Commission pursuant to section 15 
of the Act, and every municipal securities dealer registered pursuant to 
Section 15B of the Act for which the Commission is the appropriate 
regulatory agency, unless exempt pursuant to paragraph (d) of this 
section, shall maintain and preserve the following information:
    (i) An organizational chart which includes the broker or dealer and 
all its associated persons. Included in the organizational chart shall 
be a designation of which associated persons are Material Associated 
Persons as that term is used in paragraph (a)(2) of this section;
    (ii) Written policies, procedures, or systems concerning the broker 
or dealer's:
    (A) Method(s) for monitoring and controlling financial and 
operational

[[Page 459]]

risks to it resulting from the activities of any of its associated 
persons, other than a natural person;
    (B) Financing and capital adequacy, including information regarding 
sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets, the structure of debt capital, 
and sources of alternative funding; and
    (C) Trading positions and risks, such as records regarding reporting 
responsibilities for trading activities, policies relating to 
restrictions or limitations on trading securities and financial 
instruments or products, and a description of the types of reviews 
conducted to monitor existing positions, and limitations or restrictions 
on trading activities.
    (iii) A description of all material pending legal or arbitration 
proceedings involving a Material Associated Person or the broker or 
dealer that are required to be disclosed by the ultimate holding company 
under generally accepted accounting principles on a consolidated basis;
    (iv) Consolidated and consolidating balance sheets, prepared in 
accordance with generally accepted accounting principles, which may be 
unaudited and which shall include the notes to the financial statements, 
as of quarter end for the broker or dealer and its ultimate holding 
company;
    (v) Quarterly consolidated and consolidating income statements and 
consolidated cash flow statements, prepared in accordance with generally 
accepted accounting principles, which may be unaudited and which shall 
include the notes to the financial statements, for the broker or dealer 
and its ultimate holding company;
    (vi) The amount as of quarter end, and at month end if greater than 
quarter end, of the aggregate long and short securities and commodities 
positions held by each Material Associated Person, including a separate 
listing of each single unhedged securities or commodities position, 
other than U.S. government or agency securities, that exceeds the 
Materiality Threshold at any month end;
    (vii) The notional or contractual amounts, and in the case of 
options, the value of the underlying instruments, as of quarter end, of 
financial instruments with off-balance sheet risk and financial 
instruments with concentrations of credit risk (as those terms are used 
in Statement of Financial Accounting Standards No. 105) where the 
Material Associated Person operates a trading book, with a separate 
entry of each commitment where the credit risk (as that term is used in 
Statement of Financial Accounting Standards No. 105) with respect to a 
counterparty exceeds the Materiality Threshold at quarter end;
    (viii) The aggregate amount as of quarter end, and the amount at 
month end if greater than quarter end, of all bridge loans and those 
other material unsecured extensions of credit (not including intra-group 
receivables) with an initial or remaining maturity of less than one year 
by each Material Associated Person, together with the allowance for 
losses for such transactions, including a specific description of any 
extensions of credit to a single borrower exceeding the Materiality 
Threshold at any month end;
    (ix) The aggregate amount as of quarter end, and the amount at month 
end if greater than quarter end, of commercial paper, secured and other 
unsecured borrowing, bank loans, lines of credit, or any other 
borrowings, and the principal installments of long-term or medium-term 
debt, scheduled to mature within twelve months from the most recent 
fiscal quarter for the broker or dealer and each Material Associated 
Person; and
    (x) Data relating to real estate activities, including mortgage 
loans and investments in real estate, but not including trading 
positions in whole loans, conducted by each Material Associated Person, 
including:
    (A) Real estate loans and investments by type of property, such as 
construction and development, residential, commercial and industrial or 
farmland;
    (B) The geographic distribution, as of quarter end, by type of loan 
or investment where the amount exceeds the Materiality Threshold at 
quarter end;
    (C) The aggregate carrying value of loans which each Material 
Associated Person deems to be not current as to interest or principal, 
together with the Material Associated Person's criteria

[[Page 460]]

for the determination of which loans are not current, or which are in 
the process of foreclosure or that have been restructured;
    (D) The allowance for losses on loans and on investment real estate 
by type of loan or investment, and the activity in the allowance for 
losses account; and
    (E) Information about risk concentration in the real estate 
investment and loan portfolio, including information about risk 
concentration to a single borrower or location of property if the risk 
concentration exceeds the Materiality Threshold at quarter end.
    (2) The determination of whether an associated person of a broker or 
dealer is a Material Associated Person shall involve consideration of 
all aspects of the activities of, and the relationship between, both 
entities, including without limitation, the following factors:
    (i) The legal relationship between the broker or dealer and the 
associated person;
    (ii) The overall financing requirements of the broker or dealer and 
the associated person, and the degree, if any, to which the broker or 
dealer and the associated person are financially dependent on each 
other;
    (iii) The degree, if any, to which the broker or dealer or its 
customers rely on the associated person for operational support or 
services in connection with the broker's or dealer's business;
    (iv) The level of risk present in the activities of the broker's or 
dealer's associated persons; and
    (v) The extent to which the associated person has the authority or 
the ability to cause a withdrawal of capital from the broker or dealer.
    (3) The information, reports and records required by the provisions 
of this section shall be maintained and preserved in accordance with the 
provisions of Sec. 240.17a-4 and shall be kept for a period of not less 
than three years in an easily accessible place.
    (4) For the purposes of this section and Sec. 240.17h-2T, the term 
``Materiality Threshold'' shall mean the greater of:
    (i) $100 million; or
    (ii) 10 percent of the broker or dealer's tentative net capital 
based on the most recently filed Form X-17A-5 or 10 percent of the 
Material Associated Person's tangible net worth, whichever is greater.
    (b) Special provisions with respect to material associated persons 
subject to the supervision of certain domestic regulators. A broker or 
dealer shall be deemed to be in compliance with the recordkeeping 
requirements of paragraph (a) of this section with respect to a Material 
Associated Person if:
    (1) Such Material Associated Person is subject to examination by, or 
the reporting requirements of, a Federal banking agency and the broker 
or dealer maintains in accordance with the provisions of this section 
copies of all reports submitted by such Material Associated Person with 
the Federal banking agency pursuant to section 5211 of the Revised 
Statutes, section 9 of the Federal Reserve Act, section 7(a) of the 
Federal Deposit Insurance Act, section 10(b) of the Home Owners' Loan 
Act, or section 5 of the Bank Holding Company Act of 1956 other than the 
Form FR 2068; or
    (2) If such Material Associated Person is subject to the supervision 
of an insurance commissioner or other similar official or agency of a 
state, and the broker or dealer maintains in accordance with the 
provisions of this section copies of the Annual and Quarterly Statements 
with Schedules and Exhibits prepared by the insurance company on forms 
prescribed by the National Association of Insurance Commissioners; or
    (3) In the event an insurance company is not required to prepare 
Quarterly Statements on forms prescribed by the National Association of 
Insurance Commissioners, the broker or dealer must maintain and preserve 
the records required by paragraph (a) of this section on a quarterly 
basis; or
    (4) In the case of a Material Associated Person that is subject to 
the supervision of the Commodity Futures Trading Commission, the broker 
or dealer maintains in accordance with the provisions of this section 
copies of the reports filed on Forms 1 FR-FCM or 1 FR-IB by such 
Material Associated Person with the Commodity Futures Trading 
Commission.

[[Page 461]]

    (c) Special provisions with respect to material associated persons 
subject to the supervision of a foreign financial regulatory authority. 
A broker or dealer shall be deemed to be in compliance with the 
recordkeeping requirements of paragraph (a) of this section with respect 
to a Material Associated Person if such broker or dealer maintains in 
accordance with the provisions of this section copies of the reports 
filed by such Material Associated Persons with a Foreign Financial 
Regulatory Authority. The broker or dealer shall maintain a copy of the 
original report and a copy translated into the English language. For the 
purposes of this section, the term Foreign Financial Regulatory 
Authority shall have the meaning set forth in section 3(a)(51) of the 
Act.
    (d) Exemptions. (1) The provisions of this section shall not apply 
to any broker or dealer which is exempt from the provisions of Sec. 
240.15c3-3:
    (i) Pursuant to paragraph (k)(1) of Sec. 240.15c3-3; or
    (ii) Pursuant to paragraph (k)(2) of Sec. 240.15c3-3; or
    (iii) If the broker or dealer does not qualify for an exemption from 
the provisions of Sec. 240.15c3-3 and such broker or dealer does not 
hold funds or securities for, or owe money or securities to, customers 
and does not carry the accounts of or for customers; unless
    (iv) In the case of paragraphs (d)(1)(ii) or (d)(1)(iii) of this 
section, the broker or dealer maintains capital including debt 
subordinated in accordance with appendix D of Sec. 240.15c3-1 equal to 
or greater than $20,000,000.
    (2) The provisions of this section shall not apply to any broker or 
dealer which maintains capital including debt subordinated in accordance 
with appendix D of section 240.15c3-1 of less than $250,000, even if the 
broker or dealer hold funds or securities for, or owes money or 
securities to, customers or carries the accounts of or for customers.
    (3) In calculating capital for the purposes of this paragraph, a 
broker or dealer shall include the equity capital and subordinated debt 
of any other registered brokers or dealers that are associated with the 
broker or dealer and are not otherwise exempt from the provisions 
pursuant to paragraph (d)(1)(i) of this section.
    (4) The Commission may, upon written application by a Reporting 
Broker or Dealer, exempt from the provisions of this section, either 
unconditionally or on specified terms and conditions, any brokers or 
dealers associated with such Reporting Broker or Dealer. The term 
``Reporting Broker or Dealer'' shall mean, in the case of a broker or 
dealer that is associated with other registered brokers or dealers, the 
broker or dealer which maintains the greatest amount of net capital as 
reported on its most recently fixed Form X-17A-5. In granting exemptions 
under this section, the Commission shall consider, among other factors, 
whether the records and other information required to be maintained 
pursuant to this section concerning the Material Associated Persons of 
the broker or dealer associated with the Reporting Broker or Dealer will 
be available to the Commission pursuant to Sec. 240.17h-2T.
    (e) Location of records. A broker or dealer required to maintain 
records concerning a Material Associated Person pursuant to this section 
may maintain those records either at the Material Associated Person or 
at a records storage facility provided that the records are located 
within the boundaries of the United States and the records are kept in 
an easily accessible place, as that term is used in Sec. 240.17a-4. In 
order to operate pursuant to the provisions of this paragraph, the 
Material Associated Person or other entity maintaining the records shall 
file with the Commission a written undertaking in form acceptable to the 
Commission, signed by a duly authorized person, to the effect that the 
records will be treated as if the broker or dealer was maintaining the 
records pursuant to this section and that the entity maintaining the 
records undertakes to permit examination of such records at any time or 
from time to time during business hours by representatives or designees 
of the Commission and to promptly furnish the Commission or its designee 
true, correct, complete and current hard copy of any or all or any part 
of such records. The election to operate pursuant to the provisions of 
this paragraph shall not relieve the

[[Page 462]]

broker or dealer required to maintain and preserve such records from any 
of its responsibilities under this section or section 240.17h-2T.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a broker or dealer 
concerning a Material Associated Person shall be deemed confidential 
information for the purposes of section 24(b) of the Act.
    (g) Temporary implementation schedule. Every broker or dealer 
subject to the requirements of this section shall maintain and preserve 
the information required by paragraphs (a)(1)(i), (ii), and (iii) of 
this section commencing September 30, 1992. Commencing December 31, 
1992, the provisions of this section shall apply in their entirety.

[57 FR 32168, July 21, 1992, as amended at 58 FR 25774, Apr. 28, 1993]



Sec. 240.17h-2T  Risk assessment reporting requirements for brokers and dealers.

    (a) Reporting requirements of risk assessment information required 
to be maintained by section 240.17h-1T. (1) Every broker or dealer 
registered with the Commission pursuant to section 15 of the Act, and 
every municipal securities dealer registered pursuant to section 15B of 
the Act for which the Commission is the appropriate regulatory agency, 
unless exempt pursuant to paragraph (b) of this section, shall file a 
Form 17-H within 60 calendar days after the end of each fiscal quarter. 
The Form 17-H for the fourth fiscal quarter shall be filed within 60 
calendar days of the end of the fiscal year. The cumulative year-end 
financial statements required by section 240.17h-1T may be filed 
separately within 105 calendar days of the end of the fiscal year.
    (2) The reports required to be filed pursuant to paragraph (a)(1) of 
this section shall be considered filed when received at the Commission's 
principal office in Washington, DC.
    (3) For the purposes of this section, the term Material Associated 
Person shall have the meaning used in Sec. 240.17h-1T.
    (b) Exemptions. (1) The provisions of this section shall not apply 
to any broker or dealer which is exempt from the provisions of section 
240.15c3-3:
    (i) Pursuant to paragraph (k)(1) of Sec. 240.15c3-3; or
    (ii) Pursuant to paragraph (k)(2) of Sec. 240.15c3-3; or
    (iii) If the broker or dealer does not qualify for an exemption from 
the provisions of Sec. 240.15c3-3 and such broker or dealer does not 
hold funds or securities for, or owe money or securities to, customers 
and does not carry the accounts of or for customers; unless
    (iv) In the case of paragraphs (b)(1)(ii) or (b)(1)(iii) of this 
section, the broker or dealer maintains capital including debt 
subordinated in accordance with appendix D of Sec. 240.15c3-1 equal to 
or greater than $20,000,000.
    (2) The provisions of this section shall not apply to any broker or 
dealer which maintains capital including debt subordinated in accordance 
with appendix D of Sec. 240.15c3-1 of less than $250,000, even if the 
broker or dealer hold funds or securities for, or owes money or 
securities to, customers or carries the accounts of or for customers.
    (3) In calculating capital and subordinated debt for the purposes of 
this section, a broker or dealer shall include the equity capital and 
subordinated debt of any other registered brokers or dealers that are 
associated with the broker or dealer and are not otherwise exempt from 
the provisions pursuant to paragraph (b)(1)(i) of this section.
    (4) The Commission may, upon written application by a Reporting 
Broker or Dealer, exempt from the provisions of this section, either 
unconditionally or on specified terms and conditions, any brokers or 
dealers associated with the Reporting Broker or Dealer. The term 
``Reporting Broker or Dealer'' shall mean, in the case of a broker or 
dealer that is associated with other registered brokers or dealers, the 
broker or dealer which maintains the greatest amount of net capital as 
reported on its most recently filed Form X-17A-5. In granting exemptions 
under this section, the Commission shall consider, among other factors, 
whether the records and other information required to be maintained 
pursuant to Sec. 240.17h-1T concerning the Material Associated Persons 
of the broker or dealer associated with the Reporting Broker or

[[Page 463]]

Dealer will be available to the Commission pursuant to the provisions of 
this section.
    (c) Special provisions with respect to material associated persons 
subject to the supervision of certain domestic regulators. A broker or 
dealer shall be deemed to be in compliance with the reporting 
requirements of paragraph (a) of this section with respect to a Material 
Associated Person if:
    (1) Such Material Associated Person is subject to examination by or 
the reporting requirements of a Federal banking agency and the broker or 
dealer or such Material Associated Person furnishes in accordance with 
paragraph (a) of this section copies of reports filed on Form FR Y-9C, 
Form FR Y-6, Form FR Y-7, and Form FR 2068 by the Material Associated 
Person with the Federal banking agency pursuant to section 5211 of the 
Revised Statutes, section 9 of the Federal Reserve Act, section 7(a) of 
the Federal Deposit Insurance Act, section 10(b) of the Home Owners' 
Loan Act, or section 5 of the Bank Holding Company Act of 1956; or
    (2) If the Material Associated Person is subject to the supervision 
of an insurance commissioner or other similar official agency of a 
state; and
    (i) In the case of a Material Associated Person organized as a 
public stock company, the broker or dealer furnishes in accordance with 
the provisions of this section copies of the filings made by the 
insurance company pursuant to sections 13 or 15 of the Act and the 
Investment Company Act of 1940; or
    (ii) In the case of Material Associated Person organized as a mutual 
insurance company or a non-public stock company, the broker or dealer 
furnishes in accordance with the provisions of this section copies of 
the Annual and Quarterly Statements prepared by the insurance company on 
forms prescribed by the National Association of Insurance Commissioners. 
The Annual Statement furnished to the Commission pursuant to this 
section shall include: The classification (distribution by state) 
section from the schedule of real estate; distribution by state, the 
interest overdue (more than three months), in process of foreclosure, 
and foreclosed properties transferred to real estate during the year 
sections from the schedule of mortgages; and the quality and maturity 
distribution of all bonds at statement values and by major types of 
issues section from the schedule of bonds and stocks. All other 
Schedules and Exhibits to such Annual and Quarterly Statements shall be 
maintained at the broker-dealer pursuant to the provisions of Sec. 
240.17h-1T but not furnished to the Commission.
    (iii) In the event an insurance company organized as a stock or 
mutual company is not required to prepare Quarterly Statements, the 
broker or dealer must file with the Commission a Form 17-H in accordance 
with the provisions of this section on a quarterly basis.
    (3) In the case of a Material Associated Person that is subject to 
the supervision of the Commodity Futures Trading Commission, the broker 
or dealer furnishes in accordance with the provisions of this section 
copies of the reports filed by the Material Associated Person with the 
Commodity Futures Trading Commission on Forms 1 FR-FCM or 1 FR-IB.
    (4) No broker or dealer shall be required to furnish to the 
Commission any examination report of any Federal banking agency or any 
supervisory recommendations or analyses contained therein with respect 
to a Material Associated Person that is subject to the regulation of a 
Federal banking agency. All information received by the Commission 
pursuant to this section concerning a Material Associated Person that is 
subject to examination by or the reporting requirements of a Federal 
banking agency shall be deemed confidential for the purposes of section 
24(b) of the Act.
    (5) The furnishing of any information or documents by a broker or 
dealer pursuant to this section shall not constitute an admission for 
any purpose that a Material Associated Person is otherwise subject to 
the Act. Any documents or information furnished to the Commission by a 
broker or dealer pursuant to this rule shall not be deemed to be 
``filed'' for the purposes of the liabilities set forth in section 18 of 
the Act.

[[Page 464]]

    (d) Special provisions with respect to material associated persons 
subject to the supervision of a foreign financial regulatory authority. 
A broker or dealer shall be deemed to be in compliance with the 
reporting requirements of this section with respect to a Material 
Associated Person if such broker or dealer furnishes in accordance with 
the provisions of this section copies of the reports filed by such 
Material Associated Person with a Foreign Financial Regulatory 
Authority. The broker or dealer shall file a copy of the original report 
and a copy translated into the English language. For the purposes of 
this section, the term Foreign Financial Regulatory Authority shall have 
the meaning set forth in section 3(a)(51) of the Act.
    (e) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a broker or dealer 
concerning a Material Associated Person shall be deemed confidential 
information for the purposes of section 24(b) of the Act.
    (f) Temporary implementation schedule. Every broker or dealer 
subject to the requirements of this section shall file the information 
required by Items 1, 2 and 3 of Form 17-H by October 31, 1992. 
Commencing December 31, 1992, the provisions of this section shall apply 
in their entirety.

[57 FR 32170, July 21, 1992]



Sec. 240.17Ab2-1  Registration of clearing agencies.

    (a) An application for registration or for exemption from 
registration as a clearing agency, as defined in section 3(a)(23) of the 
Act, or an amendment to any such application shall be filed with the 
Commission on Form CA-1, in accordance with the instructions thereto.
    (b) Any applicant for registration or for exemption from 
registration as a clearing agency whose application is filed with the 
Commission on or before November 24, 1975, on and in accordance with the 
instructions to Form CA-1, with respect to the clearing agency 
activities described in the application shall, during the period from 
December 1, 1975 until the Commission grants registration, denies 
registration or grants an exemption from registration, be exempt from 
the registration provisions of section 17A(b) of the Act and the rules 
and regulations thereunder and, unless the Commission shall otherwise 
provide by rule or by order, the provisions of the Act and the rules and 
regulations thereunder which would be applicable to clearing agencies as 
a result of registration under the Act.
    (c)(1) The Commission, upon the request of a clearing agency, may 
grant registration of the clearing agency in accordance with sections 
17A(b) and 19(a)(1) of the Act but exempt the registrant from one or 
more of the requirements as to which the Commission is directed to make 
a determination pursuant to paragraphs (A) through (I) of section 
17A(b)(3) of the Act, provided that any such registration shall be 
effective only for eighteen months from the date the registration is 
made effective (or such longer period as the Commission may provide by 
order).
    (2) In the case of any clearing agency registered in accordance with 
paragraph (c)(1) of this section, not later than nine months from the 
date such registration is made effective the Commission either will 
grant registration in accordance with sections 17A(b) and 19(a)(1) of 
the Act, without exempting the registrant from one or more of the 
requirements as to which the Commission is directed to make a 
determination pursuant to subparagraphs (A) through (I) of section 
17A(b)(3) of the Act, or will institute proceedings in accordance with 
section 19(a)(1)(B) of the Act to determine whether registration should 
be denied at the expiration of the registration granted in accordance 
with paragraph (c)(1) of this section.
    (d) The filing of an amendment to an application for registration or 
for exemption from registration as a clearing agency, which registration 
or exemption has not been granted, or the filing of additional 
information or documents prior to the granting of registration or an 
exemption from registration shall extend to ninety days from the date 
such filing is made (or to such longer period as to which the applicant 
consents) the period within which the Commission shall grant 
registration, institute proceedings to determine

[[Page 465]]

whether such registration shall be denied, or conditionally or 
unconditionally exempt registrant from the registration and other 
provisions of section 17A of the Act or the rules or regulations 
thereunder.
    (e) If any information reported at items 1-3 of Form CA-1 is or 
becomes inaccurate, misleading or incomplete for any reason, whether 
before or after registration or an exemption from registration has been 
granted, the registrant shall file promptly an amendment on Form CA-1 
correcting the inaccurate, misleading or incomplete information.
    (f) Every application for registration or for exemption from 
registration as a clearing agency or amendment to, or additional 
information or document filed in connection with, any such application 
shall constitute a ``report'' or ``application'' within the meaning of 
sections 17, 17A, 19 and 32(a) of the Act.

[40 FR 52358, Nov. 10, 1975]



Sec. 240.17Ac2-1  Application for registration of transfer agents.

    (a) An application for registration, pursuant to section 17A(c) of 
the Act, of a transfer agent for which the Commission is the appropriate 
regulatory agency, as defined in section 3(a)(34)(B) of the Act, shall 
be filed with the Commission on Form TA-1, in accordance with the 
instructions contained therein and shall become effective on the 
thirtieth day following the date on which the application is filed, 
unless the Commission takes affirmative action to accelerate, deny or 
postpone such registration in accord- ance with the provisions of 
section 17A(c) of the Act.
    (b) The filing of any amendment to an application for registration 
as a transfer agent pursuant to paragraph (a) of this section, which 
registration has not become effective, shall postpone the effective date 
of the registration until the thirtieth day following the date on which 
the amendment is filed, unless the Commission takes affirmative action 
to accelerate, deny or postpone the registration in accord- ance with 
the provisions of section 17A(c) of the Act.
    (c) If any of the information reported on Form TA-1 or on the SEC 
Supplement becomes inaccurate, misleading, or incomplete, the registrant 
shall correct the information by filing an amendment within sixty days 
following the date on which the information became inaccurate, 
misleading, or incomplete.
    (d) Every registration and amendment filed pursuant to this section 
shall constitute a ``report'' or ``application'' within the meaning of 
sections 17, 17A(c), and 32(a) of the Act.

[40 FR 51184, Nov. 4, 1975, as amended at 51 FR 12127, Apr. 9, 1986]



Sec. 240.17Ac2-2  Annual reporting requirement for registered transfer agents.

    (a) Every transfer agent registered on December 31 must file a 
report covering the reporting period on Form TA-2 (Sec. 249b.102 of 
this chapter) by March 31 following the end of the reporting period. 
Form TA-2 must be completed in accordance with the instructions 
contained in the Form.
    (1) A registered transfer agent that received fewer than 1,000 items 
for transfer in the reporting period and that did not maintain master 
securityholder files for more than 1,000 individual securityholder 
accounts as of December 31 of the reporting period must complete 
Questions 1 through 5, 11, and the signature section of Form TA-2.
    (2) A named transfer agent that engaged a service company to perform 
all of its transfer agent functions during the reporting period must 
complete Questions 1 through 3 and the signature section of Form TA-2.
    (3) A named transfer agent that engaged a service company to perform 
some but not all of its transfer agent functions during the reporting 
period must complete all of Form TA-2 but should enter zero (0) for 
those questions that relate to transfer agent functions performed by the 
service company on behalf of the named transfer agent.
    (b) For purposes of this section, the term reporting period shall 
mean the calendar year ending December 31 for which Form TA-2 is being 
filed. The term named transfer agent shall have the same meaning as 
defined in

[[Page 466]]

Sec. 240.17Ad-9(j). The term service company shall have the same 
meaning as defined in Sec. 240.17Ad-9(k).
    (c) As a transition measure, transfer agents' next required Form TA-
2 filing will be on March 31, 2001, which will cover their activities 
during calendar Year 2000. This will eliminate the filing for the period 
ending June 30, 2000, which would have been due on August 31, 2000.

[65 FR 36610, June 9, 2000]



Sec. 240.17Ac3-1  Withdrawal from registration with the Commission.

    (a) Notice of withdrawal from registration as a transfer agent with 
the Commission pursuant to section 17A(c)(3)(C) of the Act shall be 
filed on Form TA-W in accordance with the instructions contained 
thereon.
    (b) Except as hereinafter provided, a notice to withdraw from 
registration filed by a transfer agent pursuant to section 17A(c)(3)(C) 
of the Act shall become effective on the sixtieth day after the filing 
thereof with the Commission or within such shorter period of time as the 
Commission may determine. If a notice to withdraw from registration is 
filed with the Commission at any time subsequent to the date of issuance 
of a Commission order instituting proceedings pursuant to section 
17A(c)(3)(A) of the Act, or if prior to the effective date of the notice 
of withdrawal the Commission institutes such a proceeding or a 
proceeding to impose terms and conditions upon such withdrawal, the 
notice of withdrawal shall not become effective except at such time and 
upon such terms and conditions as the Commission deems necessary or 
appropriate in the public interest, for the protection of investors, or 
in furtherance of the purposes of section 17A.
    (c) Every notice of withdrawal filed pursuant to this rule shall 
constitute a ``report'' within the meaning of sections 17 and 32(a) of 
the Act.

(Secs. 2, 17, 17A, and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 44984, Sept. 8, 1977]



Sec. 240.17Ad-1  Definitions.

    As used in this section and Sec. Sec. 240.17Ad-2, 240.17Ad-3, 
240.17Ad-4, 240.17Ad-5, 240.17Ad-6, and 240.17Ad-7:
    (a)(1) The term item means:
    (i) A certificate or certificates of the same issue of securities 
covered by one ticket (or, if there is no ticket, presented by one 
presentor) presented for transfer, or an instruction to a transfer agent 
which holds securities registered in the name of the presentor to 
transfer or to make available all or a portion of those securities;
    (ii) Each line on a ``deposit shipment control list'' or a 
`'withdrawal shipment control list'' submitted by a registered clearing 
agency; or
    (iii) In the case of an outside registrar, each certificate to be 
countersigned.
    (2) If a `'deposit shipment control list'' or ``withdrawal shipment 
control list'' contains both routine and non-routine transfer 
instructions, a registered transfer agent shall at its option:
    (i) Retain all transfer instructions listed on the shipment control 
list and treat each line on the shipment control list as a routine item; 
or
    (ii) Return promptly to the registered clearing agency a shipment 
control list line containing non-routine transfer instructions (together 
with a copy of the shipment control list, an explanation for the return 
instructions and all routine transfer instructions reflected on the same 
line) and treat each line on the shipment control list that reflects 
retained transfer instructions as a routine item.
    (3) A deposit shipment control list means a list of transfer 
instructions that accompanies certificates to be cancelled and reissued 
in the nominee name of a registered clearing agency.
    (4) A withdrawal shipment control list means a list of instructions 
(either in paper or electronic medium) that:
    (i) Directs issuance of certificates in the names of persons or 
entities other than the registered clearing agency; and
    (ii) Accompanies certificates to be cancelled which are registered 
in the nominee name of a registered clearing agency, or directs the 
transfer agent to reduce certificate or position balances

[[Page 467]]

maintained by the transfer agent on behalf of a registered clearing 
agency under that clearing agency's transfer agent custody program
    (b) The term outside registrar with respect to a transfer item means 
a transfer agent which performs only the registrar function for the 
certificate or certificates presented for transfer and includes the 
persons performing similar functions with respect to debt issues.
    (c) An item is made available when
    (1) In the case of an item for which the services of an outside 
registrar are not required, or which has been received from an outside 
registrar after processing, the transfer agent dispatches or mails the 
item to, or the item is awaiting pick-up by, the presentor or a person 
designated by the presentor, or
    (2) In the case of an item for which the services of an outside 
registrar are required, the transfer agent dispatches or mails the item 
to, or the item is awaiting pick-up by, the outside registrar, or
    (3) In the case of an item for which an outside registrar has 
completed processing, the outside registrar dispatches or mails the item 
to, or the item is awaiting pick-up by, the presenting transfer agent.
    (d) The transfer of an item is accomplished when, in accordance with 
the presentor's instructions, all acts necessary to cancel the 
certificate or certificates presented for transfer and to issue a new 
certificate or certificates, including the performance of the registrar 
function, are completed and the item is made available to the presentor 
by the transfer agent, or when, in accordance with the presentor's 
instructions, a transfer agent which holds securities registered in the 
name of the presentor completes all acts necessary to issue a new 
certificate or certificates representing all or a portion of those 
securities and makes available the new certificate or certificates to 
the presentor or a person designated by the presentor or, with respect 
to those transfers of record ownership to be accomplished without the 
physical issuance of certificates, completes registration of change in 
ownership of all or a portion of those securities.
    (e) The turnaround of an item is completed when transfer is 
accomplished or, when an outside registrar is involved, the transfer 
agent in accordance with the presentor's instructions completes all acts 
necessary to cancel the certificate or certificates presented for 
transfer and to issue a new certificate or certificates, and the item is 
made available to an outside registrar.
    (f) The term process means the accomplishing by an outside registrar 
of all acts necessary to perform the registrar function and to make 
available to the presenting transfer agent the completed certificate or 
certificates or to advise the presenting transfer agent, orally or in 
writing, why performance of the registrar function is delayed or may not 
be completed.
    (g) The receipt of an item or a written inquiry or request occurs 
when the item or written inquiry or request arrives at the premises at 
which the transfer agent performs transfer agent functions, as defined 
in section 3(a)(25) of the Act.
    (h) A business day is any day during which the transfer agent is 
normally open for business and excludes Saturdays, Sundays, and legal 
holidays, or other holidays normally observed by the transfer agent.
    (i) An item is routine if it does not (1) require requisitioning 
certificates of an issue for which the transfer agent, under the terms 
of its agency, does not maintain a supply of certificates; (2) include a 
certificate as to which the transfer agent has received notice of a stop 
order, adverse claim, or any other restriction on transfer; (3) require 
any additional certificates, documentation, instructions, assignments, 
guarantees, endorsements, explanations, or opinions of counsel before 
transfer may be effected; (4) require review of supporting documentation 
other than assignments, endorsements or stock powers, certified 
corporate resolutions, signature, or other common and ordinary 
guarantees, or appropriate tax, or tax waivers; (5) involve a transfer 
in connection with a reorganization, tender offer, exchange, redemption, 
or liquidation; (6) include a warrant, right, or convertible security 
presented for transfer of record ownership within five business days 
before any day upon

[[Page 468]]

which exercise or conversion privileges lapse or change; (7) include a 
warrant, right, or convertible security presented for exercise or 
conversion; or (8) include a security of an issue which within the 
previous 15 business days was offered to the public, pursuant to a 
registration statement effective under the Securities Act of 1933, in an 
offering not of a continuing nature.
    (j) The term depository-eligible securities issue means an issue of 
securities that is eligible for deposit at any securities depository 
that is registered with the Commission under the Securities Exchange Act 
of 1934 as a clearing agency.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)); 
secs. 3, 17A and 23(a), 15 U.S.C. 78c, 78q-1 and 78w(a))

[42 FR 32411, June 24, 1977, as amended at 49 FR 40575, Oct. 17, 1984; 
51 FR 36551, Oct. 14, 1986]



Sec. 240.17Ad-2  Turnaround, processing, and forwarding of items.

    (a) Every registered transfer agent (except when acting as an 
outside registrar) shall turnaround within three business days of 
receipt at least 90 percent of all routine items received for transfer 
during a month. For the purposes of this paragraph, items received at or 
before noon on a business day shall be deemed to have been received at 
noon on that day, and items received after noon on a business day or 
received on a day not a business day shall be deemed to have been 
received at noon on the next business day.
    (b) Every registered transfer agent acting as an outside registrar 
shall process at least 90 percent of all items received during a month 
(1) by the opening of business on the next business day, in the case of 
items received at or before noon on a business day, and (2) by noon of 
the next business day, in the case of items received after noon on a 
business day. For the purposes of paragraphs (b) and (d) of this 
section, ``items received'' shall not include any item enumerated in 
Sec. 240.17Ad-1(i) (5), (6), (7), or (8) or any item which is not 
accompanied by a debit or cancelled certificate. For the purposes of 
this paragraph, items received on a day not a business day shall be 
deemed to have been received before noon on the next business day.
    (c) Any registered transfer agent which fails to comply with 
paragraph (a) of this section with respect to any month shall, within 
ten business days following the end of such month, file with the 
Commission and the transfer agent's appropriate regulatory agency, if it 
is not the Commission, a written notice in accordance with paragraph (h) 
of this section. Such notice shall state the number of routine items and 
the number of non-routine items received for transfer during the month, 
the number of routine items which the registered transfer agent failed 
to turnaround in accordance with the requirements of paragraph (a) of 
this section, the percentage that such routine items represent of all 
routine items received during the month, the reasons for such failure, 
the steps which have been taken, are being taken or will be taken to 
prevent a future failure and the number of routine items, aged in 
increments of one business day, which as of the close of business on the 
last business day of the month have been in its possession for more than 
four business days and have not been turned around.
    (d) Any registered transfer agent which fails to comply with 
paragraph (b) of this section with respect to any month shall, within 
ten business days following the end of such month, file with the 
Commission and the transfer agent's appropriate regulatory agency, if it 
is not the Commission, a written notice in accordance with paragraph (h) 
of this section. Such notice shall state the number of items received 
for processing during the month, the number of items which the 
registered transfer agent failed to process in accordance with the 
requirements of paragraph (b) of this section, the percentage that such 
items represent of all items received during the month, the reasons for 
such failure and the steps which have been taken, are being taken or 
will be taken to prevent a future failure and the number of items which 
as of the close of business on the last business day of the month have 
been in the transfer agent's possession for more than the time allowed 
for processing and have not been processed.

[[Page 469]]

    (e)(1) Except as provided in paragraph (e)(2) of this section, all 
routine items not turned around within three business days of receipt as 
required by paragraph (a) of this section and all items not processed 
within the periods required by paragraph (b) of this section shall be 
turned around promptly, and all nonroutine items shall receive diligent 
and continuous attention and shall be turned around as soon as possible.
    (2) A transfer agent that is exempt under Sec. 240.17Ad-4(b) and 
that has received 30 days notice of depository-eligibility of an issue 
for which it performs transfer agent functions shall turnaround ninety 
percent of all routine items received during a month within five 
business days of receipt. Such transfer agent shall devote diligent and 
continuous attention to the remaining ten percent of routine items and 
shall turnaround these items as soon as possible.
    (f) A registered transfer agent which receives items at locations 
other than the premises at which it performs transfer agent functions 
shall have appropriate procedures to assure, and shall assure, that 
items are forwarded to such premises promptly.
    (g) A registered transfer agent which receives processed items from 
an outside registrar shall have appropriate procedures to assure, and 
shall assure, that such items are made available promptly to the 
presentor.
    (h) Any notice required by this section or Sec. 240.17Ad-4 shall be 
filed as follows:
    (1) Any notice required to be filed with the Commission shall be 
filed in triplicate with the principal office of the Commission in 
Washington, DC 20549 and, in the case of a registered transfer agent for 
which the Commission is the appropriate regulatory agency, an additional 
copy shall be filed with the Regional or District Office of the 
Commission for the region or district in which the registered transfer 
agent has its principal office for transfer agent activities.
    (2) Any notice required to be filed with the Comptroller of the 
Currency shall be filed with the Office of the Comptroller of the 
Currency, Administrator of National Banks, Washington, DC 20219.
    (3) Any notice required to be filed with the Board of Governors of 
the Federal Reserve System shall be filed with the Board of Governors of 
the Federal Reserve System, Washington, DC 20251 and with the Federal 
Reserve Bank of the district in which the registered transfer agent's 
principal banking operations are conducted.
    (4) Any notice required to be filed with the Federal Deposit 
Insurance Corporation shall be filed with the Federal Deposit Insurance 
Corporation, Washington, DC 20429.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)); 
secs. 3, 17A and 23(a), 15 U.S.C. 78c, 78q-1, and 78w(a))

[42 FR 32412, June 24, 1977, as amended at 49 FR 40575, Oct. 17, 1984; 
59 FR 5946, Feb. 9, 1994]



Sec. 240.17Ad-3  Limitations on expansion.

    (a) Any registered transfer agent which is required to file any 
notice pursuant to Sec. 240.17Ad-2 (c) or (d) for each of three 
consecutive months shall not from the fifth business day after the end 
of the third such month until the end of the next following period of 
three successive months during which no such notices have been required:
    (1) Initiate the performance of any transfer agent function or 
activity for an issue for which the transfer agent does not perform, or 
is not under agreement to perform, transfer agent functions prior to 
such fifth business day; and
    (2) With respect to an issue for which transfer agent functions are 
being performed on such fifth business day, initiate for that issue the 
performance of an additional transfer agent function or activity which 
the transfer agent does not perform, or is not under agreement to 
perform, prior to such fifth business day.
    (b) Any registered transfer agent which for each of two consecutive 
months fails to turn around at least 75% of all routine items in 
accordance with the requirements of Sec. 240.17Ad-2(a) or to process at 
least 75% of all items in accordance with the requirements of Sec. 
240.17Ad-2(b) shall be subject to the limitations imposed by paragraph 
(a) of this section and further shall, within

[[Page 470]]

twenty business days after the close of the second such month, send to 
the chief executive officer of each issuer for which such registered 
transfer agent acts a copy of the written notice filed pursuant to Sec. 
240.17Ad-2 (c) or (d) with respect to the second such month.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32412, June 24, 1977]



Sec. 240.17Ad-4  Applicability of Sec. Sec. 240.17Ad-2, 240.17Ad-3 and 
240.17Ad-6(a) (1) through (7) and (11).

    (a) Sections 240.17Ad-2, 240.17Ad-3 and 240.17Ad-6(a) (1) through 
(7) and (11) shall not apply to interests in limited partnerships, to 
redeemable securities of investment companies registered under section 8 
of the Investment Company Act of 1940, or to interests in dividend 
reinvestment programs.
    (b)(1) For purposes of this section, exempt transfer agent means a 
transfer agent that during any six consecutive months shall have 
received fewer than 500 items for transfer and fewer than 500 items for 
processing.
    (2) Except as provided in paragraph (c) of this section, an exempt 
transfer agent that satisfies the requirements of paragraph (b)(3) shall 
be exempt from the provisions of Sec. Sec. 240.17Ad-2 (a), (b), (c), 
(d) and (h), 240.17Ad-3 and 240.17Ad-6(a) (2) through (7) and (11).
    (3) Within ten business days following the close of the sixth 
consecutive month described in paragraph (b)(1) of this section, an 
exempt transfer agent shall:
    (i) If its appropriate regulatory agency is either the Commission or 
the Office of the Comptroller of the Currency, prepare and maintain in 
its possession a document certifying that the transfer agent qualifies 
as exempt under paragraph (b)(1) of this section; or
    (ii) If its appropriate regulatory agency is either the Board of 
Governors of the Federal Reserve System or the Federal Deposit Insurance 
Corporation, file with the appropriate regulatory agency a notice 
certifying that it qualifies as exempt under paragraph (b)(1) of this 
section.
    (c) Within five business days following the close of each month, 
every exempt transfer agent shall calculate the number of items which it 
received during the preceding six months. Whenever any exempt transfer 
agent no longer qualifies as such under paragraph (b)(1), within ten 
business days after the end of such month: (1) It shall prepare and 
maintain in its possession a document so stating, if subject to 
paragraph (b)(3)(i) of this section; or (2) it shall file with its 
appropriate regulatory agency a notice to that effect, if subject to 
paragraph (b)(3)(ii) of this section. Thereafter, beginning with the 
first month following the month in which such document is required to be 
prepared or such notice is required to be filed, the registered transfer 
agent no longer shall be exempt under paragraph (b) of this section. Any 
registered transfer agent which has ceased to be an exempt transfer 
agent under this paragraph shall not qualify again for exemption until 
it has conducted its transfer agent operations pursuant to the foregoing 
sections for six consecutive months following the month in which it was 
required to prepare the document or prepare and file the notice 
specified in this paragraph.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32413, June 24, 1977, as amended at 48 FR 28246, June 21, 1983]



Sec. 240.17Ad-5  Written inquiries and requests.

    (a) When any person makes a written inquiry to a registered transfer 
agent concerning the status of an item presented for transfer during the 
preceding six months by such person or anyone acting on his behalf, 
which inquiry identifies the issue, the number of shares (or principal 
amount of debt securities or number of units if relating to any other 
kind of security) presented, the approximate date of presentment and the 
name in which it is registered, the registered transfer agent shall, 
within five business days following receipt of the inquiry, respond, 
stating whether the item has been received; if received, whether it has 
been transferred; if received and not transferred, the reason for the 
delay and what additional matter, if

[[Page 471]]

any, is necessary before transfer may be effected; and, if received and 
transferred, the date and manner in which the completed item was made 
available, the addressee and address to which it was made available and 
the number of any new certificate which was registered and the name in 
which it was registered. If a new certificate is dispatched or mailed to 
the presentor within five business days following receipt of an inquiry 
pertaining to that certificate, no further response to the inquiry shall 
be required pursuant to this paragraph.
    (b) When any broker-dealer requests in writing that a registered 
transfer agent acknowledge the transfer instructions and the possession 
of a security presented for transfer by such broker-dealer or revalidate 
a window ticket with respect to such security and the request identifies 
the issue, the number of shares (or principal amount of debt securities 
or number of units if relating to any other kind of security), the 
approximate date of presentment, the certificate number and the name in 
which it is registered, every registered transfer agent shall, within 
five business days following receipt of the request, in writing, confirm 
or deny possession of the security, and, if the registered transfer 
agent has possession, (1) acknowledge the transfer instructions or (2) 
revalidate the window ticket. If a new certificate is dispatched or 
mailed to the presentor within five business days following receipt of a 
request pertaining to that certificate, no further response to the 
inquiry shall be required pursuant to this paragraph.
    (c) When any person, or anyone acting under his authority, requests 
in writing that a transfer agent confirm possession as of a given date 
of a certificate presented by such person during the 30 days before the 
date the inquiry is received and the request identifies the issue, the 
number of shares (or principal amount of debt securities or number of 
units if relating to any other kind of security), the approximate date 
of presentment, the certificate number and the name in which the 
certificate was registered, every registered transfer agent shall, 
within ten business days following receipt of the request and upon 
assurance of payment of a reasonable fee if required by such transfer 
agent, make available a written response to such person, or anyone 
acting under his authority, confirming or denying possession of such 
security as of such given date.
    (d) When any person requests in writing a transcript of such 
person's account with respect to a particular issue, either as the 
account appears currently or as it appeared on a specific date not more 
than six months prior to the date the registered transfer agent receives 
the request, every registered transfer agent shall, within twenty 
business days following receipt of the request and upon assurance of 
payment of a reasonable fee if required by such transfer agent, make 
available to such person a transcript, ledger or statement of account in 
sufficient detail to permit reconstruction of such account as of the 
date for which the transcript was requested.
    (e)(1) Response to written inquiries concerning dividend and 
interest payments. A registered transfer agent shall respond, within ten 
business days of receipt, to current claims that contain sufficient 
detail. A registered transfer agent shall respond, within twenty 
business days of receipt, to aged claims that contain sufficient detail. 
The response shall indicate in writing that the inquiry has been 
received, whether the claim requires further research and, if so, a 
reasonable estimate of how long that research may take. If no further 
research is required, the response shall indicate whether that claim is 
being or will be paid and, if not, the reason for not paying the claim. 
A registered transfer agent shall devote diligent attention to 
unresolved inquiries and shall resolve all inquiries as soon as 
possible.
    (2) Misdirected written inquiries concerning dividend and interest 
payments. In the event that a transfer agent is not the dividend 
disbursing or interest paying agent for an issue that is the subject of 
a claim under this section, but performed those or any transfer agent 
services for that issue within the preceding three years, the transfer 
agent shall provide in writing to the inquirer, within ten business days 
of receipt of the inquiry, the name and

[[Page 472]]

address of the current dividend disbursing or interest paying agent. If 
the transfer agent did not perform those or other transfer agent 
services for the issue within the preceding three years, the transfer 
agent must respond to the inquiry and may respond by returning the 
inquiry with a statement that the transfer agent is not the current 
dividend disbursing or interest paying agent and that it does not know 
the name and address of the current dividend disbursing or interest 
paying agent.
    (3) As used in this paragraph:
    (i) A current claim means a written inquiry concerning non-payment 
or incorrect payment of dividends or interest, the payment date for 
which occurred within the preceding six months.
    (ii) An aged claim means a written inquiry concerning non-payment or 
incorrect payment of dividends or interest, the payment date for which 
occurred more than six months before the inquiry.
    (iii) Sufficient detail means a written inquiry or request that 
identifies: The issue; the name(s) in which the securities are 
registered; the number of shares (or principal amount of debt securities 
or number of units for any other kind of security) involved; the 
approximate record date(s) or payment date(s) relating to the claim; 
and, with respect to registered broker-dealers, registered clearing 
agencies, or banks, certificate numbers.
    (f) Telephone response. (1) A transfer agent may satisfy the written 
response requirements of this section by a telephone response to the 
inquirer if:
    (i) The telephone response resolves that inquiry; and
    (ii) The inquirer does not request a written response.
    (2) When any person makes a written inquiry or request that would 
qualify under paragraph (e) of this section except that it fails to 
provide sufficient detail as specified in paragraph (e)(3)(iii) of this 
section, a registered transfer agent may telephone the inquirer to 
obtain the necessary additional detail within the time periods specified 
in paragraph (e)(1) of this section. If the transfer agent does not 
receive the additional detail within ten business days, the transfer 
agent immediately shall make a written request for the additional 
information.
    (g)(1) When any person makes a written inquiry or request which 
would qualify under paragraph (a), (b), (c), or (d) of this section 
except that it fails to provide all of the information specified in 
those paragraphs, or requests information which refers to a time earlier 
than the time periods specified in those paragraphs, a registered 
transfer agent shall confirm promptly receipt of the inquiry or request 
and respond to it as soon as possible.
    (2) When any person makes a written inquiry or request which would 
qualify under paragraph (e) of this section except that it fails to 
provide sufficient detail as specified in paragraph (e)(3)(iii) of this 
section, a registered transfer agent must respond to the inquiry within 
the time periods specified in paragraph (e)(1) of this section. A 
registered transfer agent may respond to such an inquiry in accordance 
with paragraph (e)(1) of this section as though sufficient detail had 
been provided, or may return it to the inquirer, requesting the 
additional necessary details.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32413, June 24, 1977, as amended at 51 FR 5707, Feb. 18, 1986]



Sec. 240.17Ad-6  Recordkeeping.

    (a) Every registered transfer agent shall make and keep current the 
following:
    (1) A receipt, ticket, schedule, log or other record showing the 
business day each routine item and each non-routine item is (i) received 
from the presentor and, if applicable, from the outside registrar and 
(ii) made available to the presentor and, if applicable, to the outside 
registrar;
    (2) A log, tally, journal, schedule or other record showing for each 
month:
    (i) The number of routine items received;
    (ii) The number of routine items received during the month that were 
turned around within three business days of receipt;
    (iii) The number of routine items received during the month that 
were not

[[Page 473]]

turned around within three business days of receipt;
    (iv) The number of non-routine items received during the month;
    (v) The number of non-routine items received during the month that 
were turned around;
    (vi) The number of routine items that, as of the close of business 
on the last business day of each month, have been in such registered 
transfer agent's possession for more than four business days, aged in 
increments of one business day (beginning on the fifth business day); 
and
    (vii) The number of non-routine items in such registered transfer 
agent's possession as of the close of business on the last business day 
of each month;
    (3) With respect to items for which the registered transfer agent 
acts as an outside registrar:
    (i) A receipt, ticket, schedule, log or other record showing the 
date and time:
    (A) Each item is (1) received from the presenting transfer agent and 
(2) made available to the presenting transfer agent;
    (B) Each written or oral notice of refusal to perform the registrar 
function is made available to the presenting transfer agent (and the 
substance of the notice); and
    (ii) A log, tally, journal, schedule or other record showing for 
each month:
    (A) The number of items received;
    (B) The number of items processed within the time required by Sec. 
240.17Ad-2(b); and
    (C) The number of items not processed within the time required by 
Sec. 240.17Ad-2(b);
    (4) A record of calculations demonstrating the registered transfer 
agent's monitoring of its performance under Sec. 240.17Ad-2 (a) and 
(b);
    (5) A copy of any written notice filed pursuant to Sec. 240.17Ad-2;
    (6) Any written inquiry or request, including those not subject to 
the requirements of Sec. 240.17Ad-5, concerning an item, showing the 
date received; a copy of any written response to an inquiry or request, 
showing the date dispatched or mailed to the presentor; if no response 
to an inquiry or request was made, the date the certificate involved was 
made available to the presentor; or, in the case of an inquiry or 
request under Sec. 240.17Ad-5(a) responded to by telephone, a telephone 
log or memorandum showing the date and substance of any telephone 
response to the inquiry;
    (7) A log, journal, schedule or other record showing the number of 
inquiries subject to Sec. 240.17Ad-5 (a), (b), (c) and (d) received 
during each month but not responded to within the required time frames 
and the number of such inquiries pending as of the close of business on 
the last business day of each month;
    (8) Any document, resolution, contract, appointment or other 
writing, any supporting document, concerning the appointment and the 
termination of such appointment of such registered transfer agent to act 
in any capacity for any issue on behalf of the issuer, on behalf of 
itself as the issuer or on behalf of any person who was engaged by the 
issuer to act on behalf of the issuer;
    (9) Any record of an active (i.e., unreleased) stop order, notice of 
adverse claim or any other restriction on transfer;
    (10) A copy of any transfer journal and registrar journal prepared 
by such registered transfer agent; and
    (11) Any document upon which the transfer agent bases its 
determination that an item received for transfer was received in 
connection with a reorganization, tender offer, exchange, redemption, 
liquidation, conversion or the sale of securities registered pursuant to 
the Securities Act of 1933 and, accordingly, was not routine under Sec. 
240.17Ad-1(i) (5) or (8).
    (b) Every registered transfer agent which, under the terms of its 
agency, maintains securityholder records for an issue or which acts as a 
registrar for an issue shall, with respect to such issue, obtain from 
the issuer or its transfer agent and retain documentation setting forth 
the total number of shares or principal amount of debt securities or 
total number of units if relating to any other kind of security 
authorized and the total issued and outstanding pursuant to issuer 
authorization.
    (c) Every registered transfer agent which, under the terms of its 
agency,

[[Page 474]]

maintains securityholder records for an issue shall, with respect to 
such issue, retain each cancelled registered bond, debenture, share, 
warrant or right, other registered evidence of indebtedness, or other 
certificate of ownership and all accompanying documentation, except 
legal papers returned to the presentor.

(Secs. 2, 17, 17A and 23(a) (15 U.S.C. 78b, 78q, 78q-1 and 78w(a)))

[42 FR 32413, June 24, 1977]



Sec. 240.17Ad-7  Record retention.

    (a) The records required by Sec. 240.17Ad-6(a)(1), (3)(i), (6) or 
(11) shall be maintained for a period of not less than two years, the 
first six months in an easily accessible place.
    (b) The records required by Sec. 240.17Ad-6(a) (2), (3)(ii), (4), 
(5) or (7) shall be maintained for a period of not less than two years, 
the first year in an easily accessible place.
    (c) The records required by Sec. 240.17Ad-6(a) (8), (9) and (10) 
and (b) shall be maintained in an easily accessible place during the 
continuance of the transfer agency and shall be maintained for one year 
after termination of the transfer agency.
    (d) The records required by Sec. 240.17Ad-6(c) shall be maintained 
for a period of not less than six years, the first six months in an 
easily accessible place.
    (e) Every registered transfer agent shall maintain in an easily 
accessible place:
    (1) All records required under Sec. 240.17f-2(d) until at least 
three years after the termination of employment of those persons 
required by Sec. 240.17f-2 to be fingerprinted; and
    (2) All records required pursuant to Sec. 240.17f-2(e).
    (f) Subject to the conditions set forth in this section, the records 
required to be maintained pursuant to Sec. 240.17Ad-6 may be retained 
using electronic or micrographic media and may be preserved in those 
formats for the time required by Sec. 240.17Ad-7. Records stored 
electronically or micrographically in accordance with this paragraph may 
serve as a substitute for the hard copy records required to be 
maintained pursuant to Sec. 240.17Ad-6.
    (1) For purposes of this section:
    (i) The term micrographic media means microfilm or microfiche or any 
similar medium.
    (ii) The term electronic storage media means any digital storage 
medium or system.
    (iii) The term ARA means your appropriate regulatory agency as that 
term is defined in 15 U.S.C. 78c(a)(34).
    (2) If you as a registered transfer agent use electronic storage 
media or micrographic media to store your records, you must:
    (i) Have available at all times for examination by the staffs of the 
Commission and of your ARA facilities to project or produce immediately 
easily readable images of such records;
    (ii) Be ready at all times to provide such records that the staffs 
of the Commission and your ARA or their representatives may request;
    (iii) Create an accurate index of such records, store the index with 
those records, and have the index available at all times for examination 
by the staffs of the Commission and your ARA;
    (iv) Have quality assurance procedures to verify the quality and 
accuracy of the electronic or micrographic recording process; and
    (v) Maintain separately from the originals duplicates of the records 
and the index that you store on electronic storage media or micrographic 
media. You may store the duplicates of the indexed records on any medium 
permitted by this section. You must preserve the duplicate records and 
index for the same time that is required by this section for the indexed 
records, and you must have them available at all times for examination 
by the staffs of the Commission and your ARA.
    (3) Any electronic storage media that you use to store your records 
must:
    (i) Ensure the security and integrity of the records by means of 
manual and automated controls that assure the authenticity and quality 
of the electronic facsimile, detect attempts to alter or remove the 
records, and provide means to recover altered, damaged, or lost records 
resulting from any cause;
    (ii) Externally label all removable units of storage media using a 
unique

[[Page 475]]

identifier that allows the manual association of that removable storage 
unit with its place and order in the recordkeeping system; and
    (iii) Uniquely identify files and internally label each file with 
its unique name, the date and time of file creation, the date and time 
of last modification or extension, and a file sequence number when the 
file spans more than one volume.
    (4) If you use electronic storage media or micrographic media to 
store your records, you must establish an audit system that accounts for 
the inputting of and any changes to every record that is stored on 
electronic storage media or micrographic media. The results of such 
audit system must:
    (i) Be available at all times for examination by the staffs of the 
Commission and your ARA; and
    (ii) Be preserved for the same time that is required by this section 
for the underlying records.
    (5) If you use electronic storage media or micrographic media to 
store your records, you must:
    (i) Maintain, keep current, and provide promptly upon request by the 
staffs of the Commission and your ARA all information necessary to 
access the records and indexes stored on electronic storage media or 
micrographic media; and
    (ii) Place, or have a third party place on your behalf, in escrow 
with an independent third party and keep current a copy of the physical 
and logical format of the electronic storage or micrographic media, the 
field format of all different information types written on the 
electronic storage media and source code, and the appropriate 
documentation and information necessary to access records and indexes. 
The independent escrow agent must file an undertaking signed by a duly 
authorized person with the Commission and your ARA stating that:

    ``[Name of Third Party] hereby undertakes to furnish promptly upon 
request to the U.S. Securities and Exchange Commission, its designees, 
or representatives, upon reasonable request, a current copy of the 
physical and logical format of the electronic storage or micrographic 
media, the field format of all different information types written on 
the electronic storage media and source code, and the appropriate 
documentation and information necessary to access the records and 
indexes of [Name of Transfer Agent]'s electronic records management 
system.

    (6) (i) If you use a third party to maintain or preserve some or all 
of the required records using electronic storage media or micrographic 
media, such third party shall file a written undertaking signed by a 
duly authorized person with the Commission and your ARA stating that:

    ``With respect to any books and records maintained or preserved on 
behalf of [Name of Transfer Agent], [Name of Third Party] hereby 
undertakes to permit examination of such books and records at any time 
or from time to time during business hours by representatives or 
designees of the U.S. Securities and Exchange Commission, and to 
promptly furnish to said Commission or its designee true, correct, 
complete, and current hard copies of any or all or any part of such 
books and records.''

    (ii) Agreement with a third party to maintain your records shall not 
relieve you from the responsibility to prepare and maintain records as 
specified in this section or in Sec. 240.17Ad-6.
    (g) If the records required to be maintained and preserved by a 
registered transfer agent pursuant to the requirements of Sec. Sec. 
240.17Ad-6 and 240.17Ad-7 are maintained and preserved on behalf of the 
registered transfer agent by an outside service bureau, other 
recordkeeping service or the issuer, the registered transfer agent shall 
obtain, from such outside service bureau, other recordkeeping service or 
the issuer, an agreement, in writing, to the effect that:
    (1) Such records are subject at any time, or from time to time, to 
reasonable periodic, special, or other examinations by representatives 
of the Commission and the appropriate regulatory agency for such 
registered transfer agent if it is not the Commission; and
    (2) The outside service bureau, recordkeeping service, or issuer 
will furnish to the Commission and the appropriate regulatory agency, 
upon demand, at either the principal office or at any regional office, 
complete, correct and current hard copies of any and all such records.
    (h) When a registered transfer agent ceases to perform transfer 
agent functions for an issue, the responsibility of

[[Page 476]]

such transfer agent under Sec. 240.17Ad-7 to retain the records 
required to be made and kept current under Sec. 240.17Ad-6(a) (1), (6), 
(9), (10) and (11), (b) and (c) shall end upon the delivery of such 
records to the successor transfer agent.
    (i) The records required by Sec. Sec. 240.17Ad-17(c) and 240.17Ad-
19(c) shall be maintained for a period of not less than three years, the 
first year in an easily accessible place.

[42 FR 32414, June 24, 1977, as amended at 47 FR 54063, Dec. 1, 1982; 62 
FR 52237, Oct. 7, 1997; 66 FR 21659, May 1, 2001; 68 FR 74401, Dec. 23, 
2003; 68 FR 75054, Dec. 29, 2003]



Sec. 240.17Ad-8  Securities position listings.

    (a) For purposes of this section, the term securities position 
listing means, with respect to the securities of any issuer held by a 
registered clearing agency in the name of the clearing agency or its 
nominee, a list of those participants in the clearing agency on whose 
behalf the clearing agency holds the issuer's securities and of the 
participants' respective positions in such securities as of a specified 
date.
    (b) Upon request, a registered clearing agency shall furnish a 
securities position listing promptly to each issuer whose securities are 
held in the name of the clearing agency or its nominee. A registered 
clearing agency may charge issuers requesting securities position 
listings a fee designed to recover the reasonable costs of providing the 
securities position listing to the issuer.

(Secs. 2, 17A, and 23(a) (15 U.S.C. 78b, 78q-1, and 78w(a)))

[44 FR 76777, Dec. 28, 1979]



Sec. 240.17Ad-9  Definitions.

    As used in this section and Sec. Sec. 240.17Ad-10, 240.17Ad-11, 
240.17Ad-12 and 240.17Ad-13:
    (a) Certificate detail, with respect to certificated securities, 
includes, at a minimum, all of the following, and with respect to 
uncertificated securities, includes items (2) through (8):
    (1) The certificate number.
    (2) The number of shares for equity securities or the principal 
dollar amount for debt securities;
    (3) The securityholder's registration;
    (4) The address of the registered securityholder;
    (5) The issue date of the security;
    (6) The cancellation date of the security;
    (7) In the case of redeemable securities of investment companies, an 
appropriate description of each debit and credit (i.e., designation 
indicating purchase, redemption, or transfer); and
    (8) Any other identifying information about securities and 
securityholders the transfer agent reasonably deems essential to its 
recordkeeping system for the efficient and effective research of record 
differences.
    (b) Master securityholder file is the official list of individual 
securityholder accounts. With respect to uncertificated securities of 
companies registered under the Investment Company Act of 1940, the 
master securityholder file may consist of multiple, but linked, 
automated files.
    (c) A subsidiary file is any list or record of accounts, 
securityholders, or certificates that evidences debits or credits that 
have not been posted to the master securityholder file.
    (d) A control book is the record or other document that shows the 
total number of shares (in the case of equity securities) or the 
principal dollar amount (in the case of debt securities) authorized and 
issued by the issuer.
    (e) A credit is an addition of appropriate certificate detail to the 
master securityholder file.
    (f) A debit is a cancellation of appropriate certificate detail from 
the master securityholder file.
    (g) A record difference occurs when either:
    (1) The total number of shares or total principal dollar amount of 
securities in the master securityholder file does not equal the number 
of shares or principal dollar amount in the control book; or
    (2) The security transferred or redeemed contains certificate detail 
different from the certificate detail currently on the master 
securityholder file, which difference cannot be immediately resolved.
    (h) A recordkeeping transfer agent is the registered transfer agent 
that maintains and updates the master securityholder file.

[[Page 477]]

    (i) A co-transfer agent is the registered transfer agent that 
transfers securities but does not maintain and update the master 
securityholder file.
    (j) A named transfer agent is the registered transfer agent that is 
engaged by an issuer to perform transfer agent functions for an issue of 
securities but has engaged a service company to perform some or all of 
those functions.
    (k) A service company is the registered transfer agent engaged by a 
named transfer agent to perform transfer agent functions for that named 
transfer agent.
    (l) A file includes automated and manual records.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28246, June 21, 1983]



Sec. 240.17Ad-10  Prompt posting of certificate detail to master securityholder 

files, maintenance of accurate securityholder files, communications between co-
transfer agents and recordkeeping transfer agents, maintenance of current control 
book, retention of certificate detail and ``buy-in'' of physical over-issuance.

    (a)(1) Every recordkeeping transfer agent shall promptly and 
accurately post to the master securityholder file debits and credits 
containing minimum and appropriate certificate detail representing every 
security transferred, purchased, redeemed or issued; Provided, however, 
That if a security transferred or redeemed contains certificate detail 
different from that currently posted to the master securityholder file, 
the credit shall be posted to the master securityholder file and the 
debit and related certificate detail shall be maintained in a subsidiary 
file until resolved. The recordkeeping transfer agent shall exercise 
diligent and continuous attention to resolve the resulting record 
difference and, once resolved, shall post to the master securityholder 
file the debit maintained in the subsidiary file. Postings of 
certificate detail shall remain on the master securityholder file until 
a debit to a securityholder acount is appropriate.
    (2) As used in this paragraph, the term promptly means the following 
number of days after issuance, purchase, transfer, or redemption of a 
security:
    (i) With respect to recordkeeping transfer agents (other than 
transfer agents that perform transfer agent functions with respect to 
redeemable securities issued by investment companies registered under 
section 8 of the Investment Company Act of 1940) that are exempt 
transfer agents under Sec. 240.17Ad-4(b), 30 calendar days;
    (ii) With respect to recordkeeping transfer agents (other than 
transfer agents that perform transfer agent functions with respect to 
redeemable securities issued by investment companies registered under 
section 8 of the Investment Company Act of 1940) that:
    (A) Perform transfer agent functions solely for their own or their 
affiliated companies' securities issues, and
    (B) Employ batch posting systems, ten business days; and
    (iii) With respect to all other recordkeeping transfer agents, five 
business days;
    Provided, however, That all securities transferred, purchased, 
redeemed or issued prior to record date, but posted subsequent thereto, 
shall be posted as of the record date.
    (3) With respect to posting certificate detail from transfer 
journals received by the recordkeeping transfer agent from a co-transfer 
agent, the time frames set forth in paragraph (a)(2) shall commence upon 
receipt of those journals by the recordkeeping transfer agent.
    (b) Every recordkeeping transfer agent shall maintain and keep 
current an accurate master securityholder file and subsidiary files. If 
such transfer agent has any record difference, its master securityholder 
file and subsidiary files must accurately represent all relevant debits 
and credits until the record difference is resolve. The recordkeeping 
transfer agent shall exercise diligent and continuous attention to 
resolve all record differences.
    (c)(1) Every co-transfer agent shall dispatch or mail promptly to 
the recordkeeping transfer agent a record of debits and credits for 
every security transferred or issued. For the purposes of this 
paragraph, ``promptly'' means within two business days following

[[Page 478]]

transfer of each security, and, with respect to transfers occurring 
within five business days of record date, daily.
    (2) Within three business days following the end of each month, 
every co-transfer agent shall mail to the recordkeeping transfer agent 
for each issue of securities for which it acts as a co-transfer agent, a 
report setting forth:
    (i) The principal dollar amount of debt securities or the number of 
shares and related market value of equity securities comprising any buy-
in executed by the co-transfer agent during the preceding month pursuant 
to paragraph (g) of this section; and
    (ii) The reason for the buy-in.
    (d) Every co-transfer agent shall respond promptly to all inquiries 
from the recordkeeping transfer agent regarding records required to be 
dispatched or mailed by the co-transfer agent pursuant to Sec. 
240.17Ad-10(c). For the purposes of this paragraph, ``promptly'' means 
within five business days of receipt of an inquiry from a recordkeeping 
transfer agent.
    (e) Every recordkeeping transfer agent shall maintain and keep 
current an accurate control book for each issue of securities. A change 
in the control book shall not be made except upon written authorization 
from a duly authorized agent of the issuer.
    (f) Every recordkeeping transfer agent shall retain a record of all 
certificate detail deleted from the master securityholder file for a 
period of six years from the date of deletion. In lieu of maintaining a 
hard copy, a recordkeeping transfer agent may comply with this paragraph 
by complying with Sec. 240.17Ad-7(f) or Sec. 240.17Ad-7(g).
    (g)(1) A registered transfer agent, in the event of any actual 
physical overissuance that such transfer agent caused and of which it 
has knowledge, shall, within 60 days of the discovery of such 
overissuance, buy in securities equal to the number of shares in the 
case of equity securities or the principal dollar amount in the case of 
debt securities. During the sixty-day period, the registered transfer 
agent shall devote diligent attention to resolving the overissuance and 
recovering the certificates. This paragraph requires a buy-in only by 
the transfer agent that erroneously issued the certificate(s) giving 
rise to the physical overissuance, and applies only to those physical 
overissuances created by transfers or issuances subsequent to September 
30, 1983.
    (2) If a transfer agent obtains a letter from the party holding the 
overissued certificates that confirms that the overissued certificate(s) 
will be returned to the transfer agent not later than thirty days after 
the expiration of the sixty-day period, the transfer agent need not buy 
in securities by the sixtieth day. If, however, the certificate(s) are 
not returned to the transfer agent within the additional thirty-day 
period, the transfer agent immediately must execute the buy-in in 
accordance with paragraph (g)(1) of this section.
    (3) If the certificates involved are covered by a surety bond 
indemnifying the transfer agent for all expenses incurred as a result of 
actual overissuance, the transfer agent need not buy in the securities. 
The transfer agent, however, shall devote diligent attention to 
resolving the overissuance and recovering the certificates.
    (4) For purposes of this paragraph, discovery of the overissuance 
occurs when the transfer agent identifies the erroneously issued 
certificate(s) and the registered securityholder(s).
    (h) Subsequent to the effective date of this section, registered 
transfer agents that:
    (1) Assume the maintenance and updating of master securityholder 
files from predecessor transfer agents,
    (2) Establish a new master securityholder file for a particular 
issue, or
    (3) Convert from manual to automated systems,

must carry over any existing certificate detail required by this section 
on the master securityholder file.

A recordkeeping transfer agent shall not be required to add certificate 
detail to the master securityholder file respecting certificates issued 
prior to the effective date of this section.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28246, June 21, 1983, as amended at 51 FR 5708, Feb. 18, 1986]

[[Page 479]]



240.17Ad-11  Reports regarding aged record differences, buy-ins and 
failure to post certificate detail to master securityholder and subsidiary files.

    (a) Definitions. (1) Issuer capitalization means the market value of 
the issuer's authorized and outstanding equity securities or, with 
respect to a municipal securities issuer, the market value of all debt 
issues for which the transfer agent performs recordkeeping functions on 
behalf of that issuer, determined by reference to the control book and 
current market prices.
    (2) An aged record difference is a record difference that has 
existed for more than thirty calendar days.
    (b) Reports to Issuers. (1) Within ten business days following the 
end of each month, every recordkeeping transfer agent shall report the 
information specified in paragraph (d)(1) of this section to the persons 
specified in paragraph (b)(3) of this section, when the aggregate market 
value of aged record differences in all equity securities issues or debt 
securities issues maintained on behalf of a particular issuer exceeds 
the thresholds set forth in the table below.

------------------------------------------------------------------------
                                                 Aggregate market value
                                                     of aged record
                                                   differences exceeds
             Issuer capitalization             -------------------------
                                                 For equity    For debt
                                                 securities   securities
------------------------------------------------------------------------
(1) $5 million or less........................      $50,000     $100,000
(2) Greater than $5 million but less than $50       250,000      500,000
 million......................................
(3) Greater than $50 million but less than          500,000    1,000,000
 $150 million.................................
(4) Greater than $150 million.................    1,000,000    2,000,000
------------------------------------------------------------------------

    (2) Within ten business days following the end of each month (or 
within ten days thereafter in the case of a named transfer agent that 
receives a report from a service company pursuant to paragraph 
(b)(3)(i)(C)), every recordkeeping transfer agent shall report the 
information specified in paragraph (d)(2) of this section to the persons 
specified in paragraph (b)(3) of this section, with respect to each 
issue of securities for which it acts as recordkeeping transfer agent, 
concerning any securities bought-in pursuant to Sec. 240.17Ad-10(g) or 
reported as bought-in pursuant to Sec. 240.17Ad-10(c) during the 
preceding month.
    (3) The report shall be sent:
    (i) By every recordkeeping transfer agent (other than a 
recordkeeping transfer agent that performs transfer agent functions 
solely for its own securities):
    (A) To the official performing corporate secretary functions for the 
issuer of the securities for which the aged record difference exists or 
for which the buy-in occurred;
    (B) With respect to an issue of municipal securities, to the chief 
financial officer of the issuer of the securities for which the aged 
record difference exists or for which the buy-in occurred; or
    (C) If it acts as a service company, to the named transfer agent; 
and
    (ii) By every named transfer agent that is engaged by an issuer to 
maintain and update the master securityholder file:
    (A) To the official performing corporate secretary functions for the 
issuer of the securities for which the aged record difference exists or 
for which the buy-in occurred; or
    (B) With respect to an issue of municipal securities, to the chief 
financial officer of the issuer of the securities for which the aged 
record difference exists or for which the buy-in occurred.
    (c) Reports to appropriate regulatory agencies (1) Within ten 
business days following the end of each calendar quarter, every 
recordkeeping transfer agent shall report the information specified in 
paragraph (d)(1) of this section to its appropriate regulatory agency in 
accordance with Sec. 240.17Ad-2(h), when the aggregate market value of 
aged record differences for all issues for which it performs 
recordkeeping functions exceeds the thresholds specified below:
    (i) $300,000 if it is a recordkeeping transfer agent for 5 or fewer 
issues;
    (ii) $500,000 for 6-24 issues;
    (iii) $800,000 for 25-49 issues;
    (iv) $1 million for 50-74 issues;
    (v) $1.2 million for 75-99 issues;
    (vi) $1.4 million for 100-499 issues;
    (vii) $1.6 million for 500-999 issues;
    (viii) $2.6 million for 1,000-1,999 issues; and
    (ix) An additional $1 million for each additional 1,000 issues.

[[Page 480]]

    (2) Within ten business days following the end of each calendar 
quarter, every recordkeeping transfer agent shall report the information 
specified in paragraph (d)(2) of this section to its appropriate 
regulatory agency in accordance with Sec. 240.17Ad-2(h), concerning 
buy-ins of all issues for which it acts as recordkeeping transfer agent, 
when the aggregate market value of all buy-ins executed pursuant to 
Sec. 240.17Ad-10(g) during that calendar quarter exceeds $100,000.
    (3) When the recordkeeping transfer agent has any debits or credits 
for securities transferred, purchased, redeemed or issued that are 
unposted to the master securityholder and/or subsidiary files for more 
than five business days after debits and credits are required to be 
posted to the master securityholder file or subsidiary files pursuant to 
Sec. 240.17Ad-10, it shall immediately report such fact to its 
appropriate regulatory agency in accordance with Sec. 240.17Ad-2(h) and 
shall state in that report what steps have been, and are being, taken to 
correct the situation.
    (d) Content of reports. (1) Each report pursuant to paragraphs 
(b)(1) and (c)(1) of this section shall set forth with respect to each 
issue of securities:
    (i) The principal dollar amount and related market value of debt 
securities or the number of shares and related market value of equity 
securities comprising the aged record difference (including information 
concerning aged record differences existing as of the effective date of 
this section);
    (ii) The reasons for the aged record difference; and
    (iii) The steps being taken or to be taken to resolve the aged 
record difference.
    (2) Each report pursuant to paragraphs (b)(2) and (c)(2) of this 
section shall set forth with respect to each issue of securities:
    (i) The principal dollar amount of debt securities and related 
market value or the number of shares and related market value of equity 
securities comprising any buy-in executed pursuant to Sec. 240.17Ad-
10(g);
    (ii) The party that executed the buy-in; and
    (iii) The reason for the buy-in.
    (e) For purposes of this section, the market value of an issue shall 
be determined as of the last business day on which market value 
information is available during the reporting period.
    (f) A copy of any report required under this section shall be 
retained by the reporting transfer agent for a period of not less than 
three years, the first year in an easily accessible place.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28247, June 21, 1983]



Sec. 240.17Ad-12  Safeguarding of funds and securities.

    (a) Any registered transfer agent that has custody or possession of 
any funds or securities related to its transfer agent activities shall 
assure that:
    (1) All such securities are held in safekeeping and are handled, in 
light of all facts and circumstances, in a manner reasonably free from 
risk of theft, loss or destruction (other than by a transfer agent's 
certificate destruction procedures pursuant to Sec. 240.17Ad-19); and
    (2) All such funds are protected, in light of all facts and 
circumstances, against misuse. In evaluating which particular safeguards 
and procedures must be employed, the cost of the various safeguards and 
procedures as well as the nature and degree of potential financial 
exposure are two relevant factors.
    (b) For purposes of this section, the term securities shall have the 
same meaning as the term securities certificate as defined in Sec. 
240.17f-1(a)(6).

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28248, June 21, 1983, as amended at 68 FR 74401, Dec. 23, 2003]



Sec. 240.17Ad-13  Annual study and evaluation of internal accounting control.

    (a) Accountant's report. Every registered transfer agent, except as 
provided in paragraph (d) of this section, shall file annually with the 
Commission and the transfer agent's appropriate regulatory agency in 
accordance with Sec. 240.17Ad-2(h), a report specified in paragraph 
(a)(1) of this section prepared by an independent accountant

[[Page 481]]

concerning the transfer agent's system of internal accounting control 
and related procedures for the transfer of record ownership and the 
safeguarding of related securities and funds. That report shall be filed 
within 90 calendar days of the date of the study and evaluation set 
forth in paragraph (a)(1).
    (1) The accountant's report shall:
    (i) State whether the study and evaluation was made in accordance 
with generally accepted auditing standards using the criteria set forth 
in paragraph (a)(3) of this section;
    (ii) Describe any material inadequacies found to exist as of the 
date of the study and evaluation and any corrective action taken, or if 
no material inadequacy existed, the report shall so state;
    (iii) Comment on the current status of any material inadequacy 
described in the immediately preceding report; and
    (iv) Indicate the date of the study and evaluation.
    (2) The study and evaluation of the transfer agent's system of 
internal accounting control for the transfer of record ownership and the 
safeguarding of related securities and funds shall cover the following:
    (i) Transferring securities related to changes of ownership (i.e., 
cancellation of certificates or other instruments evidencing prior 
ownership and issuance of certificates or instruments evidencing current 
ownership);
    (ii) Registering changes of ownership on the books and records of 
the issuer;
    (iii) Transferring record ownership as a result of corporate actions 
(e.g., issuance, retirement, redemption, liquidation, conversion, 
exchange, tender offer or other types of reorganization);
    (iv) Dividend disbursement or interest paying-agent activities;
    (v) Administering dividend reinvestment programs; and
    (vi) Distributing statements respecting initial offerings of 
securities.
    (3) For purposes of this report, the objectives of a transfer 
agent's system of internal accounting control for the transfer of record 
ownership and the safeguarding of related securities and funds should be 
to provide reasonable, but not absolute, assurance that securities and 
funds are safeguarded against loss from unauthorized use or disposition 
and that transfer agent activities are performed promptly and 
accurately. For purposes of this report, a material inadequacy is a 
condition for which the independent accountant believes that the 
prescribed procedures or the degree of compliance with them do not 
reduce to a relatively low level the risk that errors or irregularities, 
in amounts that would have a significant adverse effect on the transfer 
agent's ability promptly and accurately to transfer record ownership and 
safeguard related securities and funds, would occur or not be detected 
within a timely period by employees in the normal course of performing 
their assigned functions. Occurrence of errors or irregularities more 
frequently than in isolated instances may be evidence that the system 
has a material inadequacy. A significant adverse effect on a transfer 
agent's ability promptly and accurately to transfer record ownership and 
safeguard related securities and funds could result from any condition 
or conditions that individually, or taken as a whole, would reasonably 
be expected to:
    (i) Inhibit the transfer agent from promptly and accurately 
discharging its responsibilities under its contractual agreement with 
the issuer;
    (ii) Result in material financial loss to the transfer agent; or
    (iii) Result in a violation of Sec. 240.17Ad-2, 17Ad-10 or 17Ad-
12(a).
    (b) Notice of corrective action. If the accountant's report 
describes any material inadequacy, the transfer agent shall, within 
sixty calendar days after receipt of the report, notify the Commission 
and its appropriate regulatory agency in writing regarding the 
corrective action taken or proposed to be taken.
    (c) Record retention. The accountant's report and any documents 
required by paragraph (b) of this section shall be maintained by the 
transfer agent for at least three years, the first year in an easily 
accessible place.
    (d) Exemptions. The requirements of Sec. 240.17Ad-13 shall not 
apply to registered transfer agents that qualify for exemptions pursuant 
to this paragraph, 17Ad-13(d).

[[Page 482]]

    (1) A registered transfer agent shall be exempt if it performs 
transfer agent functions solely for:
    (i) Its own securities;
    (ii) Securities issued by a subsidiary in which it owns 51% or more 
of the subsidiary's capital stock; and
    (iii) Securities issued by another corporation that owns 51% or more 
of the capital stock of the registered transfer agent.
    (2) A registered transfer agent shall be exempt if it:
    (i) Is an exempt transfer agent pursuant to Sec. 240.17AD-4(b); and
    (ii) In the case of a transfer agent that performs transfer agent 
functions for redeemable securities issued by companies registered under 
section 8 of the Investment Company Act of 1940, maintains master 
securityholder files consisting of fewer than 1000 shareholder accounts, 
in the aggregate, for each of such issues for which it performs transfer 
agent functions.
    (3) A registered transfer agent shall be exempt if it is a bank or 
financial institution subject to regulation by the Board of Governors of 
the Federal Reserve System, the Office of the Comptroller of the 
Currency or the Federal Deposit Insurance Corporation, provided that it 
is not notified to the contrary by its appropriate regulatory agency and 
provided that a report similar in scope to the requirements of Sec. 
240.17Ad-13(a) is prepared for either the bank's board of directors or 
an audit committee of the board of directors.

(Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 U.S.C. 78b, 78q(a), 78q-
1(d) and 78w(a))

[48 FR 28248, June 21, 1983]



Sec. 240.17Ad-14  Tender agents.

    (a) Establishing book-entry depository accounts. When securities of 
a subject company have been declared eligible by one or more qualified 
registered securities depositories for the services of those 
depositories at the time a tender or exchange offer is commenced, no 
registered transfer agent shall act on behalf of the bidder as a 
depositary, in the case of a tender offer, or an exchange agent, in the 
case of an exchange offer, in connection with a tender or exchange 
offer, unless that transfer agent has established, within two business 
days after commencement of the offer, specially designated accounts. 
These accounts shall be maintained throughout the duration of the offer, 
including protection periods, with all qualified registered securities 
depositories holding the subject company's securities, for purposes of 
receiving from depository participants securities being tendered to the 
bidder by book-entry delivery pursuant to transmittal letters and other 
documentation and for purposes of allowing tender agents to return to 
depository participants by book-entry movement securities withdrawn from 
the offer.
    (b) Exclusions. The rule shall not apply to tender or exchange 
offers (1) that are made for a class of securities of a subject company 
that has fewer than (i) 500 security holders of record for that class, 
or (ii) 500,000 shares of that class outstanding; or (2) that are made 
exclusively to security holders of fewer than 100 shares of a class of 
securities.
    (c) Definitions. For purposes of this rule, (1) the terms subject 
company, business day, security holders, and transmittal letter shall be 
given the meanings provided in Sec. 240.14d-1(b); (2) unless the 
context otherwise requires, a tender or exchange offer shall be deemed 
to have commenced as specified in Sec. 240.14d-2; (3) the term bidder 
shall mean any person who makes a tender or exchange offer or on whose 
behalf a tender or exchange offer is made; (4) a qualified registered 
securities depository shall mean a registered clearing agency having 
rules and procedures approved by the Commission pursuant to section 19 
of the Securities Exchange Act of 1934 to enable book-entry delivery of 
the securities of the subject company to, and return of those securities 
from, the transfer agent through the facilities of that securities 
depository; and (5) the term depositary refers to that agent of the 
bidder receiving securities from tendering depository participants and 
paying those participants for shares tendered. The term exchange agent 
refers to the agent performing like functions in connection with an 
exchange offer.
    (d) Exemptions. The Commission may exempt from the provisions of 
this

[[Page 483]]

rule, either unconditionally or on specified terms and conditions, any 
registered transfer agent, tender or exchange offer, or class of tender 
or exchange offers, if the Commission determines that an exemption is 
consistent with the public interest, the protection of investors, the 
prompt and accurate clearance and settlement of securities transactions, 
the maintenance of fair and orderly markets, or the removal of 
impediments to a national clearance and settlement system.

(Secs. 2, 11A(a)(1)(B), 14(d)(4), 15(c)(3), 15(c)(6), 17A(a), 17A(d)(1), 
and 23(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78b, 78k-
1(a)(1)(B), 78n(d)(4), 78o(c)(3), 78o(c)(6), 78q-1(a), 78q-1(d)(1) and 
78w(a)))

[49 FR 3071, Jan. 25, 1984]



Sec. 240.17Ad-15  Signature guarantees.

    (a) Definitions. For purposes of this section, the following terms 
shall mean:
    (1) Act means the Securities Exchange Act of 1934;
    (2) Eligible Guarantor Institution means:
    (i) Banks (as that term is defined in section 3(a) of the Federal 
Deposit Insurance Act [12 U.S.C. 1813(a)]);
    (ii) Brokers, dealers municipal securities dealers, municipal 
securities brokers, government securities dealers, and government 
securities brokers, as those terms are defined under the Act;
    (iii) Credit unions (as that term is defined in Section 19 (b)(1)(A) 
of the Federal Reserve Act [12 U.S.C. 461(b)]);
    (iv) National securities exchanges, registered securities 
associations, clearing agencies, as those terms are used under the Act; 
and
    (v) Savings associations (as that term is defined in section 3(b) of 
the Federal Deposit Insurance Act [12 U.S.C. 1813(b)]).
    (3) Guarantee means a guarantee of the signature of the person 
endorsing a certificated security, or originating an instruction to 
transfer ownership of a security or instructions concerning transfer of 
securities.
    (b) Acceptance of signature guarantees. A registered transfer agent 
shall not, directly or indirectly, engage in any activity in connection 
with a guarantee, including the acceptance or rejection of such 
guarantee, that results in the inequitable treatment of any eligible 
guarantor institution or a class of institutions.
    (c) Transfer agent's standards and procedures. Every registered 
transfer agent shall establish:
    (1) Written standards for the acceptance of guarantees of securities 
transfers from eligible guarantor institutions; and
    (2) Procedures, including written guidelines where appropriate, to 
ensure that those standards are used in determining whether to accept or 
reject guarantees from eligible guarantor institutions. Such standards 
and procedures shall not establish terms and conditions (including those 
pertaining to financial condition) that, as written or applied, treat 
different classes of eligible guarantor institutions inequitably, or 
result in the rejection of a guarantee from an eligible guarantor 
institution solely because the guarantor institution is of a particular 
type specified in paragraphs (a)(2)(i)-(a)(2)(v) of this section.
    (d) Rejection of items presented for transfer. (1) No registered 
transfer agent shall reject a request for transfer of a certificated or 
uncertificated security because the certificate, instruction, or 
documents accompanying the certificate or instruction includes an 
unacceptable guarantee, unless the transfer agent determines that the 
guarantor, if it is an eligible guarantor institution, does not satisfy 
the transfer agent's written standards or procedures.
    (2) A registered transfer agent shall notify the guarantor and the 
presentor of the rejection and the reasons for the rejection within two 
business days after rejecting a transfer request because of a 
determination that the guarantor does not satisfy the transfer agent's 
written standards or procedures. Notification to the presentor may be 
accomplished by making the rejected item available to the presentor. 
Notification to the guarantor may be accomplished by telephone, 
facsimile, or ordinary mail.
    (e) Record retention. (1) Every registered transfer agent shall 
maintain a copy of the standards and procedures specified in paragraph 
(c) of this section in an easily accessible place.

[[Page 484]]

    (2) Every registered transfer agent shall make available a copy of 
the standards and procedures specified in paragraph (c) of this section 
to any person requesting a copy of such standards and procedures. The 
registered transfer agent shall respond within three days of a request 
for such standards and procedures by sending the requesting party a copy 
of the requested transfer agent's standards and procedures.
    (3) Every registered transfer agent shall maintain, for a period of 
three years following the date of the rejection, a record of transfers 
rejected, including the reason for the rejection, who the guarantor was 
and whether the guarantor failed to meet the transfer agent's guarantee 
standards.
    (f) Exclusions. Nothing in this section shall prohibit a transfer 
agent from rejecting a request for transfer of a certificated or 
uncertificated security:
    (1) For reasons unrelated to acceptance of the guarantor 
institution;
    (2) Because the person acting on behalf of the guarantor institution 
is not authorized by that institution to act on its behalf, provided 
that the transfer agent maintains a list of people authorized to act on 
behalf of that guarantor institution; or
    (3) Because the eligible guarantor institution of a type specified 
in paragraph (a)(2)(ii) of this section is neither a member of a 
clearing corporation nor maintains net capital of at least $100,000.
    (g) Signature guarantee program. (1) A registered transfer agent 
shall be deemed to comply with paragraph (c) of this section if its 
standards and procedures include:
    (i) Rejecting a request for transfer because the guarantor is 
neither a member of nor a participant in a signature guarantee program; 
or
    (ii) Accepting a guarantee from an eligible guarantor institution 
who, at the time of issuing the guarantee, is a member of or participant 
in a signature guarantee program.
    (2) Within the first six months after revising its standards and 
procedures to include a signature guarantee program, the transfer agent 
shall not reject a request for transfer because the guarantor is neither 
a member of nor participant in a signature guarantee program, unless the 
transfer agent has given that guarantor ninety days written notice of 
the transfer agent's intent to reject transfers with guarantees from 
non-participating or non-member guarantors.
    (3) For purposes of paragraph (g) of this section, the term 
``signature guarantee program,'' means a program, the terms and 
conditions of which the transfer agent reasonably determines:
    (i) To facilitate the equitable treatment of eligible guarantor 
institutions; and
    (ii) To promote the prompt, accurate and safe transfer of securities 
by providing:
    (A) Adequate protection to the transfer agent against risk of 
financial loss in the event persons have no recourse against the 
eligible guarantor institution; and
    (B) Adequate protection to the transfer agent against the issuance 
of unauthorized guarantees.

[57 FR 1095, Jan. 10, 1992]



Sec. 240.17Ad-16  Notice of assumption or termination of transfer agent services.

    (a) A registered transfer agent that ceases to perform transfer 
agent services on behalf of an issuer of securities, including a 
registered transfer agent that ceases to perform transfer agent services 
on behalf of an issuer of securities because of a merger or acquisition 
by another transfer agent, shall send written notice of such termination 
to the appropriate qualified registered securities depository on or 
before the later of ten calendar days prior to the effective date of 
such termination or the day the transfer agent is notified of the 
effective date of such termination. Such notice shall include the full 
name, address, telephone number, and Financial Industry Number Standard 
(``FINS'') number of the transfer agent ceasing to perform the transfer 
agent services for the issuer; the issuer's name; the issue or issues 
handled and their CUSIP number(s); and if known, the name, address, and 
telephone number of the transfer agent that thereafter will provide 
transfer services for the issuer. If no successor transfer agent is 
known, the notice

[[Page 485]]

shall include the name and address of a contact person at the issuer.
    (b) A registered transfer agent that changes its name or address or 
that assumes transfer agent services on behalf of an issuer of 
securities, including a transfer agent that assumes transfer agent 
services on behalf of an issuer of securities because of a merger or 
acquisition of another transfer agent, shall send written notice of such 
to the appropriate qualified registered securities depository on or 
before the later of ten calendar days prior to the effective date of 
such change in status or the day the transfer agent is notified of the 
effective date of such change in status. A notice regarding a change of 
name or address shall include the full name, address, telephone number, 
and FINS number of the transfer agent and the location where 
certificates are received for transfer. A notice regarding the 
assumption of transfer agent services on behalf of an issuer of 
securities, including assumption of transfer agent services resulting 
from the merger or acquisition of another transfer agent, shall include 
the full name, address, telephone number, and FINS number of the 
transfer agent assuming the transfer agent services for the issuer; the 
issuer's name; and the issue or issues handled and their CUSIP 
number(s).
    (c) The notice described in paragraphs (a) and (b) of this section 
shall be delivered by means of secure communication. For purposes of 
this section, secure communication shall include telegraph, overnight 
mail, facsimile, or any other form of secure communication.
    (d)(1) The appropriate qualified registered securities depository 
that receives notices pursuant to paragraphs (a) and (b) of this section 
shall deliver within 24 hours a copy of such notices to each qualified 
registered securities depository. A qualified registered securities 
depository that receives notice pursuant to this section shall deliver a 
copy of such notices to its own participants within 24 hours.
    (2) A qualified registered securities depository may comply with its 
notice requirements under paragraph (d)(1) of this section by making 
available the notice of all material information from the notice within 
24 hours in a manner set forth in the rules of the qualified registered 
securities depository.
    (3) A qualified registered securities depository shall maintain such 
notices for a period of not less than two years, the first six months in 
an easily accessible place. Such notice shall be made available to the 
Commission or other persons as the Commission may designate by order.
    (4) A registered transfer agent that provides notice pursuant to 
paragraphs (a) and (b) of this section shall maintain such notice for a 
period of not less than two years, the first six months in an easily 
accessible place.
    (e) For purposes of this section, a qualified registered securities 
depository shall mean a clearing agency registered under section 17A of 
the Act (15 U.S.C. 78q-1) that performs clearing agency functions as 
described in section 3(a)(23)(A)(i) of the Act (15 U.S.C. 
78c(a)(23)(A)(i)) and that has rules and procedures concerning its 
responsibility for maintaining, updating, and providing appropriate 
access to the information it receives pursuant to this section.
    (f) For purposes of this section, an appropriate qualified 
registered securities depository shall mean the qualified registered 
securities depository that the Commission so designates by order or, in 
the absence of such designation, the qualified registered securities 
depository that is the largest holder of record of all qualified 
registered securities depositories as of the most recent record date.

[59 FR 63661, Dec. 8, 1994]



Sec. 240.17Ad-17  Transfer agents' obligation to search for lost securityholders.

    (a)(1) Every recordkeeping transfer agent whose master 
securityholder file includes accounts of lost securityholders shall 
exercise reasonable care to ascertain the correct addresses of such 
securityholders. In exercising reasonable care to ascertain for its 
master securityholder file such lost securityholders' current addresses, 
each recordkeeping transfer agent shall conduct two data base searches 
using at least one information data base service. The transfer agent 
shall

[[Page 486]]

search by taxpayer identification number or by name if a search based on 
taxpayer identification number is not reasonably likely to locate the 
securityholder. Such data base searches must be conducted without charge 
to a lost securityholder and with the following frequency:
    (i) Between three and twelve months of such securityholder becoming 
a lost securityholder and
    (ii) Between six and twelve months after the transfer agent's first 
search for such lost securityholder.
    (2) A transfer agent may not use a search method or service to 
establish contact with lost securityholders that results in a charge to 
a lost securityholder prior to completing the searches set forth in 
paragraph (a)(1) of this section.
    (3) A transfer agent need not conduct the searches set forth in 
paragraph (a)(1) of this section for a lost securityholder if:
    (i) It has received documentation that such securityholder is 
deceased or
    (ii) The aggregate value of assets listed in the lost 
securityholder's account, including all dividend, interest, and other 
payments due to the lost securityholder and all securities owned by the 
lost securityholder as recorded in the transfer agent's master 
securityholder files, is less that $25; or
    (iii) The securityholder is not a natural person.
    (b) For purposes of this section:
    (1) Information data base service means either:
    (i) Any automated data base service that contains addresses from the 
entire United States geographic area, contains the names of at least 50% 
of the United States adult population, is indexed by taxpayer 
identification number or name, and is updated at least four times a 
year; or
    (ii) Any service or combination of services which produces results 
comparable to those of the service described in paragraph (b)(1)(i) of 
this section in locating lost securityholders.
    (2) Lost securityholder means a securityholder:
    (i) To whom an item of correspondence that was sent to the 
securityholder at the address contained in the transfer agent's master 
securityholder file has been returned as undeliverable; provided, 
however, that if such item is re-sent within one month to the lost 
securityholder, the transfer agent may deem the securityholder to be a 
lost securityholder as of the day the resent item is returned as 
undeliverable; and
    (ii) For whom the transfer agent has not received information 
regarding the securityholder's new address.
    (c) Every recordkeeping transfer agent shall maintain records to 
demonstrate compliance with the requirements set forth in this section 
which shall include written procedures which describe the transfer 
agent's methodology for complying with this section.

[62 FR 52237, Oct. 7, 1997; 63 FR 1884, Jan. 12, 1998, as amended at 68 
FR 14316, Mar. 25, 2003]



Sec. 240.17Ad-18  Year 2000 Reports to be made by certain transfer agents.

    (a) Each registered non-bank transfer agent must file Part I of Form 
TA-Y2K (Sec. 249.619 of this chapter) with the Commission describing 
the transfer agent's preparation for Year 2000 Problems. Part I of Form 
TA-Y2K shall be filed no later than August 31, 1998, and April 30, 1999. 
Part I of Form TA-Y2K shall reflect the transfer agent's preparation for 
the Year 2000 as of July 15, 1998, and March 15, 1999, respectively.
    (b) Each registered non-bank transfer agent, except for those 
transfer agents that qualify for the exemption in paragraph (d) of Sec. 
240.17Ad-13, must file with the Commission Part II of Form TA-Y2K (Sec. 
249.619 of this chapter) in addition to Part I of Form TA-Y2K. Part II 
of Form TA-Y2K report shall address the following topics:
    (1) Whether the board of directors (or similar body) of the transfer 
agent has approved and funded plans for preparing and testing its 
computer systems for Year 2000 Problems;
    (2) Whether the plans of the transfer agent exist in writing and 
address all mission critical computer systems of the transfer agent 
wherever located throughout the world;
    (3) Whether the transfer agent has assigned existing employees, has 
hired new employees, or has engaged third parties to provide assistance 
in addressing Year 2000 Problems; and if so,

[[Page 487]]

a description of the work that these groups of individuals have 
performed as of the date of each report;
    (4) The current progress on each stage of preparation for potential 
problems caused by Year 2000 Problems. These stages are:
    (i) Awareness of potential Year 2000 Problems;
    (ii) Assessment of what steps the transfer agent must take to 
address Year 2000 Problems;
    (iii) Implementation of the steps needed to address Year 2000 
Problems;
    (iv) Internal testing of software designed to address Year 2000 
Problems, including the number and description of the material 
exceptions resulting from such testing that are unresolved as of the 
reporting date;
    (v) Point-to point or industry-wide testing of software designed to 
address Year 2000 Problems (including testing with other transfer 
agents, other financial institutions, and customers), including the 
number and description of the material exceptions resulting from such 
testing that are unresolved as of the reporting date; and
    (vi) Implementation of tested software that will address Year 2000 
Problems;
    (5) Whether the transfer agent has written contingency plans in the 
event that, after December 31, 1999, it has computer problems caused by 
Year 2000 Problems; and
    (6) What levels of the transfer agent's management are responsible 
for addressing potential problems caused by Year 2000 Problems, 
including a description of the responsibilities for each level of 
management regarding the Year 2000 Problems;
    (7) Any additional material information in both reports concerning 
its management of Year 2000 Problems that could help the Commission 
assess the transfer agent's readiness for the Year 2000.
    (8) Part II of Form TA-Y2K (Sec. 249.619 of this chapter) shall be 
filed no later than August 31, 1998, and April 30, 1999. Part II of Form 
TA-Y2K shall reflect the transfer agent's preparation for the Year 2000 
as of July 15, 1998, and March 15, 1999, respectively.
    (c) Any non-bank transfer agent that registers between the adoption 
of the final rule and December 31, 1999, must file with the Commission 
Part I of Form TA-Y2K (Sec. 249.619 of this chapter) no later than 30 
days after their registration becomes effective. New transfer agents 
whose registration with the Commission becomes effective between January 
1, 1999, and April 30, 1999, would be required to file the second report 
due on April 30, 1999.
    (d) For purposes of this section, the term Year 2000 Problem shall 
include problems arising from:
    (1) Computer software incorrectly reading the date ``01/01/00'' as 
being the year 1900 or another incorrect year;
    (2) Computer software incorrectly identifying a date in the Year 
1999 or any year thereafter;
    (3) Computer software failing to detect that the Year 2000 is a leap 
year; or
    (4) Any other computer software error that is directly or indirectly 
caused by paragraph (d)(1), (2), or (3) of this section.
    (e) For purposes of this section, the term non-bank transfer agent 
means a transfer agent whose:
    (1) Appropriate regulatory agency, as that term is defined by 15 
U.S.C. 78(c)(34)(B), is the Securities and Exchange Commission; and
    (2) Is not a savings association, as defined by Section 3 of the 
Federal Deposit Insurance Act, 12 U.S.C. 1813, which is regulated by the 
Office of Thrift Supervision.
    (f) Nature and form of reports. No later than April 30, 1999, every 
non-bank transfer agent required to file Part II of Form TA-Y2K (Sec. 
249.619 of this chapter) pursuant to paragraph (b)(8) of this section 
shall file with its Form TA-Y2K an original and two copies of a report 
prepared by an independent public accountant regarding the non-bank 
transfer agent's process, as of March 15, 1999, for addressing Year 2000 
Problems with the Commission's principal office in Washington, DC. The 
independent public accountant's report shall be prepared in accordance 
with standards that have been reviewed by the Commission and that have 
been issued by a national organization that

[[Page 488]]

is responsible for promulgating authoritative accounting and auditing 
standards.

[63 FR 37693, July 13, 1998, as amended at 63 FR 58635, Nov. 2, 1998]



Sec. 240.17Ad-19  Requirements for cancellation, processing, storage, 

transportation, and destruction or other disposition of securities 
certificates.

    (a) Definitions. For purposes of this section:
    (1) The terms cancelled or cancellation means the process in which a 
securities certificate:
    (i) Is physically marked to clearly indicate that it no longer 
represents a claim against the issuer; and
    (ii) Is voided on the records of the transfer agent.
    (2) The term cancelled certificate facility means any location where 
securities certificates are cancelled and thereafter processed, stored, 
transported, destroyed or otherwise disposed of.
    (3) The term certificate number means a unique identification or 
serial number that is assigned and affixed by an issuer or transfer 
agent to each securities certificate.
    (4) The term controlled access means the practice of permitting the 
entry of only authorized personnel to areas where securities 
certificates are cancelled and thereafter processed, stored, 
transported, destroyed or otherwise disposed of.
    (5) The term CUSIP number means the unique identification number 
that is assigned to each securities issue.
    (6) The term destruction means the physical ruination of a 
securities certificate by a transfer agent as part of the certificate 
destruction procedures that make the reconstruction of the certificate 
impossible.
    (7) The term otherwise disposed of means any disposition other than 
by destruction.
    (8) The term securities certificate has the same meaning that it has 
in Sec. 240.17f-1(a)(6).
    (b) Required procedures for the cancellation, storage, 
transportation, destruction, or other disposition of securities 
certificates. Every transfer agent involved in the handling, processing, 
or storage of securities certificates shall establish and implement 
written procedures for the cancellation, storage, transportation, 
destruction, or other disposition of securities certificates. This 
requirement applies to any agent that the transfer agent uses to perform 
any of these activities.
    (c) Written procedures. The written procedures required by paragraph 
(b) of this section at a minimum shall provide that:
    (1) There is controlled access to any cancelled certificate 
facility;
    (2) Each cancelled certificate be marked with the word ``CANCELLED'' 
by stamp or perforation on the face of the certificate unless the 
transfer agent has procedures adopted pursuant to this rule for the 
destruction of cancelled certificates within three business days of 
their cancellation;
    (3) A record that is indexed and retrievable by CUSIP and 
certificate number that contains the CUSIP number, certificate number 
with any prefix or suffix, denomination, registration, issue date, and 
cancellation date of each cancelled certificate;
    (4) A record that is indexed and retrievable by CUSIP and 
certificate number of each destroyed securities certificate or 
securities certificate otherwise disposed of, the records must contain 
for each destroyed or otherwise disposed of certificate the CUSIP 
number, certificate number with any prefix or suffix, denomination, 
registration, issue date, and cancellation date, and additionally for 
any certificate otherwise disposed of a record of how it was disposed 
of, the name and address of the party to whom it was disposed, and the 
date of disposition;
    (5) The physical transportation of cancelled certificates be made in 
a secure manner and that the transfer agent maintain separately a record 
of the CUSIP number and certificate number of each certificate in 
transit;
    (6) Authorized personnel of the transfer agent or its designee 
supervise and witness the intentional destruction of any cancelled 
certificate and retain copies of all records relating to certificates 
which were destroyed; and
    (7) Reports to the Lost and Stolen Securities Program be effected in 
a

[[Page 489]]

timely and complete manner, as provided in Sec. 240.17f-1 of any 
cancelled certificate that is lost, stolen, missing, or counterfeit.
    (d) Recordkeeping. Every transfer agent subject to this section 
shall maintain records that demonstrate compliance with the requirements 
set forth in this section and that describe the transfer agent's 
methodology for complying with this section for three years, the first 
year in an easily accessible place.
    (e) Exemptive authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from any of the provisions 
of this section, either unconditionally or on specific terms and 
conditions, to any transfer agent or any class of transfer agents and to 
any securities certificate or any class of securities certificates.

[68 FR 74401, Dec. 23, 2003]



Sec. 240.17Ad-21T  Operational capability in a Year 2000 environment.

    (a) This section applies to every registered non-bank transfer agent 
that uses computers in the conduct of its business as a transfer agent.
    (b)(1) You have a material Year 2000 problem if, at any time on or 
after August 31, 1999:
    (i) Any of your mission critical computer systems incorrectly 
identifies any date in the Year 1999 or the Year 2000, and
    (ii) The error impairs or, if uncorrected, is likely to impair, any 
of your mission critical systems under your control.
    (2) You will be presumed to have a material Year 2000 problem if, at 
any time on or after August 31, 1999, you:
    (i) Do not have written procedures reasonably designed to identify, 
assess, and remediate any material Year 2000 problems in your mission 
critical systems under your control;
    (ii) Have not verified your Year 2000 remediation efforts through 
reasonable internal testing of your mission critical systems under your 
control and reasonable testing of your external links under your 
control; or
    (iii) Have not remediated all exceptions related to your mission 
critical systems contained in any independent public accountant's report 
prepared on your behalf pursuant to Sec. 240.17Ad-18(f).
    (c) If you have or are presumed to have a material Year 2000 
problem, you must immediately notify the Commission and your issuers of 
the problem. You must send this notice to the Commission by overnight 
delivery to the Division of Market Regulation, U.S. Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-1002 
Attention: Y2K Compliance.
    (d)(1) If you are a registered non-bank transfer agent that has or 
is presumed to have a material Year 2000 problem, you may not, on or 
after August 31, 1999, engage in any transfer agent function, including:
    (i) Countersigning such securities upon issuance;
    (ii) Monitoring the issuance of such securities with a view to 
preventing unauthorized issuance;
    (iii) Registering the transfer of such securities;
    (iv) Exchanging or converting such securities; or
    (v) Transferring record ownership of securities by bookkeeping entry 
without physical issuance of securities certificates.
    (2) Notwithstanding paragraph (d)(1) of this section, you may 
continue to engage in transfer agent functions:
    (i) Until December 1, 1999, if you have submitted a certificate to 
the Commission in compliance with paragraph (e) of this section; or
    (ii) Solely to the extent necessary to effect an orderly cessation 
or transfer of these functions.
    (e)(1)(i) If you are a registered non-bank transfer agent that has 
or is presumed to have a material Year 2000 problem, you may, in 
addition to providing the Commission the notice required by paragraph 
(c) of this section, provide the Commission and your issuers a 
certificate signed by your chief executive officer (or an individual 
with similar authority) stating:
    (A) You are in the process of remediating your material Year 2000 
problem;
    (B) You have scheduled testing of your affected mission critical 
systems to verify that the material Year 2000 problem has been 
remediated, and specify the testing dates;

[[Page 490]]

    (C) The date by which you anticipate completing remediation of the 
material Year 2000 problem in your mission critical systems; and
    (D) Based on inquiries and to the best of the chief executive 
officer's knowledge, you do not anticipate that the existence of the 
material Year 2000 problem in your mission critical systems will impair 
your ability, depending on the nature of your business, to assure the 
prompt and accurate transfer and processing of securities, the 
maintenance of master securityholder files, or the production and 
retention of required records; and you anticipate that the steps 
referred to in paragraphs (e)(1)(i)(A) through (C) of this section will 
result in remedying the material Year 2000 problem on or before November 
15, 1999.
    (ii) If the information contained in any certificate provided to the 
Commission pursuant to paragraph (e) of this section is or becomes 
misleading or inaccurate for any reason, you must promptly file an 
updated certificate correcting such information. In addition to the 
information contained in the certificate, you may provide the Commission 
with any other information necessary to establish that your mission 
critical systems will not have material Year 2000 problems on or after 
November 15, 1999.
    (2) If you have submitted a certificate pursuant to paragraph (e)(1) 
of this section, you must submit a certificate to the Commission and 
your issuers signed by your chief executive officer (or an individual 
with similar authority) on or before November 15, 1999, stating that, 
based on inquiries and to the best of the chief executive officer's 
knowledge, you have remediated your Year 2000 problem or that you will 
cease operations. This certificate must be sent to the Commission by 
overnight delivery to the Division of Market Regulation, U.S. Securities 
and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-1002 
Attention: Y2K Compliance.
    (f) Notwithstanding paragraph (d)(2) of this section, you must 
comply with the requirements of paragraph (d)(1) of this section if you 
have been so ordered by the Commission or by a court.
    (g) Beginning August 31, 1999, and ending March 31, 2000, you must 
make backup records for all master securityholder files at the close of 
each business day and must preserve these backup records for a rolling 
five business day period in a manner that will allow for the transfer 
and conversion of the records to a successor transfer agent. If you have 
a material Year 2000 problem, you must preserve for at least one year 
the five day backup records immediately preceding the day the problem 
was discovered. In addition, you must make at the close of business on 
December 27 through 31, 1999, a backup copy for all master 
securityholder files and preserve these records for at least one year. 
Such backup records must permit the timely restoration of such systems 
to their condition existing prior to experiencing the material Year 2000 
problem. Copies of the backup records must be kept in an easily 
accessible place but must not be located with or held in the same 
computer system as the primary records, and you must be able to 
immediately produce or reproduce them. You must furnish promptly to a 
representative of the Commission such legible, true, and complete copies 
of those records, as may be requested.
    (h) For the purposes of this section:
    (1) The term mission critical system means any system that is 
necessary, depending on the nature of your business, to assure the 
prompt and accurate transfer and processing of securities, the 
maintenance of master securityholder files, and the production and 
retention of required records as described in paragraph (d) of this 
section;
    (2) The term customer includes an issuer, transfer agent, or other 
person for which you provide transfer agent services;
    (3) The term registered non-bank transfer agent means a transfer 
agent, whose appropriate regulatory agency is the Commission and not the 
Office of the Comptroller of the Currency, the Board of Governors of the 
Federal Reserve System, or the Federal Deposit Insurance Corporation; 
and
    (4) The term master securityholder file has the same definition as 
defined in Sec. 240.17Ad-9(b).

[[Page 491]]

    (i) This temporary section will expire on July 1, 2001.

[64 FR 42029, Aug. 3, 1999]

              Suspension and Expulsion of Exchange Members



Sec. 240.19a3-1  [Reserved]



Sec. 240.19b-3  [Reserved]



Sec. 240.19b-4  Filings with respect to proposed rule changes by self-regulatory 
organizations.

    (a) Filings with respect to proposed rule changes by a self-
regulatory organization, except filings with respect to proposed rule 
changes by self-regulatory organizations submitted pursuant to Section 
19(b)(7) of the Act (15 U.S.C. 78s(b)(7)), shall be made on Form 19b-4 
(Sec. 249.819 of this chapter).
    (b) The term stated policy, practice, or interpretation means:
    (1) Any material aspect of the operation of the facilities of the 
self-regulatory organization; or
    (2) Any statement made generally available to the membership of, to 
all participants in, or to persons having or seeking access (including, 
in the case of national securities exchanges or registered securities 
associations, through a member) to facilities of, the self-regulatory 
organization (``specified persons''), or to a group or category of 
specified persons, that establishes or changes any standard, limit, or 
guideline with respect to:
    (i) The rights, obligations, or privileges of specified persons or, 
in the case of national securities exchanges or registered securities 
associations, persons associated with specified persons; or
    (ii) The meaning, administration, or enforcement of an existing 
rule.
    (c) A stated policy, practice, or interpretation of the self-
regulatory organization shall be deemed to be a proposed rule change 
unless (1) it is reasonably and fairly implied by an existing rule of 
the self-regulatory organization or (2) it is concerned solely with the 
administration of the self-regulatory organization and is not a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the self-
regulatory organization.
    (d) Regardless of whether it is made generally available, an 
interpretation of an existing rule of the self-regulatory organization 
shall be deemed to be a proposed rule change if (1) it is approved or 
ratified by the governing body of the self-regulatory organization and 
(2) it is not reasonably and fairly implied by that rule.
    (e) For the purposes of this paragraph, new derivative securities 
product means any type of option, warrant, hybrid securities product or 
any other security whose value is based, in whole or in part, upon the 
performance of, or interest in, an underlying instrument.
    (1) The listing and trading of a new derivative securities product 
by a self-regulatory organization shall not be deemed a proposed rule 
change, pursuant to paragraph (c)(1) of this section, if the Commission 
has approved, pursuant to section 19(b) of the Act (15 U.S.C. 78s(b)), 
the self-regulatory organization's trading rules, procedures and listing 
standards for the product class that would include the new derivative 
securities product and the self-regulatory organization has a 
surveillance program for the product class.
    (2) Recordkeeping and reporting:
    (i) Self-regulatory organizations shall retain at their principal 
place of business a file, available to Commission staff for inspection, 
of all relevant records and information pertaining to each new 
derivative securities product traded pursuant to this paragraph (e) for 
a period of not less than five years, the first two years in an easily 
accessible place, as prescribed in Sec. 240.17a-1.
    (ii) When relying on this paragraph (e), a self-regulatory 
organization shall submit Form 19b-4(e) (17 CFR 249.820) to the 
Commission within five business days after commencement of trading a new 
derivative securities product.
    (f) A proposed rule change may take effect upon filing with the 
Commission pursuant to Section 19(b)(3)(A) of the Act, 15 U.S.C. 
78s(b)(3)(A), if properly designated by the self-regulatory organization 
as:
    (1) Constituting a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule;
    (2) Establishing or changing a due, fee, or other charge;

[[Page 492]]

    (3) Concerned solely with the administration of the self-regulatory 
organization;
    (4) Effecting a change in an existing service of a registered 
clearing agency that:
    (i) Does not adversely affect the safeguarding of securities or 
funds in the custody or control of the clearing agency or for which it 
is responsible; and
    (ii) Does not significantly affect the respective rights or 
obligations of the clearing agency or persons using the service;
    (5) Effecting a change in an existing order-entry or trading system 
of a self-regulatory organization that:
    (i) Does not significantly affect the protection of investors or the 
public interest;
    (ii) Does not impose any significant burden on competition; and
    (iii) Does not have the effect of limiting the access to or 
availability of the system; or
    (6) Effecting a change that:
    (i) Does not significantly affect the protection of investors or the 
public interest;
    (ii) Does not impose any significant burden on competition; and
    (iii) By its terms, does not become operative for 30 days after the 
date of the filing, or such shorter time as the Commission may designate 
if consistent with the protection of investors and the public interest; 
provided that the self-regulatory organization has given the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
    (g) After instituting a proceeding to determine whether a proposed 
rule change should be disapproved, the Commission will afford the self-
regulatory organization and interested persons an opportunity to submit 
additional written data, views, and arguments and may afford, in the 
discretion of the Commission, an opportunity to make oral presentations.
    (h) Notice of orders issued pursuant to section 19(b) of the Act 
will be given by prompt publication thereof, together with a statement 
of written reasons therefor.
    (i) Self-regulatory organizations shall retain at their principal 
place of business a file, available to interested persons for public 
inspection and copying, of all filings made pursuant to this section and 
all correspondence and other communications reduced to writing 
(including comment letters) to and from such self-regulatory 
organization concerning any such filing, whether such correspondence and 
communications are received or prepared before or after the filing of 
the proposed rule change.

[45 FR 73914, Nov. 7, 1980, as amended at 59 FR 66701, Dec. 28, 1994; 63 
FR 70967, Dec. 22, 1998; 66 FR 43742, Aug. 20, 2001]



Sec. 240.19b-5  Temporary exemption from the filing requirements of 
Section 19(b) of the Act.

                            Preliminary Notes

    1. The following section provides for a temporary exemption from the 
rule filing requirement for self-regulatory organizations that file 
proposed rule changes concerning the operation of a pilot trading system 
pursuant to section 19(b) of the Act (15 U.S.C. 78s(b), as amended). All 
other requirements under the Act that are applicable to self-regulatory 
organizations continue to apply.
    2. The disclosures made pursuant to the provisions of this section 
are in addition to any other applicable disclosure requirements under 
the federal securities laws.
    (a) For purposes of this section, the term specialist means any 
member subject to a requirement of a self-regulatory organization that 
such member regularly maintain a market in a particular security.
    (b) For purposes of this section, the term trading system means the 
rules of a self-regulatory organization that:
    (1) Determine how the orders of multiple buyers and sellers are 
brought together; and
    (2) Establish non-discretionary methods under which such orders 
interact with each other and under which the buyers and sellers entering 
such orders agree to the terms of trade.

[[Page 493]]

    (c) For purposes of this section, the term pilot trading system 
shall mean a trading system operated by a self-regulatory organization 
that is not substantially similar to any trading system or pilot trading 
system operated by such self-regulatory organization at any time during 
the preceding year, and that:
    (1)(i) Has been in operation for less than two years;
    (ii) Is independent of any other trading system operated by such 
self-regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b));
    (iii) With respect to each security traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 5 percent of the average daily trading 
volume of such security in the United States; and
    (iv) With respect to all securities traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 20 percent of the average daily trading 
volume of all trading systems operated by such self-regulatory 
organization; or
    (2)(i) Has been in operation for less than two years;
    (ii) With respect to each security traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 1 percent of the average daily trading 
volume of such security in the United States; and
    (iii) With respect to all securities traded on such pilot trading 
system, during at least two of the last four consecutive calendar 
months, has traded no more than 20 percent of the average daily trading 
volume of all trading systems operated by such self-regulatory 
organization; or
    (3)(i) Has been in operation for less than two years; and
    (ii)(A) Satisfied the definition of pilot trading system under 
paragraph (c)(1) of this section no more than 60 days ago, and continues 
to be independent of any other trading system operated by such self-
regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)); or
    (B) Satisfied the definition of pilot trading system under paragraph 
(c)(2) of this section no more than 60 days ago.
    (d) A pilot trading system shall be deemed independent of any other 
trading system operated by a self-regulatory organization if:
    (1) Such pilot trading system trades securities other than the 
issues of securities that trade on any other trading system operated by 
such self-regulatory organization that has been approved by the 
Commission pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b));
    (2) Such pilot trading system does not operate during the same 
trading hours as any other trading system operated by such self-
regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)); or
    (3) No specialist or market maker on any other trading system 
operated by such self-regulatory organization that has been approved by 
the Commission pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)), 
is permitted to effect transactions on the pilot trading system in 
securities in which they are a specialist or market maker.
    (e) A self-regulatory organization shall be exempt temporarily from 
the requirement under section 19(b) of the Act, (15 U.S.C. 78s(b)), to 
submit on Form 19b-4, 17 CFR 249.819, proposed rule changes for 
establishing a pilot trading system, if the self-regulatory organization 
complies with the following requirements:
    (1) Form PILOT. The self-regulatory organization:
    (i) Files Part I of Form PILOT, 17 CFR 249.821, in accordance with 
the instructions therein, at least 20 days prior to commencing operation 
of the pilot trading system;
    (ii) Files an amendment on Part I of Form PILOT at least 20 days 
prior to implementing a material change to the operation of the pilot 
trading system; and
    (iii) Files a quarterly report on Part II of Form PILOT within 30 
calendar days after the end of each calendar

[[Page 494]]

quarter in which the market has operated after the effective date of 
this section.
    (2) Fair access.
    (i) The self-regulatory organization has in place written rules to 
ensure that all members of the self-regulatory organization have fair 
access to the pilot trading system, and that information regarding 
orders on the pilot trading system is equally available to all members 
of the self-regulatory organization with access to such pilot trading 
system.
    (ii) Notwithstanding the requirement in paragraph (e)(2)(i) of this 
section, a specialist on the pilot trading system may have preferred 
access to information regarding orders that it represents in its 
capacity as specialist.
    (iii) The rules established by a self-regulatory organization 
pursuant to paragraph (e)(2)(i) of this section will be considered rules 
governing the pilot trading system for purposes of the temporary 
exemption under this section.
    (3) Trading rules and procedures and listing standards.
    (i) The self-regulatory organization has in place written trading 
rules and procedures and listing standards necessary to operate the 
pilot trading system.
    (ii) The rules established by a self-regulatory organization 
pursuant to paragraph (e)(3)(i) of this section will be considered rules 
governing the pilot trading system for purposes of the temporary 
exemption under this section.
    (4) Surveillance. The self-regulatory organization establishes 
internal procedures for the effective surveillance of trading activity 
on the self-regulatory organization's pilot trading system.
    (5) Clearance and settlement. The self-regulatory organization 
establishes reasonable clearance and settlement procedures for 
transactions effected on the self-regulatory organizations pilot trading 
system.
    (6) Types of securities. The self-regulatory organization permits to 
trade on the pilot trading system only securities registered under 
section 12 of the Act, (15 U.S.C. 78l).
    (7) Activities of specialists.
    (i) The self-regulatory organization does not permit any member to 
be a specialist in a security on the pilot trading system and a 
specialist in a security on a trading system operated by such self-
regulatory organization that has been approved by the Commission 
pursuant to section 19(b) of the Act, (15 U.S.C. 78s(b)), or on another 
pilot trading system operated by such self-regulatory organization, if 
such securities are related securities, except that a member may be a 
specialist in related securities that the Commission, upon application 
by the self-regulatory organization, later determines is necessary or 
appropriate in the public interest and consistent with the protection of 
investors;
    (ii) Notwithstanding paragraph (e)(7)(i) of this section, a self-
regulatory organization may permit a member to be a specialist in any 
security on a pilot trading system, if the pilot trading system is 
operated during trading hours different from the trading hours of the 
trading system in which such member is a specialist.
    (iii) For purposes of paragraph (e)(7) of this section, the term 
related securities means any two securities in which:
    (A) The value of one security is determined, in whole or significant 
part, by the performance of the other security; or
    (B) The value of both securities is determined, in whole or 
significant part, by the performance of a third security, combination of 
securities, index, indicator, interest rate or other common factor.
    (8) Examinations, inspections, and investigations. The self-
regulatory organization cooperates with the examination, inspection, or 
investigation by the Commission of transactions effected on the pilot 
trading system.
    (9) Recordkeeping. The self-regulatory organization shall retain at 
its principal place of business and make available to Commission staff 
for inspection, all the rules and procedures relating to each pilot 
trading system operating pursuant to this section for a period of not 
less than five years, the first two years in an easily accessible place, 
as prescribed in Sec. 240.17a-1.
    (10) Public availability of pilot trading system rules. The self-
regulatory organization makes publicly available all trading rules and 
procedures, including

[[Page 495]]

those established under paragraphs (e)(2) and (e)(3) of this section.
    (11) Every notice or amendment filed pursuant to this paragraph (e) 
shall constitute a ``report'' within the meaning of sections 11A, 17(a), 
18(a), and 32(a), (15 U.S.C. 78k-1, 78q(a), 78r(a), and 78ff(a)), and 
any other applicable provisions of the Act. All notices or reports filed 
pursuant to this paragraph (e) shall be deemed to be confidential until 
the pilot trading system commences operation.
    (f)(1) A self-regulatory organization shall request Commission 
approval, pursuant to section 19(b)(2) of the Act, (15 U.S.C. 
78s(b)(2)), for any rule change relating to the operation of a pilot 
trading system by submitting Form 19b-4, 17 CFR 249.819, no later than 
two years after the commencement of operation of such pilot trading 
system, or shall cease operation of the pilot trading system.
    (2) Simultaneous with a request for Commission approval pursuant to 
section 19(b)(2) of the Act, (15 U.S.C. 78s(b)(2)), a self-regulatory 
organization may request Commission approval pursuant to section 
19(b)(3)(A) of the Act, (15 U.S.C. 78s(b)(3)(A)), for any rule change 
relating to the operation of a pilot trading system by submitting Form 
19b-4, 17 CFR 249.819, effective immediate upon filing, to continue 
operations of such trading system for a period not to exceed six months.
    (g) Notwithstanding paragraph (e) of this section, rule changes with 
respect to pilot trading systems operated by a self-regulatory 
organization shall not be exempt from the rule filing requirements of 
section 19(b)(2) of the Act, (15 U.S.C. 78s(b)(2)), if the Commission 
determines, after notice to the SRO and opportunity for the SRO to 
respond, that exemption of such rule changes is not necessary or 
appropriate in the public interest or consistent with the protection of 
investors.

[63 FR 70920, Dec. 22, 1998]



Sec. 240.19b-7  Filings with respect to proposed rule changes submitted 
pursuant to Section 19(b)(7) of the Act.

    (a) Filings with respect to proposed rule changes required to be 
submitted pursuant to Section 19(b)(7) of the Act (15 U.S.C. 78s(b)(7)), 
shall be made on Form 19b-7 (Sec. 249.822 of this chapter). The 
Commission will promptly publish a notice of filing of such proposed 
rule change.
    (b) A proposed rule change will not be deemed filed on the date it 
is received by the Commission unless:
    (1) A completed Form 19b-7 (Sec. 249.822 of this chapter) is 
submitted; and
    (2) In order to elicit meaningful comment, it is accompanied by:
    (i) A clear and accurate statement of the basis and purpose of such 
rule change, including the impact on competition or efficiency, if any; 
and
    (ii) A summary of any written comments (including e-mail) received 
by the self-regulatory organization on the proposed rule change.
    (c) Self-regulatory organizations shall retain at their principle 
place of business a file, available to interested persons for public 
inspection and copying, of all filings made pursuant to this section and 
all correspondence and other communications reduced to writing 
(including comment letters) to and from such self-regulatory 
organization concerning such filing, whether such correspondence and 
communications are received or prepared before or after the filing of 
the proposed rule change.

[66 FR 43743, Aug. 20, 2001]



Sec. 240.19c-1  Governing certain off-board agency transactions by members 
of national securities exchanges.

    The rules of each national securities exchange shall provide as 
follows:
    No rule, stated policy, or practice of this exchange shall prohibit 
or condition, or be construed to prohibit or condition or otherwise 
limit, directly or indirectly, the ability of any member acting as agent 
to effect any transaction otherwise than on this exchange with another 
person (except when such member also is acting as agent for such other 
person in such transaction), in any equity security listed on this 
exchange or to which unlisted trading

[[Page 496]]

privileges on this exchange have been extended.

(Secs. 2, 3, 6, 11, 17, 19, 23, Pub. L. 78-291, 48 Stat. 881, 882, 885, 
891, 897, 898, 901, as amended by secs. 2, 3, 6, 14, 16, 18, Pub. L. 94-
29, 89 Stat. 97, 104, 110, 137, 146, 155 (15 U.S.C. 78b, 78c, 78f, 78k, 
78q, 78s, 78w, as amended by Pub. L. 94-29 (June 4, 1975)); sec. 7 Pub. 
L. 94-29, 89 Stat. 111 ( 15 U.S.C. 78k-1))

[43 FR 1328, Jan. 9, 1978]



Sec. 240.19c-3  Governing off-board trading by members of national 
securities exchanges.

    The rules of each national securities exchange shall provide as 
follows:
    (a) No rule, stated policy or practice of this exchange shall 
prohibit or condition, or be construed to prohibit, condition or 
otherwise limit, directly or indirectly, the ability of any member to 
effect any transaction otherwise than on this exchange in any reported 
security listed and registered on this exchange or as to which unlisted 
trading privileges on this exchange have been extended (other than a put 
option or call option issued by the Options Clearing Corporation) which 
is not a covered security.
    (b) For purposes of this rule,
    (1) The term Act shall mean the Securities Exchange Act of 1934, as 
amended.
    (2) The term exchange shall mean a national securities exchange 
registered as such with the Securities and Exchange Commission pursuant 
to section 6 of the Act.
    (3) The term covered security shall mean (i) Any equity security or 
class of equity securities which
    (A) Was listed and registered on an exchange on April 26, 1979, and
    (B) Remains listed and registered on at least one exchange 
continuously thereafter;
    (ii) Any equity security or class of equity securities which
    (A) Was traded on one or more exchanges on April 26, 1979, pursuant 
to unlisted trading privileges permitted by section 12(f)(1)(A) of the 
Act, and
    (B) Remains traded on any such exchange pursuant to such unlisted 
trading privileges continuously thereafter; and
    (iii) Any equity security or class of equity securities which
    (A) Is issued in connection with a statutory merger, consolidation 
or similar plan or reorganization (including a reincorporation or change 
of domicile) in exchange for an equity security or class of equity 
securities described in paragraph (b)(3)(i) or (ii) of this rule,
    (B) Is listed and registered on an exchange after April 26, 1979, 
and
    (C) Remains listed and registered on at least one exchange 
continuously thereafter.
    (4) The term reported security shall mean any security or class of 
securities for which transaction reports are collected, processed and 
made available pursuant to an effective transaction reporting plan.
    (5) The term transaction report shall mean a report containing the 
price and volume associated with a completed transaction involving the 
purchase or sale of a security.
    (6) The term effective transaction reporting plan shall mean any 
plan approved by the Commission pursuant to Sec. 240.11Aa3-1 (Rule 
11Aa3-1 under the Act) for collecting, processing and making available 
transaction reports with respect to transactions in an equity security 
or class of equity securities.

[45 FR 41134, June 18, 1980]



Sec. 240.19c-4  Governing certain listing or authorization determinations 
by national securities exchanges and associations.

    (a) The rules of each exchange shall provide as follows: No rule, 
stated policy, practice, or interpretation of this exchange shall permit 
the listing, or the continuance of the listing, of any common stock or 
other equity security of a domestic issuer, if the issuer of such 
security issues any class of security, or takes other corporate action, 
with the effect of nullifying, restricting or disparately reducing the 
per share voting rights of holders of an outstanding class or classes of 
common stock of such issuer registered pursuant to section 12 of the 
Act.
    (b) The rules of each association shall provide as follows: No rule, 
stated policy, practice, or interpretation of this association shall 
permit the authorization for quotation and/or transaction

[[Page 497]]

reporting through an automated inter-dealer quotation system 
(``authorization''), or the continuance of authorization, of any common 
stock or other equity security of a domestic issuer, if the issuer of 
such security issues any class of security, or takes other corporate 
action, with the effect of nullifying, restricting, or disparately 
reducing the per share voting rights of holders of an outstanding class 
or classes of common stock of such issuer registered pursuant to section 
12 of the Act.
    (c) For the purposes of paragraphs (a) and (b) of this section, the 
following shall be presumed to have the effect of nullifying, 
restricting, or disparately reducing the per share voting rights of an 
outstanding class or classes of common stock:
    (1) Corporate action to impose any restriction on the voting power 
of shares of the common stock of the issuer held by a beneficial or 
record holder based on the number of shares held by such beneficial or 
record holder;
    (2) Corporate action to impose any restriction on the voting power 
of shares of the common stock of the issuer held by a beneficial or 
record holder based on the length of time such shares have been held by 
such beneficial or record holder;
    (3) Any issuance of securities through an exchange offer by the 
issuer for shares of an outstanding class of the common stock of the 
issuer, in which the securities issued have voting rights greater than 
or less than the per share voting rights of any outstanding class of the 
common stock of the issuer.
    (4) Any issuance of securities pursuant to a stock dividend, or any 
other type of distribution of stock, in which the securities issued have 
voting rights greater than the per share voting rights of any 
outstanding class of the common stock of the issuer.
    (d) For the purpose of paragraphs (a) and (b) of this section, the 
following, standing alone, shall be presumed not to have the effect of 
nullifying, restricting, or disparately reducing the per share voting 
rights of holders of an outstanding class or classes of common stock:
    (1) The issuance of securities pursuant to an initial registered 
public offering;
    (2) The issuance of any class of securities, through a registered 
public offering, with voting rights not greater than the per share 
voting rights of any outstanding class of the common stock of the 
issuer;
    (3) The issuance of any class of securities to effect a bona fide 
merger or acquisition, with voting rights not greater than the per share 
voting rights of any outstanding class of the common stock of the 
issuer.
    (4) Corporate action taken pursuant to state law requiring a state's 
domestic corporation to condition the voting rights of a beneficial or 
record holder of a specified threshold percentage of the corporation's 
voting stock on the approval of the corporation's independent 
shareholders.
    (e) Definitions. The following terms shall have the following 
meanings for purposes of this section, and the rules of each exchange 
and association shall include such definitions for the purposes of the 
prohibition in paragraphs (a) and (b), respectively, of this section:
    (1) The term Act shall mean the Securities Exchange Act of 1934, as 
amended.
    (2) The term common stock shall include any security of an issuer 
designated as common stock and any security of an issuer, however 
designated, which, by statute or by its terms, is a common stock (e.g., 
a security which entitles the holders thereof to vote generally on 
matters submitted to the issuer's security holders for a vote).
    (3) The term equity security shall include any equity security 
defined as such pursuant to Rule 3a11-1 under the Act (17 CFR 240.3a11-
1).
    (4) The term domestic issuer shall mean an issuer that is not a 
``foreign private issuer'' as defined in Rule 3b-4 under the Act (17 CFR 
240.3b-4).
    (5) The term security shall include any security defined as such 
pursuant to section 3(a)(10) of the Act, but shall exclude any class of 
security having a preference or priority over the issuer's common stock 
as to dividends, interest payments, redemption or payments in 
liquidation, if the voting rights of such securities only become 
effective as a

[[Page 498]]

result of specified events, not relating to an acquisition of the common 
stock of the issuer, which reasonably can be expected to jeopardize the 
issuer's financial ability to meet its payment obligations to the 
holders of that class of securities.
    (6) The term exchange shall mean a national securities exchange, 
registered as such with the Securities and Exchange Commission pursuant 
to section 6 of the Act, which makes transaction reports available 
pursuant to Rule 11Aa3-1 under the Act (17 CFR 240.11Aa3-1); and
    (7) The term association shall mean a national securities 
association registered as such with the Securities and Exchange 
Commission pursuant to section 15A of the Act.
    (f) An exchange or association may adopt a rule, stated policy, 
practice, or interpretation, subject to the procedures specified by 
section 19(b) of the Act, specifying what types of securities issuances 
and other corporate actions are covered by, or excluded from, the 
prohibition in paragraphs (a) and (b) of this section, respectively, if 
such rule, stated policy, practice, or interpretation is consistent with 
the protection of investors and the public interest, and otherwise in 
furtherance of the purposes of the Act and this section.

[53 FR 26394, July 12, 1988]



240.19c-5  Governing the multiple listing of options on national securities 
exchanges.

    (a) The rules of each national securities exchange that provides a 
trading market in standardized put or call options shall provide as 
follows:
    (1) On and after January 22, 1990, but not before, no rule, stated 
policy, practice, or interpretation of this exchange shall prohibit or 
condition, or be construed to prohibit or condition or otherwise limit, 
directly or indirectly, the ability of this exchange to list any stock 
options class first listed on an exchange on or after January 22, 1990, 
because that options class is listed on another options exchange.
    (2) During the period from January 22, 1990, to January 21, 1991, 
but not before, no rule, stated policy, practice, or interpretation of 
this exchange shall prohibit or condition, or be construed to prohibit 
or condition or otherwise limit, directly or indirectly, the ability of 
this exchange to list up to ten classes of standardized stock options 
overlying exchange-listed stocks that were listed on another options 
exchange before January 22, 1990. These ten classes shall be in addition 
to any option on an exchange-listed stock trading on this exchange that 
was traded on more than one options exchange before January 22, 1990.
    (3) On and after January 21, 1991, but not before, no rule, stated 
policy, practice, or interpretation of this exchange shall prohibit or 
condition, or be construed to prohibit or condition or otherwise limit, 
directly or indirectly, the ability of this exchange to list any stock 
options class because that options class is listed on another options 
exchange.
    (b) For purposes of paragraph (a)(2) of this Rule, if any options 
class is delisted from an options exchange as a result of a merger of 
the equity security underlying the option or a failure of the underlying 
security to satisfy that exchange's options listing standards, then the 
exchange is permitted to select a replacement option from among those 
standardized options overlying exchange-listed stocks that were listed 
on another options exchange before January 22, 1990.
    (c) For purposes of this Rule, the term exchange shall mean a 
national securities exchange, registered as such with the Commission 
pursuant to Section 6 of the Securities Exchange Act of 1934, as 
amended.
    (d) For purposes of this Rule, the term standardized option shall 
have the same meaning as that term is defined in Rule 9b-1 under the 
Securities Exchange Act of 1934, as amended, 17 CFR 240.9b-1.
    (e) For purposes of this Rule, the term options class shall have the 
same meaning as that term is defined in Rule 9b-1 under the Securities 
Exchange Act of 1934, as amended, 17 CFR 240.9b-1.

[54 FR 23976, June 5, 1989]

[[Page 499]]



Sec. 240.19d-1  Notices by self-regulatory organizations of final 

disciplinary actions, denials, bars, or limitations respecting membership, 
association, participation, or access to services, and summary suspensions.

    (a) General. If any self-regulatory organization for which the 
Commission is the appropriate regulatory agency takes any action 
described in this rule to which the person affected thereby has 
consented and such action:
    (1) Conditions or limits membership or participation in, association 
with a member of, or access to services offered by, such organization or 
a member thereof and
    (2) Is based upon a statutory disqualification defined in section 
3(a)(39) of the Act, notice thereof shall be filed under Rule 19h-1 and 
not under this rule.
    (b) The notice requirement of section 19(d)(1) of the Act, 
concerning an action subject to such section taken by a self-regulatory 
organization for which the Commission is the appropriate regulatory 
agency, shall be satisfied by any notice with respect to such action 
(including a notice filed pursuant to this rule) which contains the 
information required in the statement supporting the organization's 
determination required by section 6(d) (1) or (2), section 15A(h) (1) or 
(2), or section 17A(b)(5) (A) or (B) of the Act, as appropriate.
    (c)(1) Any self-regulatory organization for which the Commission is 
the appropriate regulatory agency that takes any final disciplinary 
action with respect to any person shall promptly file a notice thereof 
with the Commission in accordance with paragraph (d) of this section. 
For the purposes of this rule, a ``final disciplinary action'' shall 
mean the imposition of any final disciplinary sanction pursuant to 
section 6(b)(6), 15A(b)(7), or 17A(b)(3)(G) of the Act or other action 
of a self-regulatory organization which, after notice and opportunity 
for hearing, results in any final disposition of charges of:
    (i) One or more violations of--
    (A) The rules of such organization;
    (B) The provisions of the Act or rules thereunder; or
    (C) In the case of a municipal securities broker or dealer, the 
rules of the Municipal Securities Rulemaking Board;
    (ii) Acts or practices constituting a statutory disqualification of 
a type defined in subparagraph (D) or (E) (except prior convictions) of 
section 3(a)(39) of the Act; or
    (iii) In the case of a proceeding by a national securities exhange 
or registered securities association based on section 6(c)(3)(A)(ii), 
6(c)(3)(B)(ii), 15A(g)(3)(A)(ii), or 15A(g)(3)(B)(ii) of the Act, acts 
or practices inconsistent with just and equitable principles of trade.

Provided, however, That in the case of a disciplinary action in which a 
national securities exchange imposes a fine not exceeding $1000 or 
suspends floor privileges of a clerical employee for not more than five 
days for violation of any of its regulations concerning personal decorum 
on a trading floor, the disposition shall not be considered ``final'' 
for purposes of this paragraph if the sanctioned person has not sought 
an adjudication, including a hearing, or otherwise exhausted his 
administrative remedies at the exchange with respect to the matter. 
Provided further, That this exemption from the notice requirement of 
this paragraph shall not be available where a decorum sanction is 
imposed at, or results from, a hearing on the matter.
    (2) Any disciplinary action, other than a decorum sanction not 
deemed ``final'' under paragraph (c)(1) of this section, taken by a 
self-regulatory organization for which the Commission is the appropriate 
regulatory agency against any person for violation of a rule of the 
self-regulatory organization which has been designated as a minor rule 
violation pursuant to a plan or any amendment thereto filed with and 
declared effective by the Commission under this paragraph, shall not be 
considered ``final'' for purposes of paragraph (c)(1) of this section if 
the sanction imposed consists of a fine not exceeding $2500 and the 
sanctioned person has not sought an adjudication, including a hearing, 
or otherwise exhausted his administrative remedies at the self-
regulatory organization with resepect to the matter. After appropriate 
notice of the terms of substance of the filing

[[Page 500]]

or a description of the subjects and issues involved and opportunity for 
interested persons to submit written comment, the Commission may, by 
order, declare such plan or amendment effective if it finds that such 
plan or amendment is consistent with the public interest, the protection 
of investors, or otherwise in furtherance of the purposes of the Act. 
The Commission in its order may restrict the categories of violations to 
be designated as minor rule violations and may impose any other terms or 
conditions to the plan (including abbreviated reporting of selected 
minor rule violations) and to the period of its effectiveness which it 
deems necessary or appropriate in the public interest, for the 
protection of investors or otherwise in furtherance of the purposes of 
the Act.
    (d) Contents of notice required by paragraph (c)(1). Any notice 
filed pursuant to paragraph (c)(1) of this section, shall consist of the 
following, as appropriate:
    (1) The name of the respondent concerned together with his last 
known place of residence or business as reflected on the records of the 
self-regulatory organization and the name of the person, committee, or 
other organizational unit which brought the charges involved; except 
that, as to any respondent who has been found not to have violated a 
provision covered by a charge, identifying information with respect to 
such person may be deleted insofar as the notice reports the disposition 
of that charge, unless, prior to the filing of the notice, the 
respondent requests otherwise;
    (2) A statement describing the investigative or other origin of the 
action;
    (3) As charged in the proceeding, the specific provisions of the 
Act, the rules or regulations thereunder, the rules of the organization, 
and, in the case of a registered securities association, the rules of 
the Municipal Securities Rulemaking Board, and, in the event a violation 
of other statutes or rules constitutes a violation of any rule of the 
organization, such other statutes or rules; and a statement describing 
the answer of the respondent to the charges;
    (4) A statement setting forth findings of fact with respect to any 
act or practice which such respondent was charged with having engaged in 
or omitted; the conclusion of the organization as to whether such 
respondent is deemed to have violated any provision covered by the 
charges; and a statement of the organization in support of the 
resolution of the principal issues raised in the proceedings;
    (5) A statement describing any sanction imposed, the reasons 
therefor, and the date upon which such sanction has or will become 
effective, together with a finding if appropriate, as to whether such 
respondent was a cause of any sanction imposed upon any other person; 
and
    (6) Such other matters as the organization may deem relevant.
    (e) Notice of final denial, bar, prohibition, termination or 
limitation based on qualification or administrative rules. Any final 
action of a self-regulatory organization for which the Commission is the 
appropriate regulatory agency that is taken with respect to any person 
constituting a denial, bar, prohibition, or limitation of membership, 
participation or association with a member, or of access to services 
offered by a self-regulatory organization or a member thereof, and which 
is based on an alleged failure of any person to:
    (1) Pass any test or examination required by the rules of the 
Commission or such organization;
    (2) Comply with other qualification standards established by rules 
of the Commission or such organization; or
    (3) Comply with any administrative requirements of such organization 
(including failure to pay entry or other dues or fees or to file 
prescribed forms or reports) not involving charges of violations which 
may lead to a disciplinary sanction

Shall not be considered a ``disciplinary action'' for purposes of 
paragraph (c) of this rule; but notice thereof shall be promptly filed 
with the Commission in accordance with paragraph (f) of this section, 
Provided, however, That no disposition of a matter shall be considered 
``final'' pursuant to this paragraph which results merely from a notice 
of such failure to the person affected, if

[[Page 501]]

such person has not sought an adjudication, including a hearing, or 
otherwise exhausted his administrative remedies within such organization 
with respect to such a matter.
    (f) Contents of notice required by paragraph (e). Any notice filed 
pursuant to paragraph (e) of this section shall consist of the 
following, as appropriate:
    (1) The name of each person concerned together with his last known 
place of residence or business as reflected on the records of the 
organization;
    (2) The specific provisions of the Act, the rules or regulations 
thereunder, the rules of the organization, and, in the case of a 
registered securities association, the rules of the Municipal Securities 
Rulemaking Board, upon which the action of the organization was based, 
and a statement describing the answer of the person concerned;
    (3) A statement setting forth findings of fact and conclusions as to 
each alleged failure of the person to pass any required examination, 
comply with other qualification standards, or comply with administrative 
obligations, and a statement of the organization in support of the 
resolution of the principal issues raised in the proceeding;
    (4) The date upon which such action has or will become effective; 
and
    (5) Such other matters as the organization may deem relevant.
    (g) Notice of final action based upon prior adjudicated statutory 
disqualifications. Any self-regulatory organization for which the 
Commission is the appropriate regulatory agency that takes any final 
action with respect to any person which:
    (1) Denies or conditions membership or participation in, or 
association with a member of, such organization or prohibits or limits 
access to services offered by such organization or a member thereof; and
    (2) Is based upon a statutory disqualification of a type defined in 
subparagraph (A), (B), or (C) of section 3(a)(39) of the Act or 
consisting of a prior conviction, as described in subparagraph (E) of 
said section 3(a)(39), shall promptly file a notice of such action with 
the Commission in accordance with paragraph (h) of this section, 
provided, however, That no disposition of a matter shall be considered 
``final'' pursuant to this paragraph where such person has not sought an 
adjudication, including a hearing, or otherwise exhausted his 
administrative remedies within such organization with respect to such a 
matter.
    (h) Contents of notice required by paragraph (g). Any notice filed 
pursuant to paragraph (g) of this section shall consist of the 
following, as appropriate:
    (1) The name of the person concerned together with his last known 
place of residence or business as reflected on the record of the 
organization;
    (2) A statement setting forth the principal issues raised, the 
answer of any person concerned, and a statement of the organization in 
support of the resolution of the principal issues raised in the 
proceeding;
    (3) Any description furnished by or on behalf of the person 
concerned of the activities engaged in by the person since the 
adjudication upon which the disqualification is based;
    (4) Any description furnished by or on behalf of the person 
concerned of the prospective business or employment in which the person 
plans to engage and the manner and extent of supervision to be exercised 
over and by such person;
    (5) A copy of the order or decision of the court, the Commission or 
the self-regulatory organization which adjudicated the matter giving 
rise to such statutory disqualification;
    (6) The nature of the action taken and the date upon which such 
action is to be made effective; and
    (7) Such other matters as the organization deems relevant.
    (i) Notice of summary suspension of membership, participation, or 
association, or summary limitation or prohibition of access to services. 
If any self-regulatory organization for which the Commission is the 
appropriate regulatory agency summarily suspends a member, participant, 
or person associated with a member, or summarily limits or prohibits any 
person with respect to access to or services offered by the organization 
or (in the case of a national securities exchange or a registered 
securities association) a member thereof pursuant to the provisions of 
section 6(d)(3), 15A(h)(3) or 17A(b)(5) (C) of the Act,

[[Page 502]]

such organization shall, within 24 hours of the effectiveness of such 
summary suspension, limitation or prohibition notify the Commission of 
such action, which notice shall contain at least the following 
information:
    (1) The name of the person concerned together with his last known 
place of residence or business as reflected on the records of the 
organization;
    (2) The date upon which such summary action has or will become 
effective;
    (3) If such summary action is based upon the provisions of section 
6(d)(3)(A), 15A(h)(3)(A), or 17A(b)(5) (C)(i) of the Act, a copy of the 
relevant order or decision of the self-regulatory organization;
    (4) If such summary action is based upon the provisions of section 
6(d)(3) (B) or (C), 15A(h)(3) (B) or (C), or 17A(b)(5)(C) (ii) or (iii) 
of the Act, a statement describing, as appropriate:
    (i) The financial or operating difficulty of the member or 
participant upon which such organization determined the member or 
particpant could not be permitted to continue to do business with safety 
to investors, creditors, other members or participants, or the 
organization;
    (ii) The pertinent failure to meet qualification requirements or 
other prerequisites for access and the basis upon which such 
organization determined that the person concerned could not be permitted 
to have access with safety to investors, creditors, other members, or 
the organization; or
    (iii) The default of any delivery of funds or securities to a 
clearing agency by a participant.
    (5) The nature and effective date of the suspension, limitation or 
prohibition; and
    (6) Such other matters as the organization deems relevant.

(15 U.S.C. 78f, 78k-1, 78o, 78o-3, 78q, 78q-1, 78s and 78w)

[42 FR 36415, July 14, 1977, as amended at 49 FR 23831, June 8, 1984]



Sec. 240.19d-2  Applications for stays of disciplinary sanctions or 
summary suspensions by a self-regulatory organization.

    If any self-regulatory organization imposes any final disciplinary 
sanction as to which a notice is required to be filed with the 
Commission pursuant to Section 19(d)(1) of the Exchange Act, 15 U.S.C. 
78s(d)(1), pursuant to Section 6(b)(6), 15A(b)(7) or 17A(b)(3)(G) of the 
Act (15 U.S.C. 78f(b)(6), 78o-3(b)(7) or 78q-1(b)(3)(G)), or summarily 
suspends or limits or prohibits access pursuant to Section 6(d)(3), 
15A(h)(3) or 17A(b)(5)(C) of the Act (15 U.S.C. 78f(d)(3), 78o-3(h)(3) 
or 78q-1(b)(5)(C)), any person aggrieved thereby for which the 
Commission is the appropriate regulatory agency may file with the 
Commission a written motion for a stay of imposition of such action 
pursuant to Rule 401 of the Commission's Rules of Practice, Sec. 
201.401 of this chapter.

[60 FR 32825, June 23, 1995]



Sec. 240.19d-3  Applications for review of final disciplinary sanctions, 

denials of membership, participation or association, or prohibitions or 
limitations of access to services imposed by self-regulatory organizations.

    Applications to the Commission for review of any final disciplinary 
sanction, denial or conditioning of membership, participation, bar from 
association, or prohibition or limitation with respect to access to 
services offered by a self-regulatory organization or a member thereof 
by any such organization shall be made pursuant to Rule 420 of the 
Commission's Rules of Practice, Sec. 201.420 of this chapter.

[60 FR 32825, June 23, 1995]



Sec. 240.19d-4  Notice by the Public Company Accounting Oversight Board 
of disapproval of registration or of disciplinary action.

    (a) Definitions--(1) Board means the Public Company Accounting 
Oversight Board.
    (2) Public accounting firm shall have the meaning set forth in 15 
U.S.C. 7201(a)(11).
    (3) Registered public accounting firm shall have the meaning set 
forth in 15 U.S.C. 7201(a)(12).
    (4) Associated person shall mean a person associated with a 
registered public accounting firm as defined in 15 U.S.C. 7201(a)(9).
    (b)(1) Notice of disapproval of registration. If the Board 
disapproves a completed application for registration by a

[[Page 503]]

public accounting firm, the Board shall file a notice of its disapproval 
with the Commission within 30 days and serve a copy on the public 
accounting firm.
    (2) Contents of the notice. The notice required by paragraph (b)(1) 
of this section shall provide the following information:
    (i) The name of the public accounting firm and the public accounting 
firm's last known address as reflected in the Board's records;
    (ii) The basis for the Board's disapproval, and a copy of the 
Board's written notice of disapproval; and
    (iii) Such other information as the Board may deem relevant.
    (c)(1) Notice of disciplinary action. If the Board imposes any final 
disciplinary sanction on any registered public accounting firm or any 
associated person of a registered public accounting firm under 15 U.S.C. 
7215(b)(3) or 7215(c), the Board shall file a notice of the disciplinary 
sanction with the Commission within 30 days and serve a copy on the 
person sanctioned.
    (2) Contents of the notice. The notice required by paragraph (c)(1) 
of this section shall provide the following information:
    (i) The name of the registered public accounting firm or the 
associated person, together with the firm's or the person's last known 
address as reflected in the Board's records;
    (ii) A description of the acts or practices, or omissions to act, 
upon which the sanction is based;
    (iii) A statement of the sanction imposed, the reasons therefor, or 
a copy of the Board's statement justifying the sanction, and the 
effective date of such sanction; and
    (iv) Such other information as the Board may deem relevant.

[69 FR 13182, Mar. 19, 2004]

    Effective Date Note: At 69 FR 13182, Mar. 19, 2004, Sec. 240.19d-4 
was added, effective Apr. 19, 2004.



Sec. 240.19g2-1  Enforcement of compliance by national securities 

exchanges and registered securities associations with the Act and rules 
and regulations thereunder.

    (a) In enforcing compliance, within the meaning of section 19(g) of 
the Act, with the Act and the rules and regulations thereunder by its 
members and persons associated with its members, a national securities 
exchange or registered securities association is not required:
    (1) To enforce compliance with sections 12 (other than sections 
12(j) and 12(k)), 13, 14 (other than section 14(b)), 15(d) and 16 and 
the rules thereunder except to the extent of any action normally taken 
with respect to any person which is not a member or a person associated 
with a member;
    (2) To enforce compliance with respect to persons associated with a 
member, other than securities persons or persons who control a member; 
and
    (3) To conduct examinations as to qualifications of, require filing 
of periodic reports by, or conduct regular inspections (including 
examinations of books and records) of, persons associated with a member, 
other than securities persons whose functions are not solely clerical or 
ministerial.
    (b) For the purpose of this rule:
    (1) A securities person is a person who is a general partner or 
officer (or person occupying a similar status or performing similar 
functions) or employee of a member; Provided, however, That a registered 
broker or dealer which controls, is controlled by, or is under common 
control with, the member and the general partners and officers (and 
persons occupying similar status or performing similar functions) and 
employees of such a registered broker or dealer shall be securities 
persons if they effect, directly or indirectly, transactions in 
securities through the member by use of facilities maintained or 
supervised by such exchange or association; and
    (2) Control means the power to direct or cause the direction of the 
management or policies of a company whether through ownership of 
securities, by contract or otherwise; Provided, however, That:
    (i) Any person who, directly or indirectly, (A) has the right to 
vote 25 percent or more of the voting securities, (B) is entitled to 
receive 25 percent or more of the net profits, or (C) is a director (or 
person occupying a similar status or performing similar functions) of a 
company shall be presumed to be a person who controls such company;

[[Page 504]]

    (ii) Any person not covered by paragraph (b)(2)(i) of this section 
shall be presumed not to be a person who controls such company; and
    (iii) Any presumption may be rebutted on an appropriate showing.

(Secs. 3, 6, 19, 23, 48 Stat. 882, 885, 898, as amended (15 U.S.C. 78c, 
78f, 78s, 78w); sec. 15A, 52 Stat. 1070, as amended (15 U.S.C. 78o-3))

[41 FR 51808, Nov. 24, 1976]



Sec. 240.19h-1  Notice by a self-regulatory organization of proposed 

admission to or continuance in membership or participation or association 
with a member of any person subject to a statutory disqualification, and 
applications to the Commission for relief therefrom.

    (a) Notice of admission or continuance notwithstanding a statutory 
disqualification. (1) Any self-regulatory organization proposing, 
conditionally or unconditionally, to admit to, or continue any person 
in, membership or participation or (in the case of a national securities 
exchange or registered securities association) association with a 
member, notwithstanding a statutory disqualification, as defined in 
section 3(a)(39) of the Act, with respect to such person, shall file a 
notice with the Commission of such proposed admission or continuance. If 
such disqualified person has not consented to the terms of such 
proposal, notice of the organization's action shall be filed pursuant to 
rule 19d-1 under the Act and not this rule.
    (2) With respect to a person associated with a member of a national 
securities exchange or registered securities association, notices need 
be filed with the Commission pursuant to this rule only if such person:
    (i) Controls such member, is a general partner or officer (or person 
occupying a similar status or performing similar functions) of such 
member, is an employee who, on behalf of such member, is engaged in 
securities advertising, public relations, research, sales, trading, or 
training or supervision of other employees who engage or propose to 
engage in such activities, except clerical and ministerial persons 
engaged in such activities, or is an employee with access to funds, 
securities or books and records, or
    (ii) Is a broker or dealer not registered with the Commission, or 
controls such (unregistered) broker or dealer or is a general partner or 
officer (or person occupying a similar status or performing similar 
functions) of such broker or dealer.
    (3) A notice need not be filed with the Commission pursuant to this 
rule if:
    (i) The person subject to the statutory disqualification is already 
a participant in, a member of, or a person associated with a member of, 
a self-regulatory organization, and the terms and conditions of the 
proposed admission by another self-regulatory organization are the same 
in all material respects as those imposed or not disapproved in 
connection with such person's prior admission or continuance pursuant to 
an order of the Commission under paragraph (d) of this section or other 
substantially equivalent written communication.
    (ii) The self-regulatory organization finds, after reasonable 
inquiry, that except for the identity of the employer concerned, the 
terms and conditions of the proposed admission or continuance are the 
same in all material respects as those imposed or not disapproved in 
connection with a prior admission or continuance of the person subject 
to the statutory disqualification pursuant to an order of the Commission 
under paragraph (d) of this section or other substantially equivalent 
written communication and that there is no intervening conduct or other 
circumstance that would cause the employment to be inconsistent with the 
public interest or the protection of investors;
    (iii) The disqualification consists of (A) an injunction from 
engaging in any action, conduct, or practice specified in section 
15(b)(4)(C) of the Act, which injunction was entered 10 or more years 
prior to the proposed admission or continuance--Provided, however, That 
in the case of a final or permanent injunction which was preceded by a 
preliminary injunction against the same person in the same court 
proceeding, such ten-year period shall begin to run from the date of 
such preliminary injunction--and/or (B) a finding by the Commission or a 
self-regulatory organization of a willful violation of the Act,

[[Page 505]]

the Securities Act of 1933, the Investment Advisers Act of 1940, the 
Investment Company Act of 1940, or a rule or regulation under one or 
more of such Acts and the sanction for such violation is no longer in 
effect;
    (iv) The disqualification previously (A) was a basis for the 
institution of an administrative proceeding pursuant to a provision of 
the federal securities laws, and (B) was considered by the Commission in 
determining a sanction against such person in the proceeding; and the 
Commission concluded in such proceeding that it would not restrict or 
limit the future securities activities of such person in the capacity 
now proposed or, if it imposed any such restrictions or limitations for 
a specified time period, such time period has elapsed;
    (v) The disqualification consists of a court order or judgment of 
injunction or conviction, and such order or judgment (A) expressly 
includes a provision that, on the basis of such order or judgment, the 
Commission will not institute a proceeding against such person pursuant 
to section 15(b) or 15B of the Act or that the future securities 
activities of such persons in the capacity now proposed will not be 
restricted or limited or (B) includes such restrictions or limitations 
for a specified time period and such time period has elapsed; or
    (vi) In the case of a person seeking to become associated with a 
broker or dealer or municipal securities dealer, the Commission has 
previously consented to such proposed association pursuant to section 
15(b)(6) or 15B(c)(4) of the Act.

In the case of an admission to membership, participation, or 
association, if an exception provided for in this paragraph (a)(3) is 
applicable, the self-regulatory organization shall, pursuant to its 
rules, determine when the admission to membership, participation, or 
association shall become effective.
    (4) If a self-regulatory organization determines to admit to, or 
continue any person in, membership, participation, or association with a 
member pursuant to an exception from the notice requirements provided in 
paragraph (a)(3)(ii), (iv) or (v) of this section, such organization 
shall, within 14 calendar days of its making of such determination, 
furnish to the Commission, by letter, a notification setting forth, as 
appropriate:
    (i) The name of the person subject to the statutory 
disqualification;
    (ii) The name of the person's prospective and immediately preceding 
employers who are (were) brokers or dealers or municipal securities 
dealers;
    (iii) The name of the person's prospective supervisor(s);
    (iv) The respective places of such employments as reflected on the 
rec ords of the self-regulatory organization;
    (v) If applicable, the findings of the self-regulatory organization 
referred to in paragraph (a)(3)(ii) of this section and the nature 
(including relevant dates) of the previous Commission or court 
determination referred to in paragraph (a)(3)(iv) or (v) of this 
section; and
    (vi) An identification of any other self-regulatory organization 
which has indicated its agreement with the terms and conditions of the 
proposed admission or continuance;
    (5) If a notice or notification has been previously filed or 
furnished pursuant to this rule by a self-regulatory organization, any 
other such organization need not file or furnish a separate notice or 
notification pursuant to this rule with respect to the same matter if 
such other organization agrees with the terms and conditions of the 
membership, participation or association reflected in the notice or 
notification so filed or furnished, and such agreement is set forth in 
the notice or notification.
    (6) The notice requirements of sections 6(c)(2), 15A(g)(2), and 
17A(b)(4)(A) of the Act concerning an action of a self-regulatory 
organization subject to one (or more) of such sections and this 
paragraph (a) shall be satisfied by a notice with respect to such action 
filed in accordance with paragraph (c) of this section.
    (7) The Commission, by written notice to a self-regulatory 
organization on or before the thirtieth day after receipt of a notice 
under this Rule, may direct that such organization not admit to 
membership, participation, or association with a member any person who 
is subject to a statutory disqualification for a period not to exceed an

[[Page 506]]

additional 60 days beyond the initial 30 day notice period in order that 
the Commission may extend its consideration of the proposal; Provided, 
however, That during such extended period of consideration, the 
Commission will not direct the self-regulatory organization to bar the 
proposed admission to membership, participation or association with a 
member pursuant to section 6(c)(2), 15A(g)(2), or 17A(b)(4)(A) of the 
Act, and the Commission will not institute proceedings pursuant to 
section 15(b) or 15B of the Act on the basis of such disqualification if 
the self-regulatory organization has permitted the admission to 
membership, participation or association with a member, on a temporary 
basis, pending a final Commission determination.
    (b) Preliminary notifications. Promptly after receiving an 
application for admission to, or continuance in, participation or 
membership in, or association with a member of, a self-regulatory 
organization which would be required to file with the Commission a 
notice thereof pursuant to paragraph (a) of this section if such 
admission or continuance is ultimately proposed by such organization, 
the organization shall file with the Commission a notification of such 
receipt. Such notification shall include, as appropriate:
    (1) The date of such receipt;
    (2) The names of the person subject to the statutory 
disqualification and the prospective employer concerned together with 
their respective last known places of residence or business as reflected 
on the records of the organization;
    (3) The basis for any such disqualification including (if based on a 
prior adjudication) a copy of the order or decision of the court, the 
Commission, or the self-regulatory organization which adjudicated the 
matter giving rise to the disqualification; and
    (4) The capacity in which the person concerned is proposed to be 
employed.
    (c) Contents of notice of admission or continuance. A notice filed 
with the Commission pursuant to paragraph (a) of this section shall 
contain the following, as appropriate:
    (1) The name of the person concerned together with his last known 
place of residence or business as reflected on the records of the self-
regulatory organization;
    (2) The basis for any such disqualification from membership, 
participation or association including (if based on a prior 
adjudication) a copy of the order or decision of the court, the 
Commission or the self-regulatory organization which adjudicated the 
matter giving rise to such disqualification;
    (3) In the case of an admission, the date upon which it is proposed 
by the organization that such membership, participation or association 
shall become effective, which shall be not less than 30 days from the 
date upon which the Commission receives the notice;
    (4) A description by or on behalf of the person concerned of the 
activities engaged in by the person since the disqualification arose, 
the prospective business or employment in which the person plans to 
engage and the manner and extent of supervision to be exercised over and 
by such person. This description shall be accompanied by a written 
statement submitted to the self-regulatory organization by the proposed 
employer setting forth the terms and conditions of such employment and 
supervision. The description also shall include (i) the qualifications, 
experience and disciplinary records of the proposed supervisors of the 
person and their family relationship (if any) to that person; (ii) the 
findings and results of all examinations conducted, during the two years 
preceding the filing of the notice, by self-regulatory organizations of 
the main office of the proposed employer and of the branch office(s) in 
which the employment will occur or be subject to supervisory controls; 
(iii) a copy of a completed Form U-4 with respect to the proposed 
association of such person and a certification by the self-regulatory 
organization that such person is fully qualified under all applicable 
requirements to engage in the proposed activities; and (iv) the name and 
place of employment of any other associated person of the proposed 
employer who is subject to a statutory disqualification (other than a 
disqualification specified in paragraph (a)(3)(iii) of this section);
    (5) If a hearing on the matter has been held by the organization, a 
certified record of the hearing together

[[Page 507]]

with copies of any exhibits introduced therein;
    (6) All written submissions not included in a certified oral hearing 
record which were considered by the organization in its disposition of 
the matter;
    (7) An identification of any other self-regulatory organization 
which has indicated its agreement with the terms and conditions of the 
proposed admission or continuance;
    (8) All information furnished in writing to the self-regulatory 
organization by the staff of the Commission for consideration by the 
organization in its disposition of the matter or the incorporation by 
reference of such information, and a statement of the organization's 
views thereon; and
    (9) Such other matters as the organization or person deems relevant.

If the notice contains assertions of material facts not a matter of 
record before the self-regulatory organization, such facts shall be 
sworn to by affidavit of the person or organization offering such facts 
for Commission consideration. The notice may be accompanied by a brief.
    (d) Application to the Commission for relief from certain statutory 
disqualifications. The filing of a notice pursuant to paragraph (a) of 
this section shall neither affect nor foreclose any action which the 
Commission may take with respect to such person pursuant to the 
provisions of section 15(b), 15B or 19(h) of the Act or any rule 
thereunder. Accordingly, a notice filed pursuant to paragraph (a) of 
this section with respect to the membership, participation, or 
association of any person subject to an ``applicable disqualification,'' 
as defined in paragraph (f) of this section, may be accompanied by an 
application by or on behalf of the person concerned to the Commission 
for an order declaring, as applicable, that notwithstanding such 
disqualification, the Commission:
    (1) Will not institute proceedings pursuant to section 15(b)(1)(B), 
15(b)(4), 15(b)(6), 15B(a)(2), 15B(c)(2), 19(h)(2) or 19(h)(3) of the 
Act if such person seeks to obtain or continue registration as a broker 
or dealer or municipal securities dealer or association with a broker or 
dealer or municipal securities dealer so registered, or membership or 
participation in a self-regulatory organization;
    (2) Will not direct otherwise, as provided in section 6(c)(2), 
15A(g)(2) or 17A(b)(4)(A) of the Act; and
    (3) Will deem such person qualified pursuant to Rule G-4 of the 
Municipal Securities Rulemaking Board under the Act.

If a Commission consent is required in order to render a proposed 
association lawful under section 15(b)(6) or 15B(c)(4) of the Act, an 
application by or on behalf of the person seeking such consent shall 
accompany the notice of the proposed association filed pursuant to 
paragraph (a) of this section. The Commission may, in its discretion and 
subject to such terms and conditions as it deems necessary, issue such 
an order and consent should the Commission determine not to object to 
the position of the self-regulatory organization set forth in the notice 
or application; Provided, however, That nothing herein shall foreclose 
the right of any person, at his election, to apply directly to the 
Commission for such consent, if he makes such application pursuant to 
the terms of an existing order of the Commission under section 15(b)(6) 
or 15B(c)(4) of the Act limiting his association with a broker or dealer 
or municipal securities dealer but explicitly granting him such a right 
to apply for entry or reentry at a later time.
    (e) Contents of application to the Commission. An application to the 
Commission pursuant to paragraph (d) of this section shall consist of 
the following, as appropriate:
    (1) The name of the person subject to the disqualification together 
with his last known place of residence or business as reflected on the 
records of the self-regulatory organization;
    (2) A copy of the order or decision of the court, the Commission or 
the self-regulatory organization which adjudicated the matter giving 
rise to such ``applicable disqualification'';
    (3) The nature of the relief sought and the reasons therefor;
    (4) A description of the activities engaged in by the person since 
the disqualification arose;
    (5) A description of the prospective business or employment in which 
the

[[Page 508]]

person plans to engage and the manner and extent of supervision to be 
exercised over and by such person. This description shall be accompanied 
by a written statement submitted to the self-regulatory organization by 
the proposed employer setting forth the terms and conditions of such 
employment and supervision. The description also shall include (i) the 
qualifications, experience, and disciplinary records of the proposed 
supervisors of the person and their family relationship (if any) to that 
person; (ii) the findings and results of all examinations conducted, 
during the two years preceding the filing of the application, by self-
regulatory organizations of the main office of the proposed employer and 
of the branch office(s) in which the employment will occur or be subject 
to supervisory controls; (iii) a copy of a completed Form U-4 with 
respect to the proposed association of such person and a certification 
by the self-regulatory organization that such person is fully qualified 
under all applicable requirements to engage in the proposed activities; 
and (iv) the name and place of employment of any other associated person 
of the proposed employer who is subject to a statutory disqualification 
(other than a disqualification specified in paragraph (a)(3)(iii) of 
this section);
    (6) If a hearing on the matter has been held by the organization, a 
certified copy of the hearing record, together with copies of any 
exhibits introduced therein;
    (7) All written submissions not included in a certified oral hearing 
record which were considered by the organization in its disposition of 
the matter;
    (8) All information furnished in writing to the self-regulatory 
organization by the staff of the Commission for consideration by the 
organization in its disposition of the matter or the incorporation by 
reference of such information, and a statement of the organization's 
views thereon; and
    (9) Such other matters as the organization or person deems relevant.

If the application contains assertions of material facts not a matter of 
record before the organization, such facts shall be sworn to by 
affidavit of the person or organization offering such facts for 
Commission consideration.
    (f) Definitions. For purposes of this rule:
    (1) The term applicable disqualification shall mean:
    (i) Any effective order of the Commission pursuant to section 15(b) 
(4) or (6), 15B(c) (2) or (4) or 19(h) (2) or (3) of the Act--
    (A) Revoking, suspending or placing limitations on the registration, 
activities, functions, or operations of a broker or dealer;
    (B) Suspending, barring, or placing limitations on the association, 
activities, or functions of an associated person of a broker or dealer;
    (C) Suspending or expelling any person from membership or 
participation in a self-regulatory organization; or
    (D) Suspending or barring any person from being associated with a 
member of a national securities exchange or registered securities 
association;
    (ii) Any conviction of injunction of a type described in section 
15(b)(4) (B) or (C) of the Act; or
    (iii) A failure under the provisions of Rule G-4 of the Municipal 
Securities Rulemaking Board under the Act, to meet qualifications 
standards, and such failure may be remedied by a finding or 
determination by the Commission pursuant to such rule(s) that the person 
affected nevertheless meets such standards.
    (2) The term control shall mean the power to direct or cause the 
direction of the management or policies of a company whether through 
ownership of securities, by contract or otherwise; Provided, however, 
That
    (i) Any person who, directly or indirectly, (A) has the right to 
vote 10 percent or more of the voting securities, (B) is entitled to 
receive 10 percent or more of the net profits, or (C) is a director (or 
person occupying a similar status or performing similar functions) of a 
company shall be presumed to be a person who controls such company;
    (ii) Any person not covered by paragraph (i) shall be presumed not 
to be a person who controls such company; and
    (iii) Any presumption may be rebutted on an appropriate showing.
    (g) Where it deems appropriate to do so, the Commission may 
determine

[[Page 509]]

whether to (1) direct, pursuant to section 6(c)(2), 15A(g)(2) or 
17A(b)(4)(A) of the Act, that a proposed admission covered by a notice 
filed pursuant to paragraph (a) of this section shall be denied or an 
order barring a proposed association issued or (2) grant or deny an 
application filed pursuant to paragraph (d) of this section on the basis 
of the notice or application filed by the self-regulatory organization, 
the person subject to the disqualification, or other applicant (such as 
the proposed employer) on behalf of such person, without oral hearing. 
Any request for oral hearing or argument should be submitted with the 
notice or application.
    (h) The Rules of Practice (17 CFR part 201) shall apply to 
proceedings under this rule to the extent that they are not inconsistent 
with this rule.

(15 U.S.C. 78a et seq., as amended by Pub. L. 94-29 (June 4, 1975) and 
by Pub. L. 98-38 (June 6, 1983), particularly secs. 11A, 15, 19 and 23 
thereof (15 U.S.C. 78k-1, 78o, 78s and 78w))

[46 FR 58661, Dec. 3, 1981, as amended at 48 FR 53691, Nov. 29, 1983]

      Inspection and Publication of Information Filed Under the Act



Sec. 240.24b-1  Documents to be kept public by exchanges.

    Upon action of the Commission granting an exchange's application for 
registration or exemption, the exchange shall make available to public 
inspection at its offices during reasonable office hours a copy of the 
statement and exhibits filed with the Commission (including any 
amendments thereto) except those portions thereof to the disclosure of 
which the exchange shall have filed objection pursuant to Sec. 240.24b-
2 which objection shall not have been overruled by the Commission 
pursuant to section 24(b) of the Act.

(Sec. 24, 48 Stat. 901; 15 U.S.C. 78x)

    Cross Reference: For regulations relating to registration and 
exemption of exchanges, see Sec. Sec. 240.6a-1 to 240.6a-3.

[13 FR 8214, Dec. 22, 1948]



Sec. 240.24b-2  Nondisclosure of information filed with the Commission 
and with any exchange.

    Preliminary Note: Confidential treatment requests shall be submitted 
in paper format only, whether or not the filer is required to submit a 
filing in electronic format.

    (a) Any person filing any registration statement, report, 
application, statement, correspondence, notice or other document (herein 
referred to as the material filed) pursuant to the Act may make written 
objection to the public disclosure of any information contained therein 
in accordance with the procedure set forth below. The procedure provided 
in this rule shall be the exclusive means of requesting confidential 
treatment of information required to be filed under the Act.
    (b) The person shall omit from material filed the portion thereof 
which it desires to keep undisclosed (hereinafter called the 
confidential portion). In lieu thereof, it shall indicate at the 
appropriate place in the material filed that the confidential portion 
has been so omitted and filed separately with the Commission. The person 
shall file with the copies of the material filed with the Commission:
    (1) One copy of the confidential portion, marked ``Confidential 
Treatment,'' of the material filed with the Commission. The copy shall 
contain an appropriate identification of the item or other requirement 
involved and, notwithstanding that the confidential portion does not 
constitute the whole of the answer, the entire answer thereto; except 
that in the case where the confidential portion is part of a financial 
statement or schedule, only the particular financial statement or 
schedule need be included. The copy of the confidential portion shall be 
in the same form as the remainder of the material filed;
    (2) An application making objection to the disclosure of the 
confidential portion. Such application shall be on a sheet or sheets 
separate from the confidential portion, and shall contain (i) an 
identification of the portion; (ii) a statement of the grounds of 
objection referring to, and containing an analysis of, the applicable 
exemption(s) from disclosure under the Commission's rules and 
regulations adopted under the Freedom of Information Act (17 CFR 
200.80), and a justification of the period of time for which 
confidential treatment is sought; (iii) a written

[[Page 510]]

consent to the furnishing of the confidential portion to other 
government agencies, offices or bodies and to the Congress; and (iv) the 
name of each exchange, if any, with which the material is filed.
    (3) The copy of the confidential portion and the application filed 
in accordance with this paragraph (b) shall be enclosed in a separate 
envelope marked ``Confidential Treatment'' and addressed to The 
Secretary, Securities and Exchange Commission, Washington, DC 20549.
    (c) Pending a determination as to the objection filed the material 
for which confidential treatment has been applied will not be made 
available to the public.
    (d)(1) If it is determined that the objection should be sustained, a 
notation to that effect will be made at the appropriate place in the 
material filed. Such a determination will not preclude reconsideration 
whenever appropriate, such as upon receipt of any subsequent request 
under the Freedom of Information Act (5 U.S.C. 552) and, if appropriate, 
revocation of the confidential status of all or a portion of the 
information in question. Where an initial determination has been made 
under this rule to sustain objections to disclosure, the Commission will 
attempt to give the person requesting confidential treatment advance 
notice, wherever possible, if confidential treatment is revoked.
    (2) In any case where an objection to disclosure has been disallowed 
or where a prior grant of confidential treatment has been revoked, the 
person who requested such treatment will be so informed by registered or 
certified mail to the person or his agent for service. Pursuant to Sec. 
201.431 of this chapter, persons making objections to disclosure may 
petition the Commission for review of a determination by the Division 
disallowing objections or revoking confidential treatment.
    (e) The confidential portion shall be made available to the public 
at the time and according to the conditions specified in paragraphs (d) 
(1) and (2) of this section:
    (1) Upon the lapse of five days after the dispatch of notice by 
registered or certified mail of a determination disallowing an 
objection, if prior to the lapse of such five days the person shall not 
have communicated to the Secretary of the Commission his intention to 
seek review by the Commission under Sec. 201.431 of this chapter of the 
determination made by the Division; or
    (2) If such a petition for review shall have been filed under Sec. 
201.431 of this chapter, upon final disposition thereof adverse to the 
petitioner.
    (f) If the confidential portion is made available to the public, one 
copy thereof shall be attached to each copy of the material filed with 
the Commission and with each exchange.

[41 FR 20578, May 19, 1976, as amended at 58 FR 14685, Mar. 18, 1993; 60 
FR 32825, June 23, 1995; 60 FR 47692, Sept. 14, 1995; 61 FR 30404, June 
14, 1996]



Sec. 240.24b-3  Information filed by issuers and others under sections 
12, 13, 14, and 16.

    (a) Except as otherwise provided in this section and in Sec. 
240.17a-6, each exchange shall keep available to the public under 
reasonable regulations as to the manner of inspection, during reasonable 
office hours, all information regarding a security registered on such 
exchange which is filed with it pursuant to section 12, 13, 14, or 16, 
or any rules or regulations thereunder. This requirement shall not apply 
to any information to the disclosure of which objection has been filed 
pursuant to Sec. 240.24b-2, which objection shall not have been 
overruled by the Commission pursuant to section 24(b). The making of 
such information available pursuant to this section shall not be deemed 
a representation by any exchange as to the accuracy, completeness, or 
genuineness thereof.
    (b) In the case of an application for registration of a security 
pursuant to section 12 an exchange may delay making available the 
information contained therein until it has certified to the Commission 
its approval of such security for listing and registration.

(Sec. 24, 48 Stat. 901, as amended; 15 U.S.C. 78x)

[16 FR 3109, Apr. 10, 1951]

[[Page 511]]



Sec. 240.24c-1  Access to nonpublic information.

    (a) For purposes of this section, the term ``nonpublic information'' 
means records, as defined in Section 24(a) of the Act, and other 
information in the Commission's possession, which are not available for 
public inspection and copying.
    (b) The Commission may, in its discretion and upon a showing that 
such information is needed, provide nonpublic information in its 
possession to any of the following persons if the person receiving such 
nonpublic information provides such assurances of confidentiality as the 
Commission deems appropriate:
    (1) A federal, state, local or foreign government or any political 
subdivision, authority, agency or instrumentality of such government;
    (2) A self-regulatory organization as defined in Section 3(a)(26) of 
the Act, or any similar organization empowered with self-regulatory 
responsibilities under the federal securities laws (as defined in 
Section 3(a)(47) of the Act), the Commodity Exchange Act (7 U.S.C. 1, et 
seq.), or any substantially equivalent foreign statute or regulation;
    (3) A foreign financial regulatory authority as defined in Section 
3(a)(51) of the Act;
    (4) The Securities Investor Protection Corporation or any trustee or 
counsel for a trustee appointed pursuant to Section 5(b) of the 
Securities Investor Protection Act of 1970;
    (5) A trustee in bankruptcy;
    (6) A trustee, receiver, master, special counsel or other person 
that is appointed by a court of competent jurisdiction or as a result of 
an agreement between the parties in connection with litigation or an 
administrative proceeding involving allegations of violations of the 
securities laws (as defined in Section 3(a)(47) of the Act) or the 
Commission's Rules of Practice, 17 CFR Part 201, or otherwise, where 
such trustee, receiver, master, special counsel or other person is 
specifically designated to perform particular functions with respect to, 
or as a result of, the litigation or proceeding or in connection with 
the administration and enforcement by the Commission of the federal 
securities laws or the Commission's Rules of Practice;
    (7) A bar association, state accountancy board or other federal, 
state, local or foreign licensing or oversight authority, or a 
professional association or self-regulatory authority to the extent that 
it performs similar functions; or
    (8) A duly authorized agent, employee or representative of any of 
the above persons.
    (c) Nothing contained in this section shall affect:
    (1) The Commission's authority or discretion to provide or refuse to 
provide access to, or copies of, nonpublic information in its possession 
in accordance with such other authority or discretion as the Commission 
possesses by statute, rule or regulation; or
    (2) The Commission's responsibilities under the Privacy Act of 1974 
(5 U.S.C. 552a), or the Right to Financial Privacy Act of 1978 (12 
U.S.C. 3401-22) as limited by section 21(h) of the Act.

[58 FR 52419, Oct. 8, 1993]



Sec. 240.31-1  Securities transactions exempt from transaction fees.

                            Preliminary Notes

    1. The section 31 fee for options transactions occurring on a 
national securities exchange, or transactions in options subject to 
prompt last sale reporting occurring otherwise than on an exchange (with 
the exception of sales of options on securities indexes) is to be paid 
by the exchange or the national securities association itself, 
respectively, or by The Options Clearing Corporation on behalf of the 
exchange or association, and such fee is to be computed on the basis of 
the option premium (market price) for the sale of the option. In the 
event of the exercise of an option, whether such option is traded on an 
exchange or otherwise, a section 31 fee is to be paid by the exchange or 
the national securities association itself, or The Options Clearing 
Corporation on behalf of the exchange or association, and such fee is to 
be computed on the basis of the exercise price of the option.
    2. The section 31(d) assessment on a round turn transaction on a 
security future traded on a national securities

[[Page 512]]

exchange, or by or through a member of a national securities association 
otherwise than on a national securities exchange, is to be paid by the 
exchange or the national securities association itself, respectively, or 
by The Options Clearing Corporation on behalf of the exchange or 
association, and such assessment is to be computed on the basis of the 
number of contracts of sale for future delivery traded on such exchange 
or by or through any member of such association otherwise than on an 
exchange. In the event of the physical settlement of a security future, 
a section 31 fee is to be paid by the exchange on which the round turn 
transaction on the security future was traded, or, if the round turn 
transaction on the security future was traded by or through a member of 
a national securities association otherwise than on a national 
securities exchange, by the association, or by The Options Clearing 
Corporation on behalf of such exchange or association. Such fee, whether 
paid under section 31(b) or section 31(c), is to be computed on the 
basis of the price received by the seller in exchange for delivery of 
the security or securities underlying the security future. The 
obligation to pay fees under section 31(b) or (c) does not accrue until 
the time that physical delivery occurs.
    The following shall be exempt from section 31 of the Act:
    (a) Transactions in securities offered pursuant to an effective 
registration statement under the Securities Act of 1933 (except 
transactions in put or call options issued by the Options Clearing 
Corporation) or offered in accordance with an exemption from 
registration afforded by section 3(a) or 3(b) thereof (15 U.S.C. 77c(a) 
or 77c(b)), or a rule thereunder;
    (b) Transactions by an issuer not involving any public offering 
within the meaning of section 4(2) of the Securities Act of 1933 (15 
U.S.C. 77d(2));
    (c) The purchase or sale of securities pursuant to and in 
consummation of a tender or exchange offer;
    (d) The purchase or sale of securities upon the exercise of a 
warrant or right (except a put or call), or upon the conversion of a 
convertible security;
    (e) Transactions which are executed outside the United States and 
are not reported, or required to be reported, to a transaction reporting 
association as defined in Sec. 240.11Aa3-1 (Rule 11Aa3-1 under the Act) 
and any approved plan filed thereunder;
    (f) Sales of options on narrow-based security indexes; and
    (g) Round turn transactions in futures on narrow-based security 
indexes.

[67 FR 3058, Jan. 23, 2002, as amended at 67 FR 5202, Feb. 5, 2002; 67 
FR 46108, July 12, 2002]



Sec. 240.36a1-1  Exemption from Section 7 for OTC derivatives dealers.

    Preliminary Note: OTC derivatives dealers are a special class of 
broker-dealers that are exempt from certain broker-dealer requirements, 
including membership in a self-regulatory organization (Sec. 240.15b9-
2), regular broker-dealer margin rules (Sec. 240.36a1-1), and 
application of the Securities Investor Protection Act of 1970 (Sec. 
240.36a1-2). OTC derivative dealers are subject to special requirements, 
including limitations on the scope of their securities activities (Sec. 
240.15a-1), specified internal risk management control systems (Sec. 
240.15c3-4), recordkeeping obligations (Sec. 240.17a-3(a)(10)), and 
reporting responsibilities (Sec. 240.17a-12). They are also subject to 
alternative net capital treatment (Sec. 240.15c3-1(a)(5)).

    (a) Except as otherwise provided in paragraph (b) of this section, 
transactions involving the extension of credit by an OTC derivatives 
dealer shall be exempt from the provisions of section 7(c) of the Act 
(15 U.S.C. 78g(c)), provided that the OTC derivatives dealer complies 
with Section 7(d) of the Act (15 U.S.C. 78g(d)).
    (b) The exemption provided under paragraph (a) of this section shall 
not apply to extensions of credit made directly by a registered broker 
or dealer (other than an OTC derivatives dealer) in connection with 
transactions in eligible OTC derivative instruments for which an OTC 
derivatives dealer acts as counterparty.

[63 FR 59404, Nov. 3, 1998]



Sec. 240.36a1-2  Exemption from SIPA for OTC derivatives dealers.

    Preliminary Note: OTC derivatives dealers are a special class of 
broker-dealers that are exempt from certain broker-dealer requirements, 
including membership in a self-regulatory organization (Sec. 240.15b9-
2), regular broker-dealer margin rules (Sec. 240.36a1-1), and

[[Page 513]]

application of the Securities Investor Protection Act of 1970 (Sec. 
240.36a1-2). OTC derivative dealers are subject to special requirements, 
including limitations on the scope of their securities activities (Sec. 
240.15a-1), specified internal risk management control systems (Sec. 
240.15c3-4), recordkeeping obligations (Sec. 240.17a-3(a)(10)), and 
reporting responsibilities (Sec. 240.17a-12). They are also subject to 
alternative net capital treatment (Sec. 240.15c3-1(a)(5)).

    OTC derivatives dealers, as defined in Sec. 240.3b-12, shall be 
exempt from the provisions of the Securities Investor Protection Act of 
1970 (15 U.S.C. 78aaa through 78lll).

[63 FR 59404, Nov. 3, 1998]



Subpart B_Rules and Regulations Under the Securities Investor Protection 
                         Act of 1970 [Reserved]



        PART 241_INTERPRETATIVE RELEASES RELATING TO THE SECURITIES EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Excerpt from letter relating to section 16(a)......        21    Oct. 1, 1934  11 FR 10968.
Statement by Commission to correct the erroneous           68   July 22, 1934   Do.
 impression created by certain commercial
 institutions with respect to the necessity for
 filing reports with the Commission.
Letter of General Counsel relating to section 16(a)       116    Mar. 9, 1935   Do.
Opinion of General Counsel relating to section            175   Apr. 16, 1935   Do.
 16(a).
Excerpt from a general letter relating to section         227    May 14, 1935   Do.
 16(a).
Opinion of the Director of the Division of Forms         1131    Apr. 7, 1937   Do.
 and Regulations discussing the definition of
 ``parent'' as used in various forms under the
 Securities Act of 1933 and the Securities Exchange
 Act of 1934.
Statement by Commission with respect to the purpose      1350   Aug. 13, 1937  11 FR 10969.
 of the disclosure requirements of section 14 and
 the rules adopted thereunder.
Opinion of Director of the Trading and Exchange          1411    Oct. 7, 1937   Do.
 Division relating to Rules X-15C1-6 (17 CFR
 240.15c1-6) and X-10B-2 (17 CFR 240.10b-2).
Opinion of Director of the Trading and Exchange          1462   Nov. 15, 1937   Do.
 Division relating to Rule X-15C1-1(a) (17 CFR,
 240.15c1-1a).
Partial text of letter of February 2, 1938, from         1571    Feb. 5, 1938   Do.
 the Secretary of the New York Stock Exchange to
 its members, relating to Rules X-3B-3 (17 CFR
 240.3b-3), X-10A-1 (17 CFR 240.10a-1), and X-10A-2
 (17 CFR 240.10a-2), together with a letter from
 Director of Trading and Exchange Division,
 concurring in the opinions expressed by the
 Exchange.
Opinion of General Counsel relating to section           1965   Dec. 21, 1938  11 FR 10970.
 16(a).
Letter of General Counsel concerning the services        2066     May 5, 1939  11 FR 10971.
 of former employees of the Commission in
 connection with matters with which such employees
 become familiar during their course of employment
 with the Commission.
Statement of Commission and separate statement by        2446   Mar. 18, 1940   Do.
 Commissioner Healy on the problem of regulating
 the ``pegging, fixing and stabilizing'' of
 security prices under sections 9(a)(2), 9(a)(6)
 and 15(c)(1) of the Securities Exchange Act.
Statement of Commission respecting distinctions          2687   Nov. 16, 1940  11 FR 10981.
 between the reporting requirements of section
 16(a) of the Securities Exchange Act of 1934 and
 section 30(f) of the Investment Company Act of
 1940.
Statement of Commission issued in connection with        2690   Nov. 15, 1940  11 FR 10982.
 the adoption of Rules X-8C-1 (17 CFR, 240.8c-1)
 and X-15-C2-1 (17 CFR, 240.15c 2-1) under the
 Securities Exchange Act of 1934 relating to the
 hypothecation of customers' securities by members
 of national securities exchanges and other brokers
 and dealers.
Opinion of General Counsel relating to paragraph         2822   Mar. 17, 1941  11 FR 10983.
 (b)(2)(ii) of Rules X-8C-1 (17 CFR, 240.8c-1) and
 X-15C2-1 (17 CFR, 240.15C 2-1) under the
 Securities Exchange Act.
Partial text of letter sent by Director of the           3040   Oct. 13, 1941  11 FR 10984.
 Trading and Exchange Division to certain
 securities dealers who had failed to keep records
 of the times of their securities transactions, as
 required by Rules X-17A-3 (17 CFR, 240.17a-3) and
 X-17A-4 (17 CFR, 240.17a-4) under the Securities
 Exchange Act.
Opinion of General Counsel relating to the anti-         3056   Oct. 27, 1941   Do.
 manipulation provisions of sections 9(a)(2), 10(b)
 and 15(c)(1) of the Securities Exchange Act of
 1934, as well as section 17(a) of the Securities
 Act of 1933.

[[Page 514]]

 
Opinion of Chief Counsel to the Corporation Finance      3069    Jan. 4, 1945  11 FR 10985.
 Division relating to when-issued trading of
 securities the issuance of which has already been
 approved by a Federal district court under Chapter
 X of the Bankruptcy Act.
Statement of Commission policy with respect to the       3085    Dec. 6, 1941   Do.
 acceleration of the effective date of a
 registration statement.
Letter of Director of the Corporation Finance            3380    Feb. 2, 1943   Do.
 Division relating to sections 14 and 18.
Excerpts from letters of Director of the                 3385   Feb. 17, 1943   Do.
 Corporation Finance Division relating to section
 14 and Schedule 14A under Regulation X-14 (17 CFR,
 240.14a-9).
Opinion of Director of the Trading and Exchange          3505   Nov. 16, 1943  11 FR 10986.
 Division relating to the anti-manipulation
 provisions of sections 9(a)(2), 10(b), and
 15(c)(1) of the Securities Exchange Act of 1934,
 and 17(a) of the Securities Act of 1933.
Opinion of Director of the Trading and Exchange          3506   Nov. 16, 1943  11 FR 10987.
 Division relating to the anti-manipulation
 provisions of sections 9(a)(2), 10(b), and
 15(c)(1) of the Securities Exchange Act of 1934,
 and 17(a) of the Securities Act of 1933.
Statement of the Commission relating to the anti-        3572    June 1, 1944   Do.
 fraud provisions of section 17(a) of the
 Securities Act of 1933, and sections 10(b) and
 15(c)(1) of the Securities Exchange Act of 1934.
Letter of Director of the Corporation Finance            3638    Jan. 3, 1945  11 FR 10988.
 Division relating to section 20 and to Rule X-14A-
 7 (17 CFR, 240.14a-7) under the Securities
 Exchange Act of 1934.
Statement by Commission relating to section 3(a)(1)      3639    Jan. 4, 1945   Do.
Statement of the Commission in connection with the       3674    Apr. 9, 1945   Do.
 adoption of certain amendments to Form 3-M, one of
 the forms for registration of over-the-counter
 brokers or dealers under section 15(b) of the
 Securities Exchange Act of 1934, and to Rule X-15B-
 2 (17 CFR, 240.15b-2), the rule governing the
 filing of supplemental statements to such
 applications.
Statement by Commission relating to the adoption of      3803   Mar. 28, 1946   Do.
 Rule X-13A-6B (17 CFR, 240.13a-6b).
Statement of the Commission in connection with           4163  Sept. 16, 1948  13 FR 4163.
 notice of opportunity to submit proposals for
 regulations or legislation regarding the
 stabilization of market prices by persons offering
 securities to the public.
Statement of the Commission accompanying November        4185    Nov. 5, 1948  13 FR 6680.
 5, 1948, revision of Sec. 240.14 of this chapter
 (Regulation X-14).
Opinion of the General Counsel, relating to the use      4593   Apr. 18, 1951  16 FR 3387.
 of ``hedge clauses'' by brokers, dealers,
 investment advisers, and others.
Statement of the Commission regarding public             5633   Jan. 31, 1958  23 FR 841.
 offerings of investment contracts providing for
 the acquisition, sale or servicing of mortgages or
 deeds of trust.
Statement of the Commission as to the applicability      6419   Nov. 18, 1960  25 FR 12178.
 of the Federal securities laws to real estate
 investment trusts.
Statement of the Commission concerning standards of      6721    Feb. 2, 1962  27 FR 1251.
 conduct for registered broker-dealers in the
 distribution of unregistered securities.
Opinion of Philip A. Loomis, Jr., Director of            6726    Feb. 8, 1962  27 FR 1415.
 Division of Trading and Exchanges of the
 Commission, on the application of section
 11(d)(1), Securities Exchange Act of 1934, to
 broker-dealers engaged in ``equity funding'',
 ``secured funding'', and ``life funding''.
Statement of the Commission cautioning broker-           6778   Apr. 16, 1962  27 FR 3991.
 dealers about violating the anti-fraud provisions
 of the Federal securities laws when making short
 sales in which they delay effecting the covering
 transaction to acquire the security.
Statement of Commission showing circumstances in 7       6982   Dec. 28, 1962  28 FR 276.
 cases where profits in real estate transactions
 were not earned at time transactions were recorded
 but that the sales were designed to create the
 illusion of profits or value as a basis for the
 sale of securities.
Answer of the Commission to four questions relating      7078    May 15, 1963  28 FR 5133.
 to the solicitation of proxies.
Statement by the Commission on the maintenance of        7169   Nov. 13, 1963  28 FR 12617.
 rec-ords of transactions by brokers-dealers as
 underwriters of investment company shares
 according to Rule 17a-3 under section 17(a) of the
 Securities Exchange Act of 1934 (17 CFR 240.17a-3).
Opinion of the General Counsel relating to               7208    Jan. 7, 1964  29 FR 341.
 participation by broker-dealer firms in proxy
 solicitations.
Statement of the Commission re applicability of          7366    July 9, 1964  29 FR 9828.
 Securities Act of 1933 to offerings of securities
 outside the U.S. and re applicability of section
 15(a) of the Securities Exchange Act of 1934 to
 foreign underwriters as part of program of
 Presidential Task Force to reduce U.S. balance of
 payments deficit and protect U.S. gold reserves.
Summary and interpretation by the Commission of          7425  Sept. 14, 1964  29 FR 13455.
 amendments to the Securities Act of 1933 and
 Securities Exchange Act of 1934 as contained in
 the Securities Acts Amendments of 1964.

[[Page 515]]

 
Opinion and statement of the Commission in regard        7763    Dec. 7, 1965  30 FR 15420.
 to proper reporting of deferred income taxes
 arising from installment sales.
Statement of the Commission to clarify the meaning       7793   Jan. 19, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Program by the Commission which it requests that         7805   Jan. 26, 1966  31 FR 2475.
 issuing companies follow in order to expedite the
 processing of proxy material.
Statement of the Commission setting the date of May      7824   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Policy statement by the Director of the Division of      7920   July 19, 1966  31 FR 10076.
 Trading and Markets re consummation of securities
 transactions by brokers-dealers when trading is
 suspended.
Opinions of the Commission on the acceleration of        8336   June 18, 1968  33 FR 10086.
 the effective date of a registration statement
 under the Securities Act of 1933 and on the
 clearance of proxy material such as convertible
 preferred shares considered residual securities in
 determining earnings per share applicable to
 common stock.
Statement of the Commission to alert prospective         8351    July 5, 1968  33 FR 10134.
 borrowers obtaining loans for real estate
 development about recent fraudulent schemes.
Statement of the Commission warning broker-dealers       8363   July 29, 1968  33 FR 11150.
 to be prompt in the consummation of securities
 transactions and about the penalty for not so
 doing.
Statement of the Commission re broker-dealer             8389   Aug. 29, 1968  33 FR 13005.
 registration of insurance companies acting as
 agents for distribution of ``variable annuities''
 and application of regulations for such under the
 Securities Exchange Act of 1934.
Statement of the Commission reminding broker-dealer      8404  Sept. 11, 1968  33 FR 14286.
 managements to establish and maintain an effective
 supervisory system and failure to do so will
 result in disciplinary action against the firm and
 responsible individuals.
Statement of the Commission clarifying that              8409  Sept. 16, 1968  33 FR 14545.
 industrial revenue bonds sold according to Rule
 131 (17 CFR 230.131) and Rule 3b-5 (17 CFR 240.3b-
 5) are not affected if acquired and paid for by
 the underwriters on or before December 31, 1968.
Statement of the Commission cautioning brokers and       8638    July 2, 1969  34 FR 11581.
 dealers with respect to effecting transactions of
 ``spin offs'' and ``shell corporations''.
Commission's statement about publicity concerning        8728   Oct. 20, 1969  34 FR 17433.
 the petroleum discoveries on the North Slope of
 Alaska.
Commission's warning statement re sale and               8733    Nov. 4, 1969  34 FR 18160.
 distribution of whisky warehouse receipts.
Letter by Philip A. Loomis, Jr., General Counsel         8746   Nov. 10, 1969  34 FR 18543.
 for the Commission, explaining obligations of
 mutual fund managements and brokers with respect
 to commissions on portfolio brokerage of mutual
 funds.
Publication of the Commission's guidelines re            8907   June 23, 1970  35 FR 12103.
 applicability of Federal securities laws to offer
 and sale outside the U.S. of shares of registered
 open-end investment companies.
Statement of the Commission reminding reporting          8995   Oct. 15, 1970  35 FR 16733.
 companies of obligation re Commission's rules to
 file reports on a timely basis.
Commission's statement re exemption of certain           9016    Nov. 6, 1970  35 FR 17990.
 industrial revenue bonds from registration, etc.
 requirements in view of amendment of Securities
 Act of 1933 and of Securities Exchange Act of 1934
 by ``section 401'' (Pub. L. 91-1037).
Commission's views relating to important questions       9049   Dec. 23, 1970  35 FR 19986.
 re the accounting by registered investment
 companies for investment securities in their
 financial statements and in the periodic
 computations of net asset value for the purpose of
 pricing their shares.
Publication of the Commission's procedure to be          9065   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Interpretations of the Commission in regard to           9083   Feb. 18, 1971  36 FR 4483.
 requirements for registration statements and
 reports concerning information requested re
 description of business, summary of operations,
 and financial statements.
Statement of the Commission warning the public           9148   Apr. 12, 1971  36 FR 8239.
 about novel unsecured debt securities which appear
 to invite unwarranted comparisons with bank
 savings accounts, savings and loan association
 accounts, and bank time deposit certificates.
Statement of the Commission prohibiting the              9210   June 16, 1971  36 FR 11918.
 reduction of fixed charges by amounts representing
 interest or investment income or gains on
 retirement of debt in registration statements or
 reports filed with the Commission.
Statement of the Commission calling attention to         9252   July 19, 1971  36 FR 13988.
 requirements in its forms and rules under the
 Securities Act of 1933 and the Securities and
 Exchange Act of 1934 for disclosure of legal
 proceedings and descriptions of registrant's
 business as these requirements relate to material
 matters involving the environment and civil rights.

[[Page 516]]

 
Commission's policy requiring the inclusion in           9279   Aug. 10, 1971  36 FR 15527.
 financial statements of the ratio of earnings to
 fixed charges for the total enterprise in
 equivalent prominence with the ratio for the
 registrant or registrant and consolidated
 subsidiaries.
Policy of Commission's Division of Corporation           9345  Sept. 27, 1971  36 FR 19362.
 Finance to defer processing registration
 statements and amendments filed under the
 Securities Act of 1933 by issuers whose reports
 are delinquent until such reports are brought up
 to date.
Commission's statement concerning applicability of       9387   Nov. 30, 1971  36 FR 23289.
 securities laws to multilevel distributorships and
 other business opportunities offered through
 pyramid sales plans.
Statement by the Commission regarding payment of         9395   Nov. 24, 1971  36 FR 23359.
 solicitation fees in tender offers.
Commission's statement concerning offering and sale      9444   Jan. 14, 1972  37 FR 600.
 of securities in non-public offerings and
 applicability of antifraud provisions of
 securities acts.
Statement of the Commission's views on the present   ........   Mar. 14, 1972  37 FR 5286
 status of the securities markets and the direction
 in which the public interest requires that they
 evolve in the future.
Commission endorses the establishment by all             9548    Apr. 5, 1972  37 FR 6850.
 publicly held companies of audit committees
 composed of outside directors.
Applicability of Commission's policy statement on        9598    May 18, 1972  37 FR 9988.
 the future structure of securities markets to
 selection of brokers and payment of commissions by
 institutional managers.
Commission's statement and policy on misleading pro      9618    June 9, 1972  37 FR 11559.
 rata stock distributions to shareholders.
Commission's guidelines on independence of               9662   June 19, 1972  37 FR 14294.
 certifying accountants; example cases and
 Commission's conclusions.
Commission's decisions on recommendations of             9796    Mar. 1, 1973  38 FR 5457.
 advisory committee regarding commencement of
 enforcement proceedings and termination of staff
 investigations.
Commission's interpretation of risk-sharing test in      9798    Oct. 5, 1972  37 FR 20937.
 pooling-of-interest accounting.
Commission's statement that short-selling                9824   Oct. 25, 1972  37 FR 22796.
 securities prior to offering date is a possible
 violation of antifraud and antimanipulative laws.
Commission reaffirms proper accounting treatment to      9867   Dec. 13, 1972  37 FR 26516.
 be followed by a lessee when the lessor is created
 as a conduit for debt financing.
Commission's interpretations of a rule (15c3-3)          9922   Jan. 18, 1973  38 FR 1737.
 dealing with customer protection by securities
 brokers and dealers.
Amendment of previous interpretation (AS-130) of         9927   Jan. 18, 1973  38 FR 1734.
 risk-sharing test in pooling of interest
 accounting.
Commission clarifies effective dates of Rule 15c3-3      9946    Feb. 5, 1973  38 FR 3313.
Commission's designation of control locations for        9969    Feb. 5, 1973   Do.
 foreign securities.
Commission's findings on disclosure of projections       9984   Mar. 19, 1973  38 FR 7220.
 of future economic performance by issuers of
 publicly traded securities.
Commission's views on reporting cash flow and other     10041   Apr. 11, 1973  38 FR 9158.
 related data.
Commission's statement on obligations of                10181    June 1, 1973  38 FR 17201.
 underwriters with respect to discretionary
 accounts.
Commission's opinion on net capital treatment of        10209    June 8, 1973  38 FR 16774.
 securities position, obligation and transactions
 in suspended securities.
Commission expresses concern with failure of            10214   July 10, 1973  38 FR 18366.
 issuers to timely and properly file periodic and
 current report.
Commission's statement and policy on application of     10304    Aug. 3, 1973  38 FR 20820.
 minimum net capital requirement.
Commission's conclusions as to certain problem          10363  Sept. 10, 1973  38 FR 24635.
 relating to the effect of treasury stock
 transactions on accounting for business
 combinations.
Commission's interpretation of market                   10388  Sept. 20, 1973  38 FR 26358.
 identification requirement of rule for reporting
 of market information on transactions in listed
 securities.
Commission's response to the New York Stock             10391  Sept. 25, 1973  38 FR 26716.
 Exchange's proposed interpretation of ``affiliated
 person''.
Commission request for comments on Accounting           10422   Oct. 17, 1973  38 FR 28819.
 Series Release No. 46.
Commission's guidelines for control locations for       10429   Oct. 23, 1973  38 FR 29217.
 foreign securities.
Commission's views and comments relating to             10547    Jan. 7, 1974  39 FR 1261.
 quarterly reporting on Form 10-Q and Form 10-QSB.
Statement by the Commission on disclosure of the        10569   Jan. 10, 1974  39 FR 1511.
 impact of possible fuel shortages on the
 operations of issuers.
Commission's statement on disclosure of inventory       10580   Jan. 17, 1974  39 FR 2085.
 profits reflected in income in periods of rising
 prices.
Commission decision on trading in securities issued     10610   Jan. 31, 1974  39 FR 3932.
 or guaranteed by the governments of Bulgaria,
 Hungary, and Romania.
Commission views on disclosure of illegal campaign      10673   Mar. 11, 1974  39 FR 10237.
 contributions.
Commission's statement of policy and                   10363A   Apr. 12, 1974  39 FR 14588.
 interpretations.
Commission's statement regarding maintenance of         10756     May 9, 1974  39 FR 16440.
 current books and records by brokers and dealers.

[[Page 517]]

 
Commission's practices on reporting of natural gas      10857   June 14, 1974  39 FR 27556.
 reserve estimates.
Commission's views on business combinations             10898    July 3, 1974  39 FR 26719.
 involving open-end investment companies.
Commission's guidelines for filings related to          10899    July 3, 1974  39 FR 26720.
 extractive reserves and natural gas supplies.
Commission's guidelines for registration and            10961   Aug. 14, 1974  39 FR 31894.
 reporting.
Commission's requirements for financial statements;     11029  Sept. 27, 1974  39 FR 36578.
 limited partnerships in annual reports.
Commission's examples of unusual risks and              11150   Dec. 23, 1994  40 FR 2678.
 uncertainties.
Letters of the Division of Corporation Finance with     11156   Dec. 26, 1994  40 FR 1695.
 respect to certain proposed arrangements for the
 sale of gold bullion.
Commission's statement on disclosure problems           11198   Jan. 23, 1975  40 FR 6483.
 relating to LIFO accounting.
Commission's guidelines on Accounting Series            11470   June 13, 1975  40 FR 27441.
 Release No. 148.
Brokers and dealers effecting transactions in           11854   Nov. 20, 1975  40 FR 57786.
 municipal securities.
Financial responsibility requirements of brokers        11969     Jan 2, 1976  41 FR 5277.
 and dealers.
Brokers and dealers effecting transactions in           12021  ..............  41 FR 3469.
 municipal securities.
Interpretation of certain terms in item 10 of Form      12078   Feb. 17, 1976  41 FR 7089.
 BD.
Brokers and dealers effecting transactions in           12288   Apr. 15, 1976  41 FR 15842.
 municipal securities.
Standards for disclosure; oil and gas reserve......     12435    May 12, 1976  41 FR 21764.
Brokers and dealers effecting transactions in           12496   June 11, 1976  41 FR 23668.
 municipal securities.
Statement of informal proposals for the rendering       12599   July 20, 1976  41 FR 29989.
 of staff advice with respect to shareholder
 proposals.
Guides for statistical disclosure by bank holding       12748   Aug. 31, 1976  41 FR 39007.
 companies.
Uniform net capital rule...........................     12766  Sept. 14, 1976  41 FR 39014.
Uniform net capital rule...........................     12927   Oct. 27, 1976  41 FR 48335.
Brokers and dealers effecting transactions in           12932   Oct. 27, 1976  41 FR 48336.
 municipal securities.
Brokers and dealers effecting transactions in           13108    Jan. 4, 1977  42 FR 759.
 municipal securities.
Brokers and dealers effecting transactions in           13362   Mar. 21, 1977  42 FR 15310.
 municipal securities.
Rescission of certain accounting series releases...     13630   June 15, 1977  42 FR 33282.
Guideline regarding the preparation of integrated       13639   June 17, 1977  42 FR 31780.
 reports to shareholders.
Industry segment determination.....................     14523    Mar. 3, 1978  43 FR 9599.
Securities transactions by members of national          14563   Mar. 14, 1978  43 FR 11542.
 securities exchanges.
Application of registration requirements to certain     14699   Apr. 24, 1978  43 FR 18163.
 tender offers and the application of tender offer
 provisions to certain cash-option mergers.
Reporting by certain institutional investors of         14830   June 13, 1978  43 FR 25420.
 beneficial ownership of certain equity securities
 which as of the end of any month exceeds ten
 percent of the class.
Division of investment management's interpretative      15292    Nov. 2, 1978  43 FR 52697.
 positions relating to Rule 13f-1 and related Form
 13F.
Guides for disclosure of projections of future          15305    Nov. 7, 1978  43 FR 53246.
 economic performance.
Commission's statement regarding disclosure of          15371   Nov. 29, 1978  43 FR 57596.
 impact of Wage and Price Standards for 1979 on the
 operations of issuers.
Statement of the views of the Commission's Division     15572   Feb. 15, 1979  44 FR 11541.
 of Corporation Finance with respect to disclosure
 in proxy statements containing certain sale of
 assets transactions.
Short sales; interpretation of rule................     16150   Aug. 30, 1979  44 FR 53159.
Shareholder communications, shareholder                 16163   Sept. 6, 1979  44 FR 53426.
 participation in the corporate electoral process
 and corporate governance generally.
Environmental disclosure requirements..............     16224  Sept. 27, 1979  44 FR 56924.
Pooled income funds................................     16478   Jan. 10, 1980  45 FR 3258.
Tender offer rules.................................     16623    Mar. 5, 1980  45 FR 15521.
Proxy rules........................................     16833    May 23, 1980  45 FR 36374.
Clearing agencies..................................     16900   June 17, 1980  45 FR 41920.
Guides for statistical disclosure by bank holding       16961    July 8, 1980  45 FR 47142.
 companies.
Transfer agents....................................     17111   Sept. 2, 1980  45 FR 59840.
Amendments to guides...............................     17114   Sept. 2, 1980  45 FR 63647.
Extension date of clearing agencies for form filing     17231   Oct. 20, 1980  45 FR 70857.
Beneficial ownership rules.........................     17354    Dec. 4, 1980  45 FR 81559.
Distribution of proxy materials to beneficial           17424    Jan. 7, 1981  46 FR 3204.
 shareowners.
Foreign Corrupt Practices Act of 1977..............     17500   Jan. 29, 1981  46 FR 11544.
Analysis of results of 1980 proxy statement             17518    Feb. 5, 1981  46 FR 11954.
 disclosure monitoring program.
Option and option-related transactions during           17609    Mar. 6, 1981  46 FR 16670.
 underwritten offerings.
Going private transactions under rule 13e-3........     17719   Apr. 13, 1981  46 FR 22571.
Insider reporting and trading......................     18114  Sept. 23, 1981  46 FR 48147.
Retail repurchase agreements by banks and savings       18122  Sept. 25, 1981  46 FR 48637.
 and loan associations.
Analysis of results of 1981 proxy statement             18532    Mar. 3, 1982  47 FR 10794.
 disclosure monitoring program.
Rescission of guides and redesignation of industry      18525    Mar. 3, 1982  47 FR 11481.
 guides (effective May 24, 1982).
Amendments to guides...............................     19337   Dec. 15, 1982  47 FR 57911.
Revision of financial statement requirements and        19570    Mar. 7, 1983  48 FR 11104.
 industry guide disclosure for bank holding
 companies..
Commission's views on Colema Realty Corp. v. R. D.      19756    May 11, 1983  48 FR 23173.
 Bibow, et al.
Revision of industry guide disclosures for bank         20068   Aug. 11, 1983  48 FR 37609.
 holding companies.

[[Page 518]]

 
Public statements by corporate representatives.....     20560   Jan. 13, 1984  49 FR 2468.
Research reports...................................     21332  Sept. 19, 1984  49 FR 37574.
Commission views on computer brokerage systems.....     21383    Oct. 9, 1984  49 FR 40159.
Guide for disclosures concerning reserves for           21521   Nov. 27, 1984  49 FR 47601.
 unpaid claims and claim adjustment expenses of
 property-casualty underwriters.
Brokerage and research services concerning scope of     23170   Apr. 23, 1986  51 FR 16012.
 section 28(e) of Securities Exchange Act of 1934.
Application of Rule 10b--6 under the Securities         23611  Sept. 11, 1986  51 FR 33248.
 Exchange Act of 1934 to persons participating in
 shelf distributions.
Industry guides for statistical disclosure by bank      23846   Nov. 25, 1986  51 FR 43599.
 holding companies.
Tender offers rules................................     24296    Apr. 3, 1987  52 FR 11458.
Statement of the Commission Regarding Disclosure        25951    Aug. 1, 1988  53 FR 29228.
 Obligations of Companies Affected by the
 Government's Defense Contract Procurement Inquiry
 and Related Issues.
Statement of the Commission Regarding Disclosure by     26508    Feb. 1, 1989  54 FR 5603.
 Issuers of interests in Publicly Offered Commodity
 Pools.
Management's discussion and analysis of financial       26831    May 18, 1989  54 FR 22427.
 condition and results of operations; certain
 investment company disclosures.
Modifying and confirming the interpretation of          26985   June 28, 1989  54 FR 28814.
 municipal underwriter securities responsibilities.
Liquidation of Index Arbitrage Positions...........     27938   Apr. 30, 1990  55 FR 17949.
Ownership reports on trading by officers, directors     29131   Apr. 26, 1991  56 FR 19928.
 and principal security holders.
Limited partnership reorganizations and public          29314   June 17, 1991  56 FR 28986.
 offerings of limited partnership interests.
Registration of Successors to Broker-Dealers and        31661    Jan. 4, 1993  58 FR 11.
 Investment Advisors.
Statement of the Commission regarding disclosure        33741    Mar. 9, 1994  59 FR 12758.
 obligations of municipal securities issuers and
 others.
Amendment of interpretation regarding substantive       34061    May 12, 1994  59 FR 26109.
 repossession of collateral.
Use of electronic media for delivery purposes......     36345    Oct. 6, 1995  60 FR 53467.
Use of electronic media for delivery purposes......     37182     May 9, 1996  61 FR 24651.
Statement of the Commission Regarding Use of            39779   Mar. 23, 1998  63 FR 14813
 Internet Web Sites to Offer Securities, Solicit
 Securities Transactions or Advertise Investment
 Services Offshore.
Confirmation and Affirmation of Securities Trades;      39829    Apr. 6, 1998  63 FR 17947
 Matching.
Statement of the Commission Regarding Disclosure of     40277   July 29, 1998  63 FR 41404.
 Year 2000 Issues and Consequences by Public
 Companies, Investment Advisers, Investment
 Companies, and Municipal Securities Issuers.
Use of electronic media............................     42728   Apr. 28, 2000  65 FR 25856.
Commission Guidance on Mini-Tender Offers and           43069   July 24, 2000  65 FR 46588.
 Limited Partnership Tender Offers.
Commission Guidance to Broker-Dealers on the Use of     44238     May 7, 2001  66 FR 22921.
 Electronic Storage Media Under the Electronic
 Signatures in Global and National Commerce Act of
 2000 With Respect to Rule 17a-4(f).
Application of the Electronic Signatures in Global      44424   June 21, 2001  66 FR 33176.
 and National Commerce Act to Record Retention
 Requirements Pertaining to Issuers.
Calculation of Average Weekly Trading Volume.......    44820A  Sept. 27, 2001  66 FR 49274
Commission Guidance on the Scope of Section 28(e)       45194   Dec. 27, 2001  67 FR 8
 of the Exchange Act.
Commission Guidance on Trading in Security Futures      46101   June 21, 2002  67 FR 43246
 Products.
Electronic Storage of Broker-Dealer Records........     47806     May 7, 2003  68 FR 25283
Books and Records Requirements for Brokers and          47910    May 22, 2003  68 FR 32311
 Dealers Under the Securities Exchange Act of 1934.
Commission Guidance on Rule 3b-3 and Married Put        48795    November 17,  68 FR 65822
 Transactions.                                                           2003
Commission Guidance Regarding Management's              48960    December 19,  68 FR 75065
 Discussion and Analysis of Financial Condition and                      2003
 Results of Operations.
----------------------------------------------------------------------------------------------------------------



PART 242_REGULATIONS M, ATS, AND AC AND CUSTOMER MARGIN REQUIREMENTS 
FOR SECURITY FUTURES--Table of Contents




Sec.

                              Regulation M

242.100 Preliminary note; definitions.
242.101 Activities by distribution participants.
242.102 Activities by issuers and selling security holders during a 
          distribution.
242.103 Nasdaq passive market making.
242.104 Stabilizing and other activities in connection with an offering.
242.105 Short selling in connection with a public offering.

[[Page 519]]

               Regulation ATS--Alternative Trading Systems

242.300 Definitions.
242.301 Requirements for alternative trading systems.
242.302 Recordkeeping requirements for alternative trading systems.
242.303 Record preservation requirements for alternative trading 
          systems.

            Customer Margin Requirements for Security Futures

Sec.
242.400 Customer margin requirements for security futures--authority, 
          purpose, interpretation, and scope.
242.401 Definitions.
242.402 General provisions.
242.403 Required margin.
242.404 Type, form and use of margin.
242.405 Withdrawal of margin.
242.406 Undermargined accounts.

                  Regulation AC--Analyst Certification

242.500 Definitions
242.501 Certifications in connection with research reports.
242.502 Certifications in connection with public appearances.
242.503 Certain foreign research reports.
242.504 Notification to associated persons.
242.505 Exclusion for news media.

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-1(c), 78l, 78m, 78mm, 78n, 78o(b), 78o(c), 78o(g), 
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 80a-23, 80a-29, and 80a-37.

    Source: 62 FR 544, Jan. 3, 1997, unless otherwise noted.

                              Regulation M



Sec. 242.100  Preliminary note; definitions.

    (a) Preliminary note: Any transaction or series of transactions, 
whether or not effected pursuant to the provisions of Regulation M 
(Sec. Sec. 242.100-242.105 of this chapter), remain subject to the 
antifraud and antimanipulation provisions of the securities laws, 
including, without limitation, Section 17(a) of the Securities Act of 
1933 [15 U.S.C. 77q(a)] and Sections 9, 10(b), and 15(c) of the 
Securities Exchange Act of 1934 [15 U.S.C. 78i, 78j(b), and 78o(c)].
    (b) For purposes of regulation M (Sec. Sec. 242.100 through 242.105 
of this chapter) the following definitions shall apply:
    ADTV means the worldwide average daily trading volume during the two 
full calendar months immediately preceding, or any 60 consecutive 
calendar days ending within the 10 calendar days preceding, the filing 
of the registration statement; or, if there is no registration statement 
or if the distribution involves the sale of securities on a delayed 
basis pursuant to Sec. 230.415 of this chapter, two full calendar 
months immediately preceding, or any consecutive 60 calendar days ending 
within the 10 calendar days preceding, the determination of the offering 
price.
    Affiliated purchaser means:
    (1) A person acting, directly or indirectly, in concert with a 
distribution participant, issuer, or selling security holder in 
connection with the acquisition or distribution of any covered security; 
or
    (2) An affiliate, which may be a separately identifiable department 
or division of a distribution participant, issuer, or selling security 
holder, that, directly or indirectly, controls the purchases of any 
covered security by a distribution participant, issuer, or selling 
security holder, whose purchases are controlled by any such person, or 
whose purchases are under common control with any such person; or
    (3) An affiliate, which may be a separately identifiable department 
or division of a distribution participant, issuer, or selling security 
holder, that regularly purchases securities for its own account or for 
the account of others, or that recommends or exercises investment 
discretion with respect to the purchase or sale of securities; Provided, 
however, That this paragraph (3) shall not apply to such affiliate if 
the following conditions are satisfied:
    (i) The distribution participant, issuer, or selling security 
holder:
    (A) Maintains and enforces written policies and procedures 
reasonably designed to prevent the flow of information to or from the 
affiliate that might result in a violation of Sec. Sec. 242.101, 
242.102, and 242.104; and
    (B) Obtains an annual, independent assessment of the operation of 
such policies and procedures; and
    (ii) The affiliate has no officers (or persons performing similar 
functions) or employees (other than clerical, ministerial, or support 
personnel) in common with the distribution participant, issuer, or 
selling security holder that

[[Page 520]]

direct, effect, or recommend transactions in securities; and
    (iii) The affiliate does not, during the applicable restricted 
period, act as a market maker (other than as a specialist in compliance 
with the rules of a national securities exchange), or engage, as a 
broker or a dealer, in solicited transactions or proprietary trading, in 
covered securities.
    Agent independent of the issuer means a trustee or other person who 
is independent of the issuer. The agent shall be deemed to be 
independent of the issuer only if:
    (1) The agent is not an affiliate of the issuer; and
    (2) Neither the issuer nor any affiliate of the issuer exercises any 
direct or indirect control or influence over the prices or amounts of 
the securities to be purchased, the timing of, or the manner in which, 
the securities are to be purchased, or the selection of a broker or 
dealer (other than the independent agent itself) through which purchases 
may be executed; Provided, however, That the issuer or its affiliate 
will not be deemed to have such control or influence solely because it 
revises not more than once in any three-month period the source of the 
shares to fund the plan the basis for determining the amount of its 
contributions to a plan, or the basis for determining the frequency of 
its allocations to a plan, or any formula specified in a plan that 
determines the amount or timing of securities to be purchased by the 
agent.
    Asset-backed security has the meaning contained in General 
Instruction I.B.5. to Form S-3 (Sec. 239.13 of this chapter).
    At-the-market offering means an offering of securities at other than 
a fixed price.
    Business day refers to a 24 hour period determined with reference to 
the principal market for the securities to be distributed, and that 
includes a complete trading session for that market.
    Completion of participation in a distribution. Securities acquired 
in the distribution for investment by any person participating in a 
distribution, or any affiliated purchaser of such person, shall be 
deemed to be distributed. A person shall be deemed to have completed its 
participation in a distribution as follows:
    (1) An issuer or selling security holder, when the distribution is 
completed;
    (2) An underwriter, when such person's participation has been 
distributed, including all other securities of the same class that are 
acquired in connection with the distribution, and any stabilization 
arrangements and trading restrictions in connection with the 
distribution have been terminated; Provided, however, That an 
underwriter's participation will not be deemed to have been completed if 
a syndicate overallotment option is exercised in an amount that exceeds 
the net syndicate short position at the time of such exercise; and
    (3) Any other person participating in the distribution, when such 
person's participation has been distributed.
    Covered security means any security that is the subject of a 
distribution, or any reference security.
    Current exchange rate means the current rate of exchange between two 
currencies, which is obtained from at least one independent entity that 
provides or disseminates foreign exchange quotations in the ordinary 
course of its business.
    Distribution means an offering of securities, whether or not subject 
to registration under the Securities Act, that is distinguished from 
ordinary trading transactions by the magnitude of the offering and the 
presence of special selling efforts and selling methods.
    Distribution participant means an underwriter, prospective 
underwriter, broker, dealer, or other person who has agreed to 
participate or is participating in a distribution.
    Electronic communications network has the meaning contained in Sec. 
240.11Ac1-1(a)(8) of this chapter.
    Employee has the meaning contained in Form S-8 (Sec. 239.16b of 
this chapter) relating to employee benefit plans.
    Exchange Act means the Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.).
    Independent bid means a bid by a person who is not a distribution 
participant, issuer, selling security holder, or affiliated purchaser.

[[Page 521]]

    NASD means the National Association of Securities Dealers, Inc. or 
any of its subsidiaries.
    Nasdaq means the Nasdaq system as defined in Sec. 240.11Ac1-2(a)(3) 
of this chapter.
    Nasdaq security means a security that is authorized for quotation on 
Nasdaq, and such authorization is not suspended, terminated, or 
prohibited.
    Net purchases means the amount by which a passive market maker's 
purchases exceed its sales.
    Offering price means the price at which the security is to be or is 
being distributed.
    Passive market maker means a market maker that effects bids or 
purchases in accordance with the provisions of Sec. 242.103.
    Penalty bid means an arrangement that permits the managing 
underwriter to reclaim a selling concession from a syndicate member in 
connection with an offering when the securities originally sold by the 
syndicate member are purchased in syndicate covering transactions.
    Plan means any bonus, profit-sharing, pension, retirement, thrift, 
savings, incentive, stock purchase, stock option, stock ownership, stock 
appreciation, dividend reinvestment, or similar plan; or any dividend or 
interest reinvestment plan or employee benefit plan as defined in Sec. 
230.405 of this chapter.
    Principal market means the single securities market with the largest 
aggregate reported trading volume for the class of securities during the 
12 full calendar months immediately preceding the filing of the 
registration statement; or, if there is no registration statement or if 
the distribution involves the sale of securities on a delayed basis 
pursuant to Sec. 230.415 of this chapter, during the 12 full calendar 
months immediately preceding the determination of the offering price. 
For the purpose of determining the aggregate trading volume in a 
security, the trading volume of depositary shares representing such 
security shall be included, and shall be multiplied by the multiple or 
fraction of the security represented by the depositary share. For 
purposes of this paragraph, depositary share means a security, evidenced 
by a depositary receipt, that represents another security, or a multiple 
or fraction thereof, deposited with a depositary.
    Prospective underwriter means a person:
    (1) Who has submitted a bid to the issuer or selling security 
holder, and who knows or is reasonably certain that such bid will be 
accepted, whether or not the terms and conditions of the underwriting 
have been agreed upon; or
    (2) Who has reached, or is reasonably certain to reach, an 
understanding with the issuer or selling security holder, or managing 
underwriter that such person will become an underwriter, whether or not 
the terms and conditions of the underwriting have been agreed upon.
    Public float value shall be determined in the manner set forth on 
the front page of Form 10-K (Sec. 249.310 of this chapter), even if the 
issuer of such securities is not required to file Form 10-K, relating to 
the aggregate market value of common equity securities held by non-
affiliates of the issuer.
    Reference period means the two full calendar months immediately 
preceding the filing of the registration statement or, if there is no 
registration statement or if the distribution involves the sale of 
securities on a delayed basis pursuant to Sec. 230.415 of this chapter, 
the two full calendar months immediately preceding the determination of 
the offering price.
    Reference security means a security into which a security that is 
the subject of a distribution (``subject security'') may be converted, 
exchanged, or exercised or which, under the terms of the subject 
security, may in whole or in significant part determine the value of the 
subject security.
    Restricted period means:
    (1) For any security with an ADTV value of $100,000 or more of an 
issuer whose common equity securities have a public float value of $25 
million or more, the period beginning on the later of one business day 
prior to the determination of the offering price or such time that a 
person becomes a distribution participant, and ending upon such person's 
completion of participation in the distribution; and

[[Page 522]]

    (2) For all other securities, the period beginning on the later of 
five business days prior to the determination of the offering price or 
such time that a person becomes a distribution participant, and ending 
upon such person's completion of participation in the distribution.
    (3) In the case of a distribution involving a merger, acquisition, 
or exchange offer, the period beginning on the day proxy solicitation or 
offering materials are first disseminated to security holders, and 
ending upon the completion of the distribution.
    Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et 
seq.).
    Selling security holder means any person on whose behalf a 
distribution is made, other than an issuer.
    Stabilize or stabilizing means the placing of any bid, or the 
effecting of any purchase, for the purpose of pegging, fixing, or 
maintaining the price of a security.
    Syndicate covering transaction means the placing of any bid or the 
effecting of any purchase on behalf of the sole distributor or the 
underwriting syndicate or group to reduce a short position created in 
connection with the offering.
    30% ADTV limitation means 30 percent of the market maker's ADTV in a 
covered security during the reference period, as obtained from the NASD.
    Underwriter means a person who has agreed with an issuer or selling 
security holder:
    (1) To purchase securities for distribution; or
    (2) To distribute securities for or on behalf of such issuer or 
selling security holder; or
    (3) To manage or supervise a distribution of securities for or on 
behalf of such issuer or selling security holder.

[62 FR 544, Jan. 3, 1997, as amended at 62 FR 11323, Mar. 12, 1997]



Sec. 242.101  Activities by distribution participants.

    (a) Unlawful Activity. In connection with a distribution of 
securities, it shall be unlawful for a distribution participant or an 
affiliated purchaser of such person, directly or indirectly, to bid for, 
purchase, or attempt to induce any person to bid for or purchase, a 
covered security during the applicable restricted period; Provided, 
however, That if a distribution participant or affiliated purchaser is 
the issuer or selling security holder of the securities subject to the 
distribution, such person shall be subject to the provisions of Sec. 
242.102, rather than this section.
    (b) Excepted Activity. The following activities shall not be 
prohibited by paragraph (a) of this section:
    (1) Research. The publication or dissemination of any information, 
opinion, or recommendation, if the conditions of Sec. Sec. 230.138 or 
230.139 of this chapter are met; or
    (2) Transactions complying with certain other sections. Transactions 
complying with Sec. Sec. 242.103 or 242.104; or
    (3) Odd-lot transactions. Transactions in odd-lots; or transactions 
to offset odd-lots in connection with an odd-lot tender offer conducted 
pursuant to Sec. 240.13e-4(h)(5) of this chapter; or
    (4) Exercises of securities. The exercise of any option, warrant, 
right, or any conversion privilege set forth in the instrument governing 
a security; or
    (5) Unsolicited transactions. Unsolicited brokerage transactions; or 
unsolicited purchases that are not effected from or through a broker or 
dealer, on a securities exchange, or through an inter-dealer quotation 
system or electronic communications network; or
    (6) Basket transactions. (i) Bids or purchases, in the ordinary 
course of business, in connection with a basket of 20 or more securities 
in which a covered security does not comprise more than 5% of the value 
of the basket purchased; or
    (ii) Adjustments to such a basket in the ordinary course of business 
as a result of a change in the composition of a standardized index; or
    (7) De minimis transactions. Purchases during the restricted period, 
other than by a passive market maker, that total less than 2% of the 
ADTV of the security being purchased, or unaccepted bids; Provided, 
however, That the person making such bid or purchase has maintained and 
enforces written policies and procedures reasonably designed to achieve 
compliance with the other provisions of this section; or

[[Page 523]]

    (8) Transactions in connection with a distribution. Transactions 
among distribution participants in connection with a distribution, and 
purchases of securities from an issuer or selling security holder in 
connection with a distribution, that are not effected on a securities 
exchange, or through an inter-dealer quotation system or electronic 
communications network; or
    (9) Offers to sell or the solicitation of offers to buy. Offers to 
sell or the solicitation of offers to buy the securities being 
distributed (including securities acquired in stabilizing), or 
securities offered as principal by the person making such offer or 
solicitation; or
    (10) Transactions in Rule 144A securities. Transactions in 
securities eligible for resale under Sec. 230.144A(d)(3) of this 
chapter, or any reference security, if the Rule 144A securities are 
offered or sold in the United States solely to:
    (i) Qualified institutional buyers, as defined in Sec. 
230.144A(a)(1) of this chapter, or to offerees or purchasers that the 
seller and any person acting on behalf of the seller reasonably believes 
are qualified institutional buyers, in transactions exempt from 
registration under section 4(2) of the Securities Act (15 U.S.C. 77d(2)) 
or Sec. Sec. 230.144A or 230.501 through 230.508 of this chapter; or
    (ii) Persons not deemed to be ``U.S. persons'' for purposes of 
Sec. Sec. 230.902(o)(2) or 230.902(o)(7) of this chapter, during a 
distribution qualifying under paragraph (b)(10)(i) of this section.
    (c) Excepted Securities. The provisions of this section shall not 
apply to any of the following securities:
    (1) Actively-traded securities. Securities that have an ADTV value 
of at least $1 million and are issued by an issuer whose common equity 
securities have a public float value of at least $150 million; Provided, 
however, That such securities are not issued by the distribution 
participant or an affiliate of the distribution participant; or
    (2) Investment grade nonconvertible and asset-backed securities. 
Nonconvertible debt securities, nonconvertible preferred securities, and 
asset-backed securities, that are rated by at least one nationally 
recognized statistical rating organization, as that term is used in 
Sec. 240.15c3-1 of this chapter, in one of its generic rating 
categories that signifies investment grade; or
    (3) Exempted securities. ``Exempted securities'' as defined in 
section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)); or
    (4) Face-amount certificates or securities issued by an open-end 
management investment company or unit investment trust. Face-amount 
certificates issued by a face-amount certificate company, or redeemable 
securities issued by an open-end management investment company or a unit 
investment trust. Any terms used in this paragraph (c)(4) that are 
defined in the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) 
shall have the meanings specified in such Act.
    (d) Exemptive Authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.



Sec. 242.102  Activities by issuers and selling security holders 
during a distribution.

    (a) Unlawful Activity. In connection with a distribution of 
securities effected by or on behalf of an issuer or selling security 
holder, it shall be unlawful for such person, or any affiliated 
purchaser of such person, directly or indirectly, to bid for, purchase, 
or attempt to induce any person to bid for or purchase, a covered 
security during the applicable restricted period; Except That if an 
affiliated purchaser is a distribution participant, such affiliated 
purchaser may comply with Sec. 242.101, rather than this section.
    (b) Excepted Activity. The following activities shall not be 
prohibited by paragraph (a) of this section:
    (1) Odd-lot transactions. Transactions in odd-lots, or transactions 
to offset odd-lots in connection with an odd-lot tender offer conducted 
pursuant to Sec. 240.13e-4(h)(5) of this chapter; or
    (2) Transactions by closed-end investment companies. (i) 
Transactions complying with Sec. 270.23c-3 of this chapter; or

[[Page 524]]

    (ii) Periodic tender offers of securities, at net asset value, 
conducted pursuant to Sec. 240.13e-4 of this chapter by a closed-end 
investment company that engages in a continuous offering of its 
securities pursuant to Sec. 230.415 of this chapter; Provided, however, 
That such securities are not traded on a securities exchange or through 
an inter-dealer quotation system or electronic communications network; 
or
    (3) Redemptions by commodity pools or limited partnerships. 
Redemptions by commodity pools or limited partnerships, at a price based 
on net asset value, which are effected in accordance with the terms and 
conditions of the instruments governing the securities; Provided, 
however, That such securities are not traded on a securities exchange, 
or through an inter-dealer quotation system or electronic communications 
network; or
    (4) Exercises of securities. The exercise of any option, warrant, 
right, or any conversion privilege set forth in the instrument governing 
a security; or
    (5) Offers to sell or the solicitation of offers to buy. Offers to 
sell or the solicitation of offers to buy the securities being 
distributed; or
    (6) Unsolicited purchases. Unsolicited purchases that are not 
effected from or through a broker or dealer, on a securities exchange, 
or through an inter-dealer quotation system or electronic communications 
network; or
    (7) Transactions in Rule 144A securities. Transactions in securities 
eligible for resale under Sec. 230.144A(d)(3) of this chapter, or any 
reference security, if the Rule 144A securities are offered or sold in 
the United States solely to:
    (i) Qualified institutional buyers, as defined in Sec. 
230.144A(a)(1) of this chapter, or to offerees or purchasers that the 
seller and any person acting on behalf of the seller reasonably believes 
are qualified institutional buyers, in transactions exempt from 
registration under section 4(2) of the Securities Act (15 U.S.C. 77d(2)) 
or Sec. Sec. 230.144A or 230.501 through 230.508 of this chapter; or
    (ii) Persons not deemed to be ``U.S. persons'' for purposes of 
Sec. Sec. 230.902(o)(2) or 230.902(o)(7) of this chapter, during a 
distribution qualifying under paragraph (b)(7)(i) of this section.
    (c) Plans. (1) Paragraph (a) of this section shall not apply to 
distributions of securities pursuant to a plan, which are made:
    (i) Solely to employees or security holders of an issuer or its 
subsidiaries, or to a trustee or other person acquiring such securities 
for the accounts of such persons; or
    (ii) To persons other than employees or security holders, if bids 
for or purchases of securities pursuant to the plan are effected solely 
by an agent independent of the issuer and the securities are from a 
source other than the issuer or an affiliated purchaser of the issuer.
    (2) Bids for or purchases of any security made or effected by or for 
a plan shall be deemed to be a purchase by the issuer unless the bid is 
made, or the purchase is effected, by an agent independent of the 
issuer.
    (d) Excepted Securities. The provisions of this section shall not 
apply to any of the following securities:
    (1) Actively-traded reference securities. Reference securities with 
an ADTV value of at least $1 million that are issued by an issuer whose 
common equity securities have a public float value of at least $150 
million; Provided, however, That such securities are not issued by the 
issuer, or any affiliate of the issuer, of the security in distribution.
    (2) Investment grade nonconvertible and asset-backed securities. 
Nonconvertible debt securities, nonconvertible preferred securities, and 
asset-backed securities, that are rated by at least one nationally 
recognized statistical rating organization, as that term is used in 
Sec. 240.15c3-1 of this chapter, in one of its generic rating 
categories that signifies investment grade; or
    (3) Exempted securities. ``Exempted securities'' as defined in 
section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)); or
    (4) Face-amount certificates or securities issued by an open-end 
management investment company or unit investment trust. Face-amount 
certificates issued by a face-amount certificate company, or redeemable 
securities issued by an open-end management investment company or a unit 
investment trust. Any terms used in this paragraph (d)(4)

[[Page 525]]

that are defined in the Investment Company Act of 1940 (15 U.S.C. 80a-1 
et seq.) shall have the meanings specified in such Act.
    (e) Exemptive Authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.

[62 FR 544, Jan. 3, 1997, as amended at 62 FR 11323, Mar. 12, 1997]



Sec. 242.103  Nasdaq passive market making.

    (a) Scope of Section. This section permits broker-dealers to engage 
in market making transactions in covered securities that are Nasdaq 
securities without violating the provisions of Sec. 242.101; Except 
That this section shall not apply to any security for which a 
stabilizing bid subject to Sec. 242.104 is in effect, or during any at-
the-market offering or best efforts offering.
    (b) Conditions to be Met--(1) General limitations. A passive market 
maker must effect all transactions in the capacity of a registered 
market maker on Nasdaq. A passive market maker shall not bid for or 
purchase a covered security at a price that exceeds the highest 
independent bid for the covered security at the time of the transaction, 
except as permitted by paragraph (b)(3) of this section or required by a 
rule promulgated by the Commission or the NASD governing the handling of 
customer orders.
    (2) Purchase limitation. On each day of the restricted period, a 
passive market maker's net purchases shall not exceed the greater of its 
30% ADTV limitation or 200 shares (together, ``purchase limitation''); 
Provided, however, That a passive market maker may purchase all of the 
securities that are part of a single order that, when executed, results 
in its purchase limitation being equalled or exceeded. If a passive 
market maker's net purchases equal or exceed its purchase limitation, it 
shall withdraw promptly its quotations from Nasdaq. If a passive market 
maker withdraws its quotations pursuant to this paragraph, it may not 
effect any bid or purchase in the covered security for the remainder of 
that day, irrespective of any later sales during that day, unless 
otherwise permitted by Sec. 242.101.
    (3) Requirement to lower the bid. If all independent bids for a 
covered security are reduced to a price below the passive market maker's 
bid, the passive market maker must lower its bid promptly to a level not 
higher than the then highest independent bid; Provided, however, That a 
passive market maker may continue to bid and effect purchases at its bid 
at a price exceeding the then highest independent bid until the passive 
market maker purchases an aggregate amount of the covered security that 
equals or, through the purchase of all securities that are part of a 
single order, exceeds the lesser of two times the minimum quotation size 
for the security, as determined by NASD rules, or the passive market 
maker's remaining purchasing capacity under paragraph (b)(2) of this 
section.
    (4) Limitation on displayed size. At all times, the passive market 
maker's displayed bid size may not exceed the lesser of the minimum 
quotation size for the covered security, or the passive market maker's 
remaining purchasing capacity under paragraph (b)(2) of this section; 
Provided, however, That a passive market maker whose purchasing capacity 
at any time is between one and 99 shares may display a bid size of 100 
shares.
    (5) Identification of a passive market making bid. The bid displayed 
by a passive market maker shall be designated as such.
    (6) Notification and reporting to the NASD. A passive market maker 
shall notify the NASD in advance of its intention to engage in passive 
market making, and shall submit to the NASD information regarding 
passive market making purchases, in such form as the NASD shall 
prescribe.
    (7) Prospectus disclosure. The prospectus for any registered 
offering in which any passive market maker intends to effect 
transactions in any covered security shall contain the information 
required in Sec. Sec. 228.502, 228.508, 229.502, and 229.508 of this 
chapter.
    (c) Transactions at Prices Resulting from Unlawful Activity. No 
transaction

[[Page 526]]

shall be made at a price that the passive market maker knows or has 
reason to know is the result of activity that is fraudulent, 
manipulative, or deceptive under the securities laws, or any rule or 
regulation thereunder.



Sec. 242.104  Stabilizing and other activities in connection with an offering.

    (a) Unlawful Activity. It shall be unlawful for any person, directly 
or indirectly, to stabilize, to effect any syndicate covering 
transaction, or to impose a penalty bid, in connection with an offering 
of any security, in contravention of the provisions of this section. No 
stabilizing shall be effected at a price that the person stabilizing 
knows or has reason to know is in contravention of this section, or is 
the result of activity that is fraudulent, manipulative, or deceptive 
under the securities laws, or any rule or regulation thereunder.
    (b) Purpose. Stabilizing is prohibited except for the purpose of 
preventing or retarding a decline in the market price of a security.
    (c) Priority. To the extent permitted or required by the market 
where stabilizing occurs, any person stabilizing shall grant priority to 
any independent bid at the same price irrespective of the size of such 
independent bid at the time that it is entered.
    (d) Control of Stabilizing. No sole distributor or syndicate or 
group stabilizing the price of a security or any member or members of 
such syndicate or group shall maintain more than one stabilizing bid in 
any one market at the same price at the same time.
    (e) At-the-Market Offerings. Stabilizing is prohibited in an at-the-
market offering.
    (f) Stabilizing Levels--(1) Maximum stabilizing bid. Notwithstanding 
the other provisions of this paragraph (f), no stabilizing shall be made 
at a price higher than the lower of the offering price or the 
stabilizing bid for the security in the principal market (or, if the 
principal market is closed, the stabilizing bid in the principal market 
at its previous close).
    (2) Initiating stabilizing--(i) Initiating stabilizing when the 
principal market is open. After the opening of quotations for the 
security in the principal market, stabilizing may be initiated in any 
market at a price no higher than the last independent transaction price 
for the security in the principal market if the security has traded in 
the principal market on the day stabilizing is initiated or on the most 
recent prior day of trading in the principal market and the current 
asked price in the principal market is equal to or greater than the last 
independent transaction price. If both conditions of the preceding 
sentence are not satisfied, stabilizing may be initiated in any market 
after the opening of quotations in the principal market at a price no 
higher than the highest current independent bid for the security in the 
principal market.
    (ii) Initiating stabilizing when the principal market is closed. (A) 
When the principal market for the security is closed, but immediately 
before the opening of quotations for the security in the market where 
stabilizing will be initiated, stabilizing may be initiated at a price 
no higher than the lower of:
    (1) The price at which stabilizing could have been initiated in the 
principal market for the security at its previous close; or
    (2) The most recent price at which an independent transaction in the 
security has been effected in any market since the close of the 
principal market, if the person stabilizing knows or has reason to know 
of such transaction.
    (B) When the principal market for the security is closed, but after 
the opening of quotations in the market where stabilizing will be 
initiated, stabilizing may be initiated at a price no higher than the 
lower of:
    (1) The price at which stabilization could have been initiated in 
the principal market for the security at its previous close; or
    (2) The last independent transaction price for the security in that 
market if the security has traded in that market on the day stabilizing 
is initiated or on the last preceding business day and the current asked 
price in that market is equal to or greater than the last independent 
transaction price. If both conditions of the preceding sentence are not 
satisfied, under this paragraph

[[Page 527]]

(f)(2)(ii)(B)(2), stabilizing may be initiated at a price no higher than 
the highest current independent bid for the security in that market.
    (iii) Initiating stabilizing when there is no market for the 
security or before the offering price is determined. If no bona fide 
market for the security being distributed exists at the time stabilizing 
is initiated, no stabilizing shall be initiated at a price in excess of 
the offering price. If stabilizing is initiated before the offering 
price is determined, then stabilizing may be continued after 
determination of the offering price at the price at which stabilizing 
then could be initiated.
    (3) Maintaining or carrying over a stabilizing bid. A stabilizing 
bid initiated pursuant to paragraph (f)(2) of this section, which has 
not been discontinued, may be maintained, or carried over into another 
market, irrespective of changes in the independent bids or transaction 
prices for the security.
    (4) Increasing or reducing a stabilizing bid. A stabilizing bid may 
be increased to a price no higher than the highest current independent 
bid for the security in the principal market if the principal market is 
open, or, if the principal market is closed, to a price no higher than 
the highest independent bid in the principal market at the previous 
close thereof. A stabilizing bid may be reduced, or carried over into 
another market at a reduced price, irrespective of changes in the 
independent bids or transaction prices for the security. If stabilizing 
is discontinued, it shall not be resumed at a price higher than the 
price at which stabilizing then could be initiated.
    (5) Initiating, maintaining, or adjusting a stabilizing bid to 
reflect the current exchange rate. If a stabilizing bid is expressed in 
a currency other than the currency of the principal market for the 
security, such bid may be initiated, maintained, or adjusted to reflect 
the current exchange rate, consistent with the provisions of this 
section. If, in initiating, maintaining, or adjusting a stabilizing bid 
pursuant to this paragraph (f)(5), the bid would be at or below the 
midpoint between two trading differentials, such stabilizing bid shall 
be adjusted downward to the lower differential.
    (6) Adjustments to stabilizing bid. If a security goes ex-dividend, 
ex-rights, or ex-distribution, the stabilizing bid shall be reduced by 
an amount equal to the value of the dividend, right, or distribution. 
If, in reducing a stabilizing bid pursuant to this paragraph (f)(6), the 
bid would be at or below the midpoint between two trading differentials, 
such stabilizing bid shall be adjusted downward to the lower 
differential.
    (7) Stabilizing of components. When two or more securities are being 
offered as a unit, the component securities shall not be stabilized at 
prices the sum of which exceeds the then permissible stabilizing price 
for the unit.
    (8) Special prices. Any stabilizing price that otherwise meets the 
requirements of this section need not be adjusted to reflect special 
prices available to any group or class of persons (including employees 
or holders of warrants or rights).
    (g) Offerings with no U.S. Stabilizing Activities. (1) Stabilizing 
to facilitate an offering of a security in the United States shall not 
be deemed to be in violation of this section if all of the following 
conditions are satisfied:
    (i) No stabilizing is made in the United States;
    (ii) Stabilizing outside the United States is made in a jurisdiction 
with statutory or regulatory provisions governing stabilizing that are 
comparable to the provisions of this section; and
    (iii) No stabilizing is made at a price above the offering price in 
the United States, except as permitted by paragraph (f)(5) of this 
section.
    (2) For purposes of this paragraph (g), the Commission by rule, 
regulation, or order may determine whether a foreign statute or 
regulation is comparable to this section considering, among other 
things, whether such foreign statute or regulation: specifies 
appropriate purposes for which stabilizing is permitted; provides for 
disclosure and control of stabilizing activities; places limitations on 
stabilizing levels; requires appropriate recordkeeping; provides other 
protections comparable to the provisions of this section; and whether 
procedures exist to enable the

[[Page 528]]

Commission to obtain information concerning any foreign stabilizing 
transactions.
    (h) Disclosure and Notification. (1) Any person displaying or 
transmitting a bid that such person knows is for the purpose of 
stabilizing shall provide prior notice to the market on which such 
stabilizing will be effected, and shall disclose its purpose to the 
person with whom the bid is entered.
    (2) Any person effecting a syndicate covering transaction or 
imposing a penalty bid shall provide prior notice to the self-regulatory 
organization with direct authority over the principal market in the 
United States for the security for which the syndicate covering 
transaction is effected or the penalty bid is imposed.
    (3) Any person subject to this section who sells to, or purchases 
for the account of, any person any security where the price of such 
security may be or has been stabilized, shall send to the purchaser at 
or before the completion of the transaction, a prospectus, offering 
circular, confirmation, or other document containing a statement similar 
to that comprising the statement provided for in Item 502(d) of 
Regulation S-B (Sec. 228.502(d) of this chapter) or Item 502(d) of 
Regulation S-K (Sec. 229.502(d) of this chapter).
    (i) Recordkeeping Requirements. A person subject to this section 
shall keep the information and make the notification required by Sec. 
240.17a-2 of this chapter.
    (j) Excepted Securities. The provisions of this section shall not 
apply to:
    (1) Exempted Securities. ``Exempted securities,'' as defined in 
section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)); or
    (2) Transactions of Rule 144A securities. Transactions in securities 
eligible for resale under Sec. 230.144A(d)(3) of this chapter, if such 
securities are offered or sold in the United States solely to:
    (i) Qualified institutional buyers, as defined in Sec. 
230.144A(a)(1) of this chapter, or to offerees or purchasers that the 
seller and any person acting on behalf of the seller reasonably believes 
are qualified institutional buyers, in a transaction exempt from 
registration under section 4(2) of the Securities Act (15 U.S.C. 77d(2)) 
or Sec. Sec. 230.144A or 230.501 through 230.508 of this chapter; or
    (ii) Persons not deemed to be ``U.S. persons'' for purposes of 
Sec. Sec. 230.902(o)(2) or 230.902(o)(7) of this chapter, during a 
distribution qualifying under paragraph (j)(2)(i) of this section.
    (k) Exemptive Authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities.

[62 FR 544, Jan. 3, 1997, as amended at 62 FR 11323, Mar. 12, 1997; 62 
FR 13213, Mar. 19, 1997]



Sec. 242.105  Short selling in connection with a public offering.

    (a) Unlawful Activity. In connection with an offering of securities 
for cash pursuant to a registration statement or a notification on Form 
1-A (Sec. 239.90 of this chapter) filed under the Securities Act, it 
shall be unlawful for any person to cover a short sale with offered 
securities purchased from an underwriter or broker or dealer 
participating in the offering, if such short sale occurred during the 
shorter of:
    (1) The period beginning five business days before the pricing of 
the offered securities and ending with such pricing; or
    (2) The period beginning with the initial filing of such 
registration statement or notification on Form 1-A and ending with the 
pricing.
    (b) Excepted Offerings. This section shall not apply to offerings 
filed under Sec. 230.415 of this chapter or to offerings that are not 
conducted on a firm commitment basis.
    (c) Exemptive Authority. Upon written application or upon its own 
motion, the Commission may grant an exemption from the provisions of 
this section, either unconditionally or on specified terms and 
conditions, to any transaction or class of transactions, or to any 
security or class of securities. By the Commission.

[[Page 529]]

               Regulation ATS--Alternative Trading Systems

    Source: Sections 242.300 through 242.303 appear at 63 FR 70921, Dec. 
22, 1998, unless otherwise noted.

                            Preliminary Notes

    1. An alternative trading system is required to comply with the 
requirements in this Regulation ATS, unless such alternative trading 
system:
    (a) Is registered as a national securities exchange;
    (b) Is exempt from registration as a national securities exchange 
based on the limited volume of transactions effected on the alternative 
trading system; or
    (c) Trades only government securities and certain other related 
instruments.
    All alternative trading systems must comply with the antifraud, 
antimanipulation, and other applicable provisions of the federal 
securities laws.
    2. The requirements imposed upon an alternative trading system by 
Regulation ATS are in addition to any requirements applicable to broker-
dealers registered under section 15 of the Act, (15 U.S.C. 78o).
    3. An alternative trading system must comply with any applicable 
state law relating to the offer or sale of securities or the 
registration or regulation of persons or entities effecting transactions 
in securities.
    4. The disclosures made pursuant to the provisions of this section 
are in addition to any other disclosure requirements under the federal 
securities laws.



Sec. 242.300  Definitions.

    For purposes of this section, the following definitions shall apply:
    (a) Alternative trading system means any organization, association, 
person, group of persons, or system:
    (1) That constitutes, maintains, or provides a market place or 
facilities for bringing together purchasers and sellers of securities or 
for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange within the meaning of Sec. 
240.3b-16 of this chapter; and
    (2) That does not:
    (i) Set rules governing the conduct of subscribers other than the 
conduct of such subscribers' trading on such organization, association, 
person, group of persons, or system; or
    (ii) Discipline subscribers other than by exclusion from trading.
    (b) Subscriber means any person that has entered into a contractual 
agreement with an alternative trading system to access such alternative 
trading system for the purpose of effecting transactions in securities 
or submitting, disseminating, or displaying orders on such alternative 
trading system, including a customer, member, user, or participant in an 
alternative trading system. A subscriber, however, shall not include a 
national securities exchange or national securities association.
    (c) Affiliate of a subscriber means any person that, directly or 
indirectly, controls, is under common control with, or is controlled by, 
the subscriber, including any employee.
    (d) Debt security shall mean any security other than an equity 
security, as defined in Sec. 240.3a11-1 of this chapter, as well as 
non-participatory preferred stock.
    (e) Order means any firm indication of a willingness to buy or sell 
a security, as either principal or agent, including any bid or offer 
quotation, market order, limit order, or other priced order.
    (f) Control means the power, directly or indirectly, to direct the 
management or policies of an alternative trading system, whether through 
ownership of securities, by contract, or otherwise. A person is presumed 
to control an alternative trading system, if that person:
    (1) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or performing similar 
functions);
    (2) Directly or indirectly has the right to vote 25 percent or more 
of a class of voting security or has the power to sell or direct the 
sale of 25 percent or more of a class of voting securities of the 
alternative trading system; or
    (3) In the case of a partnership, has contributed, or has the right 
to receive upon dissolution, 25 percent or more of the capital of the 
alternative trading system.
    (g) Covered security shall have the meaning provided in Sec. 
240.11Ac1-1(a)(6) of this chapter, provided, however, that a debt or 
convertible debt security shall not be deemed a covered security for 
purposes of Regulation ATS.

[[Page 530]]

    (h) Effective transaction reporting plan shall have the meaning 
provided in Sec. 240.11Aa3-1(a)(3) of this chapter.
    (i) Exchange market maker shall have the meaning provided in Sec. 
240.11Ac1-1(a)(9) of this chapter.
    (j) OTC market maker shall have the meaning provided in Sec. 
240.11Ac1-1(a)(13) of this chapter.
    (k) Investment grade corporate debt security shall mean any security 
that:
    (1) Evidences a liability of the issuer of such security;
    (2) Has a fixed maturity date that is at least one year following 
the date of issuance;
    (3) Is rated in one of the four highest ratings categories by at 
least one Nationally Recognized Statistical Ratings Organization; and
    (4) Is not an exempted security, as defined in section 3(a)(12) of 
the Act (15 U.S.C. 78c(a)(12)).
    (l) Non-investment grade corporate debt security shall mean any 
security that:
    (1) Evidences a liability of the issuer of such security;
    (2) Has a fixed maturity date that is at least one year following 
the date of issuance;
    (3) Is not rated in one of the four highest ratings categories by at 
least one Nationally Recognized Statistical Ratings Organization; and
    (4) Is not an exempted security, as defined in section 3(a)(12) of 
the Act (15 U.S.C. 78c(a)(12)).
    (m) Commercial paper shall mean any note, draft, or bill of exchange 
which arises out of a current transaction or the proceeds of which have 
been or are to be used for current transactions, and which has a 
maturity at the time of issuance of not exceeding nine months, exclusive 
of days of grace, or any renewal thereof the maturity of which is 
likewise limited.



Sec. 242.301  Requirements for alternative trading systems.

    (a) Scope of section. An alternative trading system shall comply 
with the requirements in paragraph (b) of this section, unless such 
alternative trading system:
    (1) Is registered as an exchange under section 6 of the Act, (15 
U.S.C. 78f);
    (2) Is exempted by the Commission from registration as an exchange 
based on the limited volume of transactions effected;
    (3) Is operated by a national securities association;
    (4)(i) Is registered as a broker-dealer under sections 15(b) or 15C 
of the Act (15 U.S.C. 78o(b), and 78o-5), or is a bank, and
    (ii) Limits its securities activities to the following instruments:
    (A) Government securities, as defined in section 3(a)(42) of the 
Act, (15 U.S.C. 78c(a)(42));
    (B) Repurchase and reverse repurchase agreements solely involving 
securities included within paragraph (a)(4)(ii)(A) of this section;
    (C) Any put, call, straddle, option, or privilege on a government 
security, other than a put, call, straddle, option, or privilege that:
    (1) Is traded on one or more national securities exchanges; or
    (2) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association; and
    (D) Commercial paper.
    (5) Is exempted, conditionally or unconditionally, by Commission 
order, after application by such alternative trading system, from one or 
more of the requirements of paragraph (b) of this section. The 
Commission will grant such exemption only after determining that such an 
order is consistent with the public interest, the protection of 
investors, and the removal of impediments to, and perfection of the 
mechanisms of, a national market system.
    (b) Requirements. Every alternative trading system subject to this 
Regulation ATS, pursuant to paragraph (a) of this section, shall comply 
with the requirements in this paragraph (b).
    (1) Broker-dealer registration. The alternative trading system shall 
register as a broker-dealer under section 15 of the Act, (15 U.S.C. 
78o).
    (2) Notice. (i) The alternative trading system shall file an initial 
operation report on Form ATS, Sec. 249.637 of this chapter, in 
accordance with the instructions therein, at least 20 days prior to 
commencing operation as an alternative trading system, or if the 
alternative trading system is operating

[[Page 531]]

as of April 21, 1999, no later than May 11, 1999.
    (ii) The alternative trading system shall file an amendment on Form 
ATS at least 20 calendar days prior to implementing a material change to 
the operation of the alternative trading system.
    (iii) If any information contained in the initial operation report 
filed under paragraph (b)(2)(i) of this section becomes inaccurate for 
any reason and has not been previously reported to the Commission as an 
amendment on Form ATS, the alternative trading system shall file an 
amendment on Form ATS correcting such information within 30 calendar 
days after the end of each calendar quarter in which the alternative 
trading system has operated.
    (iv) The alternative trading system shall promptly file an amendment 
on Form ATS correcting information previously reported on Form ATS after 
discovery that any information filed under paragraphs (b)(2)(i), (ii) or 
(iii) of this section was inaccurate when filed.
    (v) The alternative trading system shall promptly file a cessation 
of operations report on Form ATS in accordance with the instructions 
therein upon ceasing to operate as an alternative trading system.
    (vi) Every notice or amendment filed pursuant to this paragraph 
(b)(2) shall constitute a ``report'' within the meaning of sections 11A, 
17(a), 18(a), and 32(a), (15 U.S.C. 78k-1, 78q(a), 78r(a), and 78ff(a)), 
and any other applicable provisions of the Act.
    (vii) The reports provided for in paragraph (b)(2) of this section 
shall be considered filed upon receipt by the Division of Market 
Regulation, Stop 10-2, at the Commission's principal office in 
Washington, DC. Duplicate originals of the reports provided for in 
paragraphs (b)(2)(i) through (v) of this section must be filed with 
surveillance personnel designated as such by any self-regulatory 
organization that is the designated examining authority for the 
alternative trading system pursuant to Sec. 240.17d-1 of this chapter 
simultaneously with filing with the Commission. Duplicates of the 
reports required by paragraph (b)(9) of this section shall be provided 
to surveillance personnel of such self-regulatory authority upon 
request. All reports filed pursuant to this paragraph (b)(2) and 
paragraph (b)(9) of this section shall be deemed confidential when 
filed.
    (3) Order display and execution access. (i) An alternative trading 
system shall comply with the requirements set forth in paragraph 
(b)(3)(ii) of this section, with respect to any covered security in 
which the alternative trading system:
    (A) Displays subscriber orders to any person (other than alternative 
trading system employees); and
    (B) During at least 4 of the preceding 6 calendar months, had an 
average daily trading volume of 5 percent or more of the aggregate 
average daily share volume for such covered security as reported by an 
effective transaction reporting plan or disseminated through an 
automated quotation system as described in section 3(a)(51)(A)(ii) of 
the Act, (15 U.S.C. 78c(a)(51)(A)(ii)).
    (ii) Such alternative trading system shall provide to a national 
securities exchange or national securities association the prices and 
sizes of the orders at the highest buy price and the lowest sell price 
for such covered security, displayed to more than one person in the 
alternative trading system, for inclusion in the quotation data made 
available by the exchange or association to quotation vendors pursuant 
to Sec. 240.11Ac1-1 of this chapter.
    (iii) With respect to any order displayed pursuant to paragraph 
(b)(3)(ii) of this section, an alternative trading system shall provide 
to any broker-dealer that has access to the national securities exchange 
or national securities association to which the alternative trading 
system provides the prices and sizes of displayed orders pursuant to 
paragraph (b)(3)(ii)(A) of this section, the ability to effect a 
transaction with such orders that is:
    (A) Equivalent to the ability of such broker-dealer to effect a 
transaction with other orders displayed on the exchange or by the 
association; and
    (B) At the price of the highest priced buy order or lowest priced 
sell order displayed for the lesser of the cumulative size of such 
priced orders entered therein at such price, or the size of the 
execution sought by such broker-dealer.

[[Page 532]]

    (4) Fees. The alternative trading system shall not charge any fee to 
broker-dealers that access the alternative trading system through a 
national securities exchange or national securities association, that is 
inconsistent with equivalent access to the alternative trading system 
required by paragraph (b)(3)(iii) of this section. In addition, if the 
national securities exchange or national securities association to which 
an alternative trading system provides the prices and sizes of orders 
under paragraphs (b)(3)(ii) and (b)(3)(iii) of this section establishes 
rules designed to assure consistency with standards for access to 
quotations displayed on such national securities exchange, or the market 
operated by such national securities association, the alternative 
trading system shall not charge any fee to members that is contrary to, 
that is not disclosed in the manner required by, or that is inconsistent 
with any standard of equivalent access established by such rules.
    (5) Fair access. (i) An alternative trading system shall comply with 
the requirements in paragraph (b)(5)(ii) of this section, if during at 
least 4 of the preceding 6 calendar months, such alternative trading 
system had:
    (A) With respect to any covered security, 20 percent or more of the 
average daily volume in that security reported by an effective 
transaction reporting plan or disseminated through an automated 
quotation system as described in section 3(a)(51)(A)(ii) of the Act (15 
U.S.C. 78c(a)(51)(A)(ii));
    (B) With respect to an equity security that is not a covered 
security and for which transactions are reported to a self-regulatory 
organization, 20 percent or more of the average daily volume in that 
security as calculated by the self-regulatory organization to which such 
transactions are reported;
    (C) With respect to municipal securities, 20 percent or more of the 
average daily volume traded in the United States;
    (D) With respect to investment grade corporate debt, 20 percent or 
more of the average daily volume traded in the United States;
    (E) With respect to non-investment grade corporate debt, 20 percent 
or more of the average daily volume traded in the United States.
    (ii) An alternative trading system shall:
    (A) Establish written standards for granting access to trading on 
its system;
    (B) Not unreasonably prohibit or limit any person in respect to 
access to services offered by such alternative trading system by 
applying the standards established under paragraph (b)(5)(ii)(A) of this 
section in an unfair or discriminatory manner; and
    (C) Make and keep records of:
    (1) All grants of access including, for all subscribers, the reasons 
for granting such access;
    (2) All denials or limitations of access and reasons, for each 
applicant, for denying or limiting access.
    (D) Report the information required on Form ATS-R, Sec. 249.638 of 
this chapter, regarding grants, denials, and limitations of access.
    (iii) Notwithstanding paragraph (b)(5)(i) of this section, an 
alternative trading system shall not be required to comply with the 
requirements in paragraph (b)(5)(ii) of this section, if such 
alternative trading system:
    (A) Matches customer orders for a security with other customer 
orders;
    (B) Such customers' orders are not displayed to any person, other 
than employees of the alternative trading system; and
    (C) Such orders are executed at a price for such security 
disseminated by an effective transaction reporting plan or through an 
automated quotation system as described in section 3(a)(51)(A)(ii) of 
the Act, (15 U.S.C. 78c(a)(51)(A)(ii)), or derived from such prices.
    (6) Capacity, integrity, and security of automated systems. (i) The 
alternative trading system shall comply with the requirements in 
paragraph (b)(6)(ii) of this section, if during at least 4 of the 
preceding 6 calendar months, such alternative trading system had:
    (A) With respect to any covered security, 20 percent or more of the 
average daily volume reported by the effective transaction reporting 
plan or disseminated through an automated quotation system as described 
in Section

[[Page 533]]

3(a)(51)(A)(ii) of the Act, (15 U.S.C. 78c(a)(51)(A)(ii));
    (B) With respect to equity securities that are not covered 
securities and for which transactions are reported to a self-regulatory 
organization, 20 percent or more of the average daily volume as 
calculated by the self-regulatory organization to which such 
transactions are reported;
    (C) With respect to municipal securities, 20 percent or more of the 
average daily volume traded in the United States;
    (D) With respect to investment grade corporate debt, 20 percent or 
more of the average daily volume traded in the United States;
    (E) With respect to non-investment grade corporate debt, 20 percent 
or more of the average daily volume traded in the United States.
    (ii) With respect to those systems that support order entry, order 
routing, order execution, transaction reporting, and trade comparison, 
the alternative trading system shall:
    (A) Establish reasonable current and future capacity estimates;
    (B) Conduct periodic capacity stress tests of critical systems to 
determine such system's ability to process transactions in an accurate, 
timely, and efficient manner;
    (C) Develop and implement reasonable procedures to review and keep 
current its system development and testing methodology;
    (D) Review the vulnerability of its systems and data center computer 
operations to internal and external threats, physical hazards, and 
natural disasters;
    (E) Establish adequate contingency and disaster recovery plans;
    (F) On an annual basis, perform an independent review, in accordance 
with established audit procedures and standards, of such alternative 
trading system's controls for ensuring that paragraphs (b)(6)(ii)(A) 
through (E) of this section are met, and conduct a review by senior 
management of a report containing the recommendations and conclusions of 
the independent review; and
    (G) Promptly notify the Commission staff of material systems outages 
and significant systems changes.
    (iii) Notwithstanding paragraph (b)(6)(i) of this section, an 
alternative trading system shall not be required to comply with the 
requirements in paragraph (b)(6)(ii) of this section, if such 
alternative trading system:
    (A) Matches customer orders for a security with other customer 
orders;
    (B) Such customers' orders are not displayed to any person, other 
than employees of the alternative trading system; and
    (C) Such orders are executed at a price for such security 
disseminated by an effective transaction reporting plan or through an 
automated quotation system as described in section 3(a)(51)(A)(ii) of 
the Act, (15 U.S.C. 78c(a)(51)(A)(ii)), or derived from such prices.
    (7) Examinations, inspections, and investigations. The alternative 
trading system shall permit the examination and inspection of its 
premises, systems, and records, and cooperate with the examination, 
inspection, or investigation of subscribers, whether such examination is 
being conducted by the Commission or by a self-regulatory organization 
of which such subscriber is a member.
    (8) Recordkeeping. The alternative trading system shall:
    (i) Make and keep current the records specified in Sec. 242.302; 
and
    (ii) Preserve the records specified in Sec. 242.303.
    (9) Reporting. The alternative trading system shall:
    (i) File the information required by Form ATS-R (Sec. 249.638 of 
this chapter) within 30 calendar days after the end of each calendar 
quarter in which the market has operated after the effective date of 
this section; and
    (ii) File the information required by Form ATS-R within 10 calendar 
days after an alternative trading system ceases to operate.
    (10) Procedures to ensure the confidential treatment of trading 
information.
    (i) The alternative trading system shall establish adequate 
safeguards and procedures to protect subscribers' confidential trading 
information. Such safeguards and procedures shall include:
    (A) Limiting access to the confidential trading information of 
subscribers

[[Page 534]]

to those employees of the alternative trading system who are operating 
the system or responsible for its compliance with these or any other 
applicable rules;
    (B) Implementing standards controlling employees of the alternative 
trading system trading for their own accounts; and
    (ii) The alternative trading system shall adopt and implement 
adequate oversight procedures to ensure that the safeguards and 
procedures established pursuant to paragraph (b)(10)(i) of this section 
are followed.
    (11) Name. The alternative trading system shall not use in its name 
the word ``exchange,'' or derivations of the word ``exchange,'' such as 
the term ``stock market.''

[63 FR 70921, Dec. 22, 1998, as amended at 65 FR 13235, Mar. 13, 2000]



Sec. 242.302  Recordkeeping requirements for alternative trading systems.

    To comply with the condition set forth in paragraph (b)(8) of Sec. 
242.301, an alternative trading system shall make and keep current the 
following records:
    (a) A record of subscribers to such alternative trading system 
(identifying any affiliations between the alternative trading system and 
subscribers to the alternative trading system, including common 
directors, officers, or owners);
    (b) Daily summaries of trading in the alternative trading system 
including:
    (1) Securities for which transactions have been executed;
    (2) Transaction volume, expressed with respect to equity securities 
in:
    (i) Number of trades;
    (ii) Number of shares traded; and
    (iii) Total settlement value in terms of U.S. dollars; and
    (3) Transaction volume, expressed with respect to debt securities 
in:
    (i) Number of trades; and
    (ii) Total U.S. dollar value; and
    (c) Time-sequenced records of order information in the alternative 
trading system, including:
    (1) Date and time (expressed in terms of hours, minutes, and 
seconds) that the order was received;
    (2) Identity of the security;
    (3) The number of shares, or principal amount of bonds, to which the 
order applies;
    (4) An identification of the order as related to a program trade or 
an index arbitrage trade as defined in New York Stock Exchange Rule 80A;
    (5) The designation of the order as a buy or sell order;
    (6) The designation of the order as a short sale order;
    (7) The designation of the order as a market order, limit order, 
stop order, stop limit order, or other type or order;
    (8) Any limit or stop price prescribed by the order;
    (9) The date on which the order expires and, if the time in force is 
less than one day, the time when the order expires;
    (10) The time limit during which the order is in force;
    (11) Any instructions to modify or cancel the order;
    (12) The type of account, i.e., retail, wholesale, employee, 
proprietary, or any other type of account designated by the alternative 
trading system, for which the order is submitted;
    (13) Date and time (expressed in terms of hours, minutes, and 
seconds) that the order was executed;
    (14) Price at which the order was executed;
    (15) Size of the order executed (expressed in number of shares or 
units or principal amount); and
    (16) Identity of the parties to the transaction.



Sec. 242.303  Record preservation requirements for alternative trading systems.

    (a) To comply with the condition set forth in paragraph (b)(9) of 
Sec. 242.301, an alternative trading system shall preserve the 
following records:
    (1) For a period of not less than three years, the first two years 
in an easily accessible place, an alternative trading system shall 
preserve:
    (i) All records required to be made pursuant to Sec. 242.302;
    (ii) All notices provided by such alternative trading system to 
subscribers generally, whether written or communicated through automated 
means, including, but not limited to, notices addressing hours of system 
operations,

[[Page 535]]

system malfunctions, changes to system procedures, maintenance of 
hardware and software, instructions pertaining to access to the market 
and denials of, or limitations on, access to the alternative trading 
system;
    (iii) If subject to paragraph (b)(5)(ii) of Sec. 242.301, at least 
one copy of such alternative trading system's standards for access to 
trading, all documents relevant to the alternative trading systems 
decision to grant, deny, or limit access to any person, and all other 
documents made or received by the alternative trading system in the 
course of complying with paragraph (b)(5) of Sec. 242.301; and
    (iv) At least one copy of all documents made or received by the 
alternative trading system in the course of complying with paragraph 
(b)(6) of Sec. 242.301, including all correspondence, memoranda, 
papers, books, notices, accounts, reports, test scripts, test results, 
and other similar records.
    (2) During the life of the enterprise and of any successor 
enterprise, an alternative trading system shall preserve:
    (i) All partnership articles or, in the case of a corporation, all 
articles of incorporation or charter, minute books and stock certificate 
books; and
    (ii) Copies of reports filed pursuant to paragraph (b)(2) of Sec. 
242.301 of this chapter and records made pursuant to paragraph (b)(5) of 
Sec. 242.301 of this chapter.
    (b) The records required to be maintained and preserved pursuant to 
paragraph (a) of this section must be produced, reproduced, and 
maintained in paper form or in any of the forms permitted under Sec. 
240.17a-4(f) of this chapter.
    (c) Alternative trading systems must comply with any other 
applicable recordkeeping or reporting requirement in the Act, and the 
rules and regulations thereunder. If the information in a record 
required to be made pursuant to this section is preserved in a record 
made pursuant to Sec. 240.17a-3 or Sec. 240.17a-4 of this chapter, or 
otherwise preserved by the alternative trading system (whether in 
summary or some other form), this section shall not require the sponsor 
to maintain such information in a separate file, provided that the 
sponsor can promptly sort and retrieve the information as if it had been 
kept in a separate file as a record made pursuant to this section, and 
preserves the information in accordance with the time periods specified 
in paragraph (a) of this section.
    (d) The records required to be maintained and preserved pursuant to 
this section may be prepared or maintained by a service bureau, 
depository, or other recordkeeping service on behalf of the alternative 
trading system. An agreement with a service bureau, depository, or other 
recordkeeping service shall not relieve the alternative trading system 
from the responsibility to prepare and maintain records as specified in 
this section. The service bureau, depository, or other recordkeeping 
service shall file with the Commission a written undertaking in a form 
acceptable to the Commission, signed by a duly authorized person, to the 
effect that such records are the property of the alternative trading 
system required to be maintained and preserved and will be surrendered 
promptly on request of the alternative trading system, and shall include 
the following provision: With respect to any books and records 
maintained or preserved on behalf of (name of alternative trading 
system), the undersigned hereby undertakes to permit examination of such 
books and records at any time, or from time to time, during business 
hours by the staff of the Securities and Exchange Commission, any self-
regulatory organization of which the alternative trading system is a 
member, or any State securities regulator having jurisdiction over the 
alternative trading system, and to promptly furnish to the Commission, 
self-regulatory organization of which the alternative trading system is 
a member, or any State securities regulator having jurisdiction over the 
alternative trading system a true, correct, complete and current hard 
copy of any, all, or any part of, such books and records.
    (e) Every alternative trading system shall furnish to any 
representative of the Commission promptly upon request, legible, true, 
and complete copies of those records that are required to be preserved 
under this section.

[63 FR 70921, Dec. 22, 1998, as amended at 66 FR 55841, Nov. 2, 2001]

[[Page 536]]

            Customer Margin Requirements for Security Futures

    Source: 67 FR 53176, Aug. 14, 2002, unless otherwise noted.



Sec. 242.400  Customer margin requirements for security futures--authority, 
purpose, interpretation, and scope.

    (a) Authority and purpose. Sections 242.400 through 242.406 and 17 
CFR 41.42 through 41.49 (``this Regulation, Sec. Sec. 242.400 through 
242.406'') are issued by the Securities and Exchange Commission 
(``Commission'') jointly with the Commodity Futures Trading Commission 
(``CFTC''), pursuant to authority delegated by the Board of Governors of 
the Federal Reserve System under section 7(c)(2)(A) of the Securities 
Exchange Act of 1934 (``Act'') (15 U.S.C. 78g(c)(2)(A)). The principal 
purpose of this Regulation (Sec. Sec. 242.400 through 242.406) is to 
regulate customer margin collected by brokers, dealers, and members of 
national securities exchanges, including futures commission merchants 
required to register as brokers or dealers under section 15(b)(11) of 
the Act (15 U.S.C. 78o(b)(11)), relating to security futures.
    (b) Interpretation. This Regulation (Sec. Sec. 242.400 through 
242.406) shall be jointly interpreted by the Commission and the CFTC, 
consistent with the criteria set forth in clauses (i) through (iv) of 
section 7(c)(2)(B) of the Act (15 U.S.C. 78g(c)(2)(B)) and the 
provisions of Regulation T (12 CFR part 220).
    (c) Scope. (1) This Regulation (Sec. Sec. 242.400 through 242.406) 
does not preclude a self-regulatory authority, under rules that are 
effective in accordance with section 19(b)(2) of the Act (15 U.S.C. 
78s(b)(2)) or section 19(b)(7) of the Act (15 U.S.C. 78s(b)(7)) and, as 
applicable, section 5c(c) of the Commodity Exchange Act (``CEA'') (7 
U.S.C. 7a-2(c)), or a security futures intermediary from imposing 
additional margin requirements on security futures, including higher 
initial or maintenance margin levels, consistent with this Regulation 
(Sec. Sec. 242.400 through 242.406), or from taking appropriate action 
to preserve its financial integrity.
    (2) This Regulation (Sec. Sec. 242.400 through 242.406) does not 
apply to:
    (i) Financial relations between a customer and a security futures 
intermediary to the extent that they comply with a portfolio margining 
system under rules that meet the criteria set forth in section 
7(c)(2)(B) of the Act (15 U.S.C. 78g(c)(2)(B)) and that are effective in 
accordance with section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and, 
as applicable, section 5c(c) of the CEA (7 U.S.C. 7a-2(c));
    (ii) Financial relations between a security futures intermediary and 
a foreign person involving security futures traded on or subject to the 
rules of a foreign board of trade;
    (iii) Margin requirements that clearing agencies registered under 
section 17A of the Exchange Act (15 U.S.C. 78q-1) or derivatives 
clearing organizations registered under section 5b of the CEA (7 U.S.C. 
7a-1) impose on their members;
    (iv) Financial relations between a security futures intermediary and 
a person based on a good faith determination by the security futures 
intermediary that such person is an exempted person; and
    (v) Financial relations between a security futures intermediary and, 
or arranged by a security futures intermediary for, a person relating to 
trading in security futures by such person for its own account, if such 
person:
    (A) Is a member of a national securities exchange or national 
securities association registered pursuant to section 15A(a) of the Act 
(15 U.S.C. 78o-3(a)); and
    (B) Is registered with such exchange or such association as a 
security futures dealer pursuant to rules that are effective in 
accordance with section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and, 
as applicable, section 5c(c) of the CEA (7 U.S.C. 7a-2(c)), that:
    (1) Require such member to be registered as a floor trader or a 
floor broker with the CFTC under Section 4f(a)(1) of the CEA (7 U.S.C. 
6f(a)(1)), or as a dealer with the Commission under section 15(b) of the 
Act (15 U.S.C. 78o(b));
    (2) Require such member to maintain records sufficient to prove 
compliance with this paragraph (c)(2)(v) and the rules of the exchange 
or association of which it is a member;

[[Page 537]]

    (3) Require such member to hold itself out as being willing to buy 
and sell security futures for its own account on a regular or continuous 
basis; and
    (4) Provide for disciplinary action, including revocation of such 
member's registration as a security futures dealer, for such member's 
failure to comply with this Regulation (Sec. Sec. 242.400 through 
242.406) or the rules of the exchange or association.
    (d) Exemption. The Commission may exempt, either unconditionally or 
on specified terms and conditions, financial relations involving any 
security futures intermediary, customer, position, or transaction, or 
any class of security futures intermediaries, customers, positions, or 
transactions, from one or more requirements of this Regulation 
(Sec. Sec. 242.400 through 242.406), if the Commission determines that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors. An exemption granted 
pursuant to this paragraph shall not operate as an exemption from any 
CFTC rules. Any exemption that may be required from such rules must be 
obtained separately from the CFTC.



Sec. 242.401  Definitions.

    (a) For purposes of this Regulation (Sec. Sec. 242.400 through 
242.406) only, the following terms shall have the meanings set forth in 
this section.
    (1) Applicable margin rules and margin rules applicable to an 
account mean the rules and regulations applicable to financial relations 
between a security futures intermediary and a customer with respect to 
security futures and related positions carried in a securities account 
or futures account as provided in Sec. 242.402(a) of this Regulation 
(Sec. Sec. 242.400 through 242.406).
    (2) Broker shall have the meaning provided in section 3(a)(4) of the 
Act (15 U.S.C. 78c(a)(4)).
    (3) Contract multiplier means the number of units of a narrow-based 
security index expressed as a dollar amount, in accordance with the 
terms of the security future contract.
    (4) Current market value means, on any day:
    (i) With respect to a security future:
    (A) If the instrument underlying such security future is a stock, 
theproduct of the daily settlement price of such security future as 
shown by any regularly published reporting or quotation service, and the 
applicable number of shares per contract; or
    (B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 3(a)(55)(B) of the Act (15 
U.S.C. 78c(a)(55)(B)), the product of the daily settlement price of such 
security future as shown by any regularly published reporting or 
quotation service, and the applicable contract multiplier.
    (ii) With respect to a security other than a security future, the 
most recent closing sale price of the security, as shown by any 
regularly published reporting or quotation service. If there is no 
recent closing sale price, the security futures intermediary may use any 
reasonable estimate of the market value of the security as of the most 
recent close of business.
    (5) Customer excludes an exempted person and includes:
    (i) Any person or persons acting jointly:
    (A) On whose behalf a security futures intermediary effects a 
security futures transaction or carries a security futures position; or
    (B) Who would be considered a customer of the security futures 
intermediary according to the ordinary usage of the trade;
    (ii) Any partner in a security futures intermediary that is 
organized as a partnership who would be considered a customer of the 
security futures intermediary absent the partnership relationship; and
    (iii) Any joint venture in which a security futures intermediary 
participates and which would be considered a customer of the security 
futures intermediary if the security futures intermediary were not a 
participant.
    (6) Daily settlement price means, with respect to a security future, 
the settlement price of such security future determined at the close of 
trading each day, under the rules of the applicable exchange, clearing 
agency, or derivatives clearing organization.

[[Page 538]]

    (7) Dealer shall have the meaning provided in section 3(a)(5) of the 
Act (15 U.S.C. 78c(a)(5)).
    (8) Equity means the equity or margin equity in a securities or 
futures account, as computed in accordance with the margin rules 
applicable to the account and subject to adjustment under Sec. 
242.404(c), (d) and (e) of this Regulation (Sec. Sec. 242.400 through 
242.406).
    (9) Exempted person means:
    (i) A member of a national securities exchange, a registered broker 
or dealer, or a registered futures commission merchant, a substantial 
portion of whose business consists of transactions in securities, 
commodity futures, or commodity options with persons other than brokers, 
dealers, futures commission merchants, floor brokers, or floor traders, 
and includes a person who:
    (A) Maintains at least 1000 active accounts on an annual basis for 
persons other than brokers, dealers, persons associated with a broker or 
dealer, futures commission merchants, floor brokers, floor traders, and 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader that are effecting transactions in securities, commodity 
futures, or commodity options;
    (B) Earns at least $10 million in gross revenues on an annual basis 
from transactions in securities, commodity futures, or commodity options 
with persons other than brokers, dealers, persons associated with a 
broker or dealer, futures commission merchants, floor brokers, floor 
traders, and persons affiliated with a futures commission merchant, 
floor broker, or floor trader; or
    (C) Earns at least 10 percent of its gross revenues on an annual 
basis from transactions in securities, commodity futures, or commodity 
options with persons other than brokers, dealers, persons associated 
with a broker or dealer, futures commission merchants, floor brokers, 
floor traders, and persons affiliated with a futures commission 
merchant, floor broker, or floor trader.
    (ii) For purposes of paragraph (a)(9)(i) of this section only, 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader means any partner, officer, director, or branch manager of 
such futures commission merchant, floor broker, or floor trader (or any 
person occupying a similar status or performing similar functions), any 
person directly or indirectly controlling, controlled by, or under 
common control with such futures commission merchant, floor broker, or 
floor trader, or any employee of such a futures commission merchant, 
floor broker, or floor trader.
    (iii) A member of a national securities exchange, a registered 
broker or dealer, or a registered futures commission merchant that has 
been in existence for less than one year may meet the definition of 
exempted person based on a six-month period.
    (10) Exempted security shall have the meaning provided in section 
3(a)(12) of the Act (15 U.S.C. 78c(a)(12)).
    (11) Floor broker shall have the meaning provided in Section 1a(16) 
of the CEA (7 U.S.C. 1a(16)).
    (12) Floor trader shall have the meaning provided in Section 1a(17) 
of the CEA (7 U.S.C. 1a(17)).
    (13) Futures account shall have the meaning provided in Sec. 
240.15c3-3(a) of this chapter.
    (14) Futures commission merchant shall have the meaning provided in 
Section 1a of the CEA (7 U.S.C. 1a).
    (15) Good faith, with respect to making a determination or accepting 
a statement concerning financial relations with a person, means that the 
security futures intermediary is alert to the circumstances surrounding 
such financial relations, and if in possession of information that would 
cause a prudent person not to make the determination or accept the 
notice or certification without inquiry, investigates and is satisfied 
that it is correct.
    (16) Listed option means a put or call option that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Act (15 U.S.C. 17q-1) or cleared and guaranteed by a derivatives 
clearing organization that is registered under Section 5b of the CEA (7 
U.S.C. 7a-1); and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (17) Margin call means a demand by a security futures intermediary 
to a customer for a deposit of cash, securities or other assets to 
satisfy the required

[[Page 539]]

margin for security futures or related positions or a special margin 
requirement.
    (18) Margin deficiency means the amount by which the required margin 
in an account is not satisfied by the equity in the account, as computed 
in accordance with Sec. 242.404 of this Regulation (Sec. Sec. 242.400 
through 242.406).
    (19) Margin equity security shall have the meaning provided in 
Regulation T.
    (20) Margin security shall have the meaning provided in Regulation 
T.
    (21) Member shall have the meaning provided in section 3(a)(3) of 
the Act (15 U.S.C. 78c(a)(3)), and shall include persons registered 
under section 15(b)(11) of the Act (15 U.S.C. 78o(b)(11)) that are 
permitted to effect transactions on a national securities exchange 
without the services of another person acting as executing broker.
    (22) Money market mutual fund means any security issued by an 
investment company registered under section 8 of the Investment Company 
Act of 1940 (15 U.S.C. 80a-8) that is considered a money market fund 
under Sec. 270.2a-7 of this chapter.
    (23) Persons associated with a broker or dealer shall have the 
meaning provided in section 3(a)(18) of the Act (15 U.S.C. 78c(a)(18)).
    (24) Regulation T means Regulation T promulgated by the Board of 
Governors of the Federal Reserve System, 12 CFR part 220, as amended 
from time to time.
    (25) Regulation T collateral value, with respect to a security, 
means the current market value of the security reduced by the percentage 
of required margin for a position in the security held in a margin 
account under Regulation T.
    (26) Related position, with respect to a security future, means any 
position in an account that is combined with the security future to 
create an offsetting position as provided in Sec. 242.403(b)(2) of this 
Regulation (Sec. Sec. 242.400 through 242.406).
    (27) Related transaction, with respect to a position or transaction 
in a security future, means:
    (i) Any transaction that creates, eliminates, increases or reduces 
an offsetting position involving a security future and a related 
position, as provided in Sec. 242.403(b)(2) of this Regulation 
(Sec. Sec. 242.400 through 242.406); or
    (ii) Any deposit or withdrawal of margin for the security future or 
a related position, except as provided in Sec. 242.405(b) of this 
Regulation (Sec. Sec. 242.400 through 242.406).
    (28) Securities account shall have the meaning provided in Sec. 
240.15c3-3(a) of this chapter.
    (29) Security futures intermediary means any creditor as defined in 
Regulation T with respect to its financial relations with any person 
involving security futures.
    (30) Self-regulatory authority means a national securities exchange 
registered under section 6 of the Act (15 U.S.C. 78f), a national 
securities association registered under section 15A of the Act (15 
U.S.C. 78o-3), a contract market registered under Section 5 of the CEA 
(7 U.S.C. 7) or Section 5f of the CEA (7 U.S.C. 7b-1), or a derivatives 
transaction execution facility registered under Section 5a of the CEA (7 
U.S.C. 7a).
    (31) Special margin requirement shall have the meaning provided in 
Sec. 242.404(e)(1)(ii) of this Regulation (Sec. Sec. 242.400 through 
242.406).
    (32) Variation settlement means any credit or debit to a customer 
account, made on a daily or intraday basis, for the purpose of marking 
to market a security future or any other contract that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Act (15 U.S.C. 78q-1) or cleared and guaranteed by a derivatives 
clearing organization that is registered under Section 5b of the CEA (7 
U.S.C. 7a-1); and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (b) Terms used in this Regulation (Sec. Sec. 242.400 through 
242.406) and not otherwise defined in this section shall have the 
meaning set forth in the margin rules applicable to the account.
    (c) Terms used in this Regulation (Sec. Sec. 242.400 through 
242.406) and not otherwise defined in this section or in the margin 
rules applicable to the account shall have the meaning set forth in the 
Act and the CEA; if the definitions of a term in the Act and the CEA are 
inconsistent as applied in particular circumstances, such term shall 
have the

[[Page 540]]

meaning set forth in rules, regulations, or interpretations jointly 
promulgated by the Commission and the CFTC.



Sec. 242.402  General provisions.

    (a) Applicable margin rules. Except to the extent inconsistent with 
this Regulation (Sec. Sec. 242.400 through 242.406):
    (1) A security futures intermediary that carries a security future 
on behalf of a customer in a securities account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with Regulation T and the margin rules of the 
self-regulatory authorities of which the security futures intermediary 
is a member.
    (2) A security futures intermediary that carries a security future 
on behalf of a customer in a futures account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with the margin rules of the self-regulatory 
authorities of which the security futures intermediary is a member.
    (b) Separation and consolidation of accounts.
    (1) The requirements for security futures and related positions in 
one account may not be met by considering items in any other account, 
except as permitted or required under paragraph (b)(2) of this section 
or applicable margin rules. If withdrawals of cash, securities or other 
assets deposited as margin are permitted under this Regulation 
(Sec. Sec. 242.400 through 242.406), bookkeeping entries shall be made 
when such cash, securities, or assets are used for purposes of meeting 
requirements in another account.
    (2) Notwithstanding paragraph (b)(1) of this section, the security 
futures intermediary shall consider all futures accounts in which 
security futures and related positions are held that are within the same 
regulatory classification or account type and are owned by the same 
customer to be a single account for purposes of this Regulation 
(Sec. Sec. 242.400 through 242.406). The security futures intermediary 
may combine such accounts with other futures accounts that are within 
the same regulatory classification or account type and are owned by the 
same customer for purposes of computing a customer's overall margin 
requirement, as permitted or required by applicable margin rules.
    (c) Accounts of partners. If a partner of the security futures 
intermediary has an account with the security futures intermediary in 
which security futures or related positions are held, the security 
futures intermediary shall disregard the partner's financial relations 
with the firm (as shown in the partner's capital and ordinary drawing 
accounts) in calculating the margin or equity of any such account.
    (d) Contribution to joint venture. If an account in which security 
futures or related positions are held is the account of a joint venture 
in which the security futures intermediary participates, any interest of 
the security futures intermediary in the joint account in excess of the 
interest which the security futures intermediary would have on the basis 
of its right to share in the profits shall be margined in accordance 
with this Regulation (Sec. Sec. 242.400 through 242.406).
    (e) Extensions of credit. (1) No security futures intermediary may 
extend or maintain credit to or for any customer for the purpose of 
evading or circumventing any requirement under this Regulation 
(Sec. Sec. 242.400 through 242.406).
    (2) A security futures intermediary may arrange for the extension or 
maintenance of credit to or for any customer by any person, provided 
that the security futures intermediary does not willfully arrange credit 
that would constitute a violation of Regulation T, U or X of the Board 
of Governors of the Federal Reserve System (12 CFR parts 220, 221, and 
224) by such person.
    (f) Change in exempted person status. Once a person ceases to 
qualify as an exempted person, it shall notify the security futures 
intermediary of this fact before entering into any new security futures 
transaction or related transaction that would require additional margin 
to be deposited under this Regulation (Sec. Sec. 242.400 through 
242.406). Financial relations with respect to any such transactions 
shall be subject to the provisions of this Regulation (Sec. Sec. 
242.400 through 242.406).

[[Page 541]]



Sec. 242.403  Required margin.

    (a) Applicability. Each security futures intermediary shall 
determine the required margin for the security futures and related 
positions held on behalf of a customer in a securities account or 
futures account as set forth in this section.
    (b) Required margin.--(1) General rule. The required margin for each 
long or short position n a security future shall be twenty (20) percent 
of the current market value of such security future.
    (2) Offsetting positions. Notwithstanding the margin levels 
specified in paragraph (b)(1) of this section, a self-regulatory 
authority may set the required initial or maintenance margin level for 
an offsetting position involving security futures and related positions 
at a level lower than the level that would be required under paragraph 
(b)(1) of this section if such positions were margined separately, 
pursuant to rules that meet the criteria set forth in section 7(c)(2)(B) 
of the Act (15 U.S.C. 78g(c)(2)(B)) and are effective in accordance with 
section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and, as applicable, 
Section 5c(c) of the CEA (7 U.S.C. 7a-2(c)).
    (c) Procedures for certain margin level adjustments. An exchange 
registered under section 6(g) of the Act (15 U.S.C. 78f(g)), or a 
national securities association registered under section 15A(k) of the 
Act (15 U.S.C. 78o-3(k)), may raise or lower the required margin level 
for a security future to a level not lower than that specified in this 
section, in accordance with section 19(b)(7) of the Act (15 U.S.C. 
78s(b)(7)).



Sec. 242.404  Type, form and use of margin.

    (a) When margin is required. Margin is required to be deposited 
whenever the required margin for security futures and related positions 
in an account is not satisfied by the equity in the account, subject to 
adjustment under paragraph (c) of this section.
    (b) Acceptable margin deposits. (1) The required margin may be 
satisfied by a deposit of cash, margin securities (subject to paragraph 
(b)(2) of this section), exempted securities, any other asset permitted 
under Regulation T to satisfy a margin deficiency in a securities margin 
account, or any combination thereof, each as valued in accordance with 
paragraph (c) of this section.
    (2) Shares of a money market mutual fund may be accepted as a margin 
deposit for purposes of this Regulation (Sec. Sec. 242.400 through 
242.406), provided that:
    (i) The customer waives any right to redeem the shares without the 
consent of the security futures intermediary and instructs the fund or 
its transfer agent accordingly;
    (ii) The security futures intermediary (or clearing agency or 
derivatives clearing organization with which the shares are deposited as 
margin) obtains the right to redeem the shares in cash, promptly upon 
request; and
    (iii) The fund agrees to satisfy any conditions necessary or 
appropriate to ensure that the shares may be redeemed in cash, promptly 
upon request.
    (c) Adjustments.
    (1) Futures accounts. For purposes of this section, the equity in a 
futures account shall be computed in accordance with the margin rules 
applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Each net long or short position in a listed option on a 
contract for future delivery shall be valued in accordance with the 
margin rules applicable to the account;
    (iii) Except as permitted in paragraph (e) of this section, each 
margin equity security shall be valued at an amount no greater than its 
Regulation T collateral value;
    (iv) Each other security shall be valued at an amount no greater 
than its current market value reduced by the percentage specified for 
such security in Sec. 240.15c3-1(c)(2)(vi) of this chapter;
    (v) Freely convertible foreign currency may be valued at an amount 
no greater than its daily marked-to-market U.S. dollar equivalent;
    (vi) Variation settlement receivable (or payable) by an account at 
the close of trading on any day shall be treated as a credit (or debit) 
to the account on that day; and
    (vii) Each other acceptable margin deposit or component of equity 
shall be

[[Page 542]]

valued at an amount no greater than its value under Regulation T.
    (2) Securities accounts. For purposes of this section, the equity in 
a securities account shall be computed in accordance with the margin 
rules applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Freely convertible foreign currency may be valued at an amount 
no greater than its daily mark-to-market U.S. dollar equivalent; and
    (iii) Variation settlement receivable (or payable) to an account at 
the close of trading on any day shall be treated as a credit (or debit) 
by the account on that day.
    (d) Satisfaction restriction. Any transaction, position or deposit 
that is used to satisfy the required margin for security futures or 
related positions under this Regulation (Sec. Sec. 242.400 through 
242.406), including a related position, shall be unavailable to satisfy 
the required margin for any other position or transaction or any other 
requirement.
    (e) Alternative collateral valuation for margin equity securities in 
a futures account.
    (1) Notwithstanding paragraph (c)(1)(iii) of this section, a 
security futures intermediary need not value a margin equity security at 
its Regulation T collateral value when determining whether the required 
margin for the security futures and related positions in a futures 
account is satisfied, provided that:
    (i) The margin equity security is valued at an amount no greater 
than the current market value of the security reduced by the lowest 
percentage level of margin required for a long position in the security 
held in a margin account under the rules of a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a));
    (ii) Additional margin is required to be deposited on any day when 
the day's security futures transactions and related transactions would 
create or increase a margin deficiency in the account if the margin 
equity securities were valued at their Regulation T collateral value, 
and shall be for the amount of the margin deficiency so created or 
increased (a ``special margin requirement''); and
    (iii) Cash, securities, or other assets deposited as margin for the 
positions in an account are not permitted to be withdrawn from the 
account at any time that:
    (A) Additional cash, securities, or other assets are required to be 
deposited as margin under this section for a transaction in the account 
on the same or a previous day; or
    (B) The withdrawal, together with other transactions, deposits, and 
withdrawals on the same day, would create or increase a margin 
deficiency if the margin equity securities were valued at their 
Regulation T collateral value.
    (2) All security futures transactions and related transactions on 
any day shall be combined to determine the amount of a special margin 
requirement. Additional margin deposited to satisfy a special margin 
requirement shall be valued at an amount no greater than its Regulation 
T collateral value.
    (3) If the alternative collateral valuation method set forth in 
paragraph (e) of this section is used with respect to an account in 
which security futures or related positions are carried:
    (i) An account that is transferred from one security futures 
intermediary to another may be treated as if it had been maintained by 
the transferee from the date of its origin, if the transferee accepts, 
in good faith, a signed statement of the transferor (or, if that is not 
practicable, of the customer), that any margin call issued under this 
Regulation (Sec. Sec. 242.400 through 242.406) has been satisfied; and
    (ii) An account that is transferred from one customer to another as 
part of a transaction, not undertaken to avoid the requirements of this 
Regulation (Sec. Sec. 242.400 through 242.406), may be treated as if it 
had been maintained for the transferee from the date of its origin, if 
the security futures intermediary accepts in good faith and keeps with 
the transferee account a signed statement of the transferor describing 
the circumstances for the transfer.
    (f) Guarantee of accounts. No guarantee of a customer's account 
shall be

[[Page 543]]

given any effect for purposes of determining whether the required margin 
in an account is satisfied, except as permitted under applicable margin 
rules.



Sec. 242.405  Withdrawal of margin.

    (a) By the customer. Except as otherwise provided in Sec. 
242.404(e)(1)(ii) of this Regulation (Sec. Sec. 242.400 through 
242.406), cash, securities, or other assets deposited as margin for 
positions in an account may be withdrawn, provided that the equity in 
the account after such withdrawal is sufficient to satisfy the required 
margin for the security futures and related positions in the account 
under this Regulation (Sec. Sec. 242.400 through 242.406).
    (b) By the security futures intermediary. Notwithstanding paragraph 
(a) of this section, the security futures intermediary, in its usual 
practice, may deduct the following items from an account in which 
security futures or related positions are held if they are considered in 
computing the balance of such account:
    (1) Variation settlement payable, directly or indirectly, to a 
clearing agency that is registered under section 17A of the Act (15 
U.S.C. 78q-1) or a derivatives clearing organization that is registered 
under section 5b of the CEA (7 U.S.C. 7a-1);
    (2) Interest charged on credit maintained in the account;
    (3) Communication or shipping charges with respect to transactions 
in the account;
    (4) Payment of commissions, brokerage, taxes, storage and other 
charges lawfully accruing in connection with the positions and 
transactions in the account;
    (5) Any service charges that the security futures intermediary may 
impose; or
    (6) Any other withdrawals that are permitted from a securities 
margin account under Regulation T, to the extent permitted under 
applicable margin rules.



Sec. 242.406  Undermargined accounts.

    (a) Failure to satisfy margin call. If any margin call required by 
this Regulation (Sec. Sec. 242.400 through 242.406) is not met in full, 
the security futures intermediary shall take the deduction required with 
respect to an undermargined account in computing its net capital under 
Commission or CFTC rules.
    (b) Accounts that liquidate to a deficit. If at any time there is a 
liquidating deficit in an account in which security futures are held, 
the security futures intermediary shall take steps to liquidate 
positions in the account promptly and in an orderly manner.
    (c) Liquidation of undermargined accounts not required. 
Notwithstanding Section 402(a) of this Regulation (Sec. Sec. 242.400 
through 242.406), section 220.4(d) of Regulation T (12 CFR 220.4(d)) 
respecting liquidation of positions in lieu of deposit shall not apply 
with respect to security futures carried in a securities account.

                  Regulation AC--Analyst Certification

    Source: 68 FR 9492, February 27, 2003, unless otherwise noted.



Sec. 242.500  Definitions.

    For purposes of Regulation AC (Sec. Sec. 242.500 through 242.505 of 
this chapter) the term:
    Covered person of a broker or dealer means an associated person of 
that broker or dealer but does not include:
    (1) An associated person:
    (i) If the associated person has no officers (or persons performing 
similar functions) or employees in common with the broker or dealer who 
can influence the activities of research analysts or the content of 
research reports; and
    (ii) If the broker or dealer maintains and enforces written policies 
and procedures reasonably designed to prevent the broker or dealer, any 
controlling persons, officers (or persons performing similar functions), 
and employees of the broker or dealer from influencing the activities of 
research analysts and the content of research reports prepared by the 
associated person.
    (2) An associated person who is an investment adviser:
    (i) Not registered with the Commission as an investment adviser 
because of the prohibition of section 203A of the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-3a); and

[[Page 544]]

    (ii) Not registered or required to be registered with the Commission 
as a broker or dealer.

    Note to definition of covered person: An associated person of a 
broker or dealer who is not a covered person continues to be subject to 
the federal securities laws, including the anti-fraud provisions of the 
federal securities laws.

    Foreign person means any person who is not a U.S. person.
    Foreign security means a security issued by a foreign issuer for 
which a U.S. market is not the principal trading market.
    Public appearance means any participation by a research analyst in a 
seminar, forum (including an interactive electronic forum), or radio or 
television or other interview, in which the research analyst makes a 
specific recommendation or provides information reasonably sufficient 
upon which to base an investment decision about a security or an issuer.
    Registered broker or dealer means a broker or dealer registered or 
required to register pursuant to section 15 or section 15B of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o or 78o-4) or a government 
securities broker or government securities dealer registered or required 
to register pursuant to section 15C(a)(1)(A) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o-5(a)(1)(A)).
    Research analyst means any natural person who is primarily 
responsible for the preparation of the content of a research report.
    Research report means a written communication (including an 
electronic communication) that includes an analysis of a security or an 
issuer and provides information reasonably sufficient upon which to base 
an investment decision.
    Third party research analyst means:
    (1) With respect to a broker or dealer, any research analyst not 
employed by that broker or dealer or any associated person of that 
broker or dealer; and
    (2) With respect to a covered person of a broker or dealer, any 
research analyst not employed by that covered person, by the broker or 
dealer with whom that covered person is associated, or by any other 
associated person of the broker or dealer with whom that covered person 
is associated.
    United States has the meaning contained in Sec. 230.902(l) of this 
chapter.
    U.S. person has the meaning contained in Sec. 230.902(k) of this 
chapter.



Sec. 242.501  Certifications in connection with research reports.

    (a) A broker or dealer or covered person that publishes, circulates, 
or provides a research report prepared by a research analyst to a U.S. 
person in the United States shall include in that research report a 
clear and prominent certification by the research analyst containing the 
following:
    (1) A statement attesting that all of the views expressed in the 
research report accurately reflect the research analyst's personal views 
about any and all of the subject securities or issuers; and
    (2)(i) A statement attesting that no part of the research analyst's 
compensation was, is, or will be, directly or indirectly, related to the 
specific recommendations or views expressed by the research analyst in 
the research report; or
    (ii) A statement:
    (A) Attesting that part or all of the research analyst's 
compensation was, is, or will be, directly or indirectly, related to the 
specific recommendations or views expressed by the research analyst in 
the research report;
    (B) Identifying the source, amount, and purpose of such 
compensation; and
    (C) Further disclosing that the compensation could influence the 
recommendations or views expressed in the research report.
    (b) A broker or dealer or covered person that publishes, circulates, 
or provides a research report prepared by a third party research analyst 
to a U.S. person in the United States shall be exempt from the 
requirements of this section with respect to such research report if the 
following conditions are satisfied:
    (1) The employer of the third party research analyst has no officers 
(or persons performing similar functions) or employees in common with 
the broker or dealer or covered person; and
    (2) The broker or dealer (or, with respect to a covered person, the 
broker or dealer with whom the covered person is associated) maintains 
and enforces

[[Page 545]]

written policies and procedures reasonably designed to prevent the 
broker or dealer, any controlling persons, officers (or persons 
performing similar functions), and employees of the broker or dealer 
from influencing the activities of the third party research analyst and 
the content of research reports prepared by the third party research 
analyst.



Sec. 242.502  Certifications in connection with public appearances.

    (a) If a broker or dealer publishes, circulates, or provides a 
research report prepared by a research analyst employed by the broker or 
dealer or covered person to a U.S. person in the United States, the 
broker or dealer must make a record within 30 days after any calendar 
quarter in which the research analyst made a public appearance that 
contains the following:
    (1) A statement by the research analyst attesting that the views 
expressed by the research analyst in all public appearances during the 
calendar quarter accurately reflected the research analyst's personal 
views at that time about any and all of the subject securities or 
issuers; and
    (2) A statement by the research analyst attesting that no part of 
the research analyst's compensation was, is, or will be, directly or 
indirectly, related to the specific recommendations or views expressed 
by the research analyst in such public appearances.
    (b) If the broker or dealer does not obtain a statement by the 
research analyst in accordance with paragraph (a) of this section:
    (1) The broker or dealer shall promptly notify in writing its 
examining authority, designated pursuant to section 17(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q(d)) and Sec. 240.17d-2 
of this chapter, that the research analyst did not provide the 
certifications specified in paragraph (a) of this section; and
    (2) For 120 days following notification pursuant to paragraph (b)(1) 
of this section, the broker or dealer shall disclose in any research 
report prepared by the research analyst and published, circulated, or 
provided to a U.S. person in the United States that the research analyst 
did not provide the certifications specified in paragraph (a) of this 
section.
    (c) In the case of a research analyst who is employed outside the 
United States by a foreign person located outside the United States, 
this section shall only apply to a public appearance while the research 
analyst is physically present in the United States.
    (d) A broker or dealer shall preserve the records specified in 
paragraphs (a) and (b) of this section in accordance with Sec. 240.17a-
4 of this chapter and for a period of not less than 3 years, the first 2 
years in an accessible place.



Sec. 242.503  Certain foreign research reports.

    A foreign person, located outside the United States and not 
associated with a registered broker or dealer, who prepares a research 
report concerning a foreign security and provides it to a U.S. person in 
the United States in accordance with the provisions of Sec. 240.15a-
6(a)(2) of this chapter shall be exempt from the requirements of this 
regulation.



Sec. 242.504  Notification to associated persons.

    A broker or dealer shall notify any person with whom that broker or 
dealer is associated who publishes, circulates, or provides research 
reports:
    (a) Whether the broker or dealer maintains and enforces written 
policies and procedures reasonably designed to prevent the broker or 
dealer, any controlling persons, officers (or persons performing similar 
functions), or employees of the broker or dealer from influencing the 
activities of research analysts and the content of research reports 
prepared by the associated person; and
    (b) Whether the associated person has any officers (or persons 
performing similar functions) or employees in common with the broker or 
dealer who can influence the activities of research analysts or the 
content of research reports and, if so, the identity of those persons.



Sec. 242.505  Exclusion for news media.

    No provision of this Regulation AC shall apply to any person who:

[[Page 546]]

    (a) Is the publisher of any bona fide newspaper, news magazine or 
business or financial publication of general and regular circulation; 
and
    (b) Is not registered or required to be registered with the 
Commission as a broker or dealer or investment adviser.



PART 243_REGULATION FD--Table of Contents




Sec.
243.100 General rule regarding selective disclosure.
243.101 Definitions.
243.102 No effect on antifraud liability.
243.103 No effect on Exchange Act reporting status.

    Authority: 15 U.S.C. 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 80a-29, 
unless otherwise noted.

    Source: 65 FR 51738, Aug. 24, 2000, unless otherwise noted.



Sec. 243.100  General rule regarding selective disclosure.

    (a) Whenever an issuer, or any person acting on its behalf, 
discloses any material nonpublic information regarding that issuer or 
its securities to any person described in paragraph (b)(1) of this 
section, the issuer shall make public disclosure of that information as 
provided in Sec. 243.101(e):
    (1) Simultaneously, in the case of an intentional disclosure; and
    (2) Promptly, in the case of a non-intentional disclosure.
    (b)(1) Except as provided in paragraph (b)(2) of this section, 
paragraph (a) of this section shall apply to a disclosure made to any 
person outside the issuer:
    (i) Who is a broker or dealer, or a person associated with a broker 
or dealer, as those terms are defined in Section 3(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a));
    (ii) Who is an investment adviser, as that term is defined in 
Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(11)); an institutional investment manager, as that term is 
defined in Section 13(f)(5) of the Securities Exchange Act of 1934 (15 
U.S.C. 78m(f)(5)), that filed a report on Form 13F (17 CFR 249.325) with 
the Commission for the most recent quarter ended prior to the date of 
the disclosure; or a person associated with either of the foregoing. For 
purposes of this paragraph, a ``person associated with an investment 
adviser or institutional investment manager'' has the meaning set forth 
in Section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(17)), assuming for these purposes that an institutional 
investment manager is an investment adviser;
    (iii) Who is an investment company, as defined in Section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3), or who would be an 
investment company but for Section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or 
Section 3(c)(7) (15 U.S.C. 80a-3(c)(7)) thereof, or an affiliated person 
of either of the foregoing. For purposes of this paragraph, ``affiliated 
person'' means only those persons described in Section 2(a)(3)(C), (D), 
(E), and (F) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(3)(C), (D), (E), and (F)), assuming for these purposes that a 
person who would be an investment company but for Section 3(c)(1) (15 
U.S.C. 80a-3(c)(1)) or Section 3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the 
Investment Company Act of 1940 is an investment company; or
    (iv) Who is a holder of the issuer's securities, under circumstances 
in which it is reasonably foreseeable that the person will purchase or 
sell the issuer's securities on the basis of the information.
    (2) Paragraph (a) of this section shall not apply to a disclosure 
made:
    (i) To a person who owes a duty of trust or confidence to the issuer 
(such as an attorney, investment banker, or accountant);
    (ii) To a person who expressly agrees to maintain the disclosed 
information in confidence;
    (iii) To an entity whose primary business is the issuance of credit 
ratings, provided the information is disclosed solely for the purpose of 
developing a credit rating and the entity's ratings are publicly 
available; or
    (iv) In connection with a securities offering registered under the 
Securities Act, other than an offering of the type described in any of 
Rule 415(a)(1)(i)-(vi) (Sec. 230.415(a)(1)(i)-(vi) of this chapter).

[[Page 547]]



Sec. 243.101  Definitions.

    This section defines certain terms as used in Regulation FD 
(Sec. Sec. 243.100 -243.103).
    (a) Intentional. A selective disclosure of material nonpublic 
information is ``intentional'' when the person making the disclosure 
either knows, or is reckless in not knowing, that the information he or 
she is communicating is both material and nonpublic.
    (b) Issuer. An ``issuer'' subject to this regulation is one that has 
a class of securities registered under Section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l), or is required to file reports 
under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)), including any closed-end investment company (as defined in 
Section 5(a)(2) of the Investment Company Act of 1940) (15 U.S.C. 80a-
5(a)(2)), but not including any other investment company or any foreign 
government or foreign private issuer, as those terms are defined in Rule 
405 under the Securities Act (Sec. 230.405 of this chapter).
    (c) Person acting on behalf of an issuer. ``Person acting on behalf 
of an issuer'' means any senior official of the issuer (or, in the case 
of a closed-end investment company, a senior official of the issuer's 
investment adviser), or any other officer, employee, or agent of an 
issuer who regularly communicates with any person described in Sec. 
243.100(b)(1)(i), (ii), or (iii), or with holders of the issuer's 
securities. An officer, director, employee, or agent of an issuer who 
discloses material nonpublic information in breach of a duty of trust or 
confidence to the issuer shall not be considered to be acting on behalf 
of the issuer.
    (d) Promptly. ``Promptly'' means as soon as reasonably practicable 
(but in no event after the later of 24 hours or the commencement of the 
next day's trading on the New York Stock Exchange) after a senior 
official of the issuer (or, in the case of a closed-end investment 
company, a senior official of the issuer's investment adviser) learns 
that there has been a non-intentional disclosure by the issuer or person 
acting on behalf of the issuer of information that the senior official 
knows, or is reckless in not knowing, is both material and nonpublic.
    (e) Public disclosure. (1) Except as provided in paragraph (e)(2) of 
this section, an issuer shall make the ``public disclosure'' of 
information required by Sec. 243.100(a) by furnishing to or filing with 
the Commission a Form 8-K (17 CFR 249.308) disclosing that information.
    (2) An issuer shall be exempt from the requirement to furnish or 
file a Form 8-K if it instead disseminates the information through 
another method (or combination of methods) of disclosure that is 
reasonably designed to provide broad, non-exclusionary distribution of 
the information to the public.
    (f) Senior official. ``Senior official'' means any director, 
executive officer (as defined in Sec. 240.3b-7 of this chapter), 
investor relations or public relations officer, or other person with 
similar functions.
    (g) Securities offering. For purposes of Sec. 243.100(b)(2)(iv):
    (1) Underwritten offerings. A securities offering that is 
underwritten commences when the issuer reaches an understanding with the 
broker-dealer that is to act as managing underwriter and continues until 
the later of the end of the period during which a dealer must deliver a 
prospectus or the sale of the securities (unless the offering is sooner 
terminated);
    (2) Non-underwritten offerings. A securities offering that is not 
underwritten:
    (i) If covered by Rule 415(a)(1)(x) (Sec. 230.415(a)(1)(x) of this 
chapter), commences when the issuer makes its first bona fide offer in a 
takedown of securities and continues until the later of the end of the 
period during which each dealer must deliver a prospectus or the sale of 
the securities in that takedown (unless the takedown is sooner 
terminated);
    (ii) If a business combination as defined in Rule 165(f)(1) (Sec. 
230.165(f)(1) of this chapter), commences when the first public 
announcement of the transaction is made and continues until the 
completion of the vote or the expiration of the tender offer, as 
applicable (unless the transaction is sooner terminated);
    (iii) If an offering other than those specified in paragraphs (a) 
and (b) of this section, commences when the issuer files a registration 
statement

[[Page 548]]

and continues until the later of the end of the period during which each 
dealer must deliver a prospectus or the sale of the securities (unless 
the offering is sooner terminated).



Sec. 243.102  No effect on antifraud liability.

    No failure to make a public disclosure required solely by Sec. 
243.100 shall be deemed to be a violation of Rule 10b-5 (17 CFR 240.10b-
5) under the Securities Exchange Act.



Sec. 243.103  No effect on Exchange Act reporting status.

    A failure to make a public disclosure required solely by Sec. 
243.100 shall not affect whether:
    (a) For purposes of Forms S-2 (17 CFR 239.12), S-3 (17 CFR 239.13) 
and S-8 (17 CFR 239.16b) under the Securities Act, an issuer is deemed 
to have filed all the material required to be filed pursuant to Section 
13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 
78o(d)) or, where applicable, has made those filings in a timely manner; 
or
    (b) There is adequate current public information about the issuer 
for purposes of Sec. 230.144(c) of this chapter (Rule 144(c)).



PART 244_REGULATION G--Table of Contents




Sec.
244.100 General rules regarding disclosure of non-GAAP financial 
          measures.
244.101 Definitions.
244.102 No effect on antifraud liability.

    Authority: 15 U.S.C. 7261, 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 
80a-29

    Source: 68 FR 4832, Jan. 30, 2003, unless otherwise noted.



Sec. 244.100  General rules regarding disclosure of non-GAAP financial measures.

    (a) Whenever a registrant, or person acting on its behalf, publicly 
discloses material information that includes a non-GAAP financial 
measure, the registrant must accompany that non-GAAP financial measure 
with:
    (1) A presentation of the most directly comparable financial measure 
calculated and presented in accordance with Generally Accepted 
Accounting Principles (GAAP); and
    (2) A reconciliation (by schedule or other clearly understandable 
method), which shall be quantitative for historical non-GAAP measures 
presented, and quantitative, to the extent available without 
unreasonable efforts, for forward-looking information, of the 
differences between the non-GAAP financial measure disclosed or released 
with the most comparable financial measure or measures calculated and 
presented in accordance with GAAP identified in paragraph (a)(1) of this 
section.
    (b) A registrant, or a person acting on its behalf, shall not make 
public a non-GAAP financial measure that, taken together with the 
information accompanying that measure and any other accompanying 
discussion of that measure, contains an untrue statement of a material 
fact or omits to state a material fact necessary in order to make the 
presentation of the non-GAAP financial measure, in light of the 
circumstances under which it is presented, not misleading.
    (c) This section shall not apply to a disclosure of a non-GAAP 
financial measure that is made by or on behalf of a registrant that is a 
foreign private issuer if the following conditions are satisfied:
    (1) The securities of the registrant are listed or quoted on a 
securities exchange or inter-dealer quotation system outside the United 
States;
    (2) The non-GAAP financial measure is not derived from or based on a 
measure calculated and presented in accordance with generally accepted 
accounting principles in the United States; and
    (3) The disclosure is made by or on behalf of the registrant outside 
the United States, or is included in a written communication that is 
released by or on behalf of the registrant outside the United States.
    (d) This section shall not apply to a non-GAAP financial measure 
included in disclosure relating to a proposed business combination, the 
entity resulting therefrom or an entity that is a party thereto, if the 
disclosure is contained in a communication that is subject to Sec. 
230.425 of this chapter,

[[Page 549]]

Sec. 240.14a-12 or Sec. 240.14d-2(b)(2) of this chapter or Sec. 
229.1015 of this chapter.
    Notes to Sec. 244.100:
    1.If a non-GAAP financial measure is made public orally, 
telephonically, by Web cast, by broadcast, or by similar means, the 
requirements of paragraphs (a)(1)(i) and (a)(1)(ii) of this section will 
be satisfied if:
    (i) The required information in those paragraphs is provided on the 
registrant's Web site at the time the non-GAAP financial measure is made 
public; and
    (ii) The location of the web site is made public in the same 
presentation in which the non-GAAP financial measure is made public.
    2. The provisions of paragraph (c) of this section shall apply 
notwithstanding the existence of one or more of the following 
circumstances:
    (i) A written communication is released in the United States as well 
as outside the United States, so long as the communication is released 
in the United States contemporaneously with or after the release outside 
the United States and is not otherwise targeted at persons located in 
the United States;
    (ii) Foreign journalists, U.S. journalists or other third parties 
have access to the information;
    (iii) The information appears on one or more web sites maintained by 
the registrant, so long as the web sites, taken together, are not 
available exclusively to, or targeted at, persons located in the United 
States; or
    (iv) Following the disclosure or release of the information outside 
the United States, the information is included in a submission by the 
registrant to the Commission made under cover of a Form 6-K.



Sec. 244.101  Definitions.

    This section defines certain terms as used in Regulation G 
(Sec. Sec. 244.100 through 244.102).
    (a)(1) Non-GAAP financial measure. A non-GAAP financial measure is a 
numerical measure of a registrant's historical or future financial 
performance, financial position or cash flows that:
    (i) Excludes amounts, or is subject to adjustments that have the 
effect of excluding amounts, that are included in the most directly 
comparable measure calculated and presented in accordance with GAAP in 
the statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    (ii) Includes amounts, or is subject to adjustments that have the 
effect of including amounts, that are excluded from the most directly 
comparable measure so calculated and presented.
    (2) A non-GAAP financial measure does not include operating and 
other financial measures and ratios or statistical measures calculated 
using exclusively one or both of:
    (i) Financial measures calculated in accordance with GAAP; and
    (ii) Operating measures or other measures that are not non-GAAP 
financial measures.
    (3) A non-GAAP financial measure does not include financial measures 
required to be disclosed by GAAP, Commission rules, or a system of 
regulation of a government or governmental authority or self-regulatory 
organization that is applicable to the registrant.
    (b) GAAP. GAAP refers to generally accepted accounting principles in 
the United States, except that:
    (1) In the case of foreign private issuers whose primary financial 
statements are prepared in accordance with non-U.S. generally accepted 
accounting principles, GAAP refers to the principles under which those 
primary financial statements are prepared; and
    (2) In the case of foreign private issuers that include a non-GAAP 
financial measure derived from a measure calculated in accordance with 
U.S. generally accepted accounting principles, GAAP refers to U.S. 
generally accepted accounting principles for purposes of the application 
of the requirements of Regulation G to the disclosure of that measure.
    (c) Registrant. A registrant subject to this regulation is one that 
has a class of securities registered under Section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l), or is required to file reports 
under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)), excluding any investment company registered under Section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-8).
    (d) United States. United States means the United States of America, 
its territories and possessions, any State of the United States, and the 
District of Columbia.



Sec. 244.102  No effect on antifraud liability.

    Neither the requirements of this Regulation G (17 CFR 244.100 
through

[[Page 550]]

244.102) nor a person's compliance or non-compliance with the 
requirements of this Regulation shall in itself affect any person's 
liability under Section 10(b) (15 U.S.C. 78j(b)) of the Securities 
Exchange Act of 1934 or Sec. 240.10b-5 of this chapter.



PART 245_REGULATION BLACKOUT TRADING RESTRICTION (Regulation 
BTR_Blackout Trading Restriction)--Table of Contents




Sec.
245.100 Definitions.
245.101 Prohibition of insider trading during pension fund blackout 
          periods.
245.102 Exceptions to definition of blackout period.
245.103 Issuer right of recovery; right of action by equity security 
          owner.
245.104 Notice.

    Authority: 15 U.S.C. 78w(a), unless otherwise noted.
    Sections 245.100-245.104 are also issued under secs. 3(a) and 
306(a), Pub. L. 107-204, 116 Stat. 745.

    Source: 68 FR 4355, Jan. 28, 2003, unless otherwise noted.



Sec. 245.100  Definitions.

    As used in Regulation BTR (Sec. Sec. 245.100 through 245.104), 
unless the context otherwise requires:
    (a) The term acquired in connection with service or employment as a 
director or executive officer, when applied to a director or executive 
officer, means that he or she acquired, directly or indirectly, an 
equity security:
    (1) At a time when he or she was a director or executive officer, 
under a compensatory plan, contract, authorization or arrangement, 
including, but not limited to, an option, warrants or rights plan, a 
pension, retirement or deferred compensation plan or a bonus, incentive 
or profit-sharing plan (whether or not set forth in any formal plan 
document), including a compensatory plan, contract, authorization or 
arrangement with a parent, subsidiary or affiliate;
    (2) At a time when he or she was a director or executive officer, as 
a result of any transaction or business relationship described in 
paragraph (a) or (b) of Item 404 of Regulation S-K (Sec. 229.404 of 
this chapter) or, in the case of a foreign private issuer, Item 7.B of 
Form 20-F (Sec. 249.220f of this chapter) (but without application of 
the disclosure thresholds of such provisions), to the extent that he or 
she has a pecuniary interest (as defined in paragraph (l) of this 
section) in the equity securities;
    (3) At a time when he or she was a director or executive officer, as 
directors' qualifying shares or other securities that he or she must 
hold to satisfy minimum ownership requirements or guidelines for 
directors or executive officers;
    (4) Prior to becoming, or while, a director or executive officer 
where the equity security was acquired as a direct or indirect 
inducement to service or employment as a director or executive officer; 
or
    (5) Prior to becoming, or while, a director or executive officer 
where the equity security was received as a result of a business 
combination in respect of an equity security of an entity involved in 
the business combination that he or she had acquired in connection with 
service or employment as a director or executive officer of such entity.
    (b) Except as provided in Sec. 245.102, the term blackout period:
    (1) With respect to the equity securities of any issuer (other than 
a foreign private issuer), means any period of more than three 
consecutive business days during which the ability to purchase, sell or 
otherwise acquire or transfer an interest in any equity security of such 
issuer held in an individual account plan is temporarily suspended by 
the issuer or by a fiduciary of the plan with respect to not fewer than 
50% of the participants or beneficiaries located in the United States 
and its territories and possessions under all individual account plans 
(as defined in paragraph (j) of this section) maintained by the issuer 
that permit participants or beneficiaries to acquire or hold equity 
securities of the issuer;
    (2) With respect to the equity securities of any foreign private 
issuer (as defined in Sec. 240.3b-4(c) of this chapter), means any 
period of more than three consecutive business days during which both:
    (i) The conditions of paragraph (b)(1) of this section are met; and

[[Page 551]]

    (ii)(A) The number of participants and beneficiaries located in the 
United States and its territories and possessions subject to the 
temporary suspension exceeds 15% of the total number of employees of the 
issuer and its consolidated subsidiaries; or
    (B) More than 50,000 participants and beneficiaries located in the 
United States and its territories and possessions are subject to the 
temporary suspension.
    (3) In determining the individual account plans (as defined in 
paragraph (j) of this section) maintained by an issuer for purposes of 
this paragraph (b):
    (i) The rules under section 414(b), (c), (m) and (o) of the Internal 
Revenue Code (26 U.S.C. 414(b), (c), (m) and (o)) are to be applied; and
    (ii) An individual account plan that is maintained outside of the 
United States primarily for the benefit of persons substantially all of 
whom are nonresident aliens (within the meaning of section 104(b)(4) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1003(b)(4))) is not to be considered.
    (4) In determining the number of participants and beneficiaries in 
an individual account plan (as defined in paragraph (j) of this section) 
maintained by an issuer:
    (i) The determination may be made as of any date within the 12-month 
period preceding the beginning date of the temporary suspension in 
question; provided that if there has been a significant change in the 
number of participants or beneficiaries in an individual account plan 
since the date selected, the determination for such plan must be made as 
of the most recent practicable date that reflects such change; and
    (ii) The determination may be made without regard to overlapping 
plan participation.
    (c)(1) The term director has, except as provided in paragraph (c)(2) 
of this section, the meaning set forth in section 3(a)(7) of the 
Exchange Act (15 U.S.C. 78c(a)(7)).
    (2) In the case of a foreign private issuer (as defined in Sec. 
240.3b-4(c) of this chapter), the term director means an individual 
within the definition set forth in section 3(a)(7) of the Exchange Act 
who is a management employee of the issuer.
    (d) The term derivative security has the meaning set forth in Sec. 
240.16a-1(c) of this chapter.
    (e) The term equity security has the meaning set forth in section 
3(a)(11) of the Exchange Act (15 U.S.C. 78c(a)(11)) and Sec. 240.3a11-1 
of this chapter.
    (f) The term equity security of the issuer means any equity security 
or derivative security relating to an issuer, whether or not issued by 
that issuer.
    (g) The term Exchange Act means the Securities Exchange Act of 1934 
(15 U.S.C. 78a et seq.).
    (h)(1) The term executive officer has, except as provided in 
paragraph (h)(2) of this section, the meaning set forth in Sec. 
240.16a-1(f) of this chapter.
    (2) In the case of a foreign private issuer (as defined in Sec. 
240.3b-4(c) of this chapter), the term executive officer means the 
principal executive officer or officers, the principal financial officer 
or officers and the principal accounting officer or officers of the 
issuer.
    (i) The term exempt security has the meaning set forth in section 
3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)).
    (j) The term individual account plan means a pension plan which 
provides for an individual account for each participant and for benefits 
based solely upon the amount contributed to the participant's account, 
and any income, expenses, gains and losses, and any forfeitures of 
accounts of other participants which may be allocated to such 
participant's account, except that such term does not include a one-
participant retirement plan (within the meaning of section 101(i)(8)(B) 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1021(i)(8)(B))), nor does it include a pension plan in which 
participation is limited to directors of the issuer.
    (k) The term issuer means an issuer (as defined in section 3(a)(8) 
of the Exchange Act (15 U.S.C. 78c(a)(8))), the securities of which are 
registered under section 12 of the Exchange Act (15 U.S.C. 78l) or that 
is required to file reports under section 15(d) of the Exchange Act (15 
U.S.C. 78o(d)) or that files or has filed a registration statement that 
has not yet become effective

[[Page 552]]

under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and that it has 
not withdrawn.
    (l) The term pecuniary interest has the meaning set forth in Sec. 
240.16a-1(a)(2)(i) of this chapter and the term indirect pecuniary 
interest has the meaning set forth in Sec. 240.16a-1(a)(2)(ii) of this 
chapter. Section 240.16a-1(a)(2)(iii) of this chapter also shall apply 
to determine pecuniary interest for purposes of this regulation.



Sec. 245.101  Prohibition of insider trading during pension fund blackout periods.

    (a) Except to the extent otherwise provided in paragraph (c) of this 
section, it is unlawful under section 306(a)(1) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7244(a)(1)) for any director or executive officer 
of an issuer of any equity security (other than an exempt security), 
directly or indirectly, to purchase, sell or otherwise acquire or 
transfer any equity security of the issuer (other than an exempt 
security) during any blackout period with respect to such equity 
security, if such director or executive officer acquires or previously 
acquired such equity security in connection with his or her service or 
employment as a director or executive officer.
    (b) For purposes of section 306(a)(1) of the Sarbanes-Oxley Act of 
2002, any sale or other transfer of an equity security of the issuer 
during a blackout period will be treated as a transaction involving an 
equity security ``acquired in connection with service or employment as a 
director or executive officer'' (as defined in Sec. 245.100(a)) to the 
extent that the director or executive officer has a pecuniary interest 
(as defined in Sec. 245.100(l)) in such equity security, unless the 
director or executive officer establishes by specific identification of 
securities that the transaction did not involve an equity security 
``acquired in connection with service or employment as a director or 
executive officer.'' To establish that the equity security was not so 
acquired, a director or executive officer must identify the source of 
the equity securities and demonstrate that he or she has utilized the 
same specific identification for any purpose related to the transaction 
(such as tax reporting and any applicable disclosure and reporting 
requirements).
    (c) The following transactions are exempt from section 306(a)(1) of 
the Sarbanes-Oxley Act of 2002:
    (1) Any acquisition of equity securities resulting from the 
reinvestment of dividends in, or interest on, equity securities of the 
same issuer if the acquisition is made pursuant to a plan providing for 
the regular reinvestment of dividends or interest and the plan provides 
for broad-based participation, does not discriminate in favor of 
employees of the issuer and operates on substantially the same terms for 
all plan participants;
    (2) Any purchase or sale of equity securities of the issuer pursuant 
to a contract, instruction or written plan entered into by the director 
or executive officer that satisfies the affirmative defense conditions 
of Sec. 240.10b5-1(c) of this chapter; provided that the director or 
executive officer did not enter into or modify the contract, instruction 
or written plan during the blackout period (as defined in Sec. 
245.100(b)) in question, or while aware of the actual or approximate 
beginning or ending dates of that blackout period (whether or not the 
director or executive officer received notice of the blackout period as 
required by Section 306(a)(6) of the Sarbanes-Oxley Act of 2002 (15 
U.S.C. 7244(a)(6))).
    (3) Any purchase or sale of equity securities, other than a 
Discretionary Transaction (as defined in Sec. 240.16b-3(b)(1) of this 
chapter), pursuant to a Qualified Plan (as defined in Sec. 240.16b-
3(b)(4) of this chapter), an Excess Benefit Plan (as defined in Sec. 
240.16b-3(b)(2) of this chapter) or a Stock Purchase Plan (as defined in 
Sec. 240.16b-3(b)(5) of this chapter) (or, in the case of a foreign 
private issuer, pursuant to an employee benefit plan that either (i) has 
been approved by the taxing authority of a foreign jurisdiction, or (ii) 
is eligible for preferential treatment under the tax laws of a foreign 
jurisdiction because the plan provides for broad-based employee 
participation); provided that a Discretionary Transaction that meets the 
conditions of paragraph (c)(2) of this section also shall be exempt;

[[Page 553]]

    (4) Any grant or award of an option, stock appreciation right or 
other equity compensation pursuant to a plan that, by its terms:
    (i) Permits directors or executive officers to receive grants or 
awards; and
    (ii) Either:
    (A) States the amount and price of securities to be awarded to 
designated directors and executive officers or categories of directors 
and executive officers (though not necessarily to others who may 
participate in the plan) and specifies the timing of awards to directors 
and executive officers; or
    (B) Sets forth a formula that determines the amount, price and 
timing, using objective criteria (such as earnings of the issuer, value 
of the securities, years of service, job classification, and 
compensation levels);
    (5) Any exercise, conversion or termination of a derivative security 
that the director or executive officer did not write or acquire during 
the blackout period (as defined in Sec. 245.100(b)) in question, or 
while aware of the actual or approximate beginning or ending dates of 
that blackout period (whether or not the director or executive officer 
received notice of the blackout period as required by Section 306(a)(6) 
of the Sarbanes-Oxley Act of 2002); and either:
    (i) The derivative security, by its terms, may be exercised, 
converted or terminated only on a fixed date, with no discretionary 
provision for earlier exercise, conversion or termination; or
    (ii) The derivative security is exercised, converted or terminated 
by a counterparty and the director or executive officer does not 
exercise any influence on the counterparty with respect to whether or 
when to exercise, convert or terminate the derivative security;
    (6) Any acquisition or disposition of equity securities involving a 
bona fide gift or a transfer by will or the laws of descent and 
distribution;
    (7) Any acquisition or disposition of equity securities pursuant to 
a domestic relations order, as defined in the Internal Revenue Code or 
Title I of the Employment Retirement Income Security Act of 1974, or the 
rules thereunder;
    (8) Any sale or other disposition of equity securities compelled by 
the laws or other requirements of an applicable jurisdiction;
    (9) Any acquisition or disposition of equity securities in 
connection with a merger, acquisition, divestiture or similar 
transaction occurring by operation of law; and
    (10) The increase or decrease in the number of equity securities 
held as a result of a stock split or stock dividend applying equally to 
all securities of that class, including a stock dividend in which equity 
securities of a different issuer are distributed; and the acquisition of 
rights, such as shareholder or pre-emptive rights, pursuant to a pro 
rata grant to all holders of the same class of equity securities.



Sec. 245.102  Exceptions to definition of blackout period.

    The term ``blackout period,'' as defined in Sec. 245.100(b), does 
not include:
    (a) A regularly scheduled period in which participants and 
beneficiaries may not purchase, sell or otherwise acquire or transfer an 
interest in any equity security of an issuer, if a description of such 
period, including its frequency and duration and the plan transactions 
to be suspended or otherwise affected, is:
    (1) Incorporated into the individual account plan or included in the 
documents or instruments under which the plan operates; and
    (2) Disclosed to an employee before he or she formally enrolls, or 
within 30 days following formal enrollment, as a participant under the 
individual account plan or within 30 days after the adoption of an 
amendment to the plan. For purposes of this paragraph (a)(2), the 
disclosure may be provided in any graphic form that is reasonably 
accessible to the employee; or
    (b) Any trading suspension described in Sec. 245.100(b) that is 
imposed in connection with a corporate merger, acquisition, divestiture 
or similar transaction involving the plan or plan sponsor, the principal 
purpose of which is to permit persons affiliated with the acquired or 
divested entity to become participants or beneficiaries, or to cease to 
be participants or beneficiaries, in an individual account plan; 
provided that the persons who become participants or beneficiaries in an 
individual account

[[Page 554]]

plan are not able to participate in the same class of equity securities 
after the merger, acquisition, divestiture or similar transaction as 
before the transaction.



Sec. 245.103  Issuer right of recovery; right of action by equity security owner.

    (a) Recovery of profits. Section 306(a)(2) of the Sarbanes-Oxley Act 
of 2002 (15 U.S.C. 7244(a)(2)) provides that any profit realized by a 
director or executive officer from any purchase, sale or other 
acquisition or transfer of any equity security of an issuer in violation 
of section 306(a)(1) of that Act (15 U.S.C. 7244(a)(1)) will inure to 
and be recoverable by the issuer, regardless of any intention on the 
part of the director or executive officer in entering into the 
transaction.
    (b) Actions to recover profit. Section 306(a)(2) of the Sarbanes-
Oxley Act of 2002 provides that an action to recover profit may be 
instituted at law or in equity in any court of competent jurisdiction by 
the issuer, or by the owner of any equity security of the issuer in the 
name and on behalf of the issuer if the issuer fails or refuses to bring 
such action within 60 days after the date of request, or fails 
diligently to prosecute the action thereafter, except that no such suit 
may be brought more than two years after the date on which such profit 
was realized.
    (c) Measurement of profit. (1) In determining the profit recoverable 
in an action undertaken pursuant to section 306(a)(2) of the Sarbanes-
Oxley Act of 2002 from a transaction that involves a purchase, sale or 
other acquisition or transfer (other than a grant, exercise, conversion 
or termination of a derivative security) in violation of section 
306(a)(1) of that Act of an equity security of an issuer that is 
registered pursuant to section 12(b) or 12(g) of the Exchange Act (15 
U.S.C. 78l(b) or (g)) and listed on a national securities exchange or 
listed in an automated inter-dealer quotation system of a national 
securities association, profit (including any loss avoided) may be 
measured by comparing the difference between the amount paid or received 
for the equity security on the date of the transaction during the 
blackout period and the average market price of the equity security 
calculated over the first three trading days after the ending date of 
the blackout period.
    (2) In determining the profit recoverable in an action undertaken 
pursuant to section 306(a)(2) of the Sarbanes-Oxley Act of 2002 from a 
transaction that is not described in paragraph (c)(1) of this section, 
profit (including any loss avoided) may be measured in a manner that is 
consistent with the objective of identifying the amount of any gain 
realized or loss avoided by a director or executive officer as a result 
of a transaction taking place in violation of section 306(a)(1) of that 
Act during the blackout period as opposed to taking place outside of 
such blackout period.
    (3) The terms of this section do not limit in any respect the 
authority of the Commission to seek or determine remedies as the result 
of a transaction taking place in violation of section 306(a)(1) of the 
Sarbanes-Oxley Act.



Sec. 245.104  Notice.

    (a) In any case in which a director or executive officer is subject 
to section 306(a)(1) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7244(a)(1)) in connection with a blackout period (as defined in Sec. 
245.100(b)) with respect to any equity security, the issuer of the 
equity security must timely notify each director or officer and the 
Commission of the blackout period.
    (b) For purposes of this section:
    (1)The notice must include:
    (i) The reason or reasons for the blackout period;
    (ii) A description of the plan transactions to be suspended during, 
or otherwise affected by, the blackout period;
    (iii) A description of the class of equity securities subject to the 
blackout period;
    (iv) The length of the blackout period by reference to:
    (A) The actual or expected beginning date and ending date of the 
blackout period; or
    (B) The calendar week during which the blackout period is expected 
to begin and the calendar week during which the blackout period is 
expected to end, provided that the notice to directors and executive 
officers describes

[[Page 555]]

how, during such week or weeks, a director or executive officer may 
obtain, without charge, information as to whether the blackout period 
has begun or ended; and provided further that the notice to the 
Commission describes how, during the blackout period and for a period of 
two years after the ending date of the blackout period, a security 
holder or other interested person may obtain, without charge, the actual 
beginning and ending dates of the blackout period.
    (C) For purposes of this paragraph (b)(1)(iv), a calendar week means 
a seven-day period beginning on Sunday and ending on Saturday; and
    (v) The name, address and telephone number of the person designated 
by the issuer to respond to inquiries about the blackout period, or, in 
the absence of such a designation, the issuer's human resources director 
or person performing equivalent functions.
    (2) (i) Notice to an affected director or executive officer will be 
considered timely if the notice described in paragraph (b)(1) of this 
section is provided (in graphic form that is reasonably accessible to 
the recipient):
    (A) No later than five business days after the issuer receives the 
notice required by section 101(i)(2)(E) of the Employment Retirement 
Income Security Act of 1974 (29 U.S.C. 1021(i)(2)(E)); or
    (B) If no such notice is received by the issuer, a date that is at 
least 15 calendar days before the actual or expected beginning date of 
the blackout period.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, the 
requirement to give advance notice will not apply in any case in which 
the inability to provide advance notice of the blackout period is due to 
events that were unforeseeable to, or circumstances that were beyond the 
reasonable control of, the issuer, and the issuer reasonably so 
determines in writing. Determinations described in the preceding 
sentence must be dated and signed by an authorized representative of the 
issuer. In any case in which this exception to the advance notice 
requirement applies, the issuer must provide the notice described in 
paragraph (b)(1) of this section, as well as a copy of the written 
determination, to all affected directors and executive officers as soon 
as reasonably practicable.
    (iii) If there is a subsequent change in the beginning or ending 
dates of the blackout period as provided in the notice to directors and 
executive officers under paragraph (b)(2)(i) of this section, an issuer 
must provide directors and executive officers with an updated notice 
explaining the reasons for the change in the date or dates and 
identifying all material changes in the information contained in the 
prior notice. The updated notice is required to be provided as soon as 
reasonably practicable, unless such notice in advance of the termination 
of a blackout period is impracticable.
    (3) Notice to the Commission will be considered timely if:
    (i) The issuer, except as provided in paragraph (b)(3)(ii) of this 
section, files a current report on Form 8-K (Sec. 249.308 of this 
chapter) within the time prescribed for filing the report under the 
instructions for the form; or
    (ii) In the case of a foreign private issuer (as defined in Sec. 
240.3b-4(c) of this chapter), the issuer includes the information set 
forth in paragraph (b)(1) of this section in the first annual report on 
Form 20-F (Sec. 249.220f of this chapter) or 40-F (Sec. 249.240f of 
this chapter) required to be filed after the receipt of the notice of a 
blackout period required by 29 CFR 2520.101-3(c) within the time 
prescribed for filing the report under the instructions for the form or 
in an earlier filed report on Form 6-K (Sec. 249.306).
    (iii) If there is a subsequent change in the beginning or ending 
dates of the blackout period as provided in the notice to the Commission 
under paragraph (b)(3)(i) of this section, an issuer must file a current 
report on Form 8-K containing the updated beginning or ending dates of 
the blackout period, explaining the reasons for the change in the date 
or dates and identifying all material changes in the information 
contained in the prior report. The updated notice is required to be 
provided as soon as reasonably practicable.

[[Page 556]]



PART 248_REGULATION S	P: PRIVACY OF CONSUMER FINANCIAL INFORMATION--Table of Contents




Sec.
248.1 Purpose and scope.
248.2 Rule of construction.
248.3 Definitions.

                  Subpart A_Privacy and Opt Out Notices

248.4 Initial privacy notice to consumers required.
248.5 Annual privacy notice to customers required.
248.6 Information to be included in privacy notices.
248.7 Form of opt out notice to consumers; opt out methods.
248.8 Revised privacy notices.
248.9 Delivering privacy and opt out notices.

                     Subpart B_Limits on Disclosures

248.10 Limits on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
248.11 Limits on redisclosure and reuse of information.
248.12 Limits on sharing account number information for marketing 
          purposes.

                          Subpart C_Exceptions

248.13 Exception to opt out requirements for service providers and joint 
          marketing.
248.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
248.15 Other exceptions to notice and opt out requirements.

            Subpart D_Relation to Other Laws; Effective Date

248.16 Protection of Fair Credit Reporting Act.
248.17 Relation to State laws.
248.18 Effective date; transition rule.
248.19-248.29 [Reserved]
248.30 Procedures to safeguard customer records and information.

Appendix A to Part 248--Sample Clauses

    Authority: 15 U.S.C. 6801-6809; 15 U.S.C. 78q, 78w, 80a-30(a), 80a-
37, 80b-4, and 80b-11.

    Source: 65 FR 40362, June 29, 2000, unless otherwise noted.



Sec. 248.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal 
information about consumers by the financial institutions listed in 
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing that information to most nonaffiliated third 
parties by ``opting out'' of that disclosure, subject to the exceptions 
in Sec. Sec. 248.13, 248.14, and 248.15.
    (b) Scope. This part applies only to nonpublic personal information 
about individuals who obtain financial products or services primarily 
for personal, family, or household purposes from the institutions listed 
below. This part does not apply to information about companies or about 
individuals who obtain financial products or services primarily for 
business, commercial, or agricultural purposes. This part applies to 
brokers, dealers, and investment companies, as well as to investment 
advisers that are registered with the Commission. It also applies to 
foreign (non-resident) brokers, dealers, investment companies and 
investment advisers that are registered with the Commission. These 
entities are referred to in this part as ``you.'' This part does not 
apply to foreign (non-resident) brokers, dealers, investment companies 
and investment advisers that are not registered with the Commission. 
Nothing in this part modifies, limits, or supersedes the standards 
governing individually identifiable health information promulgated by 
the Secretary of Health and Human Services under the authority of 
sections 262 and 264 of the Health Insurance Portability and 
Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).



Sec. 248.2  Rule of construction.

    (a) The examples in this part and the sample clauses in appendix A 
of this part provide guidance concerning the rule's application in 
ordinary circumstances. The facts and circumstances of each individual 
situation, however, will determine whether compliance with an example or 
use of a

[[Page 557]]

sample clause, to the extent applicable, constitutes compliance with 
this part.
    (b) Substituted compliance with CFTC financial privacy rules by 
futures commission merchants and introducing brokers. Any futures 
commission merchant or introducing broker (as those terms are defined in 
the Commodity Exchange Act (7 U.S.C. 1, et seq.)) registered by notice 
with the Commission for the purpose of conducting business in security 
futures products pursuant to section 15(b)(11)(A) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(b)(11)(A)) that is subject to and in 
compliance with the financial privacy rules of the Commodity Futures 
Trading Commission (17 CFR part 160) will be deemed to be in compliance 
with this part.

[65 FR 40362, June 29, 2000, as amended at 66 FR 45147, Aug. 27, 2001]



Sec. 248.3  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Affiliate of a broker, dealer, or investment company, or an 
investment adviser registered with the Commission means any company that 
controls, is controlled by, or is under common control with the broker, 
dealer, or investment company, or investment adviser registered with the 
Commission. In addition, a broker, dealer, or investment company, or an 
investment adviser registered with the Commission will be deemed an 
affiliate of a company for purposes of this part if:
    (1) That company is regulated under Title V of the G-L-B Act by the 
Federal Trade Commission or by a Federal functional regulator other than 
the Commission; and
    (2) Rules adopted by the Federal Trade Commission or another federal 
functional regulator under Title V of the G-L-B Act treat the broker, 
dealer, or investment company, or investment adviser registered with the 
Commission as an affiliate of that company.
    (b) Broker has the same meaning as in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).
    (c)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. You make your notice 
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise 
sentences, paragraphs, and sections;
    (B) Use short explanatory sentences or bullet lists whenever 
possible;
    (C) Use definite, concrete, everyday words and active voice whenever 
possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever 
possible; and
    (F) Avoid explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. You design your notice to call 
attention to the nature and significance of the information in it if 
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) Use distinctive type size, style, and graphic devices, such as 
shading or sidebars when you combine your notice with other information.
    (iii) Notices on web sites. If you provide a notice on a web page, 
you design your notice to call attention to the nature and significance 
of the information in it if you use text or visual cues to encourage 
scrolling down the page if necessary to view the entire notice and 
ensure that other elements on the web site (such as text, graphics, 
hyperlinks, or sound) do not distract attention from the notice, and you 
either:
    (A) Place the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, 
nature, and relevance of the notice.
    (d) Collect means to obtain information that you organize or can 
retrieve by the name of an individual or by

[[Page 558]]

identifying number, symbol, or other identifying particular assigned to 
the individual, irrespective of the source of the underlying 
information.
    (e) Commission means the Securities and Exchange Commission.
    (f) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (g)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, or that individual's legal 
representative.
    (2) Examples. (i) An individual is your consumer if he or she 
provides nonpublic personal information to you in connection with 
obtaining or seeking to obtain brokerage services or investment advisory 
services, whether or not you provide brokerage services to the 
individual or establish a continuing relationship with the individual.
    (ii) An individual is not your consumer if he or she provides you 
only with his or her name, address, and general areas of investment 
interest in connection with a request for a prospectus, an investment 
adviser brochure, or other information about financial products or 
services.
    (iii) An individual is not your consumer if he or she has an account 
with another broker or dealer (the introducing broker-dealer) that 
carries securities for the individual in a special omnibus account with 
you (the clearing broker-dealer) in the name of the introducing broker-
dealer, and when you receive only the account numbers and transaction 
information of the introducing broker-dealer's consumers in order to 
clear transactions.
    (iv) If you are an investment company, an individual is not your 
consumer when the individual purchases an interest in shares you have 
issued only through a broker or dealer or investment adviser who is the 
record owner of those shares.
    (v) An individual who is a consumer of another financial institution 
is not your consumer solely because you act as agent for, or provide 
processing or other services to, that financial institution.
    (vi) An individual is not your consumer solely because he or she has 
designated you as trustee for a trust.
    (vii) An individual is not your consumer solely because he or she is 
a beneficiary of a trust for which you are a trustee.
    (viii) An individual is not your consumer solely because he or she 
is a participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (h) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (i) Control of a company means the power to exercise a controlling 
influence over the management or policies of a company whether through 
ownership of securities, by contract, or otherwise. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 percent of the voting securities of any company 
is presumed to control the company. Any person who does not own more 
than 25 percent of the voting securities of any company will be presumed 
not to control the company. Any presumption regarding control may be 
rebutted by evidence, but, in the case of an investment company, will 
continue until the Commission makes a decision to the contrary according 
to the procedures described in section 2(a)(9) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-2(a)(9)).
    (j) Customer means a consumer who has a customer relationship with 
you.
    (k)(1) Customer relationship means a continuing relationship between 
a consumer and you under which you provide one or more financial 
products or services to the consumer that are to be used primarily for 
personal, family, or household purposes.
    (2) Examples--(i) Continuing relationship. A consumer has a 
continuing relationship with you if:
    (A) The consumer has a brokerage account with you, or if a 
consumer's account is transferred to you from another broker-dealer;
    (B) The consumer has an investment advisory contract with you 
(whether written or oral);

[[Page 559]]

    (C) The consumer is the record owner of securities you have issued 
if you are an investment company;
    (D) The consumer holds an investment product through you, such as 
when you act as a custodian for securities or for assets in an 
Individual Retirement Arrangement;
    (E) The consumer purchases a variable annuity from you;
    (F) The consumer has an account with an introducing broker or dealer 
that clears transactions with and for its customers through you on a 
fully disclosed basis;
    (G) You hold securities or other assets as collateral for a loan 
made to the consumer, even if you did not make the loan or do not effect 
any transactions on behalf of the consumer; or
    (H) You regularly effect or engage in securities transactions with 
or for a consumer even if you do not hold any assets of the consumer.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with you if you open an account for the 
consumer solely for the purpose of liquidating or purchasing securities 
as an accommodation, i.e., on a one time basis, without the expectation 
of engaging in other transactions.
    (l) Dealer has the same meaning as in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)).
    (m) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board
    (6) The Securities and Exchange Commission; and
    (7) The Commodity Futures Trading Commission.
    (n)(1) Financial institution means any institution the business of 
which is engaging in activities that are financial in nature or 
incidental to such financial activities as described in section 4(k) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) Financial institution does not include:
    (i) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (ii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights), or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (o)(1) Financial product or service means any product or service 
that a financial holding company could offer by engaging in an activity 
that is financial in nature or incidental to such a financial activity 
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(k)).
    (2) Financial service includes your evaluation or brokerage of 
information that you collect in connection with a request or an 
application from a consumer for a financial product or service.
    (p) G-L-B Act means the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 
113 Stat. 1338 (1999)).
    (q) Investment adviser has the same meaning as in section 202(a)(11) 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)).
    (r) Investment company has the same meaning as in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3), and includes a 
separate series of the investment company.
    (s)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not 
your affiliate (but nonaffiliated third party includes the other company 
that jointly employs the person).
    (2) Nonaffiliated third party includes any company that is an 
affiliate solely by virtue of your or your affiliate's direct or 
indirect ownership or control of the company in conducting merchant 
banking or investment banking activities of the type described in 
section 4(k)(4)(H) or insurance company investment activities of the 
type described in

[[Page 560]]

section 4(k)(4)(I) of the Bank Holding Company Act (12 U.S.C. Sec. Sec. 
1843(k)(4)(H) and (I)).
    (t)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived using 
any personally identifiable financial information that is not publicly 
available information.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (t)(1)(ii) of this section or when the publicly 
available information is disclosed in a manner that indicates the 
individual is or has been your consumer; or
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived 
without using any personally identifiable financial information that is 
not publicly available information.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses that is derived in 
whole or in part using personally identifiable financial information 
that is not publicly available information, such as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available 
information, and is not disclosed in a manner that indicates that any of 
the individuals on the list is a consumer of a financial institution.
    (u)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to you to obtain a financial product or 
service from you;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examples--(i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to you on an application to 
obtain a loan, credit card, or other financial product or service;
    (B) Account balance information, payment history, overdraft history, 
and credit or debit card purchase information;
    (C) The fact that an individual is or has been one of your customers 
or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a 
manner that indicates that the individual is or has been your consumer;
    (E) Any information that a consumer provides to you or that you or 
your agent otherwise obtain in connection with collecting on a loan or 
servicing a loan;
    (F) Any information you collect through an Internet ``cookie'' (an 
information collecting device from a web server); and
    (G) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; or
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not contain personal identifiers 
such as account numbers, names, or addresses.
    (v)(1) Publicly available information means any information that you 
reasonably believe is lawfully made available to the general public 
from:
    (i) Federal, State, or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by federal, State, or local law.
    (2) Examples--(i) Reasonable belief. (A) You have a reasonable 
belief that information about your consumer is made available to the 
general public if you

[[Page 561]]

have confirmed, or your consumer has represented to you, that the 
information is publicly available from a source described in paragraphs 
(v)(1)(i)-(iii) of this section;
    (B) You have a reasonable belief that information about your 
consumer is made available to the general public if you have taken steps 
to submit the information, in accordance with your internal procedures 
and policies and with applicable law, to a keeper of federal, State, or 
local government records that is required by law to make the information 
publicly available.
    (C) You have a reasonable belief that an individual's telephone 
number is lawfully made available to the general public if you have 
located the telephone number in the telephone book or the consumer has 
informed you that the telephone number is not unlisted.
    (D) You do not have a reasonable belief that information about a 
consumer is publicly available solely because that information would 
normally be recorded with a keeper of federal, State, or local 
government records that is required by law to make the information 
publicly available, if the consumer has the ability in accordance with 
applicable law to keep that information nonpublic, such as where a 
consumer may record a deed in the name of a blind trust.
    (ii) Government records. Publicly available information in 
government records includes information in government real estate 
records and security interest filings.
    (iii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a web site that is 
available to the general public on an unrestricted basis. A web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or a password, so long as access is available to 
the general public.
    (w) You means:
    (1) Any broker or dealer;
    (2) Any investment company; and
    (3) Any investment adviser registered with the Commission under the 
Investment Advisers Act of 1940.

[65 FR 40362, June 29, 2000, as amended at 66 FR 45147, Aug. 27, 2001]



                  Subpart A_Privacy and Opt Out Notices



Sec. 248.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and 
conspicuous notice that accurately reflects your privacy policies and 
practices to:
    (1) Customer. An individual who becomes your customer, not later 
than when you establish a customer relationship, except as provided in 
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic personal 
information about the consumer to any nonaffiliated third party, if you 
make such a disclosure other than as authorized by Sec. Sec. 248.14 and 
248.15.
    (b) When initial notice to a consumer is not required. You are not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) You do not disclose any nonpublic personal information about the 
consumer to any nonaffiliated third party, other than as authorized by 
Sec. Sec. 248.14 and 248.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship--(1) General rule. 
You establish a customer relationship when you and the consumer enter 
into a continuing relationship.
    (2) Special rule for loans. You do not have a customer relationship 
with a consumer if you buy a loan made to the consumer but do not have 
the servicing rights for that loan.
    (3) Examples of establishing customer relationship. You establish a 
customer relationship when the consumer:
    (i) Effects a securities transaction with you or opens a brokerage 
account with you under your procedures;
    (ii) Opens a brokerage account with an introducing broker or dealer 
that clears transactions with and for its customers through you on a 
fully disclosed basis;

[[Page 562]]

    (iii) Enters into an advisory contract with you (whether in writing 
or orally); or
    (iv) Purchases shares you have issued (and the consumer is the 
record owner of the shares), if you are an investment company.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, you satisfy the initial notice 
requirements of paragraph (a) of this section as follows:
    (1) You may provide a revised privacy notice, under Sec. 248.8, 
that covers the customer's new financial product or service; or
    (2) If the initial, revised, or annual notice that you most recently 
provided to that customer was accurate with respect to the new financial 
product or service, you do not need to provide a new privacy notice 
under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may 
provide the initial notice required by paragraph (a)(1) of this section 
within a reasonable time after you establish a customer relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election;
    (ii) Providing notice not later than when you establish a customer 
relationship would substantially delay the customer's transaction and 
the customer agrees to receive the notice at a later time; or
    (iii) A nonaffiliated broker or dealer or investment adviser 
establishes a customer relationship between you and a consumer without 
your prior knowledge.
    (2) Examples of exceptions--(i) Not at customer's election. 
Establishing a customer relationship is not at the customer's election 
if the customer's account is transferred to you by a trustee selected by 
the Securities Investor Protection Corporation (``SIPC'') and appointed 
by a United States Court.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when you establish a customer relationship would 
substantially delay the customer's transaction when you and the 
individual agree over the telephone to enter into a customer 
relationship involving prompt delivery of the financial product or 
service.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when you establish a customer relationship would 
not substantially delay the customer's transaction when the relationship 
is initiated in person at your office or through other means by which 
the customer may view the notice, such as on a web site.
    (f) Delivery. When you are required to deliver an initial privacy 
notice by this section, you must deliver it according to Sec. 248.9. If 
you use a short-form initial notice for non-customers according to Sec. 
248.6(d), you may deliver your privacy notice according to Sec. 
248.6(d)(3).



Sec. 248.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous notice 
to customers that accurately reflects your privacy policies and 
practices not less than annually during the continuation of the customer 
relationship. Annually means at least once in any period of 12 
consecutive months during which that relationship exists. You may define 
the 12-consecutive-month period, but you must apply it to the customer 
on a consistent basis.
    (2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual 
notice to the customer once in each calendar year following the calendar 
year in which you provided the initial notice. For example, if a 
customer opens an account on any day of year 1, you must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required to 
provide an annual notice to a former customer.
    (2) Examples. Your customer becomes a former customer when:
    (i) The individual's brokerage account is closed;
    (ii) The individual's investment advisory contract is terminated;
    (iii) You are an investment company and the individual is no longer 
the record owner of securities you have issued; or

[[Page 563]]

    (iv) You are an investment company and your customer has been 
determined to be a lost securityholder as defined in 17 CFR 240.17a-
24(b).
    (c) Special rule for loans. If you do not have a customer 
relationship with a consumer under the special provision for loans in 
Sec. 248.4(c)(2), then you need not provide an annual notice to that 
consumer under this section.
    (d) Delivery. When you are required to deliver an annual privacy 
notice by this section, you must deliver it according to Sec. 248.9.



Sec. 248.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that you provide under Sec. Sec. 248.4, 248.5, and 248.8 must include 
each of the following items of information that applies to you or to the 
consumers to whom you send your privacy notice, in addition to any other 
information you wish to provide:
    (1) The categories of nonpublic personal information that you 
collect;
    (2) The categories of nonpublic personal information that you 
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom you disclose nonpublic personal information, other than those 
parties to whom you disclose information under Sec. Sec. 248.14 and 
248.15;
    (4) The categories of nonpublic personal information about your 
former customers that you disclose and the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information about your former customers, other than those parties to 
whom you disclose information under Sec. Sec. 248.14 and 248.15;
    (5) If you disclose nonpublic personal information to a 
nonaffiliated third party under Sec. 248.13 (and no other exception 
applies to that disclosure), a separate statement of the categories of 
information you disclose and the categories of third parties with whom 
you have contracted;
    (6) An explanation of the consumer's right under Sec. 248.10(a) to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that you make under section 603(d)(2)(A)(iii) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is, 
notices regarding the ability to opt out of disclosures of information 
among affiliates);
    (8) Your policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If you disclose nonpublic personal information to third 
parties as authorized under Sec. Sec. 248.14 and 248.15, you are not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec. Sec. 248.4 and 248.5. When describing the 
categories with respect to those parties, you are required to state only 
that you make disclosures to other nonaffiliated third parties as 
permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
you collect. You satisfy the requirement to categorize the nonpublic 
personal information that you collect if you list the following 
categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your 
affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer-reporting agency.
    (2) Categories of nonpublic personal information you disclose. (i) 
You satisfy the requirement to categorize the nonpublic personal 
information that you disclose if you list the categories described in 
paragraph (e)(1) of this section, as applicable, and a few examples to 
illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic 
personal information about consumers that you collect, you may simply 
state that fact without describing the categories or examples of the 
nonpublic personal information you disclose.

[[Page 564]]

    (3) Categories of affiliates and nonaffiliated third parties to whom 
you disclose. You satisfy the requirement to categorize the affiliates 
and nonaffiliated third parties to whom you disclose nonpublic personal 
information if you list the following categories, as applicable, and a 
few examples to illustrate the types of third parties in each category:
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint 
marketers. If you disclose nonpublic personal information under the 
exception in Sec. 248.13 to a nonaffiliated third party to market 
products or services that you offer alone or jointly with another 
financial institution, you satisfy the disclosure requirement of 
paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you 
disclose, using the same categories and examples you used to meet the 
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your 
behalf or on behalf of you and another financial institution; or
    (B) A financial institution with which you have a joint marketing 
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to 
reserve the right to disclose, nonpublic personal information to 
affiliates or nonaffiliated third parties except as authorized under 
Sec. Sec. 248.14 and 248.15, you may simply state that fact, in 
addition to the information you must provide under paragraphs (a)(1), 
(a)(8), (a)(9), and (b) of this section.
    (6) Confidentiality and security. You describe your policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to 
the information; and
    (ii) State whether you have security practices and procedures in 
place to ensure the confidentiality of the information in accordance 
with your policy. You are not required to describe technical information 
about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) You may satisfy the initial notice requirements in Sec. Sec. 
248.4(a)(2), 248.7(b), and 248.7(c) for a consumer who is not a customer 
by providing a short-form initial notice at the same time as you deliver 
an opt out notice as required in Sec. 248.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain 
the privacy notice.
    (3) You must deliver your short-form initial notice according to 
Sec. 248.9. You are not required to deliver your privacy notice with 
your short-form initial notice. You instead may simply provide the 
consumer a reasonable means to obtain your privacy notice. If a consumer 
who receives your short-form notice requests your privacy notice, you 
must deliver your privacy notice according to Sec. 248.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable 
means by which a consumer may obtain a copy of your privacy notice if 
you:
    (i) Provide a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at your office, 
maintain copies of the notice on hand that you provide to the consumer 
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve 
the right to disclose in the future, but do not currently disclose; and
    (2) Categories of affiliates or nonaffiliated third parties to whom 
you reserve the right in the future to disclose, but to whom you do not 
currently disclose, nonpublic personal information.
    (f) Sample clauses. Sample clauses illustrating some of the notice 
content required by this section are included in Appendix A of this 
part.

[[Page 565]]



Sec. 248.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an opt 
out notice under Sec. 248.10(a), you must provide a clear and 
conspicuous notice to each of your consumers that accurately explains 
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic 
personal information about your consumer to a nonaffiliated third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.
    (2) Examples--(i) Adequate opt out notice. You provide adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal information 
that you disclose or reserve the right to disclose, and all of the 
categories of nonaffiliated third parties to which you disclose the 
information, as described in Sec. 248.6(a)(2) and (3) and state that 
the consumer can opt out of the disclosure of that information; and
    (B) Identify the financial products or services that the consumer 
obtains from you, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable opt out means. You provide a reasonable means to 
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice;
    (C) Provide an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at your web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable 
means of opting out if:
    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that you 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. You may require each consumer to opt 
out through a specific means, as long as that means is reasonable for 
that consumer.
    (b) Same form as initial notice permitted. You may provide the opt 
out notice together with or on the same written or electronic form as 
the initial notice you provide in accordance with Sec. 248.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If you provide the opt out notice after the initial 
notice in accordance with Sec. 248.4, you must also include a copy of 
the initial notice with the opt out notice in writing or, if the 
consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service from you, you may provide a single opt 
out notice. Your opt out notice must explain how you will treat an opt 
out direction by a joint consumer.
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint brokerage account with 
you and arrange for you to send statements to John's address, you may do 
any of the following, but you must explain in your opt out notice which 
opt out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an

[[Page 566]]

opt out direction from either John or Mary;
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John opts out, you may not 
require Mary to opt out as well before implementing John's opt out 
direction; or
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other.
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call).
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John and not 
about John and Mary jointly.
    (e) Time to comply with opt out. You must comply with a consumer's 
opt out direction as soon as reasonably practicable after you receive 
it.
    (f) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (g) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing or, if the consumer agrees, electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
you collected during or related to that relationship. If the individual 
subsequently establishes a new customer relationship with you, the opt 
out direction that applied to the former relationship does not apply to 
the new relationship.
    (h) Delivery. When you are required to deliver an opt out notice by 
this section, you must deliver it according to Sec. 248.9.



Sec. 248.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, you 
must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that you provided to that 
consumer under Sec. 248.4, unless:
    (1) You have provided to the consumer a clear and conspicuous 
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before you 
disclose the information to the nonaffiliated third party, to opt out of 
the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec. Sec. 
248.13, 248.14, and 248.15, you must provide a revised notice before 
you:
    (i) Disclose a new category of nonpublic personal information to any 
nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that former customer has not 
had the opportunity to exercise an opt out right regarding that 
disclosure.
    (2) A revised notice is not required if you disclose nonpublic 
personal information to a new nonaffiliated third party that you 
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy 
notice by this section, you must deliver it according to Sec. 248.9.



Sec. 248.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices and 
opt out notices, including short-form initial notices that this part 
requires so that each consumer can reasonably be expected to receive 
actual notice in writing or, if the consumer agrees, electronically.
    (b)(1) Examples of reasonable expectation of actual notice. You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of 
the consumer;

[[Page 567]]

    (iii) For the consumer who conducts transactions electronically, 
post the notice on the electronic site and require the consumer to 
acknowledge receipt of the notice as a necessary step to obtaining a 
particular financial product or service; or
    (iv) For an isolated transaction with the consumer, such as an ATM 
transaction, post the notice on the ATM screen and require the consumer 
to acknowledge receipt of the notice as a necessary step to obtaining 
the particular financial product or service.
    (2) Examples of unreasonable expectation of actual notice. You may 
not, however, reasonably expect that a consumer will receive actual 
notice of your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements of your privacy policies and practices; or
    (ii) Send the notice via electronic mail to a consumer who does not 
obtain a financial product or service from you electronically.
    (c) Annual notices only. (1) You may reasonably expect that a 
customer will receive actual notice of your annual privacy notice if:
    (i) The customer uses your web site to access financial products and 
services electronically and agrees to receive notices at the web site 
and you post your current privacy notice continuously in a clear and 
conspicuous manner on the web site; or
    (ii) The customer has requested that you refrain from sending any 
information regarding the customer relationship, and your current 
privacy notice remains available to the customer upon request.
    (2) Example of reasonable expectation of receipt of annual privacy 
notice. You may reasonably expect that consumers who share an address 
will receive actual notice of your annual privacy notice if you deliver 
the notice with or in a stockholder or shareholder report under the 
conditions in 17 CFR 270.30d-1(f) or 17 CFR 270.30d-2(b), or with or in 
a prospectus under the conditions in 17 CFR 230.154.
    (d) Oral description of notice insufficient. You may not provide any 
notice required by this part solely by orally explaining the notice, 
either in person or over the telephone.
    (e) Retention or accessibility of notices for customers. (1) For 
customers only, you must provide the initial notice required by Sec. 
248.4(a)(1), the annual notice required by Sec. 248.5(a), and the 
revised notice required by Sec. 248.8, so that the customer can retain 
them or obtain them later in writing or, if the customer agrees, 
electronically.
    (2) Examples of retention or accessibility. You provide a privacy 
notice to the customer so that the customer can retain it or obtain it 
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of 
the customer; or
    (iii) Make your current privacy notice available on a web site (or a 
link to another web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the web site.
    (f) Joint notice with other financial institutions. You may provide 
a joint notice from you and one or more of your affiliates or other 
financial institutions, as identified in the notice, as long as the 
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships. If two or more consumers jointly obtain a 
financial product or service from you, you may satisfy the initial, 
annual, and revised notice requirements of paragraph (a) of this section 
by providing one notice to those consumers jointly.



                     Subpart B_Limits on Disclosures



Sec. 248.10  Limits on disclosure of nonpublic personal information to 
nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this part, you may not, directly or through any affiliate, disclose any 
nonpublic personal information about a consumer to a nonaffiliated third 
party unless:
    (i) You have provided to the consumer an initial notice as required 
under Sec. 248.4;
    (ii) You have provided to the consumer an opt out notice as required 
in Sec. 248.7;

[[Page 568]]

    (iii) You have given the consumer a reasonable opportunity, before 
you disclose the information to the nonaffiliated third party, to opt 
out of the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that you not disclose nonpublic personal information about that consumer 
to a nonaffiliated third party, other than as permitted by Sec. Sec. 
248.13, 248.14, and 248.15.
    (3) Examples of reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of 
this section to the consumer and allow the consumer to opt out by 
mailing a form, calling a toll-free telephone number, or any other 
reasonable means within 30 days after the date you mailed the notices.
    (ii) By electronic means. A customer opens an on-line account with 
you and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and you allow the customer to opt out by 
any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction, such as the provision of brokerage services to a consumer 
as an accommodation, you provide the consumer with a reasonable 
opportunity to opt out if you provide the notices required in paragraph 
(a)(1) of this section at the time of the transaction and request that 
the consumer decide, as a necessary part of the transaction, whether to 
opt out before completing the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) You must comply with this section, regardless 
of whether you and the consumer have established a customer 
relationship.
    (2) Unless you comply with this section, you may not, directly or 
through any affiliate, disclose any nonpublic personal information about 
a consumer that you have collected, regardless of whether you collected 
it before or after receiving the direction to opt out from the consumer.
    (c) Partial opt out. You may allow a consumer to select certain 
nonpublic personal information or certain nonaffiliated third parties 
with respect to which the consumer wishes to opt out.



Sec. 248.11  Limits on redisclosure and reuse of information.

    (a)(1) Information you receive under an exception. If you receive 
nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec. 248.14 or 248.15, your 
disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliates of the 
financial institution from which you received the information;
    (ii) You may disclose the information to your affiliates, but your 
affiliates may, in turn, disclose and use the information only to the 
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an 
exception in Sec. Sec. 248.14 or 248.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
you received the information.
    (2) Example. If you receive a customer list from a nonaffiliated 
financial institution in order to provide account-processing services 
under the exception in Sec. Sec. 248.14(a), you may disclose that 
information under any exception in Sec. 248.14 or 248.15 in the 
ordinary course of business in order to provide those services. You 
could also disclose that information in response to a properly 
authorized subpoena or in the ordinary course of business to your 
attorneys, accountants, and auditors. You could not disclose that 
information to a third party for marketing purposes or use that 
information for your own marketing purposes.
    (b)(1) Information you receive outside of an exception. If you 
receive nonpublic personal information from a nonaffiliated financial 
institution other than under an exception in Sec. Sec. 248.14 or 
248.15, you may disclose the information only:

[[Page 569]]

    (i) To the affiliates of the financial institution from which you 
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose 
the information only to the extent that you can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which you 
received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec. Sec. 248.14 and 
248.15:
    (i) You may use that list for your own purposes;
    (ii) You may disclose that list to another nonaffiliated third party 
only if the financial institution from which you purchased the list 
could have lawfully disclosed the list to that third party. That is, you 
may disclose the list in accordance with the privacy policy of the 
financial institution from which you received the list, as limited by 
the opt out direction of each consumer whose nonpublic personal 
information you intend to disclose, and you may disclose the list in 
accordance with an exception in Sec. Sec. 248.14 or 248.15, such as in 
the ordinary course of business to your attorneys, accountants, or 
auditors.
    (c) Information you disclose under an exception. If you disclose 
nonpublic personal information to a nonaffiliated third party under an 
exception in Sec. Sec. 248.14 or 248.15, the third party may disclose 
and use that information only as follows:
    (1) The third party may disclose the information to your affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec. Sec. 248.14 or 248.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.
    (d) Information you disclose outside of an exception. If you 
disclose nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec. Sec. 248.14 or 248.15, the third 
party may disclose the information only:
    (1) To your affiliates;
    (2) To its affiliates, but its affiliates, in turn, may disclose the 
information only to the extent the third party can disclose the 
information; and
    (3) To any other person, if the disclosure would be lawful if you 
made it directly to that person.



Sec. 248.12  Limits on sharing account number information for marketing purposes.

    (a) General prohibition on disclosure of account numbers. You must 
not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code for a consumer's credit card account, deposit 
account, or transaction account to any nonaffiliated third party for use 
in telemarketing, direct mail marketing, or other marketing through 
electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you 
disclose an account number or similar form of access number or access 
code:
    (1) To your agent or service provider solely in order to perform 
marketing for your own products or services, as long as the agent or 
service provider is not authorized to directly initiate charges to the 
account; or
    (2) To a participant in a private label credit card program or an 
affinity or similar program where the participants in the program are 
identified to the customer when the customer enters into the program.
    (c) Example--Account number. An account number, or similar form of 
access number or access code, does not include a number or code in an 
encrypted form, as long as you do not provide the recipient with a means 
to decode the number or code.

[[Page 570]]



                          Subpart C_Exceptions



Sec. 248.13  Exception to opt out requirements for service providers 
and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec. Sec. 248.7 
and 248.10 do not apply when you provide nonpublic personal information 
to a nonaffiliated third party to perform services for you or functions 
on your behalf, if you:
    (i) Provide the initial notice in accordance with Sec. 248.4; and
    (ii) Enter into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which you disclosed the information, 
including use under an exception in Sec. Sec. 248.14 or 248.15 in the 
ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under 
this section to a financial institution with which you perform joint 
marketing, your contractual agreement with that institution meets the 
requirements of paragraph (a)(1)(ii) of this section if it prohibits the 
institution from disclosing or using the nonpublic personal information 
except as necessary to carry out the joint marketing or under an 
exception in Sec. Sec. 248.14 or 248.15 in the ordinary course of 
business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for you under paragraph (a) of this 
section may include marketing of your own products or services or 
marketing of financial products or services offered pursuant to joint 
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which you and one 
or more financial institutions jointly offer, endorse, or sponsor a 
financial product or service.



Sec. 248.14  Exceptions to notice and opt out requirements for processing 
and servicing transactions.

    (a) Exceptions for processing and servicing transactions at 
consumer's request. The requirements for initial notice in Sec. 
248.4(a)(2), for the opt out in Sec. Sec. 248.7 and 248.10, and for 
initial notice in Sec. 248.13 in connection with service providers and 
joint marketing, do not apply if you disclose nonpublic personal 
information as necessary to effect, administer, or enforce a transaction 
that a consumer requests or authorizes, or in connection with:
    (1) Processing or servicing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or 
with another entity as part of a private label credit card program or 
other extension of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale 
(including sales of servicing rights), or similar transaction related to 
a transaction of the consumer.
    (b) Necessary to effect, administer, or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce your rights or the rights of other persons engaged in carrying 
out the financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate, or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service, or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or the product or service business of which it is a part;
    (iii) To provide a confirmation, statement, or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by you or any other party;
    (v) To underwrite insurance at the consumer's request or for 
reinsurance purposes, or for any of the following purposes as they 
relate to a consumer's insurance: Account administration, reporting, 
investigating, or preventing

[[Page 571]]

fraud or material misrepresentation, processing premium payments, 
processing insurance claims, administering insurance benefits (including 
utilization review activities), participating in research projects, or 
as otherwise required or specifically permitted by federal or State law; 
or
    (vi) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited, or 
otherwise paid using a debit, credit, or other payment card, check, or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts, or interests therein; or
    (C) The audit of debit, credit, or other payment information.



Sec. 248.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to notice and opt out requirements. The requirements 
for initial notice in Sec. 248.4(a)(2), for the opt out in Sec. Sec. 
248.7 and 248.10, and for initial notice in Sec. 248.13 in connection 
with service providers and joint marketing do not apply when you 
disclose nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security of your records 
pertaining to the consumer, service, product, or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims, or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;
    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that are rating you, persons that 
are assessing your compliance with industry standards, and your 
attorneys, accountants, and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies 
(including a federal functional regulator, the Secretary of the 
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records 
and Reports on Monetary Instruments and Transactions) and 12 U.S.C. 
Chapter 21 (Financial Recordkeeping), a State insurance authority, with 
respect to any person domiciled in that insurance authority's State that 
is engaged in providing insurance, and the Federal Trade Commission), 
self-regulatory organizations, or for an investigation on a matter 
related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act (15 U.S.C. 1681 et seq.), or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer, 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with federal, State, or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal, or 
regulatory investigation, or subpoena or summons by federal, State, or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities having jurisdiction over you for examination, compliance, or 
other purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to your disclosure to a nonaffiliated mortgage 
lender of the value of the assets in the consumer's brokerage or 
investment advisory account so that the lender can evaluate the 
consumer's application for a mortgage loan.
    (2) A consumer may revoke consent by subsequently exercising the 
right to opt out of future disclosures of nonpublic personal information 
as permitted under Sec. 248.7(f).

[[Page 572]]



            Subpart D_Relation to Other Laws; Effective Date



Sec. 248.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit, or 
supersede the operation of the Fair Credit Reporting Act (15 U.S.C. 1681 
et seq.), and no inference shall be drawn on the basis of the provisions 
of this part regarding whether information is transaction or experience 
information under section 603 of that Act.



Sec. 248.17  Relation to State laws.

    (a) In general. This part shall not be construed as superseding, 
altering, or affecting any statute, regulation, order, or interpretation 
in effect in any State, except to the extent that such State statute, 
regulation, order, or interpretation is inconsistent with the provisions 
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under State law. For purposes of this 
section, a State statute, regulation, order, or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order, or interpretation affords any consumer is 
greater than the protection provided under this part, as determined by 
the Federal Trade Commission, after consultation with the Commission, on 
the Federal Trade Commission's own motion, or upon the petition of any 
interested party.



Sec. 248.18  Effective date; transition rule.

    (a) Effective date. This part is effective November 13, 2000. In 
order to provide sufficient time for you to establish policies and 
systems to comply with the requirements of this part, the compliance 
date for this part is July 1, 2001.
    (b)(1) Notice requirement for consumers who are your customers on 
the compliance date. By July 1, 2001, you must have provided an initial 
notice, as required by Sec. 248.4, to consumers who are your customers 
on July 1, 2001.
    (2) Example. You provide an initial notice to consumers who are your 
customers on July 1, 2001, if, by that date, you have established a 
system for providing an initial notice to all new customers and have 
mailed the initial notice to all your existing customers.
    (c) Two-year grandfathering of service agreements. Until July 1, 
2002, a contract that you have entered into with a nonaffiliated third 
party to perform services for you or functions on your behalf satisfies 
the provisions of Sec. 248.13(a)(2), even if the contract does not 
include a requirement that the third party maintain the confidentiality 
of nonpublic personal information, as long as you entered into the 
agreement on or before July 1, 2000.



Sec. Sec. 248.19-248.29  [Reserved]



Sec. 248.30  Procedures to safeguard customer records and information.

    Every broker, dealer, and investment company, and every investment 
adviser registered with the Commission must adopt policies and 
procedures that address administrative, technical, and physical 
safeguards for the protection of customer records and information. These 
policies and procedures must be reasonably designed to:
    (a) Insure the security and confidentiality of customer records and 
information;
    (b) Protect against any anticipated threats or hazards to the 
security or integrity of customer records and information; and
    (c) Protect against unauthorized access to or use of customer 
records or information that could result in substantial harm or 
inconvenience to any customer.

                 Appendix A to Part 248--Sample Clauses

    Financial institutions, including a group of financial holding 
company affiliates that use a common privacy notice, may use the 
following sample clauses, if the clause is accurate for each institution 
that uses the notice. (Note that disclosure of certain information, such 
as assets, income, and information from a consumer reporting agency, may 
give rise to obligations under the Fair Credit Reporting Act, such as a 
requirement to permit a consumer to opt out of disclosures to affiliates 
or designation as a consumer reporting agency if disclosures are made to 
nonaffiliated third parties.)

[[Page 573]]

      A-1--Categories of Information You Collect (All Institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 248.6(a)(1) to describe the categories of nonpublic personal 
information you collect.
    Sample Clause A-1:
    We collect nonpublic personal information about you from the 
following sources:
     Information we receive from you on applications 
or other forms;
     Information about your transactions with us, our 
affiliates, or others; and
     Information we receive from a consumer reporting 
agency.

A-2--Categories of Information You Disclose (Institutions That Disclose 
                       Outside of the Exceptions)

    You may use one of these clauses, as applicable, to meet the 
requirement of Sec. 248.6(a)(2) to describe the categories of nonpublic 
personal information you disclose. You may use these clauses if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec. Sec. 248.13, 248.14, and 248.15.
    Sample Clause A-2, Alternative 1:
    We may disclose the following kinds of nonpublic personal 
information about you:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets, and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions, and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].
    Sample Clause A-2, Alternative 2:
    We may disclose all of the information that we collect, as described 
[describe location in the notice, such as ``above'' or ``below''].

  A-3--Categories of Information You Disclose and Parties to Whom You 
 Disclose (Institutions That Do Not Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirements of 
Sec. Sec. 248.6(a)(2), (3), and (4) to describe the categories of 
nonpublic personal information about customers and former customers that 
you disclose and the categories of affiliates and nonaffiliated third 
parties to whom you disclose. You may use this clause if you do not 
disclose nonpublic personal information to any party, other than as 
permitted by the exceptions in Sec. Sec. 248.14 and 248.15.
    Sample Clause A-3:
    We do not disclose any nonpublic personal information about our 
customers or former customers to anyone, except as permitted by law.

   A-4--Categories of Parties to Whom You Disclose (Institutions That 
                   Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 248.6(a)(3) to describe the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information. You may use this clause if you disclose nonpublic personal 
information other than as permitted by the exceptions in Sec. Sec. 
248.13, 248.14, and 248.15, as well as when permitted by the exceptions 
in Sec. Sec. 248.14 and 248.15.
    Sample Clause A-4:
    We may disclose nonpublic personal information about you to the 
following types of third parties:
     Financial service providers, such as [provide 
illustrative examples, such as ``mortgage bankers, securities broker-
dealers, and insurance agents''];
     Non-financial companies, such as [provide 
illustrative examples, such as ``retailers, direct marketers, airlines, 
and publishers'']; and
     Others, such as [provide illustrative examples, 
such as ``non-profit organizations''].
    We may also disclose nonpublic personal information about you to 
nonaffiliated third parties as permitted by law.

             A-5--Service Provider/Joint Marketing Exception

    You may use one of these clauses, as applicable, to meet the 
requirements of Sec. 248.6(a)(5) related to the exception for service 
providers and joint marketers in Sec. 248.13. If you disclose nonpublic 
personal information under this exception, you must describe the 
categories of nonpublic personal information you disclose and the 
categories of third parties with whom you have contracted.
    Sample Clause A-5, Alternative 1:
    We may disclose the following information to companies that perform 
marketing services on our behalf or to other financial institutions with 
which we have joint marketing agreements:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets, and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions, and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative

[[Page 574]]

examples, such as ``your creditworthiness and credit history''].
    Sample Clause A-5, Alternative 2:
    We may disclose all of the information we collect, as described 
[describe location in the notice, such as ``above'' or ``below''] to 
companies that perform marketing services on our behalf or to other 
financial institutions with whom we have joint marketing agreements.

A-6--Explanation of Opt Out Right (Institutions That Disclose Outside of 
                             the Exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 248.6(a)(6) to provide an explanation of the consumer's right to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right. You may use this clause if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec. Sec. 248.13, 248.14, and 248.15.
    Sample Clause A-6:
    If you prefer that we not disclose nonpublic personal information 
about you to nonaffiliated third parties, you may opt out of those 
disclosures, that is, you may direct us not to make those disclosures 
(other than disclosures permitted by law). If you wish to opt out of 
disclosures to nonaffiliated third parties, you may [describe a 
reasonable means of opting out, such as ``call the following toll-free 
number: (insert number)''].

          A-7--Confidentiality and Security (All Institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 248.6(a)(8) to describe your policies and practices with respect 
to protecting the confidentiality and security of nonpublic personal 
information.
    Sample Clause A-7:
    We restrict access to nonpublic personal information about you to 
[provide an appropriate description, such as ``those employees who need 
to know that information to provide products or services to you'']. We 
maintain physical, electronic, and procedural safeguards that comply 
with federal standards to guard your nonpublic personal information.



PART 249_FORMS, SECURITIES EXCHANGE ACT OF 1934--Table of Contents




Sec.
249.0-1 Availability of forms.

 Subpart A_Forms for Registration or Exemption of, and Notification of 
             Action Taken by, National Securities Exchanges

249.1 Form 1, for application for, and amendments to applications for, 
          registration as a national securities exchange or exemption 
          from registration pursuant to Section 5 of the Exchange Act.
249.10 Form 1-N for notice registration as a national securities 
          exchange.
249.25 Form 25, for notification of removal from listing and 
          registration of matured, redeemed or retired securities.
249.26 Form 26, for notification of the admission to trading of a 
          substituted or additional class of security under Rule 12a-5 
          (Sec. 240.12a-5 of this chapter).

  Subpart B_Forms for Reports To Be Filed by Officers, Directors, and 
                            Security Holders

249.103 Form 3, initial statement of beneficial ownership of securities.
249.104 Form 4, statement of changes in beneficial ownership of 
          securities.
249.105 Form 5, annual statement of beneficial ownership of securities.

   Subpart C_Forms for Applications for Registration of Securities on 
            National Securities Exchanges and Similar Matters

249.208 [Reserved]
249.208a Form 8-A, for registration of certain classes of securities 
          pursuant to section 12(b) or (g) of the Securities Exchange 
          Act of 1934.
249.208b-249.208c [Reserved]
249.210 Form 10 and Form 10-SB, general form for registration of 
          securities pursuant to section 12 (b) or (g) of the Securities 
          Exchange Act of 1934.
249.210b Form 10-SB, optional form for the registration of securities of 
          a small business issuer.
249.218 Form 18, for foreign governments and political subdivisions 
          thereof.
249.220f Form 20-F, registration of securities of foreign private 
          issuers pursuant to section 12(b) or (g) and annual and 
          transition reports pursuant to sections 13 and 15(d).
249.240f Form 40-F, for registration of securities of certain Canadian 
          issuers pursuant to section 12(b) or (g) and for reports 
          pursuant to section 15(d) and Rule 15d-4 (Sec. 240.15d-4 of 
          this chapter).
249.250 Form F-X, for appointment of agent for service of process by 
          issuers registering securities on Form F-8, F-9, F-10 or F-80 
          (Sec. 239.38, 239.39, 239.40 or 239.41 of this chapter), or 
          registering securities or filing periodic reports on Form 40-F 
          (Sec. 249.240f of this chapter), or by any issuer or other 
          non-U.S. person filing tender offer documents on Schedule 13E-
          4F, 14D-1F or 14D-9F (Sec. 240.13e-102, 240.14d-102 or 
          240.14d-103 of this chapter), or by any non-U.S. person acting 
          as

[[Page 575]]

          trustee with respect to securities registered on Form F-7 
          (Sec. 249.37 of this chapter), F-8, F-9, F-10 or F-80.

 Subpart D_Forms for Annual and Other Reports of Issuers Required Under 
      Sections 13 and 15(d) of the Securities Exchange Act of 1934

249.306 Form 6-K report of foreign issuer pursuant to Rules 13a-16 
          (Sec. 240.13a-16 of this chapter) and 15d-16 (Sec. 240.15d-
          16 of this chapter) under the Securities Exchange Act of 1934.
249.308 Form 8-K, for current reports.
240.308a Form 10-Q, for quarterly and transition reports under sections 
          13 or 15(d) of the Securities Exchange Act of 1934.
249.308b Form 10-QSB, Optional Form for Quarterly and Transition Reports 
          of Small Business Issuers Under Section 13 or 15(d) of the 
          Securities Exchange Act of 1934 (``Exchange Act'').
249.310 Form 10-K, for annual and transition reports pursuant to 
          sections 13 or 15(d) of the Securities Exchange Act of 1934.
249.310b Form 10-KSB, Optional Form for Annual and Transition Reports of 
          Small Business Issuers Under Sections 13 or 15(d) of the 
          Securities Exchange Act of 1934 (the ``Exchange Act'').
249.310c [Reserved]
249.311 Form 11-K, for annual reports of employee stock purchase, 
          savings and similar plans pursuant to section 15(d) of the 
          Securities Exchange Act of 1934.
249.318 Form 18-K, annual report for foreign governments and political 
          subdivisions thereof.
249.322 Form 12b-25--Notification of late filing.
249.323 Form 15, certification of termination of registration of a class 
          of security under section 12(g) or notice of suspension of 
          duty to file reports pursuant to sections 13 and 15(d) of the 
          Act.
249.325 Form 13F, report of institutional investment manager pursuant to 
          section 13(f) of the Securities Exchange Act of 1934.
249.328T Form 17-H, Risk assessment report for brokers and dealers 
          pursuant to section 17(h) of the Securities Exchange Act of 
          1934 and rules thereunder.
249.330 Form N-SAR, annual and semi-annual report of certain registered 
          investment companies.
249.331 Form N-CSR, certified shareholder report.
249.332 Form N-Q, quarterly schedule of portfolio holdings of registered 
          management investment company.
249.444 Form SE, form for submission of paper format exhibits by 
          electronic filers.
249.445 [Reserved]
249.447 Form TH--Notification of reliance on temporary hardship 
          exemption.

  Subpart E_Forms for Statements Made in Connection With Exempt Tender 
                                 Offers

249.480 Form CB, tender offer statement in connection with a tender 
          offer for a foreign private issuer.

  Subpart F_Forms for Registration of Brokers and Dealers Transacting 
                  Business on Over-the-Counter Markets

249.501 Form BD, for application for registration as a broker and dealer 
          or to amend or supplement such an application.
249.501a Form BDW, notice of withdrawal from registration as broker-
          dealer pursuant to Sec. 240.15b6-1, Sec. 240.15Bc3-1, or 
          Sec. 240.15Cc1-1 of this chapter.
249.501b Form BD-N for notice registration as a broker-dealer.
249.507 Form 7-M, consent to service of process by an individual 
          nonresident broker-dealer.
249.508 Form 8-M, consent to service of process by a corporation which 
          is a nonresident broker-dealer.
249.509 Form 9-M, consent to service of process by a partnership 
          nonresident broker-dealer.
249.510 Form 10-M, consent to service of process by a nonresident 
          general partner of a broker-dealer firm.

  Subpart G_Forms for Reports To Be Made by Certain Exchange Members, 
                          Brokers, and Dealers

249.617 Form X-17A-5, information required of certain brokers and 
          dealers pursuant to section 17 of the Securities Exchange Act 
          of 1934 and Sec. 240.17a-5, Sec. 240.17a-10 and Sec. 
          240.17a-11, and Sec. 240.17a-12 of this chapter.
249.618 Form BD-Y2K, information required of broker-dealers pursuant to 
          section 17 of the Securities Exchange Act of 1934 and Sec. 
          240.17a-5 of this chapter.
249.619 Form TA-Y2K, information required of transfer agents pursuant to 
          section 17 of the Securities Exchange Act of 1934 and Sec. 
          240.17Ad-18 of this chapter.
249.620--249.634 [Reserved]
249.635 Form X-17A-19, report by national securities exchanges and 
          registered national securities associations of changes in the 
          membership status of any of their members.
249.636 Form 17A-23, information required of certain broker and dealer 
          sponsors of broker-dealer trading systems pursuant to section 
          17 of the Securities Exchange Act of 1934 and Sec. 240.17a-23 
          of this chapter.

[[Page 576]]

249.637 Form ATS, information required of alternative trading systems 
          pursuant to Sec. 242.301(b)(2) of this chapter.
249.638 Form ATS-R, information required of alternative trading systems 
          pursuant to Sec. 242.301(b)(8) of this chapter.

             Subpart H_Forms for Reports as to Stabilization

249.709 [Reserved]

Subpart I_Forms for Self	Regulatory Organization Rule Changes and Forms 
 for Registration of and Reporting by National Securities Associations 
                 and Affiliated Securities Associations

249.801 Form X-15AA-1, for application for registration as a national 
          securities association or affiliated securities association.
249.802 Form X-15AJ-1, for amendatory and/or supplementary statements to 
          registration statement of a national securities association or 
          an affiliated securities association.
249.803 Form X-15AJ-2, for annual consolidated supplement of a national 
          securities association or an affiliated securities 
          association.
249.819 Form 19b-4, for filings with respect to proposed rule changes by 
          all self-regulatory organizations, pursuant to Section 
          19(b)(1) of the Securities Exchange Act of 1934.
249.820 Form 19b-4(e) for the listing and trading of new derivative 
          securities products by self-regulatory organizations that are 
          not deemed proposed rule changes pursuant to Rule 19b-
          4(e)(Sec. 240.19b-4(e)).
249.821 Form PILOT, information required of self-regulatory 
          organizations operating pilot trading systems pursuant to 
          Sec. 240.19b-5 of this chapter.
249.822 Form 19b-7, for filings with respect to proposed rule changes by 
          all self-regulatory organizations, pursuant to Section 
          19(b)(7)(A) of the Securities Exchange Act of 1934.

Subpart J [Reserved]

    Subpart K_Forms for Registration of, and Reporting by Securities 
                         Information Processors

249.1001 Form SIP, for application for registration as a securities 
          information processor or to amend such an application or 
          registration.

    Subpart L_Forms for Registration of Municipal Securities Dealers

249.1100 Form MSD, application for registration as a municipal 
          securities dealer pursuant to rule 15Ba2-1 under the 
          Securities Exchange Act of 1934 or amendment to such 
          application.
249.1110 Form MSDW, notice of withdrawal from registration as a 
          municipal securities dealer pursuant to Rule 15Bc3-1 (17 CFR 
          240.15Bc3-1).

Subpart M_Forms for Reporting and Inquiry With Respect to Missing, Lost, 
                    Stolen, or Counterfeit Securities

249.1200 Form X-17F-1A--Report for missing, lost, stolen or counterfeit 
          securities.

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
    Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 401(b), 406 and 407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.240f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 406 and 407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and 80a-37.
    Section 249.308a is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 249.308b is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 406 
and 407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.310b is also issued under secs. 3(a), 202, 208, 302, 406 
and 407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.326(T) also issued under section 13(f)(1) (15 U.S.C. 
78m(f)(1)).
    Section 249.330 is also issued under secs. 3(a), 406, and 407, Pub. 
L. No. 107-204, 116 Stat. 745.
    Section 249.331 is also issued under 15 U.S.C. 78j-1, 7202, 7233, 
7241, 7264, 7265; and 18 U.S.C. 1350.

    Source: 33 FR 18995, Dec. 20, 1968; 34 FR 554, Jan. 15, 1969, unless 
otherwise noted.

    Editorial Note: For nomenclature changes to this part see 57 FR 
36501, Aug. 13, 1992, and 57 FR 47409, Oct. 16, 1992.



Sec. 249.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Securities Exchange Act of 1934.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549. Any person may inspect the 
forms at this

[[Page 577]]

address and at the Commission's regional and district offices. (See 
Sec. 200.11 of this chapter for the addresses of SEC regional or 
district offices)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994]



 Subpart A_Forms for Registration or Exemption of, and Notification of 
             Action Taken by, National Securities Exchanges



Sec. 249.1  Form 1, for application for, and amendments to applications 

for, registration as a national securities exchange or exemption from 
registration pursuant to Section 5 of the Exchange Act.

    The form shall be used for application for, and amendments to 
applications for, registration as a national securities exchange or 
exemption from registration pursuant to Section 5 of the Act, (15 U.S.C. 
78e).

[63 FR 70925, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form 1, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.10  Form 1-N for notice registration as a national securities exchange.

    This form shall be used for notice, and amendments to the notice, to 
permit an exchange to register as a national securities exchange solely 
for the purposes of trading security futures products pursuant to 
Section 6(g) of the Act (15 U.S.C. 78f(g)).

[66 FR 43743, Aug. 20, 2001]



Sec. 249.25  Form 25, for notification of removal from listing and 
registration of matured, redeemed or retired securities.

    This form shall be used by a registered national securities exchange 
for notification of the removal from listing and registration of 
matured, redeemed, or retired securities.

    Editorial Note: For Federal Register citations affecting Form 25, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.26  Form 26, for notification of the admission to trading of 

a substituted or additional class of security under Rule 12a-5 
(Sec. 240.12a-5 of this chapter).

    This form shall be used by a registered national securities exchange 
for notification of the admission to trading of a substituted or 
additional class of security under Rule 12a-5.

    Editorial Note: For Federal Register citations affecting Form 26, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



  Subpart B_Forms for Reports To Be Filed by Officers, Directors, and 
                            Security Holders



Sec. 249.103  Form 3, initial statement of beneficial ownership of securities.

    This Form shall be filed pursuant to Rule 16a-3 (Sec. 240.16a-3 of 
this chapter) for initial statements of beneficial ownership of 
securities. The Commission is authorized to solicit the information 
required by this Form pursuant to sections 16(a) and 23(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78p(a) and 78w(a)); sections 
17(a) and 20(a) of the Public Utility Holding Company Act of 1935 (15 
U.S.C. 79q(a) and 79t(a)); and sections 30(h) and 38 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-29(h) and 80a-37), and the rules and 
regulations thereunder. Disclosure of information specified on this Form 
is mandatory, except for disclosure of the I.R.S. identification number 
by entities, which is voluntary. If such numbers are furnished, they 
will assist the Commission in distinguishing reporting persons with 
similar names and will facilitate the prompt processing of the Form. The 
information will be used for the primary purpose of disclosing the 
holdings of directors, officers and beneficial owners of registered 
companies. Information disclosed will be a matter of public record and 
available for inspection by members of the public. The Commission can 
use the information in investigations or litigation involving the 
federal securities laws or other civil, criminal, or regulatory statutes 
or provisions, as well as for referral to other governmental authorities 
and self-regulatory organizations.

[[Page 578]]

Failure to disclose required information may result in civil or criminal 
action against persons involved for violations of the federal securities 
laws and rules.

[56 FR 7274, Feb. 21, 1991, as amended at 62 FR 35341, July 1, 1997; 67 
FR 43535, June 28, 2002]

    Editorial Note: For Federal Register citations affecting Form 3, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.104  Form 4, statement of changes in beneficial ownership of securities.

    This Form shall be filed pursuant to Rule 16a-3 (Sec. 240.16a-3 of 
this chapter) for statements of changes in beneficial ownership of 
securities. The Commission is authorized to solicit the information 
required by this Form pursuant to sections 16(a) and 23(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78p(a) and 78w(a)); sections 
17(a) and 20(a) of the Public Utility Holding Company Act of 1935 (15 
U.S.C. 79q(a) and 79t(a)); and sections 30(h) and 38 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-29(h) and 80a-37), and the rules and 
regulations thereunder. Disclosure of information specified on this Form 
is mandatory, except for disclosure of the I.R.S. identification number 
by entities, which is voluntary. If such numbers are furnished, they 
will assist the Commission in distinguishing reporting persons with 
similar names and will facilitate the prompt processing of the Form. The 
information will be used for the primary purpose of disclosing the 
transactions and holdings of directors, officers and beneficial owners 
of registered companies. Information disclosed will be a matter of 
public record and available for inspection by members of the public. The 
Commission can use the information in investigations or litigation 
involving the federal securities laws or other civil, criminal, or 
regulatory statutes or provisions, as well as for referral to other 
governmental authorities and self-regulatory organizations. Failure to 
disclose required information may result in civil or criminal action 
against persons involved for violations of the federal securities laws 
and rules.

[56 FR 7274, Feb. 21, 1991, as amended at 62 FR 35341, July 1, 1997; 67 
FR 43535, June 28, 2002]

    Editorial Note: For Federal Register citations affecting Form 4, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.105  Form 5, annual statement of beneficial ownership of securities.

    This Form shall be filed pursuant to Rule 16a-3 (Sec. 240.16a-3 of 
this chapter) for annual statements of beneficial ownership of 
securities. The Commission is authorized to solicit the information 
required by this Form pursuant to sections 16(a) and 23(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78p(a) and 78w(a)); sections 
17(a) and 20(a) of the Public Utility Holding Company Act of 1935 (15 
U.S.C. 79q(a) and 79t(a)); and sections 30(h) and 38 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-29(h) and 80a-37), and the rules and 
regulations thereunder. Disclosure of information specified on this Form 
is mandatory, except for disclosure of the I.R.S. identification number 
by entities, which is voluntary. If such numbers are furnished, they 
will assist the Commission in distinguishing reporting persons with 
similar names and will facilitate the prompt processing of the Form. The 
information will be used for the primary purpose of disclosing the 
transactions and holdings of officers, directors and beneficial owners 
of registered companies. Information disclosed will be a matter of 
public record and available for inspection by members of the public. The 
Commission can use the information in investigations or litigation 
involving the federal securities laws or other civil, criminal, or 
regulatory statutes or provisions, as well as for referral to other 
governmental authorities and self-regulatory organizations. Failure to 
disclose required information may result in civil or criminal action 
against persons involved for violations of the federal securities laws 
and rules.

[56 FR 7274, Feb. 21, 1991, as amended at 62 FR 35341, July 1, 1997; 67 
FR 43536, June 28, 2002]

[[Page 579]]


    Editorial Note: For Federal Register citations affecting Form 5, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



   Subpart C_Forms for Applications for Registration of Securities on 
            National Securities Exchanges and Similar Matters



Sec. 249.208  [Reserved]



Sec. 249.208a  Form 8-A, for registration of certain classes of securities 
pursuant to section 12 (b) or (g) of the Securities Exchange Act of 1934.

    (a) Subject to paragraph (b) of this section, this form may be used 
for registration pursuant to section 12 (b) or (g) of the Securities 
Exchange Act of 1934 of any class of securities of any issuer which is 
required to file reports pursuant to sections 13 and 15(d) of that Act 
or pursuant to an order exempting the exchange on which the issuer has 
securities listed from registration as a national securities exchange.
    (b) If the registrant would be required to file an annual report 
pursuant to section 15(d) of the Act for its last fiscal year, except 
for the fact that the registration statement on this form will become 
effective before such report is required to be filed, an annual report 
for such fiscal year shall nevertheless be filed within the period 
specified in the appropriate annual report form.
    (c) If this form is used for the registration of a class of 
securities under Section 12(b) of the Act (15 U.S.C. 78l(b)), it shall 
become effective;
    (1) If a class of securities is not concurrently being registered 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.)(``Securities 
Act''), upon the later of receipt by the Commission of certification 
from the national securities exchange listed on the form or the filing 
of the Form 8-A with the Commission; or
    (2) If a class of securities is concurrently being registered under 
the Securities Act, upon the later of the Filing of the Form 8-A with 
the Commission, receipt by the Commission of certification from the 
national securities exchange listed on the form, or the effectiveness of 
the Securities Act registration statement relating to the class of 
securities.
    (d) If this form is used for the registration of a class of 
securities under Section 12(g) of the Act (15 U.S.C. 78l(g)), it shall 
become effective:
    (1) If a class of securities is not concurrently being registered 
under the Securities Act, upon the filing of the Form 8-A with the 
Commission; or
    (2) If a class of securities is concurrently being registered under 
the Securities Act, upon the later of the filing of the Form 8-A with 
the Commission or the effectiveness of the Securities registration 
statement relating to the class of securities.

[43 FR 21663, May 19, 1978, as amended at 59 FR 55347, Nov. 7, 1994; 62 
FR 39768, July 24, 1997]

    Editorial Note: For Federal Register citations affecting Form 8-A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. Sec. 249.208b-249.208c  [Reserved]

    Editorial Note: Amended Form 8-A replaces former Form 8-C; see Sec. 
249.208a of this chapter.



Sec. 249.210  Form 10 and Form 10-SB, general form for registration of 

securities pursuant to section 12 (b) or (g) of the Securities Exchange 
Act of 1934.

    This form shall be used for registration pursuant to section 12 (b) 
or (g) of the Securities Exchange Act of 1934 of classes of securities 
of issuers for which no other form is prescribed.

(Secs. 7, 10, 19(a), 48 Stat. 78, 81, 85; secs. 205, 209, 48 Stat. 906, 
908; sec. 8, 68 Stat. 685; 15 U.S.C. 77g, 77j, 77s(a); secs. 12, 13, 14, 
15(d), 23, 48 Stat. 892, 894, 895, 901; sec. 203(a), 49 Stat. 704; secs. 
1, 3, 8, 49 Stat. 1375, 1377, 1379; sec. 202, 68 Stat. 686; secs. 3, 4, 
5, 6, 10, 78 Stat. 565-568, 569, 570-574, 88a; secs. 1, 2, 3, 82 Stat. 
454, 455; secs.1, 2, 3-5, 28(c), 84 Stat. 1435, 1479; sec. 105(b), 88 
Stat. 1503; secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155 (15 U.S.C. 
78l, 78m, 78n, 78o(d), 78w))

    Editorial Note: For Federal Register citations affecting Form 10 and 
Form 10-SB, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.

[[Page 580]]



Sec. 249.210b  Form 10-SB, optional form for the registration of securities 
of a small business issuer.

    A ``small business issuer,'' defined in Rule 12b-2 (Sec. 240.12b-2 
of this chapter) may use Form 10-SB to register a class of its 
securities under Section 12 (b) or (g) of the Exchange Act. For further 
information concerning eligibility to use this form see Item 10(a) of 
Regulation S-B (17 CFR 228.10 et seq.).

[57 FR 36495, Aug. 13, 1992]

    Editorial Note: For Federal Register citations affecting Form 10-SB, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.218  Form 18, for foreign governments and political subdivisions 
thereof.

    This form shall be used for the registration of securities of any 
foreign government or political subdivision thereof.

[47 FR 54781, Dec. 6, 1982]

    Editorial Note: For Federal Register citations affecting Form 18, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.220f  Form 20-F, registration of securities of foreign private 

issuers pursuant to section 12(b) or (g) and annual and transition reports 
pursuant to sections 13 and 15(d).

    (a) Any foreign private issuer may use this form as a registration 
statement under section 12 of the Securities Exchange Act of 1934 (the 
``Exchange Act'') or as an annual or transition report filed under 
section 13(a) or 15(d) of the Exchange Act.
    (b) An annual report on this form shall be filed within six months 
after the end of the fiscal year covered by such report.
    (c) A transition report on this form shall be filed in accordance 
with the requirements set forth in Sec. 240.13a-10 or Sec. 240.15d-10 
applicable when the issuer changes its fiscal year end.

[47 FR 54781, Dec. 6, 1982, as amended at 54 FR 10319, Mar. 13, 1989; 56 
FR 30075, July 1, 1991]

    Editorial Note: For Federal Register citations affecting Form 20-F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.240f  Form 40-F, for registration of securities of certain 

Canadian issuers pursuant to section 12(b) or (g) and for reports 
pursuant to section 15(d) and Rule 15d-4 (Sec. 240.15d-4 of this chapter).

    (a) Form 40-F may be used to file reports with the Commission 
pursuant to section 15(d) of the Securities Exchange Act of 1934 (the 
``Exchange Act'') and Rule 15d-4 (17 CFR 240.15d-4) thereunder by 
registrants that are subject to the reporting requirements of that 
section solely by reason of their having filed a registration statement 
on Form F-7, F-8, F-9, F-10 or F-80 under the Securities Act of 1933 
(the ``Securities Act'').

    Note: No reporting obligation arises under section 15(d) of the 
Securities Act from the registration of securities on Form F-7, F-8 or 
F-80 if the issuer, at the time of filing such Form, is exempt from the 
requirements of section 12(g) of the Exchange Act pursuant to Rule 12g3-
2(b). See Rule 12h-4 under the Exchange Act.

    (b) Form 40-F may be used to register securities with the Commission 
pursuant to section 12(b) or 12(g) of the Exchange Act, to file reports 
with the Commission pursuant to section 13(a) of the Exchange Act and 
Rule 13a-3 (17 CFR 240.13a-3) thereunder, and to file reports with the 
Commission pursuant to section 15(d) of the Exchange Act if:
    (1) The registrant is incorporated or organized under the laws of 
Canada or any Canadian province or territory;
    (2) The registrant is a foreign private issuer or a crown 
corporation;
    (3) The registrant has been subject to the periodic reporting 
requirements of any securities commission or equivalent regulatory 
authority in Canada for a period of at least 12 calendar months 
immediately preceding the filing of this Form and is currently in 
compliance with such obligations; and
    (4) The aggregate market value of the public float of the 
registrant's outstanding equity shares is $75 million or more; provided, 
however, no market value threshold need be satisfied in connection with 
non-convertible securities eligible for registration on Form F-9 (Sec. 
239.39 of this chapter).

[[Page 581]]

                              Instructions

    1. For purposes of this Form, ``foreign private issuer'' shall be 
construed in accordance with Rule 405 under the Securities Act.
    2. For purposes of this Form, the term ``crown corporation'' shall 
mean a corporation all of whose common shares or comparable equity is 
owned directly or indirectly by the Government of Canada or a Province 
or Territory of Canada.
    3. For purposes of this Form, the ``public float'' of specified 
securities shall mean only such securities held by persons other than 
affiliates of the issuer.
    4. For the purposes of this Form, an ``affiliate'' of a person is 
anyone who beneficially owns directly or indirectly, or exercises 
control or direction over, more than 10 percent of the outstanding 
equity shares of such person. The determination of a person's affiliates 
shall be made as of the end of such person's most recently completed 
fiscal year.
    5. For purposes of this Form, ``equity shares'' shall mean common 
shares, non-voting equity shares and subordinate or restricted voting 
equity shares, but shall not include preferred shares.
    6. For purposes of this Form, the market value of outstanding equity 
shares (whether or not held by affiliates) shall be computed by use of 
the price at which the shares were last sold, or the average of the bid 
and asked prices of such shares, in the principal market for such shares 
as of a date within 60 days prior to the date of filing. If there is no 
market for any of such securities, the book value of such securities 
computed as of the latest practicable date prior to the filing of this 
Form shall be used for purposes of calculating the market value, unless 
the issuer of such securities is in bankruptcy or receivership or has an 
accumulated capital deficit, in which case one-third of the principal 
amount, par value or stated value of such securities shall be used.

    (c) If the registrant is a successor registrant subsisting after a 
business combination, it shall be deemed to meet the 12-month reporting 
requirement of paragraph (b)(3) of this section if:
    (1) The time the successor registrant has been subject to the 
continuous disclosure requirements of any securities commission or 
equivalent regulatory authority in Canada, when added separately to the 
time each predecessor had been subject to such requirements at the time 
of the business combination, in each case equals at least 12 calendar 
months, provided, however, that any predecessor need not be considered 
for purposes of the reporting history calculation if the reporting 
histories of predecessors whose assets and gross revenues, respectively, 
would contribute at least 80 percent of the total assets and gross 
revenues from continuing operations of the successor registrant, as 
measured based on pro forma combination of such participating companies' 
most recently completed fiscal years immediately prior to the business 
combination, when combined with the reporting history of the successor 
registrant in each case satisfy such 12-month reporting requirement; and
    (2) The successor registrant has been subject to such continuous 
disclosure requirements since the business combination, and is currently 
in compliance with its obligations thereunder.
    (d) This Form shall not be used if the registrant is an investment 
company registered or required to be registered under the Investment 
Company Act of 1940.
    (e) Registrants registering securities on this Form, and registrants 
filing annual reports on this Form who have not previously filed a Form 
F-X (Sec. 249.250 of this chapter) in connection with the class of 
securities in relation to which the obligation to file this report 
arises, shall file a Form F-X with the Commission together with this 
Form.

[56 FR 30075, July 1, 1991, as amended at 58 FR 62031, Nov. 23, 1993]

    Editorial Note: For Federal Register citations affecting Form 40-F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 582]]



Sec. 249.250  Form F-X, for appointment of agent for service of process 

by issuers registering securities on Form F-8, F-9, F-10 or F-80 (Sec. 239.38, 239.39, 
          239.40 or 239.41 of this chapter), or registering securities 
          or filing periodic reports on Form 40-F (Sec. 249.240f of 
          this chapter), or by any issuer or other non-U.S. person 
          filing tender offer documents on Schedule 13E-4F, 14D-1F or 
          14D-9F (Sec. 240.13e-102, 240.14d-102 or 240.14d-103 of this 
          chapter), or by any non-U.S. person acting as trustee with 
          respect to securities registered on Form F-7 (Sec. 249.37 of 
          this chapter), F-8, F-9, F-10 or F-80.

    Form F-X shall be filed with the Commission:
    (a) By any issuer registering securities on Form F-8, F-9, F-10 or 
F-80 under the Securities Act of 1933;
    (b) By any issuer registering securities on Form 40-F under the 
Securities Exchange Act of 1934;
    (c) By any issuer filing a periodic report on Form 40-F, if it has 
not previously filed a Form F-X in connection with the class of 
securities in relation to which the obligation to file a report on Form 
40-F arises;
    (d) By any issuer or other non-U.S. person filing tender offer 
documents on Schedule 13E-4F, 14D-1F or 14D-9F; and
    (e) By any non-U.S. person acting as trustee with respect to 
securities registered on Form F-7, F-8, F-9, F-10 or F-80.

[56 FR 30076, July 1, 1991]

    Editorial Note: For Federal Register citations affecting Form F-X, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



 Subpart D_Forms for Annual and Other Reports of Issuers Required Under 
      Sections 13 and 15(d) of the Securities Exchange Act of 1934



Sec. 249.306  Form 6-K, report of foreign issuer pursuant to Rules 13a-16 

(Sec. 240.13a-16 of this chapter) and 15d-16 (Sec. 240.15d-16 of this chapter) 
under the Securities Exchange Act of 1934.

    This form shall be used by foreign issuers which are required to 
furnish reports pursuant to Rule 13a-16 (Sec. 240.13a-16 of this 
chapter) or 15d-16 (Sec. 240.15d-16 of this chapter) under the 
Securities Exchange Act of 1934.

    Editorial Note: For Federal Register citations affecting Form 6-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.308  Form 8-K, for current reports.

    This form shall be used for the current reports required by Rule 
13a-11 or Rule 15d-11 (Sec. 240.13a-11 or Sec. 240.15d-11 of this 
chapter) and for reports of nonpublic information required to be 
disclosed by Regulation FD (Sec. Sec. 243.100 and 243.101 of this 
chapter).

[33 FR 18995, Dec. 20, 1968; 34 FR 554, Jan. 15, 1969, as amended at 65 
FR 51739, Aug. 24, 2000]

    Editorial Note: For Federal Register citations affecting Form 8-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.308a  Form 10-Q, for quarterly and transition reports under 
sections 13 or 15(d) of the Securities Exchange Act of 1934.

    (a) Form 10-Q shall be used for quarterly reports under Section 13 
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 
78o(d)), required to be filed pursuant to Sec. 240.13a-13 or Sec. 
240.15d-13 of this chapter. A quarterly report on this form pursuant to 
Sec. 240.13a-13 or Sec. 240.15d-13 of this chapter shall be filed 
within the following period after the end of the first three fiscal 
quarters of each fiscal year, but no quarterly report need be filed for 
the fourth quarter of any fiscal year:
    (1) For accelerated filers (as defined in Sec. 240.12b-2 of this 
chapter):
    (i) 45 days after the end of the fiscal quarter for fiscal years 
ending on or after December 15, 2002 and before December 15, 2004;
    (ii) 40 days after the end of the fiscal quarter for fiscal years 
ending on or after December 15, 2004 and before December 15, 2005; and
    (iii) 35 days after the end of the fiscal quarter for fiscal years 
ending on or after December 15, 2005; and
    (2) 45 days after the end of the fiscal quarter for all other 
registrants.

[[Page 583]]

    (b) Form 10-Q also shall be used for transition and quarterly 
reports filed pursuant to Sec. 240.13a-10 or Sec. 240.15d-10 of this 
chapter. Such transition or quarterly reports shall be filed in 
accordance with the requirements set forth in Sec. 240.13a-10 or Sec. 
240.15d-10 of this chapter applicable when the registrant changes its 
fiscal year end.

[67 FR 58506, Sept. 16, 2002]

    Editorial Note: For Federal Register citations affecting Form 10-Q, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.308b  Form 10-QSB, Optional Form for Quarterly and Transition 

Reports of Small Business Issuers Under Section 13 or 15(d) of the 
Securities Exchange Act of 1934 (``Exchange Act'').

    A small business issuer, defined in Rule 12b-2, may use this Form 
for its transition and quarterly reports under section 13 or 15(d) of 
the Exchange Act and Rules 13a-13 and 15d-13 (Sec. Sec. 240.13a-13 or 
240.15d-13 of this chapter). For further information as to eligibility 
to use this Form see Item 10(a) of Regulation S-B (17 CFR 228.10 et 
seq.). A small business issuer shall file a quarterly report on this 
form within 45 days after the end of the first three fiscal quarters of 
each fiscal year. No report need be filed for the fourth quarter of any 
fiscal year. Transition reports shall be filed in accordance with the 
requirements set forth in Rule 13a-10 or Rule 15d-10.

[57 FR 36498, Aug. 13, 1992]

    Editorial Note: For Federal Register citations affecting Form 10-
QSB, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 249.310  Form 10-K, for annual and transition reports pursuant to 
sections 13 or 15(d) of the Securities Exchange Act of 1934.

    (a) This form shall be used for annual reports pursuant to Sections 
13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 
78o(d)) for which no other form is prescribed. This form also shall be 
used for transition reports filed pursuant to Section 13 or 15(d) of the 
Securities Exchange Act of 1934.
    (b) Annual reports on this form shall be filed within the following 
period:
    (1) For accelerated filers (as defined in Sec. 240.12b-2 of this 
chapter):
    (i) 90 days after the end of the fiscal year covered by the report 
for fiscal years ending on or after December 15, 2002 and before 
December 15, 2003;
    (ii) 75 days after the end of the fiscal year covered by the report 
for fiscal years ending on or after December 15, 2003 and before 
December 15, 2004; and
    (iii) 60 days after the end of the fiscal year covered by the report 
for fiscal years ending on or after December 15, 2004; and
    (2) 90 days after the end of the fiscal year covered by the report 
for all other registrants.
    (c) Transition reports on this form shall be filed in accordance 
with the requirements set forth in Sec. 240.13a-10 or Sec. 240.15d-10 
of this chapter applicable when the registrant changes its fiscal year 
end.
    (d) Notwithstanding paragraphs (b) and (c) of this section, all 
schedules required by Article 12 of Regulation S-X (Sec. Sec. 210.12-
01-210.12-29 of this chapter) may, at the option of the registrant, be 
filed as an amendment to the report not later than 30 days after the 
applicable due date of the report.

[67 FR 58506, Sept. 16, 2002]

    Editorial Note: For Federal Register citations affecting Form 10-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.310b  Form 10-KSB, Optional Form for Annual and Transition Reports 

of Small Business Issuers Under Sections 13 or 15(d) of the Securities 
Exchange Act of 1934 (the ``Exchange Act'').

    A small business issuer defined in Rule 12b-2 of the Exchange Act 
(Sec. 240.12b-2 of this chapter), may use this form for its annual and 
transitional reports under section 13 or 15(d) of the Exchange Act. 
Annual reports on this form shall be filed within 90 days after the end 
of the fiscal year covered by the report and transition reports shall be 
filed after an issuer changes its fiscal year end in accordance with 
Rule 13a-10 or Rule

[[Page 584]]

15d-10 (Sec. 240.13a-10 or 240.15d-10 of this chapter).

[57 FR 36496, Aug. 13, 1992]

    Editorial Note: For Federal Register citations affecting Form 10-
KSB, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 249.310c  [Reserved]



Sec. 249.311  Form 11-K, for annual reports of employee stock purchase, 

savings and similar plans pursuant to section 15(d) of the Securities 
Exchange Act of 1934.

    This form shall be used for annual reports pursuant to section 15(d) 
of the Securities Exchange Act of 1934 with respect to employee stock 
purchase, savings and similar plans, interests in which constitute 
securities which have been registered under the Securities Act of 1933. 
Such a report is required to be filed even though the issuer of the 
securities offered to employees pursuant to the plan also files annual 
reports pursuant to section 13 or 15(d) of the Securities Exchange Act 
of 1934. However, attention is directed to Rule 15d-21 (Sec. 240.15d-21 
of this chapter) which provides that in certain cases the information 
required by this form may be furnished with respect to the plan as a 
part of the annual report of such issuer. Reports on this form shall be 
filed within 90 days after the end of the fiscal year of the plan, or, 
in the case of a plan subject to the Employee Retirement Income Security 
Act of 1974, within 180 days after the plan's fiscal year end.

[43 FR 21663, May 19, 1978]

    Editorial Note: For Federal Register citations affecting Form 11-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.318  Form 18-K, annual report for foreign governments and political 
subdivisions thereof.

    This form shall be used for the annual reports of foreign 
governments or political subdivisions thereof.

[47 FR 54790, Dec. 6, 1982]

    Editorial Note: For Federal Register citations affecting Form 18-K, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.322  Form 12b-25--Notification of late filing.

    (a) This form shall be filed pursuant to Sec. 240.12b-25 of this 
chapter by issuers who are unable to file timely all or any required 
portion of an annual or transition report on Form 10-K and Form 10-KSB, 
20-F, or 11-K (Sec. Sec. 249.310, 249.310b, 249.220f or 249.311) or a 
quarterly or transition report on Form 10-Q and Form 10-QSB (Sec. Sec. 
249.308a and 249.308b) pursuant to section 13 or 15(d) of the Act (15 
U.S.C. 78m or 78o(d)) or a semi-annual, annual, or transition report on 
Form N-SAR (Sec. Sec. 249.330; 274.101) or Form N-CSR (Sec. Sec. 
249.331; 274.128) pursuant to section 13 or 15(d) of the Act or section 
30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29). The filing 
shall consist of a signed original and three conformed copies, and shall 
be filed with the Commission at Washington, DC 20549, no later than one 
business day after the due date for the periodic report in question. 
Copies of this form may be obtained from ``Publications,'' Securities 
and Exchange Commission, 450 5th Street, NW., Washington, DC 20549 and 
at our Web site at http://www.sec.gov.
    (b) This form shall not be used by electronic filers unable to 
timely file a report solely due to electronic difficulties. Filers 
unable to submit a report within the time period prescribed due to 
electronic difficulties should comply with either Rule 201 or Rule 202 
of Regulation S-T (Sec. 232.201 or Sec. 232.202 of this chapter), or 
apply for an adjustment in filing date pursuant to Rule 13(b) of 
Regulation S-T (Sec. 232.13(b) of this chapter).

[50 FR 1449, Jan. 11, 1985, as amended at 54 FR 10321, Mar. 13, 1989; 58 
FR 14686, Mar. 18, 1993; 68 FR 5364, Feb. 3, 2003]

    Editorial Note: For Federal Register citations affecting Form 12b-
25, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

[[Page 585]]



Sec. 249.323  Form 15, certification of termination of registration of 

a class of security under section 12(g) or notice of suspension of duty 
to file reports pursuant to sections 13 and 15(d) of the Act.

    (a) This form shall be filed by each issuer to certify that the 
number of holders of record of a class of security registered under 
section 12(g) of the Act is reduced to less than 300 persons, or that 
the number of holders of record of a class of security registered under 
section 12(g) of the Act is reduced to less than 500 persons and the 
total assets of the issuer have not exceeded $10 million on the last day 
of each of the issuer's most recent three fiscal years. Registration 
terminates 90 days after the filing of the certificate or within such 
shorter time as the Commission may direct.
    (b) This form shall also be filed by each issuer required to file 
reports pursuant to section 15(d) of the Act, as a notification that the 
duty to file such reports is suspended pursuant to section 15(d) of the 
Act because all securities of each class of such issuer registered under 
the Securities Act of 1933 are held of record by less than 300 persons 
at the beginning of its fiscal year, or otherwise pursuant to the 
provisions of Rule 12h-3 (17 CFR 240.12h-3).

(Secs. 12(g)(4), 12(h), 13(a), 15(d), 23(a), 48 Stat. 892, 894, 895, 
901; sec. 203(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; secs. 
3, 4, 6, 78 Stat. 565-568, 569, 570-574; sec. 18, 89 Stat. 155; sec. 
204, 91 Stat. 1500; 15 U.S.C. 78l(g)(4), 78l(h), 78m(a), 78o(d), 78w(a))

[49 FR 12690, Mar. 30, 1984, as amended at 51 FR 25362, July 14, 1986; 
61 FR 21356, May 9, 1996]



Sec. 249.325  Form 13F, report of institutional investment manager 
pursuant to section 13(f) of the Securities Exchange Act of 1934.

    This form shall be used by institutional investment managers which 
are required to furnish reports pursuant to section 13(f) of the 
Securities Exchange Act of 1934. (15 U.S.C. 78m(f)) and Rule 13f-1 
thereunder (Sec. 240.13f-1 of this chapter).

[43 FR 26705, June 22, 1978]

    Editorial Note: For Federal Register citations affecting Form 13F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.328T  Form 17-H, Risk assessment report for brokers and 

dealers pursuant to section 17(h) of the Securities Exchange Act of 1934 
and rules thereunder.

    This form shall be used by brokers and dealers in reporting 
information to the Commission concerning certain of their associated 
persons pursuant to section 17(h) of the Securities Exchange Act of 1934 
[15 U.S.C. 78q(h)] and Rules 17h-1T and 17h-2T thereunder [Sec. Sec. 
240.17h-1T and 240.17h-2T of this chapter].

[57 FR 32171, July 21, 1992]



Sec. 249.330  Form N-SAR, annual and semi-annual report of certain 
registered investment companies.

    This form shall be used by registered unit investment trusts and 
small business investment companies for semi-annual or annual reports to 
be filed pursuant to Sec. 270.30a-1 or Sec. 270.30b1-1 of this chapter 
in satisfaction of the requirement of section 30(a) of the Investment 
Company Act of 1940 that every registered investment company must file 
annually with the Commission such information, documents, and reports as 
investment companies having securities registered on a national 
securities exchange are required to file annually pursuant to section 
13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and the 
rules and regulations thereunder.

[68 FR 5364, Feb. 3, 2003]

    Editorial Note: For Federal Register citations affecting Form N-SAR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.331  Form N-CSR, certified shareholder report.

    This form shall be used by registered management investment 
companies to file reports pursuant to Sec. 270.30b2-1(a) of this 
chapter not later than 10 days after the transmission to stockholders of 
any report that is required to be transmitted to stockholders under 
Sec. 270.30e-1 of this chapter.

[68 FR 5364, Feb. 3, 2003]

[[Page 586]]



Sec. 249.332  Form N-Q, quarterly schedule of portfolio holdings 
of registered management investment company.

    This form shall be used by registered management investment 
companies, other than small business investment companies registered on 
Form N-5 (Sec. Sec. 239.24 and 274.5 of this chapter), to file reports 
pursuant to Sec. 270.30b1-5 of this chapter not later than 60 days 
after the close of the first and third quarters of each fiscal year.

[69 FR 11263, Mar. 9, 2004]

    Effective Date Note: At 69 FR 11263, Mar. 9, 2004, Sec. 249.332 was 
added, effective May 10, 2004.



Sec. 249.444  Form SE, form for submission of paper format exhibits by 
electronic filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided in Rule 311 of Regulation S-T (Sec. 232.311 of this chapter).

[58 FR 14686, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.445  [Reserved]



Sec. 249.446  Form ID, uniform application for access codes to file on EDGAR.

    (a) Form ID is to be used by registrants, third party filers, or 
their agents for the purpose of requesting assignment of access codes to 
permit filing on EDGAR, as follows:
    (1) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.
    (2) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (3) Password (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (4) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.
    (b) Form ID also may be used for the purpose of requesting a 
reassignment of their CCC, PW and PMAC.

[57 FR 18219, Apr. 29, 1992]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.447  Form TH--Notification of reliance on temporary hardship 
exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by Rule 201(a) of Regulation S-T (Sec. 
232.201(a) of this chapter).

[58 FR 14686, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



  Subpart E_Forms for Statements Made in Connection With Exempt Tender 
                                 Offers

    Source: 64 FR 61406, Nov. 10, 1999, unless otherwise noted.



Sec. 249.480  Form CB, tender offer statement in connection with a 
tender offer for a foreign private issuer.

    This form is used to report an issuer tender offer conducted in 
compliance with Sec. 240.13e-4(h)(8) of this chapter and a third-party 
tender offer conducted in compliance with Sec. 240.14d-1(c) of this 
chapter. This report also is used by a subject company pursuant to Sec. 
240.14e-2(d) of this chapter.

[64 FR 61406, Nov. 10, 1999]

    Editorial Note: For Federal Register citations affecting Form CB, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 587]]



  Subpart F_Forms for Registration of Brokers and Dealers Transacting 
                  Business on Over-the-Counter Markets



Sec. 249.501  Form BD, for application for registration as a broker and 
dealer or to amend or supplement such an application.

    (a) This form shall be used for application for registration as a 
broker-dealer under the Securities Exchange Act of 1934, or to amend 
such application.
    (b) Interim Form BD shall be used for application for registration 
as broker-dealer under the Securities Exchange Act of 1934, or to amend 
such application, only by order of the Commission. In the event broker-
dealers are required to comply with their filing obligations on Interim 
Form BD, the form will be made available at the Commission's Publication 
Office at (202) 942-4040.

[33 FR 18995, Dec. 20, 1968; 34 FR 554, Jan. 15, 1969, as amended at 64 
FR 42596, Aug. 5, 1999]

    Editorial Note: For Federal Register citations affecting Form BD, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.501a  Form BDW, notice of withdrawal from registration as 

broker-dealer pursuant to Sec. 240.15b6-1, Sec. 240.15Bc3-1, or 
Sec. 240.15Cc1-1 of this chapter.

    (a) This form shall be used for filing a notice of withdrawal as 
broker-dealer pursuant to Rule 15b6-1 (Sec. 240.15b6-1 of this 
chapter), Rule 15Bc3-1 Sec. 240.15B3-1 of this chapter), or Rule 15Cc1-
1 (Sec. 240.15Cc1-1 of this chapter). Under sections 15(b), 15B, 15C, 
17(a), and 23(a) of the Securities Exchange Act of 1934 (17 CFR part 
240), and the rules and regulations thereunder, the Commission is 
authorized to solicit the information required to be supplied by this 
form from registrants desiring to withdraw their registration as a 
broker-dealer. Disclosure of the information specified in this form is 
mandatory prior to processing of applications for withdrawal, except for 
social security account numbers, disclosure of which is voluntary. The 
information will be used for the primary purpose of determining whether 
it is in the public interest to permit a broker-dealer to withdraw his 
registration. This notice will be made a matter of public record. 
Therefore, any information, given will be available for inspection by 
any member of the public. Because of the public nature of the 
information the Commission can utilize it for a variety of purposes, 
including referral to other governmental authorities or securities self-
regulatory organizations for investigatory purposes or in connection 
with litigation involving the Federal securities laws and other civil, 
criminal or regulatory statutes or provisions. Social security account 
numbers, if furnished, will assist the Commission in identifying 
registrants and, therefore, in promptly processing applications for 
withdrawal. Failure to disclose the information requested by Form BDW, 
except for social security account numbers, may result in the registrant 
not being permitted to withdraw his registration.
    (b) Interim Form BDW shall be used for application for registration 
as broker-dealer under the Securities Exchange Act of 1934, or to amend 
such application, only by order of the Commission. In the event broker-
dealers are required to comply with their filing obligations on Interim 
Form BD, the form will be made available at the Commission's Publication 
Office at (202) 942-4040.

[52 FR 16844, May 6, 1987, as amended at 64 FR 42596, Aug. 5, 1999]

    Editorial Note: For Federal Register citations affecting Form BDW, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.501b  Form BD-N for notice registration as a broker-dealer.

    This form shall be used for notice of registration as a broker-
dealer pursuant to Section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) for the limited purpose of trading security futures 
products, or to amend such notice.

[66 FR 45147, Aug. 27, 2001]

[[Page 588]]



Sec. 249.507  Form 7-M, consent to service of process by an individual 
nonresident broker-dealer.

    This form shall be filed pursuant to Rule 15b1-5 (Sec. 240.15b1-5 
of this chapter) by each individual nonresident broker-dealer registered 
or applying for registration pursuant to section 15 of the Act.

    Editorial Note: For Federal Register citations affecting Form 7-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.508  Form 8-M, consent to service of process by a corporation 
which is a nonresident broker-dealer.

    This form shall be filed pursuant to Rule 15b1-5 (Sec. 240.15b1-5 
of this chapter) by each corporate nonresident broker-dealer registered 
or applying for registration pursuant to section 15 of the Act.

    Editorial Note: For Federal Register citations affecting Form 8-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.509  Form 9-M, consent to service of process by a partnership 
nonresident broker-dealer.

    This form shall be filed pursuant to Rule 15b1-5 (Sec. 240.15b1-5 
of this chapter) by each partnership nonresident broker-dealer 
registered or applying for registration pursuant to section 15 of the 
Act.

    Editorial Note: For Federal Register citations affecting Form 9-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.510  Form 10-M, consent to service of process by a nonresident 
general partner of a broker-dealer firm.

    This form shall be filed pursuant to Rule 15b1-5 (Sec. 240.15b1-5 
of this chapter) by each nonresident general partner of a broker-dealer 
firm registered or applying for registration pursuant to section 15 of 
the Act.

    Editorial Note: For Federal Register citations affecting Form 10-M, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



  Subpart G_Forms for Reports To Be Made by Certain Exchange Members, 
                          Brokers, and Dealers



Sec. 249.617  Form X-17A-5, information required of certain brokers and 

dealers pursuant to section 17 of the Secruities Exchange Act of 1934 and 
Sec. 240.17a-5, Sec. 240.17a-10 and Sec. 240.17a-11, and Sec. 240.17a-12 
of this chapter.

    Appropriate parts of this form shall be used by every broker or 
dealer required to file reports under Sec. 240.17a-5(a), (b), and (d), 
Sec. 240.17a-10(a), and Sec. 240.17a-11, and Sec. 240.17a-12 of this 
chapter.

(Secs. 15, 17 and 23, of the Securities Exchange Act of 1934 (15 U.S.C. 
78o, 78q, and 78w))

[49 FR 43455, Oct. 29, 1984, as amended at 63 FR 59404, Nov. 3, 1998]

    Editorial Note: For Federal Register citations affecting Form X-17A-
5, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 249.618  Form BD-Y2K, information required of broker-dealers pursuant 
to section 17 of the Securities Exchange Act of 1934 and Sec. 240.17a-5 of this 
          chapter.

    This form shall be used by every broker-dealer required to file 
reports under Sec. 240.17a-5(e) of this chapter.

[63 FR 37674, July 13, 1998]

    Editorial Note: For Federal Register citations affecting Form BD-
Y2K, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 249.619  Form TA-Y2K, information required of transfer agents pursuant 
to section 17 of the Securities Exchange Act of 1934 and Sec. 240.17Ad-18 of this 
          chapter.

    This form shall be used by every registered transfer agent required 
to file reports under Sec. 240.17Ad-18 of this chapter.

[63 FR 37694, July 13, 1998]

    Editorial Note: For Federal Register citations affecting Form TA-
Y2K, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

[[Page 589]]



Sec. Sec. 249.620--249.634  [Reserved]



Sec. 249.635  Form X-17A-19, report by national securities exchanges and 

registered national securities associations of changes in the membership 
status of any of their members.

    This form shall be completed and filed by each national securities 
exchange or registered national securities association as required by 
Sec. 240.17a-19 of this chapter within 5 business days of the 
occurrence of the initiation of the membership of any person or the 
suspension or termination of the membership of any of its members.

[45 FR 39840, June 12, 1980]



Sec. 249.636  Form 17A-23, information required of certain broker and 

dealer sponsors of broker-dealer trading systems pursuant to section 17 
of the Securities Exchange Act of 1934 and Sec. 240.17a-23 of this chapter.

    This form shall be used by every registered broker and dealer that 
is required to file reports under Sec. 240.17a-23 of this chapter.

[59 FR 66710, Dec. 28, 1994]



Sec. 249.637  Form ATS, information required of alternative trading 
systems pursuant to Sec. 242.301(b)(2) of this chapter.

    This form shall be used by every alternative trading system to file 
required notices, reports and amendments under Sec. 242.301(b)(2) of 
this chapter.

[63 FR 70933, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form ATS, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.638  Form ATS-R, information required of alternative trading 
systems pursuant to Sec. 242.301(b)(8) of this chapter.

    This form shall be used by every alternative trading system to file 
required reports under Sec. 242.301(b)(8) of this chapter.

[63 FR 70943, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form ATS-R, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



             Subpart H_Forms For Reports as to Stabilization



Sec. 249.709  [Reserved]



Subpart I_Forms for Self-Regulatory Organization Rule Changes and Forms 
 for Registration of and Reporting by National Securities Associations 
                 and Affiliated Securities Associations



Sec. 249.801  Form X-15AA-1, for application for registration as a 
national securities association or affiliated securities association.

    This form shall be filed as an application for registration as a 
national securities association or as an affiliated securites 
association pursuant to Rule 15Aa-1 (Sec. 240.15Aa-1 of this chapter).

    Editorial Note: For Federal Register citations affecting Form X-
15AA-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 249.802  Form X-15AJ-1, for amendatory and/or supplementary 

statements to registration statement of a national securities 
association or an affiliated securities association.

    This form shall be filed pursuant to Rule 15Aj-1 (Sec. 240.15Aj-1 
of this chapter) as amendatory and/or supplementary statements to 
registration statement of a national securities association or an 
affiliated securities association.

    Editorial Note: For Federal Register citations affecting Form X-
15AJ-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 249.803  Form X-15AJ-2, for annual consolidated supplement of a 
national securities association or an affiliated securities association.

    This form shall be filed pursuant to Rule 15Aj-1 (Sec. 240.15Aj-1 
of this chapter) for the annual consolidated supplement to registration 
statement of a national securities association or an affiliated 
securities association.

[[Page 590]]


    Editorial Note: For Federal Register citations affecting Form X-
15AJ-2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 249.819  Form 19b-4, for filings with respect to proposed rule 
changes by all self-regulatory organizations, pursuant to Section 19(b)(1) of the 
          Securities Exchange Act of 1934.

    This form shall be used by all self-regulatory organizations, as 
defined in Section 3(a)(26) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(26)), to file proposed rule changes with the Commission 
pursuant to Section 19(b)(1) of that Act (15 U.S.C. 78s(b)(1)) and Rule 
19b-4 (17 CFR 240.19b-4) thereunder.

[66 FR 43743, Aug. 20, 2001]

    Editorial Note: Copies of the form have been filed with the Office 
of the Federal Register and will be forwarded to the self-regulatory 
organizations. Copies may be requested from the Commission.



Sec. 249.820  Form 19b-4(e) for the listing and trading of new derivative 

securities products by self-regulatory organizations that are not deemed 
proposed rule changes pursuant to Rule 19b-4(e)(Sec. 240.19b-4(e)).

    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Act, to notify the Commission of a 
self-regulatory organization's listing and trading of a new derivative 
securities product that is not deemed a proposed rule change, pursuant 
to Rule 19b-4(e) under the Act (17 CFR 240.19b-4(e)).

[63 FR 70967, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form 19b-
4(e), see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 249.821  Form PILOT, information required of self-regulatory 

organizations operating pilot trading systems pursuant to 
Sec. 240.19b-5 of this chapter.

    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Act, (15 U.S.C 78c(a)(26)), to file 
required information and reports with regard to pilot trading systems 
pursuant to Sec. 240.19b-5 of this chapter.

[63 FR 70946, Dec. 22, 1998]

    Editorial Note: For Federal Register citations affecting Form PILOT, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.822  Form 19b-7, for filings with respect to proposed rule 

changes by all self-regulatory organizations, pursuant to 
Section 19(b)(7)(A) of the Securities Exchange Act of 1934.

    This form shall be used by all self-regulatory organizations, as 
defined in Section 3(a)(26) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(26)), to file proposed rule 77 changes with the Commission 
pursuant to Section 19(b)(7) of that Act (15 U.S.C. 78s(b)(7)) and Rule 
19b-7 (17 CFR 240.19b-7) thereunder.

[66 FR 43743, Aug. 20, 2001]

Subpart J [Reserved]



    Subpart K_Form for Registration of, and Reporting by Securities 
                         Information Processors



Sec. 249.1001  Form SIP, for application for registration as a securities 
information processor or to amend such an application or registration.

    This form shall be used for application for registration as a 
securities information processor, pursuant to section 11A(b) of the 
Securities Exchange Act of 1934 and Rule 11Ab2-1 (Sec. 240.11Ab2-1 of 
this chapter) thereunder, or to amend such an application or 
registration.

[40 FR 45424, Oct. 2, 1975]

    Editorial Note: For Federal Register citations affecting Form SIP, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 591]]



    Subpart L_Forms for Registration of Municipal Securities Dealers



Sec. 249.1100  Form MSD, application for registration as a municipal 

securities dealer pursuant to rule 15Ba2-1 under the Securities Exchange 
Act of 1934 or amendment to such application.

    This Form is to be used by a bank or a separately identifiable 
department or division of a bank (as defined by the Municipal Securities 
Rulemaking Board) to apply for registration as a municipal securities 
dealer with the Securities and Exchange Commission pursuant to section 
15B(a) of the Securities Exchange Act of 1934 (the ``Act''), or to amend 
such application.
    Note: Copies of Form MSD have been filed with the Office of the 
Federal Register as part of this document. Copies of Forms BD and MSD 
may be obtained from the Office of Reports and Information Services; 
Securities and Exchange Commission, 500 North Capitol Street, 
Washington, DC, 20549. Only printed copies of Form MSD should be used to 
apply for registration with the Commission.

[40 FR 49777, Oct. 24, 1975; 40 FR 54425, Nov. 24, 1975]

    Editorial Note: For Federal Register citations affecting Form MSD, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249.1110  Form MSDW, notice of withdrawal from registration as a 
municipal securities dealer pursuant to Rule 15Bc3-1 (17 CFR 240.15Bc3-1).

    This form is to be used by a bank or a separately identifiable 
department or division of a bank (as defined by the Municipal Securities 
Rulemaking Board) to withdraw from registration with the Securities and 
Exchange Commission as a municipal securities dealer pursuant to section 
15B(c) of the Securities Exchange Act of 1934.
    Note: Copies of Form MSDW have been filed with the Office of the 
Federal Register as part of this document. Copies of Form MSDW may be 
obtained from the Publications Section, Securities and Exchange 
Commission, 500 North Capitol Street, Washington, DC 20549.

[41 FR 28949, July 14, 1976]



Subpart M_Forms for Reporting and Inquiry With Respect to Missing, Lost, 
                    Stolen, or Counterfeit Securities



Sec. 249.1200  Form X-17F-1A--Report for missing, lost, stolen or 
counterfeit securities.

    This form is to be filed with the Commission or its designee 
pursuant to paragraph (c) of Sec. 240.17f-1 of this chapter by all 
reporting institutions subject to section 17(f)(1) of the Securities 
Exchange Act of 1934.

[44 FR 31504, May 31, 1979]

    Editorial Note: For Federal Register citations affecting Form X-17F-
1A, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

 PART 249a_FORMS, SECURITIES INVESTOR PROTECTION ACT OF 1970 [RESERVED]



PART 249b_FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934--Table of Contents




Sec.
249b.1--249b.99 [Reserved]
249b.100 Form TA-1, uniform form for registration as a transfer agent 
          pursuant to section 17A of the Securities Exchange Act of 
          1934.
249b.101 Form TA-W, notice of withdrawal from registration as transfer 
          agent.
249b.102 Form TA-2, form to be used by transfer agents registered 
          pursuant to section 17A of the Securities Exchange Act of 1934 
          for the annual report of transfer agent activities.
249b.200 Form CA-1, form for registration or for exemption from 
          registration as a clearing agency and for amendment to 
          registration as a clearing agency pursuant to section 17A of 
          the Securities Exchange Act of 1934.

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted;
    Sections 249b.100 and 249b.102 also issued under secs. 17, 17A and 
23(a); 48 Stat. 897, as amended, 89 Stat. 137, 141 and 48 Stat. 901 (15 
U.S.C. 78q, 78q-1, 78w(a)).

[[Page 592]]



Sec. Sec. 249b.1-249b.99  [Reserved]



Sec. 249b.100  Form TA-1,\1\ uniform form for registration as a transfer 
agent pursuant to section 17A of the Securities Exchange Act of 1934.
---------------------------------------------------------------------------

    \1\ Copies of the form may be obtained from the Publications 
Section, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549 and from each of the Commission's regional and 
district offices.
---------------------------------------------------------------------------

    This form shall be used for application for registration as a 
transfer agent and for amendment to registration as a transfer agent 
pursuant to section 17A of the Securities Exchange Act of 1934.

[40 FR 51184, Nov. 4, 1975, as amended at 51 FR 12127, Apr. 9, 1986]

    Editorial Note: For Federal Register citations affecting Form TA-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249b.101  Form TA-W, notice of withdrawal from registration as 
transfer agent.

    This form shall be used for withdrawing, pursuant to section 17A of 
the Securities Exchange Act of 1934, the registration of transfer agents 
registered with the Commission.

(Secs. 2, 17, 17A and 23(a); (15 U.S.C. 78b, 78a, 78a-1 and 78w(a)))

[42 FR 44984, Sept. 8, 1977]
    Editorial Note: For Federal Register citations affecting Form TA-W, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249b.102  Form TA-2,\1\ form to be used by transfer agents registered 

pursuant to section 17A of the Securities Exchange Act of 1934 for the 
annual report of transfer agent activities.
---------------------------------------------------------------------------

    \1\ Copies of the form may be obtained from the Publication Section, 
Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 
20549 and from each of the Commission's regional and district offices.
---------------------------------------------------------------------------

    This form shall be used on an annual basis for registered transfer 
agents for reporting their business activities.

[51 FR 12134, Apr. 9, 1986]

    Editorial Note: For Federal Register citations affecting Form TA-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 249b.200  Form CA-1, \1\ form for registration or for exemption from 

registration as a clearing agency and for amendment to registration as a 
clearing agency pursuant to section 17A of the Securities Exchange Act 
of 1934.
---------------------------------------------------------------------------

    \1\ Copies of the form may be obtained from the Publication Section, 
Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 
20549 and from each of the Commission's regional and district offices.
---------------------------------------------------------------------------

    This form shall be used for application for registration or for 
exemption from registration as a clearing agency and for amendment to 
registration as a clearing agency pursuant to section 17A of the 
Securities Exchange Act of 1934.

[40 FR 52359, Nov. 10, 1975, as amended at 51 FR 12134, Apr. 9, 1986]



PART 250_GENERAL RULES AND REGULATIONS, PUBLIC UTILITY HOLDING COMPANY 
ACT OF 1935--Table of Contents




                   Registration and General Exemptions

Sec.
250.1 Registration.
250.2 Exemption of holding companies which are intrastate or 
          predominantly operating companies.
250.3 Exemption of certain banks.
250.4 Exemption of certain brokers, dealers and underwriters.
250.5 Exemption of certain foreign holding companies.
250.6 Termination of exemptions.
250.7 Companies deemed not to be electric or gas utility companies.
250.8 Exemption of subsidiaries subject to jurisdiction of Interstate 
          Commerce Commission.
250.10 Effect of certain exemptions.
250.11 Certain acquisitions by affiliates exempted from section 9(a)(2).
250.12 Exemption of certain public utility companies from the definition 
          of subsidiary companies of holding companies.
250.14 Exemption of acquisitions of securities of power supply companies 
          from section 9(a)(2) of the Act.
250.15 Exemption of holding company and subsidiary companies under 
          section 3(a)(2) of the Act.
250.16 Exemption of non-utility subsidiaries and affiliates.

[[Page 593]]

                      Forms, Procedure and Accounts

250.20 Prescribed forms and amendments.
250.21 Filing of documents.
250.22 Applications and declarations.
250.23 Procedure applicable to certain applications and declarations.
250.24 Terms and conditions applicable to declarations and orders 
          granting applications.
250.25 Answers.
250.26 Financial statement and recordkeeping requirements for registered 
          holding companies and subsidiaries.
250.27 Classification of accounts prescribed for utility companies not 
          already subject thereto.
250.28 Inconsistent financial statements.
250.29 Filing of reports to State Commissions.

       Regulation and Exemption of Various Financial Transactions

250.40 Exemption of certain acquisitions from nonaffiliates.
250.41 Exemption of public utility subsidiaries with respect to limited 
          acquisition of utility assets.
250.42 Acquisition, retirement and redemption of securities by the 
          issuer thereof.
250.43 Sales to affiliates.
250.44 Sales of securities and assets.
250.45 Loans, extensions of credit, donations and capital contributions 
          to associate companies.
250.46 Dividend declarations and payments on certain indebtedness.
250.47 Exemption of public utility subsidiaries as to certain securities 
          issued to the Rural Electrification Administration.
250.48 Certain exemptions in connection with appliance sales and loans 
          to officers or employees.
250.49 Certain exemptions granted to nonutility subsidiaries.
250.50 [Reserved]
250.51 Acquisitions pursuant to preliminary agreements and invitation 
          for tenders.
250.52 Exemption of issue and sale of certain securities.
250.53 Certain registered holding company financings in connection with 
          the acquisition of one or more exempt wholesale generators.
250.54 Effect of exempt wholesale generators on other transactions.
250.57 Notices and reports to be filed under section 33.
250.58 Exemption of investments in certain nonutility companies.

                    Solicitations and Reorganizations

250.60 Meaning of word ``authorization''.
250.61 Solicitations other than in connection with a reorganization or 
          transaction which is the subject of an application or 
          declaration.
250.62 Solicitations in connection with a reorganization or transaction 
          which is the subject of an application or declaration.
250.63 Approval of reorganization fees.
250.64 Scope of applications for approval of reorganization plans.
250.65 Expenditures in connection with solicitation of proxies.

Officers, Directors and Representatives of Registered Holding Companies 
                         and Their Subsidiaries

250.70 Exemptions from section 17(c) of the Act.
250.71 Statements to be filed pursuant to section 12(i).
250.72 Filing of statements pursuant to section 17(a).

                Service, Sales and Construction Contracts

250.80 Definitions of terms used in rules under section 13.
250.81 Exempted transactions.
250.82 Temporary exemption from section 13.
250.83 Exemption in the case of transactions with foreign associates.
250.84 Prohibition of unauthorized transactions by registered holding 
          companies.
250.85 Service, sales, and construction by registered holding companies.
250.86 Prohibition of unauthorized transactions by subsidiaries.
250.87 Subsidiaries authorized to perform services or construction or to 
          sell goods.
250.88 Approval of mutual service companies; organization and conduct of 
          business or subsidiary service companies.
250.89 Termination of contracts.
250.90 Transactions limited to cost.
250.91 Determination of cost.
250.92 Sales of goods produced by seller.
250.93 Accounts and records of mutual and subsidiary service companies.
250.94 Annual reports by mutual and subsidiary service companies.
250.95 Reports required from affiliate service companies and companies 
          principally engaged in performing services.

                           Miscellaneous Rules

250.100 Orders granting or withdrawing exemptions.
250.101 Standards and interpretations of rules.
250.102 Effective date of rules.
250.103 References and definitions.
250.103A Liability for certain statements by issuers.
250.104 Public disclosure of information and objections thereto.
250.105 Disclosure detrimental to the national defense or foreign 
          policy.

[[Page 594]]

250.106--250.107 [Reserved]
250.110 Small entities for purposes of the Regulatory Flexibility Act.

    Authority: 15 U.S.C. 79c, 79f(b), 79i(c)(3), 79t, unless otherwise 
noted.

    Source: Rule U, 6 FR 2015, Apr. 19, 1941, unless otherwise noted.
    Note: In Sec. Sec. 250.1 to 250.105 the numbers to the right of the 
decimal point correspond with the respective rule numbers of Regulation 
U.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.

                   Registration and General Exemptions



Sec. 250.1  Registration.

    (a) Notification of registration. Notifications of registration 
pursuant to section 5(a) of the act (49 Stat. 812; 15 U.S.C. 79(e) shall 
be filed on Form U-5A.
    (b) Registration statement. Every registered holding company and 
person registering as a company proposing to become a holding company, 
shall file with the Commission a registration statement on Form U-5B 
within 90 days after becoming a registered holding company.
    (c) Annual report. Every registered holding company shall file, on 
or before the first of May in the year following that in which it filed 
its registration statement, and in every succeeding year, an annual 
report on Form U5S (Sec. 259.5s of this chapter): Provided, however, 
That where any holding company system includes more than one registered 
holding company, the annual report shall be filed by the top registered 
holding company in such system and shall be signed on behalf of each 
registered holding company in such system by the authorized officer of 
each such registered holding company.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 16 FR 2576, Mar. 21, 
1951; 37 FR 1472, Jan. 29, 1972; 61 FR 49961, Sept. 24, 1996]



Sec. 250.2  Exemption of holding companies which are intrastate or 
predominantly operating companies.

    (a) General provisions. Any holding company, and every subsidiary 
company thereof as such, shall, upon the filing of an exemption 
statement on Form U-3A-2 and subject to the filing of such exemption 
statement on or before March 1 of each year thereafter, and subject to 
the provisions of Rule U-6, be exempt from all the provisions of the act 
and rules thereunder, except section 9(a)(2) of the act, if:
    (1) Such holding company, and every subsidiary company thereof which 
is a public utility company from which such holding company derives, 
directly or indirectly, any material part of its income, are 
predominantly intrastate in character and carry on their business 
substantially in a single State in which such holding company and every 
such subsidiary company thereof are organized; or
    (2) Such holding company is predominantly a public utility company 
whose operations as such do not extend beyond the State in which it is 
organized and States contiguous thereto.
    (b) Exception. Unless otherwise required by the Commission, a 
holding company which is a subsidiary of a registered holding company 
need file only the initial statement on Form U-3A-2.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 10 FR 15412, Dec. 29, 
1945]



Sec. 250.3  Exemption of certain banks.

    (a) General exemption. Subject to the provisions of Sec. 250.6 and 
to the requirements contained in paragraph (c) of this section, any bank 
shall be exempt from any obligation, duty, or liability imposed by the 
act upon such bank as a holding company solely by reason of such bank 
owning, controlling, or holding with power to vote any securities of any 
public-utility or holding company which the bank:
    (1) Holds as collateral for a bona fide debt; or

[[Page 595]]

    (2) Holds in the ordinary course of its business as a fiduciary; or
    (3) Has acquired solely for purposes of liquidation in connection 
with a bona fide debt previously contracted and has owned beneficially 
for a period of not more than two years.
    (b) Exemptions from section 9(a)(2). Subject to the requirements 
contained in paragraph (c) of this section, any bank shall be exempt 
from section 9(a)(2) of the act with respect to the acquisition of any 
securities by such bank:
    (1) As collateral for a bona fide debt; or
    (2) Solely for purposes of liquidation in connection with a bona 
fide debt previously contracted; or
    (3) In the ordinary course of its business as fiduciary; or
    (4) Which is not a voting security or convertible into a voting 
security.
    (c) Statements. Any bank claiming exemptions pursuant to the 
provisions of this section shall file a statement on Form U-3A3-1 (Sec. 
259.403 of this chapter) within 30 days after the last day of February 
of each year. No such statement is required, however, with respect to 
any security holdings as to which such form is inapplicable by its 
provisions.
    (d) Definition of bank. The term ``bank'', as used in this section, 
means any company primarily engaged in business as a commercial bank or 
trust company, or both, and subject to regulation or examination under 
the laws of the United States or of any State, or any receiver, 
conservator, or liquidating agent thereof in his capacity as such.

[16 FR 253, Jan. 10, 1951]



Sec. 250.4  Exemption of certain brokers, dealers and underwriters.

    (a) General exemption. Subject to the provision of Sec. 250.6, any 
broker, dealer or underwriter, as defined in paragraph (c) of this 
section, shall be exempt from any obligation, duty, or liability imposed 
by the act upon such person as a holding company, solely by reason of 
such person owning, controlling, or holding with power to vote any 
securities of any public utility or holding company which are:
    (1) Not beneficially owned by such persons and are subject to any 
voting instructions which may be given by customers or their assigns; or
    (2) Acquired within 12 months in the ordinary course of business as 
a broker, dealer or underwriter with the bona fide intention of 
effecting distribution of the specific securities so acquired.
    (b) Exemption from section 9(a)(2). Any broker, dealer or 
underwriter, as defined in paragraph (c) of this section shall be exempt 
from section 9(a)(2) of the act (49 Stat. 817; 15 U.S.C. 79i) with 
respect to the acquisition of any securities for the account of 
customers, or in connection with any underwriting entered into with the 
intention of effecting immediate distribution of such securities.
    (c) Definition of broker, dealer or underwriter. As used in this 
section, the terms ``broker'' or ``dealer'' have the meaning set forth 
in sections 3(a)(4) and (a)(5) of the Securities Exchange Act of 1934 
(48 Stat. 882; 15 U.S.C. 78c), and the term ``underwriter'' means any 
underwriter as defined in section 2(11) of the Securities Act of 1933 
(48 Stat. 74, 905; 15 U.S.C. 77b) who is regularly engaged in business 
as such and is not a registered holding company.



Sec. 250.5  Exemption of certain foreign holding companies.

    Any holding company not organized under the laws of any State of the 
United States or the District of Columbia, and owning no utility assets 
located within any State of the United States or the District of 
Columbia and having no subsidiaries or affiliates owning any assets so 
located, shall, subject to the provisions of Sec. 250.6, be exempt from 
all the provisions of the act and rules thereunder: Provided, That such 
exemption shall not be applicable to any acquisition of utility assets 
located within any State of the United States or the District of 
Columbia or of any security of any company owning such assets or having 
any subsidiary owning such assets, if, as a result of such acquisition 
of securities, the acquiring company will become an affiliate of the 
issuer, except an issuer within any class specified in Sec. 250.10(a).

[[Page 596]]



Sec. 250.6  Termination of exemptions.

    If it appears to the Commission (on the basis of statements claiming 
exemption or otherwise) that a substantial question of law or fact 
exists as to whether any holding company claiming exemption under Sec. 
250.2, Sec. 250.3, Sec. 250.4, Sec. 250.5, or Sec. 250.10 or any 
other section now or hereafter in force pursuant to section 3(a) of the 
Act exempting any class of holding companies from the registration 
requirements of the act, is within the exemption afforded by any such 
section, or if it appears that any question exists as to whether the 
exemption of any such company may be detrimental to the public interest 
or the interest of investors or consumers, the Commission may notify 
such holding company to that effect by registered mail. Thirty days 
after such notification, such exemption shall terminate, without 
prejudice to the right of such holding company to file an application 
for an order granting such an exemption pursuant to any applicable 
section of the act, and without prejudice to any temporary exemption 
provided for by the act if such application is filed in good faith.

[6 FR 5950, Nov. 25, 1941]



Sec. 250.7  Companies deemed not to be electric or gas utility companies.

    (a) Any company which is primarily engaged in one or more businesses 
other than the business of an electric or gas utility company, shall not 
be deemed an electric or gas utility company within the meaning of 
section 2(a)(3) or section 2(a)(4) of the Act if the gross sales of 
electric energy, or of natural or manufactured gas distributed at retail 
by means of the facilities owned or operated by such company, did not 
exceed an average annual amount of $5,000,000 over the preceding three 
calendar years. There may be excluded from the gross sales specified:
    (1) Sales of electric energy or natural or manufactured gas to 
tenants or employees of the operating company for their own use and not 
for resale; and
    (2) Sales of gas to industrial consumers or in enclosed portable 
containers.
    (b)(1) Any company whose only connection with the generation, 
transmission, or distribution of electric energy is the ownership or 
operation of facilities used for the production of heat or steam from 
special nuclear material which heat or steam is used in the generation 
of electric energy shall not be deemed an electric utility company 
within the meaning of section 2(a)(3) of the Act, if such company is 
organized not for profit and is engaged primarily in research and 
development activities.
    (2) As a prerequisite to being entitled to the status afforded by 
paragraph (b)(1) of this section, any such company shall file with this 
Commission a statement that such company falls within the provisions of 
that subparagraph, including as exhibits (i) copies of its charter, by-
laws and any licenses issued by the Nuclear Regulatory Commission to 
such company; (ii) a list of its members or stockholders indicating 
their respective percentages of voting power; and (iii) if such company 
was in existence at the end of the preceding calendar year, a balance 
sheet as at the end of the preceding calendar year and an income and 
surplus statement for such year or a statement of receipts and 
expenditures for such year and of financial status at its end.
    (3) As a prerequisite to retaining the status afforded by paragraph 
(b)(1) of this section, any such company shall annually on or before May 
file a statement with this Commission that such company continues to 
fall within the provisions of that subparagraph, including as exhibits 
(i) any changes or additions to its charter or by-laws or list of 
members or stockholders or any licenses issued by the Nuclear Regulatory 
Commission to such company since the time of the last filing hereunder, 
and (ii) a balance sheet as at the end of the preceding calendar year 
and an income and surplus statement for such year or a statement of 
receipts and expenditures for such year and of financial status at its 
end.
    (4) If it appears to the Commission (on the basis of the aforesaid 
statements or otherwise) that a substantial question of law or fact 
exists as to whether any company is entitled to the status afforded by 
paragraph (b)(1) of this section, the Commission may notify such company 
to that effect by

[[Page 597]]

registered mail. Thirty days after such notification the status afforded 
by paragraph (b)(1) of this section shall no longer be available to such 
company, without prejudice to the right of such company to file an 
application for an order granting an exemption from the application of 
section 2(a)(3) of the Act, and without prejudice to any temporary 
exemption provided by that section if such an application is filed in 
good faith. The Commission will grant such an application if it finds 
that the standards set forth in paragraph (b)(1) of this section are 
satisfied.
    (c) Any company, which (1) owns no utility assets located within any 
State of the United States, (2) has no subsidiary company owning any 
such assets so located, and (3) is engaged solely in business outside 
the United States, shall not be deemed to be an electric or gas utility 
company within the meaning of section 2(a)(3) or (a)(4) of the Act, if 
its gross sales of electric energy or of natural or manufactured gas 
distributed at retail, by means of facilities owned or operated by such 
company, did not exceed 1 percent of its gross revenues during the 
previous calendar year.
    (d) A company shall not be deemed to be an electric utility company 
or a gas utility company which owns any of the facilities specified in 
sections 2(a)(3) and (4) [of the Act] Provided, That:
    (1) Such company owns the facility as a company, as a trustee, or as 
holder of a beneficial interest under a trust, or as a purchaser or 
assignee of any of the foregoing; and
    (i) Such facility is leased under a net lease directly to a public 
utility company either as a sole lessee or joint lessee with one or more 
other public utility companies, and such facility is or is to be 
employed by the lessee in its operations as a public utility company; 
and
    (ii) Such company is otherwise primarily engaged in one or more 
businesses other than the business of a public utility company, or is a 
company all of whose equity interest is owned by one or more companies 
so engaged, either directly or through subsidiary companies; and
    (iii) The terms of the lease have been expressly authorized or 
approved by a regulatory authority having jurisdiction over the rates 
and service of the public utility company which leases such facility; 
and
    (iv) The lease of the facility extends for an initial term of not 
less than 15 years, except for termination of the lease upon events 
therein set forth, unless the owner shall state in the initial 
certificate filed pursuant to paragraph (d)(5) of this section that a 
shorter term specified in the lease is not less than two-thirds of the 
expected useful life of the facility; and
    (v) The rent reserved under the lease shall not include any amount 
based, directly or indirectly, on revenues or income of the public 
utility company, or any part thereof.

Paragraphs (d)(1)(iii) and (iv) of this section shall not apply to a 
lease executed before, or within 30 days after, the effective date of 
this section, if the certificate required by paragraph (d)(5) of this 
section is filed within 60 days after such effective date.
    (2) Paragraph (d)(1) of this section shall cease to be applicable in 
the event of termination of the lessee's right to possession or use of 
the facility during its term, unless within 90 days of the date of 
termination, and subject to such prior or subsequent regulatory and 
other approvals as by law may be required, such company, as defined in 
this section, negotiates a new lease or an operating agreement at a 
fixed rental.
    (3) A public utility company shall not cease to be such by reason of 
a lease, directly or indirectly, of part or all of its facilities to any 
associate company or to any entity, whether or not a company, as defined 
in section 2(a)(2) of the Act.
    (4) Except to the extent provided in paragraphs (d)(1) and (6) of 
this section, this section shall not relieve any company from such other 
provisions of the Act, and rules and regulations promulgated thereunder, 
as may be applicable.
    (5) Any company specified in paragraph (d)(1) of this section shall 
file, or join in the filing of, a certificate on a form prescribed by 
the Commission, as to each lease within 30 days of its execution. Upon 
any transfer of legal or beneficial ownership, such new owner shall file 
an appropriate amendment

[[Page 598]]

within 30 days of such transfer. If the lease is amended in a manner 
which would alter any item of the certificate, or if the facility 
ceases, for any reasons, to be subject to the lease, the holder of legal 
title to the facility shall file an appropriate amendment within 30 days 
of the event.
    (6) A company shall not be deemed to be an electric utility company 
by reason of ownership of any interest in nuclear fuel and facilities 
incident to its use, if the operation and use thereof is vested by lease 
or contract in one or more public utility companies, unless the 
consideration paid by a public utility company for the use of such fuel 
and facilities, or of the heat or energy produced thereby, includes an 
amount based, directly or indirectly, on the revenue or income of the 
public utility company or any part thereof. Any such company shall file, 
or join in the filing of, the certificates specified in paragraph (d)(5) 
of this section. A certificate with respect to a lease or contract 
executed prior to, or within 30 days after, the effective date of this 
section shall be filed within 60 days after such effective date.
    (7) The provisions of paragraphs (d)(1) and (5) of this section, and 
the filing requirements of paragraph (d)(6) of this section shall not 
apply if the facilities therein specified are in possession of and 
operated by one or more governmental bodies or instrumentalities thereof 
specified in section 2(c) of the Act.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 7 FR 3423, May 8, 1942; 
21 FR 5438, July 20, 1956; 32 FR 13487, Sept. 27, 1967; 38 FR 16998, 
June 28, 1973; 59 FR 21927, Apr. 28, 1994]



Sec. 250.8  Exemption of subsidiaries subject to jurisdiction of 
Interstate Commerce Commission.

    Any subsidiary company of a registered holding company, which 
subsidiary is subject to the jurisdiction of the Interstate Commerce 
Commission but is not an electric or gas utility company or a holding 
company, shall be exempt from all the provisions of the act and rules 
thereunder, with respect to any transaction which is approved by the 
Interstate Commerce Commission, except that the exemption from section 
9(a) (49 Stat. 817; 15 U.S.C. 79i) provided by this rule shall not be 
applicable to any acquisition of securities of any electric or gas 
utility company or holding company or to any acquisition by which such 
subsidiary will become a public utility or holding company.



Sec. 250.10  Effect of certain exemptions.

    (a) Parent holding companies exempt where subsidiaries have 
obtained, or applied for, certain exemptions. Subject to the provisions 
of Sec. 250.6, any holding company shall be exempt from any obligation, 
duty, or liability imposed on it as a holding company solely by reason 
of such company having as a subsidiary any company which, insofar as it 
is either a public utility or a holding company, is:
    (1) A company declared not to be a public utility or holding company 
by rule or order under section 2(a)(3), 2(a)(4), or 2(a)(7) of the Act 
(49 Stat. 804; 15 U.S.C. 79b), or is exempted without qualification by 
order pursuant to section 3(b) from all obligations, duties, or 
liabilities imposed on it as a subsidiary company; or
    (2) A company exempted as a holding company from sections 4 and 5(a) 
of the Act (49 Stat. 812; 15 U.S.C. 79d, 79e) by order under 
subparagraph (3), (4), or (5) of section 3(a) (49 Stat. 810; 15 U.S.C. 
79c), or by Sec. 250.3, Sec. 250.4, or Sec. 250.5; or
    (3) A company which is only indirectly a subsidiary of such holding 
company through the interest of such holding company in a subsidiary 
holding company of the class specified in paragraph (a)(2) of this 
section; or
    (4) A company as to which there is pending an application for an 
order specified in paragraph (a)(1), (2), or (3) of this section. 
Provided, That such holding company does not have cause to believe that 
such application was not filed in good faith.
    (b) Subsidiary companies deemed to be included in applications by 
parent companies under section 2(a)(8). Every application for exemption 
filed under section 2(a)(8) (49 Stat. 804; 15 U.S.C. 79b), whether filed 
before or after the adoption of this section, shall, unless otherwise 
expressly stated therein, be deemed to be filed on behalf of such 
applicant and of all subsidiary companies of such applicant, and shall 
be deemed

[[Page 599]]

to include as applicants all such subsidiary companies of such 
subsidiary company filing such application: Provided, however, That the 
Commission may in any case direct the filing of separate applications by 
any such companies or may order separate hearings or enter separate or 
different orders with respect to any such companies so deemed to be 
included pursuant to this section.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 6 FR 5950, Nov. 25, 
1941]



Sec. 250.11  Certain acquisitions by affiliates exempted from section 9(a)(2).

    (a) Acquisitions by certain exempt holding companies. Any holding 
company which is exempt from sections 4 and 5(a) of the Act (49 Stat. 
812; 15 U.S.C. 79d, 79e) and which is not a subsidiary of any registered 
holding company, shall be exempt from section 9(a)(2) (49 Stat. 817; 15 
U.S.C. 79i) of the Act with respect to the acquisition of any securities 
issued by any subsidiary of such exempt holding company.
    (b) Acquisitions by certain exempt holding companies and persons not 
in registered holding company systems. Any holding company specified in 
paragraph (a) of this section and any person which is not a holding 
company or a subsidiary of any registered holding company, shall be 
exempt from section 9(a)(2) of the Act (49 Stat. 817; 15 U.S.C. 79i) 
with respect to the acquisition of any of the following securities:
    (1) Securities issued by certain exempt public utility or holding 
companies. Securities issued by any public utility or holding company, 
which is within the classes specified in Sec. 250.10(a) (1) and (2); or
    (2) Securities of foreign companies. Securities issued by any 
company which does not own or operate, or have a subsidiary which owns 
or operates, any utility assets located in the United States: Provided, 
That the acquiring company is not an affiliate under section 2(a)(11)(A) 
of the Act (49 Stat. 804; 15 U.S.C. 77b) of any company which owns or 
operates, and has no subsidiary which owns or operates, any utility 
assets located in the United States.
    (c) Acquisitions by certain registered holding companies. The 
exemptions provided by paragraph (b)(2) of this section shall also apply 
to any registered holding company which has been exempted from section 
9(a)(1) of the Act (49 Stat. 817; 15 U.S.C. 79i) as to the acquisition 
of the securities therein specified.
    (d) Acquisitions by certain persons of securities issued by 
affiliates. Any person which is not a holding company or a subsidiary of 
a registered holding company shall be exempt from section 9(a)(2) of the 
Act with respect to the acquisition of any securities issued by a public 
utility or holding company of which such person is, prior to such 
acquisition, an affiliate under section 2(a)(11)(A) of the Act.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 18 FR 6589, Oct. 16, 
1953]



Sec. 250.12  Exemption of certain public utility companies from the 
definition of subsidiary companies of holding companies.

    (a) Exemption. If voting securities of a public utility company are 
owned, controlled or held with power to vote by the trustee or trustees 
of an inter-vivos or testamentary trust created by an instrument 
executed prior to January 1, 1935, and if such trust was established for 
charitable, religious, educational or other nonbusiness purposes, or for 
the benefit of an individual or individuals, or for more than one of 
such purposes, and if the beneficial interest or interests in such trust 
are not represented by transferable certificates, and if such public 
utility company is not itself a holding company, then such public 
utility company and any subsidiary companies thereof shall not be deemed 
to be subsidiary companies of such trustees or trust within the meaning 
of the act or any rule or regulation thereunder, and such public utility 
company and any subsidiary companies thereof and such trustees and trust 
shall be exempt from any provisions of the act other than section 
9(a)(2) thereof, from any rules and regulations thereunder and from any 
obligations, duties and liabilities thereunder to which they might 
otherwise be subject by reason of the ownership, control or holding with 
power to vote of such securities by such trustees.

[12 FR 5868, Sept. 8, 1947]

[[Page 600]]



Sec. 250.14  Exemption of acquisitions of securities of power supply 
companies from section 9(a)(2) of the Act.

    (a) An electric utility company which is not an ``affiliate'' of any 
other company under clause (B) of section 2(a)(11) shall be exempt from 
section 9(a)(2) of the Act with respect to the acquisition of any 
security of a power supply company, either directly or through a wholly-
owned company organized solely for that purpose, provided that:
    (1) The acquisition of any securities of the power supply company, 
including its voting securities, and any obligation by such electric 
utility company to provide funds to the power supply company pursuant to 
a capital funds agreement or guarantee of its debts, is authorized by a 
regulatory authority having jurisdiction over the rates and services of 
such electric utility company;
    (2) All of the voting securities of the power supply company are 
owned by one or more electric utility companies to which the power 
supply company sells all of its electric energy, or as a transmission 
company provides all its transmission services to them or their 
customers (exclusive of any electric energy or transmission services 
which it sells to or provides to any person described in section 2(c) of 
the Act or to any rural electric cooperative association); and
    (3) The issue of securities by the power supply company (other than 
any security maturing not more than one year after the date of issue) is 
subject to express authorization by a regulatory authority having 
jurisdiction over their issuance.
    (b) If the voting securities of the power supply company are 
acquired by more than one electric utility company, the requirements of 
this rule shall apply independently to each (except that paragraph 
(a)(1) shall not apply to any person referred to in section 2(c) of the 
Act or to any rural electric cooperative association).
    (c) Definitions. (1) The term electric utility company, as used in 
this rule, includes any person referred to in section 2(c) of the Act.
    (2) The term power supply company means any company which owns and/
or operates facilities for the generation or transmission of electric 
energy for sale to one or more electric utility companies, together with 
such other facilities as are incidental and functionally related 
thereto.
    (3) The term voting security shall have the same meaning as in 
section 2(a)(17) of the Act, including any voting interest that serves 
the same defined purpose.

[46 FR 5869, Jan. 21, 1981]



Sec. 250.15  Exemption of holding company and subsidiary companies under 
section 3(a)(2) of the Act.

    (a) When an electric utility company becomes a holding company with 
respect to one or more power supply companies in a transaction or 
tranactions exempted under Sec. 250.14, the electric utility company, 
as such holding company, shall be exempt pursuant to section 3(a)(2) of 
the Act. If an electric utility company otherwise qualifies for an 
exemption pursuant to section 3(a)(2) of the Act, either by order or 
pursuant to Sec. 250.2(a)(2) of these rules, that exemption shall not 
be affected by an acquisition exempt under Sec. 250.14.
    (b) The exemption under paragraph (a) of this section shall apply to 
an electric utility company whose acquisition, though not subject to 
section 9(a)(2) of the Act, satisfies all the requirements provided by 
Sec. 250.14 for an exempt acquisition.

[46 FR 5870, Jan. 21, 1981]



Sec. 250.16  Exemption of non-utility subsidiaries and affiliates.

    (a) Any company, and each affiliate thereof, shall be exempt from 
all obligations, duties or liabilities imposed upon it by the Act, as a 
subsidiary company or as an affiliate of a registered holding company or 
of a subsidiary company thereof, as such terms are respectively defined 
in sections 2(a)(8)(A) and 2(a)(11) of the Act, if--
    (1) Such company is not a public utility company as defined in 
section 2(a)(5) of the Act;
    (2) Such company is or has been organized to engage primarily in the 
exploration, development, production, manufacture, storage, 
transportation or supply of natural or synthetic gas;

[[Page 601]]

    (3) No more than 50% of its voting securities or other voting 
interests are owned, directly or indirectly, by one or more registered 
holding companies; and
    (4) The acquisition by the registered holding company or subsidiary 
thereof of its interest in such company has been approved by the 
Commission pursuant to sections 9(a)(1) and 10 of the Act and applicable 
rules thereunder upon a timely application to the Commission.
    (b) The exemption provided by this rule shall continue in effect 
during the pendency of such application. If an acquisition is made 
subject to Commission approval, the exemption provided by this rule is 
not terminated if the Commission does not grant its approval. In that 
event any such acquisition shall be disposed of in accordance with the 
order of the Commission.
    (c) If a registered holding company directly or indirectly acquires 
any voting securities of such company, or any other voting interest, 
pursuant to this rule, the holding company shall include as an exhibit 
to its annual report on Form U5S a copy of the annual report of such 
company. It may incorporate by reference the annual report such company 
is required to file pursuant to other statutes administered by the 
Commission.
    Note: Exhibits filed under paragraph (c) shall be submitted to the 
Commission in paper only, whether or not the registrant is otherwise 
required to file in electronic format. An electronic filer must submit 
paper exhibits under cover of Form SE (Sec. 259.603).
    (d) This rule does not affect the authority of any agency having 
jurisdiction over rates with respect to a company exempt under this 
rule, including authority over affiliate transactions by or with such 
company pursuant to the laws administered by that agency.

[45 FR 79024, Nov. 28, 1980, as amended at 58 FR 15005, Mar. 18, 1993]

                      Forms, Procedure and Accounts



Sec. 250.20  Prescribed forms and amendments.

    (a) General provisions. (1) Any provision in the rules in this part 
requiring the filing of any application, declaration, report or other 
document on a specified form or upon the proper or appropriate form, 
means that such document shall comply with the requirements of such form 
and the instructions thereto, as most recently amended by the 
Commission.
    (2) Any application or declaration unless otherwise stated therein 
shall be deemed to constitute a request for appropriate Commission 
authorizations (or exemption) of the proposed transaction or any part 
thereof, and the Commission may consider the transaction or any part 
thereof under the appropriate provisions of the act or rules, whether or 
not such provisions of the act or rules are specifically designated in 
the application or declaration.
    (3) The Commission may for cause shown, authorize a modification of 
particular requirements with respect to the filing of information or 
regarding reports or accounts, or the filing of information after the 
date otherwise required by these rules or by the appropriate form, or 
may require filing of additional information; such authorization or 
requirement may be evidenced in any appropriate manner.
    (b) Amendments. Amendments to any such document, other than 
amendments to applications or declarations filed on Form U-1, shall 
comply with the requirements of the original document and shall state 
the complete text of each item amended. Amendments shall be filed under 
cover of the form amended, and shall be marked with the suffix ``/A'' to 
designate the document as an amendment, e.g., ``U-7D/A.''
    (c) Form U-1 (Sec. 259.101 of this chapter). Applications and 
amendments thereto under section 6(b), 9(c)(3) and 10 of the Act and 
declarations and amendments thereto pursuant to sections 7, 12(b), 
12(c), 12(d) or 12(f) of the Act or any rule of the Commission 
thereunder, shall be filed on Form U-1. Amendments shall be marked 
either ``U-1/A'' to designate the document as a pre-effective amendment 
or ``POS AMC'' to designate the document as a post-effective amendment.
    (d) Certificates of notification. Form U-6B-2 is prescribed for any 
certificate of notification pursuant to the last sentence of section 
6(b) of the Act. Such certificate shall be filed within 10 days

[[Page 602]]

after the issuance or sale of any securities exempted from the 
provisions of section 6(a) by or under the authority of section 6(b) (49 
Stat. 814; 15 U.S.C. 79f), which is neither the subject of a declaration 
or application on Form U-1 nor included within the exemption provided by 
Sec. 250.48.
    (e) Matters as to which no form is prescribed. As to any proposed 
transactions, and any request for an order, for which no form of 
application is prescribed, applicant shall state the facts relied upon 
as the basis for any action which the Commission is asked to take, and 
shall furnish by amendment such other information as the Commission may 
require.
    (f) Electronic filings. (1) Electronic filers are subject to 
Regulation S-T (Part 232 of this chapter) and the EDGAR Filer Manual. 
Any rule or instruction therein shall be controlling unless otherwise 
specifically provided in rules or instructions pertaining to the 
submission of a specific form.
    (2) The terms ``EDGAR,'' ``EDGAR Filer Manual,'' ``electronic 
filer,'' ``electronic filing,'' ``electronic format,'' ``electronic 
submission,'' ``paper format,'' and ``signature'' shall have the 
meanings assigned to such terms in Regulation S-T--General Rules for 
Electronic Filings (Sec. Sec. 232.10 and 237.302 of this chapter).

[6 FR 2015, Apr. 19, 1941, as amended at 19 FR 5211, Aug. 18, 1954; 58 
FR 15005, Mar. 18, 1993]



Sec. 250.21  Filing of documents.

    (a) General provision. All documents required to be filed with the 
Commission shall be delivered through the mails or otherwise to the 
Securities and Exchange Commission, Washington, DC 20549. Except as 
otherwise provided by the rules, such documents shall be deemed to have 
been filed with the Commission on the date when they are actually 
received by it.
    (b) Electronic filings. (1) All documents required to be filed with 
the Commission under the Act or the rules and regulations thereunder 
must be filed at the principal office in Washington, DC via EDGAR by 
delivery to the Commission by direct transmission, via dial-up modem or 
Internet.
    (2) The date of filing of documents shall be determined in the 
manner set forth in rule 13 of Regulation S-T (Sec. 232.13 of this 
chapter).

[6 FR 2015, Apr. 19, 1941, as amended at 58 FR 15005, Mar. 18, 1993; 65 
FR 24801, Apr. 27, 2000; 68 FR 25800, May 13, 2003]



Sec. 250.22  Applications and declarations.

    (a) Joinder. As far as practicable combined or joint applications or 
declarations shall be filed with respect to the same or related 
transactions or where related questions of law or fact are involved, and 
the Commission will dispose of the matter simultaneously or otherwise as 
may be appropriate.
    (b) Incorporation by reference. (1) If any information required to 
be filed in any application or declaration is contained in any document 
previously or concurrently filed with the Commission pursuant to any Act 
administered by it, the application or declaration may, subject to the 
limitations of Sec. 228.10(f) and Sec. 229.10(d) of this chapter, 
incorporate such information by exact and specific reference to the 
filing in which it was physically filed. The Commission may refuse to 
permit incorporation by reference in any instance where, in its opinion, 
such incorporation is confusing, misleading or inadequate.
    (2) Electronic filings. Any application or declaration filed in 
electronic format may incorporate by reference any information contained 
in any document previously or concurrently filed with the Commission 
under any Act administered by it, provided that, if amended, the 
document or amendment has been filed in accordance with the requirements 
of rule 102 of Regulation S-T (Sec. 232.102 of this chapter). Such 
information shall be incorporated by specific reference to the 
electronic filing in which it was filed, including the filer's name, the 
file number, the form type and the date filed.
    (c) Verification. All applications and declarations shall be 
appropriately verified by an authorized officer of the applicant of 
declarant having knowledge of the facts, except as otherwise 
specifically provided in the applicable form.
    (d) Formal specifications. All applications, declarations, 
certificates and

[[Page 603]]

statements, and any amendments thereto, shall be filed in triplicate. 
One copy shall be signed but the other two copies may have facsimile or 
typed signatures. Applications and declarations, amendments thereto, and 
where practicable, all papers filed as a part thereof shall be on good 
quality, unglazed, white paper, no larger than 8\1/2\x11 inches in size. 
To the extent that the reduction of larger documents would render them 
illegible, such documents may be filed on paper larger than 8\1/2\x11 
inches in size. All documents filed shall be bound on the left side in 
such manner as to leave the reading matter legible, and shall be 
printed, lithographed, mimeographed, typewritten, or prepared by any 
process which, in the opinion of the Commission, produces copies 
suitable for permanent records and microfilming. Irrespective of the 
process used, all copies of such material shall be clear, easily 
readable and suitable for repeated photocopying. Debits and credits in 
financial statements shall be clearly distinguishable as such on 
photocopies.
    (e) The manually signed original (or in the case of duplicate 
originals, one duplicate original) of all registrations, applications, 
statements, reports, or other documents filed under the Public Utility 
Holding Company Act of 1935, as amended, shall be numbered sequentially 
(in addition to any internal numbering which otherwise may be present) 
by handwritten, typed, printed, or other legible form of notation from 
the facing page of the document through the last page of that document 
and any exhibits or attachments thereto. Further the total number of 
pages contained in a numbered original shall be set forth on the first 
page of the document.
    (f) Proposed notice. A proposed notice of the proceeding initiated 
by the filing of an application or a declaration shall accompany each 
application or declaration as an exhibit thereto and, if necessary, 
shall be modified to reflect any amendments to such application or 
declaration.

(Sec. 19, 48 Stat. 85, as amended, secs. 13, 15, 23, 48 Stat. 894, 895, 
901, as amended, sec. 15, 49 Stat. 828, secs. 305, 307, 314, 319, 53 
Stat. 1154, 1156, 1167, 1173, as amended, secs. 38, 39, 54 Stat. 841; 15 
U.S.C. 77s, 78m, 78o, 78w, 79o, 77eee, 77ggg, 77nnn, 77sss, 80a-37, 80a-
38; 15 U.S.C. 79c and 79t (49 Stat. 810, 833); 15 U.S.C. 80w-37, 30c-39 
(54 Stat. 841, 342); 15 U.S.C. 80b-3, 80b-4, 80b-11 (54 Stat. 850, 852, 
855))

[19 FR 5211, Aug. 18, 1954, as amended at 29 FR 2421, Feb. 13, 1964; 44 
FR 4666, Jan. 23, 1979; 47 FR 58238, Dec. 30, 1982; 50 FR 50611, Dec. 
11, 1985; 58 FR 15005, Mar. 18, 1993; 60 FR 32825, June 23, 1995]



Sec. 250.23  Procedure applicable to certain applications and declarations.

    (a) Scope of rule. The provisions of this section apply to 
applications under sections 6(b), 9(c)(3) and 10 of the Act (49 Stat. 
814, 49 Stat. 817, 49 Stat. 818; 15 U.S.C. 79f, 79i, 79j) or Sec. 
250.50 and declarations pursuant to sections 7, 12(b), 12(c), 12(d), and 
12(f) of the Act (49 Stat. 815, 49 Stat. 823; 15 U.S.C. 79g, 79l) and 
any rule of the Commission thereunder, to declarations under Sec. 
250.65, and to declarations regarding proposed accounting entries 
subject to instruction 8C of the Uniform System of Accounts for Public 
Utility Holding Companies.
    (b) Designation of filings as applications or declarations. Any 
filing as to any matter specified in paragraph (a) of this section shall 
be designated an application, if filed pursuant to section 6(b), 9(c)(3) 
or 10 of the Act (49 Stat. 814, 817, 818; 15 U.S.C. 79f, 79i, 79j) or 
Sec. 250.50, and shall be designated a declaration with respect to any 
other matter specified in paragraph (a) of this section.
    (c) Effective date. A declaration or application, which complies 
with the applicable requirements of the Act and the rules and 
regulations thereunder, will become effective or be granted respectively 
by an order to issue upon the expiration of the period prescribed in the 
notice of filing.
    (d) Effect of order for hearing. If the Commission deems that a 
hearing is appropriate in the public interest or the interest of 
investors or consumers, it will issue an order for hearing thereon, and 
in that event a declaration or application shall not become effective

[[Page 604]]

or be granted except pursuant to further order of the Commission.
    (e) Notice of filing. The Commission will publish in the Federal 
Register notice of the filing of a declaration or application, stating 
the earliest date upon which such declaration or application, as filed 
or as amended, may be permitted to become effective or be granted. Any 
interested person may, not later than fifteen days after the publication 
of such notice or such other date as may be fixed therein, request the 
Commission in writing that a hearing be held, stating his reasons 
therefor and the nature of his interest.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 6 FR 5950, Nov. 25, 
1941; 28 FR 5664, June 11, 1963; 41 FR 26854, June 30, 1976]



Sec. 250.24  Terms and conditions applicable to declarations and orders 
granting applications.

    (a) Certificate required from declarant or applicant. Within 10 days 
after the consummation of any transaction regarding which a declaration 
has become effective or an application has been granted, the declarant 
or applicant shall certify to the Commission that such transaction has 
been carried out in accordance with the terms and conditions of and for 
the purposes represented by the declaration or application, and of any 
order of the Commission with respect thereto, and except to the extent 
that the declaration or application specifies that certain steps or 
transactions therein proposed may be carried out at a later time than 
the others, the applicant or declarant shall be required to carry out as 
a single transaction all the steps therein proposed. The foregoing 
requirement is imposed on each applicant and declarant unless otherwise 
expressly ordered by the Commission.
    (b) Conditions and restrictions proposed in an application or 
declaration. Every order granting an application or making effective a 
declaration shall, unless otherwise therein expressly stated, impose 
upon the applicant or declarant the obligation to comply with any 
restriction or condition which the application or declaration proposes 
shall be imposed by the Commission in connection therewith.
    (c) Conditions to effectiveness. Every order granting an application 
or making effective a declaration shall, unless otherwise expressly 
ordered, be subject to the following conditions:
    (1) Compliance with declaration or application. That the transaction 
proposed shall be carried out in accordance with the terms and 
conditions of, and for the purposes stated in the declaration or 
application, and within 60 days after such declaration is effective or 
application granted, or such earlier or later date as may be designed in 
such declaration or application.
    (2) State commission action. That if the transaction is proposed to 
be carried out in whole or in part pursuant to the express authorization 
of any State commission, such transaction shall be carried out in 
accordance with such authorization, and if the same be modified, revoked 
or otherwise terminated, the effectiveness of the declaration or order 
granting the application shall be, without further order or the taking 
of any action by the Commission, revoked and terminated.
    (3) Reservation of jurisdiction. That the Commission reserves 
jurisdiction:
    (i) To pass upon the terms and conditions of any document which the 
declaration or application states is to be submitted to the Commission 
after the effective date of such declaration or application, and to pass 
upon any modification of the terms and conditions of any document 
previously submitted to the Commission. Any such document or 
modification shall, unless otherwise directed by the Commission, be 
submitted to the Commission, by amendment to the declaration or 
application, prior to the execution or use thereof.
    (ii) To pass upon any matter which the declaration of application 
proposes shall be subject to future consideration by the Commission. No 
action shall be taken with respect to any such matter except upon order 
of the Commission.
    (iii) To entertain, at the request of declarant or applicant, such 
further proceedings and take such further action as may be appropriate 
regarding any step which may be taken to consummate the proposed 
transaction.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 6 FR 5950, Nov. 25, 
1941]

[[Page 605]]



Sec. 250.25  Answers.

    In any proceeding instituted by the Commission, the Commission may 
direct that any party respondent shall file an answer to the allegations 
contained in the order of the Commission initiating such proceeding, or 
in any statement of facts filed in such proceeding. Unless otherwise 
directed by the Commission, such answer shall conform to the 
requirements for answers to pleadings specified in the Federal Rules of 
Civil Procedure. The Commission recognizes the right of any person 
directed to file any such answer to set forth therein appropriate 
reservations of constitutional or other legal rights.



Sec. 250.26  Financial statement and recordkeeping requirements for 
registered holding companies and subsidiaries.

    (a) Every registered holding company and every subsidiary company 
thereof:
    (1) Shall conform to the requirements of Regulation S-X as to form 
and content of financial statements; and
    (2) Shall make and keep current accounts, books and other records of 
all of its transactions in sufficient detail to permit examination, 
audit and verification of the financial statements, schedules and 
reports it is required to file with the Commission or which it issues to 
stockholders. Such accounts, books and other records shall be maintained 
in appropriate form and in sufficient detail to provide all of the 
information with respect to the business of the company specified by 
such Commission filing requirements as are in effect when the 
transactions recorded occur.
    (b) Every registered holding company shall identify in its Form U5S 
the chart of accounts used by it and by each subsidiary company.
    (1) The initial identification shall be made in the Form U5S, or a 
supplement thereto, filed in the year in which the use of such accounts 
is to begin, or in the year 1975 for charts of accounts already in use 
or proposed to be used in that year. Subsequent Forms U5S need merely 
state that no change in the accounts used has occurred, if that is the 
fact.
    (2) A copy of each chart of accounts shall be annexed as an exhibit 
to the filing in which it is identified, except that it is unnecessary 
to file a copy of an official chart of accounts which any company 
subject to this rule is required to use by the Federal Energy Regulatory 
Commission, a state commission or by Sec. 250.27 or Sec. 250.93 under 
the Act. A company electing to use a chart of accounts promulgated by 
the Federal Energy Regulatory Commission also need not file a copy 
thereof.
    (3) An amendment to Form U5S shall be filed as to any modification 
of such chart of accounts, except a modification made to an official 
chart of accounts by the commission which promulgated it. The amendment 
shall describe the nature, purpose and effect of the proposed 
modification and the date it is to be placed in effect. It shall be 
filed at least 30 days prior to its effective date. Unless the 
Commission directs otherwise, the chart of accounts, as so modified, 
shall be used thereafter.
    (c) Every registered holding company and every subsidiary company 
thereof shall hereafter follow the equity method of accounting for 
investments in any subsidiary company.
    (1) Each investment shall be recorded at its carrying value 
heretofore established and the actual cost of investments hereafter 
made. Each investment shall be periodically adjusted for the 
proportionate share of earnings or losses or capital changes of the 
subsidiary company since its acquisition, crediting any dividends 
received from such subsidiary company.
    (2) Every company subject to this rule shall maintain a subaccount 
to its retained earnings account which shall be periodically debited or 
credited with its proportionate share of undistributed retained earnings 
of subsidiary companies.
    (3) No company subject to this rule shall declare or pay any 
dividends or reacquire any of its own securities from or on the basis of 
any balances recorded in the subaccount referred to in paragraph (c)(2) 
of this section, except pursuant to a declaration under section 12(c) of 
the Act.
    (d) No registered holding company which is not a public utility 
company shall dispose, without authorization

[[Page 606]]

from the Commission, of any accounts, books, or other records, except 
pursuant to 17 CFR part 257.
    (e) This rule shall not modify or revoke any order of the Commission 
heretofore entered as to the accounting by any company subject to this 
rule including any continuing provision as to amortization or other 
disposition of any item governed thereby.
    (f) Nothing in this rule shall relieve any company subject thereto 
from compliance with the requirements as to recordkeeping and retention 
that may be prescribed by any other regulatory agency.
    (g) Any references in other rules, forms or releases under the Act 
to the uniform system of accounts shall be hereafter deemed to refer to 
this rule.

[40 FR 22129, May 21, 1975, as amended at 49 FR 27309, July 3, 1984; 59 
FR 21927, Apr. 28, 1994]



Sec. 250.27  Classification of accounts prescribed for utility companies 
not already subject thereto.

    (a) Every registered holding company and subsidiary thereof, which 
is a public utility company and which is not required by either the 
Federal Energy Regulatory Commission or a State commission to conform to 
a classification of accounts, shall keep its accounts, insofar as it is 
an electric utility company, in the manner currently prescribed for 
similar companies by the Federal Energy Regulatory Commission or, and 
insofar as it is a gas utility company, in the manner currently 
recommended by the National Association of Railroad and Utilities 
Commissioners, except any company whose public utility activities are so 
limited that the application to it of such system of accounts is clearly 
inappropriate. A company claiming that its activities are thus limited, 
shall apply to the Commission for written instructions to that effect.
    (b) All references, in the systems of accounts made applicable by 
paragraph (a) of this section, to the authority prescribing the same and 
to orders and instructions by, and reports to, said authority, shall be 
deemed to refer to the Securities and Exchange Commission as the 
``Commission'' thereby designated.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 8 FR 15814, Nov. 23, 
1943; 59 FR 21927, Apr. 28, 1994]



Sec. 250.28  Inconsistent financial statements.

    Except as otherwise authorized or required by the Commission by 
rule, regulation, order, statement of administrative policy, or 
otherwise, no registered holding company or subsidiary company thereof 
shall distribute to its security holders, or publish, financial 
statements which are inconsistent with the book accounts of such company 
or financial statements filed with this Commission by, or on behalf of, 
such company. This section shall not be deemed to prevent the 
distribution or publication of reasonable condensations or of unaudited 
financial statements or of financial statements (on a cash or other 
basis) pursuant to the requirements of an indenture or mortgage given to 
secure bonds or similar instruments, or of appropriate financial 
statements of a receiver or trustee appointed by a court of the United 
States.

[25 FR 1942, Mar. 5, 1960]



Sec. 250.29  Filing of reports to State Commissions.

    Preliminary Note: Reports to State Commissions shall be submitted to 
the Commission in paper only, whether or not the filer is otherwise 
required to file in electronic format.

    A copy of each annual report submitted by any registered holding 
company or any subsidiary thereof to a State Commission covering 
operations not reported to the Federal Energy Regulatory Commission 
shall be filed with the Securities and Exchange Commission no later than 
ten days after such submission.

[59 FR 21927, Apr. 28, 1994]

[[Page 607]]

     Regulation and Exemption of Various Financial Transactions \2\ 
---------------------------------------------------------------------------

    \2\ See, also, Sec. 250.70(b)(2) as to dealings with financial 
institutions where there are or have been, certain interlocking 
relationships.
---------------------------------------------------------------------------



Sec. 250.40  Exemption of certain acquisitions from nonaffiliates.

    (a) Section 9(a) (49 Stat. 817; 15 U.S.C. 79i), shall not apply to 
the acquisition, from a person other than an associate or affiliate of 
the acquiring company or an affiliate of an associate company, of any of 
the securities (excluding securities issued by the acquiring company) as 
specified below:
    (1) Readily marketable securities. Any bond or other evidence of 
indebtedness issued by any nonassociate company which qualifies as a 
legal investment for trust funds or for saving banks under the laws of 
New York, Pennsylvania or Massachusetts, if after giving effect to such 
acquisition the acquiring company, together with its associate 
companies, will not own more than 5 percent of the particular class of 
such securities.
    (2) Commercial paper and similar securities. Any prime commercial 
paper, trade acceptance or bank certificate of deposit maturing within 
12 months from the date of issuance or payable in not more than 60 days 
after demand.
    (3) Acquisitions resulting from previous ownership of securities. 
Securities received as a dividend, or in renewal of an evidence of 
indebtedness, or pursuant to the exercise of preemptive right or 
conversion privilege, or as a result of any reclassification, general 
exchange offer or reorganization: Provided, That no exemption shall be 
available under this paragraph as to the acquisition of any voting 
securities or securities convertible into voting securities if after 
giving effect to such acquisition the acquiring company will, directly 
or indirectly, own, control, or hold 5 percent or more of the particular 
class of such securities.
    (4) Securities acquired in connection with routine business 
transactions. In the ordinary course of the acquiring company's business 
(other than the business of a holding company or investment company as 
such), any evidence of indebtedness executed by its customers in 
consideration of utility or other services by such company or executed 
in connection with the sale of goods or of real property other than 
utility assets. \3\
---------------------------------------------------------------------------

    \3\ See, also, Sec. 250.48 for exemption concerning the acquisition 
of appliance paper in connection with the sale of electric or gas 
appliances.
---------------------------------------------------------------------------

    (5) Securities of local enterprises. Any security issued by an 
industrial or other nonutility enterprise located in the service 
territory of the acquiring public-utility company or, if the acquiring 
company is not a public-utility company, in the service territory of the 
registered holding-company system: Provided,
    (i) The total cost of acquisitions by the acquiring company of 
securities of industrial development companies organized for the purpose 
of, and in accordance with a State law that specifically relates to, 
promoting the development of business and industry in such state does 
not exceed an annual aggregate amount of $5 million, and
    (ii) The total cost of acquisitions of securities of other local 
industrial or nonutility enterprises does not exceed an annual aggregate 
amount of $1 million. In no event, however, will the above exemption 
apply where, by reason of such acquisition, the acquiring company would 
become an affiliate of the issuer.
    (6) Small minority interests. Any security of any subsidiary 
company, if prior to such acquisition the acquiring company owns 95 
percent or more of the outstanding securities of the class acquired.
    (b) Section 9(a) (49 Stat. 817; 15 U.S.C. 79i) shall not apply to 
the acquisition of any securities of a mutual or subsidiary service 
company: Provided, That such acquisition is in accordance with a program 
as to ownership of securities of such service company which the 
Commission has found to meet the requirements of section 13 (49 Stat. 
825; 15 U.S.C. 79m) of the Act.
    (c) Section 9(a)(1) shall not apply to the acquisition of securities 
of a company whose principal business is the ownership and/or licensing 
of trade names, trade-marks and service marks

[[Page 608]]

used by public-utility companies in the ordinary course of their 
business and the preparation, distribution and/or sale of material and 
services related wholly to such names and marks.
    (d) Section 9(a)(2) shall not apply to the acquisition by a person 
who is neither a registered holding company, nor a subsidiary company 
thereof, of securities owned by a registered holding company, or 
subsidiary thereof, which are the subject of a divestment order under 
section 11(b), where such securities constitute all the vendor's 
interest in a company which does not operate any utility assets and 
which is a public-utility company only by reason of the ownership of a 
reversionary interest in utility assets: Provided, That such utility 
assets are operated under lease by a company which is not an affiliate 
of either the vendor or of the vendee, and the Commission finds that by 
reason of the duration of the lease, the ownership by the lessee of 
securities of the lessor and similar matters, there is no substantial 
probability of the lessor resuming operation of said utility assets. 
Such finding of the Commission may be made in connection with an 
application by the vendor company with respect to such sale.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 8 FR 5831, May 6, 1943; 
18 FR 8890, Dec. 31, 1953; 28 FR 5664, June 11, 1963; 59 FR 21927, Apr. 
28, 1994]



Sec. 250.41  Exemption of public utility subsidiaries with respect to 
limited acquisition of utility assets.

    Any public utility company which is a subsidiary of a registered 
holding company shall be exempt from every obligation, duty, and 
liability imposed upon such company as a subsidiary company by the 
provisions of section 9(a)(1) of the Act (49 Stat. 817; 15 U.S.C. 79i) 
with respect to an acquisition of utility assets provided that the 
following conditions are met:
    (a) Electric utility assets. Any electric utility assets to be 
acquired are, prior to the acquisition, or will be immediately 
thereafter, connected with electric utility assets already owned and 
operated by the acquiring company, excluding connections over lines not 
operated by the acquiring company.
    (b) Gas utility assets. Any gas utility assets to be acquired are 
located in or adjacent to the same service area as that in which gas 
utility assets already owned and operated by the acquiring company are 
located.
    (c) Limit in amount. The total consideration paid for utility assets 
acquired pursuant to the exemption granted by this section does not 
exceed in any calendar year the lesser of $5 million or five percent of 
the gross annual revenues of the acquiring company derived from its 
operations as a public-utility company during the preceding calendar 
year.
    (d) Prohibition of fees. No fees or commissions are to be paid by 
any person or company in connection with the acquisition of such utility 
assets except to a person or company subject to the rules of the 
Commission adopted under section 13 of the Act (49 Stat. 825; 15 U.S.C. 
78m) or to a person or company not affiliated with the acquiring 
company.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 59 FR 21928, Apr. 28, 
1994]



Sec. 250.42  Acquisition, retirement and redemption of securities by 
the issuer thereof.

    A registered holding company or its subsidiary company may acquire, 
retire or redeem any security of which it is the issuer (or which it has 
assumed or guaranteed) without the need for prior Commission approval 
under sections 9(a), 10 and 12(c) of the Act: Provided, This section 
shall not apply to a transaction by a registered holding company or its 
subsidiary company with an associate company, an affiliate, or an 
affiliate of an associate company, or to a transaction by a registered 
holding company, as defined in Sec. 240.13e-3(a)(3) of this chapter.

[59 FR 21928, Apr. 28, 1994]



Sec. 250.43  Sales to affiliates.

    (a) General provisions. No registered holding company or subsidiary 
thereof shall, directly or indirectly, sell to any company in the same 
holding company system or to any affiliate of a company in such holding 
company system any securities or utility assets or any other

[[Page 609]]

interest in any business, except pursuant to a declaration notifying the 
Commission of the proposed transaction, which has become effective in 
accordance with the procedure specified in Sec. 250.23, and pursuant to 
the order of the Commission with respect to such declaration under the 
applicable provisions of the Act.
    (b) Exception. The foregoing requirement in paragraph (a) shall not 
apply to any sale of securities or utility assets or any other interest 
in any business in an aggregate amount of up to $5,000,000 during any 
calendar year if the acquisition of such securities, assets or other 
interest does not require prior Commission approval.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 10 FR 15413, Dec. 29, 
1945; 59 FR 21928, Apr. 28, 1994]



Sec. 250.44  Sales of securities and assets.

    (a) Sales of utility securities or assets. No registered holding 
company shall, directly or indirectly, sell to any person any security 
which it owns of any public utility company, or any utility assets, 
except pursuant to a declaration notifying the Commission of the 
proposed transaction, which has become effective in accordance with the 
procedure specified in Sec. 250.23, and pursuant to the order of the 
Commission with respect to such declaration under the applicable 
provisions of the Act.
    (b) Exception. The foregoing requirement in paragraph (a) shall not 
apply to any sale of securities or of utility assets in an aggregate 
amount of up to $5,000,000 during any calendar year if the acquisition 
of such securities or assets does not require prior Commission approval.
    (c) Sales pursuant to order or plan under section 11. No registered 
holding company or subsidiary thereof shall, directly or indirectly, 
sell or otherwise dispose of any security, asset or other interest in 
any business which it is required to dispose of by reason of any order 
of this Commission under section 11(b) of the Act, or pursuant to the 
provisions of any plan pending or approved under section 11(e) of the 
Act, unless it shall have given at least 10 days' notice to the 
Commission of its intention to make such sale or other disposition and;
    (1) No notice shall have been given to said company by the 
Commission within said 10 day period that a declaration should be filed 
with respect to the proposed transaction, or notice shall have been 
given by the Commission within said 10 day period that no declaration is 
required; or
    (2) A declaration filed by the company with respect to such 
transaction shall have been permitted to become effective by order of 
the Commission: Provided, That the provisions of this paragraph shall 
not apply to any transaction as to which a declaration is required under 
Sec. 250.43(a) (Rule U-43(a)) or paragraph (a) of this section.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 10 FR 15413, Dec. 29, 
1945; 59 FR 21928, Apr. 28, 1994]



Sec. 250.45  Loans, extensions of credit, donations and capital 
contributions to associate companies.

    (a) General provision. No registered holding company or subsidiary 
company shall, directly or indirectly, lend or in any manner extend its 
credit to nor indemnify, nor make any donation or capital contribution 
to, any company in the same holding company system, except pursuant to a 
declaration notifying the Commission of the proposed transaction, which 
has become effective in accordance with the procedure specified in Sec. 
250.23, and pursuant to the order of the Commission with respect to such 
declaration under the applicable provisions of the Act.
    (b) Exceptions. The following transactions shall be exempt from the 
declaration requirements of this section:
    (1) A loan or extension of credit involving an acquisition of 
securities approved by the Commission under section 10 (49 Stat. 818; 15 
U.S.C. 79j) or exempt from section 9(a) of the Act by section 9(b)(2) 
(49 Stat. 817; 15 U.S.C. 79i) thereof or by any rule in this part.
    (2) Extensions of credit without interest in connection with 
service, construction or sales contracts (including sales of materials 
and supplies) or from sales of electric energy or natural or 
manufactured gas, or other obligations accruing in the ordinary course 
of business: Provided, That payment is made as soon as reasonably 
practicable.

[[Page 610]]

    (3) Extensions of credit to a subsidiary without interest to meet 
emergency requirements: Provided, That both the borrowing and lending 
company forthwith join in a statement notifying the Commission of the 
transaction and agreeing to take such action with respect thereto as the 
Commission may require.
    (4) Capital contributions or open account advances, without 
interest, by a company to its subsidiary company; Provided, That capital 
contributions or open account advances to any energy-related company 
subsidiary, as defined in Sec. 250.58, shall not be exempt hereunder 
unless, after giving effect thereto, the aggregate investment by a 
registered holding company or any subsidiary thereof in such company and 
all other such energy-related company subsidiaries does not exceed the 
limitation in Sec. 250.58(a)(1).
    (5) Failure to demand or enforce payment with respect to all or part 
of any obligation which is by its terms payable on demand, or of any 
security which has matured, if no new agreement is entered into with 
respect to the terms or conditions of the unpaid balance thereof.
    (6) An agreement by a registered holding company or subsidiary 
company of a registered holding company to guarantee, to assume joint 
liability, or to act as a surety or as an indemnitor with respect to 
contingent liabilities or other obligations of a subsidiary of such 
company, incurred in the ordinary course of such subsidiary's business, 
if said agreement is in the form of:
    (i) A direct guarantee, assumption of liability, surety or 
indemnification of the subsidiary company's obligations which is 
required to meet the requirements of federal, state or local law; or
    (ii) An indirect guarantee of a subsidiary through a surety or 
indemnification of one or more surety companies or agencies, which have 
agreed to provide bonds of the following kinds required by subsidiary 
companies in the holding-company system:
    (A) Court and fiduciary bonds such as appeal bonds, supersedeas 
bonds, condemnation bonds, or bonds required to free property from 
attachment or to lift an injuction;
    (B) License and permit bonds such as blasting and oversize load 
permit bonds;
    (C) United States, state and local government bonds such as customs 
bonds, workers' compensation self-insurance bonds, bonds required by the 
Internal Revenue Services, mineral right-of-way or drilling lease bonds 
and notary public bonds;
    (D) Lost instrument bonds or other bonds which may be necessary or 
desirable in connection with the processing of securities or any bonds 
which may be required by a stock exchange on which any security is 
listed;
    (E) Admiralty bonds;
    (F) Bonds required for engineering or construction purposes such as 
bid, performance or payment bonds;
    (G) Any other bonds of a similar nature required for routine 
operational purposes;

Provided, however, That: (1) No payment, compensation or other 
consideration shall be paid or accrue to the parent company in 
consideration for such guarantee, assumption of liability, surety or 
indemnification; (2) this rule shall not be construed to apply to a 
direct or indirect guarantee, assumption of liability, surety or 
indemnification of a subsidiary company's indebtedness for borrowed 
money; and (3) the aggregate of all such direct and indirect guarantees, 
assumptions of liability, sureties or indemnifications by the parent 
company, shall not exceed the greater of $50,000,000, or 5 percent of 
the aggregate amount of the other securities of the company then 
outstanding, such securities to be valued at (i) original principal 
amount, if there is such a principal amount, and (ii) fair market value 
as of the date of issuance, if there is no such principal amount. Par 
value stock shall be treated in the same manner as no par value stock, 
i.e., as stock issued without any principal amount.
    (7) An agreement by any subsidiary company of a registered holding 
company to assume liability (as guarantor, co-maker, indemnitor, or 
otherwise) with respect to any security issued by any other subsidiary 
company in the same holding company system, provided that the issuance 
and sale of such

[[Page 611]]

security is exempt, and such assumption of liability constitutes the 
issuance of a security that is exempt, from the declaration requirements 
of section 6(a) of the Act (15 U.S.C. 79f(a)) under Sec. 250.52.
    (c) A declaration under paragraph (a) of this section shall not be 
required for the filing of a consolidated tax return by the eligible 
associate companies in a registered holding company system, or the 
execution or performance of the agreement referred to herein, if such 
consolidated tax return is filed pursuant to a tax agreement, in 
writing, relating to either federal or state taxes, for a term of one or 
more tax years among the associate companies included in the 
consolidated return, and the agreement provides for allocation among 
such associate companies of the liabilities and benefits arising from 
such consolidated tax return for each tax year in a manner not 
inconsistent with the following conditions:
    (1) Definitions:
    Consolidated tax is the aggregate tax liability for a tax year, 
being the tax shown on the consolidated return and any adjustments 
thereto thereafter determined. The consolidated tax will be the refund 
if the consolidated return shows a negative tax.
    Corporate tax credit is a negative separate return tax of an 
associate company for a tax year, equal to the amount by which the 
consolidated tax is reduced by including a net corporate taxable loss or 
other net tax benefit of such associate company in the consolidated tax 
return.
    Corporate taxable income is the income or loss of an associate 
company for a tax year, computed as though such company had filed a 
separate return on the same basis as used in the consolidated return, 
except that dividend income from associate companies shall be 
disregarded, and other intercompany transactions eliminated in the 
consolidated return shall be given appropriate effect. It shall be 
further adjusted to allow for applicable rights accrued to the associate 
company under paragraphs (c) (4) and (5) of this section or under prior 
rules or orders, on the basis of other tax years, but carryovers or 
carrybacks shall not be taken into account if the associate company has 
been paid a corporate tax credit therefor. If an associate company is a 
member of the registered system's consolidated tax group for only part 
of a tax year, that period will be deemed to be its tax year for all 
purposes under paragraph (c) of this section.
    Separate return tax is the tax on the corporate taxable income of an 
associate company computed as though such company were not a member of a 
consolidated group.
    (2) The consolidated tax shall be apportioned among the several 
members of the group in proportion to (i) the corporate taxable income 
of each such member, or (ii) the separate return tax of each such 
member, but the tax apportioned to any subsidiary shall not exceed the 
separate return tax of such subsidiary.
    (3) The tax agreement shall provide for appropriate and equitable 
adjustment of the allocation specified under paragraph (c) (2)(i) or 
(2)(ii) of this section if the sum of the corporate taxable incomes or 
separate return taxes of all members of the group in any taxable year 
differs from the consolidated taxable income or tax because of 
intercompany transactions excluded from the consolidated return. It 
shall provide for appropriate and equitable adjustment of the allocation 
specified under paragraph (c)(2)(ii) to the extent that the consolidated 
tax and separate return tax for any year include material items taxed at 
different rates or involving other special benefits or limitations. Such 
adjustments will be directed to allocating to the individual members of 
the group the material effects of any particular features of the tax law 
applicable to them.
    (4) The tax agreement may exclude from the allocation under 
paragraph (c)(2)(i) of this section associate companies not having a 
positive corporate taxable income for the year being allocated, or under 
paragraph (c)(2)(ii) of this section associate companies not having a 
positive separate return tax for the year being allocated. An agreement 
under this paragraph shall make appropriate and equitable provision for 
preserving to each subsidiary company so excluded the equivalent of any 
rights which such company would have had, under the applicable tax law, 
had

[[Page 612]]

it filed a separate return, to use in other years any loss or credit 
availed of by the group through the consolidated return. With respect to 
carryover rights, such provisions will normally consist of recognition 
of the carryover in future allocations by reducing the consolidated tax 
allocation in the subsequent year of the subsidiary company entitled to 
the benefit, and by charging the excess to the companies which had 
benefited by the prior deduction or credit. In the case of a carryback, 
the excluded subsidiary company should normally be paid the amount of 
refund to which it would have been entitled had it filed a separate 
return.
    (5) The agreement may, instead of excluding members as provided in 
paragraph (c)(4), include all members of the group in the tax 
allocation, recognizing negative corporate taxable income or a negative 
corporate tax, according to the allocation method chosen. An agreement 
under this paragraph shall provide that those associate companies with a 
positive allocation will pay the amount allocated and those subsidiary 
companies with a negative allocation will receive current payment of 
their corporate tax credits. The agreement shall provide a method for 
apportioning such payments, and for carrying over uncompensated 
benefits, if the consolidated loss is too large to be used in full. Such 
method may assign priorities to specified kinds of benefits.
    (6) The tax agreement for each taxable year shall be filed as an 
exhibit to the system's annual report on Form U5S (Sec. 259.5s of this 
chapter) for the previous taxable year. The initial filing after the 
effective date of this amendment shall be made as an amendment to the 
last Form U5S filed. If an existing tax agreement is merely renewed or 
amended, prior filings may be incorporated by reference. Amendments to a 
tax agreement shall be filed as an amendment to the Form U5S. Any 
amendment which would alter the allocation to any associate company for 
any period preceding its adoption shall be conditioned on approval by 
the Commission if the Commission directs, within 60 days after its 
filing, that it be deemed to be a declaration under Rule 45(a).

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 20 FR 488, Jan. 21, 
1955; 46 FR 18534, Mar. 25, 1981; 52 FR 48986, Dec. 29, 1987; 62 FR 
7915, Feb. 20, 1997; 63 FR 9741, Feb. 26, 1998]



Sec. 250.46  Dividend declarations and payments on certain indebtedness.

    (a) Dividends. No registered holding company or subsidiary thereof 
shall declare or pay any dividend on any security of such company out of 
capital or unearned surplus, except pursuant to a declaration notifying 
the Commission of the proposed transaction, which has become effective 
in accordance with the procedure specified in Sec. 250.23, and pursuant 
to the order of the Commission with respect to such declaration under 
the applicable provisions of the act.
    (b) Payments on certain indebtedness. No registered holding company 
or subsidiary company thereof shall, directly or indirectly, make any 
payment of principal or interest on any note, bond, book account or any 
indebtedness however evidenced which is or was issued as, or based upon 
a dividend or dividends created or issued or declared from, or charged 
against, capital or unearned surplus, or in renewal of, or in exchange 
for any such obligation, whether such dividend was declared before or 
after the act took effect, except pursuant to a declaration notifying 
the Commission of the proposed transaction, which has become effective 
in accordance with the procedure specified in Sec. 250.23, and pursuant 
to the order of the Commission with respect to such declaration under 
the applicable provisions of the Act. In determining whether proposed 
payments on any such indebtedness issued or declared as a dividend in 
part out of earned surplus and in part out of capital or unearned 
surplus, or issued in renewal of, or in exchange for, such indebtedness, 
fall within this paragraph, past payments on account of such 
indebtedness or any predecessor indebtedness shall be deemed to have 
been first applied in reduction of the portion of such indebtedness 
issued or declared as a dividend out of earned surplus.

[[Page 613]]



Sec. 250.47  Exemption of public utility subsidiaries as to certain 
securities issued to the Rural Electrification Administration.

    (a) Exemption. Any public utility company which is a subsidiary 
company of a registered holding company shall be exempt from the 
obligations, duties, or liabilities imposed by the act or any rule 
thereunder, on such company as a subsidiary company, with respect to the 
issue and sale to the Rural Electrification Administration, of any 
security of which it is the issuer in an amount not exceeding in any one 
calendar year 2 percent of the aggregate of the outstanding funded 
indebtedness plus the capital and surplus accounts of the issuer as of 
the end of the prior calendar year. Such company shall also be exempt 
with respect to the pledge of any security or other property as 
collateral for any security so issued or sold, and with respect to the 
redemption or retirement, in whole or in part, of any such security.
    (b) Certificate of notification. Within 10 days after the issue or 
sale of any security exempt under this section, the issuer shall file 
with the Commission a certificate of notification on Form U-6B-2 
containing the information prescribed by that form.



Sec. 250.48  Certain exemptions in connection with appliance sales and 
loans to officers or employees.

    (a)(1) Exemptions in connection with appliance sales. Any public 
utility company, or subsidiary thereof, or associate service company 
thereof, shall be exempt from section 9(a) of the Act (49 Stat. 817; 15 
U.S.C. 79i) with respect to the acquisition, in the ordinary course of 
business, of any evidence of indebtedness executed by customers of such 
public utility company as consideration for the purchase (whether from 
such public utility company, from an associate company thereof, or from 
dealers) of standard electric or gas appliances, or reacquisition of any 
such security guaranteed by such company.
    (2) Guarantee. Any public utility company, or subsidiary thereof, or 
associate service company thereof, shall be exempt from the provisions 
of section 6(a) of the Act (49 Stat. 814; 15 U.S.C. 79f) and of Sec. 
250.44 with respect to the guarantee, by endorsement or otherwise, and 
sale of any such customers' evidence of indebtedness. This paragraph 
shall be inapplicable to any company which is a registered holding 
company. \4\
---------------------------------------------------------------------------

    \4\ Any registered holding company which is also a public utility 
company and whose regular course of business involves activities within 
the scope of this section may file a declaration, regarding such 
activities. See Sec. 250.22(a).
---------------------------------------------------------------------------

    (3) Issuance of note. Any public utility company, or subsidiary 
thereof, or associated service company thereof, shall be exempt from the 
provisions of section 6(a) of the Act with respect to the issue or sale 
of any note or draft which is, and at all times will be, secured by a 
pledge of such customers' evidence of indebtedness having a principal 
amount still unpaid at least equal to the unpaid principal amount of 
such note or draft. This paragraph shall be inapplicable to any company 
which is a registered holding company. \4\
    (4) Acquisition of guaranteed paper or retirement of notes. Any 
public utility company, or subsidiary thereof, or associate service 
company thereof, shall be exempt from section 9(a) of the Act and Sec. 
250.42 with respect to the acquisition, retirement or redemption of any 
note or draft or customers' evidence of indebtedness issued or 
guaranteed by such company under the circumstances described in 
paragraph (b) or (c) of this section.
    (b) Exemption in connection with loans to employees. Each registered 
holding company and any subsidiary company thereof is exempted from 
section 9(a)(1) of the Act (49 Stat. 817; 15 U.S.C. 79i) with respect to 
the acquisition of any evidence of indebtedness from its employee in 
consideration of a loan made to such employee and each subsidiary of a 
registered holding company is exempted from section 6(a) of the Act (49 
Stat. 814; 15 U.S.C. 79f) with respect to the guarantee of indebtedness 
of it employee:
    (1) If such transaction is made pursuant to a personnel policy of 
general application adopted in writing by the board of directors of such 
company, or by a committee or executive officer authorized by the board 
of directors so to act and communicated to the class of

[[Page 614]]

employees to which it applies; and does not cause the total amount of 
guarantees and loans of all companies in the holding-company system to 
or for the account of such employee, outstanding at the time of the 
transaction, to exceed the limits specified in the applicable personnel 
policy.
    (2) The exemption also extends to securities or guarantees incident 
to bona fide advances to the employee for travel or other reimbursable 
expenses and current indebtedness of the employee for goods or services 
sold by the system companies in the ordinary course of business.
    (3) Each company intending to avail itself of this exemption 
subsequent to the effective date of this rule shall file, as an exhibit 
or as an amendment to the system's annual report on Form U5S, a copy of 
such personnel policy.

As used in this rule, the term ``employee'' includes an officer and does 
not include a director who is not an officer or employee; and the term 
``guarantee'' includes the assumption of an indebtedness or of an 
obligation to purchase such indebtedness or otherwise to provide a means 
of payment if the primary obligor fails to pay.

(Secs. 5(b), 9(c) and 14 of the Act, 15 U.S.C. 79e(b), 79i(c) and 79m)

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 49 FR 4717, Feb. 8, 
1984]



Sec. 250.49  Certain exemptions granted to non-utility subsidiaries.

    (a) Companies exempted. The exemptions provided by this section 
shall apply to any subsidiary of a registered holding company which 
subsidiary is not:
    (1) A holding company,
    (2) A public utility company,
    (3) A company engaged in the business of performing services or 
construction for or selling goods to associate holding or public utility 
companies, or
    (4) A company controlling, directly or indirectly, any company 
specified in paragraphs (a) (1) to (3) of this section.
    (b) Exemptions from sections 6(a) and 12(c). Any such subsidiary 
company shall be exempt from the provisions of section 6(a) of the Act 
(49 Stat. 814; 15 U.S.C. 79f) with respect to the issuance or sale of 
any securities to the vendor of supplies or equipment for use in the 
business of such subsidiary company, and from the provisions of any rule 
under section 12(c) of the Act with respect to the acquisition, 
redemption or retirement of any such securities.
    (c) Transactions approved by a reorganization court. Any such 
subsidiary company which is the subject of a proceeding for 
reorganization in any court of the United States in which proceeding the 
Commission has filed a notice of appearance pursuant to section 1109(a) 
of chapter 11 of the Bankruptcy Code (11 U.S.C. 1109(a)) or which is a 
subsidiary within the meaning of section 2(a)(8) of the Public Utility 
Holding Company Act (49 Stat. 804; 15 U.S.C. 79b), of any such 
subsidiary company which is the subject of such a proceeding, shall be 
exempt from any provision of the act applicable to the appointment of 
any trustee for such company or to any transaction entered into with the 
approval (direct or indirect) of such court: Provided, That such 
transaction does not involve the acquisition of any utility assets or 
securities of any public utility or holding company; Provided further, 
That this paragraph shall be inapplicable to any subsidiary company 
which is the subject of reorganization proceedings (or any subsidiary of 
such subsidiary company within the meaning of section 2(a)(8) of the 
Public Utility Holding Company Act), where such subsidiary company, or 
any subsidiary thereof, is the issuer of any securities, or is the 
obligor on any obligations, which have been guaranteed or assumed by any 
registered holding company.
    (d) Exemption from section 9(a). (1) Any such subsidiary company 
primarily engaged in the production of natural gas or crude oil or 
sulphur, or in two or more of such businesses, shall be exempt from 
section 9(a) of the Act (49 Stat. 817; 15 U.S.C. 79i) with respect to 
the acquisition, from a person other than an associate or an affiliate 
of the acquiring company or an affiliate of an associate company, of gas 
leases, oil leases, or other production leases, in connection with the 
business in which such subsidiary is so engaged: Provided, however, That 
the exemption provided by this paragraph shall not be applicable if such 
acquisition is part of a

[[Page 615]]

transaction which involves the filing of an application or declaration 
with the Commission by such subsidiary company.
    (2) Any such subsidiary company which is subject to regulation as a 
water, telephone, common carrier or other public service company, under 
the laws of the State in which it operates, shall be exempt from section 
9(a) of the Act with respect to any acquisition expressly authorized by 
the State commission of such State provided that such acquisition does 
not include utility assets, securities of a public utility or holding 
company, or any other interest in any class of business other than that 
in which such public service company is engaged.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 12 FR 1649, Mar. 11, 
1947; 59 FR 21928, Apr. 28, 1994]



Sec. 250.50  [Reserved]



Sec. 250.51  Acquisitions pursuant to preliminary agreements and invitation 
for tenders.

    For the purpose of section 9(a) of the Act, the term ``acquire'' is 
defined to include the making of a contract or agreement (herein called 
Preliminary Agreement) pursuant to which a person subject to section 
9(a) (of the Act) (herein called the Proposed Acquirer) contingently or 
otherwise acquires any right or becomes subject to any obligation to 
acquire directly or indirectly any securities or utility assets or any 
other interest in any business, or to direct any other person to make 
any sale or acquisition of any securities or utility assets or any other 
interest in any business. Except where an exemption from section 9(a) 
(of the Act) may be applicable, the making of such Preliminary Agreement 
or the taking of any action in connection therewith, without prior 
approval of the Commission, by any person so subject to section 9(a) (of 
the Act) shall be deemed unlawful, unless all of the following 
conditions are satisfied:
    (a) The transaction contemplated by the Preliminary Agreement is 
expressly conditioned on Commission approval and the application for 
such approval is filed with the Commission as soon as practicable.
    (b) No standby, option, or similar fee is paid or payable by or on 
behalf of the Proposed Acquirer as consideration for the Preliminary 
Agreement.
    (c) The Proposed Acquirer does not indemnify or agree to indemnify 
any person against any market or investment risk in connection with such 
person's acquisition, retention or disposition of the subject matter of 
the proposed acquisition.
    (d) The Proposed Acquirer does not transfer to any person (other 
than a subsidiary or successor in interest by merger or consolidation), 
by way of assignment or otherwise, any of its rights or interests in 
respect of the subject matter of the proposed acquisition unless such 
transfer is conditioned upon consummation of the Preliminary Agreement 
following its approval by the Commission.
    (e) In case a proposed transaction includes an acquisition of 
securities pursuant to an invitation for tenders to be made prior to the 
approval of such acquisition, provision shall be made that any person 
tendering such securities (the Tenderer) may demand in writing the 
return of any deposited securities at any time after 60 days from the 
initial mailing or publication of the invitation for tenders unless 
prior to the receipt of such demand either (1) the proposed acquisition 
has been approved by the Commission and the Proposed Acquirer is 
obligated to consummate the transaction or (2) the Tenderer has been 
issued a transferable certificate of deposit which meets the conditions 
specified in paragraph (f) of this section.
    (f) A transferable certificate of deposit for purposes of paragraph 
(e) of this section may be issued in exchange for tendered securities 
subject to the following conditions:
    (1) The terms of the certificate of deposit as proposed to be issued 
are specified in the invitations for tenders, including equitable 
provisions for return of the tendered securities in the event the 
proposed transaction is not approved by the Commission or otherwise 
fails of consummation, for exercise of voting rights and for receipt of 
dividends or interest by the Tenderer during the deposit period.

[[Page 616]]

    (2) The Proposed Acquirer files with the Commission an application-
declaration proposing the issuance of such certificates of deposit in 
exchange for tendered securities.
    (3) Upon notice and after a hearing which shall be limited to the 
fairness of the terms and conditions of such issuance and exchange and 
to compliance with the conditions of this Rule, the Commission in its 
descretion may by order permit such issuance and exchange on such terms 
and conditions as it shall approve. Any person to whom it is proposed to 
issue a certificate of deposit shall be entitled to appear at such 
hearing.
    (4) If the terms and conditions specified in the certificates of 
deposit to be issued pursuant to order of the Commission differ from 
those specified in the invitation for tenders previously published by 
the Proposed Acquirer, the Commission may in such order require the 
Proposed Acquirer to give notice thereof by mail (and publication if 
deemed appropriate) to all persons who have tendered their securities 
and to provide up to 20 days after mailing of such notice for any such 
person to elect, in a manner prescribed by the Commission, either to 
continue to or revoke his tender. The terms and conditions specified in 
the certificates of deposit may be modified only pursuant to order of 
the Commission.

[33 FR 9287, June 25, 1968]



Sec. 250.52  Exemption of issue and sale of certain securities.

    (a) Any registered holding-company subsidiary which is itself a 
public-utility company shall be exempt from section 6(a) of the Act (15 
U.S.C. 79f(a)) and rules thereunder with respect to the issue and sale 
of any security, of which it is the issuer if:
    (1) The issue and sale of the security are solely for the purpose of 
financing the business of the public-utility subsidiary company;
    (2) The issue and sale of the security have been expressly 
authorized by the state commission of the state in which the subsidiary 
company is organized and doing business; and
    (3) The interest rates and maturity dates of any debt security 
issued to an associate company are designed to parallel the effective 
cost of capital of that associate company.
    (b) Any subsidiary of a registered holding company which is not a 
holding company, a public-utility company, an investment company, or a 
fiscal or financing agency of a holding company, a public-utility 
company or an investment company shall be exempt from section 6(a) of 
the Act (15 U.S.C. 79f(a)) and related rules with respect to the issue 
and sale of any security of which it is the issuer if:
    (1) The issue and sale of the security are solely for the purpose of 
financing the existing business of the subsidiary company; and
    (2) The interest rates and maturity dates of any debt security 
issued to an associate company are designed to parallel the effective 
cost of capital of that associate company; Provided, That any security 
issued to an associate company by any energy-related company subsidiary, 
as defined in Sec. 250.58, shall not be exempt under these provisions 
unless, after giving effect to the issue of the security, the aggregate 
investment by a registered holding company or its subsidiary in the 
energy-related company subsidiary and all other energy-related company 
subsidiaries does not exceed the limitation in Sec. 250.58(a)(1).
    (c) Within ten days after the issue or sale of any security exempt 
under this section, the issuer or seller shall file with the Commission 
a Certificate of Notification on Form U-6B-2 (17 CFR 259.206) containing 
the information prescribed by that form. However, with respect to exempt 
financing transactions between associate companies which involve the 
repetitive issue or sale of securities or are part of an intrasystem 
financing program involving the issuance and sale of securities not 
exempted by this section, the filing of information on Form U-6B-2 may 
be done on a calendar quarterly basis.
    (d) The acquisition by a company in a registered holding company 
system of any security issued and sold by any associate company, 
pursuant to this section, is exempt from the requirements of section 
9(a) of the Act (15 U.S.C. 79i(a)); provided that the exemption granted 
by this paragraph (d) shall not apply to any transaction involving

[[Page 617]]

the issue and sale of securities to form a new subsidiary company of a 
registered holding company.
    (e) A copy of any Certificate of Notification on Form U-6B-2 (Sec. 
259.206) that is filed with this Commission under this section with 
respect to any security issued by a subsidiary of a registered holding 
company under paragraph (b) of this section and acquired by a public-
utility company that is an associate company of the issuer, shall be 
submitted concurrently to each state commission having jurisdiction over 
the retail rates of the public-utility company.

[60 FR 33639, June 28, 1995, as amended at 62 FR 7915, Feb. 20, 1997; 63 
FR 9741, Feb. 26, 1998]



Sec. 250.53  Certain registered holding company financings in connection 
with the acquisition of one or more exempt wholesale generators.

    (a) In determining whether to approve the issue or sale of a 
security by a registered holding company for purposes of financing the 
acquisition of an exempt wholesale generator, or the guarantee of a 
security of an exempt wholesale generator by a registered holding 
company, the Commission shall not make a finding that such security is 
not reasonably adapted to the earning power of such company or to the 
security structure of such company or companies in the same holding 
company system, or that the circumstances are such as to constitute the 
making of such guarantee an improper risk for such company, if the 
following conditions are met:
    (1) Aggregate investment does not exceed 50% of the system's 
consolidated retained earnings.
    (i) Aggregate investment means all amounts invested, or committed to 
be invested, in exempt wholesale generators and foreign utility 
companies, for which there is recourse, directly or indirectly, to the 
registered holding company. Among other things, the term includes, but 
is not limited to, preliminary development expenses that culminate in 
the acquisition of an exempt wholesale generator or a foreign utility 
company; and the fair market value of assets acquired by an exempt 
wholesale generator or a foreign utility company from a system company 
(other than an exempt wholesale generator or a foreign utility company).
    (ii) Consolidated retained earnings means the average of the 
consolidated retained earnings of the registered holding company system 
as reported for the four most recent quarterly periods on the holding 
company's Form 10-K or 10-Q (Sec. 249.308a or Sec. 249.310 of this 
chapter, respectively) filed under the Securities Exchange Act of 1934, 
as amended.
    (2) The registered holding company maintains books and records to 
identify investments in and earnings from any exempt wholesale generator 
or foreign utility company in which it directly or indirectly holds an 
interest. In addition:
    (i) For each United States exempt wholesale generator in which the 
registered holding company directly or indirectly holds an interest:
    (A) The books and records of such entity shall be kept in conformity 
with United States generally accepted accounting principles (``GAAP'').
    (B) The financial statements shall be prepared according to GAAP.
    (C) The registered holding company undertakes to provide the 
Commission access to such books and records and financial statements as 
the Commission may request.
    (ii) For each foreign exempt wholesale generator or foreign utility 
company which is a majority-owned subsidiary company of the registered 
holding company:
    (A) The books and records of such entity shall be kept in conformity 
with GAAP.
    (B) The financial statements for such entity shall be prepared in 
conformity with GAAP.
    (C) The registered holding company undertakes to provide the 
Commission access to such books and records and financial statements, or 
copies thereof, in English, as the Commission may request.
    (D) For purposes of this section, a ``majority-owned subsidiary 
company'' is one in which the registered holding company directly or 
indirectly owns more than 50% of the voting securities.

[[Page 618]]

    (iii) For each foreign exempt wholesale generator or foreign utility 
company in which the registered holding company directly or indirectly 
owns 50% or less of the voting securities, the registered holding 
company shall proceed in good faith, to the extent reasonable under the 
circumstances, to cause:
    (A) The books and records of such entity to be kept in conformity 
with GAAP; provided, that if the books and records are maintained 
according to a comprehensive body of accounting principles other than 
GAAP, the registered holding company shall, upon request, describe and 
quantify each material variation from GAAP in the accounting principles, 
practices and methods used to maintain the books and records.
    (B) The financial statements for such entity to be prepared 
according to GAAP; provided, that if the financial statements are 
prepared according to a comprehensive body of accounting principles 
other than GAAP, the registered holding company shall, upon request, 
describe and quantify each material variation from GAAP in the balance 
sheet line items and net income reported in the financial statements.
    (C) Access by the Commission to such books and records and financial 
statements, or copies thereof, in English, as the Commission may 
request; provided, that in any event, the registered holding company 
shall make available to the Commission any books and records of the 
foreign exempt wholesale generator or foreign utility company that are 
available to the registered holding company.
    (3) No more than two percent of the employees of the system's 
domestic public-utility companies render services, at any one time, 
directly or indirectly, to exempt wholesale generators or foreign 
utility companies in which the registered holding company, directly or 
indirectly, holds an interest; provided, that the Commission has 
previously approved the rendering of such services.
    (4) The registered holding company simultaneously submits a copy of 
any Form U-1 (17 CFR 259.101) and certificate under section 250.24 filed 
with the Commission under this section, as well as a copy of Item 9 of 
Form U5S (17 CFR 259.5s) and Exhibits G and H thereof with every 
federal, state or local regulator having jurisdiction over the retail 
rates of any affected public-utility company.
    (b) Notwithstanding the foregoing provisions, the section shall not 
be available if:
    (1) The registered holding company, or any subsidiary company having 
assets with book value exceeding an amount equal to 10% or more of 
consolidated retained earnings, has been the subject of a bankruptcy or 
similar proceeding, unless a plan of reorganization has been confirmed 
in such proceeding; or
    (2) The average consolidated retained earnings for the four most 
recent quarterly periods have decreased by 10% from the average for the 
previous four quarterly periods and the aggregate investment in exempt 
wholesale generators and foreign utility companies exceeds two percent 
of total capital invested in utility operations; provided, this 
restriction will cease to apply once consolidated retained earnings have 
returned to their pre-loss level; or
    (3) In the previous fiscal year, the registered holding company 
reported operating losses attributable to its direct or indirect 
investments in exempt wholesale generators and foreign utility 
companies, and such losses exceed an amount equal to 5% of consolidated 
retained earnings.
    (c) An applicant that is unable to satisfy the requirements of 
paragraphs (a) and (b) of this section must affirmatively demonstrate 
that the proposed issue and sale of a security to finance the 
acquisition of an exempt wholesale generator, or the guarantee of a 
security of an exempt wholesale generator:
    (1) Will not have a substantial adverse impact upon the financial 
integrity of the registered holding company system; and
    (2) Will not have an adverse impact on any utility subsidiary of the 
registered holding company, or its customers, or on the ability of State 
commissions to protect such subsidiary or customers.
    (d) The Commission shall issue an order with respect to a proposed 
transaction under section 32(h)(3) of the Act

[[Page 619]]

within 120 days of completion of the record concerning such issue, sale 
or guarantee.

[58 FR 51504, Oct. 1, 1993]



Sec. 250.54  Effect of exempt wholesale generators on other transactions.

    In determining whether to approve the issue or sale of a security by 
a registered holding company for purposes other than the acquisition of 
an exempt wholesale generator or a foreign utility company, or other 
transactions by such registered holding company or its subsidiaries 
other than with respect to exempt wholesale generators or foreign 
utility companies, the Commission shall not consider the effect of the 
capitalization or earnings of any subsidiary which is an exempt 
wholesale generator or a foreign utility company upon the registered 
holding company system if Sec. 250.53 (a), (b) and (c) are satisfied.

[58 FR 51505, Oct. 1, 1993]



Sec. 250.57  Notices and reports to be filed under section 33.

    (a) Notification of Status as Foreign Utility Company. Form U-57 
(Sec. 259.207 of this chapter), notification of status as a foreign 
utility company, may be filed by, or on behalf of, an entity that seeks 
to become a foreign utility company. If the criteria of section 33 of 
the Act are otherwise met, the entity shall be deemed to be a foreign 
utility company upon the filing of such form.
    (b) Reporting Requirement for Associate Public-Utility Companies. A 
United States public-utility company that is an associate company of a 
foreign utility company shall file with the Commission a report on Form 
U-33-S (Sec. 259.405 of this chapter) on or before May 1 of each year. 
This requirement shall not apply to public-utility companies that are 
subsidiaries of a registered holding company or of a holding company 
that is exempt from registration under section 3(a) (1) or (2) of the 
Act, pursuant to section 250.2. In addition, a holding company that is 
exempt from registration by Commission order may file a single Form U-
33-S on behalf of all of its public-utility subsidiaries.

[58 FR 51505, Oct. 1, 1993]



Sec. 250.58  Exemption of investments in certain nonutility companies.

    (a) Exemption from Section 9(a). Section 9(a) of the Act (15 U.S.C. 
79i(a)) shall not apply to:
    (1) The acquisition by a registered holding company, or a subsidiary 
company thereof, of the securities of an energy-related company; 
Provided, That, after giving effect to any such acquisition, the 
aggregate investment by such registered holding company and subsidiaries 
in all such companies does not exceed the greater of:
    (i) $50 million; or
    (ii) 15% of the consolidated capitalization of such registered 
holding company, as reported in the registered holding company's most 
recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q 
(Sec. 249.308a or Sec. 249.310 of this chapter) filed under the 
Securities Exchange Act of 1934, as amended (15 U.S.C. 78 et seq.); or
    (2) The acquisition by a holding company that is registered solely 
by reason of ownership of voting securities of gas utility companies, or 
a subsidiary company thereof, of the securities of a gas-related 
company.
    (b) Definitions. For purpose of this section:
    (1) The term energy-related company shall mean any company that, 
directly or indirectly through one or more affiliates, derives or will 
derive substantially all of its revenues (exclusive of revenues from 
temporary investments) from one or more of the following activities 
within the United States:
    (i) The rendering of energy management services and demand-side 
management services;
    (ii) The development and commercialization of electrotechnologies 
related to energy conservation, storage and conversion, energy 
efficiency, waste treatment, greenhouse gas reduction, and similar 
innovations;
    (iii) The ownership, operation, sale, installation and servicing of 
refueling, recharging and conversion equipment and facilities relating 
to electric and compressed natural gas powered vehicles;

[[Page 620]]

    (iv) The sale of electric and gas appliances; equipment to promote 
new technologies, or new applications for existing technologies, that 
use gas or electricity; and equipment that enables the use of gas or 
electricity as an alternate fuel; and the installation and servicing 
thereof;
    (v) The brokering and marketing of energy commodities, including but 
not limited to electricity, natural or manufactured gas and other 
combustible fuels;
    (vi) The production, conversion, sale and distribution of thermal 
energy products, such as process steam, heat, hot water, chilled water, 
air conditioning, compressed air and similar products; alternative 
fuels; and renewable energy resources; and the servicing of thermal 
energy facilities;
    (vii) The sale of technical, operational, management, and other 
similar kinds of services and expertise, developed in the course of 
utility operations in such areas as power plant and transmission system 
engineering, development, design and rehabilitation; construction; 
maintenance and operation; fuel procurement, delivery and management; 
and environmental licensing, testing and remediation;
    (viii) The development, ownership or operation of ``qualifying 
facilities,'' as defined under the Public Utility Regulatory Policies 
Act of 1978, as amended (``PURPA''), and any integrated thermal, steam 
host, or other necessary facility constructed, developed or acquired 
primarily to enable the qualifying facility to satisfy the useful 
thermal output requirements under PURPA;
    (ix) The ownership, operation and servicing of fuel procurement, 
transportation, handling and storage facilities, scrubbers, and resource 
recovery and waste water treatment facilities; and
    (x) The development and commercialization of technologies or 
processes that utilize coal waste by-products as an integral component 
of such technology or process; Provided, That any company engaged in the 
activities specified in paragraphs (b)(1)(ii), (b)(1)(iii) with respect 
to electric powered vehicles, (b)(1)(vi), (b)(1)(ix) or (b)(1)(x) of 
this section, shall be an ``energy-related company'' for purposes of 
this section only if the securities of such company are acquired, 
directly or indirectly, by a registered holding company whose public-
utility company subsidiaries are primarily electric utility companies; 
and Provided further, That any company engaged in the activities 
specified in paragraph (b)(1)(iii) of this section with respect to 
compressed natural gas powered vehicles, shall be an ``energy-related 
company'' for purposes of this section only if the securities of such 
company are acquired, directly or indirectly, by a registered holding 
company whose public-utility company subsidiaries are primarily gas 
utility companies.
    (2) The term gas-related company shall mean any company that, 
directly or indirectly through one or more affiliates, derives or will 
derive substantially all of its revenues (exclusive of revenues from 
temporary investments) from one or more of the following activities 
within the United States:
    (i) Activities permitted under section 2(a) of the Gas-Related 
Activities Act of 1990, 104 Stat. 2810; and
    (ii) Activities specified in section 2(b) of the Gas-Related 
Activities Act and approved by order of the Commission under sections 9 
and 10 of the Act (15 U.S.C. 79i-j).
    (3) The term aggregate investment shall mean all amounts invested or 
committed to be invested in energy-related companies, for which there is 
recourse, directly or indirectly, to the registered holding company or 
any subsidiary company thereof.
    (c) Report on related business activities. For each quarter of the 
fiscal year of the registered holding company in which any acquisition 
that is exempt under this section is made, and for each such quarter 
thereafter in which the acquired interest is held, the registered 
holding company shall file with this Commission and with each state 
commission having jurisdiction over the retail rates of the public-
utility subsidiary companies of such registered holding company a 
Quarterly Report on Form U-9C-3 (Sec. 259.208 of this chapter). Such 
filing shall be made within 60 days following the end of the first three 
quarters of the fiscal year,

[[Page 621]]

and within 90 days after the end of the fourth quarter.

[62 FR 7916, Feb. 20, 1997]

                    Solicitations and Reorganizations



Sec. 250.60  Meaning of word ``authorization''.

    The word ``authorization'', as used in Sec. Sec. 250.60 to 250.64, 
includes ``any proxy, consent, authorization, power of attorney, 
deposit, or dissent'', as those words are used in section 11(g) of the 
Act (49 Stat. 820; 15 U.S.C. 79k) and ``any proxy, power of attorney, 
consent, or authorization'', as those words are used in section 12(e) 
(49 Stat. 823; 15 U.S.C. 79l) of the Act.



Sec. 250.61  Solicitations other than in connection with a reorganization 
or transaction which is the subject of an application or declaration.

    The solicitation of any authorization regarding any security of a 
registered holding company or subsidiary company thereof, except 
solicitations in connection with any reorganization subject to the 
approval of the Commission, or in connection with any other transaction 
which is or will be the subject of any application or declaration filed 
with the Commission, shall be subject to all rules and regulations now 
or hereafter adopted pursuant to section 14(a) of the Securities 
Exchange Act of 1934 (48 Stat. 895; 15 U.S.C. 78n) that would be 
applicable to such solicitation if such security were registered on a 
national securities exchange: Provided, That unless such security is 
actually registered on a national securities exchange, no documents need 
be filed with any such exchange in connection with such solicitation.

[6 FR 5485, Oct. 28, 1941]



Sec. 250.62  Solicitations in connection with a reorganization or 
transaction which is the subject of an application or declaration.

    (a) General provisions. No solicitation of any authorization, 
regarding any security of a registered holding company or a subsidiary 
company thereof, in connection with any reorganization subject to the 
approval of the Commission, or in connection with any other transaction 
which is or will be the subject of an application or declaration filed 
with the Commission, shall be made except pursuant to a declaration with 
respect to such solicitation which has become effective in the manner 
prescribed in paragraph (d) of this section.
    (b) Exceptions--(1) Solicitations of a limited number. Paragraph (a) 
of this section shall not apply to a solicitation of not more than 15 
owners of securites or claims (or of such larger number as the 
Commission for cause shown may, by order, authorize in any case) by any 
person, either alone or in cooperation or conjunction with others. For 
the purpose of computing such number of owners, all persons having any 
legal or beneficial interest in any specific security or claim shall be 
counted as only a single owner.
    (2) Depositaries. Action merely as a depositary or custodian of 
securities solicited by others shall not be subject to paragraph (a) of 
this section and the depositary or custodian shall be under no duty to 
ascertain that there has been compliance with this section by others.
    (c) Contents of declaration. Every declaration pursuant to this 
section shall, if in connection with any reorganization, be filed on 
Form U-R-1. Every other declaration subject to this section may be filed 
in connection with the appplication or declaration with respect to the 
proposed transaction, and shall contain, in addition to the information 
otherwise specified in such application or declaration, copies of any 
letters of solicitation proposed to be used, copies of all other 
documents proposed to be transmitted with such letter of solicitation, 
and a full statement of the manner in which the solicitation is proposed 
to be made.
    (d) Effective date. A declaration as to a solicitation in connection 
with a reorganization shall, unless the Commission shall order a hearing 
thereon, become effective on (1) the 11th day after the filing thereof, 
or the 4th day (excluding Saturdays, Sundays and holidays) after the 
filing of the last amendment thereto, whichever is the later; or (2) 
such earlier date as the Commission

[[Page 622]]

may, upon a showing of unusual circumstances, permit in writing or 
otherwise; or (3) such later date as declarant may designate in such 
declaration, in any amendment thereto, or in written notice to the 
Commission. Any other declaration shall, unless otherwise ordered by the 
Commission or unless the Commission shall order a hearing thereon, 
become effective at the same time as the application or declaration with 
respect to the proposed transaction; post-amendments to such 
declarations shall become effective on the 4th day (excluding Saturdays, 
Sundays and holidays) after the filing thereof unless otherwise therein 
provided or unless an order for hearing is issued by the Commission.
    (e) Order for hearing. If the Commission shall issue an order for 
hearing on a declaration under this section, such declaration shall 
become effective only pursuant to the further order of the Commission 
and subject to such terms and conditions as the Commission may 
prescribe.
    (f) Supplementary solicitations. The text of any supplementary or 
follow-up letters of solicitation or reports, or statements of account 
shall be filed as post-amendments to a declaration and shall be subject 
to the same requirements as other amendments to declarations, except 
that no declaration or post-amendment need be filed with respect to 
supplementary or follow-up letters which do not include financial or 
other information or representations and which merely call attention to 
prior solicitations and urge action in accordance therewith, or with 
respect to replies to persons making specific inquiries asking for 
further explanation as to details of such solicitation.
    (g) Conditions imposed on persons making solicitations. (1) All 
persons who make any solicitation subject to this section shall submit, 
if so directed by the Commission annual reports and statements of 
accounts to the persons from whom authorizations are procured.
    (2) No securities of the company or companies in reorganization, or 
of any subsidiary of such company, or of any other associate company 
thereof which may be affected by the reorganization, shall be bought or 
sold by or for the account of (whether as principal, agent, trustee, or 
otherwise) any of the persons specified in paragraphs (g)(2) (i) to (v) 
of this section, or in any transaction in which any such person has any 
beneficial interest, direct or indirect; nor shall any investment advice 
with respect to any such securities be given, directly or indirectly, 
by:
    (i) Any person who makes any solicitation subject to this section; 
or
    (ii) Any person connected with any committee or other organization 
formed to act under the authorization so solicitied; or
    (iii) Any company as defined in section 2(a)(2) (49 Stat. 804; 15 
U.S.C. 79b) of the act controlled by any person specified in paragraph 
(g)(2) (i) or (ii) of this section; or
    (iv) Any company as so defined of which any person specified in 
paragraph (g)(2) (i) or (ii) of this section is an officer, director, 
partner, or employee; or
    (v) Any person who is a partner or employer of any person specified 
in paragraph (g)(2) (i) or (ii) of this section. No person shall make 
any solicitation subject to this section, or act in connection with any 
committee or other organization formed to act under the authorization so 
solicited, in the event of noncompliance with the conditions of 
paragraph (g)(2) of this section on the part of any such person or of 
any company having the relation to such person specified in paragraphs 
(g)(2) (iii) and (iv) of this section, or of any partner or employer of 
such person.
    (h) Required terms of authorizations. No authorization shall be 
solicited in connection with a reorganization unless the document 
evidencing such authorization:
    (1) Provides for compliance by the person soliciting with paragraph 
(g) of this section; and
    (2) Except as otherwise prescribed by order of the Commission, 
provides for the unconditional right to revoke or cancel the authority 
granted, without expense, at any time before such authority has been 
conclusively exercised; and

[[Page 623]]

    (3) Except in the case of a document which only evidences consent to 
or dissent from a specific reorganization plan, provides that no 
authority is granted with respect to consenting to or dissenting from 
any reorganization plan.
    (i) Deposits. No solicitation of deposits of securites shall be made 
except in accordance with an order of the Commission pursuant to an 
application showing the necessity for such deposits and of any terms and 
conditions imposed in the deposit agreement.
    (j) Solicitation of several classes of security holders. The 
solicitation of authorizations by one person, group of persons, or 
committee shall not be made for more than one class of securites without 
the approval of the Commission, by order upon application, which 
application shall set forth facts showing that no material conflict of 
interest exists between the different classes of security holders 
concerning the subject matter of the solicitation.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 6 FR 3085, June 25, 
1941; 6 FR 5485, Oct. 28, 1941; 10 FR 11283, Sept. 5, 1945; 59 FR 21928, 
Apr. 28, 1994]



Sec. 250.63  Approval of reorganization fees.

    All fees, expenses and remuneration, whether interim or final, to 
whomsoever paid for services rendered or to be rendered in connection 
with any reorganization, dissolution, liquidation, bankruptcy, or 
receivership of a registered holding company or subsidiary thereof, in 
any court of the United States, shall be subject to approval by the 
Commission as to the maximum amount that may be paid for such services. 
This section shall not apply to any payments approved by a court of the 
United States. in any proceeding in which the Commission has filed a 
notice of appearance pursuant to section 1109(a) of chapter 11 of the 
Bankruptcy Code (11 U.S.C. 1109(a)).

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 59 FR 21928, Apr. 28, 
1994]



Sec. 250.64  Scope of applications for approval of reorganization plans.

    Any application for approval of a plan of reorganization under 
section 11 (49 Stat. 820; 15 U.S.C. 79k), or otherwise, shall be deemed 
to include all applications and declarations under the act which would 
otherwise be required as to any action necessary to consummate such 
plan. (See Sec. 250.24(c)(3).)



Sec. 250.65  Expenditures in connection with solicitation of proxies.

    (a) General provision. Except pursuant to a declaration notifying 
the Commission of the proposed transaction, which has become effective 
in accordance with the procedure specified in Sec. 250.23 and pursuant 
to the order of the Commission with respect to such declaration under 
the applicable provisions of the act, no registered holding company or 
subsidiary thereof shall expend any money or other consideration in 
connection with the solicitation of any proxy, consent, or authorization 
regarding any security of such company.
    (b) Exceptions. This section shall not apply to:
    (1) Ordinary expenditures in connection with preparing, assembling, 
and mailing proxies, proxy statements, and accompanying data; or
    (2) Other expenditures not in excess of $100,000 during any one 
calendar year.
    (c) Scope of declaration. A declaration with respect to any matter 
within the scope of this section shall state the amounts and purposes of 
the sums proposed to be expended, and set forth any information 
available to the company as to any contest which has arisen, or may 
arise, with respect to the subject matter of such solicitation. Any such 
declaration may be included in any application or declaration filed with 
the Commission as to any related matter.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 59 FR 21928, Apr. 28, 
1994]

Officers, Directors and Representatives of Registered Holding Companies 
                       and Their Subsidiaries \5\
---------------------------------------------------------------------------

    \5\ The statements which section 17(a) requires to be filed by 
officers and directors of registered holding company systems are filed 
on the forms prescribed under section 16(a) of the Securities Exchange 
Act of 1934.
---------------------------------------------------------------------------



Sec. 250.70  Exemptions from section 17(c) of the Act.

    Notwithstanding the prohibitions contained in section 17(c) of the 
Act,

[[Page 624]]

    (a) A registered holding company may have up to 75% of the members 
of its board of directors comprised of affiliated persons of commercial 
banking institutions that have their principal places of business 
located within the state or states served by the holding company system, 
Provided, That:
    (1) Those affiliated persons do not also serve as officers or 
employees of those local commercial banking institutions; and
    (2) No more than one director or 25% of the members of the board of 
directors of the holding company, whichever is greater, is affiliated 
with the same local commercial banking institution.
    (b) A registered holding company may have up to 25% of the members 
of its board of directors comprised of affiliated persons of commercial 
banking institutions that have their principal places of business 
located outside the state or states served by the holding company system 
or investment bankers wherever located, Provided, That:
    (1) Those affiliated persons do not also serve as officers or 
employees of those banking institutions;
    (2) No more than one director or 10% of the members of the board of 
directors, whichever is greater, is affiliated with any one investment 
banker or with any one commercial banking institution;
    (3) The total number of directors who are affiliated with investment 
bankers or commercial banking institutions does not exceed 75% of the 
members of the board of directors; and
    (4) Where an affiliated person of an investment banker serves as a 
director of any company within a holding company system, the investment 
banker:
    (i) Has not acted as a managing underwriter for the distribution of 
securities issued by any company in the holding company system for at 
least twelve months prior to the director's appointment or election to 
the board; and
    (ii) Does not act as a managing underwriter for the distribution of 
securities issued by any company in the holding company system while the 
director serves on the board.
    (c) A subsidiary company of a registered holding company may have up 
to 75% of the members of its board of directors comprised of affiliated 
persons of commercial banking institutions that have their principal 
places of business located within the state or states served by the 
subsidiary company, Provided, That:
    (1) Those affiliated persons either do not serve as officers or 
employees of those local commercial banking institutions or, 
alternatively, do not serve as officers or employees of the subsidiary 
company; and
    (2) No more than one director or 25% of the members of the board of 
directors of the subsidiary company, whichever is greater, is affiliated 
with the same local commercial banking institution.
    (d) A subsidiary company of a registered holding company may have up 
to 25% of the members of its board of directors comprised of affiliated 
persons of commercial banking institutions that have their principal 
places of business located outside the state or states served by the 
subsidiary company or investment bankers wherever located, Provided, 
That:
    (1) Those affiliated persons do not also serve as officers or 
employees of those banking institutions;
    (2) No more than one director or 10% of the members of the board of 
directors, whichever is greater, is affiliated with any one investment 
banker or with any one commercial banking institution;
    (3) The total number of directors who are affiliated with investment 
bankers or commercial banking institutions does not exceed 75% of the 
members of the board of directors; and
    (4) Where an affiliated person of an investment banker serves as a 
director of any company within a holding company system, the investment 
banker:
    (i) Has not acted as a managing underwriter for the distribution of 
securities issued by any company in the holding company system for at 
least twelve months prior to the director's appointment or election to 
the board; and

[[Page 625]]

    (ii) Does not act as a managing underwriter for the distribution of 
securities issued by any company in the holding company system while the 
director serves on the board.
    (e) An officer of a holding company may serve as a director of a 
commercial banking institution, Provided, That:
    (1) The officer of the holding company does not also serve as an 
officer or employee of that commercial banking institution; and
    (2) No more than one other officer of the holding company serves as 
a director of that commercial banking institution.
    (f) An officer of a subsidiary company may serve as a director of a 
commercial banking institution, Provided, That:
    (1) The officer of the subsidiary company does not also serve as an 
officer or employee of that commercial banking institution; and
    (2) No more than one other officer of the subsidiary company serves 
as a director of that commercial banking institution.
    (g) A person serving as an officer or director of a holding company 
or subsidiary company on April 15, 1986, shall not be disqualified from 
continuing to serve or from serving successive terms in that capacity 
solely because of an affiliation with a commercial banking institution 
or investment banker which existed on that date.
    (h) As used in section 17(c) of the Act and in this rule:
    (1) An affiliated person of a commercial banking institution or 
investment banker means an officer, director, partner, appointee or 
representative of that commercial banking institution or investment 
banker, as well as any person that directly or indirectly owns or holds 
with power to vote 5 percent or more of the outstanding voting 
securities of that commercial banking institution or investment banker.
    (2) A commercial banking institution means any person:
    (i) That engages directly or indirectly in the business of a bank, 
trust company, bank-holding company, banking association or firm; and
    (ii) Any enterprise in which such person owns 20 percent or more of 
the equity interest.

The term excludes any person that derived 15% or less of its gross 
revenues from commercial banking and investment banking activities 
during the fiscal year immediately preceding an affiliated person's 
appointment or election to the board of directors, or appointment as 
officer, of a registered holding company or subsidiary company thereof. 
The term also excludes any Federal Reserve Bank, savings bank, savings 
and loan association, building and loan association, cooperative bank, 
homestead association, or similar institution, or any receiver, 
conservator, liquidator, liquidating agent, or similar official or 
person thereof or therefor.
    (3) An investment banker means any person:
    (i) That engages directly or indirectly in the business of 
underwriting or dealing in securities that are not exempted from 
registration under the Securities Act of 1933 by section 3 of that Act; 
and
    (ii) Any enterprise in which such person owns 20 percent or more of 
the equity interest.

The term excludes any person that derived 15% or less of its gross 
revenues from commercial banking and investment banking activities 
during the fiscal year immediately preceding an affiliated person's 
appointment or election to the board of directors of a registered 
holding company unless those revenues were derived from acting as a 
managing underwriter for the distribution of securities issued by any 
company in such holding company system.
    (4) A person's gross revenues from its own commercial and investment 
banking activities and from its ratable share of the commercial banking 
and investment banking activities of enterprises in which it owns 20 
percent or more of the equity interest should be considered in 
determining the degree to which the person is engaged in such 
activities.
    (5) A director means any director of a corporation or any individual 
who performs similar functions in connection with a corporation, 
partnership, trust, voting trust or other company.

[[Page 626]]

    (6) An officer means a chairman of the board of directors, chief 
executive officer, president, vice president, treasurer, secretary, and 
comptroller, or any individual who performs similar functions in 
connection with a corporation, partnership, trust, voting trust, or 
other company.
    (7) A managing underwriter means an underwriter (or underwriters) 
who, by contract or otherwise, deals with the issuer, organizes the 
selling efforts, receives some benefit directly or indirectly in which 
all other underwriters similarly situated do not share in proportion to 
their respective interests in the underwriting, or represents any other 
underwriters in such matters as maintaining the records of the 
distribution, arranging the allotments of securities offered or 
arranging for appropriate stabilization activities, if any.

[51 FR 9003, Mar. 17, 1986]



Sec. 250.71  Statements to be filed pursuant to section 12(i).

    (a) Ten-day statement. Any person who engages in any activity within 
the scope of section 12(i) of the act, shall file with the Commission 
within 10 days after the date of such activity a statement on Form U-
12(I)-A, except as to activity within the scope of any advance statement 
on Form U-12(I)-B, which is duly filed in accordance with paragraph (b).
    (b) Advance statement. An advance statement, covering anticipated 
activity for the remainder of the present calendar year, and the next 
two calendar years, may be filed on Form U-12(I)-B by any person 
(whether or not the compensation of such person has been fixed in 
advance) who is a salaried officer or employee or an attorney, 
accountant or other expert regularly retained by any company or by 
companies in the same holding-company system, or any person specially 
retained in connection with a particular proceeding or enterprise which 
is expected to involve a series of appearances or activities, if such 
employment or retainer does not contemplate any expenses other than 
ordinary personal, traveling or sustenance expenses, stationery, 
postage, telephone, telecopier and telegraphic service, stenographic and 
clerical assistance, expenditures for the printing of briefs or other 
documents to be submitted to any agencies specified in section 12(i) of 
the Act, and similar items.
    (c) Supplemental statement. Any person filing an advance statement 
on Form U-12(I)-B shall file a supplement to such advance statement 
within 30 days after the end of the period covered thereby, and in no 
event later than January 30 of the following year, giving the 
information specified in Items 5 and 6 thereof. Any such person renewing 
such advance statement may combine the renewal and supplement in the 
same statement.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 6 FR 5950, Nov. 25, 
1941; 59 FR 21928, Apr. 28, 1994]



Sec. 250.72  Filing of statements pursuant to section 17(a).

    (a) The filing of initial statements of beneficial ownership of 
securities and statements of changes in such beneficial ownership, as 
prescribed under section 16(a) of the Securities Exchange Act of 1934, 
shall satisfy the corresponding requirements of section 17(a) of the 
Public Utility Holding Company Act of 1935.
    (b) The rules under section 16 (a) and (b) of the Securities 
Exchange Act of 1934, including any rules which exempt a transaction 
from the duties or liabilities of section 16 (a) or (b), shall apply to 
any duty or liability imposed with respect to a transaction involving 
any security of a registered holding company or subsidiary thereof under 
section 17 (a) or (b) of the Act.

(Sec. 17(a), 49 Stat. 830; 15 U.S.C. 79q)

[26 FR 2466, Mar. 23, 1961, as amended at 46 FR 2036, Jan. 8, 1981; 47 
FR 5224, Feb. 4, 1982]

                Service, Sales and Construction Contracts



Sec. 250.80  Definitions of terms used in rules under section 13.

    As used in the rules and regulations under section 13 of the Act (49 
Stat. 825; 15 U.S.C. 79m), unless the context otherwise requires:
    (a) Service means any managerial, financial, legal, engineering, 
purchasing, marketing, auditing, statistical, advertising, publicity, 
tax, research, or any

[[Page 627]]

other service (including supervision or negotiation of construction or 
of sales), information or data, which is sold or furnished for a charge.
    (b) Goods means any goods, equipment (including machinery), 
materials, supplies, appliances, or similar property (including coal, 
oil, or steam, but not including electric energy, natural or 
manufactured gas, or utility assets) which is sold, leased, or 
furnished, for a charge.
    (c) Construction means any construction, extension, improvement, 
maintenance, or repair of the facilities or any part thereof of a 
company, which is performed for a charge.



Sec. 250.81  Exempted transactions.

    Unless otherwise expressly provided, the rules, regulations, and 
orders of the Commission pertaining to the performance of services or 
construction or the sale of goods shall not be applicable to the sale of 
water, telephone service, transportation, or a similar commodity or 
service, the sale of which is normally subject to public regulation, or 
to the furnishing of services, construction, or goods, to a customer 
incidentally to such a sale; and such transactions shall be exempt from 
the provisions of section 13 of the Act (49 Stat. 825; 15 U.S.C. 79m) 
and the rules and regulations thereunder: Provided, That, where any such 
transaction is with an associate company in its capacity as a consumer, 
comparable services, construction, or goods are offered to customers 
other than associate companies on terms which are comparable having due 
regard to any differences of quality or quantity.



Sec. 250.82  Temporary exemption from section 13.

    (a) Every registered holding company shall be exempt from the 
provisions of section 13 (49 Stat. 825; 15 U.S.C. 79m) and the rules and 
regulations adopted thereunder for a period of 30 days after the date 
when such company shall first become a registered holding company, and 
every subsidiary of such a registered holding company and every company 
principally engaged in performing services or construction for, or 
making sales to, associates of such registered holding company shall 
likewise be exempt from such provisions for said period: Provided, That, 
during such period, such company shall comply with the provisions of 
Sec. 250.90 with respect to the performance of services or construction 
for associate companies on the basis of cost and with the provisions of 
Sec. 250.92 with respect to sales of goods produced by the seller. As 
to any company principally engaged in performing services or 
construction for, or selling goods to, associate companies, such 
exemption shall expire on the first day of the calendar month 
immediately succeeding the effective date of such registration unless on 
and after the first day of such month all accounts and records of such 
company with respect to such matters shall be maintained in accordance 
with the provisions of Sec. 250.93 or other rule of the Commission with 
respect to the accounts and records of mutual service companies and 
subsidiary service companies.
    (b) If, within said period of 30 days after registration of any such 
holding company, or 30 days after the date of its becoming a holding 
company in the event of such company filing a notification prior to 
becoming a holding company, an application or a declaration pursuant to 
Sec. 250.88 shall be filed with the Commission by or on behalf of any 
company desiring to perform services or construction for, or make sales 
of goods to, associate companies in such holding company system, such 
applicant or declarant may, to the extent set forth in such document, 
perform services or construction for, or make sales of goods to, such 
companies until the Commission shall take final action on such 
application or declaration: Provided, however, That, during such period 
such applicant or declarant shall comply with all provisions of the act 
and of the rules and regulations thereunder that would have been 
applicable to it if the Commission had previously taken favorable action 
on such application or declaration.

[[Page 628]]



Sec. 250.83  Exemption in the case of transactions with foreign associates.

    (a) Any subsidiary company of a registered holding company, which 
subsidiary is or is about to become engaged in the performance of any 
service, sales, or construction contract for any associate company which 
does not derive, directly or indirectly, any material part of its income 
from sources within the United States and which is not a public utility 
company operating within the United States, may make application to the 
Commission for exemption, in whole or in part, from the standards 
established by section 13(b) of the Act (49 Stat. 825; 15 U.S.C. 79m), 
and the rules and regulations promulgated thereunder, relating to the 
performance of any service, sales, or construction contract for such 
associate companies.
    (b) No form is prescribed therefor, but every such application shall 
comply with the provisions of Sec. 250.20. Every such application shall 
fully set forth information regarding ownership of security issues, 
servicing activities of the applicant, and such other data as may be 
necessary to enable the Commission to determine if, by reason of the 
lack of any major interest of holders of securities offered in the 
United States in servicing arrangements affecting such serviced 
subsidiaries, or for any other reason, such an application for exemption 
should be granted as necessary or appropriate in the public interest or 
for the protection of investors.
    (c) Upon filing such an application in good faith, the applicant 
shall be entitled to a temporary exemption from all provisions of 
section 13(b) of the Act, and the rules and regulations promulgated 
thereunder, as to which an exemption is sought, pending action by the 
Commission upon the application.
    (d) Any subsidiary company of a registered holding company 
(including a mutual service company) may perform service, sales, or 
construction contracts for any associate company which does not derive, 
directly or indirectly, any material part of its income from sources 
within the United States and which is not a public utility company 
operating within the United States without complying with the standards 
established by section 13(b) of the Act, and the rules and regulations 
thereunder, and without the necessity of filing an application for or 
securing an order of exemption from those standards, so long as the 
aggregate cost to all such associate companies for services, sales, or 
construction performed by virtue of the exemption granted by this 
paragraph (whether performed by one or more subsidiary companies or 
mutual service companies in the same holding company system) does not 
exceed $10,000 within any one calendar year.



Sec. 250.84  Prohibition of unauthorized transactions by registered 
holding companies.

    Except as authorized by rule, regulation, or order of the 
Commission, no registered holding company shall--whether or not pursuant 
to a contract heretofore or hereafter entered into--perform any service 
or construction for, or sell any goods to, any associate company thereof 
which is a public utility company, a mutual service company, or a 
company engaged in the business of performing services or construction 
for, or selling goods to, associate public utility companies, or enter 
into any contract to do so.



Sec. 250.85  Service, sales, and construction by registered holding 
companies.

    Subject to compliance with the provisions of such rules, 
regulations, or orders of the Commission as may be applicable (including 
Sec. 250.90), a registered holding company may perform services or 
construction for, or sell goods to, an associate company thereof, which 
is a public utility company, a mutual service company, or a company 
engaged in the business of performing services or construction for, or 
selling goods to, associate public utility companies, and such 
transaction shall be exempt from the provisions of section 13(a) of the 
Act (49 Stat. 825; 15 U.S.C. 79m), if:
    (a) Such holding company is principally engaged in the business of 
an operating electric or gas utility company, or any business or 
businesses other than that of selling goods to associate companies, that 
of performing

[[Page 629]]

services or construction, that of a holding company or fiscal or 
financial agency of a holding company, or that of an investment company 
or investment trust; and, incidentally to such business, performs such 
services or construction or sells such goods; or
    (b) Such services, construction, or goods are reasonably required by 
such associate to meet a break-down or other emergency, and the parties 
believe in good faith that, under the conditions then existing, such 
transaction will be to the advantage of such associate; or
    (c) Such transaction consists of performance of a contract made 
before August 26, 1935, for the construction of a specific project, 
building, or unit, pursuant to which contract substantial expenses were 
incurred before August 26, 1935; or
    (d) Such transaction consists of the sale, at not more than cost 
less depreciation, of goods purchased by such holding company for its 
own use; or
    (e) Such transaction consists of a sale of goods which is merely 
incidental to a sale of an entire business or a substantial portion 
thereof, or to a sale of assets other than goods; or
    (f) Such transaction, although not exempted by any of the foregoing 
paragraphs of this section, is not in the regular course of business of 
such holding company and does not involve a cost to the associate of 
more than $2,500, including the cost of such associate of all previous 
transactions with such holding company consummated in the same fiscal 
year which were exempted only by this paragraph.



Sec. 250.86  Prohibition of unauthorized transactions by subsidiaries.

    Except as authorized by rule, regulation, or order of the 
Commission, no subsidiary company (including a mutual service company) 
of a registered holding company shall--whether or not pursuant to a 
contract heretofore or hereafter entered into--perform any service or 
construction for, or sell any goods to, any associate company thereof, 
or enter into any contract to do so.



Sec. 250.87  Subsidiaries authorized to perform services or construction 
or to sell goods.

    (a) Subject to compliance with the provisions of such rules, 
regulations, or orders of the Commission as may be applicable (including 
Sec. 250.90), the following classes of subsidiary companies of 
registered holding companies may perform services or construction for, 
or sell goods to, associate companies thereof:
    (1) An approved mutual service company.
    (2) A subsidiary company whose organization and conduct of business 
the Commission has found, pursuant to Sec. 250.88, sufficient to meet 
the requirements of section 13(b) of the Act.
    (3) A subsidiary company which is principally engaged in the 
business of an operating electric or gas utility company, or any 
business or businesses other than that of selling goods to associate 
companies, that of performing services or construction, that of a 
holding company of fiscal or financing agency of a holding company, or 
that of an investment company or investment trust; and which, 
incidentally to such business, performs such services or construction or 
sells such goods.
    (b) Any subsidiary of a registered holding company, whether or not 
it is a company specified in paragraph (a) (1), (2), or (3) of this 
section, may perform services or construction for; or sell goods to, an 
associate company thereof if:
    (1) Such associate company is not an electric or gas utility company 
and is principally engaged in a business or businesses other than that 
of a holding company or fiscal or financing agency of a holding company, 
or that of an investment company or investment trust; or
    (2) Such services, construction, or goods are reasonably required by 
such associate to meet a break-down or other emergency, and the parties 
believe in good faith that, under the conditions then existing, such 
transaction will be to the advantage of such associate; or
    (3) Such transaction consists of performance of a contract made 
before August 26, 1935, for the construction of a specific project, 
building, or unit,

[[Page 630]]

pursuant to which contract substantial expenses were incurred before 
August 26, 1935; or
    (4) Such transaction consists of the sale, at not more than cost 
less depreciation, of goods purchased by such subsidiary company for its 
own use; or
    (5) Such transaction consists of a sale of goods which is merely 
incidental to a sale of an entire business or a substantial portion 
thereof, or to a sale of assets other than goods; or
    (6) Such transaction consists of a sale of goods produced by the 
seller.
    (c) This section shall not be applicable to a subsidiary which is 
itself a registered holding company. Such a company may perform services 
or construction for, or sell goods to, associate companies as provided 
in Sec. 250.85.



Sec. 250.88  Approval of mutual service companies; organization and 
conduct of business of subsidiary service companies.

    (a) Application for approval of a company as a mutual service 
company shall be filed by the company, or the persons proposing to 
organize it, with the Commission on Form U-13-1, as specified in the 
instructions for that form. The Commission will not approve any company 
as a mutual service company unless it finds that the company is so 
organized as to capitalization, ownership by, and representation of, 
member companies, costs, revenues, and the sharing thereof, and other 
matters as reasonably to insure the efficient and economical performance 
of services or construction or sale of goods by the company for or to 
its member companies, at cost fairly and equitably allocated among them 
and at a reasonable saving over the cost of comparable services or 
construction performed or goods sold by independent persons.
    (b) A finding by the Commission that a subsidiary company of a 
registered holding company (other than a mutual service company) is so 
organized and conducted or to be conducted, as to meet the requirements 
of section 13(b) of the Act (49 Stat. 825; 15 U.S.C. 79m) with respect 
to reasonable assurance of efficient and economical performance of 
services or construction or sale of goods for the benefit of associate 
companies, at cost fairly and equitably allocated among them (or as 
permitted by Sec. 250.90), will be made only pursuant to a declaration 
filed with the Commission on Form U-13-1, as specified in the 
instructions for that form, by such company or the persons proposing to 
organize it.
    (c) Within a reasonable time after the filing of an application for 
approval of a mutual service company, the Commission shall, after notice 
and opportunity for hearing, enter an order granting or refusing 
approval or otherwise disposing of the application.
    (d) Within a reasonable time after the filing of a declaration with 
respect to the organization and conduct of business of a subsidiary 
service company, the Commission shall, after notice and opportunity for 
hearing, enter an order finding that the company's organization and 
conduct of business meet the requirements of section 13(b) of the Act, 
or refusing so to find, or otherwise disposing of the declaration.
    (e) Unless the Commission shall otherwise by order provide, the 
approval of a mutual service company, or the finding that a subsidiary 
service company's organization and conduct of business are sufficient to 
meet the requirements of section 13(b) of the Act, shall continue in 
effect until the Commission, after notice and opportunity for hearing, 
shall find that the conditions which led to such approval or finding are 
not satisfied or shall find that the company in question has 
persistently violated a provision of section 13 of the Act, or of any 
rule, regulation, or order of the Commission.



Sec. 250.89  Termination of contracts.

    Every service, sales, or construction contract made after April 1, 
1936, between a registered holding company and an associate company 
thereof which is a public utility company, a mutual service company, or 
a company engaged in the business of performing services or construction 
for, or selling goods to, associate public utility companies, or between 
a subsidiary company of a registered holding company (including a mutual 
service company) and any associate company thereof, shall contain 
provision for its termination to the extent that performance

[[Page 631]]

may conflict with any rule, regulation or order of the Commission 
adopted before or after the making of such contract.



Sec. 250.90  Transactions limited to cost.

    (a) Except as permitted by this section, or any other appliable 
rule, regulation, or order of the Commission:
    (1) No registered holding company shall perform any service or 
construction for, or sell any goods to, any associate company thereof 
which is a public utility company, a mutual service company, or a 
company engaged in the business of performing service or construction 
for, or selling goods to, associate public utility companies, or enter 
into any contract to do so, and
    (2) No subsidiary company of a registered holding company (including 
a mutual service company) shall perform any service or construction for, 
or sell any goods to, any associate company thereof, or enter into any 
contract to do so, at more than cost as determined pursuant to Sec. 
250.91 or any other applicable rule, regulation, or order of the 
Commission, or in the absence thereof, in accordance with sound methods 
of determining cost. In the case of a sale of used goods the price shall 
be not more than cost less depreciation. Any charges on a basis of 
estimated cost shall be readjusted to actual cost at least annually, if 
for services or goods, and upon completion of individual projects, in 
case of construction.
    (b) In the case of construction for an associate company of a 
specific proj- ect, building, or unit on which substantial expenses were 
incurred before August 26, 1935, pursuant to a contract made before that 
date, the holding company or subsidiary performing the construction 
shall be entitled to the proportion of its profit or fee earned prior to 
April 1, 1936.
    (c) If a sale of goods is merely incidental to a sale of an entire 
business or a substantial portion thereof, or to a sale of assets other 
than goods, a lump sum price for the entire transaction may include such 
goods without the assignment of a specific portion of the price to the 
cost of such goods.
    (d) The price of services, construction, or goods need not be 
limited to cost although the transaction comes within the terms of 
paragraph (a) of this section if:
    (1) Neither the company performing the services or construction, or 
selling the goods, nor the associate company receiving such services or 
construction, or buying such goods, is (i) a public utility or holding 
company, (ii) an investment company or investment trust, including any 
company or trust which is a medium of investment in securities for the 
benefit of a registered holding company or its employees or officers, or 
(iii) a company engaged in the business of selling goods to associate 
companies or performing services or construction, or (iv) a company 
controlling, directly or indirectly, any company specified in paragraph 
(d)(1) (i), (ii), or (iii) of this section; or
    (2) Such transaction consists of a sale of goods produced by the 
seller.



Sec. 250.91  Determination of cost.

    (a) Subject to the provisions of this section and of any other 
applicable rule, regulation, or order of the Commission, a transaction 
shall be deemed to be performed at not more than cost if the price 
(taking into account all charges) does not exceed a fair and equitable 
allocation of expenses (including the price paid for goods) plus 
reasonable compensation for necessary capital procured through the 
issuance of capital stock (or similar securities of an unincorporated 
company).
    (b) Direct charges shall be made so far as costs can be identified 
and related to the particular tranactions involved without excessive 
effort or expense. Other elements of cost, including taxes, interest, 
other overhead, and compensation for the use of capital procured by the 
issuance of capital stock (or similar securities of an unincorporated 
company) shall be fairly and equitably allocated. Interest on borrowed 
capital and compensation for the use of capital shall represent a 
reasonable return on only the amount of capital reasonably necessary for 
the performance of services or construction for, or the selling of goods 
to, customers for whom transactions are required by the rules of the 
Commission to be performed at cost. Such amount

[[Page 632]]

shall not include the cost of assignment of, or any capitalization of, 
any service, sales, or construction contract.
    (c) Any expense (including the price paid for goods) incurred in a 
transaction with an associate company of the performing or selling 
company (directly or through one or more other associate companies 
thereof), to the extent that it exceeds the cost of such transaction to 
such associate company, shall not be included in determining cost to 
such performing or selling company.
    (d) Any expense (including the price paid for goods) incurred in a 
transaction with a person other than an associate company but not at 
arm's-length, to the extent that it exceeds the expense at which the 
performing or selling company might reasonably be expected to obtain 
elsewhere, or to furnish itself, comparable performance, goods, capital, 
or other items of expense involved (giving due regard to quality, 
quantity, regularity of supply, and other factors entering into the 
calculation of a fair price), shall not be included in determining cost 
to such performing or selling company.



Sec. 250.92  Sales of goods produced by seller.

    (a) No registered holding company shall sell any goods produced by 
it to any associate company thereof which is a public utility company, a 
mutual service company, or a company engaged in the business of 
performing services or construction for, or selling goods to, associate 
public utility companies, or enter into any contract to do so, and,
    (b) No subsidiary company of a registered holding company (including 
a mutual service company) shall sell any goods produced by it to any 
associate company thereof, or enter into any contract to do so,

at a price which exceeds the price at which the purchaser might 
reasonably be expected to obtain comparable goods elsewhere, or to 
furnish them itself, giving due regard to quality, quantity, regularity 
of supply, and other factors entering into the calculation of a fair 
price.



Sec. 250.93  Accounts and records of mutual and subsidiary service companies.

    Every mutual service company and every company whose organization 
and conduct of business the Commission has found, pursuant to Sec. 
250.88, to meet the requirements of section 13(b) (49 Stat. 825; 15 
U.S.C. 79m) shall keep such accounts, cost-accounting procedures, 
correspondence, memoranda, papers, books, and other records in such 
manner and preserve them for such periods, as are prescribed in 17 CFR 
part 257, and shall keep no other records with respect to the same 
subject matter except (a) records other than accounts, (b) records 
required by state law, (c) subaccounts or supporting accounts which are 
not inconsistent with the accounts required by the Uniform System of 
Accounts (17 CFR part 256), and (d) such other accounts as may be 
authorized by the Commission.

(Sec. 15(a) and 20(a), 15 U.S.C. 79o and 79t)

[49 FR 27310, July 3, 1984]



Sec. 250.94  Annual reports by mutual and subsidiary service companies.

    (a) On or before the first day of May in each calendar year, every 
mutual service company and every subsidiary service company whose 
organization and method of conducting business the Commission, pursuant 
to Sec. 250.88, has found sufficient to meet the requirements of 
section 13(b) (49 Stat. 825; 15 U.S.C. 79m), and every company whose 
application for approval, or declaration pursuant to Sec. 250.88, is 
pending, shall file with the Commission a report for the prior calendar 
year, or any portion thereof during which there was effective as to such 
company any uniform system of accounts presecribed by any rules of the 
Commission. Every such report shall be submitted on the Form U-13-60 
then in effect and shall be prepared in accordance with the instructions 
incorporated in such form. For appropriate cause shown, the Commission 
may extend the time within which any such report is to be filed.

(Secs. 13, 15, and 20(a), 49 Stat. 825, 828, 833; 15 U.S.C. 79m, 79o, 
79t)

[45 FR 14548, Mar. 6, 1980, as amended at 61 FR 49961, Sept. 24, 1996]

[[Page 633]]



Sec. 250.95  Reports required from affiliate service companies and companies 
principally engaged in performing services.

    No affiliate of a registered holding company or subsidiary company 
thereof shall take any step in the performance of any service or 
construction for, or any sale of goods to, any company of which it is an 
affiliate and no company whose principal business is the performance of 
service or construction for, or sale of goods to, one or more registered 
holding companies or public utility subsidiary companies thereof, either 
directly or through one or more other companies, shall take any step in 
the performance of any such service, construction or sale of goods, 
unless such affiliate or company:
    (a) Has filed with the Commission a report on Form U-13E-1 
containing the information prescribed by that form, and
    (b) Files with the Commission such information supplementing its 
report on Form N-13E-1 and regarding its accounts, costs, charges, 
maintenance of competitive conditions, disclosure of interests, duration 
of contracts, and other similar matters at such times and in accordance 
with such forms and instructions as the Commission shall designate. The 
provisions of this section are not applicable to a company authorized to 
perform service or construction for, or sell goods to, associate 
companies by Sec. Sec. 250.85, 250.87 or 250.88.

                           Miscellaneous Rules



Sec. 250.100  Orders granting \6\ or withdrawing exemptions.
---------------------------------------------------------------------------

    \6\ See Sec. 250.20(a).
---------------------------------------------------------------------------

    (a) Orders granting exemption from rules. Any transaction subject to 
the requirements of any rule promulgated under the act may be exempted 
therefrom by the Commission upon application, or upon its own motion 
provided an application for approval of such transaction or a 
declaration with respect thereto is pending, if it appears to the 
Commission that such requirements as applied to such transaction are not 
necessary or appropriate in the public interest or for the protection of 
investors or consumers.
    (b) Orders withdrawing exemption. Any unexecuted transaction which 
is within the exemption provided in any rule from the requirements of 
any provision of the act or of the rules, may nevertheless be subjected 
thereto by order, after notice and opportunity for hearing, if it 
appears to the Commission that the withdrawal of such exemption as 
applied to such transaction would be appropriate in the public interest 
or the interest of investors or consumers. The Commission may by such 
notice suspend the applicability of any such exemption to any 
transaction pending final determination.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 47 FR 5224, Feb. 4, 
1982]



Sec. 250.101  Standards and interpretations of rules.

    All rules shall be construed in the light of, and so as to be 
consistent with, any applicable requirements of, and standards contained 
in, the act. Such standards shall be deemed to be incorporated in and a 
part of every rule.



Sec. 250.102  Effective date of rules.

    Unless the Commission otherwise prescribes in any case, the manner 
of publication of rules of the Commission shall be by making a copy of 
such rule or amendment available for public inspection in the office of 
the Secretary of the Commission, by filing a copy thereof with the 
Office of the Federal Register, The National Archives, and by 
publication in the Federal Register. Rules shall not become effective 
prior to the effective date therein specified if such date is later than 
the date of publication. In any case where the method of publication 
prescribed as to any rule is other than that above specified, such rule 
shall not be effective as against any person who has not had actual 
knowledge thereof prior to the filing of a copy thereof with the Office 
of the Federal Register, and the making available for inspection of such 
a copy as prescribed in section 7 of the Federal Register Act (49 Stat. 
502; U.S.C. 307).



Sec. 250.103  References and definitions.

    As used in the rules in this part, unless the context indicates 
otherwise:

[[Page 634]]

    (a) The term Commission means the Securities and Exchange 
Commission.
    (b) The term act means the Public Utility Holding Company Act of 
1935.
    (c) The term section refers to a section of the act.
    (d) The term rule includes rule and regulation, as those words are 
used in the Act and refers to the rules prescribed by the Commission 
pursuant to the Act. All forms and instructions thereto shall be deemed 
rules and regulations adopted by the Commission pursuant to the Act.
    (e) Any definition of a term contained in the act shall be 
applicable to such term as used in the rules.
    (f) The term parent or parent company of a specified company means a 
company of which such specified company is a subsidiary, whether by 
virtue of direct or indirect ownership or control of securities.
    (g) The phrase direct subsidiary of a specified company means a 
company of which such specified company itself directly owns, controls, 
or holds with power to vote, 10 percent or more of the outstanding 
voting securities, and directly owns a greater percentage of such voting 
securities than are owned by any other company.
    (h) The phrase ``any person having a bona fide interest as used in 
sections 11(d), 11(f), and 11(g) (49 Stat. 820; 15 U.S.C. 79k), shall, 
with respect to the reorganization of any company, be deemed to include 
such company; any creditor or stockholder of such company or any 
authorized representative thereof; any receiver or trustee of such 
company; any trustee under an indenture pursuant to which securities of 
such company are outstanding; any State commission having regulatory 
jurisdiction over such company; any person authorized to prepare a plan 
by any court before which a reorganization proceeding is pending; and 
any other person found by the Commission to have a substantial interest 
in the reorganization.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 30 FR 4129, Mar. 30, 
1965]



Sec. 250.103A  Liability for certain statements by issuers.

    (a) A statement within the coverage of paragraph (b) of this section 
which is made by or on behalf of an issuer or by an outside reviewer 
retained by the issuer shall be deemed not to be a fraudulent statement 
(as defined in paragraph (d) of this section), unless it is shown that 
such statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.
    (b) This rule applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a document filed with the Commission, in Part I of a 
quarterly report on Form 10-Q and Form 10-QSB, Sec. 249.308a of this 
chapter, or in an annual report to shareholders meeting the requirements 
of Rules 14a-3 (b) and (c) or 14c-3(a) and (b) under the Securities 
Exchange Act of 1934, a statement reaffirming such forward-looking 
statement subsequent to the date the document was filed or the annual 
report was made publicly available, or a forward-looking statement made 
prior to the date the document was filed or the date the annual report 
was made publicly available if such statement is reaffirmed in a filed 
document, in Part I of a quarterly report on Form 10-Q and Form 10-QSB, 
or in an annual report made publicly available within a reasonable time 
after the making of such forward-looking statement: Provided, That;
    (i) At the time such statements are made or reaffirmed, either the 
issuer is subject to the reporting requirements of section 13(a) or 
15(d) of the Securities Exchange Act of 1934 and has complied with the 
requirements of Rule 13a-1 or 15d-1 thereunder, if applicable, to file 
its most recent annual report on Form 10-K and Form 10-KSB; or, if the 
issuer is not subject to the reporting requirements of section 13(a) or 
15(d) of the Securities Exchange Act of 1934, the statements are made in 
a registration statement filed under the Securities Act of 1933 or 
pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934, 
and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940; and

[[Page 635]]

    (2) Information which is disclosed in a document filed with the 
Commission, in part I of a quarterly report on Form 10-Q and Form 10-QSB 
or in an annual report to shareholders meeting the requirements of Rules 
14a-3 (b) and (c) or 14c-3 (a) and (b) under the Securities Exchange Act 
of 1934 and which relates to:
    (i) The effects of changing prices on the business enterprise, 
presented voluntarily or pursuant to Item 303 of Regulation S-K (Sec. 
229.303 of this chapter), ``Management's discussion and analysis of 
financial condition and results of operations,'' or Item 302 of 
Regulation S-K (Sec. 229.302 of this chapter), ``Supplementary 
financial information,'' or
    (ii) The value of proved oil and gas reserves (such as a 
standardized measure of discounted future net cash flows relating to 
proved oil and gas reserves as set forth in paragraphs 30-34 of 
Statement of Financial Accounting Standards No. 69) presented 
voluntarily or pursuant to Item 302 of Regulation S-K (Sec. 229.302 of 
this chapter).
    (c) For the purpose of this rule, the term forward-looking statement 
shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations included pursuant to Item 303 of Regulation S-K (Sec. 
229.303 of this chapter); or
    (4) Disclosed statements of the assumptions underlying or relating 
to any of the statements described in paragraph (c) (1), (2), or (3) of 
this section.
    (d) For the purpose of this rule the term fraudulent statement shall 
mean a statement which is an untrue statement of a material fact, a 
statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Public Utility Holding Company Act of 1935 and other 
acts referred to in section 16(b) thereof or the rules or regulations 
promulgated thereunder.

[46 FR 13991, Feb. 25, 1981, as amended at 46 FR 19457, Mar. 31, 1981; 
47 FR 11474, Mar. 16, 1982; 47 FR 57915, Dec. 29, 1982]



Sec. 250.104  Public disclosure of information and objections thereto.

    Preliminary Note: If any person wishes to object to the public 
disclosure of any information contained in a filing with the Commission 
under any provision of the Act then that portion thereof which contains 
such information shall be submitted in paper format only, whether or not 
the filer is an electronic filer.

    (a) General provision. Unless otherwise directed by the Commission, 
all information contained in any notification, statement, application, 
declaration, report, or other document filed with the Commission shall 
be available to the public, and copies of any or all information filed 
in connection with or as a part of any of the above documents will be 
furnished to any person upon request and upon the payment of the charge 
therefor.
    (b) Confidential treatment. If any person filing a notification, 
statement, application, declaration, report, or other document with the 
Commission under any provision of the act, or of any rules or order of 
the Commission thereunder, wishes to object to the public disclosure of 
any information contained therein, he shall file that portion thereof 
which contains such information separately from the remainder and shall 
plainly mark it ``Confidential Treatment''. There shall also be filed 
with such information written objection to its public disclosure which 
(1) shall identify that portion of the notification, statement, 
application, declaration, report or other document to the public 
disclosure of which objection is made, (2) shall state the reasons why 
public disclosure thereof is not necessary or appropriate in the public

[[Page 636]]

interest or for the protection of investors or consumers, and (3) may 
request a hearing on the question of public disclosure. Thereafter such 
information shall not be made available to the public unless and until 
the Commission so directs.
    (c) Information obtained in the course of examinations, studies, and 
investigation. Information or documents obtained by officers or 
employees of the Commission in the course of any examination, study or 
investigation pursuant to section 13(g), section 15(f) (49 Stat. 825, 
828; 15 U.S.C. 79m, 79o), or paragraph (a) or (d) of section 18 (49 
Stat. 831; 15 U.S.C. 79r) shall, unless made a matter of public record, 
be deemed confidential. Except as provided by 17 CFR 203.2, officers and 
employees are hereby prohibited from making such confidential 
information or documents or any other non-public records of the 
Commission available to anyone other than a member, officer, or employee 
of the Commission, unless the Commission or the General Counsel, 
pursuant to delegated authority, authorizes the disclosure of such 
information or the production of such documents as not being contrary to 
the public interest. Any officer or employee who is served with a 
subpoena requiring the disclosure of such information or the production 
of such documents shall appear in court, and, unless the authorization 
described in the preceding sentence shall have been given, shall 
respectfully decline to disclose the information or produce the 
documents called for, basing his or her refusal upon this rule.
    (d) Any officer or employee who is served with such a subpoena, 
shall promptly advise the General Counsel of the service of such 
subpoena, the nature of the information or documents sought, and any 
circumstances which may bear upon the desirability of making available 
such information or documents.

[Rule U, 6 FR 2015, Apr. 19, 1941, as amended at 20 FR 7036, Sept. 20, 
1955; 26 FR 3102, Apr. 12, 1961; 44 FR 50836, Aug. 30, 1979; 53 FR 
17459, May 17, 1988; 58 FR 15005, Mar. 18, 1993]



Sec. 250.105  Disclosure detrimental to the national defense or foreign policy.

    (a) Any requirement to the contrary notwithstanding, no 
notification, statement, application, declaration, report, or other 
document filed with the Commission shall contain any document or 
information which, pursuant to Executive order, has been classified by 
an appropriate department or agency of the United States for protection 
in the interests of national defense or foreign policy.
    (b) Where a document or information is omitted pursuant to paragraph 
(a) of this section, there shall be filed, in lieu of such document or 
information, a statement from an appropriate department or agency of the 
United States to the effect that such document or information has been 
classified or that the status thereof is awaiting determination. Where a 
document is omitted pursuant to paragraph (a) of this section, but 
information relating to the subject matter of such document is 
nevertheless included in material filed with the Commission pursuant to 
a determination of an appropriate department or agency of the United 
States that disclosure of such information would not be contrary to the 
interests of national defense or foreign policy, a statement from such 
department or agency to that effect shall be submitted for the 
information of the Commission. A registrant may rely upon such statement 
in filing or omitting any document or information to which the statement 
relates.
    (c) The Commission may protect any information in its possession 
which may require classification in the interests of national defense or 
foreign policy pending determination by an appropriate department or 
agency as to whether such information should be classified.
    (d) It shall be the duty of the registrant to submit the documents 
or information referred to in paragraph (a) of this section to the 
appropriate department or agency of the United States prior to filing 
them with the Commission and to obtain and submit to the Commission, at 
the time of filing such documents or information, or in lieu thereof, as 
the case may be, the statements from such department or

[[Page 637]]

agency required by paragraph (b) of this section. All such statements 
shall be in writing.

[33 FR 7682, May 24, 1968]



Sec. Sec. 250.106--250.107  [Reserved]



Sec. 250.110  Small entities for purposes of the Regulatory Flexibility Act.

    For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.), and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the terms ``small business'' and ``small 
organization,'' for purposes of the Public Utility Holding Company Act 
of 1935, shall mean a holding company system whose gross consolidated 
revenues from sales of electric energy or of natural or manufactured gas 
distributed at retail for its previous fiscal year did not exceed 
$1,000,000. There may be excluded from such gross revenues:
    (a) Sales or electric energy or natural or manufactured gas to 
tenants or employees of any operating subsidiary company of such holding 
company for their own use and not for resale; and
    (b) Sales of gas to industrial consumers or in enclosed portable 
containers.

[47 FR 5222, Feb. 4, 1982]



   PART 251_INTERPRETATIVE RELEASES RELATING TO THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 AND GENERAL RULES AND REGULATIONS THEREUNDER--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Statement of policy regarding first mortgage bonds      13105   Feb. 16, 1956  21 FR 1286.
 subject to the Public Utility Holding Company Act
 of 1935.
Statement of policy regarding preferred stock           13106   Feb. 16, 1956  21 FR 1288.
 subject to the Public Utility Holding Company Act
 of 1935.
Opinion and statement of the Commission in regard       15359    Dec. 7, 1965  30 FR 15420.
 to proper reporting of deferred income taxes
 arising from installment sales.
Statement of the Commission to clarify the meaning      15381   Jan. 19, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Statement of the Commission setting the date of May     15403   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Statement of the Commission authorizing the             16369     May 8, 1969  34 FR 9553.
 adoption of modifications of policies regarding
 provisions of long-term debt securities issued and
 sold under the Holding Company Act; 5-year
 refunding limitation.
Conclusion of the Commission that it is appropriate     16758   June 22, 1970  35 FR 10585.
 to permit the issuers of preferred stock under the
 Holding Company Act of 1935 to include a 5-year
 refunding limitation on all stocks sold on and
 after June 22, 1970.
Announcement by the Commission that no informal         16832  Sept. 17, 1970  35 FR 15210.
 exceptions from the requirements (17 CFR 250.50)
 of competitive bidding will be granted.
Publication of the Commission's procedure to be         16972   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be net for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Commission endorses the establishment by all            17514   Mar. 23, 1972  37 FR 6850.
 publicly held companies of audit committees
 composed of outside directors.
Commission's statement and policy on misleading pro     17583    June 1, 1972  37 FR 11559.
 rata stock distributions to shareholders.
Commission's guidelines on independence of              17636    July 5, 1972  37 FR 14294.
 certifying accountants; example cases and
 Commission's conclusions.
Commission's interpretation of risk-sharing test in     17712  Sept. 29, 1972  37 FR 20937.
 pooling-of-interest accounting.
Commission reaffirms proper accounting treatment to     17772   Nov. 17, 1972  37 FR 26516.
 be followed by a lessee when the lessor is created
 as a conduit for debt financing.
Amendment of previous interpretation (AS-130) of        17841    Jan. 5, 1973  38 FR 1734.
 risk-sharing test in pooling-of-interest
 accounting.
Commission's conclusion as to certain problems          18067   Aug. 24, 1973  38 FR 24635.
 relating to the effect of treasury stock
 transactions or accounting for business
 combinations.
Commission request for comments on Accounting           18112    Oct. 5, 1973  38 FR 28819.
 Series Release No. 146.
Statement by the Commission on disclosure of the        18225   Dec. 20, 1973  39 FR 1511.
 impact of possible fuel shortages on the
 operations of issuers.
Commission's statement of policy and                   18067A   Apr. 12, 1974  39 FR 14588.
 interpretations.
Commission's practices on reporting of natural gas      18640   June 14, 1974  39 FR 27556.
 reserve estimates.
Commission's examples of unusual risks and              18723   Dec. 23, 1974  40 FR 2678.
 uncertainties.

[[Page 638]]

 
Commission's guidelines on Accounting Series            19039   June 13, 1975  40 FR 27441.
 Release No. 148.
Commission's statement regarding disclosure of          20798   Nov. 29, 1978  43 FR 57596.
 impact of Wage and Price Standards for 1979 on the
 operations of issuers.
Investment bankers and banks in Rule 70............     21967   Mar. 18, 1981  46 FR 18535.
Lease transactions under Economic Recovery Tax Act      22259    Nov. 4, 1981  46 FR 55510.
 of 1981.
Statement of policy concerning application of Rule      22623   Sept. 2, 1982  47 FR 39810.
 50 under the Public Utility Holding Company Act of
 1935.
Public statements by corporate representatives.....     23199   Jan. 13, 1984  49 FR 2468.
Ownership reports and trading by officers,              25303   Apr. 26, 1991  56 FR 19928.
 directors and principal security holders.
Application of the Electronic Signatures in Global      27419   June 14, 2001  66 FR 33176.
 and National Commerce Act to Record Retention
 Requirements Pertaining to Issuers.
----------------------------------------------------------------------------------------------------------------



PART 256_UNIFORM SYSTEM OF ACCOUNTS FOR MUTUAL SERVICE COMPANIES 
AND SUBSIDIARY SERVICE COMPANIES, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935--Table of Contents




                          General Instructions

Sec.
256.00-1 Preface.
256.01-1 Companies for which this system of accounts is prescribed.
256.01-2 Application to service companies doing business with 
          nonassociate companies.
256.01-3 General structure of accounting system.
256.01-4 Construction or service contracts, and centralized procurement 
          accounting.
256.01-5 Determination of service cost accounting.
256.01-6 Departmental classification required.
256.01-7 Records.
256.01-8 Definitions.
256.01-9 Unbilled items.
256.01-10 Billing procedures.
256.01-11 Methods of allocation.
256.01-12 Compensation for use of capital.
256.01-13 Submission of questions.

         Balance Sheet Accounts: Assets and Other Debit Accounts

                       1. service company property

256.101 Service company property.
256.107 Construction work in progress.
256.108 Accumulated provision for depreciation and amortization of 
          service company property.

                             2. investments

256.123 Investment in associate companies.
256.124 Other investments.

                      3. current and accrued assets

256.131 Cash.
256.134 Special deposits.
256.135 Working funds.
256.136 Temporary cash investments.
256.141 Notes receivable.
256.143 Accounts receivable.
256.144 Accumulated provision for uncollectible accounts.
256.146 Accounts receivable from associate companies.
256.152 Fuel stock expenses undistributed.
256.154 Materials and supplies.
256.163 Stores expense undistributed.
256.165 Prepayments.
256.174 Miscellaneous current and accrued assets.

                           4. deferred debits

256.181 Unamortized debt expense.
256.184 Clearing accounts.
256.186 Miscellaneous deferred debits.
256.188 Research, development or demonstration expenditures.
256.190 Accumulated deferred income taxes.

                  Liabilities and Other Credit Accounts

                         5. proprietary capital

256.201 Common stock issued.
256.211 Miscellaneous paid-in capital.
256.215 Appropriated retained earnings.
256.216 Unappropriated retained earnings.

                            6. long-term debt

256.223 Advances from associate companies.
256.224 Other long-term debt.
256.225 Unamortized premium on long-term debt.
256.226 Unamortized discount on long-term debt-debit.

                   7. current and accrued liabilities

256.231 Notes payable.
256.232 Accounts payable.
256.233 Notes payable to associate companies.
256.234 Accounts payable to associate companies.
256.236 Taxes accrued.
256.237 Interest accrued.
256.238 Dividends declared.
256.241 Tax collections payable.

[[Page 639]]

256.242 Miscellaneous current and accrued liabilities.

                           8. deferred credits

256.253 Other deferred credits.
256.255 Accumulated deferred investment tax credits.

                  9. accumulated deferred income taxes

256.282 Accumulated deferred income taxes.

                    Service Company Property Accounts

256.301 Organization.
256.303 Miscellaneous intangible plant.
256.304 Land and land rights.
256.305 Structures and improvements.
256.306 Leasehold improvements.
256.307 Equipment.
256.308 Office furniture and equipment.
256.309 Automobiles, other vehicles, and related garage equipment.
256.310 Aircraft and airport equipment.
256.311 Other service company property.

                       Income and Expense Accounts

                                1. income

256.403 Depreciation and amortization expense.
256.408 Taxes other than income taxes.
256.409 Income taxes.
256.410 Provision for deferred income taxes.
256.411 Provision for deferred income taxes--credit.
256.411.5 Investment tax credit.
256.421 Miscellaneous income or loss.
256.426.1 Donations.
256.426.5 Other deductions.
256.427 Interest on long-term debt.
256.430 Interest on debt to associate companies.
256.431 Other interest expense.
256.457 Services rendered to associate companies.
256.457-1 Direct costs charged to associate companies.
256.457-2 Indirect costs charged to associate companies.
256.457-3 Compensation for use of capital-associate companies.
256.458 Services rendered to nonassociate companies.
256.458-1 Direct costs charged to nonassociate companies.
256.458-2 Indirect costs charged to nonassociate companies.
256.458-3 Compensation for use of capital--nonassociate companies.
256.458-4 Excess or deficiency on servicing nonassociate companies.

                               2. expense

256.920 Salaries and wages.
256.921 Office supplies and expenses.
256.922 Administrative expenses transferred--credit.
256.923 Outside services employed.
256.924 Property insurance.
256.925 Injuries and damages.
256.926 Employee pensions and benefits.
256.928 Regulatory commission expense.
256.930.1 General advertising expenses.
256.930.2 Miscellaneous general expenses.
256.931 Rents.
256.932 Maintenance of structures and equipment.

    Authority: Secs. 13, 15, 20, 49 Stat. 825, 828, 833; 15 U.S.C. 79m, 
79o, 79t.

    Source: 44 FR 8250, Feb. 9, 1979, unless otherwise noted.

                          General Instructions

    Cross References: . For general rules and regulations, Public 
Utility Holding Company Act of 1935, see Part 250 of this chapter. For 
rule adopting this Uniform System of Accounts, see Sec. 250.93. For 
regulations under section 13 of the Act, see Sec. Sec. 250.80 to 
250.95.
    Note: Cross references to accounts are made by citing the account 
number, e.g., account 201 instead of the corresponding section number 
(Sec. 256.201).



Sec. 256.00-1  Preface.

    (a) The accompanying Uniform System of Accounts for Mutual Service 
and Subsidiary Service Companies represents a modernization of the 
accounting system for such companies to provide a detailed system of 
accounts which is tailored to present and expanded services, including 
data processing, modeling, rate analysis, system analysis, budgeting and 
other support services such as fuel management and analysis, being 
rendered by such companies. This Uniform System of Accounts is not 
applicable to gas or electric utility companies, or companies primarily 
engaged (1) in production of goods, including exploration and 
development of fuel resources, (2) in the provision of water, telephone, 
or similar services, the sale of which is normally subject to public 
rate regulation, (3) in provision of transportation, whether or not so 
regulated, or (4) in the ownership of property, including leased 
property and fuel reserves, for the use of associate companies.
    (b) It has been the Commission's task to provide a system 
comprehensive enough to cover the traditional services and the present 
services being performed by such companies, yet elastic

[[Page 640]]

enough to permit adaptation to varying requirements; a system which, 
faithfully applied, will provide information essential in the 
administration of section 13 of the Public Utility Holding Company Act 
of 1935, will be workable and reasonably simple from an operating 
viewpoint, and free from unnecessary complexities or burdensome 
requirements which might render it incompatible with the interests of 
investors or consumers.
    (c) This Uniform System of Accounts requires the service company to 
(1) design subaccounts and keep memorandum and time records to 
facilitate the preparation of reports and statements required by 
regulatory commissions and the conduct of audit and account inspection 
programs, (2) establish a work order system to accumulate reimbursable 
costs and charges to customers, and (3) account for compensation for use 
of capital, if paid.
    (d) Credits to the accounts or memorandum records may be made upon 
the basis of estimated costs to associate companies which shall conform 
as nearly as may be practicable to actual costs: Provided, That at 
stated intervals adjustments of the estimated costs to actual costs 
shall be made. Invoices to associate companies shall clearly indicate 
any adjustments to estimated cost previously billed. Such adjustments 
may be made at intervals during the fiscal year, but final adjustments 
shall be made at the end of such year. Overbillings or underbillings 
arising from these adjustments shall be cleared through the appropriate 
account and offset by adjustments to other accounts involved.
    (e) The ``expense'' accounts provided have been designed to show the 
cost of each general class of service furnished by the service company 
and with a view toward securing an equitable allocation thereof to the 
associate companies served.
    (f) Consideration was given in the preparation of this system to the 
necessity of providing for a more detailed classification of service 
costs in order to permit these costs to be identified with the 
functional processes of the associate companies served. In this 
connection, each service company shall maintain a work order system for 
accumulating reimbursable costs and charges to customers and maintain 
time rec ords for all service company employees in order to support the 
accounting allocation of all expenses assignable to the types of 
services performed and chargeable to the companies served.
    (g) It is believed that the results to be obtained from the system 
now prescribed, together with the more detailed information to be called 
for in the annual reports, will provide a better basis for identifying 
cost than is presently available.



Sec. 256.01-1  Companies for which this system of accounts is prescribed.

    (a) This Uniform System of Accounts is designed for use by: (1) Any 
company operating, or organized to operate, as a mutual service company 
under the provisions of section 13 of the Public Utility Holding Company 
Act of 1935, and (2) any subsidiary company whose organization and 
conduct of business the Commission has found to meet the requirements of 
section 13(b) of the Public Utility Holding Company Act of 1935, with 
respect to the performance of services or construction work for, or the 
sale of goods to, associate companies.
    (b) This Uniform System of Accounts is not applicable to gas or 
electric utility companies; or companies primarily engaged (1) in 
production of goods, including exploration and development of fuel 
resources, (2) in the provision of water, telephone, or similar 
services, the sale of which is normally subject to public rate 
regulation, (3) in provision of transportation, whether or not so 
regulated, or (4) in the ownership of property, including leased 
property and fuel reserves, for the use of associate companies.



Sec. 256.01-2  Application to service companies doing business with 
nonassociate companies.

    While this Uniform System of Accounts is designed for companies 
whose principal business is the performance of services or construction 
for associate companies at cost, it contemplates situations in which the 
service company may perform service or

[[Page 641]]

construction for nonassociate companies in transactions in which charges 
are not limited to cost. In recognition of such charges account 458-4 is 
included in the ``Income'' group for ``Excess or deficiency on servicing 
nonassociate companies.'' A deficiency incurred in a project deemed 
beneficial to the associate companies may be charged to associate 
companies subject to disallowance by a State or Federal Commission 
having jurisdiction over the rates or services of such associates. To 
the extent not so chargeable, or if disallowed, such a deficiency will 
be charged to account 458-4. In computing charges to associate companies 
for any fiscal year, any net credit in this account must be deducted 
from amounts reimbursable by associate companies as compensation for use 
of capital invested in the service company.



Sec. 256.01-3  General structure of accounting system.

    (a) The accounts provided herein are in two general categories: 
Balance sheet accounts and income and expense accounts. Subsidiary 
accounts are provided for the details of account 101, Service company 
property.
    (b) The income and expense accounts include, under separate 
divisions, accounts for recording the revenue or income earned or 
received and also appropriate accounts for all expenses of operation, 
maintenance, taxes, interest, all elements of cost allocable to the 
service performed, and compensation for the use of capital. Appropriate 
subdivisions or subaccounts should be provided for each service company 
department or division.
    (c) All disbursements and expenses of the service company for 
service performed for associate companies are recoverable from such 
companies. In the interest of minimizing questions as to the propriety 
of charges for reimbursement, each service company shall maintain a work 
order system for accumulating all costs. To the maximum extent possible, 
such costs shall be accumulated by direct charges. All employees, 
including officers, of the service company shall keep, within reasonable 
cost benefit standards, time records which permit ready identification 
of the hours worked, account numbers charged, department work order 
number and other code designations that facilitate proper 
classification.
    (d) The numbers to the right of the decimal point in most cases 
correspond with the respective account numbers in the Uniform System of 
Accounts for Public Utilities and Licensees (18 CFR Part 101) of the 
Federal Energy Regulatory Commission and shall be considered as parts of 
the account titles. Each service company, however, may adopt for its own 
purposes a different system of account numbers provided that the account 
numbers herein prescribed shall appear in the descriptive headings of 
the ledger accounts and, if practicable, on original source documents. 
Service companies adopting a different system of account numbers for 
their own purposes shall keep readily available a list which indicates 
its account numbers and the corresponding account numbers provided 
herein. Records of service companies shall be maintained in a manner 
permitting ready analysis by prescribed accounts (with direct reference 
to the source of each item in the books of original entry) and 
permitting preparation of financial operating statements directly from 
such records at the end of each accounting period.



Sec. 256.01-4  Construction or service contracts, and centralized 
procurement accounting.

    (a) Specific accounts have not been provided in which to classify 
expenditures made in the performance of construction or service 
contracts, under which the service company undertakes projects to 
construct physical property for associate or nonassociate companies. The 
difference in the nature of undertakings which will be embraced in such 
contracts renders impracticable an attempt to prescribe the accounts 
applicable in all cases. The service company shall keep records pursuant 
to its work order system indicating the cost of each contract or 
project, the amount of service costs allocated thereto, and such 
additional classification of expenditures relating to projects as will 
meet the accounting requirements of the company for which the work is 
performed.

[[Page 642]]

    (b) Service costs allocated to construction shall include the proper 
proportion of salaries, expense of officers and employees, pay of 
employees on the service company's regular staff specifically assigned 
to construction work, and other expenses of maintaining the service 
company's organization and equipment. Cost of materials, construction 
payrolls, outside services, and other expenses directly attributable to 
construction work shall be excluded from the accounting system of the 
service company and charged directly by the vendor or supplier to the 
construction project.
    (c) Service costs allocated to centralized procurement activities 
shall include only the cost of the support services performed by the 
service company in connection with the procurement of goods for 
associate companies. Cost of goods procured shall be excluded from the 
accounting system of the service company and charged directly by the 
vendor or supplier to the associate company concerned. The service 
company shall keep records indicating the cost of goods, if any, which 
it procures for each associate company and the amount of service costs 
allocated thereto. These records should be maintained to meet the 
Federal Energy Regulatory Commission's accounting requirements for 
electric and gas companies.



Sec. 256.01-5  Determination of service cost accounting.

    Service at cost and fair allocation of costs require, first of all, 
an accurate accounting for the elements which make up the aggregate 
expense of conducting the business of the service company. In the 
accounts herein prescribed, the total amounts included in the expense 
accounts during any period plus such amount as appropriately may be 
added as compensation for the use of capital, if paid, constitute cost 
during such period.



Sec. 256.01-6  Departmental classification required.

    The importance of ``salaries and wages'' as an element of cost 
requires analysis of this item of expense by departmental or other 
functional category in accordance with the departmental organization of 
the service company. To the extent practicable, such departmental 
organization should be established along lines which will provide a 
readily available basis for analysis.



Sec. 256.01-7  Records.

    (a) The books of account and other records of the service company 
shall be so kept as to show fully the facts pertaining to all entries in 
these accounts. All such entries shall be supported by detailed 
information sufficient to permit ready identification and audit.
    (b) The books and records referred to herein shall include not only 
accounting records in a limited technical sense but all other records 
such as minute books, stock books, reports, working papers, memoranda, 
etc., which may be useful in developing the history of or facts 
regarding any transactions of the service company.
    (c) No company shall destroy any records except as authorized by the 
provisions of part 257 of this chapter.
    (d) The accounts may be further subdivided: Provided, Such 
subdivisions do not impair the integrity of the prescribed accounts. The 
titles of all subdivisions or subaccounts shall refer by number to the 
accounts of which they are subdivisions.
    (e) Clearing-accounts shall be kept when necessary or useful in 
making the proper distribution of items to the appropriate accounts 
prescribed herein or in accumulating general overhead cost such as rent, 
utility, employee benefits, and other general and support services that 
are to be allocated to work orders.
    (f) On or before the effective date of this Uniform System of 
Accounts, the several accounts prescribed herein shall be opened by 
transferring thereto the balances carried in the accounts previously 
maintained by the service company. The service company is authorized to 
make such subdivisions, reclassification, or consolidations of such 
balances as are necessary to meet the requirements of this Uniform 
System of Accounts.
    (g) Except where this Uniform System of Accounts accords specific 
treatment for specified accounts, all accounts and financial statements 
shall

[[Page 643]]

be maintained in accordance with Regulation S-X and Accounting Series 
Releases of this Commission. The Uniform System of Accounts promulgated 
by the Federal Energy Regulatory Commission, as amended from time to 
time, and the interpretations thereof adopted from time to time by the 
Federal Energy Regulatory Commission, and accounting regulations and 
orders of any other Federal or State Commission having jurisdiction over 
associate companies shall be complied with unless expressly inconsistent 
with the requirements of this system.

[44 FR 8250, Feb. 9, 1979, as amended at 49 FR 27310, July 3, 1984]



Sec. 256.01-8  Definitions.

    Definitions contained in the Public Utility Holding Company Act of 
1935 shall be applicable to terms not specifically defined herein.
    (a) Accounts means the accounts prescribed by this Uniform System of 
Accounts.
    (b) Associate company means any company in the same holding company 
system.
    (c) Company or the company, when not otherwise indicated in the 
context, means the service company.
    (d) Commission means the Securities and Exchange Commission.
    (e) Direct cost shall include labor cost and expenses which can be 
identified through a work order system as being applicable to services 
performed for a single or group of associate and nonassociate companies. 
Cost incidental to or related to a directly charged item shall be 
classified as direct costs.
    (f) Federal commission means any Federal agency, including the 
Securities and Exchange Commission, which has jurisdiction to regulate 
public utility companies in some relevant respect.
    (g) Federal Energy Regulatory Commission means the Federal Energy 
Regulatory Commission or any successor thereto.
    (h) Holding company system means any holding company, together with 
all of its subsidiary companies and all mutual service companies of 
which such holding company or any subsidiary company thereof is a member 
company.
    (i) Indirect cost shall include those costs of a general overhead 
nature such as general services, housekeeping costs, and other support 
cost which cannot be separately identified to a single or group of 
associate and nonassociate companies and therefore must be allocated. 
Indirect costs shall be accumulated on a departmental basis.
    (j) Mutual service company, service company or subsidiary service 
company means a company approved by the Commission as a mutual service 
company or a subsidiary company of a registered holding company found by 
the Commission to be organized and conducted as to meet the requirements 
of section 13(b) of the Act and the provisions of Rule 88 promulgated 
thereunder.
    (k) Nonassociate companies means a person, partnership, 
organization, government body or company which is not a member of the 
holding company system.
    (l) Operating company means an electric utility company or gas 
utility company as defined in the Public Utility Holding Company Act of 
1935.
    (m) Person means an individual or company.
    (n) State commission means any commission, board, agency, or 
officer, by whatever name designated, or a State, municipality, or other 
political subdivision of a State which under the laws of such State has 
jurisdiction to regulate public-utility companies.
    (o) Uniform system of accounts means the Uniform System of Accounts 
for Mutual Service Companies and Subsidiary Service Companies prescribed 
herein, as amended from time to time.
    (p) Work order system means a system for the accumulation of service 
company cost on a job, project, or functional basis. It includes 
schedules and worksheets used to account for charges billed to single 
and groups of associate and nonassociate companies.



Sec. 256.01-9  Unbilled items.

    When the amount of any known item affecting these accounts cannot be 
accurately determined in time for inclusion in the accounts of the 
fiscal year in which the transaction occurs, the amount of the item 
shall be estimated

[[Page 644]]

and included in the proper accounts. When the amount is ascertained, the 
necessary adjustments shall be made through the accounts in which the 
estimate was recorded. If it is determined during the interval that a 
material adjustment will be required, the estimate shall be adjusted 
through the current accounts. The service company is not required to 
anticipate minor items which would not appreciably affect these 
accounts.



Sec. 256.01-10  Billing procedures.

    All invoices for services rendered to associate companies shall be 
submitted monthly with sufficient information and in sufficient detail 
to permit the associate company to identify and classify the charge in 
terms of the system of accounts prescribed by the regulatory authorities 
to which it is subject. Each month a statement shall be rendered to the 
associate company containing a summary of the accounts by work order by 
which the charges, classified as direct cost, indirect cost, and 
compensation for use of capital, can be entered in the accounts of the 
associate company.



Sec. 256.01-11  Methods of allocation.

    Indirect costs and compensation for use of capital shall be 
allocated to work orders in accordance with the service company's 
applicable and currently effective methods of allocation filed with the 
Commission. Both direct and allocated indirect costs of work orders for 
two or more associate companies shall be allocated among such companies 
in the same manner. Each work order should identify the methods of 
allocation to associate companies and the accounts to be charged. The 
associate companies should be notified in writing of any change in the 
methods of allocation.



Sec. 256.01-12  Compensation for use of capital.

    Paragraph (a) of Rule 91 provides in pertinent part that a servicing 
transaction shall be deemed to be performed at no more than cost if the 
price of such service does not exceed a fair and equitable allocation of 
expenses plus reasonable compensation for necessary capital procured 
through the issuance of capital stock. Interest on borrowed capital and 
compensation for the use of capital shall only represent a reasonable 
return on the amount of capital reasonably necessary for the performance 
of services or construction work for, or the sale of goods to, associate 
companies. Such compensation may be estimated and shall be computed 
monthly in the manner prescribed by the Commission. The amount of 
compensation shall be stated separately in each billing to the associate 
companies. An annual statement to support the amount of compensation for 
use of capital billed for the previous twelve months and how it was 
calculated shall be supplied to each associate company at the end of the 
calendar year.



Sec. 256.01-13  Submission of questions.

    To promote and maintain uniformity in accounting, the service 
companies shall submit all questions of doubtful interpretation of the 
prescribed accounting to the Division of Corporate Regulation or its 
successor for consideration and decision.

         Balance Sheet Accounts: Assets and Other Debit Accounts

                       1. service company property



Sec. 256.101  Service company property.

    This account shall include the cost of service company property 
included in accounts 301 and 303 through 311 prescribed herein.



Sec. 256.107  Construction work in progress.

    This account shall include the total of the balances of work orders 
for service company property in process of construction. Work orders 
shall be cleared from this account as soon as practicable after 
completion of the job.



Sec. 256.108  Accumulated provision for depreciation and amortization 
of service company property.

    (a) This account shall be credited with the amount charged to 
account 403, Depreciation and amortization expense.
    (b) At the time of retirement of depreciable service company 
property, this account shall be charged with the book cost of the 
property retired and

[[Page 645]]

the cost of removal, and shall be credited with the salvage value and 
any other amounts recovered, such as insurance, unless the company 
maintains costs and related reserves for specific units or types of 
property.
    (c) Individual subaccounts for each classification of property 
listed under account 101, Service company property, shall be maintained.

                             2. investments



Sec. 256.123  Investment in associate companies.

    This account shall only include notes receivable, advances, and 
other balances in open accounts with associate companies, which are not 
subject to current settlement.



Sec. 256.124  Other investments.

    This account shall include the cost or current value of investments, 
whichever is less, in securities, club memberships, associations, life 
insurance policies for employees, or other investments in nonassociate 
companies, other than account 136, Temporary cash investments. This 
account shall not be used for advances to associate companies. The 
account shall be maintained in such manner as to show by subaccounts, or 
otherwise, the nature and amount of each investment.

                      3. current and accrued assets



Sec. 256.131  Cash.

    This account shall include the amount of current cash funds except 
working funds.



Sec. 256.134  Special deposits.

    This account shall include deposits with fiscal agents or others for 
special purposes. Entries to this account shall specify the purpose for 
which the deposit is made.



Sec. 256.135  Working funds.

    This account shall include cash advanced to officers, agents, 
employees and others as petty cash or working funds.



Sec. 256.136  Temporary cash investments.

    This account shall include the cost of investments, such as demand 
and time loans, bankers' acceptances, United States Treasury 
obligations, marketable securities, and other similar investments, 
acquired for the purpose of temporarily investing cash.



Sec. 256.141  Notes receivable.

    This account shall include the cost of all notes receivable and 
similar evidences of amounts due within one year from persons other than 
associate companies. The account shall be so maintained as to show 
separately amounts due from officers, directors, employees and others.



Sec. 256.143  Accounts receivable.

    This account shall include amounts due on open accounts, other than 
amounts due from associate companies.



Sec. 256.144  Accumulated provision for uncollectable accounts.

    This account shall be credited with amounts provided for losses on 
notes and accounts receivable which may become uncollectable, and also 
with collections on accounts previously charged hereto.



Sec. 256.146  Accounts receivable from associate companies.

    This account shall include notes and balances in open accounts due 
from associate companies which are expected to be paid in full within 
one year.
    Note: Occasional payments to accommodate an associate company for 
emergency purposes or where obvious increased cost or time problems 
would be incurred shall be included in this account, but shall be 
segregated in a subaccount. Expenditures which do not pertain to 
performance of services by the service company shall be paid directly by 
the associate company.



Sec. 256.152  Fuel stock expenses undistributed.

    The service company shall utilize this account, where appropriate, 
to include the cost of service company labor and of office supplies used 
and operating expenses incurred with respect to the review, analysis and 
management of fuel supply contracts or agreements, the accumulation of 
fuel information and its interpretation, the logistics and

[[Page 646]]

handling of fuel, and other related support functions, as a service to 
the associate company engaged in the procurement and transportation of 
fuel. This account shall be maintained to show the expenses attributable 
to each associate company through the use of work orders. All expenses 
of a service company's fuel department or functions shall be cleared 
through this account.



Sec. 256.154  Materials and supplies.

    (a) The service company may utilize this account, where appropriate, 
to include the costs of materials and supplies held for use by the 
service company in performing its services. The cost of material and 
supplies attributable to work orders for service company property in 
process of construction shall be charged to account 107, Construction 
work in progress.
    (b) Materials and supplies issued shall be credited hereto and 
charged to the appropriate expense or other accounts on the basis of a 
unit price determined by the use of cumulative average, first-in-first-
out, or such other method of inventory accounting as conforms with 
generally accepted accounting standards consistently applied.



Sec. 256.163  Stores expense undistributed.

    (a) The service company shall utilize this account, where 
appropriate, to include the service cost of labor and expenses incurred 
with respect to centralized procurement activities rendered to associate 
or nonassociate companies.

                                  items

    (b)(1) Supervision of purchasing and stores department to extent 
assignable to materials handled through stores.
    (2) Purchasing department activities in checking material needs, 
investigating sources of supply, analyzing prices, preparing and placing 
orders, and related activities to extent applicable to materials handled 
through stores.
    (3) Unloading from shipping facility and putting in storage.
    (4) Inspecting and testing materials and supplies when not 
assignable to specific items.
    (5) Keeping stock records, including recording and posting of 
material receipts and issues and maintaining inventory record of stock.
    (6) Communication service.
    (7) Cash and other discounts not practically assignable to specific 
materials, freight, express, etc., when not assignable to specific 
items, transportation expense, and excise and other similar taxes not 
assignable to specific materials.
    (c) This account shall be maintained to show the expenses 
attributable to each associate company through the use of work orders. 
All expenses of a service company's centralized procurement activities 
shall be cleared through this account.
    (d) Any amounts applicable to fuel costs should be included in 
account 152, Fuel stock expenses undistributed.



Sec. 256.165  Prepayments.

    This account shall include amounts representing prepayments of 
insurance, rents, taxes, interest and miscellaneous items, and 
appropriate subaccounts shall be maintained in respect of each class of 
prepayment.



Sec. 256.174  Miscellaneous current and accrued assets.

    This account shall include the cost of all other current and accrued 
assets not provided for elsewhere. The records supporting this account 
shall be maintained so as to show the nature of each asset included 
herein.

                           4. deferred debits



Sec. 256.181  Unamortized debt expense.

    This account shall include expenses related to the issuance or 
assumption of debt securities. Amounts recorded in this account shall be 
amortized over the life of each respective issue under a plan which will 
distribute the amount equitably over the life of the security. The 
amortization shall be on a monthly basis, and the amounts thereof shall 
be charged to account 431, Other interest expense.



Sec. 256.184  Clearing accounts.

    This account shall include undistributed balances in clearing 
accounts at the date of the balance sheet. Balances

[[Page 647]]

shall be substantially cleared not later than the end of the calendar 
year.



Sec. 256.186  Miscellaneous deferred debits.

    This account shall include all debits not provided for elsewhere, 
such as the costs of service performed which have not been billed to 
associate or nonassociate companies and unusual or extraordinary 
expenses, not included in other accounts, and items the proper final 
disposition of which is uncertain. The records supporting the entries to 
this account shall be so kept that the service company can furnish full 
information as to the purpose, monthly balance, status, write-off and 
duration of each deferred debit.



Sec. 256.188  Research, development, or demonstration expenditures.

    (a) The service company shall utilize this account, where 
appropriate, for the cost of all expenditures for research, development 
or demonstration undertaken by or sponsored through the service company. 
To the extent such costs are incurred for customers, or for construction 
work in progress, this account will serve as a clearing account to 
identify the total research and development activity.
    (b) All cost shall be transferred from this account by the end of 
each fiscal year.
    (c) This account shall be so maintained as to show separately each 
project along with complete detail of the nature and purpose of the 
research, development and demonstration project together with the 
related costs.



Sec. 256.190  Accumulated deferred income taxes.

    (a) This account shall be debited and account 411, Provision for 
deferred income taxes--credit, or account 421, Miscellaneous income or 
loss, as appropriate, shall be credited with an amount equal to that by 
which income taxes payable for the year are higher because of the 
inclusion of certain items in income for tax purposes, which items for 
general accounting purposes will not be fully reflected in the service 
company's determination of annual net income until subsequent years.
    (b) This account shall be credited and account 410, Provision for 
deferred income taxes, or account 421, Miscellaneous income or loss, as 
appropriate, shall be debited with an amount equal to that by which 
income taxes payable for the year are lower because of prior payment of 
taxes as provided by paragraph (a) of this section, because of 
difference in timing for tax purposes of particular items of income or 
income deductions from that recognized by the service company for 
general accounting purposes.
    (c) Vintage year records with respect to entries to this account, as 
described above, and the account balance shall be so maintained as to 
show the factor of calculation with respect to each annual amount of the 
item or class of items for which deferred tax accounting by the service 
company is utilized.

                  Liabilities and Other Credit Accounts

                         5. proprietary capital



Sec. 256.201  Common stock issued.

    This account shall include the par or stated value of all common 
capital stock issued and outstanding.



Sec. 256.211  Miscellaneous paid-in capital.

    This account shall include the balance of all other credits for 
paid-in capital which are not properly includable in the foregoing 
accounts.



Sec. 256.215  Appropriated retained earnings.

    This account shall include the amount of retained earnings which has 
been appropriated or set aside for specific purposes. Separate 
subaccounts shall be maintained under such titles as will designate the 
purpose for which each appropriation was made.



Sec. 256.216  Unappropriated retained earnings.

    This account shall include the balance, either debit or credit, 
arising from earnings. All dividends shall be charged to this account. 
It shall not include amounts properly includable in account 211--
Miscellaneous paid-in capital. Entries to this account shall

[[Page 648]]

be sufficiently detailed for ready analysis of the account.

                            6. long-term debt



Sec. 256.223  Advances from associate companies.

    This account shall include the principal amount of notes and 
balances on open accounts due to associate companies. It does not 
include notes and open accounts representing indebtedness subject to 
current settlement which are includable in account 233, Notes payable to 
associate companies or account 234, Accounts payable to associate 
companies.
    Note: Subaccounts shall be maintained for each class of obligation, 
and records shall be maintained to show for each class the terms of the 
obligation, including the date of obligation, date of maturity, interest 
dates and rates, and security, if any.



Sec. 256.224  Other long-term debt.

    This account shall include all long-term debt to nonassociates and 
not subject to current settlement.
    Note: Subaccounts shall be maintained for each class of obligation, 
and records shall be maintained to show for each class the terms of the 
obligation, including the date of obligation, date of maturity, interest 
dates and rates, and security, if any.



Sec. 256.225  Unamortized premium on long-term debt.

    (a) This account shall include the excess of the cash value of 
consideration received over the face value upon the issuance or 
assumption of long-term debt securities.
    (b) Amounts recorded in this account shall be amortized over the 
life of each respective issue under a plan which will distribute the 
amount equitably over the life of the security. The amortization shall 
be on a monthly basis, with the amounts thereof to be credited to 
account 427, Interest on long-term debt, or account 431, Other interest 
expense.



Sec. 256.226  Unamortized discount on long-term debt-debit.

    (a) This account shall include the excess of the face value of long-
term debt securities over the cash value of consideration received 
therefor, related to the issue or assumption of all types and classes of 
debt.
    (b) Amounts recorded in this account shall be amortized over the 
life of the respective issues under a plan which will distribute the 
amount equitably over the life of the securities. The amortization shall 
be on a monthly basis, with the amounts thereof charged to account 427, 
Interest on long-term debt, or account 431, Other interest expense.

                   7. current and accrued liabilities



Sec. 256.231  Notes payable.

    This account shall include the face value of all notes, drafts, 
acceptances, or other similar evidences of indebtedness, payable on 
demand or within a time not exceeding one year from date of issue, to 
other than associate companies.



Sec. 256.232  Accounts payable.

    This account shall include all amounts payable by the service 
company within one year other than amounts payable to associate 
companies.



Sec. 256.233  Notes payable to associate companies.



Sec. 256.234  Accounts payable to associate companies.

    These accounts shall include notes and balances in open accounts due 
to associate companies within one year.



Sec. 256.236  Taxes accrued.

    (a) This account shall be credited with the amount of taxes accrued 
during the accounting period, corresponding debits being made to the 
appropriate accounts for tax charges. Such credits may be based upon 
estimates, but from time to time during the year as the facts become 
known the amount of the periodic credits shall be adjusted so as to 
include as nearly as can be determined in each year the taxes applicable 
thereto. Any amount representing a prepayment of taxes applicable to the 
period subsequent to the date of the balance sheet shall be shown under 
account 165, Prepayments.
    (b) The records supporting the entries to this account shall be kept 
so as

[[Page 649]]

to show for each class of taxes the amount accrued, the basis for the 
accrual, the accounts to which charged, and the amount of tax paid.



Sec. 256.237  Interest accrued.

    This account shall include the amount of interest accrued on all 
liabilities of the service company. Supporting records shall be 
maintained so as to show the amount of interest accrued on each 
obligation.



Sec. 256.238  Dividends declared.

    This account shall include the amount of dividends which have been 
declared but not paid.



Sec. 256.241  Tax collections payable.

    This account shall include the amount of taxes collected by the 
service company through payroll deductions or otherwise pending 
transmittal of such taxes to the proper taxing authority.



Sec. 256.242  Miscellaneous current and accrued liabilities.

    This account shall include the amount of all other current and 
accrued liabilities not provided for elsewhere. The records supporting 
this account shall be maintained so as to show the nature of each 
liability included herein.

                           8. deferred credits



Sec. 256.253  Other deferred credits.

    This account shall include advance billings and receipts and other 
deferred credit items, not provided for elsewhere, including amounts 
which cannot be entirely cleared or disposed of until additional 
information has been received. Subaccounts by category of credits should 
be established.



Sec. 256.255  Accumulated deferred investment tax credits.

    (a) This account shall be credited and account 411.5, Investment tax 
credit, debited with investment tax credits deferred by companies which 
do not apply such credits as a reduction of the overall income tax 
expense in the year in which a tax credit is realized. A proportionate 
amount shall be debited to account 411.5, Investment tax credit, as 
determined in relation to the average useful life of service company 
property to which the tax credit relates or such lesser period of time 
as may be adopted.
    (b) Records shall be maintained identifying the service company 
property giving rise to the investment tax credits for each year with 
the weighted-average service life of such properties and any unused 
balances of such credits. Such records are not necessary unless the tax 
credits are deferred.

                  9. accumulated deferred income taxes



Sec. 256.282  Accumulated deferred income taxes.

    (a) The text of these accounts is designed primarily to cover 
deferrals of Federal income taxes. However, they are also to be used 
when making deferrals of state and local income taxes. Service companies 
which have service company property and which have deferred taxes on 
income with respect thereto shall separately classify such deferrals in 
the accounts provided below so as to allow ready identification.
    (b) This account shall be credited and account 410, Provision for 
deferred incomes taxes, shall be debited with tax effects related to 
property described in paragraph (a) of this section where taxable income 
is lower than pretax accounting income due to differences between the 
periods in which revenue and expense transactions affect taxable income 
and the periods in which they enter into the determination of pretax 
accounting income.
    (c) This account shall be debited and account 411, Provision for 
deferred income taxes--credit, shall be credited with tax effects 
related to property described in paragraph (a) of this section where 
taxable income is higher than pretax accounting income due to 
differences between the periods in which revenue and expense 
transactions affect taxable income and the periods in which they enter 
into the determination of pretax accounting income.
    (d) Records with respect to entries to this account, as described 
above, and

[[Page 650]]

the account balance shall be so maintained as to show the factors of 
calculation and the separate amounts applicable to the additions of each 
vintage year for each class, group, or unit. The underlying calculations 
to segregate and associate deferred tax amounts with the respective 
vintage years may be based on reasonable methods of approximation, if 
necessary, consistently applied.

                    Service Company Property Accounts



Sec. 256.301  Organization.

    This account shall include all fees paid to federal or state 
governments for the privilege of incorporation and expenditures incident 
to organizing a corporation or other form of organization and putting it 
into readiness to do business including cost of obtaining certificates 
authorizing the service company to engage in its business, fees and 
expenses for incorporation, fees and expenses for mergers or 
consolidations, office expenses incident to organizing the service 
company, and other expenditures incident to the organization of the 
service company such as stock, minute books and corporate seal.
    Note: This account shall not include any discounts upon securities 
issued or assumed nor shall it include any costs or expenses in 
connection with the authorization, issuance and sale of securities of 
the service company.



Sec. 256.303  Miscellaneous intangible plant.

    (a) This account shall include the cost of patent rights, licenses, 
privileges, and other intangible property necessary or valuable in the 
conduct of the service company's operations and not specifically 
chargeable to any other account.
    (b) This account shall be maintained in such a manner that the 
service company can furnish full information with respect to the amounts 
included herein.
    Note: When any item included in this account is retired or expires, 
the book cost thereof shall be credited hereto and charged to account 
426.5, Other deductions.



Sec. 256.304  Land and land rights.

    (a) This account shall include the cost of any right, title, or 
interest to land held by the service company, including without 
limitation the cost of land owned in fee by the service company and the 
cost of easements, rights of way, and any other similar interests in 
land.
    (b) When special assessments for improvements provide for deferred 
payments, the full amount of the assessments shall be charged to the 
appropriate land account and the unpaid balance shall be carried in an 
appropriate liability account. Interest on unpaid balances shall be 
charged to the appropriate interest account. If any part of the cost of 
improvement is included in the general tax levy, the amount thereof 
shall be charged to the appropriate tax account.
    (c) Separate entries shall be made for the acquisition, transfer, or 
sale of each parcel of land, and each land right. A record shall be 
maintained showing the nature of ownership, full legal description, 
area, map reference, purpose for which used, city, county and tax 
district in which situated, from whom purchased or to whom sold, payment 
given or received, other costs, contract date and number, date of 
recording of deed, and book and page number of record.
    (d) If at the time of acquisition of an interest in land such 
interest extends to buildings or other improvements which are then 
devoted to the service company's operations, the land and improvements 
shall be separately appraised and the cost allocated to land and 
buildings or improvements on the basis of the appraisals. If the 
improvements are removed or wrecked without being used in operations, 
the cost of removing or wrecking shall be charged and the salvage 
credited to the account in which the cost of the land is recorded.



Sec. 256.305  Structures and improvements.

    (a) This account shall include the cost of all buildings and 
facilities and fixtures permanently attached thereto which are owned by 
the service company.

[[Page 651]]

    (b) The cost of foundations which are specially provided for 
machinery, apparatus, or other equipment of the company shall be charged 
to the same account as the cost of such machinery, apparatus, or 
equipment.
    (c) Other fixtures temporarily attached to buildings shall not be 
included in the cost of the building but in the equipment account.



Sec. 256.306  Leasehold improvements.

    This account shall include all costs incurred by the service company 
in improvements of, remodeling of, or installation of additional 
facilities in rented offices or buildings to suit tenant's needs.



Sec. 256.307  Equipment.

    This account shall include the cost of equipment owned by the 
service company and used in rendering services such as micro-wave, 
communications and dispatching, automatic data processing, information 
storage and retrieval, research and laboratory testing, construction, 
meter repairing, and printing and stationery. Subaccounts shall be 
maintained by classes of equipment for each service rendered.



Sec. 256.308  Office furniture and equipment.

    This account shall include the cost of office furniture and 
equipment owned by the service company and used in rendering services, 
e.g., bookcases, shelves, desks, tables, chairs, desk equipment, safes, 
drafting-room equipment, filing cabinets, storage and other cabinets, 
floor covering, library equipment, accounting machines, electronic 
claculators, typewriters and other mechanical office equipment.



Sec. 256.309  Automobiles, other vehicles, and related garage equipment.

    This account shall include the delivered cost of all service company 
owned automobiles, vans, trucks, and other vehicles used by the service 
company in its operations. The cost of all tools, implements, and other 
equipment used in the inspection, maintenance, repair and overhaul of 
vehicles shall also be included in this account.



Sec. 256.310  Aircraft and airport equipment.

    This account shall include the delivered cost of all service company 
owned aircraft and accessories thereto used by the service company in 
its operations. The cost of all tools, implements and other equipment 
used in the inspection, maintenance, repair and overhaul of aircraft 
shall also be included in this account.



Sec. 256.311  Other service company property.

    (a) This account shall include the cost of service company property 
owned by the service company not provided for elsewhere.
    (b) This account shall be maintained in such a manner that the 
service company can furnish full information with respect to the amounts 
included herein.

                       Income and Expense Accounts

                                1. income



Sec. 256.403  Depreciation and amortization expense.

    This account shall include the amount of depreciation and 
amortization for all service plant, and leasehold improvements, the cost 
of which is includable in accounts 305 through 311. Provide subaccounts 
by each class of service company property owned and leased.



Sec. 256.408  Taxes other than income taxes.

    (a) This account shall include the amount of state unemployment 
insurance, franchise taxes, federal excise taxes, social security taxes, 
and all other taxes assessed by Federal, State, County, Municipal, or 
other local governmental authorities, except income taxes.
    (b) When it is not possible to determine the exact amount of taxes, 
the amount shall be estimated and adjustments made in current accruals 
as the actual tax levies become known.
    (c) This account shall be kept in such manner as to show the amount 
of each class of taxes.

    Note A: Taxes applicable to property construction or investments may 
be charged to

[[Page 652]]

the account in which the property construction or investment is 
included. Special assessments for street and similar improvements shall 
be included in the appropriate service company property account. 
Gasoline and other miscellaneous taxes shall be charged, where 
practicable, to the same account as the materials on which the tax is 
levied.
    Note B: Interest on tax refunds or deficiencies shall not be 
included in this account but in account 421, Miscellaneous income or 
loss, or account 431, Other interest expense, as appropriate.



Sec. 256.409  Income taxes.

    (a) This account shall include the amount of local, State and 
Federal taxes on income properly accruable during the period covered by 
the income statement to meet the actual liability for such taxes. As the 
exact amount of taxes become known, the current tax accruals shall be 
adjusted accordingly so that this account, as nearly as can be 
ascertained, shall include the actual taxes payable which are chargeable 
to service company operations.
    (b) Interest on tax refunds or deficiencies shall not be included in 
this account but in account 421, Miscellaneous income or loss, or 
account 431, Other interest expense, as appropriate.



Sec. 256.410  Provision for deferred income taxes.

    This account shall be debited and Accumulated Deferred Income Taxes 
shall be credited with an amount equal to any deferral of taxes on 
income as provided by the text of account 282, Accumulated deferred 
income taxes. No entries required to be made to this account shall be 
netted against any credit amounts appropriately includable in account 
411, Provision for deferred income taxes--credit.



Sec. 256.411  Provision for deferred income taxes--credit.

    This account shall be credited and Accumulated Deferred Income Taxes 
debited with an amount equal to the portion of taxes on income payable 
for the year which is attributable to a deferral of taxes on income in a 
prior year, in accordance with the plan of deferred tax accounting 
provided by the text of account 282, Accumulated deferred income taxes. 
No entries required to be made to this account shall be netted against 
any debit amount appropriately includable in account 410, Provision for 
deferred income taxes.



Sec. 256.411.5  Investment tax credit.

    (a) This account shall be debited with the amounts of investment tax 
credits related to service company property that are credited to account 
255, Accumulated deferred investment tax credits, by service companies 
which do not apply the entire amount of the benefits of the investment 
credit as a reduction of the overall income tax expense in the year in 
which such credit is realized (see account 255).
    (b) This account shall be credited with the amounts debited to 
account 255 for proportionate amounts of tax credit deferrals allocated 
over the average useful life of property to which the tax credits relate 
or such lesser period of time as may be adopted by the service company.



Sec. 256.421  Miscellaneous income or loss.

    This account shall include all income or loss items not provided for 
elsewhere.

(Secs. 13, 15, 20, 49 Stat. 825, 828, 833; 15 U.S.C. 79m, 79o, 79t)

[45 FR 41135, June 18, 1980]



Sec. 256.426.1  Donations.

    This account shall include all payments or donations for charitable, 
social or community welfare purposes.



Sec. 256.426.5  Other deductions.

    (a) This account shall include other miscellaneous expenses which 
are nonoperating in nature but which are properly deductible before 
determining total income before interest charges.
    (b) Records shall be so maintained by subaccount to permit ready 
analysis showing the nature of the expenses and identity of the person 
furnishing the service.
    Note: Preliminary survey and investigation expenses related to 
abandoned projects, when not written-off to the appropriate operating 
expense account, shall be included in this account.

[[Page 653]]



Sec. 256.427  Interest on long-term debt.

    This account shall include the amount of interest accrued on 
outstanding long-term debt owed by the service company to nonassociate 
persons.



Sec. 256.430  Interest on debt to associate companies.

    This account shall include interest accrued on amounts included in 
account 223, Advances from associate companies, and account 233, Notes 
payable to associate companies. The records supporting the entries to 
this account shall be so kept as to show to whom the interest is to be 
paid, the period covered by the accrual, the rate of interest and the 
principal amount of the advances or other obligations on which the 
interest is accrued. Separate subaccounts should be maintained for each 
related debt account.



Sec. 256.431  Other interest expense.

    This account shall include all interest charges not provided for 
elsewhere.



Sec. 256.457  Services rendered to associate companies.

    This control account shall include amounts billed to associate 
companies for services rendered at cost. See accounts 457-1 through 457-
3. Overbillings or underbillings arising from adjustments of estimated 
costs to actual costs shall be cleared through this account and 
concurrent adjustments made to other accounts involved.



Sec. 256.457-1  Direct costs charged to associate companies.

    This account shall include those direct costs which can be 
identified through a work order system as being applicable to services 
performed for associate companies. This account shall not include any 
compensation for use of equity capital or intercompany interest on 
indebtedness.



Sec. 256.457-2  Indirect costs charged to associate companies.

    This account shall include recovery of those indirect costs which 
cannot be separately identified to a single or group of associate 
companies and therefore must be allocated. Journal or memorandum entries 
should be prepared monthly, by departments, for all such cost 
accumulated and billed to customers. This account shall not include any 
compensation for use of equity capital or intercompany interest on 
indebtedness.



Sec. 256.457-3  Compensation for use of capital-associate companies.

    This account shall include only the portion of compensation for use 
of equity capital and intercompany interest on indebtedness before 
income taxes which is properly allocable to services rendered to each 
associate company.



Sec. 256.458  Services rendered to nonassociate companies.

    This account shall include amounts billed for services rendered to 
nonassociate persons. See accounts 458-1 through 458-4.



Sec. 256.458-1  Direct costs charged to nonassociate companies.

    This account shall include those direct costs which can be 
identified through a work order system as being applicable to services 
performed for nonassociate persons. This account shall not include any 
compensation for use of equity capital or interest on indebtedness.



Sec. 256.458-2  Indirect costs charged to nonassociate companies.

    This account shall include recovery of those indirect costs of 
services performed for nonassociate persons which cannot be separately 
identified to nonassociate persons and therefore must be allocated. The 
amounts would be as set forth in the same monthly departmental journal 
or memorandum entries referred to for these costs in account 457-2, 
Indirect costs charged to associated companies. This account shall not 
include any compensation for use of equity capital or intercompany 
interest on indebtedness.



Sec. 256.458-3  Compensation for use of capital--nonassociate companies.

    This account shall include only the portion of compensation for use 
of equity capital and intercompany interest on indebtedness before 
income taxes which is properly allocable to services rendered to 
nonassociate persons. A

[[Page 654]]

statement to support the basis for the compensation and how it was 
calculated should be attached to a separate journal entry, ledger 
system, or memorandum file.



Sec. 256.458-4  Excess or deficiency on servicing nonassociate companies.

    This account shall include the amount by which the aggregate price 
received for services rendered to nonassociate persons differs from the 
sum of the total direct and indirect costs and compensation for use of 
capital which are properly allocable to such services. (Accounts 458-1 
through 458-3).

                               2. expense



Sec. 256.920  Salaries and wages.

    (a) This account shall include salaries, wages, bonuses and other 
consideration for services, with the exception of director's fees paid 
directly to officers and employees of the service company.
    (b) This account shall be supported by time records and 
appropriately referenced to detailed records subdividing salaries and 
wages by departments or other functional organization units. See General 
Instructions.



Sec. 256.921  Office supplies and expenses.

    (a) This account shall include office supplies and expenses incurred 
in connection with the general administration of service company 
operations assignable to specific administrative or general departments 
and not specifically provided for in other accounts. This includes the 
expenses of the various administrative and general departments, the 
salaries and wages of which are includable in account 920.
    (b) This account may be subdivided in accordance with a 
classification appropriate to the departmental or other functional 
organization of the service company.

                                  Items

    1. Automobile service, including charges through clearing account.
    2. Bank messenger and service charges.
    3. Books, periodicals, bulletins and subscriptions to newspapers, 
newsletters, tax service, etc.
    4. Building service expenses for customer accounts, sales, and 
administrative and general purposes.
    5. Communication service expenses to include telephone, telegraph, 
wire transfer, micro-wave, etc.
    6. Cost of individual items of office equipment used by general 
departments which are of small value or short life.
    7. Membership fees and dues in trade, technical, and professional 
associations paid by a utility for employees. (Company memberships are 
includable in account 930.2, Miscellaneous general expenses.)
    8. Office supplies and expenses.
    9. Payment of court costs, witness fees, and other expenses of legal 
department.
    10. Postage, printing and stationery.
    11. Meals, traveling, entertainment and incidental expenses.

    (c) Records shall be so maintained to permit ready analysis by item 
showing the nature of the expense and identity of the person furnishing 
the service.



Sec. 256.922  Administrative expenses transferred--credit.

    This account shall be credited with administrative expenses recorded 
in accounts 920 and 921 which are transferred to construction costs of 
the asset and other debit accounts.



Sec. 256.923  Outside services employed.

    (a) This account shall include the fees and expenses of professional 
consultants and others for general services with the exception of fees 
and expenses for outside services of account 928, Regulatory commission 
expense, and account 930.1, General advertising expenses. Separate 
subaccounts shall be provided for auditing, legal, engineering, 
management consulting fees and, if material in amount, any other fees of 
professional or outside services.
    (b) Records shall be so maintained to permit ready analysis showing 
nature of service, identity of the person furnishing the service, 
affiliation to the service company, and, if allocated to more than one 
company, the specific method of allocation.



Sec. 256.924  Property insurance.

    (a) This account shall include the cost of insurance premiums to 
protect the service company against losses and damages to owned or 
leased property used in its operations. Recoveries from insurance 
companies or others for

[[Page 655]]

property damages shall be credited to the account charged with the cost 
of the damage. If the damaged property has been retired, the credit 
shall be to the appropriate account for accumulated provision for 
depreciation.
    (b) Records shall be kept so as to show the amount of coverage for 
each class of insurance carried, the property covered, and the 
applicable premiums. Any dividends distributed by mutual insurance 
companies shall be credited to the accounts to which the insurance 
premiums were charged.



Sec. 256.925  Injuries and damages.

    (a) This account shall include the cost of premiums for insurance to 
protect the service company against claims for injury, liability and 
damage claims of employees or others and losses of such character not 
covered by outside insurance.
    (b) Reimbursements from insurance companies or others for expenses 
charged hereto on account of injuries and damages and insurance 
dividends or refunds shall be credited to this account.



Sec. 256.926  Employee pensions and benefits.

    This account shall include pensions paid to or on behalf of retired 
employees, or payments for the purchase of annuities for this purpose, 
when the service company has committed itself to a pension plan under 
which the pension funds are devoted to pension purposes. This account 
shall also include payments made under employee benefit programs such as 
medical and surgical benefits, disability benefits, life insurance, 
savings and thrift plans, and other similar benefits. Include, also, 
expenses incurred in medical, educational or recreational activities for 
the benefit of employees.



Sec. 256.928  Regulatory commission expense.

    This account shall include all expenses, properly includable in 
service company operating expenses, incurred by the service company in 
connection with formal cases before regulatory commissions, or other 
regulatory bodies, on its own behalf or on behalf of associated 
companies, including payments made to a regulatory commission for fees 
assessed to the service company for pay and expenses of such commission, 
its officers, agents and employees, and for filings or reports made 
under regulations of regulatory commissions. The service company shall 
be prepared to show the cost of each formal case.



Sec. 256.930.1  General advertising expenses.

    This account shall include the cost of materials used and expenses 
incurred in advertising and related activities, the costs of which by 
their content and purpose are not provided for elsewhere.

                                  items

    1. Advertising in newspapers, periodicals, billboards, radio, etc.
    2. Advertising matter such as posters, bulletins, booklets and 
related items.
    3. Fees and expenses of advertising agencies and commercial artists.
    4. Postage and direct mail advertising.
    5. Printing of booklets, dodgers, bulletins, etc.
    6. Supplies and expenses in preparing advertising materials.
    7. Office supplies and expenses.



Sec. 256.930.2  Miscellaneous general expenses.

    (a) This account shall include the cost of expenses incurred in 
connection with the general management of the service company not 
provided for elsewhere.

                                  items

    1. Industry association dues for company memberships.
    2. Contributions for conventions and meetings of the industry.
    3. Communication service not chargeable to other accounts.
    4. Trustee, registrar, and transfer agent fees and expenses.
    5. Stockholders meeting expenses.
    6. Dividend and other financial notices.
    7. Printing and mailing dividend checks.
    8. Directors' fees and expenses.
    9. Publishing and distributing annual reports to stockholders.
    10. Public notices of financial, operating and other data required 
by regulatory statutes, not including, however, notices required in 
connection with security issues or acquisitions of property.
    11. Other general expenses not provided for elsewhere.


[[Page 656]]


    (b) Records shall be so maintained to permit ready analysis by item 
showing the nature of the expense and identity of the person furnishing 
the service.



Sec. 256.931  Rents.

    This account shall include rents, including taxes, paid for the 
property of others used, occupied or operated in connection with service 
company functions. Provide subaccounts for major grouping such as office 
space, warehouses, other structure, office furniture, fixtures, 
computers, data processing equipment, micro-wave and telecommunication 
equipment, airplanes, automobiles, etc. The cost, when incurred by the 
lessee, of operating and maintaining leased property, shall be charged 
to the accounts appropriate for the expense as if the property were 
owned.



Sec. 256.932  Maintenance of structures and equipment.

    This account shall include materials used and expenses incurred in 
the maintenance of property owned, the cost of which is includable in 
accounts 305 through 311, and of property leased from others. Provide 
subaccounts by major classes of structures and equipment, owned and 
leased.



PART 257_PRESERVATION AND DESTRUCTION OF RECORDS OF REGISTERED 

PUBLIC UTILITY HOLDING COMPANIES AND OF MUTUAL AND SUBSIDIARY SERVICE 
COMPANIES--Table of Contents




Sec.
257.1 General instructions.
257.2 Schedule.

    Authority: 15 U.S.C. 79(o) and 79(t), unless otherwise noted.



Sec. 257.1  General instructions.

    (a) Scope of regulations. The General Instructions and Schedule 
apply to any holding company, except an electric or gas utility company, 
registered as a holding company under the Public Utility Holding Company 
Act of 1935, and to companies found by the Commission, pursuant to Sec. 
250.88 to meet the requirements of section 13 of the Act as mutual or 
subsidiary service companies.
    (1) Company means a service company subject to Sec. 250.93, or a 
holding company subject to Sec. 250.26, which is not an electric 
utility company or a gas utility company, and any predecessor or 
inactive or dissolved associate company, the records of which are in the 
possession or control of such company.
    (2) Records include any records prepared, maintained or held by any 
agent or employee of a company, including any such records of a stock 
transfer agent, registrar, paying agent, indenture trustee or other 
person employed by a company to perform services with respect to the 
securities of the company, insofar as such person is accountable to the 
company or to its security holders for such records. The specification 
in the schedule of a record related to a type of transaction includes 
all documents and correspondence, not redundant or duplicative of other 
records retained, needed to explain or verify such transaction. 
Supporting documents such as checks or vouchers, which are separately 
scheduled may, nevertheless, be destroyed in accordance with the 
schedule for their respective class, when the company determines that 
the lapse of time has made it unlikely that it will need to prove the 
details evidenced thereby.
    (3) Any company subject to this regulation, which, as agent, 
operator, lessor or otherwise, maintains or has possession of any 
records relating to the operation, property or obligations of an 
electric or gas utility company or natural gas company or a nuclear 
licensee, as defined in the Federal Power Act, the Natural Gas Act, the 
Atomic Energy Act or the laws of any state within which such utility 
company operates, shall comply with the laws or regulations as to record 
retention and destruction which would apply to such records if they were 
records of such utility company or licensee.
    (4) Except for the certifications, indices and cross references 
specified herein, the regulation shall not be construed as requiring the 
preparation or maintenance of records not required to be prepared or 
maintained by other rules or regulations of the Commission.

[[Page 657]]

    (5) The regulation shall not excuse compliance with any other lawful 
requirement for the preservation of records for periods longer than 
those prescribed in the regulation.
    (6) Duplicate copies of records which contain no significant 
information not shown on the copy preserved may be destroyed at any 
time. If the same document would be required under more than one 
scheduled item, such as an indenture also included as an exhibit in a 
filing required to be retained, only one copy need be preserved if cross 
references are substituted for the additional copies.
    (7) Notwithstanding the provisions of the regulation, the Commission 
may, upon the request of any company, authorize the destruction of any 
specified records of such company and the Commission, on its own motion 
or on the motion of any regulatory agency, may direct that records which 
would be useful in developing facts relevant to any transaction recorded 
by the company be preserved for such period as the Commission may 
specify.
    (b) Designation of supervisory official. Each company subject to the 
regulation shall designate one or more officials to supervise the 
preservation or authorized destruction of its records. Insofar as its 
records include those in the possession of a transfer agent, indenture 
trustee or other independent custodian, the terms of the agreement with 
the custodian may include provisions, not inconsistent with this 
regulation, for the preservation and destruction of such records by the 
custodian and the responsibility of the company's designated official 
shall be to make reasonable inquiry as to the due performance of the 
custodian's obligation.
    (c) Protection and storage of records. The company shall provide 
reasonable protection from damage by fire, flood, and other hazards for 
records required by the regulation to be preserved and, in the selection 
of storage space, safeguard such records from unnecessary exposure to 
deterioration from excessive humidity, dryness, or lack of proper 
ventilation.
    (d) Index of records. At each office of the company where records 
are kept or stored, such records as are required by the regulation to be 
preserved shall be so arranged, filed, and currently indexed that such 
records shall be readily available for inspection by authorized 
representatives of regulatory agencies concerned.
    (e)(1) Micrographic and electronic storage permitted. The records 
required to be maintained and preserved under Sec. 250.26 of this 
chapter may be maintained and preserved for the required time by, or on 
behalf of, a company on, among other formats:
    (i) Micrographic media, including microfilm, microfiche, or any 
similar medium; or
    (ii) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section.
    (2) General requirements. The company, or person that maintains and 
preserves records on its behalf, must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its examiners or other representatives) or the directors of the company 
may request:
    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the original record, a duplicate copy of a record that is stored on 
micrographic or electronic storage media.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the company, or person that 
maintains and preserves records on its behalf, must establish and 
maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, the directors of the company, and the Commission (including 
its examiners and other representatives); and

[[Page 658]]

    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete and true, and 
legible when retrieved.
    (f) Destruction of records. The destruction of the records permitted 
to be destroyed under the provisions of the regulations in this part may 
be performed in any manner elected by the company. Precautions should be 
taken, however, to macerate or otherwise destroy the legibility of 
records, the content of which is forbidden by law to be divulged to 
unauthorized persons.
    (g) Premature destruction or loss of records. When records are 
destroyed or lost before the expiration of the prescribed period of 
retention, a statement listing, as far as may be determined, the records 
destroyed and describing the circumstances of accidental or other 
premature destruction or loss shall be filed with the Commission within 
ninety (90) days from the date of discovery of such destruction or loss.
    (h) Schedule of records and periods of retention. The schedules of 
records retention periods constitute a part of this regulation. The 
schedules prescribe the periods of time that designated records shall be 
preserved.
    (i) Retention periods designated ``Destroy at Option.'' Use of the 
retention period, ``Destroy at option,'' in the regulation constitutes 
authorization for such destruction under the conditions specified for 
the particular types of records only if such optional destruction is 
based on a reasonable judgment that the records are unlikely to be 
needed and if such optional destruction is not in conflict with other 
legal retention requirements. Optional destruction of records relevant 
to pending or expected regulatory or legal actions is not authorized. 
``Destroy at option after audit'' requires retention until the company 
has received an opinion of its independent accountants with respect to 
the financial statements including the transactions to which such 
records relate.
    (j) Use of technical accounting terms. For purposes of the 
schedules, traditional accounting terms such as ledgers, journals, 
registers and vouchers refer to the function rather than the form of the 
record. All refer to quasi-permanent records, designed to collect, 
classify and in some aspects summarize, various types of the company's 
transactions. They are interrelated and, in another traditional term, 
are the principal constituents of the books of account, including 
subsidiary ledgers and registers. The retention periods apply to records 
serving this function, regardless of form. A multiple purpose record, 
such as a service company stock stub which also serves as the 
shareholder's ledger, or a voucher file which also serves as the 
journal, referred to more than once in the schedule, is governed by the 
longest retention period applying to any of its functions. For brevity, 
the term ``note'' is used in the schedule to refer to an evidence of 
debt maturing within one year of its creation, which was not the subject 
of an offering registered under the Securities Act of 1933. The term 
``debenture'' refers to a document evidencing any other unsecured debt. 
The term ``mortgage'' refers to any form of secured obligation, ``bond'' 
refers to a document evidencing a secured debt in whole or part, and 
``mortgagee'' refers to the holder of a mortgage or bond and includes 
any person, such as an indenture trustee, authorized to act for a 
mortgagee.

(Approved by the Office of Management and Budget under control number 
3235-0306)

[49 FR 27310, July 3, 1984, as amended at 66 FR 29474, May 31, 2001]



Sec. 257.2  Schedule.

                                      Schedule of Records Retention Periods
----------------------------------------------------------------------------------------------------------------
               Description of records                                      Retention period
----------------------------------------------------------------------------------------------------------------
                                              CORPORATE AND GENERAL
----------------------------------------------------------------------------------------------------------------
1. Records of Securities:
  (a) Capital stock and debt ledgers................  3 years after the holder's account is closed.

[[Page 659]]

 
  (b) Subscription accounts, warrants, requests for   Destroy at option after settlement and audit.
   allotments, and other essential papers related
   thereto.
  (c) Stubs or similar records of the issuance of     3 years after cancellation of certificate.
   securities.
  (d) Paid or cancelled notes.......................  Destroy at option after changes are recorded.
  (e) Letters, notices reports, statements and other
   communications distributed to all holders of a
   particular class:
    (1) Annual reports..............................  50 years.
    (2) Solicitations of consents or waivers........  Destroy at option after expiration of consent or waiver
                                                       and audit.
    (3) Notices of redemption or invitations for      Destroy at option after consummation and audit.
     tender.
    (4) Interim reports, dividend notices, notices    Destroy at option after audit.
     of change of corporate address, and similar
     communications of information of only current
     significance.
  (f) Dividend interest and coupon registers, lists   3 years after payment.
   or similar records.
  (g) Paid dividend or interest checks..............  3 years after issuance.
  (h) Trust indentures, loan agreements or other      3 years after redemption.
   contracts or agreements securing debt securities
   issued.
  (i) Copies of reports, statements, letters or       3 years after redemption.
   memoranda filed with Trustee(s) pursuant to
   provisions of trust indenture or other security
   instrument or agreement securing debt securities
   issued.
  (j) Leases pertaining to rentals of property to or  3 years after expiration.
   from others.
  (k) Contracts, agreements, and other records        6 years after expiration or cancellation.
   needed to administer or audit a dividend
   reinvestment plan or an employee benefit plan
   involving the purchase or issuance of securities.
2. Lists of holders of voting securities represented  3 years after date of meeting. Executed proxies may be
 at meeting and executed proxies or lists certified    destroyed at option; if replaced by certified lists,
 by a person or persons qualified to do so under the   unless a contest of the vote is expected or pending.
 applicable corporation law, showing the attendance
 and votes by each holder for or against each issue
 voted on.
3. Filings with and authorizations by regulatory
 agencies:
  (a) Applications, registrations or other documents
   filed by the company with any Federal or state
   regulatory agency for authorization or validation
   of transactions; the opinion, order or other
   document evidencing the agency's action thereon;
   and any report of consummation or compliance,
   with respect to:
    (1) The issue, pledge or sale of securities.....  Until all securities covered thereby are retired.
    (2) The acquisition or disposition of assets or   Period specified by Item 18 or 19 for the asset or
     investments.                                      investment.
    (3) Contracts with affiliates...................  3 years after expiration.
    (4) Organization or conduct or business of the    Life of corporation.
     company and changes therein, including mergers.
  (b) Periodic or special reports filed by the
   company on its own behalf with the Securities and
   Exchange Commission or with any other Federal or
   state rate-regulatory agency, including exhibits
   or amendments to such reports:
    (1) Annual financial, operating and statistical   10 years after date of report.
     reports.
    (2) Monthly and quarterly reports of operating    Destroy at option after audit..
     revenues, expenses, and statistics.
    (3) Transaction with associated companies.......  6 years.
    (4) Budgets of expenditures.....................  6 years.
    (5) Accidents...................................  6 years.
    (6) Employees and wages.........................  5 years.
    (7) Loans to officers and employees.............  3 years after fully paid.
    (8) Purchases and sales of property.............  For period specific refer to property records (See Item
                                                       18).
4. Organization Documents:
  (a) Title, franchises, and licenses:
    (1) Certificates of incorporation, or equivalent  Life of corporation.
     agreements and amendments thereto.
    (2) Deeds leases and other title papers           6 years after property or investment is disposed of unless
     (including abstracts of title and supporting      delivered to transferee.
     data), and contracts and agreements related to
     the acquisition or disposition of property or
     investments.
  (b) Minute books of stockholders, directors' and    50 years.
   directors' committee meetings.
  (c) Minutes of meetings of system committees......  6 years after close of fiscal year.
  (d) Organization diagrams and charts..............  Destroy at option after expiration or supersession.
  (e) Permits or Licenses:
    (1) Permits or licenses to conduct any part of    6 years after expiration.
     the company's business.
    (2) Permits or licenses for vehicles or           Destroy at option after expiration and audit.
     equipment, or for other activities in the
     ordinary course of business.

[[Page 660]]

 
5. Contracts and Agreements:
  (a) Contracts and agreements entered into by the    6 years after cancellation or expiration.
   company for the procurement of services, such as
   management, consulting, accounting, legal,
   financial or engineering services.
  (b) Contracts or agreements with individual         6 years after expiration of contract.
   employees, labor unions and other employee
   organizations relative to wage rates, hours, and
   similar matters.
  (c) Memoranda essential to clarify or explain       For same period as contract to which they relate.
   provisions of contracts and agreements.
  (d) Card or book records of contracts or            For same peirod as contract to which they relate.
   agreements showing renewal or expiration of same
   and records of performance.
-----------------------------------------------------
 
                                                    ACCOUNTING
----------------------------------------------------------------------------------------------------------------
6. Books of Account:
  (a) General and subsidiary ledgers................  50 years.
  (b) Trial balance sheets of general and subsidiary  Destroy at option after audit.
   ledgers or equivalent records.
  (c) Journals: General and subsidiary journals or    50 yerars.
   ledgers of original entry.
  (d) Cash books: General and subsidiary or           6 years.
   auxillary books.
  (e) Voucher registers: Voucher registers or         6 years.
   similar records.
7. Journal Vouchers and Other Papers Supporting
 Entries:
  (a) Vouchers supporting general and subsidiary
   journal entries and papers forming part of or
   necessary to support and explain vouchers
   relating to:
    (1) Organization, fixed assets, investments,      50 years, except for supporting documents included in Item
     issuance of capital stock, funded debt, and       4(a)(2), or Items 8, 18 or 19.
     related accounts.
    (2) All other accounts..........................  6 years after settlement.
  (b) Schedules for recurring journal entries.......  6 years after settlement. Destroy when superseded if not a
                                                       part of a journal entry in which event Item 6(c) applies.
  (c) Lists of standard journal entry numbers.......  Destroy when superseded.
  (d) Material and supplies disbursement and labor    6 years.
   distribution records.
8. Vouchers Evidencing Disbursements:
  (a) Paid and cancelled vouchers, including          6 years.
   analysis sheets showing detailed distribution of
   charges on individual vouichers and other
   supporting papers.
  (b) Original bills and invoices for materials,      6 years.
   services, etc., paid by vouchers.
  (c) Authorization for the payment of specific       6 years.
   vouchers.
  (d) Lists of unaudited bills (accounts payable),    6 years.
   lists of vouchers transmitted and memoranda
   recording changes in unaudited bills.
  (e) Voucher indices...............................  Destroy at option.
  (f) Paid checks other than interest dividend and    6 years.
   payroll checks. (See Item 1(k) for interest and
   dividend checks and Item 16(d) for payroll checks.
  (g) Purchases and stores records related to         6 years.
   disbursement vouchers.
9. Accounts Receivable:
  (a) Records of all accounts receivable, indices to  3 years after settlement.
   accounts receivable and summaries of distribution
   of such accounts.
  (b) Accounting department copies of invoices        3 years after settlement.
   issued and supporting papers which do not
   accompany the original invoices and
   authorizations for charges including supporting
   papers.
-----------------------------------------------------
                                               INSURANCE AND TAXES
----------------------------------------------------------------------------------------------------------------
10. Insurance Records:
  (a) Records of insurance policies in force showing  Destroy at option after expiration of such policies but
   coverage, premiums paid and expiration dates.       not less than 6 years.
  (b) Insurance policies............................  Destroy at option after expiration of such policies but
                                                       not less than 6 years.
  (c) Records of self-insurance against (1) losses    6 years after date of last accounting entry with respect
   from fire and casualty, (2) damage to property of   thereto.
   others, and (3) personal injuries.
  (d) Records of amounts recovered from insurance     6 years after settlement.
   companies in connection with losses and records
   of claims against insurance companies including
   reports of losses and supporting papers.
  (e) Inspectors' reports and reports of condition    Destroy when superseded.
   of property.
  (f) Reports of losses not covered by insurance....  Destroy at option after audit.
  (g) Insurance maps of property and structures       Destroy when superseded.
   erected thereon.
  (h) Records and statements relating to insurance    Destroy at option.
   requirements.

[[Page 661]]

 
11. Injuries and Damages:
  (a) Claim registers, card or book indices and       Destroy at option after settlement and audit.
   similar records in connection with accidents
   resulting in damage to the property of others or
   personal injuries.
  (b) Detailed schedules or spread sheets of          Destroy at option after settlement and audit.
   payments to others for personal injuries or for
   property damage.
12. Tax Records:
  (a) Copies of schedules, returns and supporting
   working papers to taxing authorities and records
   of appeals:
    (1) Federal income taxes........................  6 years after settlement.
    (2) Agreements between and schedule of            6 years after settlement.
     allocation by associate companies of
     consolidated federal income taxes.
    (3) Other taxes, including state or local         Destroy at option after settlement and audit.
     property or income taxes.
  (b) Tax bills from taxing authorities and receipts  3 years after settlement.
   for payment.
  (c) Summaries of taxes paid by classes of taxes,    6 years.
   location, or taxing authority.
-----------------------------------------------------
                                                    TREASURY
----------------------------------------------------------------------------------------------------------------
13. Statements of Funds and Deposits:
  (a) Summaries and periodic statements of cash       Destroy at option.
   balances on hand and with depositories for
   company or associate.
  (b) Requisitions and receipts for funds furnished   Destroy at option after funds have been returned or
   associates and others.                              accounted for.
  (c) Records of fidelity bonds of employees and      Destroy at option after liability of bonding company has
   others responsible for funds of the company.        expired.
14. Records of Deposits with Banks and Others:
  (a) Bank deposit slips or similar records,          Destroy at option after audit.
   including authorizations for and statements of
   transfers of funds from one depository to another.
  (b) Statements from depositories showing the        Destroy at option after audit.
   details of funds received, disbursed, and
   transferred and balances on deposit.
  (c) Bank reconcilement papers.....................  Destroy at option after audit.
  (d) Statements from banks of interest credits.....  Destroy at option after audit.
  (e) Check registers or other records of checks      6 years.
   issued, including correspondence.
15. Records of Receipts and Disbursements:
  (a) Daily or other periodic statement or receipts   Destroy at option after audit.
   or disbursements of funds.
  (b) Records of periodic statements of outstanding   Destroy at option after audit.
   vouchers, checks, drafts, etc., issued and not
   presented.
  (c) Reports of associates showing working fund      Destroy at option after audit.
   transactions and summaries thereof.
-----------------------------------------------------
 
                                          PAYROLL AND PERSONNEL RECORDS
----------------------------------------------------------------------------------------------------------------
 
 16. Payroll Records:
  (a) Payroll sheets or registers of payments of      6 years.
   salaries and wages, pensions and annuities paid
   by company or by contractors of its account.
  (b) Records showing the distribution of salaries    6 years.
   and wages paid for each payroll period and
   summaries or recapitulations of such distribution.
  (c) Time tickets, timesheets, timecards, workmen's  Destroyed at option if the basic information contained
   reports, and other records showing hours worked,    thereon is transferred to work orders or other records.
   description of work, and accounts to be changed.
  (d) Paid checks, receipts for wages paid in cash     3 years.
   and other evidences of payment.
  (e) Authorizations for changes in wage and salary   6 years.
   rates, summaries and reports of changes in
   payrolls and similar records.
  (f) Payroll authorizations, records of authorized   6 years.
   positions, and terminations.
  (g) Comparative or analytical statements of         6 years.
   payroll.
17. Personnel and Employee Benefit Records:
  (a) Records of employees' service, and rates of     3 years after termination of employment.
   compensation.
  (b) Detailed records of company's computation for   6 years after termination of pension or annuity plan.
   its contribution, plus a copy of plan.
  (c) Records pertaining to employees' benefit        6 years after termination of program.
   programs, including pension and profit sharing
   plans.
  (d) Bulletins or memoranda of general instructions  3 years after expiration or supersession.
   issued by the company to employees pertaining to
   accounting, engineering, maintenance and
   construction methods and policies.
-----------------------------------------------------
 
 
[[Page 662]]

 
                                     PROPERTY, DEPRECIATION AND INVESTMENTS
----------------------------------------------------------------------------------------------------------------
18. Property Records, excluding documents included
 in Item 4(a)(2):
  (a) Land and land rights records..................  6 years after disposition.
  (b) Building, permanent facilities and leasehold    3 years after disposition, termination of lease, or write-
   investment records.                                 off of property or investment.
  (c) Operating equipment records...................  3 years after disposition, termination of lease or write-
                                                       off of property or investment.
  (d) Office furniture and equipment records........  3 years after disposition, termination of lease or write-
                                                       off of property or investment.
  (e) Automobiles, other vehicles and related garage  3 years after disposition, termination of lease or write-
   equipment records.                                  off of property or investment.
  (f) Aircraft and airport equipment records........  3 years after disposition, termination of lease or write-
                                                       off of property or investment.
  (g) Other property records not defined elsewhere..  3 years after disposition, termination of lease or write-
                                                       off of property or investment.
  (h) Construction work in progress records, income   10 years after clearance to property accounts.
   ledgers, work order sheets, authorizations for
   expenditures, requisitions, performance reports
   and analysis or cost reports.
  (i) Depreciation and amortization of property       Destroy at option after expiration of retention period as
   records.                                            described for respective type of property records in
                                                       18(a) through 18(g).
19. Investment Records:
  (a) Records of investment in associate companies..  3 years after disposition of investment.
  (b) Records of other investments, including         3 years after disposition of investment.
   temporary investments of cash.
20. Appraisals and valuations made by the company of  3 years after disposition, termination of lease or write-
 its properties or investments or of the properties    off of property or investment.
 or investments of any associated companies.
-----------------------------------------------------
                                        WORK ORDER AND JOB ORDER RECORDS
----------------------------------------------------------------------------------------------------------------
21. Work order and job order records including        6 years after completion of work order.
 authorization documents, estimated cost memoranda,
 work order sheets for posting labor, material and
 other services, and summaries of expenditures for
 clearance to other accounts.
22. Production maps, geological maps, reproductions,  6 years after completion of work order.
 including aerial photographs, showing the location
 of all facilities the subject matter of which falls
 within the work orders of the company.
23. Engineering records, drawings, supporting data    6 years after completion of work order.
 to include diagrams, profiles, photographs, field-
 survey notes, plot plans, detail drawings, and
 records of engineering studies that are part of or
 performed by the company within the work order
 system.
24. Records of building space occupied by various     6 years.
 departments of the company.
-----------------------------------------------------
                                      AUDIT, BUDGET AND STATISTICAL REPORTS
----------------------------------------------------------------------------------------------------------------
25. Financial, Operating, and Statistical Reports
 not subject to Item 3(b)(1):
  (a) Reports of examinations and audits by           6 years after date of report.
   accountants and auditors not in the regular
   employ of the Company. (Including reports of
   public accounting firms and regulatory commission
   accountants.)
  (b) Internal audit reports and working papers.....  6 years after date of report.
  (c) Annual reports regularly prepared in the        6 years after date of report.
   course of business for internal administrative or
   operating purposes.
  (d) Quarterly, monthly or other periodic reports..  Destroy at option after audit.
26. Budgets and other forecasts (prepared for         6 years.
 internal administrative or operating purposes) of
 estimated future income, receipts and expenditures
 in connection with financing, construction and
 operations and acquisitions or disposals of
 properties or investments by the company and its
 associated companies, including revisions of such
 estimates and memoranda showing reasons for
 revisions; also records showing comparison of
 actual income and receipts and expenditures with
 estimates.
27. Other Miscellaneous Records:
  (a) Copies of advertisements by the company on      6 years after date of publication.
   behalf of itself or any associate company in
   newspapers, magazines and other publications
   including records thereof. (Excluding advertising
   of product, appliances, employment opportunities,
   services, territory, routine notices and
   invitations for bids for securities, all of which
   may be destroyed at option.)
  (b) Indices of forms used by the company..........  Destroy at option when superseded.
----------------------------------------------------------------------------------------------------------------


[[Page 663]]


(Approved by the Office of Management and Budget under control number 
3235-0306)

[49 FR 27310, July 3, 1984]



PART 259_FORMS PRESCRIBED UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 
1935--Table of Contents




Sec.
259.0-1 Availability of forms.

         Subpart A_Forms for Registration and Annual Supplements

259.5a Form U5A, for notification of registration filed under section 
          5(a) of the Act.
259.5b Form U5B, for registration statement filed under section 5(b) of 
          the Act.
259.5s Form U5S, for annual reports filed under section 5(c) of the Act.

            Subpart B_Forms for Applications and Declarations

259.101 Form U-1, application or declaration under the Public Utility 
          Holding Company Act of 1935.
259.113 Form U-13-1, for applications for approval of mutual service 
          companies pursuant to Rule 88 (Sec. 250.88 of this chapter).

               Subpart C_Forms for Statements and Reports

259.206 Form U-6B-2, for notification of security issues exempt under 
          section 6(b) of the Act.
259.207 Form U-57, for notification of foreign utility company status 
          pursuant to Rule 57(a) (Sec. 250.57 of this chapter).
259.208 Form U-9C-3, for notification of acquisition of securities 
          exempt from section 9(a) pursuant to rule 58 (Sec. 250.58 of 
          this chapter).
259.212a Form U-12(I)-A, for statement of activity within scope of 
          section 12(i) of the Act, pursuant to Rule 71(a) (Sec. 
          250.71(a) of this chapter).
259.212b Form U-12(I)-B, for advance statement of activity within scope 
          of section 12(i) of the Act pursuant to Rule 71(b) (Sec. 
          250.71(b) of this chapter).
259.213 Form U-13E-1, for report by affiliate companies and independent 
          service companies pursuant to Rule 95 (Sec. 250.95 of this 
          chapter).
259.221 Form U-R-1, for solicitations pursuant to Rule 62 (Sec. 250.62 
          of this chapter), in connection with reorganizations.

             Subpart D_Forms for Periodic Accounting Reports

259.313 Form U-13-60, for annual reports pursuant to Rule 94 (Sec. 
          250.94 of this chapter) by mutual and subsidiary service 
          companies required by section 13 of the Act.

 Subpart E_Forms for Statements and Reports From Nonregistered (Exempt) 
                                Companies

259.402 Form U-3A-2, for annual reports pursuant to Rule 2 (Sec. 250.2 
          of this chapter) for exempt holding companies which are 
          intrastate or predominantly operating companies.
259.403 Form U-3A3-1, for annual reports pursuant to Rule 3 (Sec. 250.3 
          of this chapter) for banks which are exempt holding companies.
259.404 Certificate to be filed pursuant to Sec. 250.7(d) of this 
          chapter.
259.405 Form U-33-S, for annual reports pursuant to Rule 57(b) (Sec. 
          250.57 of this chapter).

Subpart F--Forms for Amendments [Reserved]

                  Subpart G_Forms for Electronic Filing

259.601 [Reserved]
259.603 Form SE, form for submission of paper format exhibits by 
          electronic filers.
259.604 Form TH--Notification of reliance on temporary hardship 
          exemption.

    Authority: 15 U.S.C. 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t.

    Source: 33 FR 19001, Dec. 20, 1968, unless otherwise noted.



Sec. 259.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Public Utility Holding Company Act of 1935.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional and district 
offices. (See Sec. 200.11

[[Page 664]]

of this chapter for the addresses of SEC regional and district offices)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994]



         Subpart A_Forms for Registration and Annual Supplements



Sec. 259.5a  Form U5A, for notification of registration filed under 
section 5(a) of the Act.

    This form shall be filed pursuant to Rule 1(a) (Sec. 250.1(a) of 
this chapter) for the notification required under section 5(a) of the 
Public Utility Holding Company Act of 1935 by every public utility 
holding company required to register under the Act.

    Editorial Note: For Federal Register citations affecting Form U5A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 259.5b  Form U5B, for registration statement filed under section 5(b) of the Act.

    This form shall be filed pursuant to Rule 1(b) (Sec. 250.1(b) of 
this chapter) for the registration statement required to be filed under 
section 5(b) of the Act by every public utility holding company required 
to register under the Act.

    Editorial Note: For Federal Register citations affecting Form U5B, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 259.5s  Form U5S, for annual reports filed under section 5(c) of the Act.

    This form shall be filed pursuant to Rule 1(c) (Sec. 250.1(c) of 
this chapter) for the annual report required to be filed under section 
14 of the Act by every registered public utility holding company.

    Editorial Note: For Federal Register citations affecting Form U5S, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



            Subpart B_Forms for Applications and Declarations



Sec. 259.101  Form U-1, application or declaration under the Public 
Utility Holding Company Act of 1935.

    This form shall be used pursuant to Rule 20(c) (Sec. 250.20(c) of 
this chapter) by any person filing an application or declaration or 
amendment thereto pursuant to sections 6(b), 7, 9(c)(3), 10, 12(b), (c), 
(d), or (f) of the Public Utility Holding Company Act of 1935 or any 
rules and regulations under such sections, where no other form is 
authorized or prescribed.

    Editorial Note: For Federal Register citations affecting Form U-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 259.113  Form U-13-1, for applications for approval of mutual 
service companies pursuant to Rule 88 (Sec. 250.88 of this chapter).

    This form shall be filed pursuant to Rule 88 (Sec. 250.88 of this 
chapter) for approval of a company as a mutual service company, by the 
company or person proposing to organize it under section 13 of the Act.

    Editorial Note: For Federal Register citations affecting Form U-13-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



               Subpart C_Forms for Statements and Reports



Sec. 259.206  Form U-6B-2, for notification of security issues exempt 
under section 6(b) of the Act.

    This form shall be filed pursuant to section 6(b) of the Act as the 
certificate of notification of the issue, sale, renewal, or guaranty of 
securities exempted from the application of section 6(a) of the Act.

    Editorial Note: For Federal Register citations affecting Form U-6B-
2, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

[[Page 665]]



Sec. 259.207  Form U-57, for notification of foreign utility company 
status pursuant to Rule 57(a) (Sec. 250.57 of this chapter).

    This form shall be filed pursuant to section 33(a)(3)(B) of the Act 
by a company claiming foreign utility company status.

    Editorial Note: For Federal Register citations affecting Form U-57, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 259.208  Form U-9C-3, for notification of acquisition of securities 
exempt from section 9(a) pursuant to rule 58 (Sec. 250.58 of this chapter).

    This form shall be filed pursuant to Sec. 250.58(c) as the 
certificate of notification of an acquisition of securities exempted 
from the application of section 9(a) of the Act (15 U.S.C. 79a et seq.) 
pursuant to Sec. 250.58.

[62 FR 7917, Feb. 20, 1997]



Sec. 259.212a  Form U-12(I)-A, for statement of activity within scope of 
section 12(i) of the Act pursuant to Rule 71(a) (Sec. 250.71(a) of this chapter).

    This form shall be filed pursuant to Rule 71(a) (Sec. 250.71(a) of 
this chapter) by any person who engages in any activity within the scope 
of section 12(i) of the Act.

    Editorial Note: For Federal Register citations affecting Form U-
12(I)-A, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 259.212b  Form U-12(I)-B, for advance statement of activity within 

scope of section 12(i) of the Act pursuant to Rule 71(b) (Sec. 250.71(b) 
of this chapter).

    This form may be filed as an advance statement pursuant to Rule 
71(b) (Sec. 250.71(b) of this chapter) by certain persons designated 
therein covering anticipated activity within the scope of section 12(i) 
of the Act.

    Editorial Note: For Federal Register citations affecting Form U-
12(I)-B, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 259.213  Form U-13E-1, for report by affiliate companies and independent 
service companies pursuant to Rule 95 (Sec. 250.95 of this chapter).

    This form shall be filed pursuant to Rule 95 (Sec. 250.95 of this 
chapter) by an affiliate of a registered public utility holding company 
or subsidiary company thereof in connection with the performance of any 
service, construction or sale of goods to an affiliate.

    Editorial Note: For Federal Register citations affecting Form U-13E-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 259.221  Form U-R-1, for solicitations pursuant to Rule 62 
(Sec. 250.62 of this chapter), in connection with reorganizations.

    This form shall be filed for the declaration pursuant to Rule 62 
(Sec. 250.62 of this chapter) for solicitations in connection with any 
reorganization subject to the rule.

    Editorial Note: For Federal Register citations affecting Form U-R-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



             Subpart D_Forms for Periodic Accounting Reports



Sec. 259.313  Form U-13-60, for annual reports pursuant to Rule 94 

(Sec. 250.94 of this chapter) by mutual and subsidiary service companies 
required by section 13 of the Act.

    This form shall be filed pursuant to Rule 94 (Sec. 250.94 of this 
chapter) by every mutual service company and every subsidiary service 
company required thereunder to file annual reports under section 13 of 
the Act. (See uniform system of accounts for mutual and subsidiary 
service companies, Part 256 of this chapter.)

    Editorial Note: For Federal Register citations affecting Form U-13-
60, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

[[Page 666]]



 Subpart E_Forms for Statements and Reports From Nonregistered (Exempt) 
                                Companies



Sec. 259.402  Form U-3A-2, for annual reports pursuant to Rule 2 

(Sec. 250.2 of this chapter) for exempt holding companies which are 
intrastate or predominantly operating companies.

    This form shall be filed as the annual report under Rule 2 (Sec. 
250.2 of this chapter) by every public utility holding company claiming 
exemption under section 3 of the Act as an intrastate or predominantly 
operating company.

    Editorial Note: For Federal Register citations affecting Form U-3A-
2, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 259.403  Form U-3A3-1, for annual reports pursuant to Rule 3 
(Sec. 250.3 of this chapter) for banks which are exempt holding companies.

    This form shall be filed pursuant to paragraph (c) of Rule 3 (Sec. 
250.3(c) of this chapter) by any bank claiming exemption from any 
obligation, duty or liability as a holding company under the Act.

    Editorial Note: For Federal Register citations affecting Form U-3A3-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 259.404  Certificate to be filed pursuant to Sec. 250.7(d) of this 
chapter.

    This form must be filed with the Commission by any lessor or 
beneficial owner of a utility facility which has been leased by it to an 
operating public utility company, within 30 days after execution of the 
lease, if any beneficial owner of such facility seeks exclusion from the 
status of an electric or gas utility company under the Act pursuant to 
Sec. 250.7(d) of this chapter.

[38 FR 16999, June 28, 1973]

    Editorial Note: For Federal Register citations affecting Form U-7D, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 259.405  Form U-33-S, for annual reports pursuant to Rule 57(b) 
(Sec. 250.57 of this chapter).

    This form shall be filed by a public utility company that is an 
associate of one or more foreign utility companies, unless such public-
utility company is an associate of a registered holding company, or of a 
holding company exempt from registration under Sec. 250.2 of this 
chapter.

    Editorial Note: For Federal Register citations affecting Form U-33-
S, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

Subpart F--Forms for Amendments [Reserved]



                  Subpart G_Forms for Electronic Filing



Sec. 259.601  [Reserved]



Sec. 259.602  Form ID, uniform application for access codes to file on EDGAR.

    (a) Form ID is to be used by registrants, third party filers, or 
their agents for the purpose of requesting assignment of access codes to 
permit filing on EDGAR, as follows:
    (1) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.
    (2) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (3) Password (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (4) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.
    (b) Form ID also may be used for the purpose of requesting a 
reassignment of their CCC, PW and PMAC.

[57 FR 18219, Apr. 29, 1992]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 667]]



Sec. 259.603  Form SE, form for submission of paper format exhibits by 
electronic filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided in rule 311 of Regulation S-T (Sec. 232.311 of this chapter).

[58 FR 15007, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 259.604  Form TH--Notification of reliance on temporary hardship exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by rule 201(a) of Regulation S-T (Sec. 
232.201(a) of this chapter).

[58 FR 15007, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



PART 260_GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 
1939--Table of Contents




                 Terms Used in the Rules and Regulations

Sec.
260.0-1 Application of definitions contained in the act.
260.0-2 Definitions of terms used in the rules and regulations.
260.0-3 Definition of ``rules and regulations'' as used in certain 
          sections of the Act.
260.0-4 Sequential numbering of documents filed with the Commission.

                        Office of the Commission

260.0-5 Business hours of the Commission.
260.0-6 Nondisclosure of information obtained in the course of 
          examinations and investigations.
260.0-7 Small entities for purposes of the Regulatory Flexibility Act.
260.0-11 Liability for certain statements by issuers.

                         Rules Under Section 303

260.3(4)-1 Definition of ``commission from an underwriter or dealer not 
          in excess of the usual and customary distributors' or sellers' 
          commissions'' in section 303(4), for certain transactions.
260.3(4)-2 Definition of ``distribution'' in section 303(4) for certain 
          transactions.
260.3(4)-3 Definitions of ``participates'' and ``participation'' as used 
          in section 303(4), in relation to certain transactions.

                         Rules Under Section 304

260.4a-1 Exempted securities under section 304(a)(8).
260.4a-2 Exempted securities under section 304(d).
260.4a-3 Exempted securities under section 304(a)(9).
260.4c-1 Form for applications under section 304(c).
260.4c-2 General requirements as to form and content of applications.
260.4c-3 Number of copies; filing; signatures; binding.
260.4c-4 Applications under section 304(c)(1).
260.4c-5 Applications under section 304(c)(2).
260.4d-7 Application for exemption from one or more provisions of the 
          Act.
260.4d-8 Content.
260.4d-9 Exemption for Canadian Trust Indentures from Specified 
          Provisions of the Act.
260.4d-10 Exemption for securities issued pursuant to Sec. 230.802 of 
          this chapter.

                         Rules Under Section 305

260.5a-1 Forms for statements of eligibility and qualification.
260.5a-2 General requirements as to form and content of statements of 
          eligibility and qualification.
260.5a-3 Number of copies; filing; signatures; binding.
260.5b-1 Application pursuant to section 305(b)(2) of the Trust 
          Indenture Act for determining eligibility of a person 
          designated as trustee for offerings on a delayed basis.
260.5b-2 General requirements as to form and content of applications.
260.5b-3 Number of copies--Filing--Signatures.

                         Rules Under Section 307

              Applications for Qualification of Indentures

260.7a-1 Form for application.
260.7a-2 Powers of agent for service named in application.
260.7a-3 Number of copies; filing; signatures; binding.
260.7a-4 Calculation of time.
260.7a-5 Filing of amendments; number of copies.

[[Page 668]]

260.7a-6 Telegraphic delaying amendments.
260.7a-7 Effective date of amendment filed under section 8(a) of the 
          Securities Act with the consent of the Commission.
260.7a-8 Effective date of amendment filed under section 8(a) of the 
          Securities Act pursuant to order of Commission.
260.7a-9 Delaying amendments.
260.7a-10 Payment of fees.

General Requirements as to Form and Content of Applications, Statements 
                               and Reports

                                 General

260.7a-15 Scope of Sec. Sec. 260.7a-15 to 260.7a-37.

                           Formal Requirements

260.7a-16 Inclusion of items, differentiation between items and answers, 
          omission of instructions.
260.7a-17 Quality, color and size of paper.
260.7a-18 Legibility.
260.7a-19 Margin for binding.
260.7a-20 Riders; inserts.

                   General Requirements as to Contents

260.7a-21 Clarity.
260.7a-22 Information unknown or not reasonably available.
260.7a-23 Statements required where item is inapplicable or where answer 
          is ``none''.
260.7a-24 Words relating to periods of time in the past.
260.7a-25 Words relating to the future.
260.7a-26 Disclaimer of control.
260.7a-27 Title of securities.

                       Incorporation by Reference

260.7a-28 Incorporation of matter in application, statement or report, 
          other than exhibits, as answer to item.
260.7a-29 Incorporation of exhibits as such.
260.7a-30 Identification of material incorporated; form of 
          incorporation.
260.7a-31 Incorporation by reference of contested material.
260.7a-32 Incorporation by reference rendering document incomplete, 
          unclear, or confusing.

                                Exhibits

260.7a-33 Additional exhibits.
260.7a-34 Omission of substantially identical documents.

                               Amendments

260.7a-35 Formal requirements as to amendments.
260.7a-36 Signatures to amendments.

   Inspection and Publication of Applications, Statements and Reports

260.7a-37 Inspection of applications, statements and reports.

                         Rules Under Section 310

260.10a-1 Application for determining eligibility of a foreign person to 
          act as sole trustee pursuant to section 310(a)(1) of the Act.
260.10a-2 General requirements as to form and content of applications.
260.10a-3 Number of copies--Filing--Signatures.
260.10a-4 Consent of trustee to service of process.
260.10a-5 Eligibility of Canadian Trustees.
260.10b-1 Calculation of percentages.
260.10b-2 Applications under section 310(b)(1)(ii).
260.10b-3 Applications relative to affiliations between trustees and 
          underwriters.
260.10b-4 Application for stay of trustee's duty to resign pursuant to 
          section 310(b) of the Act.
260.10b-5 Content.
260.10b-6 Notices--Exemptive Application Procedure.

                         Rules Under Section 311

260.11b-4 Definition of ``cash transaction'' in section 311(b)(4).
260.11b-6 Definition of ``self-liquidating paper'' in section 311(b)(6).

                         Rules Under Section 314

                            Periodic Reports

260.14a-1 Application of Sec. Sec. 260.7a-15 to 260.7a-38.
260.19a-1 Compliance with Section 314(a)(1) of the Trust Indenture Act 
          for certain eligible indenture obligors.

    Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3, 
80b-4, and 80b-11.

    Source: 5 FR 293, Jan. 25, 1940, unless otherwise noted.

    Editorial Note: For nomenclature changes to this part see 57 FR 
36501, Aug. 13, 1992, and 57 FR 47409, Oct. 16, 1992.
    Note: In Sec. Sec. 260.0-1 to 260.14a-1 the numbers to the right of 
the decimal point correspond with the respective rule number of the 
general rules and regulations under the Trust Indenture Act of 1939.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION

[[Page 669]]

OF DOCUMENTS IN PAPER FORMAT CONTAINED IN THIS REGULATION ARE SUPERSEDED 
BY THE PROVISIONS OF REGULATION S-T FOR DOCUMENTS REQUIRED TO BE FILED 
IN ELECTRONIC FORMAT.

                 Terms Used in the Rules and Regulations



Sec. 260.0-1  Application of definitions contained in the act.

    Unless the context otherwise requires, the terms defined in the act 
shall, when used in the rules and regulations, have the respective 
meanings given in the act.



Sec. 260.0-2  Definitions of terms used in the rules and regulations.

    Unless the context otherwise requires, the following terms, when 
used in this part, shall have the respective meanings indicated in this 
section:
    (a) Act. The term ``act'' means the Trust Indenture Act of 1939. (53 
Stat. 1149; 15 U.S.C. 77aaa)
    (b) Affiliate. The term ``affiliate'' means a person controlling, 
controlled by, or under common control with, another person. The terms 
``affiliated'' and ``affiliation'' have meanings correlative to the 
foregoing.
    (c) Agent for service. The term ``agent for service'' means the 
person authorized to receive notices and communications from the 
Commission.
    (d) Amount. The term ``amount'' when used in regard to securities, 
shall have the meaning given in Sec. 260.10b-1(c).
    (e) Class. The term ``class'', when used in regard to securities, 
shall have the meaning given in Sec. 260.10b-1(e).
    (f) Control. The term ``control'' means the power to direct the 
management and policies of a person, directly or through one or more 
intermediaries, whether through the ownership of voting securities, by 
contract, or otherwise. The terms ``controlling'' and ``controlled'' 
have meanings correlative to the foregoing. (See Sec. 260.a-26.)
    (g) Electronic filer. The term electronic filer means a person or an 
entity that submits filings electronically pursuant to Rules 100 and 101 
of Regulation S-T (Sec. Sec. 232.100 and 232.101 of this chapter, 
respectively).
    (h) Electronic filing. The term electronic filing means a document 
under the federal securities laws that is transmitted or delivered to 
the Commission in electronic format.
    (i) Outstanding. The term ``outstanding'', when used in regard to 
securities, shall have the meaning given in Sec. 260.10b-1(d).
    (j) Parent. The term ``parent'' means a person controlling one or 
more other persons.
    (k) Rules and regulations. The term ``rules and regulations'' means 
all rules and regulations adopted by the Commission pursuant to the act, 
including the forms and instructions thereto.
    (l) Section. The term ``section'' means a section of the act. \1\
---------------------------------------------------------------------------

    \1\ References to ``this section'' or to section number preceded by 
a section symbol are to sections in the Code of Federal Regulations.
---------------------------------------------------------------------------

    (m) Subsidiary. The term ``subsidiary'' means a person controlled by 
another person.

[5 FR 293, Jan. 25, 1940, as amended at 58 FR 14686, Mar. 18, 1993; 62 
FR 36459, July 8, 1997]



Sec. 260.0-3  Definition of ``rules and regulations'' as used in certain 
sections of the Act.

    (a) The term rules and regulations as used in section 305 of the Act 
shall include the forms for registration of securities under the 
Securities Act of 1933 and the related instructions thereto, and the 
forms for information, documents and statements under section 305 of the 
Act.
    (b) The term rules and regulations as used in section 307 of the Act 
shall include the forms for applications under section 307 of the Act 
and the related instructions thereto.

[21 FR 1046, Feb. 15, 1956]



Sec. 260.0-4  Sequential numbering of documents filed with the Commission.

    The manually signed original (or in the case of duplicate originals, 
one duplicate original) of all registrations, applications, statements, 
reports, or other documents filed under the Trust Indenture Act of 1939 
shall be numbered sequentially (in addition to any internal numbering 
which otherwise may be present) by handwritten, typed,

[[Page 670]]

printed, or other legible form of notation from the facing page of the 
document through the last page of that document and any exhibits or 
attachments thereto. Further, the total number of pages contained in a 
numbered original shall be set forth on the first page of the document.

(15 U.S.C. 77s (48 Stat. 85); 15 U.S.C. 78w (48 Stat. 901); 15 U.S.C. 
79c and 79t (49 Stat. 810, 833); 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss 
(53 Stat. 1154, 1156, 1167, 1173); 15 U.S.C. 80w-37, 80c-39 (54 Stat. 
841, 842); 15 U.S.C. 80b-3, 80b-4, 80b-11 (54 Stat. 850, 852, 855))

[44 FR 4666, Jan. 23, 1979]

                        Office of the Commission



Sec. 260.0-5  Business hours of the Commission.

    (a) General. The principal office of the Commission, at 450 Fifth 
Street, NW., Washington, DC 20549, is open each day, except Saturdays, 
Sundays and federal holidays, from 9 a.m. to 5:30 p.m., Eastern Standard 
Time or Eastern Daylight Saving Time, whichever is currently in effect, 
provided that the hours for the filing of documents with the Commission 
are as set forth in paragraphs (b) and (c) of this section.
    (b) Submissions made in paper. Paper documents filed with or 
otherwise furnished to the Commission may be submitted to the Commission 
each day, except Saturdays, Sundays and federal holidays, from 8 a.m. to 
5:30 p.m., Eastern Standard Time or Eastern Daylight Saving Time, 
whichever is currently in effect.
    (c) Electronic filings. Filings made by direct transmission may be 
submitted to the Commission each day, except Saturdays, Sundays and 
federal holidays, from 8 a.m. to 10 p.m., Eastern Standard Time or 
Eastern Daylight Saving Time, whichever is currently in effect.

[58 FR 14687, Mar. 18, 1993, as amended at 65 FR 24802, Apr. 27, 2000; 
68 FR 25800, May 13, 2003]



Sec. 260.0-6  Nondisclosure of information obtained in the course of 
examinations and investigations.

    Information or documents obtained by officers or employees of the 
Commission in the course of any examination or investigation under 
section 8(e) of the Securities Act of 1933 (48 Stat. 79; 15 U.S.C. 77h), 
pursuant to section 307(c) of the Trust Indenture Act of 1939 (53 Stat. 
1156; 15 U.S.C. 77ggg), or any examination or investigation under 
section 20(a) of the Securities Act of 1933 (48 Stat. 86; 15 U.S.C. 
77t), pursuant to section 321(a) of the Trust Indenture Act of 1939 (53 
Stat. 1174; 15 U.S.C. 77uuu), shall, unless made a matter of public 
record, be deemed confidential. Except as provided by 17 CFR 203.2, 
officers and employees are hereby prohibited from making such 
confidential information or documents or any other non-public records of 
the Commission available to anyone other than a member, officer or 
employee of the Commission, unless the Commission or the General 
Counsel, pursuant to delegated authority, authorizes the disclosure of 
such information or the production of such documents as not being 
contrary to the public interest. Any officer or employee who is served 
with a subpoena requiring the disclosure of such information or the 
production of such documents shall appear in court and, unless the 
authorization described in the preceding sentence shall have been given, 
shall respectfully decline to disclose the information or produce the 
documents called for, basing his or her refusal upon this section. Any 
officer or employee who is served with such a subpoena shall promptly 
advise the General Counsel of the service of such subpoena, the nature 
of the information or documents sought, and any circumstances which may 
bear upon the desirability of making available such information or 
documents.

(Sec. 19, 48 Stat. 85; sec. 20, 48 Stat. 86; sec. 21, 48 Stat. 899; sec. 
23, 48 Stat. 901; sec. 18, 49 Stat. 831; sec. 20, 49 Stat. 833; sec. 
319, 53 Stat. 1173; sec. 321, 53 Stat. 1174; sec. 38, 54 Stat. 841; sec. 
42, 54 Stat. 842; sec. 209, 54 Stat. 853; sec. 211, 54 Stat. 855; sec. 
1, 76 Stat. 394. (15 U.S.C. 77s, 77t, 78u, 78w, 79r, 79t, 77sss, 77uuu, 
80a-37, 80a-41, 80b-9, 89b-11, 78d-1))

[44 FR 50836, Aug. 30, 1979, as amended at 53 FR 17459, May 17, 1988; 54 
FR 33501, Aug. 15, 1989]

[[Page 671]]



Sec. 260.0-7  Small entities for purposes of the Regulatory Flexibility Act.

    For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.), and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the term ``small business'' or ``small 
organization,'' for purposes of the Trust Indenture Act of 1939 shall 
mean an issuer whose total assets on the last day of its most recent 
fiscal year were $5 million or less that is engaged or proposing to 
engage in small business financing. An issuer is considered to be 
engaged or proposing to be engaged in small business financing under 
this section if it is conducting or proposing to conduct an offering of 
securities which does not exceed the dollar limitation prescribed by 
Sec. 260.4a-2.

[47 FR 5223, Feb. 4, 1982, as amended at 51 FR 25362, July 14, 1986]



Sec. 260.0-11  Liability for certain statements by issuers.

    (a) A statement within the coverage of paragraph (b) below which is 
made by or on behalf of an issuer or by an outside reviewer retained by 
the issuer shall be deemed not to be a fraudulent statement (as defined 
in paragraph (d) of this section), unless it is shown that such 
statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.
    (b) This rule applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a document filed with the Commission, in Part I of a 
quarterly report on Form 10-Q and Form 10-QSB, Sec. 249.308a of this 
chapter, or in an annual report to share-holders meeting the 
requirements of Rules 14a-3(b) and (c) or 14c-3(a) and (b) under the 
Securities Exchange Act of 1934, a statement reaffirming such forward-
looking statement subsequent to the date the document was filed or the 
annual report was made publicly available, or a forward-looking 
statement made prior to the date the document was filed or the date the 
annual report was made publicly available if such statement is 
reaffirmed in a filed document, in Part I of a quarterly report on Form 
10-Q and Form 10-QSB, or in an annual report made publicly available 
within a reasonable time after the making of such forward-looking 
statement; Provided, That:
    (i) At the time such statements are made or reaffirmed, either the 
issuer is subject to the reporting requirements of section 13(a) or 
15(d) of the Securities Exchange Act of 1934 and has complied with the 
requirements of Rule 13a-1 or 15d-1 thereunder, if applicable, to file 
its most recent annual report on Form 10-K and Form 10-KSB or Form 20-F 
or Form 40-F; or if the issuer is not subject to the reporting 
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 
1934, the statements are made in a registration statement filed under 
the Securities Act of 1933 or pursuant to section 12(b) or (g) of the 
Securities Exchange Act of 1934, and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940; and
    (2) Information relating to the effects of changing prices on the 
business enterprise presented voluntarily or pursuant to Item 303 of 
Regulation S-K (Sec. 229.303 of this chapter) or Item 5 of Form 20-F 
(Sec. 249.220f of this chapter), ``Operating and Financial Review and 
Prospects'', or Item 302 of Regulation S-K (Sec. 229.302 of this 
chapter), supplementary financial information, or Rule 3-20(c) of 
Regulation S-X (Sec. 210.3-20(c) of this chapter), and disclosed in a 
document filed with the Commission, in Part I of a quarterly report on 
Form 10-Q and Form 10-QSB, or in an annual report to shareholders 
meeting the requirements of Rules 14a-3 (b) and (c) or 14c-3 (a) and (b) 
under the Securities Exchange Act of 1934.
    (c) For the purpose of this rule, the term forward-looking statement 
shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;

[[Page 672]]

    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations included pursuant to Item 303 of Regulation S-K (Sec. 
229.303 of this chapter) or Item 5 of Form 20-F; or
    (4) Disclosed statements of the assumptions underlying or relating 
to any of the statements described in paragraphs (c) (1), (2), or (3) of 
this section.
    (d) For the purpose of this rule the term fraudulent statement shall 
mean a statement which is an untrue statement of a material fact, a 
statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Trust Indenture Act of 1939 and other acts referred to 
in section 323(b) thereof or the rules or regulations promulgated 
thereunder.

[46 FR 19458, Mar. 31, 1981, as amended at 47 FR 54790, Dec. 26, 1982; 
56 FR 30077, July 1, 1991; 64 FR 53925, Oct. 5, 1999]

                         Rules Under Section 303



Sec. 260.3(4)-1  Definition of ``commission from an underwriter or 

dealer not in excess of the usual and customary distributors' or 
sellers' commissions'' in section 303(4), for certain transactions.

    (a) The term commission in section 303(4) shall include such 
remuneration, commonly known as a spread, as may be received by a 
distributor or dealer as a consequence of reselling securities bought 
from an underwriter or dealer at a price below the offering price of 
such securities, where such resales afford the distributor or dealer a 
margin of profit not in excess of what is usual and customary in such 
transactions.
    (b) The term commission from an underwriter or dealer in section 
303(4) shall include commissions paid by an underwriter or dealer 
affiliated with the issuer.
    (c) The term usual and customary distributors' or sellers' 
commission in section 303(4) shall mean a commission or remuneration, 
commonly known as a spread, paid to or received by any person selling 
securities either for his own account or for the account of others, 
which is not in excess of the amount usual and customary in the 
distribution and sale of issues of similar type and size, and not in 
excess of the amount allowed to other persons, if any, for comparable 
service in the distribution of the particular issue; but such term shall 
not include amounts paid to any person whose function is the management 
of the distribution of all of a substantial part of the particular 
issue, or who performs the functions normally performed by an 
underwriter or underwriting syndicate.



Sec. 260.3(4)-2  Definition of ``distribution'' in section 303(4) for 
certain transactions.

    A person, the chief part of the business of which consists in the 
purchase of the securities of any one issuer and/or its affiliate and in 
the sale of its own securities to furnish the proceeds with which to 
acquire the securities of such issuer and/or affiliate, is to be 
regarded as engaged in the distribution of the securities of such issuer 
and/or affiliate within the meaning of section 303(4).



Sec. 260.3(4)-3  Definitions of ``participates'' and ``participation'' 
as used in section 303(4), in relation to certain transactions.

    (a) The terms participates and participation in section 303(4) shall 
not include the interest of a person (1) who is neither in privity of 
contract with the issuer nor affiliated with the issuer, and (2) who has 
no association with any principal underwriter of the securities being 
distributed, and (3) whose function in the distribution is confined to 
an undertaking to purchase all or some specified proportion of the 
securities remaining unsold after the lapse of some specified period of 
time, and (4) who purchases such securities for investment and not with 
a view to distribution.
    (b) As used in this section:
    (1) The term association shall include a relationship between two 
persons under which one (i) is affiliated with the other, or (ii) has, 
in common with

[[Page 673]]

the other, one or more partners, directors, officers, trustees, branch 
managers, or other persons occupying a similar status or performing 
similar functions or (iii) has a participation, direct or indirect, in 
the profits of the other, or has a financial stake, by debtor-creditor 
relationship, stock ownership, contract or otherwise, in the income or 
business of the other.
    (2) The term principal underwriter means an underwriter in privity 
of contract with the issuer of the securities as to which he is 
underwriter.

                         Rules Under Section 304



Sec. 260.4a-1  Exempted securities under section 304(a)(8).

    The provisions of the Trust Indenture Act of 1939 shall not apply to 
any security that has been or will be issued otherwise than under an 
indenture. The same issuer may not claim this exemption within a period 
of twelve consecutive months for more than $5,000,000 aggregate 
principal amount of any securities.

[57 FR 36501, Aug. 13, 1992]



Sec. 260.4a-2  Exempted securities under section 304(d).

    The provisions of the Trust Indenture Act of 1939 shall not apply to 
any security that has been issued or will be issued in accordance with 
the provisions of Regulation A (17 CFR 230.251 et seq.) under the 
Securities Act of 1933.

[57 FR 36501, Aug. 13, 1992]



Sec. 260.4a-3  Exempted securities under section 304(a)(9).

    The provisions of the Trust Indenture Act of 1939 shall not apply to 
any security which has been or is to be issued under an indenture which 
limits the aggregate principal amount of securities at any time 
outstanding thereunder to $10,000,000 or less, but this exemption shall 
not be applied within a period of thirty-six consecutive months to more 
than $10,000,000 aggregate principal amount of securities of the same 
issuer.

(Secs. 304(a)(8) and 304(a)(9) of the Trust Indenture Act of 1939, (sec. 
302, Pub. L. 96-477; secs. 304(a)(8), 304(a)(9), 53 Stat. 1153; 15 
U.S.C. 77ddd(a)(8), 77ddd(a)(9)))

[46 FR 63256, Dec. 31, 1981. Redesignated and amended at 57 FR 36501, 
Aug. 13, 1992]



Sec. 260.4c-1  Form for applications under section 304(c).

    Form T-4 shall be used for applications for exemption filed pursuant 
to section 304(c) of the act.

[6 FR 981, Feb. 15, 1941]



Sec. 260.4c-2  General requirements as to form and content of applications.

    Sections 260.7a-15 to 260.7a-38 shall be applicable to applications 
on Form T-4.

[6 FR 981, Feb. 15, 1941]



Sec. 260.4c-3  Number of copies; filing; signatures; binding.

    (a) Three copies of every application and of every amendment thereto 
shall be filed with the Commission at its principal office.
    (b) At least the original of each application or amendment filed 
with the Commission shall be signed in the manner prescribed by Form T-4 
(Sec. 269.4 of this chapter).
    (c) The application proper and the exhibits thereto shall be bound 
on the left side in one or more parts, but without stiff covers.

[16 FR 8737, Aug. 29, 1951]



Sec. 260.4c-4  Applications under section 304(c)(1).

    (a) An applicant under section 304(c)(1) may, if it so desires, 
waive a hearing and request the Commission to decide the application 
without a formal hearing on the basis of the application and such other 
information and documents as the Commission shall designate as a part of 
the record. However, a hearing may be called upon order of the 
Commission notwithstanding that the applicant shall have filed such a 
waiver and request whenever, in the judgment of the Commission, such a 
hearing is necessary or appropriate in the public interest.
    (b) If the applicant waives a hearing and requests the Commission to 
decide

[[Page 674]]

the application without a hearing and if no hearing has been ordered by 
the Commission:
    (1) The applicant shall, at the request of the Commission, furnish 
such additional information or documents as the Commission may deem 
necessary to decide the application.
    (2) The Commission may, with the consent of the applicant, make a 
part of the record any pertinent information or documents filed with the 
Commission by the applicant or by any other person.
    (3) The Commission shall, in its order deciding the application, 
designate and describe the information and documents comprising the 
record on which the decision is based.

[6 FR 981, Feb. 15, 1941]



Sec. 260.4c-5  Applications under section 304(c)(2).

    A hearing shall be held upon every application filed pursuant to 
section 304(c)(2).

[6 FR 981, Feb. 15, 1941]



Sec. 260.4d-7  Application for exemption from one or more provisions of the Act.

    (a) Three copies of every application for an order under section 
304(d) of the Act (15 U.S.C. 77ddd(d)) and of every amendment thereto 
shall be filed with the Commission at its principal office.
    (b) One copy shall be manually signed by a duly authorized officer 
of the applicant (or individual customarily performing similar functions 
with respect to an organization, whether incorporated or 
unincorporated), or by a natural person seeking exemption under section 
304(d) of the Act.
    (c) Such applications shall be on paper no larger 8\1/2\ x 11 inches 
in size. If reduction of large documents would render them illegible, 
such documents may be filed on paper larger than 8\1/2\ x 11 inches in 
size. The left margin shall be at least 1\1/2\ inches wide and if the 
application is bound, it shall be bound on the left side.
    (d) The application shall be typed, printed, copied, or prepared by 
a process which produces copies suitable for repeated photocopying and 
microfilming. All typewritten or printed matter shall be set forth in 
black ink to permit photocopying. If printed, the application shall be 
in type not smaller than 10-point, roman type, at least two points 
leaded.
    (e) Rules 7a-28 through 7a-32 (Sec. Sec. 260.7a-28 through 260.7a-
32 of this chapter) relating to incorporation by reference shall be 
applicable to applications for exemption pursuant to section 304(d) of 
the Act.

[56 FR 22319, May 15, 1991]



Sec. 260.4d-8  Content.

    (a) Each application for an order under section 304(d) of the Act 
(15 U.S.C. 77ddd(d)) shall contain the name, address, and telephone 
number of each applicant and the name, address, and telephone number of 
any person to which such applicant wishes any questions regarding the 
application to be directed.
    (b) Each application shall contain a statement of the relevant facts 
on which the request for relief is based, including a justification for 
the exemption(s) requested and a discussion of any benefit expected for 
security holders, trustees and/or obligors.

[56 FR 22319, May 15, 1991]



Sec. 260.4d-9  Exemption for Canadian Trust Indentures from Specified 
Provisions of the Act.

    Any trust indenture filed in connection with offerings on a 
registration statement on Form SB-2, [Sec. 239.10 of this chapter] F-7, 
F-8, F-9, F-10 or F-80 [Sec. Sec. 239.37 through 239.41 of this 
chapter] shall be exempt from the operation of sections 310(a)(3) and 
310(a)(4) , sections 310(b) through 316(a), and sections 316(c) through 
318(a) of the Act; provided that the trust indenture is subject to
    (a) The Canada Business Corporations Act, R. S. C. 1985;
    (b) The Bank Act, R. S. C. 1985;
    (c) The Business Corporations Act, 1982 (Ontario), S. O. 1982; or
    (d) The Company Act, R.S.B.C. 1979, C. 59.

[56 FR 30077, July 1, 1991, as amended at 57 FR 36501, Aug. 13, 1992; 58 
FR 33190, June 16, 1993]

[[Page 675]]



Sec. 260.4d-10  Exemption for securities issued pursuant to Sec. 230.802 
of this chapter.

    Any debt security, whether or not issued under an indenture, is 
exempt from the Act if made in compliance with Sec. 230.802 of this 
chapter.

[64 FR 61406, Nov. 10, 1999]

                         Rules Under Section 305



Sec. 260.5a-1  Forms for statements of eligibility and qualification.

    (a) Form T-1 shall be used for statements of eligibility and 
qualification of corporations designated to act as trustees under trust 
indentures to be qualified pursuant to section 305 or 307 of the Act.
    (b) Form T-2 shall be used for statements of eligibility and 
qualification of individuals designated to act as trustees under trust 
indentures to be qualified pursuant to section 305 or 307 of the Act.



Sec. 260.5a-2  General requirements as to form and content of statements 
of eligibility and qualification.

    Rules 7a-15 through 7a-37 (Sec. Sec. 260.7a-15 through 260.7a-37 of 
this chapter) under section 307 under the Trust Indenture Act shall be 
applicable to statements filed on Forms T-1, T-2, and T-6.

[56 FR 22320, May 15, 1991]



Sec. 260.5a-3  Number of copies; filing; signatures; binding.

    (a) Three copies of each statement of eligibility and qualification 
shall be filed with the registration statement or application for 
qualification.
    (b) At least the original of each statement of eligibility and 
qualification filed with the Commission shall be signed in the manner 
prescribed by the particular form.
    (c) Each statement of eligibility and qualification and the exhibits 
thereto shall be bound on the left-hand side in one or more parts, 
without stiff covers. The binding shall be made in such manner as to 
leave the reading matter legible.
    (d) The statement or statements shall be filed by the obligor upon 
the indenture securities as a separate part of the registration 
statement or application for qualification, as the case may be.

[6 FR 667, Jan. 30, 1941, as amended at 16 FR 8737, Aug. 29, 1951]



Sec. 260.5b-1  Application pursuant to section 305(b)(2) of the Trust 

Indenture Act for determining eligibility of a person designated as 
trustee for offerings on a delayed basis.

    Forms T-1 and T-2 (17 CFR 269.1 and 269.2) shall be used for 
applications filed for the purpose of determining the eligibility under 
section 310(a) of the Act of a person designated as trustee for debt 
securities registered under the Securities Act of 1933 which are 
eligible to be issued, offered, or sold on a delayed basis by or on 
behalf of the registrant.

[56 FR 22320, May 15, 1991]



Sec. 260.5b-2  General requirements as to form and content of applications.

    Rule 5a-2 (Sec. 260.5a-2 of this chapter) and rules 7a-15 through 
7a-37 [Sec. Sec. 260.7a-15 through 260.7a-37 of this chapter] shall be 
applicable to applications pursuant to rule 5b-1 (Sec. 260.56b-1 of 
this chapter).

[56 FR 22320, May 15, 1991]



Sec. 260.5b-3  Number of copies--Filing--Signatures.

    (a) Three copies of every application pursuant to rule 5b-1 (Sec. 
260.5b-1 of this chapter) and of every amendment thereto shall be filed 
with the Commission at its principal office by the issuer upon the 
indenture securities. Such application shall be filed no later than the 
second business day following the initial date of public offering or 
sales after effectiveness of the registration statement with respect to 
such securities, or transmitted by a means reasonably calculated to 
result in filing with the Commission by that date.
    (b) One copy shall be manually signed by the applicant's duly 
authorized officer (or individual customarily performing similar 
functions with respect to any organization, whether incorporated or 
unincorporated), or by the individual trustee, as applicable.

[56 FR 22320, May 15, 1991]

[[Page 676]]

                         Rules Under Section 307

              Applications for Qualification of Indentures



Sec. 260.7a-1  Form for application.

    Form T-3 shall be used for applications for qualification of 
indentures pursuant to section 307(a).



Sec. 260.7a-2  Powers of agent for service named in application.

    Every applicant shall be deemed, in the absence of a statement to 
the contrary, to confer upon the agent for service the following powers:
    (a) A power to amend the application for qualification by altering 
the date of the proposed offering of the indenture securities.
    (b) A power to make application pursuant to Sec. 260.7 for the 
Commission's consent to the filing of an amendment.
    (c) A power to withdraw the application for qualification or any 
amendment thereto.
    (d) A power to consent to the entry of an order under section 8(b) 
of the Securities Act of 1933 (48 Stat. 79; 15 U.S.C. 77l), waiving 
notice and hearing, such order being entered without prejudice to the 
right of the applicant thereafter to have the order vacated upon a 
showing to the Commission that the application for qualification, as 
amended, is no longer incomplete or inaccurate on its face in any 
material respect.



Sec. 260.7a-3  Number of copies; filing; signatures; binding.

    (a) Three copies of the complete application shall be filed with the 
Commission at its principal office.
    (b) At least the original of each application filed with the 
Commission shall be signed in the manner prescribed by Form T-3 (Sec. 
269.3 of this chapter).
    (c) The application proper and the exhibits thereto shall be bound 
on the left side in one or more parts, but without stiff covers. The 
binding shall be made in such manner as to leave the reading matter 
legible.

[16 FR 8737, Aug. 29, 1951]



Sec. 260.7a-4  Calculation of time.

    Saturdays, Sundays and holidays shall be counted in computing the 
effective date of applications for qualification filed under section 
307(a) of the Act. The twentieth day shall be deemed to begin at the 
expiration of nineteen periods of twenty-four hours each from 5:30 p.m., 
eastern standard time or eastern daylight-saving time, whichever is in 
effect at the principal office of the Commission on the date of filing.

[12 FR 2941, May 2, 1947]



Sec. 260.7a-5  Filing of amendments; number of copies.

    Except as provided in Sec. 260.7a-6, three copies of every 
amendment to an application shall be filed with the Commission.

[16 FR 8737, Aug. 29, 1951]



Sec. 260.7a-6  Telegraphic delaying amendments.

    An amendment altering the proposed date of the public offering may 
be made by the agent for service by telegram. In each case, such 
telegraphic amendment shall be confirmed within a reasonable time by the 
filing of three copies, one of which shall be signed by the agent for 
service. Such confirmation shall not be deemed an amendment.



Sec. 260.7a-7  Effective date of amendment filed under section 8(a) of 
the Securities Act with the consent of the Commission.

    An applicant desiring the Commission's consent to the filing of an 
amendment with the effect provided in section 8(a) of the Securities Act 
of 1933 may apply for such consent at or before the time of filing the 
amendment. The application shall be signed by the applicant or the agent 
for service and shall state fully the grounds upon which made. The 
Commission's consent shall be deemed to be given and the amendment shall 
be treated as a part of the application for qualification upon the 
sending of written or telegraphic notice to that effect.



Sec. 260.7a-8  Effective date of amendment filed under section 8(a) of 
the Securities Act pursuant to order of Commission.

    An amendment made prior to the effective date of the application of 
qualification shall be deemed to be made

[[Page 677]]

pursuant to an order of the Commission within the meaning of section 
8(a) of the Securities Act of 1933 so as to be treated as part of the 
application for qualification only when the Commission shall, after the 
filing of such amendment, find that it has been filed pursuant to its 
order.



Sec. 260.7a-9  Delaying amendments.

    (a) An amendment in the following form filed with an application for 
qualification, or as an amendment to such an application which has not 
become effective, shall be deemed to be filed on such date or dates as 
may be necessary to delay the effective date of such application for the 
period specified in such amendment:

    The obligor hereby amends this application for qualification on such 
date or dates as may be necessary to delay its effectiveness until (i) 
the 20th day after the filing of a further amendment which specifically 
states that it shall supersede this amendment, or (ii) such date as the 
Commission, acting pursuant to section 307(c) of the Act, may determine 
upon the written request of the obligor.

    (b) An amendment pursuant to paragraph (a) of this section which is 
filed with an application for qualification shall be set forth on the 
facing page thereof. Any such amendment filed after the filing of the 
application may be made by letter or telegram and may be signed by the 
agent for service. Any amendment filed to supersede an amendment filed 
pursuant to paragraph (a) of this section may also be made by letter or 
telegram. Every such telegraphic amendment shall be confirmed in writing 
within a reasonable time by filing a signed copy of the amendment. Such 
confirmation shall not be deemed an amendment.

[30 FR 12387, Sept. 29, 1965]



Sec. 260.7a-10  Payment of fees.

    All payments of fees for applications under the Act shall be made in 
cash, by wire transfer, or by U.S. postal money order, certified check, 
bank cashier's check, or bank money order payable to the Securities and 
Exchange Commission, omitting the name or title of any official of the 
Commission. There will be no refunds. Payment of fees required by this 
section shall be made in accordance with the directions set forth in 
Sec. 202.3a of this chapter.

[58 FR 15011, Mar. 18, 1993]

General Requirements as to Form and Content of Applications, Statements 
                               and Reports

                                 General



Sec. 260.7a-15  Scope of Sec. Sec. 260.7a-15 to 260.7a-37.

    The rules contained in Sec. Sec. 260.7a-15 to 260.7a-37 shall 
govern applications for exemption filed pursuant to section 304(c) or 
304(d) of the Act, applications for qualification of indentures filed 
pursuant to section 307, statements of eligibility and qualifications of 
trustees filed pursuant to section 305, 307, or 310(a) of the Act, 
applications for the stay of the trustee's duty to resign filed pursuant 
to section 310(b) of the Act, and reports filed pursuant to section 
314(a) of the Act.

[56 FR 22320, May 15, 1991]

                           Formal Requirements



Sec. 260.7a-16  Inclusion of items, differentiation between items and 
answers, omission of instructions.

    Except as expressly provided otherwise in the particular form, the 
application, statement, or report shall contain all of the items of the 
form as well as the answers thereto. The items shall be made to stand 
out from the answers by variation in margin or type or by other means. 
All instructions shall be omitted.

[6 FR 981, Feb. 15, 1941]



Sec. 260.7a-17  Quality, color and size of paper.

    The application, statement or report, including all amendments and, 
where practicable, all papers and documents filed as a part thereof, 
shall be on good quality, unglazed, white paper, no larger than 8\1/
2\x11 inches in size. To the extent that the reduction of larger 
documents would render them illegible, such documents may be filed on 
paper larger than 8\1/2\x11 inches in size.

[47 FR 58239, Dec. 30, 1982]

[[Page 678]]



Sec. 260.7a-18  Legibility.

    (a) The application, statement or report, including all amendments 
and, where practicable, all papers and documents filed as a part 
thereof, shall be clear, easily readable and shall be typewritten, 
mimeographed, printed or prepared by any similar process which, in the 
opinion of the Commission, produces copies suitable for repeated 
photocopying and microfilming.
    (b) If printed, the application, statement or report shall be in 
type not smaller than 10-point, roman type, at least two points leaded.
    (c) All printing, mimeographing, typing or other markings shall be 
in black ink, except that debits in credit categories and credits in 
debit categories may be set forth in red or black ink, but shall in all 
cases be designated in such manner as to be clearly distinguishable as 
such on photocopies.

[5 FR 293, Jan. 25, 1940, as amended at 47 FR 58239, Dec. 30, 1982]



Sec. 260.7a-19  Margin for binding.

    The application, statement or report, including all amendments and, 
where practicable, all papers and documents filed as a part thereof, 
shall have a back or stitching margin of at least 1\1/2\ inches for 
binding.



Sec. 260.7a-20  Riders; inserts.

    Riders shall not be used. If the application, statement or report is 
typed on a printed form, and the space provided for the answer to any 
given item is insufficient, reference shall be made in such space to a 
full insert page or pages on which the item number and item shall be 
restated and a complete answer given.

                   General Requirements as to Contents



Sec. 260.7a-21  Clarity.

    The answer to each item of the particular form shall be so worded as 
to be intelligible without the necessity of referring to the 
instructions or to this part.



Sec. 260.7a-22  Information unknown or not reasonably available.

    Information required shall be given insofar as it is known or can be 
obtained by reasonable investigation. Responsibility for the accuracy or 
completeness of information obtained from persons other than affiliates 
may be disclaimed. As to information which is unknown and is unavailable 
after reasonable investigation, there shall be included a statement as 
to the nature of the investigation.



Sec. 260.7a-23  Statements required where item is inapplicable or where 
answer is ``none''.

    If any item is inapplicable or the answer is ``none'', a statement 
to such effect shall be made.



Sec. 260.7a-24  Words relating to periods of time in the past.

    Unless the context clearly shows otherwise, wherever any fixed 
period of time in the past is indicated, such period shall be computed 
from the date of filing with the Commission.



Sec. 260.7a-25  Words relating to the future.

    Unless the context clearly shows otherwise, whenever words relate to 
the future, they have reference solely to present intention.



Sec. 260.7a-26  Disclaimer of control.

    If the existence of control is open to reasonable doubt in any 
instance, the applicant or the trustee, as the case may be, may disclaim 
the existence of control and any admission thereof; in such case, 
however, a statement shall be made of the material facts pertinent to 
the possible existence of control.



Sec. 260.7a-27  Title of securities.

    Where the title of securities is required to be furnished in an 
application, statement or report, the following requirements shall be 
met:
    (a) In the case of shares, there shall be given the full designation 
of the class of shares and, if not included therein, the par or stated 
value, if any, and the rate of dividends, if fixed, and whether 
cumulative or non-cumulative.

[[Page 679]]

    (b) In the case of funded debt, there shall be given the full 
designation of the issue and, if not included therein, the rate of 
interest and the date of maturity. If the issue matures serially, a 
brief indication shall be given of the serial maturities: For example, 
``maturing serially from 1950 to 1960''. If the payment of interest or 
principal is contingent, such contingency shall be appropriately 
indicated. The rate of interest, however, may be omitted from the title 
of indenture securities on the facing page of Form T-1 and Form T-2, if 
the rate of interest is not determined at the time these forms are 
filed.
    (c) In the case of other securities, a similar designation shall be 
given.

[5 FR 293, Jan. 25, 1940, as amended at 9 FR 750, Jan. 20, 1944]

                       Incorporation by Reference



Sec. 260.7a-28  Incorporation of matter in application, statement or 
report, other than exhibits, as answer to item.

    Matter contained in any part of the application, statement or 
report, other than exhibits, may be incorporated by reference as answer, 
or partial answer, to any item in the same application, statement or 
report.



Sec. 260.7a-29  Incorporation of exhibits as such.

    (a) Any exhibit or part thereof previously or concurrently filed 
with the Commission pursuant to any Act administered by the Commission, 
may, subject to the limitations of Sec. 228.10(f) and Sec. 229.10(d) 
of this chapter, be incorporated by reference as an exhibit to any 
application, statement or report filed with the Commission by the same 
or any other person. Any exhibit or part thereof so filed with a trustee 
pursuant to the Trust Indenture Act of 1939 may be incorporated by 
reference as an exhibit to any report filed with such trustee pursuant 
to section 314(a) of that Act by the same or any other person.
    (b) If any modification has occurred in the text of any exhibit 
incorporated by reference since the filing thereof, there shall be filed 
with the reference a statement containing the text of any such 
modification and the date thereof.
    (c) If the number of copies of any exhibit previously or 
concurrently filed is less than the number required to be filed with the 
application, statement or report which incorporates such exhibit, there 
shall be filed with the application, statement or report as many 
additional copies of the exhibit as may be necessary to meet the 
requirements of such application, statement or report.

(Sec. 19, 48 Stat. 85, as amended, secs. 13, 15, 23, 48 Stat. 894, 895, 
901, as amended, sec. 20, 49 Stat. 833, secs. 38, 39, 54 Stat. 841; 15 
U.S.C. 77s, 78m, 78o, 78w, 79t 80a-37, 80a-38)

[6 FR 667, Jan. 30, 1941, as amended at 29 FR 2421, Feb. 13, 1964; 60 FR 
32825, June 23, 1995]



Sec. 260.7a-30  Identification of material incorporated; form of incorporation.

    In each case of incorporation by reference, the matter incorporated 
shall be clearly identified in the reference. An express statement shall 
be made to the effect that the specified matter is incorporated in the 
application, statement or report at the particular place where the 
information is required.



Sec. 260.7a-31  Incorporation by reference of contested material.

    Notwithstanding any particular provision permitting incorporation by 
reference, no application, statement or report shall incorporate by 
reference any matter which is subject, at the time of filing the 
application, statement or report, to pending proceedings under section 
8(b) or 8(d) of the Securities Act of 1933 (whether pursuant to the 
provisions of the Trust Indenture Act of 1939, or otherwise) or to an 
order entered under either of those sections.



Sec. 260.7a-32  Incorporation by reference rendering document incomplete, 
unclear, or confusing.

    Notwithstanding any particular provision permitting incorporation by 
reference, the Commission may refuse to permit such incorporation in any 
case in which in its judgment such incorporation would render the 
application, statement or report incomplete, unclear or confusing.

[[Page 680]]

                                Exhibits



Sec. 260.7a-33  Additional exhibits.

    Any application, statement or report may include exhibits in 
addition to those required by the particular form. Such additional 
exhibits shall be so marked as to indicate clearly the items to which 
they refer.



Sec. 260.7a-34  Omission of substantially identical documents.

    In any case where two or more documents required to be filed as 
exhibits are substantially identical in all material respects except as 
to the parties thereto, dates of execution or other details, a copy of 
only one of such documents need be filed, with a schedule identifying 
the documents omitted and setting forth the material details in which 
such documents differ from the document, a copy of which is filed: 
Provided, however, That the Commission may at any time in its discretion 
require the filing of copies of any documents so omitted.

                               Amendments



Sec. 260.7a-35  Formal requirements as to amendments.

    (a) Amendments to an application, statement or report shall comply 
with Sec. Sec. 260.7a-17 to 260.7a-19.
    (b) All amendments relating to a particular application, statements 
or report shall be numbered consecutively in the order in which they are 
filed with the Commission. Amendments shall be numbered separately for 
each separate application, statement or report.
    (c) Every amendment to an item of an application, statement or 
report shall contain the item number, the caption and the text of the 
item being amended and the complete amended answer thereto.
    (d) If at any time the application, statement or report becomes 
unclear or confusing because of the number of amendments filed or the 
length or complexity thereof, there may be filed, and at the written 
request of the Commission there shall be filed, a complete new 
application, statement or report, as amended, but no additional copies 
of exhibits need be filed.



Sec. 260.7a-36  Signatures to amendments.

    Subject to Sec. 260.7a-2, at least the original of every amendment 
to an application, statement or report shall be signed in the manner 
prescribed by the particular form on which the application, statement or 
report was filed.

[16 FR 8737, Aug. 29, 1951]

   Inspection and Publication of Applications, Statements and Reports



Sec. 260.7a-37  Inspection of applications, statements and reports.

    All applications, statements and reports are available for public 
inspection during business hours at the principal office of the 
Commission.

[16 FR 8737, Aug. 29, 1951]

                         Rule Under Section 310



Sec. 260.10a-1  Application for determining eligibility of a foreign 
person to act as sole trustee pursuant to section 310(a)(1) of the Act.

    Form T-6 (17 CFR 269.9 of this chapter) shall be used for an 
application filed to obtain authorization for a corporation or other 
person organized and doing business under the laws of a foreign 
government to act as sole trustee under an indenture qualified or to be 
qualified under the Act.

[56 FR 22320, May 15, 1991]



Sec. 260.10a-2  General requirements as to form and content of applications.

    Rule 5a-2 (Sec. 260.5a-2 of this chapter) and rules 7a-15 through 
7a-37 [Sec. Sec. 260.7a-15 through 260.7a-37 of this chapter] under 
section 307 of the Act shall be applicable to applications on Form T-6 
pursuant to section 310(a)(1) of the Act and Rule 10a-1 (Sec. 260.10a-1 
of this chapter).

[56 FR 22320, May 15, 1991]



Sec. 260.10a-3  Number of copies--Filing--Signatures.

    (a) Three copies of every application pursuant to rule 10a-1 (Sec. 
260.10a-1 of this chapter) and of every amendment thereto shall be filed 
with the Commission at its principal office.

[[Page 681]]

    (b) One copy shall be manually signed by the applicant's duly 
authorized officer (or individual customarily performing similar 
functions with respect to any organization, whether incorporated or 
unincorporated).

[56 FR 22320, May 15, 1991]



Sec. 260.10a-4  Consent of trustee to service of process.

    At the time of filing an application pursuant to Rule 10a-1 (Sec. 
260.10a-1 of this chapter) and at such time as it files a statement of 
eligibility to act as trustee under an indenture qualified under the 
Act, an indenture trustee organized and doing business under the laws of 
a foreign government shall furnish to the Commission on Form F-X (Sec. 
249.250 of this chapter) a written consent of the trustee and power of 
attorney designating a U. S. person with an address in the United States 
as agent upon whom may be served any process, pleadings, subpoenas or 
other papers in any Commission investigation or administrative 
proceeding and any civil suit or action brought against the trustee or 
to which the trustee has been joined as defendant or respondent, in any 
appropriate court in any place subject to the jurisdiction of any state 
or of the United States, or of the District of Columbia or Puerto Rico, 
where the investigation, proceeding or cause of action arises out of or 
relates to or concerns the securities in relation to which the indenture 
trustee proposes to act as trustee pursuant to any rule or order under 
section 310(a) of the Act and stipulates and agrees that any such suit, 
action or proceeding may be commenced by the service of process upon 
said agent for service of process, and that such service shall be taken 
and held in all courts to be as valid and binding as if due personal 
service thereof had been made.

[56 FR 30077, July 1, 1991]



Sec. 260.10a-5  Eligibility of Canadian Trustees.

    (a) Subject to paragraph (b) of this section (17 CFR 260.10a-5), any 
trust company, acting as trustee under an indenture qualified or to be 
qualified under the Act and filed in connection with offerings on a 
registration statement on Form SB-2 (Sec. 239.10 of this chapter) F-7, 
F-8, F-9, F-10 or F-80 (Sec. Sec. 239.37 through 239.41 of this 
chapter) that is incorporated and regulated as a trust company under the 
laws of Canada or any of its political subdivisions and that is subject 
to supervision or examination pursuant to the Trust Companies Act 
(Canada), R.S.C. 1985, or the Canada Deposit Insurance Corporation Act, 
R.S.C. 1985 shall not be subject to the requirement of domicile in the 
United States under section 310(a) of the Act (15 U.S.C. 77jjj(a)).
    (b) Each trustee eligible for appointment under this section (17 CFR 
260.10a-5) shall file as part of the registration statement for the 
securities to which the trusteeship relates a consent to service of 
process and power of attorney on Form F-X (Sec. 269.5 of this chapter).

[56 FR 30077, July 1, 1991, as amended at 57 FR 36501, Aug. 13, 1992; 58 
FR 33191, June 16, 1993]



Sec. 260.10b-1  Calculation of percentages.

    The percentages of voting securities and other securities specified 
in section 310(b) of the Act shall be calculated in accordance with the 
following provisions:
    (a) A specified percentage of the voting securities of a person 
means such amount of the outstanding voting securities of such person as 
entitles the holder or holders thereof to cast such specified percentage 
of the aggregate votes which the holders of all the outstanding voting 
securities of such person are entitled to cast in the direction or 
management of the affairs of such person.
    (b) A specified percentage of a class of securities of a person 
means such percentage of the aggregate amount of securities of the class 
outstanding.
    (c) The term amount, when used in regard to securities, means the 
principal amount if relating to evidences of indebtedness, the number of 
shares if relating to capital shares, and the number of units if 
relating to any other kind of security.
    (d) The term outstanding means issued and not held by or for the 
account of the issuer. The following securities shall not be deemed 
outstanding within the meaning of this definition:

[[Page 682]]

    (1) Securities of an issuer held in a sinking fund relating to 
securities of the issuer of the same class;
    (2) Securities of an issuer held in a sinking fund relating to 
another class of securities of the issuer, if the obligation evidenced 
by such other class of securities is not in default as to principal or 
interest or otherwise;
    (3) Securities pledged by the issuer thereof as security for an 
obligation of the issuer not in default as to principal or interest or 
otherwise;
    (4) Securities held in escrow is placed in escrow by the issuer 
otherwise;

Provided, however, That any voting securities of an issuer shall be 
deemed outstanding if any person other than the issuer is entitled to 
exercise the voting rights thereof.
    (e) A security shall be deemed to be of the same class as another 
security if both securities confer upon the holder or holders thereof 
substantially the same rights and privileges: Provided, however, That, 
in the case of secured evidences of indebtedness, all of which are 
issued under a single indenture, differences in the interest rates or 
maturity dates of various series thereof shall not be deemed sufficient 
to constitute such series different classes: And, provided further, 
That, in the case of unsecured evidences of indebtedness, differences in 
the interest rates or maturity dates thereof shall not be deemed 
sufficient to constitute them securities of different classes, whether 
or not they are issued under a single indenture.



Sec. 260.10b-2  Applications under section 310(b)(1)(ii).

    If an application filed with the Commission pursuant to clause (ii) 
of section 310(b)(1) (53 Stat. 1157; 15 U.S.C. 77jjj) of the Act is 
based upon the claim that no material conflict of interest will be 
involved because prior to or concurrently with the delivery of the 
securities to be issued under the indenture to be qualified all 
securities outstanding under the other indenture or indentures, under 
which the person designated to act as indenture trustee is also a 
trustee, will be discharged or:
    (a) Funds sufficient to discharge the securities will be deposited 
in trust for that purpose.
    (b) The securities, if not presently maturing, will be called for 
redemption or irrevocable power to make the call will be given to some 
third person.
    (c) All liens securing the securities will be released or all steps 
necessary to effect the release at the maturity or redemption date will 
be taken.

The application shall be deemed to have been granted unless, within 7 
days after it is filed, the Commission orders a hearing thereon.

[6 FR 808, Feb. 7, 1941]



Sec. 260.10b-3  Applications relative to affiliations between trustees 
and underwriters.

    (a) Any person proposing to act as trustee under indentures to be 
qualified under the act may make application for a finding by the 
Commission as to whether such person is or is not an affiliate of any 
specified person who may be named as an underwriter for an obligor in 
any registration statement or application for qualification subsequently 
filed with the Commission.
    (b) Every application pursuant to this section shall be filed in 
triplicate and shall contain a statement of the material facts necessary 
to enable the Commission to make the finding request. The applicant may 
incorporate by reference in the application any information or documents 
contained in a statement of eligibility and qualification of the 
applicant filed with the Commission. The Commission may with the consent 
of the applicant or at the applicant's request, make a part of the 
record the record in any prior proceeding in which the same issues were 
involved.
    (c) A hearing will be held, after confirmed telegraphic notice to 
the applicant, upon every application filed pursuant to this section.
    (d) Every finding by the Commission pursuant to this section shall 
be limited to the facts disclosed in the application and in the hearing 
thereon, and shall be made solely for the purposes of sections 305(b) 
and 307(c) of the Act.

[6 FR 2376, May 13, 1941]

[[Page 683]]



Sec. 260.10b-4  Application for stay of trustee's duty to resign pursuant 
to section 310(b) of the Act.

    (a) Three copies of every application for a stay of a trustee's duty 
to resign under section 310(b) of the Act and of every amendment thereto 
shall be filed with the Commission at its principal office.
    (b) One copy shall be manually signed by a duly authorized officer 
of the applicant (or individual customarily performing similar functions 
with respect to an organization, whether incorporated or unincorporated) 
or by a natural person seeking a stay under section 310(b) of the Act.
    (c) Such applications shall be on paper no larger than 8\1/2\ x 11 
inches in size. If reduction of large documents would render them 
illegible, such documents may be filed on paper larger than 8\1/2\ x 11 
inches in size. The left margin shall be at least 1\1/2\ inches wide and 
if the application is bound, it shall be bound on the left side.
    (d) The application shall be typed, printed, copied, or prepared by 
a process which produces copies suitable for repeated photocopying and 
microfilming. All typewritten or printed matter shall be set forth in 
black ink to permit photocopying. If printed, the application shall be 
in type not smaller than 10-point, roman type, at least two points 
leaded.
    (e) Rules 7a-28 through 7a-32 [Sec. Sec. 260.7a-28 through 260.7a-
32 of this chapter] relating to incorporation by reference shall be 
applicable to applications for stay pursuant to section 310(b) of the 
Act.

[56 FR 22320, May 15, 1991]



Sec. 260.10b-5  Content.

    (a) Each application for a stay of a trustee's duty to resign under 
section 310(b) of the Act shall contain the name, address, and telephone 
number of each applicant and the name, address, and telephone number of 
any person to which such applicant wishes any questions regarding the 
application to be directed.
    (b) Each application shall contain a statement of the reasons why 
the applicant is deemed to be entitled to a stay of resignation with 
reference to the provisions of section 310(b) of the Act. The statement 
shall address the nature of the default, the reasonableness of the 
period before the default will be cured or waived, the procedures to be 
used to cure or obtain a waiver of the default, and the reasons why a 
stay will not be inconsistent with the interests of the holders of the 
indenture securities.

[56 FR 22321, May 15, 1991]



Sec. 260.10b-6  Notices--Exemptive Application Procedure.

    (a) A proposed notice of the proceeding indicated by the filing of 
the application shall accompany each application for a stay of a 
trustee's duty to resign under section 310(b) as an exhibit thereto and 
if necessary shall be modified to reflect any amendments to such 
application.
    (b) Notice of the initiation of the proceeding will be published in 
the Federal Register and will indicate the earliest date upon which an 
order disposing of the matter may be entered. The notice will also 
provide that any interested person may, within the period specified 
therein, submit to the Commission in writing any facts bearing upon the 
desirability of a hearing on the matter, and may request that a hearing 
be held stating the person's reasons therefore and the nature of his or 
her interest in the matter.
    (c) An order disposing of the matter will be issued following the 
expiration of the period of time referred to in paragraph (b) of this 
section, unless the Commission thereafter orders a hearing on the 
matter.
    (d) The Commission will order a hearing on the matter, if it appears 
that a hearing is necessary or appropriate in the public interest or for 
the protection of investors:
    (1) Upon the request of any interested person, or
    (2) Upon its own motion.

[56 FR 22321, May 15, 1991]

                         Rules Under Section 311



Sec. 260.11b-4  Definition of ``cash transaction'' in section 311(b)(4).

    The term ``cash transaction'', as used in section 311(b)(4), means 
any transaction in which full payment for goods

[[Page 684]]

or securities sold is made within 7 days after delivery of the goods or 
securities in currency or in checks or other orders drawn upon banks or 
bankers and payable upon demand.



Sec. 260.11b-6  Definition of ``self-liquidating paper'' in section 311(b)(6).

    The term self-liquidating paper, as used in section 311(b)(6) of the 
Act, means any draft, bill of exchange, acceptance or obligation which 
is made, drawn, negotiated or incurred by the obligor for the purpose of 
financing the purchase, processing, manufacture, shipment, storage or 
sale of goods, wares or merchandise and which is secured by documents 
evidencing title to, possession of or a lien upon the goods, wares or 
merchandise or the receivables or proceeds arising from the sale of the 
goods, wares or merchandise previously constituting the security: 
Provided, The security is received by the trustee simultaneously with 
the creation of the creditor relationship with the obligor arising from 
the making, drawing, negotiating or incurring of the draft, bill of 
exchange, acceptance or obligation.

                         Rules Under Section 314

                            Periodic Reports



Sec. 260.14a-1  Application of Sec. Sec. 260.7a-15 to 260.7a-38.

    Sections 260.7a-15 to 260.7a-38 shall be applicable to annual 
reports under section 314(a).



Sec. 260.19a-1  Compliance with Section 314(a)(1) of the Trust Indenture 
Act for certain eligible indenture obligors.

    (a) This section is applicable only to an ``eligible indenture 
obligor'' as defined in paragraph (b) of this section.
    (b) For purposes of paragraph (c) of this section, an ``eligible 
indenture obligor'' is any obligor that:
    (1) Is required to file reports with the Commission pursuant to 
Section 13 or Section 15(d) of the Securities Exchange of 1934 (15 
U.S.C. Sec. Sec. 78m or 78o(d)) (the ``Exchange Act''); and
    (2) May rely on any of the provisions of Release No. 34-45589 (March 
18, 2002) (which may be viewed on the Commission's website at 
www.sec.gov) with regard to the filing of reports with the Commission 
pursuant to Section 13 or Section 15(d) of the Exchange Act (14 U.S.C. 
78m or 78o(d)).
    (c) An ``eligible indenture obligor'' that files with the indenture 
trustee those Exchange Act reports filed with the Commission in 
accordance with the Release referred to in paragraph (b)(2) of this 
section has met its duty under Section 314(a)(1) of the Act (15 U.S.C. 
77nn(a)(1)) to ``file with the indenture trustee all reports required to 
be filed with the Commission pursuant to Section 13 or Section 15(d) of 
the Securities Exchange Act of 1934.''

[67 FR 13538, Mar. 22, 2002]



          PART 261_INTERPRETATIVE RELEASES RELATING TO THE TRUST INDENTURE ACT OF 1939 AND GENERAL RULES AND REGULATIONS THEREUNDER--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Opinion of the General Counsel relating to                 16   Nov. 14, 1941  11 FR 10989.
 application of section 310(b) where trustee under
 one indenture is trustee under another indenture
 for securities of an affiliate of the obligor.
Opinion of the Chief Counsel to the Corporation            30   Aug. 28, 1944   Do.
 Finance Division relating to when-issued trading
 of securities the issuance of which is subject to
 approval by a Federal district court under Chapter
 X of the Bankruptcy Act.
Opinion of the Chief Counsel to the Corporation            31    Jan. 4, 1945  11 FR 10990.
 Finance Division relating to when-issued trading
 of securities the issuance of which has already
 been approved by a Federal district court under
 Chapter X of the Bankruptcy Act.
Interpretation with reference to the securities of         37   June 25, 1947  12 FR 4450.
 the International Bank for Reconstruction and
 Development.
Statement of the Commission to clarify the meaning        227   Jan. 25, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.

[[Page 685]]

 
Statement of the Commission setting the date of May       229   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Commissions statement re exemption of certain             284    Nov. 6, 1970  35 FR 17990.
 industrial revenue bonds from registration, etc.
 requirements in view of amendment of Securities
 Act of 1933 and of Securities Exchange Act of 1934
 by ``section 401'' (Pub. L. 91-1037).
Publication of the Commission's procedure to be           289   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Offerings of debt securities pursuant to trust            524   Apr. 25, 1979  44 FR 26739.
 indentures.
No-action position respecting public offerings of         542   Oct. 16, 1979  44 FR 61941.
 debt securities registered on Form SB-2 without
 qualification of an indenture under the Trust
 Indenture Act.
Simplified form of trust indenture.................       605    Jan. 8, 1981  46 FR 3500.
Retail repurchase agreements by banks and Savings         658  Sept. 25, 1981  46 FR 48637.
 and Loan Associations.
Application of the registration provisions of the        2038  Sept. 23, 1986  51 FR 34462.
 Securities Act of 1933 to the offer and sale of
 securities by United States branches and agencies
 of foreign banks.
----------------------------------------------------------------------------------------------------------------



PART 269_FORMS PRESCRIBED UNDER THE TRUST INDENTURE ACT OF 1939--Table of Contents




Sec.
269.0-1 Availability of forms.
269.1 Form T-1, for statement of eligibility and qualification for 
          corporate trustees.
269.2 Form T-2, for statement of eligibility and qualification for 
          individual trustees.
269.3 Form T-3, for application for qualification of trust indentures.
269.4 Form T-4, for application for exemption pursuant to section 304(c) 
          of the Act.
269.5 Form F-X, for appointment of agent for service of process by 
          issuers registering securities on Form F-8, F-9, F-10 or F-80 
          (Sec. Sec. 239.38, 239.39, 239.40 or 239.41 of this chapter), 
          or registering securities or filing periodic reports on Form 
          40-F (Sec. 249. 240f of this chapter), or by any issuer or 
          other non-U.S. person filing tender offer documents on 
          Schedule 13E-4F, 14D-1F or 14D-9F (Sec. Sec. 240.13e-102, 
          240.14d-102 or 240.14d-103 of this chapter), or by any non-
          U.S. person acting as trustee with respect to securities 
          registered on Form F-7 (Sec. 239.37 of this chapter), F-8, F-
          9, F-10 or F-80.
269.6 [Reserved]
269.7 Form ID, uniform application for access codes to file on EDGAR.
269.8 Form SE, form for submission of paper format exhibits by 
          electronic filers.
269.9 Form T-6 for application under section 310(a)(1) of the Trust 
          Indenture Act for determination of the eligibility of a 
          foreign person to act as institutional trustee.
269.10 Form TH--Notification of reliance on temporary hardship 
          exemption.

    Authority: 15 U.S.C. 77ddd(c), 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77sss, 78ll(d), unless otherwise noted.

    Source: 33 FR 19002, Dec. 20, 1968, unless otherwise noted.



Sec. 269.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Trust Indenture Act of 1939.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional and district 
offices. (See Sec. 200.11 of this chapter for the addresses of SEC 
regional and district offices.)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994]



Sec. 269.1  Form T-1, for statement of eligibility and qualification for 
corporate trustees.

    This form shall be filed pursuant to Rule 5a-1(a) (Sec. 260.5a-1(a) 
of this chapter) for statements of eligibility and qualification of 
corporations designated to act as trustees under thrust indentures to be 
qualified pursuant to section 305 or 307 of the Trust Indenture Act of 
1939.

    Editorial Note: For Federal Register citations affecting Form T-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 686]]



Sec. 269.2  Form T-2, for statement of eligibility and qualification for 
individual trustees.

    This form shall be filed pursuant to Rule 5a-1(b) (Sec. 260.5a-1(b) 
of this chapter) for statements of eligibility and qualification of 
individuals designated to act as trustees under trust indentures to be 
qualified pursuant to section 305 or 307 of the Trust Indenture Act of 
1939. Under sections 307, 308, 309, 310 and 319 of the Trust Indenture 
Act of 1939 (17 CFR part 260), the Commission is authorized to solicit 
the information required to be supplied by this form for statements of 
eligibility and qualification of individuals designated to act as 
trustees. Disclosure of the information specified in this form is 
mandatory before processing statements of eligibility and qualification. 
The information will be used for the primary purpose of determining 
relationships of trustees and whether there are any conflicting 
interests. This statement will be made a matter of public record. 
Therefore, any information given will be available for inspection by any 
member of the public. Because of the public nature of the information, 
the Commission can utilize it for a variety of purposes, including 
referral to other governmental authorities or securities self-regulatory 
organizations for investigatory purposes or in connection with 
litigation involving the Federal securities laws or other civil, 
criminal or regulatory statutes or provisions. Failure to disclose the 
information requested by this form may result in enforcement action by 
the Commission to compel compliance with the Federal securities laws.

[40 FR 55320, Nov. 28, 1975, as amended at 62 FR 35342, July 1, 1997]

    Editorial Note: For Federal Register citations affecting Form T-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 269.3  Form T-3, for application for qualification of trust indentures.

    This form shall be filed pursuant to Rule 7a-1 (Sec. 260.7a-1 of 
this chapter) for applications for qualification of indentures pursuant 
to section 307(a) of the Trust Indenture Act of 1939, but only when 
securities to be issued thereunder are not required to be registered 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.).

    Editorial Note: For Federal Register citations affecting Form T-3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 269.4  Form T-4, for application for exemption pursuant to 
section 304(c) of the Act.

    This form shall be filed pursuant to Rule 4c-1 (Sec. 260.4c-1 of 
this chapter) for applications for exemption filed pursuant to section 
304(c) of the Trust Indenture Act of 1939.

    Editorial Note: For Federal Register citations affecting Form T-4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 269.5  Form F-X, for appointment of agent for service of process by 

issuers registering securities on Form F-8, F-9, F-10 or F-80 (Sec. Sec. 239.38, 
          239.39, 239.40 or 239.41 of this chapter) , or registering 
          securities or filing periodic reports on Form 40-F (Sec. 249. 
          240f of this chapter) , or by any issuer or other non-U.S. 
          person filing tender offer documents on Schedule 13E-4F, 14D-
          1F or 14D-9F (Sec. Sec. 240.13e-102, 240.14d-102 or 240.14d-
          103 of this chapter), or by any non-U.S. person acting as 
          trustee with respect to securities registered on Form F-7 
          (Sec. 239. 37 of this chapter) , F-8, F-9, F-10 or F-80.

    Form F-X shall be filed with the Commission:
    (a) By any issuer registering securities on Form F-8, F-9, F-10 or 
F-80 under the Securities Act of 1933;
    (b) By any issuer registering securities on Form 40-F under the 
Securities Exchange Act of 1934;
    (c) By any issuer filing a periodic report on Form 40-F, if it has 
not previously filed a Form F-X in connection with the class of 
securities in relation to which the obligation to file a report on Form 
40-F arises;
    (d) By any issuer or other non-U.S. person filing tender offer 
documents on Schedule 13E-4F, 14D-1F or 14D-9F; and

[[Page 687]]

    (e) By non-U.S. person acting as trustee with respect to securities 
registered on Form F-7, F-8, F-9, F-10 or F-80.

[56 FR 30078, July 1, 1991]



Sec. 269.6  [Reserved]



Sec. 269.7  Form ID, uniform application for access codes to file on EDGAR.

    (a) Form ID is to be used by registrants, third party filers, or 
their agents for the purpose of requesting assignment of access codes to 
permit filing on EDGAR, as follows:
    (1) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.
    (2) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (3) Passwork (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (4) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.
    (b) Form ID also may be used for the purpose of requesting a 
reassignment of their CCC, PW and PMAC.

[57 FR 18220, Apr. 29, 1992]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 269.8  Form SE, form for submission of paper format exhibits by electronic 
filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided in Rule 311 of Regulation S-T (Sec. 232.311 of this chapter).

[58 FR 14687, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 269.9  Form T-6 for application under section 310(a)(1) of the Trust 

Indenture Act for determination of the eligibility of a foreign person to 
act as institutional trustee.

    This form shall be used for the filing of an application pursuant to 
rule 10a-1 [Sec. 260.10a-1 of this chapter] to obtain authorization for 
a corporation or other person organized and doing business under the 
laws of a foreign government to act as sole trustee under an indenture 
qualified or to be qualified under the Act.

[56 FR 22321, May 15, 1991]

    Editorial Note: For Federal Register citations affecting Form T-6, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 269.10  Form TH--Notification of reliance on temporary hardship 
exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by Rule 201(a) of Regulation S-T (Sec. 
232.201(a) of this chapter).

[58 FR 14687, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



PART 270_RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940--Table of Contents




Sec.
270.0-1 Definition of terms used in this part.
270.0-2 General requirements of papers and applications.
270.0-3 Amendments to registration statements and reports.
270.0-4 Incorporation by reference.
270.0-5 Procedure with respect to applications and other matters.
270.0-8 Payment of fees.
270.0-9 [Reserved]
270.0-10 Small entities under the Investment Company Act for purposes of 
          the Regulatory Flexibility Act.
270.0-11 Customer identification programs.
270.2a-1 Valuation of portfolio securities in special cases.

[[Page 688]]

270.2a-2 Effect of eliminations upon valuation of portfolio securities.
270.2a3-1 Investment company limited partners not deemed affiliated 
          persons.
270.2a-4 Definition of ``current net asset value'' for use in computing 
          periodically the current price of redeemable security.
270.2a-6 Certain transactions not deemed assignments.
270.2a-7 Money market funds.
270.2a19-2 Investment company general partners not deemed interested 
          persons.
270.2a19-3 Certain investment company directors not considered 
          interested persons because of ownership of index fund 
          securities.
270.2a41-1 Valuation of standby commitments by registered investment 
          companies.
270.2a51-1 Definition of investments for purposes of section 2(a)(51) 
          (definition of ``qualified purchaser''); certain calculations.
270.2a51-2 Definitions of beneficial owner for certain purposes under 
          sections 2(a)(51) and 3(c)(7) and determining indirect 
          ownership interests.
270.2a51-3 Certain companies as qualified purchasers.
270.3a-1 Certain prima facie investment companies.
270.3a-2 Transient investment companies.
270.3a-3 Certain investment companies owned by companies which are not 
          investment companies.
270.3a-4 Status of investment advisory programs.
270.3a-5 Exemption for subsidiaries organized to finance the operations 
          of domestic or foreign companies.
270.3a-6 Foreign banks and foreign insurance companies.
270.3a-7 Issuers of asset-backed securities.
270.3a-8 Certain research and development companies.
270.3c-1 Definition of beneficial ownership for certain section 3(c)(1) 
          funds.
270.3c-2 Definition of beneficial ownership in small business investment 
          companies.
270.3c-3 Definition of certain terms used in section 3(c)(1) of the Act 
          with respect to certain debt securities offered by small 
          business investment companies.
270.3c-4 Definition of ``common trust fund'' as used in section 3(c)(3) 
          of the Act.
270.3c-5 Beneficial ownership by knowledgeable employees and certain 
          other persons.
270.3c-6 Certain transfers of interests in section 3(c)(1) and section 
          3(c)(7) funds.
270.5b-1 Definition of ``total assets.''
270.5b-2 Exclusion of certain guarantees as securities of the guarantor.
270.5b-3 Acquisition of repurchase agreement or refunded security 
          treated as acquisition of underlying securities.
270.6b-1 Exemption of employees' securities company pending 
          determination of application.
270.6c-3 Exemptions for certain registered variable life insurance 
          separate accounts.
270.6c-6 Exemption for certain registered separate accounts and other 
          persons.
270.6c-7 Exemptions from certain provisions of sections 22(e) and 27 for 
          registered separate accounts offering variable annuity 
          contracts to participants in the Texas Optional Retirement 
          Program.
270.6c-8 Exemptions for registered separate accounts to impose a 
          deferred sales load and to deduct certain administrative 
          charges.
270.6c-10 Exemption for certain open-end management investment companies 
          to impose deferred sales loads.
270.6d-1 Exemption for certain closed-end investment companies.
270.6e-2 Exemptions for certain variable life insurance separate 
          accounts.
270.6e-3(T) Temporary exemptions for flexible premium variable life 
          insurance separate accounts.
270.7d-1 Specification of conditions and arrangements for Canadian 
          management investment companies requesting order permitting 
          registration.
270.7d-2 Definition of ``public offering'' as used in section 7(d) of 
          the Act with respect to certain Canadian tax-deferred 
          retirement savings accounts.
270.8b-1 Scope of Sec. Sec. 270.8b-1 to 270.8b-32.
270.8b-2 Definitions.
270.8b-3 Title of securities.
270.8b-4 Interpretation of requirements.
270.8b-5 Time of filing original registration statement.
270.8b-6 [Reserved]
270.8b-10 Requirements as to proper form.
270.8b-11 Number of copies; signatures; binding.
270.8b-12 Requirements as to paper, printing and language.
270.8b-13 Preparation of registration statement or report.
270.8b-14 Riders; inserts.
270.8b-15 Amendments.
270.8b-16 Amendments to registration statement.
270.8b-20 Additional information.
270.8b-21 Information unknown or not available.
270.8b-22 Disclaimer of control.
270.8b-23 Incorporation by reference.
270.8b-24 Summaries or outlines of documents.
270.8b-25 Extension of time for furnishing information.
270.8b-30 Additional exhibits.
270.8b-31 Omission of substantially identical documents.
270.8b-32 Incorporation of exhibits by reference.

[[Page 689]]

270.8f-1 Deregistration of certain registered investment companies.
270.10b-1 Definition of regular broker or dealer.
270.10e-1 Death, disqualification, or bona fide resignation of 
          directors.
270.10f-1 Conditional exemption of certain underwriting transactions.
270.10f-2 Exercise of warrants or rights received on portfolio 
          securities.
270.10f-3 Exemption for the acquisition of securities during the 
          existence of an underwriting or selling syndicate.
270.11a-1 Definition of ``exchange'' for purposes of section 11 of the 
          Act.
270.11a-2 Offers of exchange by certain registered separate accounts or 
          others the terms of which do not require prior Commission 
          approval.
270.11a-3 Offers of exchange by open-end investment companies other than 
          separate accounts.
270.12b-1 Distribution of shares by registered open-end management 
          investment company.
270.12d2-1 Definition of insurance company for purposes of sections 
          12(d)(2) and 12(g) of the Act.
270.12d3-1 Exemption of acquisitions of securities issued by persons 
          engaged in securities related businesses.
270.13a-1 Exemption for change of status by temporarily diversified 
          company.
270.14a-1 Use of notification pursuant to regulation E under the 
          Securities Act of 1933.
270.14a-2 Exemption from section 14(a) of the Act for certain registered 
          separate accounts and their principal underwriters.
270.14a-3 Exemption from section 14(a) of the Act for certain registered 
          unit investment trusts and their principal underwriters.
270.15a-1 Exemption from stockholders' approval of certain small 
          investment advisory contracts.
270.15a-2 Annual continuance of contracts.
270.15a-3 Exemption for initial period of investment adviser of certain 
          registered separate accounts from requirement of security 
          holder approval of investment advisory contract.
270.15a-4 Temporary exemption for certain investment advisers.
270.16a-1 Exemption for initial period of directors of certain 
          registered accounts from requirements of election by security 
          holders.
270.17a-1 Exemption of certain underwriting transactions exempted by 
          Sec. 270.10f-1.
270.17a-2 Exemption of certain purchase, sale, or borrowing 
          transactions.
270.17a-3 Exemption of transactions with fully owned subsidiaries.
270.17a-4 Exemption of transactions pursuant to certain contracts.
270.17a-5 Pro rata distribution neither ``sale'' nor ``purchase.''
270.17a-6 Exemption for transactions with portfolio affiliates.
270.17a-7 Exemption of certain purchase or sale transactions between an 
          investment company and certain affiliated persons thereof.
270.17a-8 Mergers of affiliated companies.
270.17a-9 Purchase of certain securities from a money market fund by an 
          affiliate, or an affiliate of an affiliate.
270.17a-10 Exemption for transactions with certain subadvisory 
          affiliates.
270.17d-1 Applications regarding joint enterprises or arrangements and 
          certain profit-sharing plans.
270.17d-2 Form for report by small business investment company and 
          affiliated bank.
270.17d-3 Exemption relating to certain joint enterprises or 
          arrangements concerning payment for distribution of shares of 
          a registered open-end management investment company.
270.17e-1 Brokerage transactions on a securities exchange.
270.17f-1 Custody of securities with members of national securities 
          exchanges.
270.17f-2 Custody of investments by registered management investment 
          company.
270.17f-3 Free cash accounts for investment companies with bank 
          custodians.
270.17f-4 Custody of investment company assets with a securities 
          depository.
270.17f-5 Custody of investment company assets outside the United 
          States.
270.17f-6 Custody of investment company assets with Futures Commission 
          Merchants and Commodity Clearing Organizations.
270.17f-7 Custody of investment company assets with a foreign securities 
          depository.
270.17g-1 Bonding of officers and employees of registered management 
          investment companies.
270.17j-1 Personal investment activities of investment company 
          personnel.
270.18c-1 Exemption of privately held indebtedness.
270.18c-2 Exemptions of certain debentures issued by small business 
          investment companies.
270.18f-1 Exemption from certain requirements of section 18(f)(1) (of 
          the Act) for registered open-end investment companies which 
          have the right to redeem in kind.
270.18f-2 Fair and equitable treatment for holders of each class or 
          series of stock of series investment companies.
270.18f-3 Multiple class companies.
270.19a-1 Written statement to accompany dividend payments by management 
          companies.

[[Page 690]]

270.19b-1 Frequency of distribution of capital gains.
270.20a-1 Solicitation of proxies, consents and authorizations.
270.20a-2--270.20a-4 [Reserved]
270.22c-1 Pricing of redeemable securities for distribution, redemption 
          and repurchase.
270.22d-1 Exemption from section 22(d) to permit sales of redeemable 
          securities at prices which reflect sales loads set pursuant to 
          a schedule.
270.22d-2 Exemption from section 22(d) for certain registered separate 
          accounts.
270.22e-1 Exemption from section 22(e) of the Act during annuity payment 
          period of variable annuity contracts participating in certain 
          registered separate accounts.
270.22e-2 Pricing of redemption requests in accordance with Rule 22c-1.
270.23c-1 Repurchase of securities by closed-end companies.
270.23c-2 Call and redemption of securities issued by registered closed-
          end companies.
270.23c-3 Repurchase offers by closed-end companies.
270.24b-1 Definitions.
270.24b-2 Filing copies of sales literature.
270.24b-3 Sales literature deemed filed.
270.24e-1 Filing of certain prospectuses as post-effective amendments to 
          registration statements under the Securities Act of 1933.
270.24f-2 Registration under the Securities Act of 1933 of certain 
          investment company securities.
270.26a-1 Payment of administrative fees to the depositor or principal 
          underwriter of a unit investment trust; exemptive relief for 
          separate accounts.
270.26a-2 Exemptions from certain provisions of sections 26 and 27 for 
          registered separate accounts and others regarding 
          custodianship of and deduction of certain fees and charges 
          from the assets of such accounts.
270.27a-1 Conditions for compliance with and exemptions from certain 
          provisions of section 27(a)(1) and section 27(h)(1) of the Act 
          for certain registered separate accounts.
270.27a-2 Exemption from section 27(a)(3) and section 27(h)(3) of the 
          Act for certain registered separate accounts.
270.27a-3 Exemption from section 27(a)(4) and section 27(h)(5) of the 
          Act for certain registered separate accounts.
270.27c-1 Exemption from section 27(c)(1) and section 27(d) of the Act 
          during annuity payment period of variable annuity contracts 
          participating in certain registered separate accounts.
270.27d-1 Reserve requirements for principal underwriters and depositors 
          to carry out the obligations to refund charges required by 
          section 27(d) and section 27(f) of the Act.
270.27d-2 Insurance company undertaking in lieu of segregated trust 
          account.
270.27e-1 Requirements for notice to be mailed to certain purchasers of 
          periodic payment plan certificates sold subject to section 
          27(d) of the Act.
270.27f-1 Notice of right of withdrawal required to be mailed to 
          periodic payment plan certificate holders and exemption from 
          section 27(f) for certain periodic payment plan certificates.
270.27g-1 Election to be governed by section 27(h).
270.27h-1 Exemptions from section 27(h)(4) for certain payments.
270.28b-1 Investment in loans partially or wholly guaranteed under the 
          Servicemen's Readjustment Act of 1944, as amended.
270.30a-1 Annual reports for unit investment trusts.
270.30a-2 Certification of Form N-CSR.
270.30a-3 Controls and procedures.
270.30b1-1 Semi-annual report for registered management investment 
          companies.
270.30b1-2 Semi-annual report for totally-owned registered management 
          investment company subsidiary of registered management 
          investment company.
270.30b1-3 Transition reports.
270.30b1-4 Report of proxy voting record.
270.30b1-5 Quarterly report.
270.30b2-1 Filing of reports to stockholders.
270.30d-1 Designation of periodic reports under the Securities Exchange 
          Act of 1934.
270.30e-1 Reports to stockholders of management companies.
270.30e-2 Reports to shareholders of unit investment trusts.
270.30h-1 Applicability of section 16 of the Exchange Act to section 
          30(h).
270.31a-1 Records to be maintained by registered investment companies, 
          certain majority-owned subsidiaries thereof, and other persons 
          having transactions with registered investment companies.
270.31a-2 Records to be preserved by registered investment companies, 
          certain majority-owned subsidiaries thereof, and other persons 
          having transactions with registered investment companies.
270.31a-3 Records prepared or maintained by other than person required 
          to maintain and preserve them.
270.32a-1 Exemption of certain companies from affiliation provisions of 
          section 32(a).
270.32a-2 Exemption for initial period from vote of security holders on 
          independent public accountant for certain registered separate 
          accounts.
270.32a-3 Exemption from provision of section 32(a)(1) regarding the 
          time period during which a registered management

[[Page 691]]

          investment company must select an independent public 
          accountant.
270.32a-4 Independent audit committees.
270.34b-1 Sales literature deemed to be misleading.
270.35d-1 Investment company names.
270.38a-1 Compliance procedures and practices of certain investment 
          companies.
270.45a-1 Confidential treatment of names and addresses of dealers of 
          registered investment company securities.
270.57b-1 Exemption for downstream affiliates of business development 
          companies.
270.60a-1 Exemption for certain business development companies.

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-39, 
unless otherwise noted.
    Section 270.0-1 also issued under sec. 38(a) (15 U.S.C. 80a-37(a));
    Section 270.0-11 also issued under secs. 8, 24, 30 and 38, 
Investment Company Act (15 U.S.C. 80a-8, 80a-24, 80a-29 and 80a-37), 
secs. 6, 7, 8, 10 and 19(a), Securities Act (15 U.S.C. 77f, 77g, 77h, 
77j, 77s(a)) and secs. 3(b), 12, 13, 14, 15(d) and 23(a), Exchange Act 
(15 U.S.C. 78c(b), 78l, 78m, 78n, 78o(d) and 78w(a));
    Section 270.6c-9 is also issued under secs. 6(c) (15 U.S.C. 80a-
6(c)) and 38(a) (15 U.S.C. 80a-37(a));
    Section 270.6c-10 is also issued under sec. 6(c) (15 U.S.C. 80a-
6(c));
    Section 270.6e-3(T) is also issued under sec. 6(e), 15 U.S.C. 80a-
5(e);
    Section 270.8b-11 is also issued under 15 U.S.C. 77s, 80a-8, and 
80a-37;
    Section 270.10e-1 is also issued under 15 U.S.C. 80a-10(e);
    Section 270.12d1-1 is also issued under secs. 6(c) (15 U.S.C. 80a-
6(c)) and 38(a) (15 U.S.C. 80a-37(a));
    Section 270.12d3-1 is also issued under 15 U.S.C. 80a-6(c);
    Section 270.17a-8 is also issued under 15 U.S.C. 80a-6(c) and 80a-
37(a);
    Section 270.17d-1 is also issued under 15 U.S.C. 80a-6(c), 80a-
17(d), and 80a-37(a);
    Section 270.17e-1 is also issued under 15 U.S.C. 80a-6(c), 80a-
30(a), and 80a-37(a);
    Section 270.17f-5 also issued under sec. 6(c) (15 U.S.C. 80a-6(c);
    Section 270.17g-1 is also issued under 15 U.S.C. 80a-6(c), 80a-
17(d), 80a-17(g), and 80a-37(a);
    Section 270.17j-1 is also issued under secs. 206(4) and 211(a), 
Investment Advisers Act (15 U.S.C. 80b-6(4) and 80b-11(a));
    Section 270.19b-1 is also issued under secs. 6(c) (15 U.S.C. 80a-
6(c)), 19 (a) and (b) (15 U.S.C 80a-19 (a) and (b)), and 38(a) (15 
U.S.C. 80a-37(a));
    Section 270.22c-1 also issued under secs. 6(c), 22(c), and 38(a) (15 
U.S.C. 80a-6(c), 80a-22(c), and 80a-37(a));
    Section 270.23c-3 also issued under 15 U.S.C. 80a-23(c).
    Section 270.24f-2 also issued under 15 U.S.C. 80a-24(f)(4).
    Section 270.30a-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
and 80a-29.
    Section 270.30a-2 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
80a-29, 7202, and 7241; and 18 U.S.C. 1350, unless otherwise noted.
    Section 270.30a-3 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745.
    Section 270.30b1-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-
8, and 80a-29.
    Section 270.30b2-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-
8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745.
    Section 270.30d-1 is also issued under 15 U.S.C. 78m, 78o(d), 80a-8, 
and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745.
    Section 270.30e-1 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 
77s, 78l, 78m, 78n, 78o(d), 78w(a), 80a-8, 80a-29, and 80a-37;
    Section 270.31a-2 is also issued under 15 U.S.C. 80a-30.

                       ATTENTION ELECTRONIC FILERS

THIS REGULATION SHOULD BE READ IN CONJUNCTION WITH REGULATION S-T (PART 
232 OF THIS CHAPTER), WHICH GOVERNS THE PREPARATION AND SUBMISSION OF 
DOCUMENTS IN ELECTRONIC FORMAT. MANY PROVISIONS RELATING TO THE 
PREPARATION AND SUBMISSION OF DOCUMENTS IN PAPER FORMAT CONTAINED IN 
THIS REGULATION ARE SUPERSEDED BY THE PROVISIONS OF REGULATION S-T FOR 
DOCUMENTS REQUIRED TO BE FILED IN ELECTRONIC FORMAT.



Sec. 270.0-1  Definition of terms used in this part.

    (a) As used in the rules and regulations prescribed by the 
Commission pursuant to the Investment Company Act of 1940, unless the 
context otherwise requires:
    (1) The term Commission means the Securities and Exchange 
Commission.
    (2) The term act means the Investment Company Act of 1940.
    (3) The term section refers to a section of the act.
    (4) The terms rule and regulations refer to the rules and 
regulations adopted by the Commission pursuant to the Act, including the 
forms for registration and reports and the accompanying instructions 
thereto.
    (5) The term administrator means any person who provides significant 
administrative or business affairs management services to an investment 
company.

[[Page 692]]

    (6)(i) A person is an independent legal counsel with respect to the 
directors who are not interested persons of an investment company 
(``disinterested directors'') if:
    (A) A majority of the disinterested directors reasonably determine 
in the exercise of their judgment (and record the basis for that 
determination in the minutes of their meeting) that any representation 
by the person of the company's investment adviser, principal 
underwriter, administrator (``management organizations''), or any of 
their control persons, since the beginning of the fund's last two 
completed fiscal years, is or was sufficiently limited that it is 
unlikely to adversely affect the professional judgment of the person in 
providing legal representation to the disinterested directors; and
    (B) The disinterested directors have obtained an undertaking from 
such person to provide them with information necessary to make their 
determination and to update promptly that information when the person 
begins to represent, or materially increases his representation of, a 
management organization or control person.
    (ii) The disinterested directors are entitled to rely on the 
information obtained from the person, unless they know or have reason to 
believe that the information is materially false or incomplete. The 
disinterested directors must re-evaluate their determination no less 
frequently than annually (and record the basis accordingly), except as 
provided in paragraph (iii) of this section.
    (iii) After the disinterested directors obtain information that the 
person has begun to represent, or has materially increased his 
representation of, a management organization (or any of its control 
persons), the person may continue to be an independent legal counsel, 
for purposes of paragraph (a)(6)(i) of this section, for no longer than 
three months unless during that period the disinterested directors make 
a new determination under that paragraph.
    (iv) For purposes of paragraphs (a)(6)(i)-(iii) of this section:
    (A) The term person has the same meaning as in section 2(a)(28) of 
the Act (15 U.S.C. 80a-2(a)(28)) and, in addition, includes a partner, 
co-member, or employee of any person; and
    (B) The term control person means any person (other than an 
investment company) directly or indirectly controlling, controlled by, 
or under common control with any of the investment company's management 
organizations.
    (b) Unless otherwise specifically provided, the terms used in the 
rules and regulations in this part shall have the meaning defined in the 
Act. The terms ``EDGAR,'' ``EDGAR Filer Manual,'' ``electronic filer,'' 
``electronic filing,'' ``electronic format,'' ``electronic submission,'' 
``paper format,'' and ``signature'' shall have the meanings assigned to 
such terms in Regulation S-T--General Rules for Electronic Filings (Part 
232 of this chapter).
    (c) A rule or regulation which defines a term without express 
reference to the act or to the rules and regulations, or to a portion 
thereof, defines such terms for all purposes as used both in the act and 
in the rules and regulations in this part, unless the context otherwise 
requires.
    (d) Unless otherwise specified or the context otherwise requires, 
the term ``prospectus'' means a prospectus meeting the requirements of 
section 10(a) of the Securities Act of 1933 as amended.
    (e) Definition of separate account and conditions for availability 
of exemption under Sec. Sec. 270.6c-6, 270.6c-7, 270.6c-8, 270.11a-2, 
270.14a-2, 270.15a-3, 270.16a-1, 270.22c-1, 270.22d-3, 270.22e-1, 
270.26a-1, 270.26a-2, 270.27a-1, 270.27a-2, 270.27a-3, 270.27c-1, and 
270.32a-2 of this chapter.
    (1) As used in the rules and regulations prescribed by the 
Commission pursuant to the Investment Company Act of 1940, unless 
otherwise specified or the context otherwise requires, the term 
``separate account'' shall mean an account established and maintained by 
an insurance company pursuant to the laws of any state or territory of 
the United States, or of Canada or any province thereof, under which 
income, gains and losses, whether or not realized, from assets allocated 
to such account, are, in accordance with the applicable contract, 
credited to or charged against such account without regard to other 
income, gains or losses of the insurance company and the term

[[Page 693]]

``variable annuity contract'' shall mean any accumulation or annuity 
contract, any portion thereof, or any unit of interest or participation 
therein pursuant to which the value of the contract, either prior or 
subsequent to annuitization, or both, varies according to the investment 
experience of the separate account in which the contract participates.
    (2) As conditions to the availability of exemptive Rules 6c-6, 6c-7, 
6c-8, 11a-2, 14a-2, 15a-3, 16a-1, 22c-1, 22d-3, 22e-1, 26a-1, 26a-2, 
27a-1, 27a-2, 27a-3, 27c-1, and 32a-2, the separate account shall be 
legally segregated, the assets of the separate account shall, at the 
time during the year that adjustments in the reserves are made, have a 
value at least equal to the reserves and other contract liabilities with 
respect to such account, and at all other times, shall have a value 
approximately equal to or in excess of such reserves and liabilities; 
and that portion of such assets having a value equal to, or 
approximately equal to, such reserves and contract liabilities shall not 
be chargeable with liabilities arising out of any other business which 
the insurance company may conduct.

[Rule N-1, 5 FR 4316, Oct. 31, 1940, as amended at 19 FR 6730, Oct. 20, 
1954; 30 FR 829, Jan. 27, 1965; 48 FR 36098, Aug. 9, 1983; 50 FR 42682, 
Oct. 22, 1985; 58 FR 14859, Mar. 18, 1993; 66 FR 3757, Jan. 16, 2001]



Sec. 270.0-2  General requirements of papers and applications.

    (a) Filing of papers. All papers required to be filed with the 
Commission pursuant to the Act or the rules and regulations thereunder 
shall, unless otherwise provided by the rules and regulations in this 
part, be delivered through the mails or otherwise to the Securities and 
Exchange Commission, Washington, D.C. 20549. Except as otherwise 
provided by the rules and regulations, the date on which papers are 
actually received by the Commission shall be the date of filing thereof. 
If the last day for the timely filing of such papers falls on a 
Saturday, Sunday, or holiday, such papers may be filed on the first 
business day following.
    (b) Formal specifications respecting applications. Every application 
for an order under any provision of the Act, for which a form with 
instructions is not specifically prescribed, and every amendment to such 
application shall be filed in quintuplicate. One copy shall be signed by 
the applicant but the other four copies may have facsimile or typed 
signatures. Such applications should be on paper no larger than 8\1/
2\x11 inches in size. To the extent that the reduction of larger 
documents would render them illegible, such documents may be filed on 
paper larger than 8\1/2\x11 inches in size. The left margin should be at 
least 1\1/2\ inches wide and, if the application is bound, it should be 
bound on the left side. The application must be typed, printed, copied 
or prepared by any process which, in the opinion of the commission, 
produces copies suitable for microfilming. All typewritten or printed 
matter (including deficits in financial statements) should be set forth 
in black so as to permit photocopying. Every application for an order 
under any provision of the Act and every amendment to such application 
shall be submitted to the Commission in paper only, whether or not the 
applicant is otherwise required to file in electronic format, unless 
instructions for electronic filing are included on the form, if any, 
prescribed for such application.
    (c) Authorizations respecting applications. (1) Every application 
for an order under any provision of the act, for which a form with 
instructions is not specifically prescribed and which is executed by a 
corporation, partnership, or other company and filed with the 
Commission, shall contain a concise statement of the applicable 
provisions of the articles of incorporation, bylaws, or similar 
documents, relating to the right of the person signing and filing such 
application to take such action on behalf of the applicant, and a 
statement that all such requirements have been complied with and that 
the person signing and filing the same is fully authorized to do so. If 
such authorization is dependent on resolutions of stockholders, 
directors, or other bodies, such resolutions shall be attached as an 
exhibit to, or the pertinent provisions thereof shall be quoted in, the 
application.

[[Page 694]]

    (2) If an amendment to any such application shall be filed, such 
amendment shall contain a similar statement or, in lieu thereof, shall 
state that the authorization described in the original application is 
applicable to the individual who signs such amendment and that such 
authorization still remains in effect.
    (3) When any such application or amendment is signed by an agent or 
attorney, the power of attorney evidencing his authority to sign shall 
contain similar statements and shall be filed with the Commission.
    (d) Verification of applications and statements of fact. Every 
application for an order under any provision of the act, for which a 
form with instructions is not specifically prescribed and every 
amendment to such application, and every statement of fact formally 
filed in support of, or in opposition to, any application or declaration 
shall be verified by the person executing the same. An instrument 
executed on behalf of a corporation shall be verified in substantially 
the following form, but suitable changes may be made in such form for 
other kinds of companies and for individuals:

State of________________________________________________________________
County of ----------------, ss:

    The undersigned being duly sworn deposes and says that he has duly 
executed the attached-------------------- dated ----------, 19---- for 
and on behalf of-------------------- (Name of Company) that he is the--
---------------------- (Title of Officer) of such company; and that all 
action by stockholders, directors, and other bodies necessary to 
authorize deponent to execute and file such instrument has been taken. 
Deponent further says that he is familiar with such instrument, and the 
contents thereof, and that the facts therein set forth are true to the 
best of his knowledge, information and belief.
________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                            (Type or print name beneath)

    Subscribed and sworn to before me a -------------------- (Title of 
Officer) this ------ day of ------, 19----.
    [official seal] ------------------------

    My commission expires----------

    (e) Statement of grounds for application. Each application should 
contain a brief statement of the reasons why the applicant is deemed to 
be entitled to the action requested with a reference to the provisions 
of the act and of the rules and regulations under which application is 
made.
    (f) Name and address. Every application shall contain the name and 
address of each applicant and the name and address of any person to whom 
any applicant wishes any question regarding the application to be 
directed.
    (g) Proposed notice. A proposed notice of the proceeding initiated 
by the filing of the application shall accompany each application as an 
exhibit thereto and, if necessary, shall be modified to reflect any 
amendments to such application.
    (h) The manually signed original (or in the case of duplicate 
originals, one duplicate original) of all registrations, applications, 
statements, reports, or other documents filed under the Investment 
Company Act of 1940, as amended, shall be numbered sequentially (in 
addition to any internal numbering which otherwise may be present) by 
handwritten, typed, printed, or other legible form of notation from the 
facing page of the document through the last page of that document and 
any exhibits or attachments thereto. Further, the total number of pages 
contained in a numbered original shall be set forth on the first page of 
the document.

(15 U.S.C. 77s (48 Stat. 85); 15 U.S.C. 78w (48 Stat. 901); 15 U.S.C. 
79c and 79t (49 Stat. 810, 833); 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss 
(53 Stat. 1154, 1156, 1167, 1173); 15 U.S.C. 80w-37, 80c-39 (54 Stat. 
841, 342); 15 U.S.C. 80b-3, 80b-4, 80b-11 (54 Stat. 850, 852, 855); 
secs. 38, 40, 54 Stat. 841, 842 (15 U.S.C. 80a-37, 80c-89))

[Rule N-2, 5 FR 4316, Oct. 31, 1940, as amended at 33 FR 9391, June 27, 
1968; 33 FR 23325, Aug. 29, 1973; 44 FR 4666, Jan. 23, 1979; 47 FR 
58239, Dec. 30, 1982; 48 FR 17065, Apr. 21, 1983; 58 FR 14859, Mar. 18, 
1993]



Sec. 270.0-3  Amendments to registration statements and reports.

    Registration statements filed with the Commission pursuant to 
section 8 (54 Stat. 803; 15 U.S.C. 80a-8) and reports filed with the 
Commission pursuant to section 30 (54 Stat. 836; 15 U.S.C. 80a-35) may 
be amended in the following manner:
    (a) Each amendment shall conform to the requirements for the 
registration

[[Page 695]]

statement or report it amends with regard to filing, number of copies 
filed, size, paper, ink, margins, binding, and similar formal matters.
    (b) Each amendment to a particular statement or report shall have a 
facing sheet as follows:

                   Securities and Exchange Commission

                          Washington, DC 20549

    Amendment No.----------

                                   to

    Form------------
    File No.------------
(Describe the nature of the statement or report)
    Dated --------------------, 19----,
    Pursuant to Section ---------- of the Investment Company Act of 1940
________________________________________________________________________
                                                      Name of Registrant
________________________________________________________________________
    Address of Principal Office of Registrant


The facing sheet shall contain in addition any other information 
required on the facing sheet of the form for the statement or report 
which is being amended. Amendments to a particular statement or report 
which is being consecutively in the order in which filed with the 
Commission.
    (c) Each amendment shall contain in the manner required in the 
original statement or report the text of every item to which it relates 
and shall set out a complete amended answer to each such item. However, 
amendments to financial statements may contain only the particular 
statements or schedules in fact amended.
    (d) Each amendment shall have a signature sheet containing the form 
of signature required in the statement or report it amends.

(Secs. 8, 30, 54 Stat. 803, 74 Stat. 201; 15 U.S.C. 80a-8, 80a-29)

[Rule N-3, 6 FR 3966, Aug. 8, 1941, as amended at 33 FR 3217, Feb. 21, 
1968]



Sec. 270.0-4  Incorporation by reference.

    (a) A registered investment company may, subject to the limitations 
of Sec. 228.10(f) and Sec. 229.10(d) of this chapter, incorporate by 
reference as an exhibit, in any registration statement, application or 
report filed with the Commission, any document or part thereof 
previously or concurrently filed with the Commission pursuant to any act 
administered by the Commission. The incorporation may be made whether 
the matter incorporated was filed by such registered company or any 
other person. If any modification has occurred in the text of any such 
document since the filing thereof, the company shall file with the 
reference a statement containing the text of any such modification and 
the date thereof. If the number of copies of any document previously or 
concurrently filed with the Commission is less than the number required 
to be filed with the registration statement, application or report which 
incorporates such document, the company shall file therewith as many 
additional copies of the document as may be necessary to meet the 
requirements of the registration statement, application or report.
    (b) A registered investment company may, subject to the limitations 
of Sec. 201.24 of this chapter, incorporate by reference, in any 
registration statement, application or report filed with the Commission 
any financial statement or part thereof previously or concurrently filed 
with the Commission pursuant to any act administered by the Commission, 
if it substantially conforms to the requirements of the form on which 
such registration statement, application or report is filed. The 
incorporation may be made whether the matter incorporated was filed by 
such registered company or any other person. If a certificate of an 
independent public accountant or accountants is required to accompany a 
financial statement in any registration statement, application or 
report, the incorporation by reference of a certificate previously or 
concurrently filed will not be deemed a compliance with such 
requirements unless the written consent of the accountant or accountants 
to such incorporation is filed with the registration statement, 
application or report.
    (c) In each case of incorporation by reference, the matter 
incorporated shall be clearly identified in the reference. An express 
statement shall be made to the effect that the specified matter is 
incorporated in the registration statement, application or report

[[Page 696]]

at the particular place where the information is required.
    (d) Notwithstanding any particular provision permitting 
incorporation by reference, no registration statement, application or 
report shall incorporate by reference any exhibit or financial statement 
which:
    (1) Has been withdrawn, or
    (2) Was filed in connection with a registration statement under the 
Act, or a registration on a national securities exchange, which has 
ceased to be effective, or
    (3) Is contained in a registration statement or report subject, at 
the time of the incorporation by reference, to pending proceedings under 
section 8(b) or 8(d) of the Securities Act of 1933, section 8(e) of the 
Act, or to an order entered under any of those Sections, or
    (4) If it is a document that has been filed in paper with respect to 
an electronic filer under a temporary hardship exemption (Sec. 232.201 
of this chapter) and an electronic format copy has not been submitted.
    (e) Notwithstanding any particular provision permitting 
incorporation by reference, the Commission may refuse to permit such 
incorporation in any case in which in its judgment such incorporation 
would render the registration statement application, or report 
incomplete, unclear, or confusing.

(Sec. 19, 48 Stat. 85, as amended, secs. 13, 15, 23, 48 Stat. 894, 895, 
901, as amended, sec. 20, 49 Stat. 833, secs. 305, 307, 314, 319, 53 
Stat. 1154, 1156, 1167, 1173, as amended, sec. 39, 54 Stat. 841; 15 
U.S.C. 77s, 78m, 78o, 78w, 79t, 77eee, 77ggg, 77nnn, 77sss, 80a-38)

[Rule N-4, 9 FR 338, Jan. 8, 1944. Redesignated at 14 FR 2761, May 26, 
1949, and amended at 29 FR 2421, Feb. 13, 1964; 58 FR 14860, Mar. 18, 
1993; 60 FR 32825, June 23, 1995]



Sec. 270.0-5  Procedure with respect to applications and other matters.

    The procedure herein below set forth will be followed with respect 
to any proceeding initiated by the filing of an application, or upon the 
Commission's own motion, pursuant to any section of the Act or any rule 
or regulation thereunder, unless in the particular case a different 
procedure is provided:
    (a) Notice of the initiation of the proceeding will be published in 
the Federal Register and will indicate the earliest date upon which an 
order disposing of the matter may be entered. The notice will also 
provide that any interested person may, within the period of time 
specified therein, submit to the Commission in writing any facts bearing 
upon the desirability of a hearing on the matter and may request that a 
hearing be held, stating his reasons therefor and the nature of his 
interest in the matter.
    (b) An order disposing of the matter will be issued as of course, 
following the expiration of the period of time referred to in paragraph 
(a) of this section, unless the Commission thereafter orders a hearing 
on the matter.
    (c) The Commission will order a hearing on the matter, if it appears 
that a hearing is necessary or appropriate in the public interest or for 
the protection of investors, (1) upon the request of an interested 
person or (2) upon its own motion.

[38 FR 23325, Aug. 29, 1973, as amended at 61 FR 49961, Sept. 24, 1996]



Sec. 270.0-8  Payment of fees.

    All payment of fees shall be made in cash, certified check or by 
United States postal money order, bank cashier's check or bank money 
order payable to the Securities and Exchange Commission, omitting the 
name or title of any official of the Commission. Payment of fees 
required by this section shall be made in accordance with the directions 
set forth in Sec. 202.3a of this chapter.

[61 FR 49961, Sept. 24, 1996]



Sec. 270.0-9  [Reserved]



Sec. 270.0-10  Small entities under the Investment Company Act for 
purposes of the Regulatory Flexibility Act.

    (a) General. For purposes of Commission rulemaking in accordance 
with the provisions of Chapter Six of the Administrative Procedure Act 
(5 U.S.C. 601 et seq.) and unless otherwise defined for purposes of a 
particular rulemaking, the term small business or small organization for 
purposes of the Investment Company Act of 1940 shall mean an investment 
company that, together with other investment companies in the same group 
of related investment companies, has net assets of $50 million

[[Page 697]]

or less as of the end of its most recent fiscal year. For purposes of 
this section:
    (1) In the case of a management company, the term group of related 
investment companies shall mean two or more management companies 
(including series thereof) that:
    (i) Hold themselves out to investors as related companies for 
purposes of investment and investor services; and
    (ii) Either:
    (A) Have a common investment adviser or have investment advisers 
that are affiliated persons of each other; or
    (B) Have a common administrator; and
    (2) In the case of a unit investment trust, the term group of 
related investment companies shall mean two or more unit investment 
trusts (including series thereof) that have a common sponsor.
    (b) Special rule for insurance company separate accounts. In 
determining whether an insurance company separate account is a small 
business or small entity pursuant to paragraph (a) of this section, the 
assets of the separate account shall be cumulated with the assets of the 
general account and all other separate accounts of the insurance 
company.
    (c) Determination of net assets. The Commission may calculate its 
determination of the net assets of a group of related investment 
companies based on the net assets of each investment company in the 
group as of the end of such company's fiscal year.

[63 FR 35514, June 30, 1998]



Sec. 270.0-11  Customer identification programs.

    Each registered open-end company is subject to the requirements of 
31 U.S.C. 5318(l) and the implementing regulation at 31 CFR 103.131, 
which requires a customer identification program to be implemented as 
part of the anti-money laundering program required under subchapter II 
of chapter 53 of title 31, United States Code and the implementing 
regulations issued by the Department of the Treasury at 31 CFR part 103. 
Where 31 CFR 103.131 and this chapter use different definitions for the 
same term, the definition in 31 CFR 103.131 shall be used for the 
purpose of compliance with 31 CFR 103.131. Where 31 CFR 103.131 and this 
chapter require the same records to be preserved for different periods 
of time, such records shall be preserved for the longer period of time.

[68 FR 25146, May 9, 2003]



Sec. 270.2a-1  Valuation of portfolio securities in special cases.

    (a) Any investment company whose securities are qualified for sale, 
or for whose securities application for such qualification has been 
made, in any State in which the securities owned by such company are 
required by applicable State law or regulations to be valued at cost or 
on some other basis different from that prescribed by clause (A) of 
section 2(a)(41) of the Act for the purpose of determining the 
percentage of its assets invested in any particular type or 
classification of securities or in the securities of any one issuer, 
may, in valuing its securities for the purposes of sections 5 and 12 of 
the Act, use the same basis of valuation as that used in complying with 
such State law or regulations in lieu of the method of valuation 
prescribed by clause (A) of section 2(a)(41) of the Act.
    (b) Any open-end company which has heretofore valued its securities 
at cost for the purpose of qualifying as a ``mutual investment company'' 
under the Internal Revenue Code, prior to its amendment by the Revenue 
Act of 1942, shall henceforth, for the purposes of sections 5 and 12 of 
the Act, value its securities in accordance with the method prescribed 
in clause (A) of section 2(a)(41) of the Act unless such company is 
permitted under paragraph (a) of this section to use a different method 
of valuation.
    (c) A registered investment company which has adopted for the 
purposes of sections 5 and 12 of the Act a method of valuation permitted 
by paragraph (a) of this section, shall state in its registration 
statement filed pursuant to section 8 (54 Stat. 803; 15 U.S.C. 80a-8) of 
the Act, or in a report filed pursuant to section 30 (54 Stat. 836; 15 
U.S.C. 80a-30) of the Act, the method of valuation adopted and the facts 
which justify the adoption of such method. A registered investment 
company which has adopted for the purposes of sections 5 and 12

[[Page 698]]

of the Act a method of valuation permitted by paragraph (a) of this 
section, unless it shall have adopted such method for the purpose or 
partly for the purpose of qualifying as a ``mutual investment company'' 
under the Internal Revenue Code, shall continue to use that method until 
it has notified the Commission of its desire to use a different method, 
and has received from the Commission permission for such change. Such 
permission may be made effective on a fixed date or within such 
reasonable time thereafter as may be deemed advisable under the 
circumstances.
    (d) If at any time it appears that the method of valuation adopted 
by any company pursuant to paragraph (a) of this section is no longer 
justified by the facts, the Commission may require a change in the 
method of valuation within a reasonable period of time either to the 
method prescribed in clause (A) of section 2(a)(41) of the Act or to 
some other method permitted by paragraph (a) of this section which is 
justified by the existing facts.

[Rule N-2A-1, 8 FR 3567, Mar. 24, 1943, as amended at 38 FR 8593, Apr. 
4, 1973]



Sec. 270.2a-2  Effect of eliminations upon valuation of portfolio securities.

    During any fiscal quarter in which elimination of securities from 
the portfolio of an investment company occur, the securities remaining 
in the portfolio shall, for the purpose of sections 5 and 12 of the Act 
(54 Stat. 800, 808; 15 U.S.C. 80a-5, 80a-12), be so valued as to give 
effect to the eliminations in accordance with one of the following 
methods:
    (a) Specific certificate,
    (b) First in--first out,
    (c) Last in--first out, or
    (d) Average value.

For these purposes, a single method of elimination shall be used 
consistently with respect to all portfolio securities. In giving effect 
to eliminations pursuant to this section values shall be computed in 
accordance with section 2(a)(41)(A) of the Act (54 Stat. 790; 15 U.S.C. 
80a-2(a)(41)(A)).

[38 FR 8593, Apr. 4, 1973]



Sec. 270.2a3-1  Investment company limited partners not deemed 
affiliated persons.

    Preliminary Note to Sec. 270.2a3-1:
    This Sec. 270.2a3-1 excepts from the definition of affiliated 
person in section 2(a)(3)) (15 U.S.C. 80a-2(a)(3)) those limited 
partners of investment companies organized in limited partnership form 
that are affiliated persons solely because they are partners under 
section 2(a)(3)(D) (15 U.S.C. 80a-2(a)(3)(D)). Reliance on this Sec. 
270.2a3-1 does not except a limited partner that is an affiliated person 
by virtue of any other provision.
    No limited partner of a registered management company or a business 
development company, organized as a limited partnership and relying on 
Sec. 270.2a19-2, shall be deemed to be an affiliated person of such 
company, or any other partner of such company, solely by reason of being 
a limited partner of such company.

[58 FR 45838, Aug. 31, 1993]



Sec. 270.2a-4  Definition of ``current net asset value'' for use in 
computing periodically the current price of redeemable security.

    (a) The current net asset value of any redeemable security issued by 
a registered investment company used in computing periodically the 
current price for the purpose of distribution, redemption, and 
repurchase means an amount which reflects calculations, whether or not 
recorded in the books of account, made substantially in accordance with 
the following, with estimates used where necessary or appropriate.
    (1) Portfolio securities with respect to which market quotations are 
readily available shall be valued at current market value, and other 
securities and assets shall be valued at fair value as determined in 
good faith by the board of directors of the registered company.
    (2) Changes in holdings of portfolio securities shall be reflected 
no later than in the first calculation on the first business day 
following the trade date.
    (3) Changes in the number of outstanding shares of the registered 
company resulting from distributions, redemptions, and repurchases shall 
be reflected no later than in the first calculation on the first 
business day following such change.
    (4) Expenses, including any investment advisory fees, shall be 
included to

[[Page 699]]

date of calculation. Appropriate provision shall be made for Federal 
income taxes if required. Investment companies which retain realized 
capital gains designated as a distribution to shareholders shall comply 
with paragraph (h) of Sec. 210.6-03 of Regulation S-X.
    (5) Dividends receivable shall be included to date of calculation 
either at ex-dividend dates or record dates, as appropriate.
    (6) Interest income and other income shall be included to date of 
calculation.
    (b) The items which would otherwise be required to be reflected by 
paragraphs (a) (4) and (6) of this section need not be so reflected if 
cumulatively, when netted, they do not amount to as much as one cent per 
outstanding share.
    (c) Notwithstanding the requirements of paragraph (a) of this 
section, any interim determination of current net asset value between 
calculations made as of the close of the New York Stock Exchange on the 
preceding business day and the current business day may be estimated so 
as to reflect any change in current net asset value since the closing 
calculation on the preceding business day.

(Secs. 7, 19(a), 48 Stat. 78, 85, 908, 15 U.S.C. 77g, 77s(a); secs. 12, 
13, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 3, 8, 49 Stat. 
1377, 1379, secs. 3, 4, 78 Stat. 569, 570, secs. 1, 2, 82 Stat. 454, 15 
U.S.C. 78l, 78m, 78o(d), 78w(a); secs. 8, 22, 30, 31(c), 38(a), 54 Stat. 
803, 823, 836, 838, 841, 15 U.S.C. 80a-8, 80a-22, 80a-29, 80a-30(c))

[29 FR 19101, Dec. 30, 1964, as amended at 35 FR 314, Jan. 8, 1970; 47 
FR 56844, Dec. 21, 1982]



Sec. 270.2a-6  Certain transactions not deemed assignments.

    A transaction which does not result in a change of actual control or 
management of the investment adviser to, or principal underwriter of, an 
investment company is not an assignment for purposes of section 15(a)(4) 
or section 15(b)(2) of the act, respectively.

(Secs. 6(c) and 38(a) (15 U.S.C. 80a-6(c) and 80a-37(a)))

[45 FR 1861, Jan. 9, 1980]



Sec. 270.2a-7  Money market funds.

    (a) Definitions.
    (1) Acquisition (or Acquire) means any purchase or subsequent 
rollover (but does not include the failure to exercise a Demand 
Feature).
    (2) Amortized Cost Method of valuation means the method of 
calculating an investment company's net asset value whereby portfolio 
securities are valued at the fund's Acquisition cost as adjusted for 
amortization of premium or accretion of discount rather than at their 
value based on current market factors.
    (3) Asset Backed Security means a fixed income security (other than 
a Government security) issued by a Special Purpose Entity (as defined in 
this paragraph), substantially all of the assets which consist of 
Qualifying Assets (as defined in this paragraph). Special Purpose Entity 
means a trust, corporation, partnership or other entity organized for 
the sole purpose of issuing securities that entitle their holders to 
receive payments that depend primarily on the cash flow from Qualifying 
Assets, but does not include a registered investment company. Qualifying 
Assets means financial assets, either fixed or revolving, that by their 
terms convert into cash within a finite time period, plus any rights or 
other assets designed to assure the servicing or timely distribution of 
proceeds to security holders.
    (4) Business Day means any day, other than Saturday, Sunday, or any 
customary business holiday.
    (5) Collateralized Fully means ``Collateralized Fully'' as defined 
in Sec. 270.5b-3(c)(1).
    (6) Conditional Demand Feature means a Demand Feature that is not an 
Unconditional Demand Feature. A Conditional Demand Feature is not a 
Guarantee.
    (7) Conduit Security means a security issued by a Municipal Issuer 
(as defined in this paragraph) involving an arrangement or agreement 
entered into, directly or indirectly, with a person other than a 
Municipal Issuer, which arrangement or agreement provides for or secures 
repayment of the security. Municipal Issuer means a state or territory 
of the United States (including the District of Columbia), or any 
political subdivision or public instrumentality of a state or territory 
of the United States. A Conduit Security does not include a security 
that is:

[[Page 700]]

    (i) Fully and unconditionally guaranteed by a Municipal Issuer; or
    (ii) Payable from the general revenues of the Municipal Issuer or 
other Municipal Issuers (other than those revenues derived from an 
agreement or arrangement with a person who is not a Municipal Issuer 
that provides for or secures repayment of the security issued by the 
Municipal Issuer); or
    (iii) Related to a project owned and operated by a Municipal Issuer; 
or
    (iv) Related to a facility leased to and under the control of an 
industrial or commercial enterprise that is part of a public project 
which, as a whole, is owned and under the control of a Municipal Issuer.
    (8) Demand Feature means:
    (i) A feature permitting the holder of a security to sell the 
security at an exercise price equal to the approximate amortized cost of 
the security plus accrued interest, if any, at the time of exercise. A 
Demand Feature must be exercisable either:
    (A) At any time on no more than 30 calendar days' notice; or
    (B) At specified intervals not exceeding 397 calendar days and upon 
no more than 30 calendar days' notice; or
    (ii) A feature permitting the holder of an Asset Backed Security 
unconditionally to receive principal and interest within 397 calendar 
days of making demand.
    (9) Demand Feature Issued By A Non-Controlled Person means a Demand 
Feature issued by:
    (i) A person that, directly or indirectly, does not control, and is 
not controlled by or under common control with the issuer of the 
security subject to the Demand Feature (control means ``control'' as 
defined in section 2(a)(9) of the Act (15 U.S.C. 80a-2(a)(9)); or
    (ii) A sponsor of a Special Purpose Entity with respect to an Asset 
Backed Security.
    (10) Eligible Security means:
    (i) A Rated Security with a remaining maturity of 397 calendar days 
or less that has received a rating from the Requisite NRSROs in one of 
the two highest short-term rating categories (within which there may be 
sub-categories or gradations indicating relative standing); or
    (ii) An Unrated Security that is of comparable quality to a security 
meeting the requirements for a Rated Security in paragraph (a)(10)(i) of 
this section, as determined by the money market fund's board of 
directors; Provided, however, that:
    (A) A security that at the time of issuance had a remaining maturity 
of more than 397 calendar days but that has a remaining maturity of 397 
calendar days or less and that is an Unrated Security is not an Eligible 
Security if the security has received a long-term rating from any NRSRO 
that is not within the NRSRO's three highest long-term ratings 
categories (within which there may be sub-categories or gradations 
indicating relative standing), unless the security has received a long-
term rating from the Requisite NRSROs in one of the three highest rating 
categories;
    (B) An Asset Backed Security (other than an Asset Backed Security 
substantially all of whose Qualifying Assets consist of obligations of 
one or more Municipal Issuers, as that term is defined in paragraph 
(a)(7) of this section) shall not be an Eligible Security unless it has 
received a rating from an NRSRO.
    (iii) In addition, in the case of a security that is subject to a 
Demand Feature or Guarantee:
    (A) The Guarantee has received a rating from an NRSRO or the 
Guarantee is issued by a guarantor that has received a rating from an 
NRSRO with respect to a class of debt obligations (or any debt 
obligation within that class) that is comparable in priority and 
security to the Guarantee, unless:
    (1) The Guarantee is issued by a person that, directly or 
indirectly, controls, is controlled by or is under common control with 
the issuer of the security subject to the Guarantee (other than a 
sponsor of a Special Purpose Entity with respect to an Asset Backed 
Security);
    (2) The security subject to the Guarantee is a repurchase agreement 
that is Collateralized Fully; or
    (3) The Guarantee is itself a Government Security; and
    (B) The issuer of the Demand Feature or Guarantee, or another 
institution, has undertaken promptly to notify the

[[Page 701]]

holder of the security in the event the Demand Feature or Guarantee is 
substituted with another Demand Feature or Guarantee (if such 
substitution is permissible under the terms of the Demand Feature or 
Guarantee).
    (11) Event of Insolvency means ``Event of Insolvency'' as defined in 
Sec. 270.5b-3(c)(2).
    (12) First Tier Security means any Eligible Security that:
    (i) Is a Rated Security that has received a short-term rating from 
the Requisite NRSROs in the highest short-term rating category for debt 
obligations (within which there may be sub-categories or gradations 
indicating relative standing); or
    (ii) Is an Unrated Security that is of comparable quality to a 
security meeting the requirements for a Rated Security in paragraph 
(a)(12)(i) of this section, as determined by the fund's board of 
directors; or
    (iii) Is a security issued by a registered investment company that 
is a money market fund; or
    (iv) Is a Government Security.
    (13) Floating Rate Security means a security the terms of which 
provide for the adjustment of its interest rate whenever a specified 
interest rate changes and that, at any time until the final maturity of 
the instrument or the period remaining until the principal amount can be 
recovered through demand, can reasonably be expected to have a market 
value that approximates its amortized cost.
    (14) Government Security means any ``Government security'' as 
defined in section 2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16)).
    (15) Guarantee means an unconditional obligation of a person other 
than the issuer of the security to undertake to pay, upon presentment by 
the holder of the Guarantee (if required), the principal amount of the 
underlying security plus accrued interest when due or upon default, or, 
in the case of an Unconditional Demand Feature, an obligation that 
entitles the holder to receive upon exercise the approximate amortized 
cost of the underlying security or securities, plus accrued interest, if 
any. A Guarantee includes a letter of credit, financial guaranty (bond) 
insurance, and an Unconditional Demand Feature (other than an 
Unconditional Demand Feature provided by the issuer of the security).
    (16) Guarantee Issued By A Non-Controlled Person means a Guarantee 
issued by:
    (i) A person that, directly or indirectly, does not control, and is 
not controlled by or under common control with the issuer of the 
security subject to the Guarantee (control means ``control'' as defined 
in section 2(a)(9) of the Act (15 U.S.C. 80a-2(a)(9)); or
    (ii) A sponsor of a Special Purpose Entity with respect to an Asset 
Backed Security.
    (17) NRSRO means any nationally recognized statistical rating 
organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and 
(H) of Sec. 240.15c3-1 of this Chapter, that is not an ``affiliated 
person,'' as defined in section 2(a)(3)(C) of the Act (15 U.S.C. 80a-
2(a)(3)(C)), of the issuer of, or any insurer or provider of credit 
support for, the security.
    (18) Penny-Rounding Method of pricing means the method of computing 
an investment company's price per share for purposes of distribution, 
redemption and repurchase whereby the current net asset value per share 
is rounded to the nearest one percent.
    (19) Rated Security means a security that meets the requirements of 
paragraphs (a)(19)(i) or (ii) of this section, in each case subject to 
paragraph (a)(19)(iii) of this section:
    (i) The security has received a short-term rating from an NRSRO, or 
has been issued by an issuer that has received a short-term rating from 
an NRSRO with respect to a class of debt obligations (or any debt 
obligation within that class) that is comparable in priority and 
security with the security; or
    (ii) The security is subject to a Guarantee that has received a 
short-term rating from an NRSRO, or a Guarantee issued by a guarantor 
that has received a short-term rating from an NRSRO with respect to a 
class of debt obligations (or any debt obligation within that class) 
that is comparable in priority and security with the Guarantee; but

[[Page 702]]

    (iii) A security is not a Rated Security if it is subject to an 
external credit support agreement (including an arrangement by which the 
security has become a Refunded Security) that was not in effect when the 
security was assigned its rating, unless the security has received a 
short-term rating reflecting the existence of the credit support 
agreement as provided in paragraph (a)(19)(i) of this section, or the 
credit support agreement with respect to the security has received a 
short-term rating as provided in paragraph (a)(19)(ii) of this section.
    (20) Refunded Security means ``Refunded Security'' as defined in 
Sec. 270.5b-3(c)(4).
    (21) Requisite NRSROs means:
    (i) Any two NRSROs that have issued a rating with respect to a 
security or class of debt obligations of an issuer; or
    (ii) If only one NRSRO has issued a rating with respect to such 
security or class of debt obligations of an issuer at the time the fund 
acquires the security, that NRSRO.
    (22) Second Tier Security means any Eligible Security that is not a 
First Tier Security. Second Tier Conduit Security means any Conduit 
Security that is an Eligible Security that is not a First Tier Security.
    (23) Single State Fund means a Tax Exempt Fund that holds itself out 
as seeking to maximize the amount of its distributed income that is 
exempt from the income taxes or other taxes on investments of a 
particular state and, where applicable, subdivisions thereof.
    (24) Tax Exempt Fund means any money market fund that holds itself 
out as distributing income exempt from regular federal income tax.
    (25) Total Assets means, with respect to a money market fund using 
the Amortized Cost Method, the total amortized cost of its assets and, 
with respect to any other money market fund, the total market-based 
value of its assets.
    (26) Unconditional Demand Feature means a Demand Feature that by its 
terms would be readily exercisable in the event of a default in payment 
of principal or interest on the underlying security or securities.
    (27) United States Dollar-Denominated means, with reference to a 
security, that all principal and interest payments on such security are 
payable to security holders in United States dollars under all 
circumstances and that the interest rate of, the principal amount to be 
repaid, and the timing of payments related to such security do not vary 
or float with the value of a foreign currency, the rate of interest 
payable on foreign currency borrowings, or with any other interest rate 
or index expressed in a currency other than United States dollars.
    (28) Unrated Security means a security that is not a Rated Security.
    (29) Variable Rate Security means a security the terms of which 
provide for the adjustment of its interest rate on set dates (such as 
the last day of a month or calendar quarter) and that, upon each 
adjustment until the final maturity of the instrument or the period 
remaining until the principal amount can be recovered through demand, 
can reasonably be expected to have a market value that approximates its 
amortized cost.
    (b) Holding Out and Use of Names and Titles. (1) It shall be an 
untrue statement of material fact within the meaning of section 34(b) of 
the Act (15 U.S.C. 80a-33(b)) for a registered investment company, in 
any registration statement, application, report, account, record, or 
other document filed or transmitted pursuant to the Act, including any 
advertisement, pamphlet, circular, form letter, or other sales 
literature addressed to or intended for distribution to prospective 
investors that is required to be filed with the Commission by section 
24(b) of the Act (15 U.S.C. 80a-24(b)), to hold itself out to investors 
as a money market fund or the equivalent of a money market fund, unless 
such registered investment company meets the conditions of paragraphs 
(c)(2), (c)(3) and (c)(4) of this section.
    (2) It shall constitute the use of a materially deceptive or 
misleading name or title within the meaning of section 35(d) of the Act 
(15 U.S.C. 80a-34(d)) for a registered investment company to adopt the 
term ``money market'' as part of its name or title or the name or title 
of any redeemable securities of which it is the issuer, or to adopt a 
name that suggests that it is a

[[Page 703]]

money market fund or the equivalent of a money market fund, unless such 
registered investment company meets the conditions of paragraphs (c)(2), 
(c)(3), and (c)(4) of this section.
    (3) For purposes of this paragraph, a name that suggests that a 
registered investment company is a money market fund or the equivalent 
thereof shall include one that uses such terms as ``cash,'' ``liquid,'' 
``money,'' ``ready assets'' or similar terms.
    (c) Share Price Calculations. The current price per share, for 
purposes of distribution, redemption and repurchase, of any redeemable 
security issued by any registered investment company (``money market 
fund'' or ``fund''), notwithstanding the requirements of section 
2(a)(41) of the Act (15 U.S.C. 80a-2(a)(41)) and of Sec. Sec. 270.2a-4 
and 270.22c-1 thereunder, may be computed by use of the Amortized Cost 
Method or the Penny-Rounding Method; Provided, however, that:
    (1) Board Findings. The board of directors of the money market fund 
shall determine, in good faith, that it is in the best interests of the 
fund and its shareholders to maintain a stable net asset value per share 
or stable price per share, by virtue of either the Amortized Cost Method 
or the Penny-Rounding Method, and that the money market fund will 
continue to use such method only so long as the board of directors 
believes that it fairly reflects the market-based net asset value per 
share.
    (2) Portfolio Maturity. The money market fund shall maintain a 
dollar-weighted average portfolio maturity appropriate to its objective 
of maintaining a stable net asset value per share or price per share; 
Provided, however, that the money market fund will not:
    (i) Except as provided in paragraph (c)(2)(ii) of this section, 
Acquire any instrument with a remaining maturity of greater than 397 
calendar days; or
    (ii) In the case of a money market fund not using the Amortized Cost 
Method, Acquire a Government Security with a remaining maturity of 
greater than 762 calendar days; or
    (iii) Maintain a dollar-weighted average portfolio maturity that 
exceeds ninety days.
    (3) Portfolio Quality--(i) General. The money market fund shall 
limit its portfolio investments to those United States Dollar-
Denominated securities that the fund's board of directors determines 
present minimal credit risks (which determination must be based on 
factors pertaining to credit quality in addition to any rating assigned 
to such securities by an NRSRO) and that are at the time of Acquisition 
Eligible Securities.
    (ii) Second Tier Securities. Immediately after the Acquisition of 
any Second Tier Security:
    (A) Taxable Funds. A money market fund that is not a Tax Exempt Fund 
shall not have invested more than five percent of its Total Assets in 
securities that are Second Tier Securities; and
    (B) Tax Exempt Funds. A money market fund that is a Tax Exempt Fund 
shall not have invested more than five percent of its Total Assets in 
Conduit Securities that are Second Tier Conduit Securities.
    (iii) Securities Subject to Guarantees. A security that is subject 
to a Guarantee may be determined to be an Eligible Security or a First 
Tier Security based solely on whether the Guarantee is an Eligible 
Security or First Tier Security, as the case may be.
    (iv) Securities Subject to Conditional Demand Features. A security 
that is subject to a Conditional Demand Feature (``Underlying 
Security'') may be determined to be an Eligible Security or a First Tier 
Security only if:
    (A) The Conditional Demand Feature is an Eligible Security or First 
Tier Security, as the case may be;
    (B) At the time of the Acquisition of the Underlying Security, the 
money market fund's board of directors has determined that there is 
minimal risk that the circumstances that would result in the Conditional 
Demand Feature not being exercisable will occur; and
    (1) The conditions limiting exercise either can be monitored readily 
by the fund, or relate to the taxability, under federal, state or local 
law, of the interest payments on the security; or
    (2) The terms of the Conditional Demand Feature require that the 
fund will receive notice of the occurrence of the condition and the 
opportunity to

[[Page 704]]

exercise the Demand Feature in accordance with its terms; and
    (C) The Underlying Security or any Guarantee of such security (or 
the debt securities of the issuer of the Underlying Security or 
Guarantee that are comparable in priority and security with the 
Underlying Security or Guarantee) has received either a short-term 
rating or a long-term rating, as the case may be, from the Requisite 
NRSROs within the NRSROs' two highest short-term or long-term rating 
categories (within which there may be sub-categories or gradations 
indicating relative standing) or, if unrated, is determined to be of 
comparable quality by the money market fund's board of directors to a 
security that has received a rating from the Requisite NRSROs within the 
NRSROs' two highest short-term or long-term rating categories, as the 
case may be.
    (4) Portfolio Diversification--(i) Issuer Diversification. The money 
market fund shall be diversified with respect to issuers of securities 
Acquired by the fund as provided in paragraphs (c)(4)(i) and (c)(4)(ii) 
of this section, other than with respect to Government Securities and 
securities subject to a Guarantee Issued By A Non-Controlled Person.
    (A) Taxable and National Funds. Immediately after the Acquisition of 
any security, a money market fund other than a Single State Fund shall 
not have invested more than five percent of its Total Assets in 
securities issued by the issuer of the security; Provided, however, that 
such a fund may invest up to twenty-five percent of its Total Assets in 
the First Tier Securities of a single issuer for a period of up to three 
Business Days after the Acquisition thereof; Provided, further, that the 
fund may not invest in the securities of more than one issuer in 
accordance with the foregoing proviso in this paragraph at any time.
    (B) Single State Funds. With respect to seventy-five percent of its 
Total Assets, immediately after the Acquisition of any security, a 
Single State Fund shall not have invested more than five percent of its 
Total Assets in securities issued by the issuer of the security; 
Provided, however, that a Single State Fund shall not invest more than 
five percent of its Total Assets in securities issued by the issuer of 
the security unless the securities are First Tier Securities.
    (C) Second Tier Securities--(1) Taxable Funds. Immediately after the 
Acquisition of any Second Tier Security, a money market fund that is not 
a Tax Exempt Fund shall not have invested more than the greater of one 
percent of its Total Assets or one million dollars in securities issued 
by that issuer that are Second Tier Securities.
    (2) Tax Exempt Funds. Immediately after the Acquisition of any 
Second Tier Conduit Security, a money market fund that is a Tax Exempt 
Fund shall not have invested more than the greater of one percent of its 
Total Assets or one million dollars in securities issued by that issuer 
that are Second Tier Conduit Securities.
    (ii) Issuer Diversification Calculations. For purposes of making 
calculations under paragraph (c)(4)(i) of this section:
    (A) Repurchase Agreements. The Acquisition of a repurchase agreement 
may be deemed to be an Acquisition of the underlying securities, 
provided the obligation of the seller to repurchase the securities from 
the money market fund is Collateralized Fully.
    (B) Refunded Securities. The Acquisition of a Refunded Security 
shall be deemed to be an Acquisition of the escrowed Government 
Securities.
    (C) Conduit Securities. A Conduit Security shall be deemed to be 
issued by the person (other than the Municipal Issuer) ultimately 
responsible for payments of interest and principal on the security.
    (D) Asset Backed Securities--(1) General. An Asset Backed Security 
Acquired by a fund (``Primary ABS'') shall be deemed to be issued by the 
Special Purpose Entity that issued the Asset Backed Security, Provided, 
however:
    (i) Holdings of Primary ABS. Any person whose obligations constitute 
ten percent or more of the principal amount of the Qualifying Assets of 
the Primary ABS (``Ten Percent Obligor'') shall be deemed to be an 
issuer of the portion of the Primary ABS such obligations represent; and
    (ii) Holdings of Secondary ABS. If a Ten Percent Obligor of a 
Primary ABS

[[Page 705]]

is itself a Special Purpose Entity issuing Asset Backed Securities 
(``Secondary ABS''), any Ten Percent Obligor of such Secondary ABS also 
shall be deemed to be an issuer of the portion of the Primary ABS that 
such Ten Percent Obligor represents.
    (2) Restricted Special Purpose Entities. A Ten Percent Obligor with 
respect to a Primary or Secondary ABS shall not be deemed to have issued 
any portion of the assets of a Primary ABS as provided in paragraph 
(c)(4)(ii)(D)(1) of this section if that Ten Percent Obligor is itself a 
Special Purpose Entity issuing Asset Backed Securities (``Restricted 
Special Purpose Entity''), and the securities that it issues (other than 
securities issued to a company that controls, or is controlled by or 
under common control with, the Restricted Special Purpose Entity and 
which is not itself a Special Purpose Entity issuing Asset Backed 
Securities) are held by only one other Special Purpose Entity.
    (3) Demand Features and Guarantees. In the case of a Ten Percent 
Obligor deemed to be an issuer, the fund shall satisfy the 
diversification requirements of paragraph (c)(4)(iii) of this section 
with respect to any Demand Feature or Guarantee to which the Ten Percent 
Obligor's obligations are subject.
    (E) Shares of Other Money Market Funds. A money market fund that 
Acquires shares issued by another money market fund in an amount that 
would otherwise be prohibited by paragraph (c)(4)(i) of this section 
shall nonetheless be deemed in compliance with this section if the board 
of directors of the Acquiring money market fund reasonably believes that 
the fund in which it has invested is in compliance with this section.
    (iii) Diversification Rules for Demand Features and Guarantees. The 
money market fund shall be diversified with respect to Demand Features 
and Guarantees Acquired by the fund as provided in paragraphs 
(c)(4)(iii) and (c)(4)(iv) of this section, other than with respect to a 
Demand Feature issued by the same institution that issued the underlying 
security, or with respect to a Guarantee or Demand Feature that is 
itself a Government Security.
    (A) General. Immediately after the Acquisition of any Demand Feature 
or Guarantee or security subject to a Demand Feature or Guarantee, a 
money market fund, with respect to seventy-five percent of its Total 
Assets, shall not have invested more than ten percent of its Total 
Assets in securities issued by or subject to Demand Features or 
Guarantees from the institution that issued the Demand Feature or 
Guarantee, subject to paragraphs (c)(4)(iii) (B) and (C) of this 
section.
    (B) Second Tier Demand Features or Guarantees. Immediately after the 
Acquisition of any Demand Feature or Guarantee (or a security after 
giving effect to the Demand Feature or Guarantee) that is a Second Tier 
Security, a money market fund shall not have invested more than five 
percent of its Total Assets in securities issued by or subject to Demand 
Features or Guarantees from the institution that issued the Demand 
Feature or Guarantee.
    (C) Demand Features or Guarantees Issued by Non-Controlled Persons. 
Immediately after the Acquisition of any security subject to a Demand 
Feature or Guarantee, a money market fund shall not have invested more 
than ten percent of its Total Assets in securities issued by, or subject 
to Demand Features or Guarantees from the institution that issued the 
Demand Feature or Guarantee, unless, with respect to any security 
subject to Demand Features or Guarantees from that institution (other 
than securities issued by such institution), the Demand Feature or 
Guarantee is a Demand Feature or Guarantee Issued By A Non-Controlled 
Person.
    (iv) Demand Feature and Guarantee Diversification Calculations--(A) 
Fractional Demand Features or Guarantees. In the case of a security 
subject to a Demand Feature or Guarantee from an institution by which 
the institution guarantees a specified portion of the value of the 
security, the institution shall be deemed to guarantee the specified 
portion thereof.
    (B) Layered Demand Features or Guarantees. In the case of a security 
subject to Demand Features or Guarantees from multiple institutions that 
have not limited the extent of their obligations as described in 
paragraph

[[Page 706]]

(c)(4)(iv)(A) of this section, each institution shall be deemed to have 
provided the Demand Feature or Guarantee with respect to the entire 
principal amount of the security.
    (v) Diversification Safe Harbor. A money market fund that satisfies 
the applicable diversification requirements of paragraphs (c)(4) and 
(c)(5) of this section shall be deemed to have satisfied the 
diversification requirements of section 5(b)(1) of the Act (15 U.S.C. 
80a-5(b)(1)) and the rules adopted thereunder.
    (5) Demand Features and Guarantees Not Relied Upon. If the fund's 
board of directors has determined that the fund is not relying on a 
Demand Feature or Guarantee to determine the quality (pursuant to 
paragraph (c)(3) of this section), or maturity (pursuant to paragraph 
(d) of this section), or liquidity of a portfolio security, and 
maintains a record of this determination (pursuant to paragraphs 
(c)(9)(ii) and (c)(10)(vi) of this section), then the fund may disregard 
such Demand Feature or Guarantee for all purposes of this section.
    (6) Downgrades, Defaults and Other Events--(i) Downgrades--(A) 
General. Upon the occurrence of either of the events specified in 
paragraphs (c)(6)(i)(A) (1) and (2) of this section with respect to a 
portfolio security, the board of directors of the money market fund 
shall reassess promptly whether such security continues to present 
minimal credit risks and shall cause the fund to take such action as the 
board of directors determines is in the best interests of the money 
market fund and its shareholders:
    (1) A portfolio security of a money market fund ceases to be a First 
Tier Security (either because it no longer has the highest rating from 
the Requisite NRSROs or, in the case of an Unrated Security, the board 
of directors of the money market fund determines that it is no longer of 
comparable quality to a First Tier Security); and
    (2) The money market fund's investment adviser (or any person to 
whom the fund's board of directors has delegated portfolio management 
responsibilities) becomes aware that any Unrated Security or Second Tier 
Security held by the money market fund has, since the security was 
Acquired by the fund, been given a rating by any NRSRO below the NRSRO's 
second highest short-term rating category.
    (B) Securities to Be Disposed Of. The reassessments required by 
paragraph (c)(6)(i)(A) of this section shall not be required if, in 
accordance with the procedures adopted by the board of directors, the 
security is disposed of (or matures) within five Business Days of the 
specified event and, in the case of events specified in paragraph 
(c)(6)(i)(A)(2) of this section, the board is subsequently notified of 
the adviser's actions.
    (C) Special Rule for Certain Securities Subject to Demand Features. 
In the event that after giving effect to a rating downgrade, more than 
five percent of the fund's Total Assets are invested in securities 
issued by or subject to Demand Features from a single institution that 
are Second Tier Securities, the fund shall reduce its investment in 
securities issued by or subject to Demand Features from that institution 
to no more than five percent of its Total Assets by exercising the 
Demand Features at the next succeeding exercise date(s), absent a 
finding by the board of directors that disposal of the portfolio 
security would not be in the best interests of the money market fund.
    (ii) Defaults and Other Events. Upon the occurrence of any of the 
events specified in paragraphs (c)(6)(ii)(A) through (D) of this section 
with respect to a portfolio security, the money market fund shall 
dispose of such security as soon as practicable consistent with 
achieving an orderly disposition of the security, by sale, exercise of 
any Demand Feature or otherwise, absent a finding by the board of 
directors that disposal of the portfolio security would not be in the 
best interests of the money market fund (which determination may take 
into account, among other factors, market conditions that could affect 
the orderly disposition of the portfolio security):
    (A) The default with respect to a portfolio security (other than an 
immaterial default unrelated to the financial condition of the issuer);
    (B) A portfolio security ceases to be an Eligible Security;

[[Page 707]]

    (C) A portfolio security has been determined to no longer present 
minimal credit risks; or
    (D) An Event of Insolvency occurs with respect to the issuer of a 
portfolio security or the provider of any Demand Feature or Guarantee.
    (iii) Notice to the Commission. In the event of a default with 
respect to one or more portfolio securities (other than an immaterial 
default unrelated to the financial condition of the issuer) or an Event 
of Insolvency with respect to the issuer of the security or any Demand 
Feature or Guarantee to which it is subject, where immediately before 
default the securities (or the securities subject to the Demand Feature 
or Guarantee) accounted for \1/2\ of 1 percent or more of a money market 
fund's Total Assets, the money market fund shall promptly notify the 
Commission of such fact and the actions the money market fund intends to 
take in response to such situation. Notification under this paragraph 
shall be made telephonically, or by means of a facsimile transmission or 
electronic mail, followed by letter sent by first class mail, directed 
to the attention of the Director of the Division of Investment 
Management.
    (iv) Defaults for Purposes of Paragraphs (c)(6) (ii) and (iii). For 
purposes of paragraphs (c)(6) (ii) and (iii) of this section, an 
instrument subject to a Demand Feature or Guarantee shall not be deemed 
to be in default (and an Event of Insolvency with respect to the 
security shall not be deemed to have occurred) if:
    (A) In the case of an instrument subject to a Demand Feature, the 
Demand Feature has been exercised and the fund has recovered either the 
principal amount or the amortized cost of the instrument, plus accrued 
interest; or
    (B) The provider of the Guarantee is continuing, without protest, to 
make payments as due on the instrument.
    (7) Required Procedures: Amortized Cost Method. In the case of a 
money market fund using the Amortized Cost Method:
    (i) General. In supervising the money market fund's operations and 
delegating special responsibilities involving portfolio management to 
the money market fund's investment adviser, the money market fund's 
board of directors, as a particular responsibility within the overall 
duty of care owed to its shareholders, shall establish written 
procedures reasonably designed, taking into account current market 
conditions and the money market fund's investment objectives, to 
stabilize the money market fund's net asset value per share, as computed 
for the purpose of distribution, redemption and repurchase, at a single 
value.
    (ii) Specific Procedures. Included within the procedures adopted by 
the board of directors shall be the following:
    (A) Shadow Pricing. Written procedures shall provide:
    (1) That the extent of deviation, if any, of the current net asset 
value per share calculated using available market quotations (or an 
appropriate substitute that reflects current market conditions) from the 
money market fund's amortized cost price per share, shall be calculated 
at such intervals as the board of directors determines appropriate and 
reasonable in light of current market conditions;
    (2) For the periodic review by the board of directors of the amount 
of the deviation as well as the methods used to calculate the deviation; 
and
    (3) For the maintenance of records of the determination of deviation 
and the board's review thereof.
    (B) Prompt Consideration of Deviation. In the event such deviation 
from the money market fund's amortized cost price per share exceeds \1/
2\ of 1 percent, the board of directors shall promptly consider what 
action, if any, should be initiated by the board of directors.
    (C) Material Dilution or Unfair Results. Where the board of 
directors believes the extent of any deviation from the money market 
fund's amortized cost price per share may result in material dilution or 
other unfair results to investors or existing shareholders, it shall 
cause the fund to take such action as it deems appropriate to eliminate 
or reduce to the extent reasonably practicable such dilution or unfair 
results.
    (8) Required Procedures: Penny-Rounding Method. In the case of a 
money market fund using the Penny-Rounding Method, in supervising the 
money market fund's operations and delegating

[[Page 708]]

special responsibilities involving portfolio management to the money 
market fund's investment adviser, the money market fund's board of 
directors undertakes, as a particular responsibility within the overall 
duty of care owed to its shareholders, to assure to the extent 
reasonably practicable, taking into account current market conditions 
affecting the money market fund's investment objectives, that the money 
market fund's price per share as computed for the purpose of 
distribution, redemption and repurchase, rounded to the nearest one 
percent, will not deviate from the single price established by the board 
of directors.
    (9) Specific Procedures: Amortized Cost and Penny-Rounding Methods. 
Included within the procedures adopted by the board of directors for 
money market funds using either the Amortized Cost or Penny-Rounding 
Methods shall be the following:
    (i) Securities for Which Maturity is Determined by Reference to 
Demand Features. In the case of a security for which maturity is 
determined by reference to a Demand Feature, written procedures shall 
require ongoing review of the security's continued minimal credit risks, 
and that review must be based on, among other things, financial data for 
the most recent fiscal year of the issuer of the Demand Feature and, in 
the case of a security subject to a Conditional Demand Feature, the 
issuer of the security whose financial condition must be monitored under 
paragraph (c)(3)(iv) of this section, whether such data is publicly 
available or provided under the terms of the security's governing 
documentation.
    (ii) Securities Subject to Demand Features or Guarantees. In the 
case of a security subject to one or more Demand Features or Guarantees 
that the fund's board of directors has determined that the fund is not 
relying on to determine the quality (pursuant to paragraph (c)(3) of 
this section), maturity (pursuant to paragraph (d) of this section) or 
liquidity of the security subject to the Demand Feature or Guarantee, 
written procedures shall require periodic evaluation of such 
determination.
    (iii) Adjustable Rate Securities Without Demand Features. In the 
case of a Variable Rate or Floating Rate Security that is not subject to 
a Demand Feature and for which maturity is determined pursuant to 
paragraphs (d)(1), (d)(2) or (d)(4) of this section, written procedures 
shall require periodic review of whether the interest rate formula, upon 
readjustment of its interest rate, can reasonably be expected to cause 
the security to have a market value that approximates its amortized cost 
value.
    (iv) Asset Backed Securities. In the case of an Asset Backed 
Security, written procedures shall require the fund to periodically 
determine the number of Ten Percent Obligors (as that term is used in 
paragraph (c)(4)(ii)(D) of this section) deemed to be the issuers of all 
or a portion of the Asset Backed Security for purposes of paragraph 
(c)(4)(ii)(D) of this section; Provided, however, written procedures 
need not require periodic determinations with respect to any Asset 
Backed Security that a fund's board of directors has determined, at the 
time of Acquisition, will not have, or is unlikely to have, Ten Percent 
Obligors that are deemed to be issuers of all or a portion of that Asset 
Backed Security for purposes of paragraph (c)(4)(ii)(D) of this section, 
and maintains a record of this determination.
    (10) Record Keeping and Reporting--(i) Written Procedures. For a 
period of not less than six years following the replacement of such 
procedures with new procedures (the first two years in an easily 
accessible place), a written copy of the procedures (and any 
modifications thereto) described in paragraphs (c)(6) through (c)(9) and 
(e) of this section shall be maintained and preserved.
    (ii) Board Considerations and Actions. For a period of not less than 
six years (the first two years in an easily accessible place) a written 
record shall be maintained and preserved of the board of directors' 
considerations and actions taken in connection with the discharge of its 
responsibilities, as set forth in this section, to be included in the 
minutes of the board of directors' meetings.
    (iii) Credit Risk Analysis. For a period of not less than three 
years from the date that the credit risks of a portfolio security were 
most recently reviewed, a written record of the determination

[[Page 709]]

that a portfolio security presents minimal credit risks and the NRSRO 
ratings (if any) used to determine the status of the security as an 
Eligible Security, First Tier Security or Second Tier Security shall be 
maintained and preserved in an easily accessible place.
    (iv) Determinations With Respect to Adjustable Rate Securities. For 
a period of not less than three years from the date when the 
determination was most recently made, a written record shall be 
preserved and maintained, in an easily accessible place, of the 
determination required by paragraph (c)(9)(iii) of this section (that a 
Variable Rate or Floating Rate Security that is not subject to a Demand 
Feature and for which maturity is determined pursuant to paragraphs 
(d)(1), (d)(2) or (d)(4) of this section can reasonably be expected, 
upon readjustment of its interest rate at all times during the life of 
the instrument, to have a market value that approximates its amortized 
cost).
    (v) Determinations with Respect to Asset Backed Securities. For a 
period of not less than three years from the date when the determination 
was most recently made, a written record shall be preserved and 
maintained, in an easily accessible place, of the determinations 
required by paragraph (c)(9)(iv) of this section (the number of Ten 
Percent Obligors (as that term is used in paragraph (c)(4)(ii)(D) of 
this section) deemed to be the issuers of all or a portion of the Asset 
Backed Security for purposes of paragraph (c)(4)(ii)(D) of this 
section). The written record shall include:
    (A) The identities of the Ten Percent Obligors (as that term is used 
in paragraph (c)(4)(ii)(D) of this section), the percentage of the 
Qualifying Assets constituted by the securities of each Ten Percent 
Obligor and the percentage of the fund's Total Assets that are invested 
in securities of each Ten Percent Obligor; and
    (B) Any determination that an Asset Backed Security will not have, 
or is unlikely to have, Ten Percent Obligors deemed to be issuers of all 
or a portion of that Asset Backed Security for purposes of paragraph 
(c)(4)(ii)(D) of this section.
    (vi) Evaluations with Respect to Securities Subject to Demand 
Features or Guarantees. For a period of not less than three years from 
the date when the evaluation was most recently made, a written record 
shall be preserved and maintained, in an easily accessible place, of the 
evaluation required by paragraph (c)(9)(ii) (regarding securities 
subject to one or more Demand Features or Guarantees) of this section.
    (vii) Inspection of Records. The documents preserved pursuant to 
this paragraph (c)(10) shall be subject to inspection by the Commission 
in accordance with section 31(b) of the Act (15 U.S.C. 80a-30(b)) as if 
such documents were records required to be maintained pursuant to rules 
adopted under section 31(a) of the Act (15 U.S.C. 80a-30(a)). If any 
action was taken under paragraphs (c)(6)(ii) (with respect to defaulted 
securities and events of insolvency) or (c)(7)(ii) (with respect to a 
deviation from the fund's share price of more than 1/2 of 1 percent) of 
this section, the money market fund will file an exhibit to the Form N-
SAR (17 CFR 274.101) filed for the period in which the action was taken 
describing with specificity the nature and circumstances of such action. 
The money market fund will report in an exhibit to such Form any 
securities it holds on the final day of the reporting period that are 
not Eligible Securities.
    (d) Maturity of Portfolio Securities. For purposes of this section, 
the maturity of a portfolio security shall be deemed to be the period 
remaining (calculated from the trade date or such other date on which 
the fund's interest in the security is subject to market action) until 
the date on which, in accordance with the terms of the security, the 
principal amount must unconditionally be paid, or in the case of a 
security called for redemption, the date on which the redemption payment 
must be made, except as provided in paragraphs (d)(1) through (d)(8) of 
this section:
    (1) Adjustable Rate Government Securities. A Government Security 
that is a Variable Rate Security where the variable rate of interest is 
readjusted no less frequently than every 762 calendar days shall be 
deemed to have a maturity equal to the period remaining

[[Page 710]]

until the next readjustment of the interest rate. A Government Security 
that is a Floating Rate Security shall be deemed to have a remaining 
maturity of one day.
    (2) Short-Term Variable Rate Securities. A Variable Rate Security, 
the principal amount of which, in accordance with the terms of the 
security, must unconditionally be paid in 397 calendar days or less 
shall be deemed to have a maturity equal to the earlier of the period 
remaining until the next readjustment of the interest rate or the period 
remaining until the principal amount can be recovered through demand.
    (3) Long-Term Variable Rate Securities. A Variable Rate Security, 
the principal amount of which is scheduled to be paid in more than 397 
calendar days, that is subject to a Demand Feature, shall be deemed to 
have a maturity equal to the longer of the period remaining until the 
next readjustment of the interest rate or the period remaining until the 
principal amount can be recovered through demand.
    (4) Short-Term Floating Rate Securities. A Floating Rate Security, 
the principal amount of which, in accordance with the terms of the 
security, must unconditionally be paid in 397 calendar days or less 
shall be deemed to have a maturity of one day.
    (5) Long-Term Floating Rate Securities. A Floating Rate Security, 
the principal amount of which is scheduled to be paid in more than 397 
calendar days, that is subject to a Demand Feature, shall be deemed to 
have a maturity equal to the period remaining until the principal amount 
can be recovered through demand.
    (6) Repurchase Agreements. A repurchase agreement shall be deemed to 
have a maturity equal to the period remaining until the date on which 
the repurchase of the underlying securities is scheduled to occur, or, 
where the agreement is subject to demand, the notice period applicable 
to a demand for the repurchase of the securities.
    (7) Portfolio Lending Agreements. A portfolio lending agreement 
shall be treated as having a maturity equal to the period remaining 
until the date on which the loaned securities are scheduled to be 
returned, or where the agreement is subject to demand, the notice period 
applicable to a demand for the return of the loaned securities.
    (8) Money Market Fund Securities. An investment in a money market 
fund shall be treated as having a maturity equal to the period of time 
within which the Acquired money market fund is required to make payment 
upon redemption, unless the Acquired money market fund has agreed in 
writing to provide redemption proceeds to the investing money market 
fund within a shorter time period, in which case the maturity of such 
investment shall be deemed to be the shorter period.
    (e) Delegation. The money market fund's board of directors may 
delegate to the fund's investment adviser or officers the responsibility 
to make any determination required to be made by the board of directors 
under this section (other than the determinations required by paragraphs 
(c)(1) (board findings); (c)(6)(i)(C) (rule for certain securities 
subject to second tier Demand Features); (c)(6)(ii) (defaults and other 
events); (c)(7)(i) (general required procedures: Amortized Cost Method); 
(c)(7)(ii)(A) (shadow pricing), (B) (prompt consideration of deviation), 
and (C) (material dilution or unfair results); and (c)(8) (required 
procedures: Penny Rounding Method) of this section) provided:
    (1) Written Guidelines. The Board shall establish and periodically 
review written guidelines (including guidelines for determining whether 
securities present minimal credit risks as required in paragraph (c)(3) 
of this section) and procedures under which the delegate makes such 
determinations:
    (2) Oversight. The Board shall take any measures reasonably 
necessary (through periodic reviews of fund investments and the 
delegate's procedures in connection with investment decisions and prompt 
review of the adviser's actions in the event of the default of a 
security or Event of Insolvency with respect to the issuer of the 
security or any Guarantee to which it is subject that requires 
notification of the Commission under paragraph (c)(6)(iii) of this 
section) to assure that the guidelines and procedures are being 
followed.

[62 FR 64978, Dec. 9, 1997, as amended at 66 FR 36161, July 11, 2001]

[[Page 711]]



Sec. 270.2a19-2  Investment company general partners not deemed interested 
persons.

    Preliminary Note to Sec. 270.2a19-2:
    This Sec. 270.2a19-2 conditionally excepts from the definition of 
interested person in section 2(a)(19) (15 U.S.C. 80a-2(a)(19)) general 
partners of investment companies organized in limited partnership form. 
Compliance with the conditions of this Sec. 270.2a19-2 does not relieve 
an investment company of any other requirement of this Act, or except a 
general partner that is an interested person by virtue of any other 
provision.

    (a) Director General Partners Not Deemed Interested Persons. A 
general partner serving as a director of a limited partnership 
investment company shall not be deemed to be an interested person of 
such company, or of any investment adviser of, or principal underwriter 
for, such company, solely by reason of being a partner of the limited 
partnership investment company, or a copartner in the limited 
partnership investment company with any investment adviser of, or 
principal underwriter for, the company, provided that the Limited 
Partnership Agreement contains in substance the following:
    (1) Only general partners who are natural persons shall serve as, 
and perform the functions of, directors of the limited partnership 
investment company, except that any general partner may act as provided 
in paragraph (a)(2)(iii) of this section.
    (2) A general partner shall not have the authority to act 
individually on behalf of, or to bind, the Limited Partnership 
Investment Company, except:
    (i) In such person's capacity as investment adviser, principal 
underwriter, or administrator;
    (ii) Within the scope of such person's authority as delegated by the 
board of directors; or
    (iii) In the event that no director of the company remains, to the 
extent necessary to continue the Limited Partnership Investment Company, 
for such limited periods as are permitted under the Act to fill director 
vacancies.
    (3) Limited partners shall have all of the rights afforded 
shareholders under the Act. If a limited partnership interest is 
transferred in a manner that is effective under the Partnership 
Agreement, the transferee shall have all of the rights afforded 
shareholders under the Act.
    (4) A general partner shall not withdraw from the Limited 
Partnership Investment Company or reduce its Federal Tax Status 
Contribution without giving at least one year's prior written notice to 
the Limited Partnership Investment Company, if such withdrawal or 
reduction is likely to cause the company to lose its partnership tax 
classification. This paragraph (a)(4) shall not apply to an investment 
adviser general partner if the company terminates its advisory agreement 
with such general partner.
    (b) Definitions. (1) ``Federal Tax Status Contribution'' shall mean 
the interest (including limited partnership interest) in each material 
item of partnership income, gain, loss, deduction, or credit, and other 
contributions, required to be held or made by general partners, pursuant 
to section 4 of Internal Revenue Service Revenue Procedure 89-12, or any 
successor provisions thereto.
    (2) ``Limited Partnership Investment Company'' shall mean a 
registered management company or a business development company that is 
organized as a limited partnership under state law.
    (3) ``Partnership Agreement'' shall mean the agreement of the 
partners of the Limited Partnership Investment Company as to the affairs 
of the limited partnership and the conduct of its business.

[58 FR 45838, Aug. 31, 1993; 58 FR 64353, Dec. 6, 1993; 59 FR 15501, 
Apr. 1, 1994]



Sec. 270.2a19-3  Certain investment company directors not considered 
interested persons because of ownership of index fund securities.

    If a director of a registered investment company (``Fund'') owns 
shares of a registered investment company (including the Fund) with an 
investment objective to replicate the performance of one or more broad-
based securities indices (``Index Fund''), ownership of the Index Fund 
shares will not cause the director to be considered an ``interested 
person'' of the Fund or of the Fund's investment adviser or principal 
underwriter (as defined by section

[[Page 712]]

2(a)(19)(A)(iii) and (B)(iii) of the Act (15 U.S.C. 80a-2(a)(19)(A)(iii) 
and (B)(iii)).

[66 FR 3758, Jan. 16, 2001]



Sec. 270.2a41-1  Valuation of standby commitments by registered 
investment companies.

    (a) A standby commitment means a right to sell a specified 
underlying security or securities within a specified period of time and 
at an exercise price equal to the amortized cost of the underlying 
security or securities plus accrued interest, if any, at the time of 
exercise, that may be sold, transferred or assigned only with the 
underlying security or securities. A standby commitment entitles the 
holder to receive same day settlement, and will be considered to be from 
the party to whom the investment company will look for payment of the 
exercise price. A standby commitment may be assigned a fair value of 
zero, Provided, That:
    (1) The standby commitment is not used to affect the company's 
valuation of the security or securities underlying the standby 
commitment; and
    (2) Any consideration paid by the company for the standby 
commitment, whether paid in cash or by paying a premium for the 
underlying security or securities, is accounted for by the company as 
unrealized depreciation until the standby commitment is exercised or 
expires.
    (b) [Reserved]

[51 FR 9779, Mar. 21, 1986, as amended at 56 FR 8128, Feb. 27, 1991; 61 
FR 13982, Mar. 28, 1996; 62 FR 64986, Dec. 9, 1997]



Sec. 270.2a51-1  Definition of investments for purposes of section 
2(a)(51) (definition of ``qualified purchaser''); certain calculations.

    (a) Definitions. As used in this section:
    (1) The term Commodity Interests means commodity futures contracts, 
options on commodity futures contracts, and options on physical 
commodities traded on or subject to the rules of:
    (i) Any contract market designated for trading such transactions 
under the Commodity Exchange Act and the rules thereunder; or
    (ii) Any board of trade or exchange outside the United States, as 
contemplated in Part 30 of the rules under the Commodity Exchange Act 
[17 CFR 30.1 through 30.11].
    (2) The term Family Company means a company described in paragraph 
(A)(ii) of section 2(a)(51) of the Act [15 U.S.C. 80a-2(a)(51)].
    (3) The term Investment Vehicle means an investment company, a 
company that would be an investment company but for the exclusions 
provided by sections 3(c)(1) through 3(c)(9) of the Act [15 U.S.C. 80a-
3(c)(1) through 3(c)(9)] or the exemptions provided by Sec. Sec. 
270.3a-6 or 270.3a-7, or a commodity pool.
    (4) The term Investments has the meaning set forth in paragraph (b) 
of this section.
    (5) The term Physical Commodity means any physical commodity with 
respect to which a Commodity Interest is traded on a market specified in 
paragraph (a)(1) of this section.
    (6) The term Prospective Qualified Purchaser means a person seeking 
to purchase a security of a Section 3(c)(7) Company.
    (7) The term Public Company means a company that:
    (i) Files reports pursuant to section 13 or 15(d) of the Securities 
Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)]; or
    (ii) Has a class of securities that are listed on a ``designated 
offshore securities market'' as such term is defined by Regulation S 
under the Securities Act of 1933 [17 CFR 230.901 through 230.904].
    (8) The term Related Person means a person who is related to a 
Prospective Qualified Purchaser as a sibling, spouse or former spouse, 
or is a direct lineal descendant or ancestor by birth or adoption of the 
Prospective Qualified Purchaser, or is a spouse of such descendant or 
ancestor, provided that, in the case of a Family Company, a Related 
Person includes any owner of the Family Company and any person who is a 
Related Person of such owner.
    (9) The term Relying Person means a Section 3(c)(7) Company or a 
person acting on its behalf.
    (10) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (b) Types of Investments. For purposes of section 2(a)(51) of the 
Act [15 U.S.C.

[[Page 713]]

80a-2(a)(51)], the term Investments means:
    (1) Securities (as defined by section 2(a)(1) of the Securities Act 
of 1933 [15 U.S.C. 77b(a)(1)]), other than securities of an issuer that 
controls, is controlled by, or is under common control with, the 
Prospective Qualified Purchaser that owns such securities, unless the 
issuer of such securities is:
    (i) An Investment Vehicle;
    (ii) A Public Company; or
    (iii) A company with shareholders' equity of not less than $50 
million (determined in accordance with generally accepted accounting 
principles) as reflected on the company's most recent financial 
statements, provided that such financial statements present the 
information as of a date within 16 months preceding the date on which 
the Prospective Qualified Purchaser acquires the securities of a Section 
3(c)(7) Company;
    (2) Real estate held for investment purposes;
    (3) Commodity Interests held for investment purposes;
    (4) Physical Commodities held for investment purposes;
    (5) To the extent not securities, financial contracts (as such term 
is defined in section 3(c)(2)(B)(ii) of the Act [15 U.S.C. 80a-
3(c)(2)(B)(ii)] entered into for investment purposes;
    (6) In the case of a Prospective Qualified Purchaser that is a 
Section 3(c)(7) Company, a company that would be an investment company 
but for the exclusion provided by section 3(c)(1) of the Act [15 U.S.C. 
80a-3(c)(1)], or a commodity pool, any amounts payable to such 
Prospective Qualified Purchaser pursuant to a firm agreement or similar 
binding commitment pursuant to which a person has agreed to acquire an 
interest in, or make capital contributions to, the Prospective Qualified 
Purchaser upon the demand of the Prospective Qualified Purchaser; and
    (7) Cash and cash equivalents (including foreign currencies) held 
for investment purposes. For purposes of this section, cash and cash 
equivalents include:
    (i) Bank deposits, certificates of deposit, bankers acceptances and 
similar bank instruments held for investment purposes; and
    (ii) The net cash surrender value of an insurance policy.
    (c) Investment Purposes. For purposes of this section:
    (1) Real estate shall not be considered to be held for investment 
purposes by a Prospective Qualified Purchaser if it is used by the 
Prospective Qualified Purchaser or a Related Person for personal 
purposes or as a place of business, or in connection with the conduct of 
the trade or business of the Prospective Qualified Purchaser or a 
Related Person, provided that real estate owned by a Prospective 
Qualified Purchaser who is engaged primarily in the business of 
investing, trading or developing real estate in connection with such 
business may de deemed to be held for investment purposes. Residential 
real estate shall not be deemed to be used for personal purposes if 
deductions with respect to such real estate are not disallowed by 
section 280A of the Internal Revenue Code [26 U.S.C. 280A].
    (2) A Commodity Interest or Physical Commodity owned, or a financial 
contract entered into, by the Prospective Qualified Purchaser who is 
engaged primarily in the business of investing, reinvesting, or trading 
in Commodity Interests, Physical Commodities or financial contracts in 
connection with such business may be deemed to be held for investment 
purposes.
    (d) Valuation. For purposes of determining whether a Prospective 
Qualified Purchaser is a qualified purchaser, the aggregate amount of 
Investments owned and invested on a discretionary basis by the 
Prospective Qualified Purchaser shall be the Investments' fair market 
value on the most recent practicable date or their cost, provided that:
    (1) In the case of Commodity Interests, the amount of Investments 
shall be the value of the initial margin or option premium deposited in 
connection with such Commodity Interests; and
    (2) In each case, there shall be deducted from the amount of 
Investments owned by the Prospective Qualified Purchaser the amounts 
specified in paragraphs (e) and (f) of this section, as applicable.
    (e) Deductions. In determining whether any person is a qualified 
purchaser there shall be deducted from the

[[Page 714]]

amount of such person's Investments the amount of any outstanding 
indebtedness incurred to acquire or for the purpose of acquiring the 
Investments owned by such person.
    (f) Deductions: Family Companies. In determining whether a Family 
Company is a qualified purchaser, in addition to the amounts specified 
in paragraph (e) of this section, there shall be deducted from the value 
of such Family Company's Investments any outstanding indebtedness 
incurred by an owner of the Family Company to acquire such Investments.
    (g) Special rules for certain Prospective Qualified Purchasers--(1) 
Qualified institutional buyers. Any Prospective Qualified Purchaser who 
is, or who a Relying Person reasonably believes is, a qualified 
institutional buyer as defined in paragraph (a) of Sec. 230.144A of 
this chapter, acting for its own account, the account of another 
qualified institutional buyer, or the account of a qualified purchaser, 
shall be deemed to be a qualified purchaser provided:
    (i) That a dealer described in paragraph (a)(1)(ii) of Sec. 
230.144A of this chapter shall own and invest on a discretionary basis 
at least $25 million in securities of issuers that are not affiliated 
persons of the dealer; and
    (ii) That a plan referred to in paragraph (a)(1)(i)(D) or 
(a)(1)(i)(E) of Sec. 230.144A of this chapter, or a trust fund referred 
to in paragraph (a)(1)(i)(F) of Sec. 230.144A of this chapter that 
holds the assets of such a plan, will not be deemed to be acting for its 
own account if investment decisions with respect to the plan are made by 
the beneficiaries of the plan, except with respect to investment 
decisions made solely by the fiduciary, trustee or sponsor of such plan.
    (2) Joint Investments. In determining whether a natural person is a 
qualified purchaser, there may be included in the amount of such 
person's Investments any Investments held jointly with such person's 
spouse, or Investments in which such person shares with such person's 
spouse a community property or similar shared ownership interest. In 
determining whether spouses who are making a joint investment in a 
Section 3(c)(7) Company are qualified purchasers, there may be included 
in the amount of each spouse's Investments any Investments owned by the 
other spouse (whether or not such Investments are held jointly). In each 
case, there shall be deducted from the amount of any such Investments 
the amounts specified in paragraph (e) of this section incurred by each 
spouse.
    (3) Investments by Subsidiaries. For purposes of determining the 
amount of Investments owned by a company under section 2(a)(51)(A)(iv) 
of the Act [15 U.S.C. 80a-2(a)(51)(A)(iv)], there may be included 
Investments owned by majority-owned subsidiaries of the company and 
Investments owned by a company (``Parent Company'') of which the company 
is a majority-owned subsidiary, or by a majority-owned subsidiary of the 
company and other majority-owned subsidiaries of the Parent Company.
    (4) Certain Retirement Plans and Trusts. In determining whether a 
natural person is a qualified purchaser, there may be included in the 
amount of such person's Investments any Investments held in an 
individual retirement account or similar account the Investments of 
which are directed by and held for the benefit of such person.
    (h) Reasonable Belief. The term ``qualified purchaser'' as used in 
section 3(c)(7) of the Act [15 U.S.C. 80a-3(c)(7)] means any person that 
meets the definition of qualified purchaser in section 2(a)(51)(A) of 
the Act [15 U.S.C. 80a-2(a)(51)(A)]) and the rules thereunder, or that a 
Relying Person reasonably believes meets such definition.

[62 FR 17526, Apr. 9, 1997]



Sec. 270.2a51-2  Definitions of beneficial owner for certain purposes 
under sections 2(a)(51) and 3(c)(7) and determining indirect ownership interests.

    (a) Beneficial ownership: General. Except as set forth in this 
section, for purposes of sections 2(a)(51)(C) and 3(c)(7)(B)(ii) of the 
Act [15 U.S.C. 80a-2(a)(51)(C) and -3(c)(7)(B)(ii)], the beneficial 
owners of securities of an excepted investment company (as defined in 
section 2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)]) shall be 
determined in accordance with section 3(c)(1) of the Act [15 U.S.C. 80a-
3(c)(1)].

[[Page 715]]

    (b) Beneficial ownership: Grandfather provision. For purposes of 
section 3(c)(7)(B)(ii) of the Act [15 U.S.C. 80a-3(c)(7)(B)(ii)], 
securities of an issuer beneficially owned by a company (without giving 
effect to section 3(c)(1)(A) of the Act [15 U.S.C. 80a-3(c)(1)(A)]) 
(``owning company'') shall be deemed to be beneficially owned by one 
person unless:
    (1) The owning company is an investment company or an excepted 
investment company;
    (2) The owning company, directly or indirectly, controls, is 
controlled by, or is under common control with, the issuer; and
    (3) On October 11, 1996, under section 3(c)(1)(A) of the Act as then 
in effect, the voting securities of the issuer were deemed to be 
beneficially owned by the holders of the owning company's outstanding 
securities (other than short-term paper), in which case, such holders 
shall be deemed to be beneficial owners of the issuer's outstanding 
voting securities.
    (c) Beneficial ownership: Consent provision. For purposes of section 
2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)], securities of an 
excepted investment company beneficially owned by a company (without 
giving effect to section 3(c)(1)(A) of the Act [15 U.S.C. 80a-
3(c)(1)(A)]) (``owning company'') shall be deemed to be beneficially 
owned by one person unless:
    (1) The owning company is an excepted investment company;
    (2) The owning company directly or indirectly controls, is 
controlled by, or is under common control with, the excepted investment 
company or the company with respect to which the excepted investment 
company is, or will be, a qualified purchaser; and
    (3) On April 30, 1996, under section 3(c)(1)(A) of the Act as then 
in effect, the voting securities of the excepted investment company were 
deemed to be beneficially owned by the holders of the owning company's 
outstanding securities (other than short-term paper), in which case the 
holders of such excepted company's securities shall be deemed to be 
beneficial owners of the excepted investment company's outstanding 
voting securities.
    (d) Indirect ownership: Consent provision. For purposes of section 
2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)], an excepted 
investment company shall not be deemed to indirectly own the securities 
of an excepted investment company seeking a consent to be treated as a 
qualified purchaser (``qualified purchaser company'') unless such 
excepted investment company, directly or indirectly, controls, is 
controlled by, or is under common control with, the qualified purchaser 
company or a company with respect to which the qualified purchaser 
company is or will be a qualified purchaser.
    (e) Required consent: Consent provision. For purposes of section 
2(a)(51)(C) of the Act [15 U.S.C. 80a-2(a)(51)(C)], the consent of the 
beneficial owners of an excepted investment company (``owning company'') 
that beneficially owns securities of an excepted investment company that 
is seeking the consents required by section 2(a)(51)(C) (``consent 
company'') shall not be required unless the owning company directly or 
indirectly controls, is controlled by, or is under common control with, 
the consent company or the company with respect to which the consent 
company is, or will be, a qualified purchaser.

    Notes to Sec. 270.2a51-2:
    1. On both April 30, 1996 and October 11, 1996, section 3(c)(1)(A) 
of the Act as then in effect provided that: (A) Beneficial ownership by 
a company shall be deemed to be beneficial ownership by one person, 
except that, if the company owns 10 per centum or more of the 
outstanding voting securities of the issuer, the beneficial ownership 
shall be deemed to be that of the holders of such company's outstanding 
securities (other than short-term paper) unless, as of the date of the 
most recent acquisition by such company of securities of that issuer, 
the value of all securities owned by such company of all issuers which 
are or would, but for the exception set forth in this subparagraph, be 
excluded from the definition of investment company solely by this 
paragraph, does not exceed 10 per centum of the value of the company's 
total assets. Such issuer nonetheless is deemed to be an investment 
company for purposes of section 12(d)(1).
    2. Issuers seeking the consent required by section 2(a)(51)(C) of 
the Act should note that section 2(a)(51)(C) requires an issuer to 
obtain the consent of the beneficial owners of its securities and the 
beneficial owners of securities of any ``excepted investment company'' 
that directly or indirectly owns the

[[Page 716]]

securities of the issuer. Except as set forth in paragraphs (d) (with 
respect to indirect owners) and (e) (with respect to direct owners) of 
this section, nothing in this section is designed to limit this consent 
requirement.

[62 FR 17528, Apr. 9, 1997]



Sec. 270.2a51-3  Certain companies as qualified purchasers.

    (a) For purposes of section 2(a)(51)(A) (ii) and (iv) of the Act [15 
U.S.C. 80a-2(a)(51)(A) (ii) and (iv)], a company shall not be deemed to 
be a qualified purchaser if it was formed for the specific purpose of 
acquiring the securities offered by a company excluded from the 
definition of investment company by section 3(c)(7) of the Act [15 
U.S.C. 80a-3(c)(7)] unless each beneficial owner of the company's 
securities is a qualified purchaser.
    (b) For purposes of section 2(a)(51) of the Act [15 U.S.C. 80a-
2(a)(51)], a company may be deemed to be a qualified purchaser if each 
beneficial owner of the company's securities is a qualified purchaser.

[62 FR 17528, Apr. 9, 1997]



Sec. 270.3a-1  Certain prima facie investment companies.

    Notwithstanding section 3(a)(1)(C) of the Act (15 U.S.C. 80a-
3(a)(1)(c)), an issuer will be deemed not to be an investment company 
under the Act; Provided, That:
    (a) No more than 45 percent of the value (as defined in section 
2(a)(41) of the Act) of such issuer's total assets (exclusive of 
Government securities and cash items) consists of, and no more than 45 
percent of such issuer's net income after taxes (for the last four 
fiscal quarters combined) is derived from, securites other than:
    (1) Government securities;
    (2) Securities issued by employees' securities companies;
    (3) Securities issued by majority-owned subsidiaries of the issuer 
(other than subsidiaries relying on the exclusion from the definition of 
investment company in section 3(b)(3) or (c)(1) of the Act) which are 
not investment companies; and
    (4) Securities issued by companies:
    (i) Which are controlled primarily by such issuer;
    (ii) Through which such issuer engages in a business other than that 
of investing, reinvesting, owning, holding or trading in securities; and
    (iii) Which are not investment companies;
    (b) The issuer is not an investment company as defined in section 
3(a)(1)(A) or 3(a)(1)(B) of the Act (15 U.S.C. 80a-3(a)(1)(A) or 80a-
3(a)(1)(B)) and is not a special situation investment company; and
    (c) The percentages described in paragraph (a) of this section are 
determined on an unconsolidated basis, except that the issuer shall 
consolidate its financial statements with the financial statements of 
any wholly-owned subsidiaries.

[46 FR 6881, Jan. 22, 1981, as amended at 67 FR 43536, June 28, 2002]



Sec. 270.3a-2  Transient investment companies.

    (a) For purposes of sections 3(a)(1)(A) and 3(a)(1)(C) of the Act 
(15 U.S.C. 80a-3(a)(1)(A) and 80a-3(a)(1)(C)), an issuer is deemed not 
to be engaged in the business of investing, reinvesting, owning, holding 
or trading in securities during a period of time not to exceed one year; 
Provided, That the issuer has a bona fide intent to be engaged 
primarily, as soon as is reasonably possible (in any event by the 
termination of such period of time), in a business other than that of 
investing, reinvesting, owning, holding or trading in securities, such 
intent to be evidenced by:
    (1) The issuer's business activities; and
    (2) An appropriate resolution of the issuer's board of directors, or 
by an appropriate action of the person or persons performing similar 
functions for any issuer not having a board of directors, which 
resolution or action has been recorded contemporaneously in its minute 
books or comparable documents.
    (b) For purposes of this rule, the period of time described in 
paragraph (a) shall commence on the earlier of:
    (1) The date on which an issuer owns securities and/or cash having a 
value exceeding 50 percent of the value of such issuer's total assets on 
either a

[[Page 717]]

consolidated or unconsolidated basis; or
    (2) The date on which an issuer owns or proposes to acquire 
investment securities (as defined in section 3(a) of the Act) having a 
value exceeding 40 per centum of the value of such issuer's total assets 
(exclusive of Government securities and cash items) on an unconsolidated 
basis.
    (c) No issuer may rely on this section more frequently than once 
during any three-year period.

[46 FR 6883, Jan. 22, 1981, as amended at 67 FR 43536, June 28, 2002]



Sec. 270.3a-3  Certain investment companies owned by companies which 
are not investment companies.

    Notwithstanding section 3(a)(1)(A) or section 3(a)(1)(C) of the Act 
(15 U.S.C. 80a-3(a)(1)(A) or 80a-3(a)(1)(C)), an issuer will be deemed 
not to be an investment company for purposes of the Act; Provided, That 
all of the outstanding securities of the issuer (other than short-term 
paper, directors' qualifying shares, and debt securities owned by the 
Small Business Administration) are directly or indirectly owned by a 
company which satisfies the conditions of Sec. 270.3a-1(a) and which 
is:
    (a) A company that is not an investment company as defined in 
section 3(a) of the Act;
    (b) A company that is an investment company as defined in section 
3(a)(1)(C) of the Act (15 U.S.C. 80a-3(a)(1)(C)), but which is excluded 
from the definition of the term ``investment company'' by section 
3(b)(1) or 3(b)(2) of the Act (15 U.S.C. 80a-3(b)(1) or 80a-3(b)(2)); or
    (c) A company that is deemed not to be an investment company for 
purposes of the Act by rule 3a-1.

[46 FR 6884, Jan. 22, 1981, as amended at 67 FR 43536, June 28, 2002]



Sec. 270.3a-4  Status of investment advisory programs.

    Note: This section is a nonexclusive safe harbor from the definition 
of investment company for programs that provide discretionary investment 
advisory services to clients. There is no registration requirement under 
section 5 of the Securities Act of 1933 [15 U.S.C. 77e] with respect to 
programs that are organized and operated in the manner described in 
Sec. 270.3a-4. The section is not intended, however, to create any 
presumption about a program that is not organized and operated in the 
manner contemplated by the section.
    (a) Any program under which discretionary investment advisory 
services are provided to clients that has the following characteristics 
will not be deemed to be an investment company within the meaning of the 
Act [15 U.S.C. 80a, et seq.]:
    (1) Each client's account in the program is managed on the basis of 
the client's financial situation and investment objectives and in 
accordance with any reasonable restrictions imposed by the client on the 
management of the account.
    (2)(i) At the opening of the account, the sponsor or another person 
designated by the sponsor obtains information from the client regarding 
the client's financial situation and investment objectives, and gives 
the client the opportunity to impose reasonable restrictions on the 
management of the account;
    (ii) At least annually, the sponsor or another person designated by 
the sponsor contacts the client to determine whether there have been any 
changes in the client's financial situation or investment objectives, 
and whether the client wishes to impose any reasonable restrictions on 
the management of the account or reasonably modify existing 
restrictions;
    (iii) At least quarterly, the sponsor or another person designated 
by the sponsor notifies the client in writing to contact the sponsor or 
such other person if there have been any changes in the client's 
financial situation or investment objectives, or if the client wishes to 
impose any reasonable restrictions on the management of the client's 
account or reasonably modify existing restrictions, and provides the 
client with a means through which such contact may be made; and
    (iv) The sponsor and personnel of the manager of the client's 
account who are knowledgeable about the account and its management are 
reasonably available to the client for consultation.
    (3) Each client has the ability to impose reasonable restrictions on 
the management of the client's account, including the designation of 
particular securities or types of securities that

[[Page 718]]

should not be purchased for the account, or that should be sold if held 
in the account; Provided, however, that nothing in this section requires 
that a client have the ability to require that particular securities or 
types of securities be purchased for the account.
    (4) The sponsor or person designated by the sponsor provides each 
client with a statement, at least quarterly, containing a description of 
all activity in the client's account during the preceding period, 
including all transactions made on behalf of the account, all 
contributions and withdrawals made by the client, all fees and expenses 
charged to the account, and the value of the account at the beginning 
and end of the period.
    (5) Each client retains, with respect to all securities and funds in 
the account, to the same extent as if the client held the securities and 
funds outside the program, the right to:
    (i) Withdraw securities or cash;
    (ii) Vote securities, or delegate the authority to vote securities 
to another person;
    (iii) Be provided in a timely manner with a written confirmation or 
other notification of each securities transaction, and all other 
documents required by law to be provided to security holders; and
    (iv) Proceed directly as a security holder against the issuer of any 
security in the client's account and not be obligated to join any person 
involved in the operation of the program, or any other client of the 
program, as a condition precedent to initiating such proceeding.
    (b) As used in this section, the term sponsor refers to any person 
who receives compensation for sponsoring, organizing or administering 
the program, or for selecting, or providing advice to clients regarding 
the selection of, persons responsible for managing the client's account 
in the program. If a program has more than one sponsor, one person shall 
be designated the principal sponsor, and such person shall be considered 
the sponsor of the program under this section.

[62 FR 15109, Mar. 31, 1997]



Sec. 270.3a-5  Exemption for subsidiaries organized to finance the 
operations of domestic or foreign companies.

    (a) A finance subsidiary will not be considered an investment 
company under section 3(a) of the Act (15 U.S.C. 80a-3(a)) and 
securities of a finance subsidiary held by the parent company or a 
company controlled by the parent company will not be considered 
``investment securities'' under section 3(a)(1)(C) of the Act (15 U.S.C. 
80a-3(a)(1)(C)); Provided, That:
    (1) Any debt securities of the finance subsidiary issued to or held 
by the public are unconditionally guaranteed by the parent company as to 
the payment of principal, interest, and premium, if any (except that the 
guarantee may be subordinated in right of payment to other debt of the 
parent company);
    (2) Any non-voting preferred stock of the finance subsidiary issued 
to or held by the public is unconditionally guaranteed by the parent 
company as to payment of dividends, payment of the liquidation 
preference in the event of liquidation, and payments to be made under a 
sinking fund, if a sinking fund is to be provided (except that the 
guarantee may be subordinated in right of payment to other debt of the 
parent company);
    (3) The parent company's guarantee provides that in the event of a 
default in payment of principal, interest, premium, dividends, 
liquidation preference or payments made under a sinking fund on any debt 
securities or non-voting preferred stock issued by the finance 
subsidiary, the holders of those securities may institute legal 
proceedings directly against the parent company (or, in the case of a 
partnership or joint venture, against the partners or participants in 
the joint venture) to enforce the guarantee without first proceeding 
against the finance subsidiary;
    (4) Any securities issued by the finance subsidiary which are 
convertible or exchangeable are convertible or exchangeable only for 
securities issued by the parent company (and, in the case of a 
partnership or joint venture, for securities issued by the partners or 
participants in the joint venture) or for debt securities or non-voting 
preferred stock issued by the finance subsidiary

[[Page 719]]

meeting the applicable requirements of paragraphs (a)(1) through (a)(3);
    (5) The finance subsidiary invests in or loans to its parent company 
or a company controlled by its parent company at least 85% of any cash 
or cash equivalents raised by the finance subsidiary through an offering 
of its debt securities or non-voting preferred stock or through other 
borrowings as soon as practicable, but in no event later than six months 
after the finance subsidiary's receipt of such cash or cash equivalents;
    (6) The finance subsidiary does not invest in, reinvest in, own, 
hold or trade in securities other than Government securities, securities 
of its parent company or a company controlled by its parent company (or 
in the case of a partnership or joint venture, the securities of the 
partners or participants in the joint venture) or debt securities 
(including repurchase agreements) which are exempted from the provisions 
of the Securities Act of 1933 by section 3(a)(3) of that Act; and
    (7) Where the parent company is a foreign bank as the term is used 
in rule 3a-6 (17 CFR 270.3a-6 of this chapter), the parent company may, 
in lieu of the guaranty required by paragraph (a)(1) or (a)(2) of this 
section, issue, in favor of the holders of the finance subsidiary's debt 
securities or non-voting preferred stock, as the case may be, an 
irrevocable letter of credit in an amount sufficient to fund all of the 
amounts required to be guaranteed by paragraphs (a)(1) and (a)(2) of 
this section, provided, that:
    (i) Payment on such letter of credit shall be conditional only upon 
the presentation of customary documentation, and
    (ii) The beneficiary of such letter of credit is not required by 
either the letter of credit or applicable law to institute proceedings 
against the finance subsidiary before enforcing its remedies under the 
letter of credit.
    (b) For purposes of this rule,
    (1) A finance subsidiary shall mean any corporation--
    (i) All of whose securities other than debt securities or non-voting 
preferred stock meeting the applicable requirements of paragraphs (a)(1) 
through (3) or directors' qualifying shares are owned by its parent 
company or a company controlled by its parent company; and
    (ii) The primary purpose of which is to finance the business 
operations of its parent company or companies controlled by its parent 
company;
    (2) A parent company shall mean any corporation, partnership or 
joint venture:
    (i) That is not considered an investment company under section 3(a) 
or that is excepted or exempted by order from the definition of 
investment company by section 3(b) or by the rules or regulations under 
section 3(a);
    (ii) That is organized or formed under the laws of the United States 
or of a state or that is a foreign private issuer, or that is a foreign 
bank or foreign insurance company as those terms are used in rule 3a-6 
(17 CFR 270.3a-6 of this chapter); and
    (iii) In the case of a partnership or joint venture, each partner or 
participant in the joint venture meets the requirements of paragraphs 
(b)(2)(i) and (ii).
    (3) A company controlled by the parent company shall mean any 
corporation, partnership or joint venture:
    (i) That is not considered an investment company under section 3(a) 
or that is excepted or exempted by order from the definition of 
investment company by section 3(b) or by the rules or regulations under 
section 3(a);
    (ii) That is either organized or formed under the laws of the United 
States or of a state or that is a foreign private issuer, or that is a 
foreign bank or foreign insurance company as those terms are used in 
rule 3a-6; and
    (iii) In the case of a corporation, more than 25 percent of whose 
outstanding voting securities are beneficially owned directly or 
indirectly by the parent company; or
    (iv) In the case of a partnership or joint venture, each partner or 
participant in the joint venture meets the requirements of paragraphs 
(b)(3) (i) and (ii), and the parent company has the power to exercise a 
controlling influence over the management or policies of the partnership 
or joint venture.
    (4) A foreign private issuer shall mean any issuer which is 
incorporated or organized under the laws of a foreign

[[Page 720]]

country, but not a foreign government or political subdivision of a 
foreign government.

[49 FR 49446, Dec. 20, 1984, as amended at 56 FR 56299, Nov. 4, 1991; 67 
FR 43536, June 28, 2002]



Sec. 270.3a-6  Foreign banks and foreign insurance companies.

    (a) Notwithstanding section 3(a)(1)(A) or section 3(a)(1)(C) of the 
Act (15 U.S.C. 80a-3(a)(1)(A) or 80a-3(a)(1)(C)), a foreign bank or 
foreign insurance company shall not be considered an investment company 
for purposes of the Act.
    (b) For purposes of this section:
    (1)(i) Foreign bank means a banking institution incorporated or 
organized under the laws of a country other than the United States, or a 
political subdivision of a country other than the United States, that 
is:
    (A) Regulated as such by that country's or subdivision's government 
or any agency thereof;
    (B) Engaged substantially in commercial banking activity; and
    (C) Not operated for the purpose of evading the provisions of the 
Act;
    (ii) The term foreign bank shall also include:
    (A) A trust company or loan company that is:
    (1) Organized or incorporated under the laws of Canada or a 
political subdivision thereof;
    (2) Regulated as a trust company or a loan company by that country's 
or subdivision's government or any agency thereof; and
    (3) Not operated for the purpose of evading the provisions of the 
Act; and
    (B) A building society that is:
    (1) Organized under the laws of the United Kingdom or a political 
subdivision thereof;
    (2) Regulated as a building society by the country's or 
subdivision's government or any agency thereof; and
    (3) Not operated for the purpose of evading the provisions of the 
Act.
    (iii) Nothing in this section shall be construed to include within 
the definition of foreign bank a common or collective trust or other 
separate pool of assets organized in the form of a trust or otherwise in 
which interests are separately offered.
    (2) Engaged substantially in commercial banking activity means 
engaged regularly in, and deriving a substantial portion of its business 
from, extending commercial and other types of credit, and accepting 
demand and other types of deposits, that are customary for commercial 
banks in the country in which the head office of the banking institution 
is located.
    (3) Foreign insurance company means an insurance company 
incorporated or organized under the laws of a country other than the 
United States, or a political subdivision of a country other than the 
United States, that is:
    (i) Regulated as such by that country's or subdivision's government 
or any agency thereof;
    (ii) Engaged primarily and predominantly in:
    (A) The writing of insurance agreements of the type specified in 
section 3(a)(8) of the Securities Act of 1933 (15 U.S.C. 77c(a)(8)), 
except for the substitution of supervision by foreign government 
insurance regulators for the regulators referred to in that section; or
    (B) The reinsurance of risks on such agreements underwritten by 
insurance companies; and
    (iii) Not operated for the purpose of evading the provisions of the 
Act. Nothing in this section shall be construed to include within the 
definition of ``foreign insurance company'' a separate account or other 
pool of assets organized in the form of a trust or otherwise in which 
interests are separately offered.
    Note: Foreign banks and foreign insurance companies (and certain of 
their finance subsidiaries and holding companies) relying on rule 3a-6 
for exemption from the Act may be required by rule 489 (17 CFR 230.489) 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) to file Form F-
N with the Commission in connection with the filing of a registration 
statement under the Securities Act of 1933.

[56 FR 56299, Nov. 4, 1991, as amended at 67 FR 43536, June 28, 2002]



Sec. 270.3a-7  Issuers of asset-backed securities.

    (a) Notwithstanding section 3(a) of the Act, any issuer who is 
engaged in

[[Page 721]]

the business of purchasing, or otherwise acquiring, and holding eligible 
assets (and in activities related or incidental thereto), and who does 
not issue redeemable securities will not be deemed to be an investment 
company; Provided That:
    (1) The issuer issues fixed-income securities or other securities 
which entitle their holders to receive payments that depend primarily on 
the cash flow from eligible assets;
    (2) Securities sold by the issuer or any underwriter thereof are 
fixed-income securities rated, at the time of initial sale, in one of 
the four highest categories assigned long-term debt or in an equivalent 
short-term category (within either of which there may be sub-categories 
or gradations indicating relative standing) by at least one nationally 
recognized statistical rating organization that is not an affiliated 
person of the issuer or of any person involved in the organization or 
operation of the issuer, except that:
    (i) Any fixed-income securities may be sold to accredited investors 
as defined in paragraphs (1), (2), (3), and (7) of rule 501(a) under the 
Securities Act of 1933 (17 CFR 230.501(a)) and any entity in which all 
of the equity owners come within such paragraphs; and
    (ii) Any securities may be sold to qualified institutional buyers as 
defined in rule 144A under the Securities Act (17 CFR 230.144A) and to 
persons (other than any rating organization rating the issuer's 
securities) involved in the organization or operation of the issuer or 
an affiliate, as defined in rule 405 under the Securities Act (17 CFR 
230.405), of such a person;

Provided, That the issuer or any underwriter thereof effecting such sale 
exercises reasonable care to ensure that such securities are sold and 
will be resold to persons specified in paragraphs (a)(2) (i) and (ii) of 
this section;
    (3) The issuer acquires additional eligible assets, or disposes of 
eligible assets, only if:
    (i) The assets are acquired or disposed of in accordance with the 
terms and conditions set forth in the agreements, indentures, or other 
instruments pursuant to which the issuer's securities are issued;
    (ii) The acquisition or disposition of the assets does not result in 
a downgrading in the rating of the issuer's outstanding fixed-income 
securities; and
    (iii) The assets are not acquired or disposed of for the primary 
purpose of recognizing gains or decreasing losses resulting from market 
value changes; and
    (4) If the issuer issues any securities other than securities 
exempted from the Securities Act by section 3(a)(3) thereof (15 U.S.C. 
77c(a)(3)), the issuer:
    (i) Appoints a trustee that meets the requirements of section 
26(a)(1) of the Act and that is not affiliated, as that term is defined 
in rule 405 under the Securities Act (17 CFR 230.405), with the issuer 
or with any person involved in the organization or operation of the 
issuer, which does not offer or provide credit or credit enhancement to 
the issuer, and that executes an agreement or instrument concerning the 
issuer's securities containing provisions to the effect set forth in 
section 26(a)(3) of the Act;
    (ii) Takes reasonable steps to cause the trustee to have a perfected 
security interest or ownership interest valid against third parties in 
those eligible assets that principally generate the cash flow needed to 
pay the fixed-income security holders, provided that such assets 
otherwise required to be held by the trustee may be released to the 
extent needed at the time for the operation of the issuer; and
    (iii) Takes actions necessary for the cash flows derived from 
eligible assets for the benefit of the holders of fixed-income 
securities to be deposited periodically in a segregated account that is 
maintained or controlled by the trustee consistent with the rating of 
the outstanding fixed-income securities.
    (b) For purposes of this section:
    (1) Eligible assets means financial assets, either fixed or 
revolving, that by their terms convert into cash within a finite time 
period plus any rights or other assets designed to assure the servicing 
or timely distribution of proceeds to security holders.
    (2) Fixed-income securities means any securities that entitle the 
holder to receive:
    (i) A stated principal amount; or

[[Page 722]]

    (ii) Interest on a principal amount (which may be a notional 
principal amount) calculated by reference to a fixed rate or to a 
standard or formula which does not reference any change in the market 
value or fair value of eligible assets; or
    (iii) Interest on a principal amount (which may be a notional 
principal amount) calculated by reference to auctions among holders and 
prospective holders, or through remarketing of the security; or
    (iv) An amount equal to specified fixed or variable portions of the 
interest received on the assets held by the issuer; or
    (v) Any combination of amounts described in paragraphs (b)(2) (i), 
(ii), (iii), and (iv) of this section;

Provided, That substantially all of the payments to which the holders of 
such securities are entitled consist of the foregoing amounts.

[57 FR 56256, Nov. 27, 1992]



Sec. 270.3a-8  Certain research and development companies.

    (a) Notwithstanding sections 3(a)(1)(A) and 3(a)(1)(C) of the Act 
(15 U.S.C. 80a-3(a)(1)(A) and 80a-3(a)(1)(C)), an issuer will be deemed 
not to be an investment company if:
    (1) Its research and development expenses, for the last four fiscal 
quarters combined, are a substantial percentage of its total expense for 
the same period;
    (2) Its net income derived from investments in securities, for the 
last four fiscal quarters combined, does not exceed twice the amount of 
its research and development expenses for the same period;
    (3) Its expenses for investment advisory and management activities, 
investment research and custody, for the last four fiscal quarters, 
combined, do not exceed five percent of its total expenses for the same 
period;
    (4) Its investments in securities are capital preservation 
investments, except that:
    (i) No more than 10 percent of the issuer's total assets may consist 
of other investments, or
    (ii) No more than 25 percent of the issuer's total assets may 
consist of other investments, provided that at least 75 percent of such 
other investments are investments made pursuant to a collaborative 
research and development arrangement;
    (5) It does not hold itself out as being engaged in the business of 
investing, reinvesting or trading in securities, and it is not a special 
situation investment company;
    (6) It is primarily engaged, directly, through majority-owned 
subsidiaries, or through companies which it controls primarily, in a 
business or businesses other than that of investing, reinvesting, 
owning, holding, or trading in securities, as evidenced by:
    (i) The activities of its officers, directors and employees;
    (ii) Its public representations of policies;
    (iii) Its historical development; and
    (iv) An appropriate resolution of its board of directors, which 
resolution or action has been recorded contemporaneously in its minute 
books or comparable documents; and
    (7) Its board of directors has adopted a written investment policy 
with respect to the issuer's capital preservation investments.
    (b) For purposes of this section:
    (1) All assets shall be valued in accordance with section 
2(a)(41)(A) of the Act (15 U.S.C. 80a-2(a)(41)(A));
    (2) The percentages described in this section are determined on an 
unconsolidated basis, except that the issuer shall consolidate its 
financial statements with the financial statements of any wholly-owned 
subsidiaries;
    (3) Board of directors means the issuer's board of directors or an 
appropriate person or persons performing similar functions for any 
issuer not having a board of directors;
    (4) Capital preservation investment means an investment that is made 
to conserve capital and liquidity until the funds are used in the 
issuer's primary business or businesses;
    (5) Controlled primarily means controlled within the meaning of 
section 2(a)(9) of the Act (15 U.S.C. 80a-2(a)(9)) with a degree of 
control that is greater than that of any other person;
    (6) Investment made pursuant to a collaborative research and 
development arrangement means an investment in an investee made pursuant 
to a business relationship which:

[[Page 723]]

    (i) Is designed to achieve narrowly focused goals that are directly 
related to, and an integral part of, the issue's research and 
development activities;
    (ii) Calls for the issuer to conduct joint research and development 
activities with the investee or a company controlled primarily by, or 
which controls primarily, the investee; and
    (iii) Is not entered into for the purpose of avoiding regulation 
under the Act;
    (7) Investments in securities means all securities other than 
securities issued by majority-owned subsidiaries and companies 
controlled primarily by the issuer that conduct similar types of 
businesses, through which the issuer is engaged primarily in a business 
other than that of investing, reinvesting, owning, holding, or trading 
in securities;
    (8) Other investment means an investment in securities that is not a 
capital preservation investment; and
    (9) Research and development expenses means research and development 
expenses as defined in FASB Statement of Financial Accounting Standards 
No. 2, Accounting for Research and Development Costs, as currently in 
effect or as it may be subsequently revised.

[68 FR 37052, June 20, 2003]



Sec. 270.3c-1  Definition of beneficial ownership for certain 3(c)(1) funds.

    (a) As used in this section:
    (1) The term Covered Company means a company that is an investment 
company, a Section 3(c)(1) Company or a Section 3(c)(7) Company.
    (2) The term Section 3(c)(1) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(1) 
of the Act [15 U.S.C. 80a-3(c)(1)].
    (3) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (b) For purposes of section 3(c)(1)(A) of the Act [15 U.S.C. 80a-
3(c)(1)(A)], beneficial ownership by a Covered Company owning 10 percent 
or more of the outstanding voting securities of a Section 3(c)(1) 
Company shall be deemed to be beneficial ownership by one person, 
provided that:
    (1) On April 1, 1997, the Covered Company owned 10 percent or more 
of the outstanding voting securities of the Section 3(c)(1) Company or 
non-voting securities that, on such date and in accordance with the 
terms of such securities, were convertible into or exchangeable for 
voting securities that, if converted or exchanged on or after such date, 
would have constituted 10 percent or more of the outstanding voting 
securities of the Section 3(c)(1) Company; and
    (2) On the date of any acquisition of securities of the Section 
3(c)(1) Company by the Covered Company, the value of all securities 
owned by the Covered Company of all issuers that are Section 3(c)(1) or 
Section 3(c)(7) Companies does not exceed 10 percent of the Covered 
Company's total assets.

[62 FR 17529, Apr. 9, 1997]



Sec. 270.3c-2  Definition of beneficial ownership in small business 
investment companies.

    For the purpose of section 3(c)(1) of the Act, beneficial ownership 
by a company owning 10 per centum or more of the outstanding voting 
securities of any issuer which is a small business investment company 
licensed to operate under the Small Business Investment Act of 1958, or 
which has received from the Small Business Administration notice to 
proceed to qualify for a license, which notice or license has not been 
revoked, shall be deemed to be beneficial ownership by one person (a) if 
and so long as the value of all securities of small business investments 
companies owned by such company does not exceed 5 per centum of the 
value of its total assets; or (b) if and so long as such stock of the 
small business investment company shall be owned by a state development 
corporation which has been created by or pursuant to an act of the State 
legislature to promote and assist the growth and development of the 
economy within such State on a state-wide basis: Provided, That such 
State development corporation is not, or as a result of its investment 
in the small business investment company

[[Page 724]]

(considering such investment as an investment security) would not be, an 
investment company as defined in section 3 of the Act.

(Sec. 6, 74 Stat. 412; 15 U.S.C. 80a-6)

[33 FR 11451, Aug. 13, 1968]



Sec. 270.3c-3  Definition of certain terms used in section 3(c)(1) of 

the Act with respect to certain debt securities offered by small business 
investment companies.

    The term public offering as used in section 3(c)(1) of the Act shall 
not be deemed to include the offer and sale by a small business 
investment company, licensed under the Small Business Investment Act of 
1958, of any debt security issued by it which is (a) not convertible 
into, exchangeable for, or accompanied by any equity security, and (b) 
guaranteed as to timely payment of principal and interest by the Small 
Business Administration and backed by the full faith and credit of the 
United States. The holders of any securities offered and sold as 
described in this section shall be counted, in the aggregate, as one 
person for purposes of section 3(c)(1) of the Act.

[37 FR 7590, Apr. 18, 1972]



Sec. 270.3c-4  Definition of ``common trust fund'' as used in section 
3(c)(3) of the Act.

    The term common trust fund as used in section 3(c)(3) of the Act (15 
U.S.C. 80a-3(c)(3)) shall include a common trust fund which is 
maintained by a bank which is a member of an affiliated group, as 
defined in section 1504(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 1504(a)), and which is maintained exclusively for the collective 
investment and reinvestment of monies contributed thereto by one or more 
bank members of such affiliated group in the capacity of trustee, 
executor, administrator, or guardian; Provided, That:
    (a) The common trust fund is operated in compliance with the same 
State and Federal regulatory requirements as would apply if the bank 
maintaining such fund and any other contributing banks were the same 
entity; and
    (b) The rights of persons for whose benefit a contributing bank acts 
as trustee, executor, administrator, or guardian would not be diminished 
by reason of the maintenance of such common trust fund by another bank 
member of the affiliated group.

(15 U.S.C. 80a-6(c), 80a-37(a))

[43 FR 2393, Jan 17, 1978]



Sec. 270.3c-5  Beneficial ownership by knowledgeable employees and 
certain other persons.

    (a) As used in this section:
    (1) The term Affiliated Management Person means an affiliated 
person, as such term is defined in section 2(a)(3) of the Act [15 U.S.C. 
80a-2(a)(3)], that manages the investment activities of a Covered 
Company. For purposes of this definition, the term ``investment 
company'' as used in section 2(a)(3) of the Act includes a Covered 
Company.
    (2) The term Covered Company means a Section 3(c)(1) Company or a 
Section 3(c)(7) Company.
    (3) The term Executive Officer means the president, any vice 
president in charge of a principal business unit, division or function 
(such as sales, administration or finance), any other officer who 
performs a policy-making function, or any other person who performs 
similar policy-making functions, for a Covered Company or for an 
Affiliated Management Person of the Covered Company.
    (4) The term Knowledgeable Employee with respect to any Covered 
Company means any natural person who is:
    (i) An Executive Officer, director, trustee, general partner, 
advisory board member, or person serving in a similar capacity, of the 
Covered Company or an Affiliated Management Person of the Covered 
Company; or
    (ii) An employee of the Covered Company or an Affiliated Management 
Person of the Covered Company (other than an employee performing solely 
clerical, secretarial or administrative functions with regard to such 
company or its investments) who, in connection with his or her regular 
functions or duties, participates in the investment activities of such 
Covered Company,

[[Page 725]]

other Covered Companies, or investment companies the investment 
activities of which are managed by such Affiliated Management Person of 
the Covered Company, provided that such employee has been performing 
such functions and duties for or on behalf of the Covered Company or the 
Affiliated Management Person of the Covered Company, or substantially 
similar functions or duties for or on behalf of another company for at 
least 12 months.
    (5) The term Section 3(c)(1) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(1) 
of the Act [15 U.S.C. 80a-3(c)(1)].
    (6) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (b) For purposes of determining the number of beneficial owners of a 
Section 3(c)(1) Company, and whether the outstanding securities of a 
Section 3(c)(7) Company are owned exclusively by qualified purchasers, 
there shall be excluded securities beneficially owned by:
    (1) A person who at the time such securities were acquired was a 
Knowledgeable Employee of such Company;
    (2) A company owned exclusively by Knowledgeable Employees;
    (3) Any person who acquires securities originally acquired by a 
Knowledgeable Employee in accordance with this section, provided that 
such securities were acquired by such person in accordance with Sec. 
270.3c-6

[62 FR 17529, Apr. 9, 1997]



Sec. 270.3c-6  Certain transfers of interests in section 3(c)(1) and 
section 3(c)(7) funds.

    (a) As used in this section:
    (1) The term Donee means a person who acquires a security of a 
Covered Company (or a security or other interest in a company referred 
to in paragraph (b)(3) of this section) as a gift or bequest or pursuant 
to an agreement relating to a legal separation or divorce.
    (2) The term Section 3(c)(1) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(1) 
of the Act [15 U.S.C. 80a-3(c)(1)].
    (3) The term Section 3(c)(7) Company means a company that would be 
an investment company but for the exclusion provided by section 3(c)(7) 
of the Act [15 U.S.C. 80a-3(c)(7)].
    (4) The term Transferee means a Section 3(c)(1) Transferee or a 
Qualified Purchaser Transferee, in each case as defined in paragraph (b) 
of this section.
    (5) The term Transferor means a Section 3(c)(1) Transferor or a 
Qualified Purchaser Transferor, in each case as defined in paragraph (b) 
of this section.
    (b) Beneficial ownership by any person (``Section 3(c)(1) 
Transferee'') who acquires securities or interests in securities of a 
Section 3(c)(1) Company from a person other than the Section 3(c)(1) 
Company shall be deemed to be beneficial ownership by the person from 
whom such transfer was made (``Section 3(c)(1) Transferor''), and 
securities of a Section 3(c)(7) Company that are owned by persons who 
received the securities from a qualified purchaser other than the 
Section 3(c)(7) Company (``Qualified Purchaser Transferor'') or a person 
deemed to be a qualified purchaser by this section shall be deemed to be 
acquired by a qualified purchaser (``Qualified Purchaser Transferee''), 
provided that the Transferee is:
    (1) The estate of the Transferor;
    (2) A Donee; or
    (3) A company established by the Transferor exclusively for the 
benefit of (or owned exclusively by) the Transferor and the persons 
specified in paragraphs (b)(1) and (b)(2) of this section.

[62 FR 17529, Apr. 9, 1997]



Sec. 270.5b-1  Definition of ``total assets.''

    The term total assets, when used in computing values for the 
purposes of sections 5 and 12 of the Act, shall mean the gross assets of 
the company with respect to which the computation is made, taken as of 
the end of the fiscal quarter of the company last preceding the date of 
computation. This section shall not apply to any company which has 
adopted either of the alternative methods of valuation permitted by 
Sec. 270.2a-1.

[Rule N-5B-1, 6 FR 5920, Nov. 22, 1941]

[[Page 726]]



Sec. 270.5b-2  Exclusion of certain guarantees as securities of the 
guarantor.

    (a) For the purposes of section 5 of the act, a guarantee of a 
security shall not be deemed to be a security issued by the guarantor: 
Provided, That the value of all securities issued or guaranteed by the 
guarantor, and owned by the management company, does not exceed 10 
percent of the value of the total assets of such management company.
    (b) Notwithstanding paragraph (a) of this section, for the purposes 
of section 5 of the Act, a guarantee by a railroad company of a security 
issued by a terminal company, warehouse company, switching company, or 
bridge company, shall not be deemed to be a security issued by such 
railroad company: Provided:
    (1) The security is guaranteed jointly or severally by more than one 
railroad company; and
    (2) No one of such guaranteeing railroad companies directly or 
indirectly controls all of its co-guarantors.
    (c) For the purposes of section 5 of the Act, a lease or other 
arrangement whereby a railroad company is or becomes obligated to pay a 
stipulated annual sum of rental either to another railroad company or to 
the security holders of such other railroad company shall not be deemed 
in itself a guarantee.

[Rule N-5B-2, 10 FR 581, Jan. 16, 1945]



Sec. 270.5b-3  Acquisition of repurchase agreement or refunded security 
treated as acquisition of underlying securities.

    (a) Repurchase Agreements. For purposes of sections 5 and 12(d)(3) 
of the Act (15 U.S.C. 80a-5 and 80a-12(d)(3)), the acquisition of a 
repurchase agreement may be deemed to be an acquisition of the 
underlying securities, provided the obligation of the seller to 
repurchase the securities from the investment company is Collateralized 
Fully.
    (b) Refunded Securities. For purposes of section 5 of the Act (15 
U.S.C. 80a-5), the acquisition of a Refunded Security is deemed to be an 
acquisition of the escrowed Government Securities.
    (c) Definitions. As used in this section:
    (1) Collateralized Fully in the case of a repurchase agreement means 
that:
    (i) The value of the securities collateralizing the repurchase 
agreement (reduced by the transaction costs (including loss of interest) 
that the investment company reasonably could expect to incur if the 
seller defaults) is, and during the entire term of the repurchase 
agreement remains, at least equal to the Resale Price provided in the 
agreement;
    (ii) The investment company has perfected its security interest in 
the collateral;
    (iii) The collateral is maintained in an account of the investment 
company with its custodian or a third party that qualifies as a 
custodian under the Act;
    (iv) The collateral consists entirely of:
    (A) Cash items;
    (B) Government Securities;
    (C) Securities that at the time the repurchase agreement is entered 
into are rated in the highest rating category by the Requisite NRSROs; 
or
    (D) Unrated Securities that are of comparable quality to securities 
that are rated in the highest rating category by the Requisite NRSROs, 
as determined by the investment company's board of directors or its 
delegate; and
    (v) Upon an Event of Insolvency with respect to the seller, the 
repurchase agreement would qualify under a provision of applicable 
insolvency law providing an exclusion from any automatic stay of 
creditors' rights against the seller.
    (2) Event of Insolvency means, with respect to a person:
    (i) An admission of insolvency, the application by the person for 
the appointment of a trustee, receiver, rehabilitator, or similar 
officer for all or substantially all of its assets, a general assignment 
for the benefit of creditors, the filing by the person of a voluntary 
petition in bankruptcy or application for reorganization or an 
arrangement with creditors; or
    (ii) The institution of similar proceedings by another person which 
proceedings are not contested by the person; or
    (iii) The institution of similar proceedings by a government agency 
responsible for regulating the activities

[[Page 727]]

of the person, whether or not contested by the person.
    (3) Government Security means any ``Government Security'' as defined 
in section 2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16)).
    (4) Refunded Security means a debt security the principal and 
interest payments of which are to be paid by Government Securities 
(``deposited securities'') that have been irrevocably placed in an 
escrow account pursuant to an agreement between the issuer of the debt 
security and an escrow agent that is not an ``affiliated person,'' as 
defined in section 2(a)(3)(C) of the Act (15 U.S.C. 80a-2(a)(3)(C)), of 
the issuer of the debt security, and, in accordance with such escrow 
agreement, are pledged only to the payment of the debt security and, to 
the extent that excess proceeds are available after all payments of 
principal, interest, and applicable premiums on the Refunded Securities, 
the expenses of the escrow agent and, thereafter, to the issuer or 
another party; provided that:
    (i) The deposited securities are not redeemable prior to their final 
maturity;
    (ii) The escrow agreement prohibits the substitution of the 
deposited securities unless the substituted securities are Government 
Securities; and
    (iii) At the time the deposited securities are placed in the escrow 
account, or at the time a substitution of the deposited securities is 
made, an independent certified public accountant has certified to the 
escrow agent that the deposited securities will satisfy all scheduled 
payments of principal, interest and applicable premiums on the Refunded 
Securities; provided, however, an independent public accountant need not 
have provided the certification described in this paragraph (c)(4)(iii) 
if the security, as a Refunded Security, has received a rating from an 
NRSRO in the highest category for debt obligations (within which there 
may be sub-categories or gradations indicating relative standing).
    (5) NRSRO means any nationally recognized statistical rating 
organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and 
(H) of Sec. 240.15c3-1 of this chapter, that is not an ``affiliated 
person,'' as defined in section 2(a)(3)(C) of the Act (15 U.S.C. 80a-
2(a)(3)(C)), of the issuer of, or any insurer or provider of credit 
support for, the security.
    (6) Requisite NRSROs means:
    (i) Any two NRSROs that have issued a rating with respect to a 
security or class of debt obligations of an issuer; or
    (ii) If only one NRSRO has issued a rating with respect to such 
security or class of debt obligations of an issuer at the time the 
investment company acquires the security, that NRSRO.
    (7) Resale Price means the acquisition price paid to the seller of 
the securities plus the accrued resale premium on such acquisition 
price. The accrued resale premium is the amount specified in the 
repurchase agreement or the daily amortization of the difference between 
the acquisition price and the resale price specified in the repurchase 
agreement.
    (8) Unrated Securities means securities that have not received a 
rating from the Requisite NRSROs.

[66 FR 36161, July 11, 2001]



Sec. 270.6b-1  Exemption of employees' securities company pending 
determination of application.

    Any employees' securities company which files an application for an 
order of exemption under section 6(b) of the Act (54 Stat. 801; 15 
U.S.C. 80a-6) shall be exempt, pending final determination of such 
application by the Commission, from all provisions of the Act applicable 
to investment companies as such.

[Rule N-6B-1, 6 FR 6126, Dec. 2, 1941]



Sec. 270.6c-3  Exemptions for certain registered variable life insurance 
separate accounts.

    A separate account which meets the requirements of paragraph (a) of 
Rule 6e-2 (17 CFR 270.6e-2) or paragraph (a) of Rule 6e-3(T) (17 CFR 
270.6e-3(T)) and registers as an investment company under section 8(a) 
of the Act (15 U.S.C. 80a-8(a)), and the investment adviser, principal 
underwriter and depositor of such separate account, shall be exempt from 
the provisions of the Act specified in paragraph (b) of Rule 6e-2 or 
paragraph (b) of Rule 6e-3(T), except for sections 7 (15 U.S.C. 80a-7) 
and 8(a) of the Act, under the same terms and conditions as a separate 
account claiming

[[Page 728]]

exemption under Rule 6e-2 or Rule 6e-3(T).

(Secs. 6(c); 15 U.S.C. 80a-6(C) and 38(a))

[49 FR 49228, Dec. 3, 1984]



Sec. 270.6c-6  Exemption for certain registered separate accounts and 
other persons.

    (a) As used in this section,
    (1) Revenue Ruling shall mean Revenue Ruling 81-225, 1981-41 I.R.B. 
(October 13, 1981), issued by the Internal Revenue Service on September 
25, 1981.
    (2) Existing separate account shall mean a separate account which 
is, or is a part of, a unit investment trust registered under the Act, 
engaged in a continuous offering of its securities on September 25, 
1981.
    (3) Existing portfolio company shall mean a registered open-end 
management investment company, engaged in a continuous offering of its 
securities on September 25, 1981, all or part of whose securities were 
owned by an existing separate account on September 25, 1981.
    (4) New portfolio company shall mean any registered open-end 
management investment company the shares of which will be sold to one or 
more registered separate accounts for the purpose of minimizing the 
impact of the Revenue Ruling on the contractowners of an existing 
separate account, which new portfolio company has the same:
    (i) Investment objectives,
    (ii) Fundamental policies, and
    (iii) Voting rights as the existing portfolio company and has an 
advisory fee schedule, including expenses assumed by the adviser, that 
is at least as advantageous to the new portfolio company as was the fee 
schedule of the existing portfolio company.
    (5) New separate account shall mean a separate account which
    (i) Is, or is a part of, a unit investment trust registered under 
the Act;
    (ii) Is intended to minimize the impact of the Revenue Ruling on the 
contractowners of an existing separate account;
    (iii) Invests solely in one or more new portfolio companies;
    (iv) Has the same
    (A) Sales loads,
    (B) Depositor, and
    (C) Custodial arrangements

As the existing separate account; and
    (v) Has
    (A) Asset charges,
    (B) Administrative fees, and
    (C) Any other fees and charges (not including taxes) that correspond 
only to fees of the existing separate account and are no greater than 
those corresponding fees.
    (b) Any order of the Commission under the Act, granted to an 
existing separate account on or before September 25, 1981, shall remain 
in full force and effect notwithstanding that the existing separate 
account invests in one or more new portfolio companies in lieu of, or in 
addition to, investing in one or more existing portfolio companies; 
Provided, That:
    (1) No material changes in the facts upon which the order was based 
have occurred;
    (2) All representations, undertakings, and conditions made or agreed 
to by the existing separate account, and any other person or persons, 
other than any existing portfolio company, in connection with the 
issuance of the order are, and continue to be, applicable to the 
existing separate account and any such other person or persons, unless 
modified in accordance with this section;
    (3) All representations, undertakings, and conditions made or agreed 
to by the existing portfolio company in connection with the issuance of 
the order are made or agreed to by the new portfolio company, unless 
modified in accordance with this section; and
    (4) Part II of the Registration Statement under the Securities Act 
of 1933 of the existing separate account
    (i) Indicates that the existing separate account is relying upon 
paragraph (b) of this section,
    (ii) Lists the Investment Company Act release numbers of any orders 
upon which the existing separate account intends to rely, and
    (iii) Contains a representation that the provisions of this 
paragraph (b) have been complied with.
    (c) Any order of the Commission under the Act, granted to an 
existing separate account on or before September 25, 1981, shall apply 
with full force and effect to a new separate account and the depositor 
of and principal underwriter for the new separate

[[Page 729]]

account notwithstanding that the new separate account invests in one or 
more new portfolio companies; Provided, That:
    (1) No material changes in the facts upon which the order was based 
have occurred;
    (2) All representations, undertakings, and conditions made or agreed 
to by the depositor, principal underwriter, and any other person or 
persons other than the existing separate account or any existing 
portfolio companies, in connection with the issuance of the order are, 
and continue to be, applicable to such depositor, principal underwriter, 
and other person or persons, unless modified in accordance with this 
section;
    (3) All representations, undertakings, and conditions made or agreed 
to by the existing separate account in connection with the issuance of 
the order are made or agreed to by the new separate account, unless 
modified in accordance with this section;
    (4) All representations, undertakings, and conditions made or agreed 
to by an existing portfolio company in connection with the issuance of 
the order are made or agreed to by the new portfolio company, unless 
modified in accordance with this section; and
    (5) Part II of the Registration Statement under the Securities Act 
of 1933 of the new separate account
    (i) Indicates that the new separate account is relying upon 
paragraph (c) of this section,
    (ii) Lists the Investment Company Act release numbers of any orders 
upon which the new separate account intends to rely, and
    (iii) Contains a representation that the provisions of this 
paragraph (c) have been complied with.
    (d) Any affiliated person or depositor of or principal underwriter 
for a new or existing separate account or any affiliated person of or 
principal underwriter for a new or existing portfolio company, and any 
affiliated person of such persons, principal underwriters, or depositor 
shall be exempt from section 17(d) of the Act (15 U.S.C 80a-17(d)) and 
rule 17d-1 thereunder (17 CFR 270.17d-1) to the extent necessary to 
permit the organization of one or more new portfolio companies; 
Provided, That, any expenses borne by the existing portfolio company or 
the new portfolio company in connection with such organization are 
necessary and appropriate and are allocated in a manner that is fair and 
reasonable to all of the shareholders of these companies.
    (e) Any affiliated person or depositor of or principal underwriter 
for a new or existing separate account and any affiliated persons of 
such a person, principal underwriter, or depositor shall be exempt from 
section 17(d) of the Act and Rule 17d-1 thereunder to the extent 
necessary to permit such person to bear any reasonable expenses arising 
out of the organization of one or more new portfolio companies or the 
new separate account.
    (f) Any affiliated persons or depositor of or principal underwriter 
for a new or existing separate account or any affiliated person of or 
principal underwriter for a new or existing portfolio company, and any 
affiliated person of such persons, principal underwriters, or depositor 
shall be exempt from section 17(a) (15 U.S.C. 80a-17(a)), and any 
existing portfolio company which has made an election pursuant to Rule 
18f-1 (17 CFR 270.18f-1) shall be permitted to revoke that election to 
the extent necessary to permit transactions involving the transfer of 
assets from the existing portfolio company to a new portfolio company; 
Provided, That:
    (1) Such assets are transferred without the imposition of any fees 
or charges;
    (2) The board of directors of the existing portfolio company, 
including a majority of the directors of the company who are not 
interested persons of such company, determines that the transfer of 
assets is fair and reasonable to all shareholders of the company and 
such determination, and the basis upon which it was made, is recorded in 
the minute book of the existing portfolio company;
    (3) Any securities involved are valued by the existing portfolio 
company for purposes of the transfer in accordance with its valuation 
practices for determining net asset value per share; and
    (4) With respect to Rule 18f-1, the existing separate account 
requests that the existing portfolio company redeem

[[Page 730]]

in kind the shares of the portfolio company held by the separate 
account.
    (g) The new portfolio company shall be exempt from section 2(a)(41) 
(15 U.S.C. 80a-2(a)(41)) of the Act and rules 2a-4 (17 CFR 270.2a-4) and 
22c-1 (17 CFR 270.22c-1) under the Act to the extent necessary to permit 
it to use the same method of valuation for the purpose of pricing its 
shares for sale, redemption, and repurchase, as the existing portfolio 
company; Provided, That:
    (1) The existing portfolio company had on September 25, 1981, an 
order of the Commission exempting it, for the purposes of pricing its 
shares for sale, redemption, and repurchase, from:
    (i) Section 2(a)(41) of the Act and rules 2a-4 and 22c-1 under the 
Act to the extent necessary to permit it to use the amortized cost 
valuation method or
    (ii) Rules 2a-4 and 22c-1 under the Act to the extent necessary to 
permit it to calculate its net asset value per share to the nearest one 
cent on share values of $1.00;
    (2) All representations, undertakings, and conditions made or agreed 
to by the existing portfolio company in connection with the order are 
made or agreed to by the new portfolio company unless modified in 
accordance with this section; and
    (3) Part II of the Registration Statement under the Securities Act 
of 1933 of the new portfolio company
    (i) Indicates that the new portfolio company is relying upon 
paragraph (g) of this section,
    (ii) Lists the Investment Company Act release numbers of any orders 
upon which the new portfolio company intends to rely, and
    (iii) Contains a representation that the provisions of paragraph (g) 
have been complied with.
    (h) The depositor or trustee of an existing separate account shall 
be exempt from section 26(c) of the Act (15 U.S.C. 80a-26(c)) to the 
extent necessary to permit the substitution of securities of the new 
portfolio company for securities of the existing portfolio company; 
Provided; That, within thirty days of such substitution:
    (1) The existing separate account notifies all contractowners of the 
substitution of securities and any determinations of the board of 
directors of the new portfolio company required by paragraph (d) of this 
section;
    (2) The existing separate account delivers a copy of the prospectus 
of the new portfolio company to all contractowners; and
    (3) The existing separate account, concurrently with the 
notification referred to in paragraph (h)(1) of this section or the 
delivery of the prospectus of the new portfolio company referred to in 
paragraph (h)(2) of this section, whichever is later, offers to those 
contractowners who would otherwise have surrender rights under their 
contracts the right, for a period of at least thirty days from the 
receipt of this offer, to surrender their contracts without the 
imposition of any withdrawal charge or contingent deferred sales load, 
and any surrendering contractowner receives the price next determined 
after the request for surrender is received by the insurance company.
    (i) The existing separate account shall be exempt from section 22(d) 
of the Act (15 U.S.C. 80a-22(d)) to the extent necessary to permit it to 
comply with paragraph (h) of this section and the principal underwriter 
for or depositor of the existing separate account shall be exempt from 
section 26(a)(4)(B) of the Act (15 U.S.C. 80a-26(a)(4)(B)) to the extent 
necessary to permit them to rely on paragraph (h) of this section.
    (j) Notwithstanding section 11 of the Act (15 U.S.C. 80a-11), the 
existing separate account or any principal underwriter for the existing 
separate account may make or cause to be made to the contractowners of 
the existing separate account an offer to exchange a security funded by 
an existing portfolio company for a security funded by a new portfolio 
company without the terms of that offer having first been submitted to 
and approved by the Commission; Provided, That the exchange is to be 
made on the basis of the relative net asset values of the securities to 
be exchanged without the imposition of any fees or charges.
    (k) Notwithstanding section 11 of the Act, the new separate account 
or any principal underwriter for the new separate account may make or 
cause to be made an offer to the contractowners of

[[Page 731]]

the existing separate account to exchange their securities for 
securities of the new separate account without the terms of that offer 
having first been submitted to and approved by the Commission;

Provided, That:
    (1) The exchange is to be made on the basis of the relative net 
asset values of the securities to be exchanged without the imposition of 
any fees or charges; and
    (2) If the new separate account imposes a contingent deferred sales 
load (``sales load'') on the securities to be acquired in the exchange
    (i) At the time this sales load is imposed, it is calculated as if
    (A) The contractowner had been a contractowner of the new separate 
account from the date on which he became a contractowner of the existing 
separate account, in the case of a sales load based on the amount of 
time the contractowner has been invested in the new separate account, 
and
    (B) Amounts attributable to purchase payments made to the existing 
separate account had been made to the new separate account on the date 
on which they were made to the existing separate account, in the case of 
a sales load based on the amount of time purchase payments have been 
invested in the new separate account, and
    (ii) The total sales load imposed does not exceed 9 percent of the 
sum of the purchase payments made to the new separate account and that 
portion of purchase payments made to the existing separate account 
attributable to the securities exchanged.
    (l) Notwithstanding the foregoing, the provisions of this section 
will be available to a new separate account or new portfolio company, or 
to any affiliated person or depositor of or principal underwriter for 
such a new separate account, to any affiliated person of or principal 
underwriter for such a new portfolio company, to any affiliated person 
of such persons, depositor, or principal underwriters, or to any 
substitution of securities effected in reliance on this section, only if 
such new separate account or new portfolio company is registered under 
the Act or such substitution is effected prior to September 21, 1983.

[47 FR 42559, Sept. 28, 1982, as amended at 67 FR 43536, June 28, 2002]



Sec. 270.6c-7  Exemptions from certain provisions of sections 22(e) and 

27 for registered separate accounts offering variable annuity contracts to 
participants in the Texas Optional Retirement Program.

    A registered separate account, and any depositor of or underwriter 
for such account, shall be exempt from the provisions of sections 22(e), 
27(c)(1), and 27(d) of the Act (15 U.S.C. 80a-22(e), 80a-27(c)(1), and 
80a-27(d), respectively) with respect to any variable annuity contract 
participating in such account to the extent necessary to permit 
compliance with the Texas Optional Retirement Program (``Program''), 
Provided, That the separate, account, depositor, or underwriter for such 
account:
    (a) Includes appropriate disclosure regarding the restrictions on 
redemption imposed by the Program in each registration statement, 
including the prospectus, used in connection with the Program;
    (b) Includes appropriate disclosure regarding the restrictions on 
redemption imposed by the Program in any sales literature used in 
connection with the offer of annuity contracts to potential Program 
participants;
    (c) Instructs salespeople who solicit Program participants to 
purchase annuity contracts specifically to bring the restrictions on 
redemption imposed by the Program to the attention of potential Program 
participants;
    (d) Obtains from each Program participant who purchases an annuity 
contract in connection with the Program, prior to or at the time of such 
purchase, a signed statement acknowledging the restrictions on 
redemption imposed by the Program; and
    (e) Includes in Part II of the separate account's registration 
statement under the Securities Act of 1933 a representation that this 
section is being relied upon and that the provisions of paragraphs (a) 
through (d) of this section have been complied with.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a), 
respectively))

[49 FR 1479, Jan. 12, 1984]

[[Page 732]]



Sec. 270.6c-8  Exemptions for registered separate accounts to impose a 
deferred sales load and to deduct certain administrative charges.

    (a) As used in this section Deferred sales load shall mean any sales 
load, including a contingent deferred sales load, that is deducted upon 
redemption or annuitization of amounts representing all or a portion of 
a securityholder's interest in a registered separate account.
    (b) A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from the provisions of 
sections 2(a)(32), 2(a)(35), 22(c), 26(a)(2)(C), 27(c)(1), 27(c)(2), and 
27(d) of the Act (15 U.S.C. 80a-2(a)(32), 80a-2(a)(35), 80a-22(c), 80a-
26(a)(2)(C), 80a-27(c)(1), 80a-27(c)(2), and 80a-27(d), respectively) 
and rule 22c-1 under the Act (17 CFR 270.22c-1) to the extent necessary 
to permit them to impose a deferred sales load on any variable annuity 
contract participating in such account, Provided, That:
    (1) The amount of any such sales load imposed, when added to any 
sales load previously paid on such contract, shall not exceed 9 percent 
of purchase payments made to date for such contract; and
    (2) The terms of any offer to exchange another contract for the 
contract are in compliance with the requirements of paragraph (d) or (e) 
of rule 11a-2 under the Act (17 CFR 270.11a-2).
    (c) A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from sections 2(a)(32), 
22(c), 27(c)(1), and 27(d) of the Act (15 U.S.C. 80a-2(a)(32), 80a-
22(c), 80a-27(c)(1), and 80a-27(d), respectively) and rule 22c-1 under 
the Act (17 CFR 270.22c-1) to the extent necessary to permit them to 
deduct from the value of any variable annuity contract participating in 
such account, upon total redemption of the contract prior to the last 
day of the year, the full annual fee for administrative services that 
otherwise would have been deducted on that date.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a)))

[48 FR 36098, Aug. 9, 1983]



Sec. 270.6c-10  Exemption for certain open-end management investment 
companies to impose deferred sales loads.

    (a) A company and any exempted person shall be exempt from the 
provisions of sections 2(a)(32), 2(a)(35), and 22(d) of the Act [15 
U.S.C. 80a-2(a)(32), 80a-2(a)(35), and 80a-22(d), respectively] and 
Sec. 270.22c-1 to the extent necessary to permit a deferred sales load 
to be imposed on shares issued by the company, Provided, that:
    (1) The amount of the deferred sales load does not exceed a 
specified percentage of the net asset value or the offering price at the 
time of purchase;
    (2) The terms of the deferred sales load are covered by the 
provisions of Rule 2830 of the Conduct Rules of the National Association 
of Securities Dealers, Inc.; and
    (3) The same deferred sales load is imposed on all shareholders, 
except that scheduled variations in or elimination of a deferred sales 
load may be offered to a particular class of shareholders or 
transactions, Provided, that the conditions in Sec. 270.22d-1 are 
satisfied. Nothing in this paragraph (a) shall prevent a company from 
offering to existing shareholders a new scheduled variation that would 
waive or reduce the amount of a deferred sales load not yet paid.
    (b) For purposes of this section:
    (1) Company means a registered open-end management investment 
company, other than a registered separate account, and includes a 
separate series of the company;
    (2) Exempted person means any principal underwriter of, dealer in, 
and any other person authorized to consummate transactions in, 
securities issued by a company; and
    (3) Deferred sales load means any amount properly chargeable to 
sales or promotional expenses that is paid by a shareholder after 
purchase but before or upon redemption.

[61 FR 49016, Sept. 17, 1996]



Sec. 270.6d-1  Exemption for certain closed-end investment companies.

    (a) An application under section 6(d) of the Act shall contain the 
following information:

[[Page 733]]

    (1) A brief description of the character of the business and 
investment policy of the applicant.
    (2) The information relied upon by the applicant to satisfy the 
conditions of paragraphs (1) and (2) of section 6(d) of the Act.
    (3) The number of holders of each class of the applicant's 
outstanding securities.
    (4) An unconsolidated balance sheet as of a date not earlier than 
the end of the applicant's first fiscal year, together with a schedule 
specifying the title, the amount, the book value and, if determinable, 
the market value of each security in the applicant's portfolio.
    (5) An unconsolidated profit and loss statement for the applicant's 
last fiscal year.
    (6) A statement of each provision of the act from which the 
applicant seeks exemption, together with a statement of the facts by 
reason of which, in the applicant's opinion, such exemption is not 
contrary to the public interest or inconsistent with the protection of 
investors.
    (b) There shall be attached to each copy of the application a copy 
of Form N-8A. The form need not be executed, but it shall be clearly 
marked on its facing page as an exhibit to the application. The filing 
of Form N-8A in this manner shall not be construed as the filing of a 
notification of registration under section 8(a) of the Act.
    (c) The application may contain any additional information which the 
applicant desires to submit.

[Rule N-6D-1, 5 FR 4346, Nov. 2, 1940]



Sec. 270.6e-2  Exemptions for certain variable life insurance separate accounts.

    (a) A separate account, and the investment adviser, principal 
underwriter and depositor of such separate account, shall, except for 
the exemptions provided in paragraph (b) of this Rule 6e-2, be subject 
to all provisions of the Act and rules and regulations promulgated 
thereunder as though such separate account were a registered investment 
company issuing periodic payment plan certificates if:
    (1) Such separate account is established and maintained by a life 
insurance company pursuant to the insurance laws or code of (i) any 
state or territory of the United States or the District of Columbia, or 
(ii) Canada or any province thereof, if it complies to the extent 
necessary with Rule 7d-1 (17 CFR 270.7d-1) under the Act;
    (2) The assets of the separate account are derived solely from the 
sale of variable life insurance contracts as defined in paragraph (c)(1) 
of this Rule 6e-2, and advances made by the life insurance company which 
established and maintains the separate account (``life insurer'') in 
connection with the operation of such separate account;
    (3) The separate account is not used for variable annuity contracts 
or for funds corresponding to dividend accumulations or other contract 
liabilities not involving life contingencies;
    (4) The income, gains and losses, whether or not realized, from 
assets allocated to such separate account, are, in accordance with the 
applicable variable life insurance contract, credited to or charged 
against such account without regard to other income, gains or losses of 
the life insurer;
    (5) The separate account is legally segregated, and that portion of 
its assets having a value equal to, or approximately equal to, the 
reserves and other contract liabilities with respect to such separate 
account are not chargeable with liabilities arising out of any other 
business that the life insurer may conduct;
    (6) The assets of the separate account have, at each time during the 
year that adjustments in the reserves are made, a value at least equal 
to the reserves and other contract liabilities with respect to such 
separate account, and at all other times, except pursuant to an order of 
the Commission, have a value approximately equal to or in excess of such 
reserves and liabilities; and
    (7) The investment adviser of the separate account is registered 
under the Investment Advisers Act of 1940.
    (b) If a separate account meets the requirements of paragraph (a) of 
this section, then such separate account and the other persons described 
in paragraph (a) of this section shall be exempt from the provisions of 
the Act as follows:

[[Page 734]]

    (1) Section 2(a)(35): Provided, however, That the term ``sales 
load,'' as used in the Act and rules and regulations thereunder, shall 
have the meaning set forth in paragraph (c)(4) of this Rule.
    (2) Section 7.
    (3) Section 8 to the extent that:
    (i) For purposes of paragraph (a) of section 8, the separate account 
shall file with the Commission a notification on Form N-6EI-1 which 
identifies such separate account; and
    (ii) For purposes of paragraph (b) of section 8, the separate 
account shall file with the Commission a form to be designated by the 
Commission within ninety days after filing the notification on Form N-
6EI-1: Provided, however, That if the fiscal year of the separate 
account ends within this ninety day period the form may be filed within 
ninety days after the end of such fiscal year.
    (4) Section 9 to the extent that:
    (i) The eligibility restrictions of section 9(a) of the Act shall 
not be applicable to those persons who are officers, directors and 
employees of the life insurer or its affiliates who do not participate 
directly in the management or administration of the separate account or 
in the sale of variable life insurance contracts funded by such separate 
account; and
    (ii) A life insurer shall be ineligible pursuant to paragraph (3) of 
section 9(a) of the Act to serve as investment adviser, depositor of or 
principal underwriter for a variable life insurance separate account 
only if an affiliated person of such life insurer, ineligible by reason 
of paragraph (1) or (2) of section 9(a), participates directly in the 
management or administration of the separate account or in the sale of 
variable life insurance contracts funded by such separate account.
    (5) Section 13(a) to the extent that:
    (i) An insurance regulatory authority may required pursuant to 
insurance law or regulation that the separate account make (or refrain 
from making) certain investments which would result in changes in the 
sub-classification or investment policies of the separate account;
    (ii) Changes in the investment policy of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, provided that such 
disapproval is reasonable and is based upon a determination by the life 
insurer in good faith that:
    (A) Such change would be contrary to state law; or
    (B) Such change would be inconsistent with the investment objectives 
of the separate account or would result in the purchase of securities 
for the separate account which vary from the general quality and nature 
of investments and investment techniques utilized by other separate 
accounts of the life insurer or of an affiliated life insurance company, 
which separate accounts have investment objectives similar to the 
separate account;
    (iii) Any action taken in accordance with paragraph (b)(5) (i) or 
(ii) of this section and the reasons therefor shall be disclosed in the 
proxy statement for the next meeting of variable life insurance 
contractholders of the separate account.
    (6) Section 14(a): Provided, That until the separate account has 
total assets of at least $100,000 the life insurer shall have (i) a 
combined capital and surplus, if a stock company, or (ii) an unassigned 
surplus, if a mutual company, of not less than $1,000,000 as set forth 
in the balance sheet of such life insurer contained in the registration 
statement, or any amendment thereto, relating to variable life insurance 
contracts funded by such separate account filed pursuant to the 
Securities Act of 1933, as amended.
    (7)(i) Section 15(a) to the extent this section requires that the 
initial written contract pursuant to which the investment adviser serves 
or acts shall have been approved by the vote of a majority of the 
outstanding voting securities of the registered company: Provided, That:
    (A) Such investment adviser is selected and a written contract is 
entered into before the effective date of the registration statement 
under the Securities Act of 1933, as amended, for variable life 
insurance contracts which are funded by the separate account, and that 
the terms of the contract are fully disclosed in such registration 
statement, and

[[Page 735]]

    (B) A written contract is submitted to a vote of variable life 
insurance contractholders at their first meeting after the effective 
date of the registration statement under the Securities Act of 1933, as 
amended, on condition that such meeting shall take place within one year 
after such effective date, unless the time for the holding of such 
meeting shall be extended by the Commission upon written request for 
good cause shown;
    (ii) Sections 15 (a), (b) and (c) to the extent that:
    (A) An insurance regulatory authority may disapprove pursuant to 
insurance law or regulation any contract between the separate account 
and an investment adviser or principal underwriter;
    (B) Changes in the principal underwriter for the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer: Provided, That such 
disapproval is reasonable;
    (C) Changes in the investment adviser of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer: Provided, That such 
disapproval is reasonable and is based upon a determination by the life 
insurer in good faith that:
    (1) The rate of the proposed investment advisory fee will exceed the 
maximum rate that is permitted to be charged against the assets of the 
separate account for such services as specified by any variable life 
insurance contract funded by such separate account; or
    (2) The proposed investment adviser may be expected to employ 
investment techniques which vary from the general techniques utilized by 
the current investment adviser to the separate account, or advise the 
purchase or sale of securities which would be inconsistent with the 
investment objectives of the separate account, or which would vary from 
the quality and nature of investments made by other separate accounts of 
the life insurer or of an affiliated life insurance company, which 
separate accounts have investment objectives similar to the separate 
account;
    (D) Any action taken in accordance with paragraph (b)(7)(ii) (A), 
(B) or (C) of this section and the reasons therefor shall be disclosed 
in the proxy statement for the next meeting of variable life insurance 
contractholders of the separate account.
    (8) Section 16(a) to the extent that:
    (i) Persons serving as directors of the separate account prior to 
the first meeting of such account's variable life insurance 
contractholders are exempt from the requirement of section 16(a) of the 
Act that such persons be elected by the holders of outstanding voting 
securities of such account at an annual or special meeting called for 
that purpose, Provided, That:
    (A) Such persons have been appointed directors of such account by 
the life insurer before the effective date of the registration statement 
under the Securities Act of 1933, as amended, for variable life 
insurance contracts which are funded by the separate account and are 
identified in such registration statement (or are replacements appointed 
by the life insurer for any such persons who have become unable to serve 
as directors), and
    (B) An election of directors for such account shall be held at the 
first meeting of variable life insurance contractholders after the 
effective date of the registration statement under the Securities Act of 
1933, as amended, relating to contracts funded by such account, which 
meeting shall take place within one year after such effective date, 
unless the time for holding such meeting shall be extended by the 
Commission upon written request for good cause shown;
    (ii) A member of the board of directors of such separate account may 
be disapproved or removed by the appropriate insurance regulatory 
authority if such person is ineligible to serve as a director of the 
separate account pursuant to insurance law or regulation of the 
jurisdiction in which the life insurer is domiciled.
    (9) Section 17(f) to the extent that the securities and similar 
investments of the separate account may be maintained in the custody of 
the life insurer or an insurance company which is an affiliated person 
of such life insurer: Provided, That:

[[Page 736]]

    (i) The securities and similar investments allocated to such 
separate account are clearly identified as to ownership by such account, 
and such securities and similar investments are maintained in the vault 
of an insurance company which meets the qualifications set forth in 
paragraph (b)(9)(ii) of this section, and whose procedures and 
activities with respect to such safekeeping function are supervised by 
the insurance regulatory authorities of the jurisdiction in which the 
securities and similar investments will be held;
    (ii) The insurance company maintaining such investments must file 
with an insurance regulatory authority of a State or territory of the 
United States or the District of Columbia an annual statement of its 
financial condition in the form prescribed by the National Association 
of Insurance Commissioners, must be subject to supervision and 
inspection by such authority and must be examined periodically as to its 
financial condition and other affairs by such authority, must hold the 
securities and similar investments of the separate account in its vault, 
which vault must be equivalent to that of a bank which is a member of 
the Federal Reserve System, and must have a combined capital and 
surplus, if a stock company, or an unassigned surplus, if a mutual 
company, of not less than $1,000,000 as set forth in its most recent 
annual statement filed with such authority;
    (iii) Access to such securities and similar investments shall be 
limited to employees of or agents authorized by the Commission, 
representatives of insurance regulatory authorities, independent public 
accountants for the separate account, accountants for the life insurer 
and to no more than 20 persons authorized pursuant to a resolution of 
the board of directors of the separate account, which persons shall be 
directors of the separate account, officers and responsible employees of 
the life insurer or officers and responsible employees of the affiliated 
insurance company in whose vault such investments are maintained (if 
applicable), and access to such securities and similar investments shall 
be had only by two or more such persons jointly, at least one of whom 
shall be a director of the separate account or officer of the life 
insurer;
    (iv) The requirement in paragraph (b)(9)(i) of this section that the 
securities and similar investments of the separate account be maintained 
in the vault of a qualified insurance company shall not apply to 
securities deposited with insurance regulatory authorities or deposited 
in a system for the central handling of securities established by a 
national securities exchange or national securities association 
registered with the Commission under the Securities Exchange Act of 
1934, as amended, or such person as may be permitted by the Commission, 
or to securities on loan which are collateralized to the extent of their 
full market value, or to securities hypothecated, pledged, or placed in 
escrow for the account of such separate account in connection with a 
loan or other transaction authorized by specific resolution of the board 
of directors of the separate account, or to securities in transit in 
connection with the sale, exchange, redemption, maturity or conversion, 
the exercise of warrants or rights, assents to changes in terms of the 
securities, or to other transactions necessary or appropriate in the 
ordinary course of business relating to the management of securities;
    (v) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the custody of the life insurer or 
affiliated insurance company, shall sign a notation in respect of such 
deposit, withdrawal or order which shall show (A) the date and time of 
the deposit, withdrawal or order, (B) the title and amount of the 
securities or other investments deposited, withdrawn or ordered to be 
withdrawn, and an identification thereof by certificate numbers or 
otherwise, (C) the manner of acquisition of the securities or similar 
investments deposited or the purpose for which they have been withdrawn, 
or ordered to be withdrawn, and (D) if withdrawn and delivered to 
another person the name of such person. Such notation shall be 
transmitted promptly to an officer or director of the separate account 
or the life insurer

[[Page 737]]

designated by the board of directors of the separate account who shall 
not be a person designated for the purpose of paragraph (b)(9)(iii) of 
this section. Such notation shall be on serially numbered forms and 
shall be preserved for at least one year;
    (vi) Such securities and similar investments shall be verified by 
complete examination by an independent public accountant retained by the 
separate account at least three times during each fiscal year, at least 
two of which shall be chosen by such accountant without prior notice to 
such separate account. A certificate of such accountant stating that he 
has made an examination of such securities and investments and 
describing the nature and extent of the examination shall be transmitted 
to the Commission by the accountant promptly after each examination;
    (vii) Securities and similar investments of a separate account 
maintained with a bank or other company whose functions and physical 
facilities are supervised by Federal or state authorities pursuant to 
any arrangement whereby the directors, officers, employees or agents of 
the separate account or the life insurer are authorized or permitted to 
withdraw such investments upon their mere receipt are deemed to be in 
the custody of the life insurer and shall be exempt from the 
requirements of section 17(f) so long as the arrangement complies with 
all provisions of this paragraph (b)(9), except that such securities 
will be maintained in the vault of a bank or other company rather than 
the vault of an insurance company.
    (10) Section 18(i) to the extent that:
    (i) For the purposes of any section of the Act which provides for 
the vote of securityholders on matters relating to the investment 
company:
    (A) Variable life insurance contractholders shall have one vote for 
each $100 of cash value funded by the separate account, with fractional 
votes allocated for amounts less than $100;
    (B) The life insurer shall have one vote for each $100 of assets of 
the separate account not otherwise attributable to contractholders 
pursuant to paragraph (b)(10)(i)(A) of this section, with fractional 
votes allocated for amounts less than $100: Provided, That after the 
commencement of sales of variable life insurance contracts funded by the 
separate account, the life insurer shall cast its votes for and against 
each matter which may be voted upon by contractholders in the same 
proportion as the votes cast by contractholders; and
    (C) The number of votes to be allocated shall be determined as of a 
record date not more than 90 days prior to any meeting at which such 
vote is held: Provided, That if a quorum is not present at the meeting, 
the meeting may be adjourned for up to 60 days without fixing a new 
record date;
    (ii) The requirement of this section that every share of stock 
issued by a registered management investment company (except a common-
law trust of the character described in section 16(b)) shall be a voting 
stock and have equal voting rights with every other outstanding voting 
stock shall not be deemed to be violated by actions specifically 
permitted by any provision of this Rule.
    (11) Section 19 to the extent that the provisions of this section 
shall not be applicable to any dividend or similar distribution paid or 
payable pursuant to provisions of participating variable life insurance 
contracts.
    (12) Sections 22(d), 22(e), and 27(c)(1) and Rule 22c-1 promulgated 
under section 22(c) to the extent:
    (i) That the amount payable on death and the cash surrender value of 
each variable life insurance contract shall be determined on each day 
during which the New York Stock Exchange is open for trading, not less 
frequently than once daily as of the time of the close of trading on 
such exchange: Provided, That the amount payable on death need not be 
determined more than once each contract month if such determination does 
not reduce the participation of the contract in the investment 
experience of the separate account: Provided further, however, That if 
the net valuation premium for such contract is transferred at least 
annually, then the amount payable on death need be determined only when 
such net premium is transferred;
    (ii) Necessary for compliance with this Rule 6e-2 or with insurance 
laws

[[Page 738]]

and regulations and established administrative procedures of the life 
insurer with respect to issuance, transfer and redemption procedures for 
variable life insurance contracts funded by the separate account 
including, but not limited to, premium rate structure and premium 
processing, insurance underwriting standards, and the particular benefit 
afforded by the contract: Provided, however, That any procedure or 
action shall be reasonable, fair and not discriminatory to the interests 
of the affected contract holder and to all other holders of contracts of 
the same class or series funded by the separate account: And, further 
provided, That any such action shall be disclosed in the form required 
to be filed by the separate account with the Commission pursuant to 
paragraph (b)(3)(ii) of this Rule 6e-2.
    (13) Section 27 to the following extent:
    (i) Sections 27(a)(1) and 27(h)(1) to the extent that the sales 
load, as defined in paragraph (c)(4) of this section, on any variable 
life insurance contract which is funded by the separate account shall 
not exceed 9 per centum of the payments to be made thereon during the 
period equal to the lesser of 20 years or the anticipated life 
expectancy of the insured named in the contract based on the 1958 
Commissioners Standard Ordinary Mortality Table;
    (ii) Sections 27(a)(3) and 27(h)(3): Provided, That the 
proportionate amount of sales load deducted from any payment during the 
contract period shall not exceed the proportionate amount deducted from 
any prior payment during the contract period except that such amount may 
exceed the amount deducted from a prior payment if the increase is 
caused by the grading of cash values into reserves or reductions in the 
annual cost of insurance;
    (iii) Sections 27(c)(2), 26(a)(1) and 26(a)(2): Provided, That the 
life insurer complies, to the extent applicable, with all other 
provisions of section 26 as if it were a trustee, depositor or custodian 
for the separate account, and:
    (A) Files with the insurance regulatory authority of a state or 
territory of the United States or of the District of Columbia an annual 
statement of its financial condition in the form prescribed by the 
National Association of Insurance Commissioners, which most recent 
statement indicates that it has a combined capital and surplus, if a 
stock company, or an unassigned surplus, if a mutual company, of not 
less than $1,000,000;
    (B) Is examined from time to time by the insurance regulatory 
authority of such state, territory or District of Columbia as to its 
financial condition and other affairs and is subject to supervision and 
inspection with respect to its separate account operations; and
    (C) Limits the fees for administrative services to amounts that are 
reasonable in relation to services rendered and expenses incurred. The 
Commission shall retain jurisdiction regarding the determination of such 
fees;
    (iv) Sections 27(c)(1) and 27(d), to the extent that such sections 
require that the variable life insurance contract be redeemable or 
provide for a refund in cash: Provided, That such contract provides for 
election by the contractholder of a cash surrender value or certain non-
forfeiture and settlement options which are required or permitted by the 
insurance law or regulation of the jurisdiction in which the contract is 
offered: And further provided, That unless required by the insurance law 
or regulation of the jurisdiction in which the contract is offered or 
unless elected by the contractholder, such contract shall not provide 
for the automatic imposition of any option, including, but not limited 
to, an automatic premium loan, which would involve the accrual or 
payment of an interest or similar charge;
    (v) Section 27(d): Provided, That the variable life insurance 
contract gives the holder thereof the right to:
    (A) Surrender the contract at any time during the first 24 months 
after issuance and receive in cash an amount not less than the sum of 
the present value of his contract which is the cash surrender value next 
computed after receipt by the life insurer of the request for surrender 
in proper form, plus, depending upon the period over which such contract 
has been retained by the contractholder, an amount which is a refund of 
any excess paid for sales loading prior to surrender: Provided, however, 
That if payments for

[[Page 739]]

the contract have not been duly paid on the date the request for 
surrender is received by the life insurer, and if the sum of the cash 
surrender value and the amount of any excess sales loading which would 
otherwise be refundable in cash were applied to provide (without sales 
loading) a nonforfeiture benefit in accordance with the contract, then 
the contractholder shall be entitled to receive in cash the present 
value, next computed after receipt by the life insurer of the request 
for surrender in proper form, of any non-forfeiture benefit then in 
force. The amount of sales loading to be refunded shall be equal to that 
part of the excess paid for sales loading which is over the sum of 30 
per centum of payments made for the first contract year plus 10 per 
centum of the payments made for the second contract year; and
    (B) Convert the contract at any time during the first 24 months 
after issuance so long as payments are duly made to a life insurance 
policy on the life of the insured which provides for fixed death 
benefits and cash surrender values pursuant to a plan of insurance 
specified in the contract issued by the life insurer, or by a life 
insurance company affiliated with such insurer, which provides for the 
same initial amount of insurance as the variable life insurance contract 
and premiums which are based on the same issue age and risk 
classification of the insured as the variable life insurance contract, 
which conversion shall be subject to an equitable adjustment in payments 
and cash values to reflect variances, if any, in the payments and cash 
values under the original contract and the new policy: Provided, That 
the method of computing such adjustment shall be filed with the 
Commission as an exhibit to the form required pursuant to paragraph 
(b)(3)(ii) of this Rule;
    (vi) A depositor or principal underwriter for a variable life 
insurance contract sold subject to section 27(d) or section 27(f) of the 
Act, or both, shall be exempt from the requirements of Rule 27d-1 if an 
insurance company undertakes in writing to guarantee the performance of 
all obligations of such depositor or principal underwriter under 
sections 27(d) and 27(f) of the Act to refund charges and such insurance 
company, depositor and principal underwriter comply with all provisions 
of Rule 27d-2;
    (vii) Section 27(e) and Rule 27e-1 thereunder to the extent that the 
separate account and the depositor and principal underwriter therefor, 
when such persons are subject to paragraph (b)(13)(v) of this Rule, are 
required to provide a notice of right of withdrawal and refund to 
holders of variable life insurance contracts, if the life insurer or a 
duly authorized agent provides a notice of withdrawal and refund rights 
on Form N-27I-1, to the holder of any variable life insurance contract 
under which a refund may be available, provided that such notice shall 
be sent by first class mail to the contractholder:
    (A) At issuance of the variable life insurance contract, which 
notice may be sent together with the issued variable life insurance 
contract and an illustration, in a form appropriate for inclusion in the 
prospectus for the variable life insurance contract, of gross annual 
payments, death benefits and cash surrender values applicable to the 
age, sex and underwriting classification of the insured; and
    (B) If the contractholder has failed to make a payment prior to the 
expiration of the refund right provided by paragraph (b)(13)(v) of this 
Rule and the contract has not been reinstated within 30 days following 
the expiration of the grace period provided in the variable life 
insurance contract for making of any payment due: Provided, however, In 
any event, if a payment is not made when due such notice shall be sent 
not less than 15 days prior to the expiration of the refund right, which 
notice may be sent together with a notification that the payment is 
overdue or an offer to reinstate the contract;
    (viii) Section 27(f) and Rule 27f-1: Provided, That:
    (A) The contractholder may elect to return the contract within 45 
days of the date of the execution of the application for insurance or 
within 10 days after receipt of the issued contract by the 
contractholder, or within 10 days after mailing of the notice of the 
right of withdrawal, whichever is later, and receive a refund of all 
payments made for such contract;

[[Page 740]]

    (B) A refund of all payments to redeeming contractholders will not 
in any way affect the interests in the separate account or the benefits 
of other variable life insurance contract holders;
    (C) Notice of such withdrawal right and a statement of charges on 
Form N-27I-2 is sent by first class mail to the contractholder, which 
notice and statement may be accompanied by the variable life insurance 
contract and an illustration, in a form appropriate for inclusion in the 
prospectus for the variable life insurance contract, of payments, death 
benefits and cash surrender values applicable to the age, sex and 
underwriting classification of the insured;
    (D) The contractholder, in conjunction with the notice of withdrawal 
right referred to in paragraph (b)(13)(viii)(C) of this rule, is 
provided with a form of request for refund of payments made, which form 
shall set forth;
    (1) Instructions as to the manner in which a refund may be obtained 
including the address to which the request form should be mailed; and
    (2) Spaces necessary to indicate the date of such request, the 
contract number and the signature of the contractholder; and
    (E) Within 7 days from the receipt of such duly executed timely 
request for refund, the life insurer will refund in cash to the 
contractholder the entire amount of payments made on the contract;
    (ix) Solely for purposes of paragraphs (b)(13)(v) and (viii) of this 
Rule, the postmark date on the envelope containing the variable life 
insurance contract shall determine whether such contract has been 
submitted for surrender or conversion within the designated period.
    (14) Section 32(a)(2): Provided, That:
    (i) The independent public accountant is selected before the 
effective date of the registration statement under the Securities Act of 
1933, as amended, for variable life insurance contracts which are funded 
by the separate account, and the identity of such accountant is 
disclosed in such registration statement, and
    (ii) The selection of such accountant is submitted for ratification 
or rejection to variable life insurance contractholders at their first 
meeting after the effective date of the registration statement under the 
Securities Act of 1933, as amended, on condition that such meeting shall 
take place within one year after such effective date, unless the time 
for the holding of such meeting shall be extended by the Commission upon 
written request for good cause shown.
    (15) If the separate account is organized as a unit investment 
trust, all the assets of which consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to variable life insurance separate accounts of the life 
insurer or of any affiliated life insurance company:
    (i) The eligibility restrictions of section 9(a) of the Act shall 
not be applicable to those persons who are officers, directors and 
employees of the life insurer or its affiliates who do not participate 
directly in the management or administration of any registered 
management investment company described above;
    (ii) The life insurer shall be ineligible pursuant to paragraph (3) 
of section 9(a) of the Act to serve as investment adviser of or 
principal underwriter for any registered management investment company 
described in this paragraph (b)(15) only if an affiliated person of such 
life insurer, ineligible by reason of paragraph (1) or (2) of section 
9(a), participates in the management or administration of such company;
    (iii) The life insurer may vote shares of the registered management 
investment companies held by the separate account without regard to 
instructions from contractholders of the separate account if such 
instructions would require such shares to be voted:
    (A) To cause such companies to make (or refrain from making) certain 
investments which would result in changes in the sub-classification or 
investment objectives of such companies or to approve or disapprove any 
contract between such companies and an investment adviser when required 
to do so by an insurance regulatory authority subject to the provisions 
of paragraphs (b)(5)(i) and (7)(ii)(A) of this section; or

[[Page 741]]

    (B) In favor of changes in investment objectives, investment adviser 
of or principal underwriter for such companies subject to the provisions 
of paragraphs (b)(5)(ii) and (7)(ii) (B) and (C) of this section;
    (iv) Any action taken in accordance with paragraph (b)(15)(iii)(A) 
or (B) of this section and the reasons therefor shall be disclosed in 
the next report to contractholders made pursuant to section 30(e) (15 
U.S.C. 80a-29(e)) and Sec. 270.30e-2;
    (v) Any registered management investment company established by the 
insurer and described in this paragraph (b)(15) shall be exempt from 
section 14(a) provided that until such company has total assets of at 
least $100,000 the life insurer shall have at least the minimum net 
worth prescribed in paragraph (b)(6) of this section; and
    (vi) Any registered management investment company established by the 
insurer and described in this paragraph (b)(15) shall be exempt from 
sections 15(a), 16(a), and 32(a)(2) of the Act, to the extent prescribed 
by paragraphs (b)(7)(i), (b)(8)(i), and (b)(14), provided that such 
company complies with the conditions set forth in those paragraphs as if 
it were a separate account.
    (c) When used in this rule:
    (1) Variable life insurance contract means a contract of life 
insurance, subject to regulation under the insurance laws or code of 
every jurisdiction in which it is offered, funded by a separate account 
of a life insurer, which contract, so long as payments are duly paid in 
accordance with its terms, provides for:
    (i) A death benefit and cash surrender value which vary to reflect 
the investment experience of the separate account;
    (ii) An initial stated dollar amount of death benefit, and payment 
of a death benefit guaranteed by the life insurer to be at least equal 
to such stated amount; and
    (iii) Assumption of the mortality and expense risks thereunder by 
the life insurer for which a charge against the assets of the separate 
account may be assessed. Such charge shall be disclosed in the 
prospectus and shall not be less than fifty per centum of the maximum 
charge for risk assumption as disclosed in the prospectus and as 
provided for in the contract.
    (2) Incidental insurance benefits means insurance benefits provided 
pursuant to the variable life insurance contract, other than the minimum 
and variable death benefit, which do not vary in amount or duration in 
accordance with the investment performance of the separate account, and 
include, but are not limited to, accidental death and dismemberment 
benefits, disability income benefits, guaranteed insurability options, 
and family income or fixed benefit term riders.
    (3) Minimum death benefit is the amount guaranteed by the life 
insurer to be paid pursuant to a variable life insurance contract in the 
event of the death of the insured without regard to the investment 
performance of the separate account funding the variable life insurance 
contract, if payments are duly made and if there are no outstanding 
loans, partial withdrawals or partial surrenders, but does not include 
any incidental insurance benefits.
    (4) Sales load charged on any payment is the excess of the payment 
over the sum of the following:
    (i) The amount of the cash value for the first contract year, if 
any, and the amount of the increase in the cash value for each 
subsequent contract year, that is attributable to payments made and not 
attributable to investment earnings;
    (ii) The cost of insurance for the period for which the payment is 
made based on the 1958 Commissioners Standard Ordinary Mortality Table 
and the assumed investment rate specified in the contract;
    (iii) A reasonable charge necessary to cover the risk assumed by the 
life insurer that the variable death benefit will be less than the 
guaranteed minimum death benefit;
    (iv) Any administrative expenses or fees which are reasonable and in 
amounts not exceeding anticipated administrative expenses and fees not 
properly chargeable to sales or promotional activities;
    (v) A deduction approximately equal to state premium taxes;
    (vi) Any additional charge assessed if the insured does not meet 
standard underwriting requirements;

[[Page 742]]

    (vii) Any additional charge assessed specifically for any incidental 
insurance benefits which do not vary in relation to the performance of 
the separate account;
    (viii) Any additional charge, in the nature of an interest or 
service charge or administrative fee, assessed when payments are made 
more frequently than annually;
    (ix) For a participating variable life insurance contract, a 
deduction for dividends to be paid or credited in accordance with the 
dividend scale in effect on the issue date of the contract assuming a 
gross annual investment return for the separate account which funds such 
contract of 4 percent after deduction for any Federal income taxes, 
which deduction may be determined pursuant to either of the following 
methods, provided that the same method must be applied with respect to 
each payment under the contract:
    (A) The actuarial level annual equivalent of dividends to be paid or 
credited over the period described in paragraph (b)(13)(i) of this 
section, based upon the mortality, interest and lapse assumptions used 
in computing the dividend scale for such contract multiplied by the 
fraction of the contract year for which the payment is made; or
    (B) That portion of the dividend to be paid for the contract year 
which does not depend on the making of additional payments.
    (5) Assumed investment rate is the rate of investment return 
specified in the contract which would be required to be credited to a 
variable life insurance contract, after deduction of charges for Federal 
income taxes, investment management fees, portfolio transaction expenses 
and mortality and expense guarantees, to maintain the variable death 
benefit equal at all times to the amount of death benefit, other than 
incidental insurance benefits, which would be payable pursuant to the 
variable life insurance contract if the death benefit did not vary 
according to the investment experience of the separate account.
    (6) Variable death benefit is the amount of death benefit, other 
than incidental insurance benefits, payable under a variable life 
insurance contract which varies to reflect the investment performance of 
the separate account, and which would be payable in the absence of the 
minimum death benefit.
    (7) Payment, as used in paragraphs (b)(13)(i), (b)(13)(ii) and 
(b)(13)(v)(A) of this section and in sections 27(a)(2) and 27(h)(2) 
solely with respect to variable life insurance contracts, means the 
gross premium payment made less any portion of such gross premium 
charged for or attributable to the items specified in paragraphs 
(c)(4)(vi), (vii) and (viii) of this section. ``Payment,'' as used in 
any other section of the Rule, means the gross premiums paid or payable 
for the variable life insurance contract.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a), 
respectively))

[41 FR 47027, Oct. 27, 1976; 41 FR 52668, Dec. 1, 1976, as amended at 49 
FR 1477, Jan. 12, 1984; 67 FR 43536, June 28, 2002]



Sec. 270.6e-3(T)  Temporary exemptions for flexible premium variable 
life insurance separate accounts.

    (a) A separate account, and its investment adviser, principal 
underwriter and depositor, shall, except as provided in paragraph (b) of 
this Rule, comply with all provisions of the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) and the rules under it that apply to a 
registered investment company issuing periodic payment play certificates 
if:
    (1) It is a separate account within the meaning of section 2(a)(37) 
of the Act (15 U.S.C. 80a-2(a)(37)) and is established and maintained by 
a life insurance company pursuant to the insurance laws or code of (i) 
any state or territory of the United States or the District of Columbia, 
or (ii) Canada or any province thereof, if it complies with Rule 7d-1 
(17 CFR 270.7d-1) under the Act (the ``life insurer'');
    (2) The assets of the separate account are derived solely from (i) 
the sale of flexible premium variable life insurance contracts 
(``flexible contracts'') as defined in paragraph (c)(1) of this Rule, 
(ii) the sale of scheduled premium variable life insurance contracts 
(``scheduled contracts'') as defined in paragraph (c)(1) of Rule 6e-2 
(17 CFR 270.6e-2) under the Act, (iii) funds corresponding to dividend 
accumulations

[[Page 743]]

with respect to such contracts, and (iv) advances made by the life 
insurer in connection with the operation of such separate account;
    (3) The separate account is not used for variable annuity contracts 
or other contract liabilities not involving life contingencies;
    (4) The separate account is legally segregated, and that part of its 
assets with a value approximately equal to the reserves and other 
contract liabilities for such separate account are not chargeable with 
liabilities arising from any other business of the life insurer;
    (5) The value of the assets of the separate account, each time 
adjustments in the reserves are made, is at least equal to the reserves 
and other contract liabilities of the separate account, and at all other 
times approximately equals or exceeds the reserves and liabilities; and
    (6) The investment adviser of the separate account is registered 
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
    (b) A separate account that meets the requirements of paragraph (a) 
of this Rule, and its investment adviser, principal underwriter and 
depositor shall be exempt with respect to flexible contracts funded by 
the separate account from the following provisions of the Act:
    (1) Section 2(a)(35) (15 U.S.C. 80a-2(a)(35)), Provided, however, 
That the term ``sales load,'' as used in the Act and rules under it, 
shall have the meaning set forth in paragraph (c)(4) of this Rule. And 
provided further, That in connection with any sales load deducted 
pursuant to paragraph (d)(1) of this Rule, the separate account and 
other persons shall be exempt from sections 2(a)(32) (15 U.S.C. 80a-
2(a)(32)), 12(b) (15 U.S.C. 80a-12(b)), 22(c) (15 U.S.C. 80a-22(c)), 
26(a) (15 U.S.C. 80a-26(a)), 27(c)(1) (15 U.S.C. 80a-27(c)(1)), 27(c)(2) 
(15 U.S.C. 80a-27(c)(2)), and 27(d) (15 U.S.C. 80a-27(d)), and Rules 
12b-1 (17 CFR 270.12b-1) and 22c-1 (17 CFR 270.22c-1).
    (2) Section 7 (15 U.S.C. 80a-7).
    (3) Section 8 (15 U.S.C. 80a-8), to the extent that:
    (i) For purposes of paragraph (a) of section 8, the separate account 
filed with the Commission a notification on Form N-6EI-1 (17 CFR 
274.301) which identifies the separate account; and
    (ii) For purposes of paragraph (b) of section 8, the separate 
account shall file with the Commission the form designated by the 
Commission within ninety days after filing the notification on Form N-
6EI-1, Provided, however, That if the fiscal year of the separate 
account end within this ninety day period, the form may be filed within 
ninety days after the end of such fiscal year.
    (4) Section 9 (15 U.S.C. 80a-9), to the extent that:
    (i) The eligibility restrictions of section 9(a) shall not apply to 
persons who are officers, directors or employees of the life insurer or 
its affiliates and who do not participate directly in the management or 
administration of the separate account or in the sale of flexible 
contracts; and
    (ii) A life insurer shall be ineligible under paragraph (3) of 
section 9(a) to serve as investment adviser, depositor of or principal 
underwriter for the separate account only if an affiliated person of 
such life insurer, ineligible by reason of paragraphs (1) or (2) of 
section 9(a), participates directly in the management or administration 
of the separate account or in the sale of flexible contracts.
    (5) Section 13(a) (15 U.S.C. 80a-13(a)), to the extent that:
    (i) An insurance regulatory authority may require pursuant to 
insurance law or regulation that the separate account make (or refrain 
from making) certain investments which would result in changes in the 
sub-classification or investment policies of the separate account;
    (ii) Changes in the investment policy of the separate account 
initiated by its contractholders or board of directors may be 
disapproved by the life insurer, if the disapproval is reasonable and is 
based on a good faith determination by the life insurer that:
    (A) The change would violate state law; or
    (B) The change would not be consistent with the investment 
objectives of the separate account or would result in the purchase of 
securities for the separate account which vary from the

[[Page 744]]

general quality and nature of investments and investment techniques used 
by other separate accounts of the life insurer or of an affiliated life 
insurance company with similar investment objectives;
    (iii) Any action described in paragraph (b)(5)(i) or (ii) of this 
Rule and the reasons for it shall be disclosed in the next communication 
to contractholders, but in no case, later than twelve months from the 
date of such action.
    (6) Section 14(a) (15 U.S.C. 80a-14(a)), Provided, That until the 
separate account has total assets of at least $100,000, the life insurer 
shall have (i) a combined capital and surplus, if a stock company, or 
(ii) an unassigned surplus, if a mutual company, of not less than 
$1,000,000 as set forth in the balance sheet of such life insurer 
contained in the registration statement for flexible contracts filed 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (the ``1933 
Act'').
    (7)(i) Section 15(a) (15 U.S.C. 80a-15(a)), to the extent it 
requires that the initial written contract with the investment adviser 
shall have been approved by the vote of a majority of the outstanding 
voting securities of the registered investment company, Provided, That:
    (A) The investment adviser is selected and a written contract is 
entered into before the effective date of the 1933 Act registration 
statement for flexible contracts, and that the terms of the contract are 
fully disclosed in the registration statement, and
    (B) A written contract is submitted to a vote of contractholders at 
their first meeting and within one year after the effective date of the 
1933 Act registration statement, unless the Commission upon written 
request and for good cause shown extends the time for the holding of 
such meeting;
    (ii) Sections 15 (a), (b) and (c), to the extent that:
    (A) An insurance regulatory authority may disapprove pursuant to 
insurance law or regulation any contract between the separate account 
and an investment adviser or principal underwriter;
    (B) Changes in the principal underwriter for the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, Provided, That such 
disapproval is reasonable;
    (C) Changes in the investment adviser of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, Provided, That such 
disapproval is reasonable and is based on a good faith determination by 
the life insurer that:
    (1) The proposed investment advisory fee will exceed the maximum 
rate specified in any flexible contract that may be charged against the 
assets of the separate account for such services; or
    (2) The proposed investment adviser may be expected to employ 
investment techniques which vary from the general techniques used by the 
current investment adviser to the separate account, or advise the 
purchase or sale of securities which would not be consistent with the 
investment objectives of the separate account, or which would vary from 
the quality and nature of investments made by other separate accounts 
with similar investment objectives of the life insurer or an affiliated 
life insurance company;
    (D) Any action described in paragraph (b)(7)(ii) (A), (B) or (C) of 
this Rule and the reasons for it shall be disclosed in the next 
communication to contractholders, but in no case, later than twelve 
months from the date of such action.
    (8) Section 16(a) (15 U.S.C. 80a-16(a)), to the extent that:
    (i) Directors of the separate account serving before the first 
meeting of the account's contractholders are exempt from the requirement 
of section 16(a) that they be elected by the holders of outstanding 
voting securities of the account at an annual or special meeting called 
for that purpose, Provided, That:
    (A) Such persons were appointed directors of the account by the life 
insurer before the effective date of the 1933 Act registration statement 
for flexible contracts and are identified in the registration statement 
(or are replacements appointed by the life insurer for any such persons 
who have become unable to serve as directors), and

[[Page 745]]

    (B) An election of directors for the account is held at the first 
meeting of contractholders and within one year after the effective date 
of the 1933 Act registration statement for flexible contracts, unless 
the time for holding the meeting is extended by the Commission upon 
written request and for good cause shown;
    (ii) A member of the board of directors of the separate account may 
be disapproved or removed by an insurance regulatory authority if the 
person is not eligible to be a director of the separate account under 
the law of the life insurer's domicile.
    (9) Section 17(f) (15 U.S.C. 80a-17(f)), to the extent that the 
securities and similar investments of a separate account organized as a 
management investment company may be maintained in the custody of the 
life insurer or of an affiliated life insurance company, Provided, That:
    (i) The securities and similar investments allocated to the separate 
account are clearly identified as owned by the account, and the 
securities and similar investments are kept in the vault of an insurance 
company which meets the qualifications in paragraph (b)(9)(ii) of this 
Rule, and whose safekeeping function is supervised by the insurance 
regulatory authorities of the jurisdiction in which the securities and 
similar investments will be held;
    (ii) The insurance company maintaining such investments must file 
with an insurance regulatory authority of a state or territory of the 
United States or the District of Columbia an annual statement of its 
financial condition in the form prescribed by the National Association 
of Insurance Commissioners, must be subject to supervision and 
inspection by such authority and must be examined periodically as to its 
financial condition and other affairs by such authority, must hold the 
securities and similar investments of the separate account in its vault, 
which vault must be equivalent to that of a bank which is a member of 
the Federal Reserve System, and must have a combined capital and 
surplus, if a stock company, or an unassigned surplus, if a mutual 
company, of not less than $1,000,000 as set forth in its most recent 
annual statement filed with such authority;
    (iii) Access to such securities and similar investments shall be 
limited to employees of the Commission, representatives of insurance 
regulatory authorities, independent public accountants retained by the 
separate account (or on its behalf by the life insurer), accountants for 
the life insurer, and to no more than 20 persons authorized by a 
resolution of the board of directors of the separate account, which 
persons shall be directors of the separate account, officers and 
responsible employees of the life insurer or officers and responsible 
employees of the affiliated life insurance company in whose vault the 
investments are kept (if applicable), and access to such securities and 
similar investments shall be had only by two or more such persons 
jointly, at least one of whom shall be a director of the separate 
account or officer of the life insurer;
    (iv) The requirement in paragraph (b)(9)(i) of this Rule that the 
securities and similar investments of the separate account be maintained 
in the vault of a qualified insurance company shall not apply to 
securities deposited with insurance regulatory authorities or deposited 
in accordance with any rule under section 17(f), or to securities on 
loan which are collateralized to the extent of their full market value, 
or to securities hypothecated, pledged, or placed in escrow for the 
account of such separate account in connection with a loan or other 
transaction authorized by specific resolution of the board of directors 
of the separate account, or to securities in transit in connection with 
the sale, exchange, redemption, maturity or conversion, the exercise of 
warrants or rights, assents to changes in terms of the securities, or to 
other transactions necessary or appropriate in the ordinary course of 
business relating to the management of securities;
    (v) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the custody of the life insurer or 
affiliated life insurance company, shall sign a notation showing (A)

[[Page 746]]

the date and time of the deposit, withdrawal or order, (B) the title and 
amount of the securities or other investments deposited, withdrawn or 
ordered to be withdrawn, and an identification thereof by certificate 
numbers or otherwise, (C) the manner of acquisition of the securities or 
similar investments deposited or the purpose for which they have been 
withdrawn, or ordered to be withdrawn, and (D) if withdrawn and 
delivered to another person, the name of such person. The notation shall 
be sent promptly to an officer or director of the separate account or 
the life insurer designated by the board of directors of the separate 
account who is not himself permitted to have access to the securities or 
investments under paragraph (b)(9)(iii) of this Rule. The notation shall 
be on serially numbered forms and shall be kept for at least one year;
    (vi) The securities and similar investments shall be verified by 
complete examination by an independent public accountant retained by the 
separate account (or on its behalf by the life insurer) at least three 
times each fiscal year, at least two of which shall be chosen by the 
accountant without prior notice to the separate account. A certificate 
of the accountant stating that he has made an examination of such 
securities and investments and describing the nature and extent of the 
examination shall be sent to the Commission by the accountant promptly 
after each examination;
    (vii) Securities and similar investments of a separate account 
maintained with a bank or other company whose functions and physical 
facilities are supervised by federal or state authorities under any 
arrangement whereby the directors, officers, employees or agents of the 
separate account or the life insurer are authorized or permitted to 
withdraw such investments upon their mere receipt are deemed to be in 
the custody of the life insurer and shall be exempt from the 
requirements of section 17(f) so long as the arrangement complies with 
all provisions of this paragraph (b)(9), except that such securities 
will be maintained in the vault of a bank or other company rather than 
the vault of an insurance company.
    (10) Section 18(i) (15 U.S.C. 80a-18(i)), to the extent that:
    (i) For the purposes of any section of the Act which provides for 
the vote of securityholders on matters relating to the investment 
company:
    (A) Flexible contractholders shall have one vote for each $100 of 
cash value funded by the separate account, with fractional votes 
allocated for amounts less than $100;
    (B) The life insurer shall have one vote for each $100 of assets of 
the separate account not otherwise attributable to contractholders under 
paragraph (b)(10)(i)(A) of this Rule, with fractional votes allocated 
for amounts less than $100, Provided, That after the commencement of 
sales of flexible contracts, the life insurer shall cast its votes for 
and against each matter which may be voted upon by contractholders in 
the same proportion as the votes cast by contractholders; and
    (C) The number of votes to be allocated shall be determined as of a 
record date not more than 90 days before any meeting at which such vote 
is held, Provided, That if a quorum is not present at the meeting, the 
meeting may be adjourned for up to 60 days without fixing a new record 
date;
    (ii) The requirement of this section that every share of stock 
issued by a registered management investment company (except a common-
law trust of the character described in section 16(c) (15 U.S.C. 80a-
16(c))) shall be a voting stock and have equal voting rights with every 
other outstanding voting stock shall not be deemed to be violated by 
actions specifically permitted by any provisions of this Rule.
    (11) Section 19 (15 U.S.C. 80a-19), to the extent that the 
provisions of this section shall not apply to any dividend or similar 
distribution paid or payable under provisions of participating flexible 
contracts.
    (12) Sections 22(c), 22(d) (15 U.S.C. 80a-22(d)), 22(e) (15 U.S.C. 
80a-22(e)), and 27(c)(1) and Rule 22c-1 to the extent:
    (i) The cash value of each flexible contract shall be computed in 
accordance with Rule 22c-1(b) under the Act; Provided, however, That 
where actual computation is not necessary for the operation of a 
particular contract, then

[[Page 747]]

the cash value of that contract must only be capable of computation; And 
provided further, That to the extent the calculation of the cash value 
reflects deductions for the cost of insurance and other insurance 
benefits or administrative expenses and fees or sales loads, such 
deductions need only be made at such times as specified in the contract 
or as necessary for compliance with insurance laws and regulations; and
    (ii) The death benefit, unless required by insurance laws and 
regulations, shall be computed on any day that the investment experience 
of the separate account would affect the death benefit under the terms 
of the contract provided that such terms are reasonable, fair, and 
nondiscriminatory;
    (iii) Necessary to comply with this Rule or with insurance laws and 
regulations and established administrative procedures of the life 
insurer for issuance, increases in or additions of insurance benefits, 
transfer and redemption of flexible contracts, including, but not 
limited to, premium rate structure and premium processing, insurance 
underwriting standards, and the particular benefit afforded by the 
contract, Provided, however, That any procedure or action shall be 
reasonable, fair and not discriminatory to the interests of the affected 
contractholders and to all other holders of contracts of the same class 
or series funded by the separate account, And provided further, That any 
such action shall be disclosed in the form filed by the separate account 
with the Commission under paragraph (b)(3)(ii) of this Rule.
    (13) Section 27 (15 U.S.C. 80a-27), to the following extent:
    (i) Section 27(a)(1) (15 U.S.C. 80a-27(a)(1)), 27(h)(1) (15 U.S.C. 
80a-27(h)(1)), and 27(h)(4) (15 U.S.C. 80a-27(h)(4)), to the extent that 
sales load, as defined in paragraph (c)(4) of this Rule, deducted does 
not exceed that permitted by either paragraph (b)(13)(i)((A) or 
(b)(13)(i)(B) of this section:
    (A) 9 per centum of the sum of the guideline annual premiums that 
would be paid during the period equal to the lesser of 20 years or the 
anticipated life expectancy of the insured named in the contract based 
on the 1980 Commissioners Standard Ordinary Mortality Table, Provided, 
That this paragraph (b)(13)(i)(A) shall not prohibit deduction of sales 
load, in any manner permitted by this Rule, from payments made in excess 
of the sum of the guideline annual premiums that would be paid during 
the lesser of 20 years or the anticipated life expectancy of the insured 
based on the 1980 Commissioners Standard Ordinary Mortality Table; or
    (B) 9 per centum of payments made thereon; Provided, That the 
separate account elects by written notice to the Commission to be 
governed (with respect to each class of flexible contract offered) by 
either paragraph (b)(13)(i)(A) or (B); Provided, however, That for each 
class of flexible contract that requires more than four guideline annual 
premiums within the first two contract periods following issuance of the 
contract or of an increase in or addition of insurance benefits (within 
the meaning of paragraph (d)(2) of this section), the separate account 
must elect to be governed by paragraph (b)(13)(i)(B) of this section.
    (ii) Sections 27(a)(3) (15 U.S.C. 80a-27(a)(3)) and 27(h)(3) (15 
U.S.C. 80a-27(h)(3)), Provided, That the proportionate amount of sales 
load deducted from any payment shall not exceed the proportionate amount 
deducted from any prior payment unless an increase is caused by 
reductions in the annual cost of insurance, or a reduction in the sales 
load deducted from amounts transferred to a flexible contract from 
another plan of insurance;
    (iii) Sections 27(c)(2), 26(a)(1) (15 U.S.C. 80a-26(a)(1)), and 
26(a)(2) (15 U.S.C. 80a-26(a)(2)), to the extent necessary to permit the 
actions described in paragraphs (A) through (F) of this section, 
Provided, That the life insurer complies with all other applicable 
provisions of section 26 as if it were a trustee, depositor or custodian 
for the separate account; files with the insurance regulatory authority 
of a state or territory of the United States or of the District of 
Columbia an annual statement of its financial condition in the form 
prescribed by the National Association of Insurance Commissioners, which 
most recent statement indicates

[[Page 748]]

that it has a combined capital and surplus, if a stock company, or an 
unassigned surplus, if a mutual company, of not less than $1,000,000; 
and is examined from time to time by the insurance regulatory authority 
of such state, territory or District of Columbia as to its financial 
condition and other affairs and is subject to supervision and inspection 
with respect to its separate account operations.
    (A) Payment of a fee to the life insurer, or to any affiliated 
person or agent of the insurer, for bookkeeping or other administrative 
services provided to the separate account, or for administrative 
services or expenses incurred in underwriting, issuing, and maintaining 
flexible contracts, Provided, That the fee is not greater than the 
expenses, without profit:
    (1) Actually paid by the life insurer for the services provided; and
    (2) Increased by the value of any services provided directly by the 
life insurer, as determined in accordance with generally accepted 
accounting principles consistently applied.

The standard set forth in this paragraph shall be applied as follows: if 
the separate account reserves the right to increase the fee, the fee 
shall not exceed the cost of the services to be provided for one year; 
or if the fee is guaranteed not to increase for a specified period of 
time, the fee shall not exceed the average expected cost of the services 
to be provided during the period of the guarantee;
    (B) The holding of the assets of the separate account by the life 
insurer without a trust indenture or other such instrument;
    (C) When the separate account is organized as a unit investment 
trust, the holding of the securities of any registered management 
investment company which offers its shares to the separate account in 
uncertificated form;
    (D) When the separate account is organized as a management 
investment company, the holding of its assets in any manner permitted by 
paragraph (b)(9) of this Rule or by section 17(f) or the rules under it;
    (E) The deduction of premium or other taxes imposed by any state or 
other governmental entity, the cost of insurance, charges assessed for 
incidental insurance benefits or if the insured does not meet standard 
underwriting requirements, and, if the separate account is organized as 
a management investment company, an investment advisory fee;
    (F) The deduction of a charge for mortality, expense, and any 
guaranteed death benefit risks assumed by the life insurer under the 
flexible contracts (collectively, a ``risk charge''), Provided, That the 
registration statement under the 1933 Act for flexible contracts 
includes:
    (1) A representation that this paragraph is being relied upon;
    (2) A representation that the level of the risk charge either is:
    (i) Within the range of industry practice for comparable flexible or 
scheduled contracts, or
    (ii) Reasonable in relation to the risks assumed by the life insurer 
under the contracts;
    (3) A brief description of the methodology used to support the 
representation made in response to paragraph (b)(13)(iii)(F)(2) of this 
Rule and an undertaking to keep and make available to the Commission 
upon request the documents used to support that representation;
    (4) A representation that either:
    (i) The proceeds from explicit sales loads will be sufficient to 
cover the expected costs of distributing the flexible contracts; or
    (ii)(A) The life insurer has concluded that there is a reasonable 
likelihood that the distribution financing arrangement of the separate 
account will benefit the separate account and contractholders and will 
keep and make available to the Commission on request a memorandum 
setting forth the basis for this representation; and
    (B) If the separate account is organized as a management investment 
company, a representation that the account will have a board of 
directors, a majority of whom are not interested persons of the separate 
account, formulate and approve any plan under Rule 12b-1 to finance 
distribution expenses. If the separate account is organized as a unit 
investment trust, a representation that the account will invest only in 
management investment companies which have undertaken to have a board

[[Page 749]]

of directors, a majority of whom are not interested persons of the 
company, formulate and approve any plan under Rule 12b-1 to finance 
distribution expenses.

Notwithstanding the provisions of this paragraph (b)(13)(iii)(F), no 
risk charge may be deducted in reliance thereupon if the registration 
statement or amendment thereto which initially sets forth the deduction 
of such charge or its increase becomes effective by lapse of time 
pursuant to section 8(a) of the 1933 Act or Rule 485 (17 CFR 230.485) 
thereunder. Such charge shall be disclosed in the prospectus and shall 
not be less than fifty per centum of the maximum charge for risk 
assumption as disclosed in the prospectus and as provided for in the 
contract. Any separate account organized under the Act as a management 
investment company and deducting a risk charge pursuant to this section 
shall be exempt from section 12(b) and Rule 12b-1 thereunder to the 
extent that monies derived from the risk charge may be used to finance 
distribution of the flexible contracts;
    (iv) Sections 27(c)(1) and 27(d), and sections 2(a)(32) and 22(c) 
and Rule 22c-1 thereunder, to the extent that:
    (A) Such sections require that the flexible contract be redeemable 
or provide for a refund in cash, Provided, That the contract provides 
for election by the contractholder of a cash surrender value or certain 
non-forfeiture and settlement options which are required or permitted by 
the insurance law or regulation of the jurisdiction in which the 
contract is offered, And provided further, That unless required by the 
insurance law or regulation of the jurisdiction in which the contract is 
offered or unless elected by the contractholder, the contract shall not 
provide for the automatic imposition of any option, including, but not 
limited to, an automatic premium loan, which would involve the accrual 
or payment of an interest or similar charge.
    (B) Notwithstanding the provisions of paragraph (b)(13)(iv)(A) of 
this Rule, if the amounts available under the contract to pay the 
charges due under the contract on any contract processing day are less 
than such charges due, the contract may provide that the cash surrender 
value (and any excess paid for sales loading not used to keep the 
contract in force pursuant to paragraph (b)(13)(iv)(B)(2) of this Rule) 
shall be applied to purchase a non-forfeiture option specified by the 
life insurer in such contract, Provided, That the contract also provides 
that:
    (1) Contract processing days occur not less frequently than monthly, 
and
    (2) the amount of any excess paid for sales loading (as provided in 
paragraph (b)(13)(v)(A) of this Rule) shall first be applied to keep the 
contract in force, Provided, however, That if the contractholder 
subsequently makes a payment, the life insurer may recover such excess 
loading;
    (C) Subject to other provisions of this Rule, sales loads and 
administrative expenses or fees may be deducted upon redemption.
    (v) Section 27(d), Provided, That the flexible contract gives the 
holder thereof the right to:
    (A) Surrender the contract at any time during the first 24 months 
after issuance and receive in cash an amount not less than the sum of 
the present value of his contract which is the cash surrender value next 
computed after receipt by the life insurer of the request for surrender 
in proper form, plus, an amount which is a refund of any excess paid for 
sales loading prior to or in connection with the surrender. The amount 
of sales loading to be refunded shall be equal to that part of the sales 
loading in excess of (1) the sum of 30 per centum of payments in 
aggregate amount less than or equal to one guideline annual premium, 
plus 10 per centum of payments in aggregate amount greater than one 
guideline annual premium but not more than two guideline annual 
premiums, and (2) 9 per centum of each payment made in excess of two 
guideline annual premiums;
    (B) Convert the contract at any time during the first 24 months 
after issuance, so long as the contract is in force, to a life insurance 
policy on the life of the insured under a plan of insurance (other than 
a plan involving a flexible contract as defined in paragraph (c)(1) of 
this Rule or a scheduled contract as defined in paragraph (c)(1) of Rule 
6e-2) specified in the contract,

[[Page 750]]

issued by the life insurer or by an affiliated life insurance company, 
which provides for (1) at the election of the contractholder, either the 
same death benefit or the same net amount at risk as the flexible 
contract at the time of conversion and (2) premiums (or cost of 
insurance or other charges, (``charges'') if such plan of insurance 
provides for flexible premiums) which are based on the same issue age 
and risk classification of the insured as the flexible contract. The 
conversion shall be subject to an equitable adjustment in payments and 
cash values to reflect variances, if any, in the payments (or charges), 
dividends, and cash values under the flexible contract and the new 
policy. The method of computing such adjustment shall be filed with the 
Commission as an exhibit to the form required under paragraph (b)(3)(ii) 
of this Rule;
    (vi) A depositor or principal underwriter for a flexible contract 
sold subject to section 27(d) or section 27(f), or both, shall be exempt 
from the requirements of Rule 27d-1 (17 CFR 270.27d-1) if an insurance 
company undertakes in writing to guarantee the performance of all 
obligations of such depositor or principal underwriter under sections 
27(d) and 27(f) to refund charges, and such insurance company, depositor 
and principal underwriter comply with all provisions of Rule 27d-2 (17 
CFR 270.27d-2);
    (vii) Section 27(e) [15 U.S.C. 80a-27(e)] and Rule 27e-1 (17 CFR 
270.27e-1) thereunder, to the extent that the separate account and the 
depositor and principal underwriter therefor, when such persons are 
subject to paragraph (b)(13)(v)(A) of this Rule, are required to provide 
a notice of right of surrender and refund to holders of flexible 
contracts, if the life insurer or a duly authorized agent provides a 
notice of surrender and refund rights on a written document containing 
information comparable to that required by Form N-27I-1 (17 CFR 274.301) 
to the holder of any flexible contract under which a refund may be 
available, Provided, That such notice shall be sent by first class mail 
or personal delivery to the contractholder:
    (A) Upon issuance of the flexible contract, which notice may be sent 
together with the issued contract and an illustration, in a form 
appropriate for inclusion in the prospectus for the flexible contract, 
of guideline annual premiums, death benefits and cash surrender values 
applicable to the age, sex and underwriting classification of the 
insured; and
    (B) On any contract processing day, prior to the expiration of the 
surrender and refund right provided in paragraph (b)(13)(v)(A) of this 
Rule, on which the amounts available under the contract on such day to 
pay the charges authorized by the contract are less than the amount 
necessary to keep the contract in force until the next following 
contract processing day. This notice may be sent together with any 
notice required by applicable state authority to be sent in these 
circumstances; Provided, however, That the right of surrender and refund 
provided by paragraph (b)(13)(v)(A) of this Rule shall not expire until 
not less than 15 days after the mailing or receipt, if personally 
delivered, of the last notice referred to in this paragraph 
(b)(13)(vii)(B) of this section;
    (viii) Section 27(f) and Rule 27f-1 thereunder (17 CFR 270.27f-1), 
Provided, That:
    (A) The contractholder may elect to return the contract within 45 
days of the date of the execution of the application for insurance, or 
within 10 days after receipt of the issued contract by the 
contractholder, or within 10 days after mailing or personal delivery of 
the notice of the right of withdrawal referred to in paragraph 
(b)(13)(viii)(C) of this Rule, whichever is later, and receive a refund 
equal to the sum of (1) the difference between the payments made, 
including any contract fees or other charges, and the amounts allocated 
to the separate account under the contract, (2) the value of the amounts 
allocated to the separate account under the contract on the date the 
returned contract is received by the insurer or its agent, and (3) any 
contract fees and other changes imposed on the amounts allocated to such 
separate account, Provided, however, That if state law or the contract 
so require, the redeeming contractholder shall receive a refund of all 
payments made for such contract;

[[Page 751]]

    (B) A refund in accordance with paragraph (b)(13)(viii)(A) of this 
Rule to redeeming contractholders will not in any way affect the 
interests in the separate account or the benefits of other flexible or 
scheduled contractholders;
    (C) Notice of such withdrawal right and a statement of contract fees 
and other charges on a written document containing information 
comparable to that required by Form N-27I-2 (17 CFR 274.303) is sent by 
first class mail or personal delivery to the contractholder, which 
notice and statement may be accompanied by the flexible contract, and an 
illustration, in a form appropriate for inclusion in the prospectus for 
the flexible contract, of guideline annual premiums (or, if the contract 
is subject to paragraph (b)(13)(i)(B), payments), death benefits and 
cash surrender values applicable to the age, sex and underwriting 
classification of the insured;
    (D) The contractholder, in conjunction with the notice of withdrawal 
right referred to in paragraph (b)(13)(viii)(C) of this section, is 
provided with a form of request for refund of the amount computed in 
accordance with paragraph (b)(13)(viii)(A), which form shall set forth:
    (1) Instructions as to the manner in which a refund may be obtained, 
including the address to which the request form should be mailed; and
    (2) Spaces necessary to indicate the date of such request, the 
contract number and the signature of the contractholder; and
    (E) Within 7 days from the receipt of such duly executed timely 
request for refund, the life insurer will refund in cash to the 
contractholder the amount computed in accordance with paragraph 
(b)(13)(viii)(A) of this Rule; and
    (ix) Solely for purposes of paragraphs (b)(13)(v) and (b)(13)(viii) 
of this Rule, the postmark date on the envelope containing the flexible 
contract shall determine whether such contract has been submitted for 
surrender, conversion, or withdrawal within the designated period.
    (14) Section 32(a)(2) (15 U.S.C. 80a-31(a)(2)), Provided, That:
    (i) The independent public accountant is selected before the 
effective date of the 1933 Act registration statement for flexible 
contracts, and the identity of the accountant is disclosed in the 
registration statement, and
    (ii) The selection of the accountant is submitted for ratification 
or rejection to flexible contractholders at their first meeting and 
within one year after the effective date of the 1933 Act registration 
statement for flexible contracts, unless the time for holding the 
meeting is extended by order of the Commission.
    (15) If the separate account is organized as a unit investment 
trust, all the assets of which consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance company, offering either scheduled contracts 
or flexible contracts, or both; or which also offer their shares to 
variable annuity separate accounts of the life insurer or of an 
affiliated life insurance company, or which offer their shares to any 
such life insurance company in consideration solely for advances made by 
the life insurer in connection with the operation of the separate 
account; Provided, That: the board of directors of each investment 
company, constituted with a majority of disinterested directors, will 
monitor such company for the existence of any material irreconcilable 
conflict between the interests of variable annuity contractholders and 
scheduled or flexible contractholders investing in such company; the 
life insurer agrees that it will be responsible for reporting any 
potential or existing conflicts to the directors; and if a conflict 
arises, the life insurer will, at its own cost, remedy such conflict up 
to and including establishing a new registered management investment 
company and segregating the assets underlying the variable annuity 
contracts and the scheduled or flexible contracts; Then:
    (i) The eligibility restrictions of section 9(a) shall not apply to 
those persons who are officers, directors or employees of the life 
insurer or its affiliates who do not participate directly in the 
management or administration of any registered management investment 
company described in this paragraph (b)(15);

[[Page 752]]

    (ii) The life insurer shall be ineligible under paragraph (3) of 
section 9(a) to serve as investment adviser of or principal underwriter 
for any registered management investment company described in this 
paragraph (b)(15) only if an affiliated person of such life insurer, 
ineligible by reason of paragraphs (1) or (2) of section 9(a), 
participates in the management or administration of such company;
    (iii) For purposes of any section of the Act which provides for the 
vote of securityholders on matters relating to the separate account or 
the underlying registered investment company, the voting provisions of 
paragraph (b)(10)(i) and (ii) of this Rule apply, Provided, That:
    (A) The life insurer may vote shares of the registered management 
investment companies held by the separate account without regard to 
instructions from contractholders of the separate account if such 
instructions would require such shares to be voted:
    (1) To cause such companies to make (or refrain from making) certain 
investments which would result in changes in the sub-classification or 
investment objectives of such companies or to approve or disapprove any 
contract between such companies and an investment adviser when required 
to do so by an insurance regulatory authority subject to the provisions 
of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of this Rule; or
    (2) In favor of changes in investment objectives, investment adviser 
of or principal underwriter for such companies subject to the provisions 
of paragraphs (b)(5)(ii) and (b)(7)(ii) (B) and (C) of this Rule;
    (B) Any action taken in accordance with paragraph (b)(15)(iii)(A)(1) 
or (2) of this section and the reasons therefor shall be disclosed in 
the next report contractholders made under section 30(e) (15 U.S.C. 80a-
29(e)) and Sec. 270.30e-2;
    (iv) Any registered management investment company established by the 
life insurer and described in this paragraph (b)(15) shall be exempt 
from section 14(a), Provided, That until the company has total assets of 
at least $100,000, the life insurer shall have at least the minimum net 
worth prescribed in paragraph (b)(6) of this Rule; and
    (v) Any registered management investment company established by the 
life insurer and described in this paragraph (b)(15) shall be exempt 
from sections 15(a), 16(a), and 32(a)(2), to the extent prescribed by 
paragraphs (b)(7)(i), (b)(8)(i), and (b)(14) of this Rule, Provided, 
That the company complies with the conditions set forth in those 
paragraphs as if it were a separate account.
    (c) When used in this Rule:
    (1) Flexible premium variable life insurance contract means a 
contract of life insurance, subject to regulation under the insurance 
laws or code of every jurisdiction in which it is offered, funded by a 
separate account of a life insurer, which contract provides for:
    (i) Payments which are not fixed by the life insurer as to both 
timing and amount: Provided, however, That the life insurer may fix the 
timing and minimum amount of payments for the first two contract periods 
following issuance of the contract or of an increase in or addition of 
insurance benefits (within the meaning of paragraph (d)(2) of this 
section), and may prescribe a reasonable minimum amount for any 
additional payment;
    (ii) A death benefit the amount or duration of which may vary to 
reflect the investment experience of the separate account;
    (iii) A cash value which varies to reflect the investment experience 
of the separate account; and
    (iv) There is a reasonable expectation that subsequent payments will 
be made.
    (2) Incidental insurance benefits means insurance benefits provided 
pursuant to the flexible contract, other than any guaranteed and 
variable death benefit, which do not have discrete cash values that may 
vary in amount in accordance with the investment experience of the 
separate account, and include, but are not limited to, accidental death 
and dismemberment benefits, disability income benefits, guaranteed 
insurability options, and family income or fixed benefit term riders.
    (3) Guaranteed death benefit is any amount guaranteed by the life 
insurer to be paid pursuant to a flexible contract in the event of the 
death of the

[[Page 753]]

insured without regard to the investment experience of the separate 
account, if there are no outstanding loans or partial surrenders, but 
does not include any incidental insurance benefits.
    (4) Sales load charged during a contract period is the excess of any 
payments made during the period over the sum of the following:
    (i) The amount of the change (whether it is an increase or decrease) 
in the cash value for the period that is not attributable to net 
investment earnings or to dividends for a participating flexible 
contract for the period;
    (ii) The cost of insurance for the period based on:
    (A) For a flexible contract subject to paragraph (b)(13)(i)(A) of 
this section, the 1980 Commissioners Standard Ordinary Mortality Table 
and net interest at the annual effective rate specified for purposes of 
paragraph (c)(8)(i)(B) of this Rule; or
    (B) For a flexible contract subject to paragraph (b)(13)(i)(B) of 
this section, either the 1980 Commissioners Standard Ordinary Mortality 
Table or the 1958 Commissioners Ordinary Mortality Table (whichever 
relates to rates guaranteed by the contract) and the assumed investment 
rate specified in the contract, Provided, however, That the 1958 
Commissioners Ordinary Mortality Table may only be used for those 
contracts issued before 1990, or such earlier mandatory date for 
implementation of the 1980 Commissioners Standard Ordinary Mortality 
Table under the applicable Standard Nonforfeiture Law for life 
insurance;
    (iii) A reasonable charge necessary to cover the risk assumed by the 
life insurer that the variable death benefit will be less than any 
guaranteed death benefit;
    (iv) Any administrative expenses or fees which are deducted pursuant 
to paragraph (b)(13)(iii)(A) of this Rule;
    (v) A deduction for and approximately equal to state premium taxes;
    (vi) Any additional charge assessed if the insured does not meet 
standard underwriting requirements, including, but not limited to, any 
additional cost of insurance charge for a contract purchased on a 
simplified underwriting or guaranteed issue basis;
    (vii) Any additional charge assessed specifically for any incidental 
insurance benefits;
    (viii) Any additional charge, the nature of an interest charge, 
assessed when payments are made more frequently than annually, but only 
to the extent that such payments are made to fulfill a minimum payment 
requirement imposed pursuant to paragraph (c)(1)(i) of this Rule;
    (ix) Any amounts redeemed by the contractholder or paid out to the 
beneficiary upon the death of the insured which are not attributable to 
net investment earnings for the period; and
    (x) For a participating flexible contract, a deduction for dividends 
to be paid or credited in accordance with the dividend scale in effect 
on the issue date of the contract assuming a net annual investment 
return for the separate account which funds the contract of 5 per 
centum. The deduction may be determined by either of the following 
methods, but the same method must be used for each contract period:
    (A) The actuarial level annual equivalent of dividends to be paid or 
credited over the contract periods described in paragraph (b)(13)(i) of 
this Rule, based upon the mortality, interest and lapse assumptions used 
in computing the dividend scale for the contract (and, if the contract 
is subject to paragraph (b)(13)(i)(A) of this section, the assumption 
that the guideline annual premium will be paid in each contract period) 
multiplied by the fraction of the contract year represented by the 
contract period; or
    (B) That portion of the dividend to be paid for the contract year 
which does not depend on the making of payments in addition to those 
made during the period.
    (5) Contract period means the period from a contract issue or 
anniversary date to the earlier of the next following anniversary date 
(or, if later, the last day of any grace period commencing before such 
next following anniversary date) or the termination date of the 
contract.
    (6) Variable death benefit is the amount of death benefit, other 
than incidental insurance benefits, payable under a flexible contract 
which varies to reflect the investment experience of

[[Page 754]]

the separate account and which would be payable in the absence of any 
guaranteed death benefit.
    (7) Payment, as used in paragraphs (b)(13)(i), (b)(13)(ii), and 
(b)(13)(v)(A) of this Rule and in sections 27(a)(2) and 27(h)(2) solely 
with respect to flexible contracts, means for a contract period the 
gross permiums paid less any portion of such gross premiums charged for 
the items specified in paragraphs (c)(4)(vi), (c)(4)(vii), and 
(c)(4)(viii) of this Rule. ``Payment,'' as used in any other section of 
this Rule, means the gross premiums paid or payable for the flexible 
contract, Except, That ``Payment'' shall not include any amount deducted 
by the life insurer to recover excess sales loading previously applied 
to keep the contract in force pursuant to paragraph (b)(13)(iv)(B)(2) of 
this Rule.
    (8)(i) Guideline annual premium means the level annual amount that 
would be payable through the maturity date specified in paragraph 
(c)(8)(ii)(B) of this Rule for the future benefits under the contract 
if, subject to the provisions of paragraph (c)(8)(ii) of this Rule:
    (A) The payments were fixed by the life insurer as to both timing 
and amount, and
    (B) The payments were based on the 1980 Commissioners Standard 
Ordinary Mortality Table, net investment earnings at the greater of an 
annual effective rate of 5 per centum or rate or rates guaranteed at 
issuance of the flexible contract, the sales load under the contract, 
and the fees and charges associated with the contract specified in 
parapraphs (c)(4)(iii), (c)(4)(iv), (c)(4)(v), (c)(4)(vi), (c)(4)(vii), 
(c)(4)(viii) (for the first two contract periods as permitted by 
paragraphs (c)(1)(i)), and (c)(4)(x) of this Rule.
    (ii) In computing the future benefits under the flexible contract 
for determining the guideline annual premium:
    (A) The excess of the amount payable by reason of the death of the 
insured (determined without regard to any incidental insurance benefits) 
over the cash value of the contract shall be deemed to be not greater 
than such excess at the time the contract was issued,
    (B) The maturity date shall be the latest maturity date permitted 
under the contract but not less than 20 years after the date of issue or 
(if earlier) age 95, and
    (C) The amount of any endowment benefit (or sum of endowment 
benefits) shall be deemed not to exceed the least amount payable by 
reason of the death of the insured (determined without regard to any 
incidental insurance benefits) at any time under the contract.
    (9) Cash value means the amount that would be available in cash upon 
voluntary termination of a contract by its owner before it becomes 
payable by death or maturity, without regard to any charges that may be 
assessed upon such termination and before deduction of any outstanding 
contract loan.
    (10) Cash surrender value means the amount available in cash upon 
voluntary termination of a contract by its owner before it becomes 
payable by death or maturity, after any charges assessed in connection 
with the termination have been deducted and before deduction of any 
outstanding contract loan.
    (11) Net investment earnings means investment earnings in the 
separate account after deduction of any asset charges, including but not 
limited to, such charges for income tax; brokerage and other investment 
expenses; mortality, expense, and guaranteed death benefit risks; and an 
investment advisory fee, but not including deductions for sales load. 
However, ``net investment earnings'' as used in paragraph (c)(4)(i) of 
this Rule shall not include any amount deducted pursuant to paragraphs 
(ii) through (viii) of paragraph (c)(4).
    (12) Contract processing day means any day on which charges under 
the contract are deducted from the separate account.
    (d) The following computational rules shall be used in applying this 
Rule:
    (1) Paragraphs (b)(13)(i) and (b)(13)(ii) of this Rule shall be 
deemed to be satisfied with respect to any flexible contract under which 
sales load is deducted other than from payments prior to the allocation 
of net payments to the separate account if:

[[Page 755]]

    (i) From issuance of the contract through each contract period, the 
aggregate amount of sales load deducted is not more than the aggregate 
amount of sales load that could be deducted under an otherwise identical 
flexible contract that deducted sales load only from payments prior to 
their allocation to the separate account; and
    (ii)(A) The amount of sales load deducted pursuant to any method 
permitted under this paragraph (other than asset-based sales loads) does 
not exceed the proportionate amount of sales load deducted prior thereto 
pursuant to the same method, unless an increase in such proportionate 
amount is caused by reductions in the annual cost of insurance, or a 
reduction in the sales load deducted from amounts transferred to a 
flexible contract from another plan of insurance; or
    (B) For asset-based sales load structures, the percentage of assets 
taken as sales load does not exceed any of the percentages previously 
taken pursuant to the same method, unless an increase in such percentage 
is caused by a reduction in the percentage taken on amounts transferred 
to a flexible contract from another plan of insurance.
    (2)(i) Solely with respect to increases in or additions of insurance 
benefits requested by a contractholder after issuance of a flexible 
contract, the contract shall be deemed to satisfy paragraphs 
(b)(13)(i)(A), (b)(13)(ii), (b)(13)(v), (b)(13)(viii), and (d)(1)(ii) of 
this Rule, Provided, That from issuance of the contract through each 
contract period the aggregate amount of sales load imposed is not more 
than the aggregate amount of sales load that would be permissible under 
the base test contract, as defined in paragraph (d)(2)(iii)(B) of this 
Rule, and the incremental test contract, as defined in paragraph 
(d)(2)(iii)(C) of this Rule.
    (ii) The following procedures shall be used in applying paragraph 
(d)(2)(i) of this section:
    (A) Payments for the actual contract, as defined in paragraph 
(d)(2)(iii)(A) of this Rule, and the base and incremental test contracts 
shall, for purposes of demonstrating compliance with the sales load 
provisions of this Rule, be deemed paid in the following proportionate 
amounts: level annual payments for the base test contract equal to the 
guideline annual premium for the contract, commencing upon issuance; 
level annual payments for the incremental test contract equal to the 
difference between the guideline annual premium for the actual contract 
after the increase in or addition of insurance benefits and before such 
increase or addition, commencing upon such increase or addition; and 
level annual payments for the actual contract equal to the guideline 
annual premium for such contract, commencing upon issuance and adjusted 
for such increase or addition as of the date of such increase or 
addition, Provided that the guideline annual premium used is that 
defined in paragraph (c)(8) of this section;
    (B) To the extent that the increases in, or additions of, insurance 
benefits are funded out of cash value, such cash value shall be 
proportionately allocated between the base test contract and incremental 
test contract according to the ratio of their respective guideline 
annual payments, as described in (d)(2)(ii)(A); and
    (C) It is assumed that no redemptions are made under the actual and 
test contracts.
    (D) An incremental test contract may deduct, in any manner permitted 
by this Rule, not more than 50 per centum of the sales load which would 
otherwise be permitted under the base test contract, and not be subject 
to the surrender, conversion, and withdrawal provisions set forth in 
paragraphs (b)(13)(v) (A) and (B) and (b)(13)(viii) of this Rule, 
Provided, however, That the increased or added benefit will be subject 
to the surrender, conversion, and withdrawal provisions referenced above 
if more than such 50 per centum of sales load is assessed.
    (iii) For purposes of this paragraph (d)(2):
    (A) Actual contract shall mean the flexible contract issued to the 
contractholder, and adjusted for the increase in or addition of 
insurance benefits, as of the date of the increase or addition;
    (B) Base test contract shall mean the actual contract had the 
increase or addition not occurred;

[[Page 756]]

    (C) Incremental test contract shall mean a flexible contract that, 
(1) is issued on the date of the increase or addition, and (2) provides 
insurance benefits identical to the incremental change in insurance 
benefits under the actual contract upon such increase or addition; and
    (D) Any change in insurance benefits which would occur automatically 
under a contract, with or without the opportunity for contractholder 
disapproval, or any change in death benefit operation shall not be 
considered an ``increase in or addition of insurance benefits requested 
by a contractholder'' for purposes of imposing additional sales load.

[52 FR 11208, Apr. 8, 1987, as amended at 59 FR 43467, Aug. 24, 1994; 67 
FR 43536, June 28, 2002]



Sec. 270.7d-1  Specification of conditions and arrangements for Canadian 
management investment companies requesting order permitting registration.

    (a) A management investment company organized under the laws of 
Canada or any province thereof may obtain an order pursuant to section 
7(d) permitting its registration under the act and the public offering 
of its securities, if otherwise appropriate, upon the filing of an 
application complying with paragraph (b) of this section. All such 
applications will be considered by the Commission pursuant to the 
procedure set forth in Sec. 270.0-5 and other applicable rules. 
Conditions and arrangements proposed by investment companies organized 
under the laws of other countries will be considered by the Commission 
in the light of the special circumstances and local laws involved in 
each case.
    (b) An application filed pursuant to this section shall contain, 
inter alia, the following undertakings and agreements of the applicant:
    (1) Applicant will cause each present and future officer, director, 
investment adviser, principal underwriter and custodian of the applicant 
to enter into an agreement, to be filed by applicant with the Commission 
upon the filing of its registration statement or upon the assumption of 
such office by such person which will provide, among other things, that 
each such person agrees (i) to comply with the applicant's Letters 
Patent (Charter) and By Laws, the act and the rules thereunder, and the 
undertakings and agreements contained in said application insofar as 
applicable to such person; (ii) to do nothing inconsistent with the 
applicant's undertakings and agreements required by this section; (iii) 
that the undertakings enumerated as paragraphs (b)(1)(i) and (ii) of 
this section constitute representations and inducements to the 
Commission to issue its order in the premises and continue the same in 
effect, as the case may be; (iv) that each such agreement constitutes a 
contract between such person and the applicant and its shareholders with 
the intent that applicant's shareholders shall be beneficiaries of and 
shall have the status of parties to such agreement so as to enable them 
to maintain actions at law or in equity within the United States and 
Canada for any violation thereof. In addition the agreement of each 
officer and director will contain provisions similar to those contained 
in paragraph (b)(6) of this section.
    (2) That every agreement and undertaking of the applicant, its 
officers, directors, investment adviser, principal underwriter and 
custodian required by this section (i) constitute inducements to the 
Commission for the issuance and continuance in effect of, and conditions 
to, the Commission's order to be entered under this section; (ii) 
constitute a contract among applicant and applicant's shareholders with 
the same intent as set forth in paragraph (b)(1)(iv) of this section; 
and (iii) failure by the applicant or any of the above enumerated 
persons to comply with any such agreement and undertaking, unless 
permitted by the Commission, shall constitute a violation of the order 
entered under this section.
    (3) That the Commission, in its discretion, may revoke its order 
permitting registration of the applicant and the public offering of its 
securities if it shall find after notice and opportunity for hearing 
that there shall have been a violation of such order or the act and may 
determine whether distribution of applicant's assets is necessary or 
appropriate in the interests of investors and may so direct.

[[Page 757]]

    (4) That applicant will perform every action and thing necessary to 
cause and assist the custodian of its assets to distribute the same, or 
the proceeds thereof, if the Commission or a court of competent 
jurisdiction, shall have so directed by a final order.
    (5) That any shareholder of the applicant or the Commission on its 
own motion or on request of shareholders shall have the right to 
initiate a proceeding (i) before the Commission for the revocation of 
the order permitting registration of the applicant or (ii) before a 
court of competent jurisdiction for the liquidation of applicant and a 
distribution of its assets to its shareholders and creditors. Such court 
may enter such order in the event that it shall find, after notice and 
opportunity for hearing that applicant, its officers, directors, 
investment adviser, principal underwriter or custodian shall have 
violated any provision of the act or the Commission's order of 
registration of the applicant.

A court of competent jurisdiction for the purpose of paragraphs (b)(4) 
and (5) of this paragraph means the District Court of the United States 
of the district in which the assets of the applicant are maintained.
    (6) That any shareholder of the applicant shall have the right to 
bring suit at law or in equity, in any court of the United States or 
Canada having jurisdiction over applicant, its assets or any of its 
officers or directors to enforce compliance by applicant, its officers 
and directors with any provision of applicant's Charter or By Laws, the 
act and the rules thereunder, or undertakings and agreements required by 
this section, insofar as applicable to such persons. That such court may 
appoint a trustee or receiver of the applicant with all powers necessary 
to implement the purposes of such suit, including the administration of 
the estate, the collection of corporate property including choses-in-
action, and distribution of applicant's assets to its creditors and 
shareholders. That applicant and its officers and directors waive any 
objection they may be entitled to raise and any right they may have to 
object to the power and right of any shareholder of the applicant to 
bring such suit, reserving, however, their right to maintain that they 
have complied with the aforesaid provisions, undertakings and 
agreements, and otherwise to dispute such suit on its merits. Applicant, 
its officers and directors also agree that any final judgment or decree 
of any United States court as aforesaid, may be granted full faith and 
credit by a court of competent jurisdiction of Canada and consent that 
such Canadian court may enter judgment or decree thereon at the instance 
of any shareholder, receiver or trustee of the applicant.
    (7) Applicant will file, and will cause each of its present or 
future directors, officers, or investment advisers who is not a resident 
of the United States to file with the Commission irrevocable designation 
of the applicant's custodian as an agent in the United States to accept 
service of process in any suit, action or proceeding before the 
Commission or any appropriate court to enforce the provisions of the 
acts administered by the Commission, or to enforce any right or 
liability based upon applicant's Charter, By Laws, contracts, or the 
respective undertakings and agreements of any such person required by 
this section, or which alleges a liability on the part of any such 
persons arising out of their service, acts of transactions relating to 
the applicant.
    (8) Applicant's Charter and By Laws, taken together, will contain, 
so long as applicant is registered under the act in substance the 
following:
    (i) The provisions of the Act as follows: Section 2(a): Provided, 
That the term ``government securities'' defined in section 2(a)(16) may 
include securities issued or guaranteed by Canada or any instrumentality 
of the government of Canada; the term ``value'' defined in section 
2(a)(41) may be defined solely for the purposes of sections 5 and 12 in 
accordance with the provisions of Sec. 270.2a-1 (Rule 2a-1) if the same 
shall be necessary or desirable to comply with Canadian regulatory or 
revenue laws or rules or regulations thereunder; the term ``bank'' 
defined in section 2(a)(5) shall be defined solely for the purposes of 
section 9 and 10, as any banking institution; section 4; section 5; 
section 6(c); section 9; section 10 (a), (b), (c), (e), (f) and (g): 
Provided, That the provisions of section 10(d) may be

[[Page 758]]

substituted for the provisions of section 10(a) and 10(b)(2) if 
applicable; section 11; section 12 (a), (b), (c), and (d); section 
13(a); section 15 (a), (b), and (c); section 16(a); sections 17, 18, 19, 
20 and 21; section 22(d); section 22(e): Provided, That the Toronto 
Stock Exchange or the Montreal Stock Exchange or both may be included in 
addition to the New York Stock Exchange; section 22(f); section 22(g); 
section 23; section 25 (a) and (b); section 30 (a), (b), (d), (e), and 
(f); section 31; section 32(a): Provided, That provision may be made for 
the selection and termination of employment of the accountant in 
compliance with The Companies Act of Canada; section 32(b). Where a 
provision of the act prohibits or directs action by an investment 
company, or its directors, officers or employees, the Charter or By Laws 
shall state that the applicant of its directors, officers or employees 
shall or shall not act, as the case may be, in conformity with the 
intent of the statute; where the provision applies to others, such as 
principal underwriters, investment advisers, controlled companies and 
affiliated persons, the Charter or By Laws shall also state that the 
applicant will not permit the prohibited conduct or will obtain the 
required action. Any of the provisions of sections 11, 12, 15, 18, 22, 
23, 30, and 31 may be omitted if not applicable to a company of 
applicant's classification or sub-classification as defined in section 4 
or 5 of the act or if not applicable because the subject matter of such 
provisions is prohibited by the Charter or By Laws. Other provisions of 
the act not specified above may be incorporated in the applicant's 
Charter or By Laws at its option.
    (ii) Any question of interpretation of any term or provision of the 
Charter or By Laws having a counterpart in or otherwise derived from a 
term or provision of the act shall be resolved by reference to 
interpretations, if any, of the corresponding term or provision of the 
act by the courts of the United States of America or, in the absence of 
any controlling decision of any such court, by rules, regulations, 
orders or interpretations of the Commission.
    (iii) Applicant will maintain the original or duplicate copies of 
its books and records at the office of its custodian or other office 
located within the United States.
    (iv) At least a majority of the directors and of the officers of the 
applicant will be United States citizens of whom a majority will be 
resident in the United States.
    (v) Except as provided in Sec. 270.17f-5 and Sec. 270.17f-7, 
applicant will appoint, by contract, a bank, as defined in section 
2(a)(5) of the Act (15 U.S.C. 80a-2(a)(5)) and having the qualification 
described in section 26(a)(1) of the Act (15 U.S.C. 80a-26(a)(1)), to 
act as trustee of, and maintain in its sole custody in the United 
States, all of applicant's securities and cash, other than cash 
necessary to meet applicant's current administrative expenses. The 
contract will provide, inter alia, that the custodian will:
    (A) Consummate all purchases and sales of securities by applicant, 
other than purchases and sales on an established securities exchange, 
through the delivery of securities and receipt of cash, or vice versa as 
the case may be, within the United States, and (B) redeem in the United 
States such of applicant's shares as shall be surrendered therefor, and 
(C) distribute applicant's assets, or the proceeds thereof, to 
applicant's creditors and shareholders, upon service upon the custodian 
of an order of the Commission or court directing such distribution as 
provided in paragraphs (b) (3) and (5) of this section.
    (vi) Applicant's principal underwriter for the sale of its shares 
will be a citizen and resident of the United States or a corporation 
organized under the laws of a state of the United States, and having its 
principal place of business therein, and if redeemable shares are 
offered, also a member in good standing of a securities association 
registered under section 15A of the Securities Exchange Act of 1934.
    (vii) Applicant will appoint an accountant, qualified to act as an 
independent public accountant for the applicant under the act and the 
rules thereunder, who maintains a permanent office and place of business 
in the United States.
    (viii) Any contract entered into between the applicant and its 
investment adviser and principal underwriter will

[[Page 759]]

contain provisions in compliance with the requirements of sections 15, 
17(i) and 31 and the rules thereunder, and require that the investment 
adviser maintain in the United States its books and records or duplicate 
copies thereof relating to applicant.
    (ix) Applicant's Charter and By Laws will not be changed in any 
manner inconsistent with this paragraph or the Act and the rules 
thereunder unless authorized by the Commission.
    (9) Contracts of the applicant, other than those executed on an 
established securities exchange which do not involve affiliated persons, 
will provide that:
    (i) Such contracts, irrespective of the place of their execution or 
performance, will be performed in accordance with the requirements of 
the Act, the Securities Act of 1933, and the Securities Exchange Act of 
1934, if the subject matter of such contracts is within the purview of 
such acts; and
    (ii) In effecting the purchase or sale of assets the parties thereto 
will utilize the United States mails or means of interstate commerce.
    (10) Applicant will furnish to the Commission with its registration 
statement filed under the Act a list of persons affiliated with it and 
with its investment adviser and principal underwriter and will furnish 
revisions of such list, if any, concurrently with the filing of periodic 
reports required to be filed under the Act.

(Sec. 7, 54 Stat. 802; 15 U.S.C. 80a-7; secs. 6(c); 15 U.S.C. 80a-6(c); 
and 38(a); 15 U.S.C. 80a-37(a) of the Act)

[19 FR 2585, May 5, 1954, as amended at 38 FR 8593, Apr. 4, 1973; 49 FR 
36084, Sept. 14, 1984; 65 FR 25637, May 3, 2000]



Sec. 270.7d-2  Definition of ``public offering'' as used in section 7(d) 
of the Act with respect to certain Canadian tax-deferred retirement savings accounts.

    (a) Definitions. As used in this section:
    (1) Canadian law means the federal laws of Canada, the laws of any 
province or territory of Canada, and the rules or regulations of any 
federal, provincial, or territorial regulatory authority, or any self-
regulatory authority, of Canada.
    (2) Canadian Retirement Account means a trust or other arrangement, 
including, but not limited to, a ``Registered Retirement Savings Plan'' 
or ``Registered Retirement Income Fund'' administered under Canadian 
law, that is managed by the Participant and:
    (i) Operated to provide retirement benefits to a Participant; and
    (ii) Established in Canada, administered under Canadian law, and 
qualified for tax-deferred treatment under Canadian law.
    (3) Eligible Security means a security issued by a Qualified Company 
that:
    (i) Is offered to a Participant, or sold to his or her Canadian 
Retirement Account, in reliance on this section; and
    (ii) May also be purchased by Canadians other than Participants.
    (4) Foreign Government means the government of any foreign country 
or of any political subdivision of a foreign country.
    (5) Foreign Issuer means any issuer that is a Foreign Government, a 
national of any foreign country or a corporation or other organization 
incorporated or organized under the laws of any foreign country, except 
an issuer meeting the following conditions:
    (i) More than 50 percent of the outstanding voting securities of the 
issuer are held of record either directly or through voting trust 
certificates or depositary receipts by residents of the United States; 
and
    (ii) Any of the following:
    (A) The majority of the executive officers or directors are United 
States citizens or residents;
    (B) More than 50 percent of the assets of the issuer are located in 
the United States; or
    (C) The business of the issuer is administered principally in the 
United States.
    (iii) For purposes of this definition, the term resident, as applied 
to security holders, means any person whose address appears on the 
records of the issuer, the voting trustee, or the depositary as being 
located in the United States.
    (6) Participant means a natural person who is a resident of the 
United States, or is temporarily present in the United States, and who 
contributes to, or is or will be entitled to receive the income

[[Page 760]]

and assets from, a Canadian Retirement Account.
    (7) Qualified Company means a Foreign Issuer whose securities are 
qualified for investment on a tax-deferred basis by a Canadian 
Retirement Account under Canadian law.
    (8) United States means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (b) Public Offering. For purposes of section 7(d) of the Act (15 
U.S.C. 80a-7(d)), the term ``public offering'' does not include the 
offer to a Participant, or the sale to his or her Canadian Retirement 
Account, of Eligible Securities issued by a Qualified Company, if the 
Qualified Company:
    (1) Includes in any written offering materials delivered to a 
Participant, or to his or her Canadian Retirement Account, a prominent 
statement that the Eligible Security, and the Qualified Company that 
issued the Eligible Security, are not registered with the U.S. 
Securities and Exchange Commission, and that the Eligible Security and 
the Qualified Company are relying on exemptions from registration.
    (2) Has not asserted that Canadian law, or the jurisdiction of the 
courts of Canada, does not apply in a proceeding involving an Eligible 
Security.

[65 FR 37677, June 15, 2000]



Sec. 270.8b-1  Scope of Sec. Sec. 270.8b-1 to 270.8b-32.

    The rules contained in Sec. Sec. 270.8b-1 to 270.8b-32 shall govern 
all registration statements pursuant to section 8 of the Act, including 
notifications of registration pursuant to section 8(a), and all reports 
pursuant to section 30 (a) or (b) of the Act, including all amendments 
to such statements and reports, except that any provision in a form 
covering the same subject matter as any such rule shall be controlling.

[18 FR 8575, Dec. 19, 1953]



Sec. 270.8b-2  Definitions.

    Unless the context otherwise requires, the terms in paragraphs (a) 
through (m) of this section, when used in the rules contained in 
Sec. Sec. 270.8b-1 through 270.8b-32, in the rules under section 30(a) 
or (b) of the Act or in the forms for registration statements and 
reports pursuant to section 8 or 30(a) or (b) of the Act, shall have the 
respective meanings indicated in this section. The terms ``EDGAR,'' 
``EDGAR Filer Manual,'' ``electronic filer,'' ``electronic filing,'' 
``electronic format,'' ``electronic submission,'' ``paper format,'' and 
``signature'' shall have the meanings assigned to such terms in 
Regulation S-T--General Rules for Electronic Filings (Part 232 of this 
chapter).
    (a) Amount. The term ``amount'', when used in regard to securities, 
means the principal amount if relating to evidences of indebtedness, the 
number of shares if relating to shares, and the number of units if 
relating to any other kind of security.
    (b) Certified. The term ``certified'', when used in regard to 
financial statements, means certified by an independent public or 
independent certified public accountant or accountants.
    (c) Charter. The term ``charter'' includes articles of 
incorporation, declaration of trust, articles of association or 
partnership, or any similar instrument, as amended, effecting (either 
with or without filing with any governmental agency) the organization or 
creation of an incorporated or unincorporated person.
    (d) Employee. The term ``employee'' does not include a director, 
trustee, officer or member of the advisory board.
    (e) Fiscal year. The term ``fiscal year'' means the annual 
accounting period or, if no closing date has been adopted, the calendar 
year ending on December 31.
    (f) Investment income. The term ``investment income'' means the 
aggregate of net operating income or loss from real estate and gross 
income from interest, dividends and all other sources, exclusive of 
profit or loss on sales of securities or other properties.
    (g) Material. The term ``material'', when used to qualify a 
requirement for the furnishing of information as to any subject, limits 
the information required to those matters as to which an average prudent 
investor ought reasonably to be informed before buying or selling any 
security of the particular company.
    (h) Parent. A ``parent'' of a specified person is an affiliated 
person who controls the specified person directly or

[[Page 761]]

indirectly through one or more intermediaries.
    (i) Previously filed or reported. The terms ``previously filed'' and 
``previously reported'' means previously filed with, or reported in, a 
registration statement filed under section 8 of the Act or under the 
Securities Act of 1933, a report filed under section 30 of the Act or 
section 13 or 15(d) of the Securities Exchange Act of 1934, a definitive 
proxy statement filed under section 20 of the Act or section 14 of the 
Securities Exchange Act of 1934, or a prospectus filed under the 
Securities Act of 1933: Provided, That information contained in any such 
document shall be deemed to have been previously filed with, or reported 
to, an exchange only if such document is filed with such exchange.
    (j) Share. The term ``share'' means a share of stock in a 
corporation or unit of interest in an unincorporated person.
    (k) Significant subsidiary. The term ``significant subsidiary'' 
means a subsidiary meeting any one of the following conditions:
    (1) The value of the investments in and advances to the subsidiary 
by its parent and the parent's other subsidiaries, if any exceed 10 
percent of the value of the assets of the parent or, if a consolidated 
balance sheet is filed, the value of the assets of the parent and its 
consolidated subsidiaries.
    (2) The total investment income of the subsidiary or, in the case of 
a noninvestment company subsidiary, the net income exceeds 10 percent of 
the total investment income of the parent or, if consolidated statements 
are filed, 10 percent of the total investment income of the parent and 
its consolidated subsidiaries.
    (3) The subsidiary is the parent of one or more subsidiaries and, 
together with such subsidiaries would, if considered in the aggregate, 
constitute a significant subsidiary.
    (l) Subsidiary. A ``subsidiary'' of a specified person is an 
affiliated person who is controlled by the specified person, directly or 
indirectly, through one or more intermediaries.
    (m) Totally-held subsidiary. The term ``totally-held subsidiary'' 
means a subsidiary (1) substantially all of whose outstanding securities 
are owned by its parent and/or the parent's other totally-held 
subsidiaries, and (2) which is not indebted to any person other than its 
parent and/or the parent's other totally-held subsidiaries in an amount 
which is material in relation to the particular subsidiary, excepting 
indebtedness incurred in the ordinary course of business which is not 
over-due and which matures within one year from the date of its 
creation, whether evidenced by securities or not.

[18 FR 8575, Dec. 19, 1953, as amended at 19 FR 2779, May 14, 1954; 58 
FR 14860, Mar. 18, 1993; 65 FR 24802, Apr. 27, 2000]



Sec. 270.8b-3  Title of securities.

    Wherever the title of securities is required to be stated, there 
shall be given such information as will indicate the type and general 
character of the securities, including the following:
    (a) In the case of shares, the par or stated value, if any; the rate 
of dividends, if fixed, and whether cumulative or noncumulative; a brief 
indication of the preference, if any; and if convertible, a statement to 
that effect.
    (b) In the case of funded debt, the rate of interest; the date of 
maturity, or if the issue matures serially, a brief indication of the 
serial maturities, such as ``maturing serially from 1950 to 1960''; if 
the payment of principal or interest is contingent, an appropriate 
indication of such contingency; a brief indication of the priority of 
the issue; and if convertible, a statement to that effect.
    (c) In the case of any other kind of security, appropriate 
information of comparable character.

[18 FR 8575, Dec. 19, 1953]



Sec. 270.8b-4  Interpretation of requirements.

    Unless the context clearly shows otherwise:
    (a) The forms require information only as to the company filing the 
registration statement or report.
    (b) Whenever any fixed period of time in the past is indicated, such 
period shall be computed from the date of filing.

[[Page 762]]

    (c) Whenever words relate to the future, they have reference solely 
to present intention.
    (d) Any words indicating the holder of a position or office include 
persons, by whatever titles designated, whose duties are those 
ordinarily performed by holders of such positions or officers.

[18 FR 8575, Dec. 18, 1953]



Sec. 270.8b-5  Time of filing original registration statement.

    An investment company shall file a registration statement with the 
Commission on the appropriate form within three months after the filing 
of notification of registration under section 8(a) of the Act, provided 
that if the fiscal year of the company ends within the three months 
period, its registration statement may be filed within three months 
after the end of such fiscal year.

[19 FR 2779, May 14, 1954]



Sec. 270.8b-6  [Reserved]



Sec. 270.8b-10  Requirements as to proper form.

    Every registration statement or report shall be prepared in 
accordance with the form prescribed therefor by the Commission, as in 
effect on the date of filing. Any such statement or report shall be 
deemed to be filed on the proper form unless objection to the form is 
made by the Commission within thirty days after the date of filing.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-11  Number of copies; signatures; binding.

    (a) Three complete copies of each registration statement or report, 
including exhibits and all other papers and documents filed as a part 
thereof, shall be filed with the Commission.
    (b) In the case of a registration statement filed on Form N-1A 
(Sec. 239.15A and Sec. 274.11A of this chapter), Form N-2 (Sec. 
239.14 and Sec. 274.11a-1 of this chapter), Form N-3 (Sec. 239.17a and 
Sec. 274.11b of this chapter), Form N-4 (Sec. 239.17b and Sec. 
274.11c of this chapter), or Form N-6 (Sec. 239.17c and Sec. 274.11d 
of this chapter), three complete copies of each part of the registration 
statement (including, if applicable, exhibits and all other papers and 
documents filed as part of Part C of the registration statement) shall 
be filed with the Commission.
    (c) At least one copy of the registration statement or report shall 
be signed in the manner prescribed by the appropriate form. Unsigned 
copies shall be conformed. If the signature of any person is affixed 
pursuant to a power of attorney or other similar authority, a copy of 
such power of attorney or other authority shall also be filed with the 
registration statement or report.
    (d) Each copy of a registration statement or report filed with the 
Commission shall be bound in one or more parts without stiff covers. The 
binding shall be made on the left-hand side and in such manner as to 
leave the reading matter legible.
    (e) Signatures. Where the Act or the rules thereunder, including 
paragraph (c) of this section, require a document filed with or 
furnished to the Commission to be signed, the document should be 
manually signed, or signed using either typed signatures or duplicated 
or facsimile versions of manual signatures. When typed, duplicated or 
facsimile signatures are used, each signatory to the filing shall 
manually sign a signature page or other document authenticating, 
acknowledging, or otherwise adopting his or her signature that appears 
in the filing. Execute each such document before or at the time the 
filing is made and retain for a period of five years. Upon request, the 
registrant shall furnish to the Commission or its staff a copy of any or 
all documents retained pursuant to this section.

[49 FR 32059, Aug. 10, 1984, as amended at 50 FR 26160, June 25, 1985; 
57 FR 56835, Dec. 1, 1992; 60 FR 26622, May 17, 1995; 63 FR 13944, Mar. 
23, 1998; 67 FR 19870, Apr. 23, 2002]



Sec. 270.8b-12  Requirements as to paper, printing and language.

    (a) Registration statements and reports shall be filed on good 
quality, unglazed, white paper, no larger than 8\1/2\x11 inches in size, 
insofar as practicable. To the extent that the reduction of larger 
documents would render them illegible, such documents may be filed on 
paper larger than 8\1/2\x11 inches in size.

[[Page 763]]

    (b) In the case of a registration statement filed on Form N-1A 
(Sec. 239.15A and Sec. 274.11A of this chapter), Form N-2 (Sec. 
239.14 and Sec. 274.11a-1 of this chapter), Form N-3 (Sec. 239.17a and 
Sec. 274.11b of this chapter), Form N-4 (Sec. 239.17b and Sec. 
274.11c of this chapter), or Form N-6 (Sec. 239.17c and Sec. 274.11d 
of this chapter), Part C of the registration statement shall be filed on 
good quality, unglazed, white paper, no larger than 8\1/2\x11 inches in 
size, insofar as practicable. The prospectus and, if applicable, the 
Statement of Additional Information, however, may be filed on smaller-
sized paper provided that the size of paper used in each document is 
uniform.
    (c) The registration statement or report and, insofar as practicable 
all papers and documents filed as a part thereof, shall be printed, 
lithographed, mimeographed or typewritten. However, the registration 
statement or report or any portion thereof may be prepared by any 
similar process which, in the opinion of the Commission, produces copies 
suitable for permanent record. Irrespective of the process used, all 
copies of any such material shall be clear, easily readable and suitable 
for repeated photocopying. Debits in credit categories and credits in 
debit categories shall be designated so as to be clearly distinguishable 
as such on photocopies.
    (d) The body of all printed registration statements and reports and 
all notes to financial statements and other tabular data included 
therein shall be in roman type at least as large as 10-point modern 
type. However, to the extent necessary for convenient presentation, 
financial statements and other statistical or tabular data, including 
tabular data in notes, may be set in type at least as large and as 
legible as 8-point modern type. All type shall be leaded at least 2-
points.
    (e) Registration statements and reports shall be in the English 
language. If any exhibit or other paper or document filed with a 
registration statement or report is in a foreign language, it shall be 
accompanied by a translation into the English language.
    (f) Where a registration statement or report is distributed through 
an electronic medium, issuers may satisfy legibility requirements 
applicable to printed documents, such as paper size, type size and font, 
bold-face type, italics and red ink, by presenting all required 
information in a format readily communicated to investors, and where 
indicated, in a manner reasonably calculated to draw investor attention 
to specific information.

[49 FR 32060, Aug. 10, 1984, as amended at 50 FR 26160, June 25, 1985; 
57 FR 56836, Dec. 1, 1992; 61 FR 24657, May 15, 1996; 67 FR 19870, Apr. 
23, 2002]



Sec. 270.8b-13  Preparation of registration statement or report.

    The registration statement or report shall contain the numbers and 
captions of all items of the appropriate form, but the text of the items 
may be omitted provided the answers thereto are so prepared as to 
indicate to the reader the coverage of the items without the necessity 
of his referring to the text of the items or instructions thereto. 
However, where any item requires information to be given in tabular 
form, it shall be given in substantially the tabular form specified in 
the item. All instructions, whether appearing under the items of the 
form or elsewhere therein, are to be omitted from the registration 
statement or report. Unless expressly provided otherwise, if any item is 
inapplicable or the answer thereto is in the negative, an appropriate 
statement to that effect shall be made.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-14  Riders; inserts.

    Riders shall not be used. If the registration statement or report is 
typed on a printed form, and the space provided for the answer to any 
given item is insufficient, reference shall be made in such space to a 
full insert page or pages on which the item number and caption and the 
complete answer are given.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-15  Amendments.

    All amendments shall be filed under cover of the facing sheet of the 
appropriate form, shall be clearly identified as amendments, and shall 
comply with all pertinent requirements applicable to registration 
statements and reports.

[[Page 764]]

Amendments shall be filed separately for each separate registration or 
report amended. Except as permitted under rule 102(b) of Regulation S-T 
(Sec. 232.102(b) of this chapter), any amendment filed under this 
section shall state the complete text of each item amended. An amendment 
to any report required to include the certifications as specified in 
Sec. 270.30a-2(a) must include new certifications by each principal 
executive and principal financial officer of the registrant, and an 
amendment to any report required to be accompanied by the certifications 
as specified in Sec. 240.13a-14(b) or Sec. 240.15d-14(b) and Sec. 
270.30a-2(b) must be accompanied by new certifications by each principal 
executive and principal financial officer of the registrant.

[18 FR 8576, Dec. 19, 1953, as amended at 58 FR 14860, Mar. 18, 1993; 68 
FR 5365, Feb. 3, 2003; 68 FR 36671, June 18, 2003]



Sec. 270.8b-16  Amendments to registration statement.

    (a) Every registered management investment company which is required 
to file a semi-annual report on Form N-SAR, as prescribed by rule 30b1-1 
(17 CFR 270.30b1-1), shall amend the registration statement required 
pursuant to Section 8(b) by filing, not more than 120 days after the 
close of each fiscal year ending on or after the date upon which such 
registration statement was filed, the appropriate form prescribed for 
such amendments.
    (b) Paragraph (a) of this section shall not apply to a registered 
closed-end management investment company whose registration statement 
was filed on Form N-2; provided that the following information is 
transmitted to shareholders in its annual report to shareholders:
    (1) If the company offers a dividend reinvestment plan to 
shareholders, information about the plan required to be disclosed in the 
company's prospectus by Item 10.1.e of Form N-2 (17 CFR 274.11a-1);
    (2) Any material changes in the company's investment objectives or 
policies (described in Item 8.2 of Form N-2) that have not been approved 
by shareholders;
    (3) Any changes in the company's charter or by-laws that would delay 
or prevent a change of control of the company (described in Item 10.1.f 
of Form N-2) that have not been approved by shareholders;
    (4) Any material changes in the principal risk factors associated 
with investment in the company (described in Item 8.3 of Form N-2); and
    (5) Any changes in the persons who are primarily responsible for the 
day-to-day management of the company's portfolio (described in Item 
9.1.c of Form N-2), including any new person's business experience 
during the past five years and the length of time he or she has been 
responsible for the management of the portfolio.
    (c) In lieu of including a description of the dividend reinvestment 
plan in its annual report, a company may comply with the disclosure 
requirement of paragraph (b)(1) of this section concerning a company's 
dividend reinvestment plan by delivering to each shareholder annually a 
separate document containing the information about the plan required to 
be disclosed in the company's prospectus by Item 10.1.e of Form N-2. Any 
such document shall be deemed to be a record or document subject to the 
record-keeping requirements of section 31 (15 U.S.C. 80a-30) and the 
rules adopted thereunder (17 CFR 270.31a-1 et seq.).
    (d) The changes required to be disclosed by paragraphs (b)(2) 
through (b)(5) of this section are those that occurred since the later 
of either the effective date of the company's registration statement 
relating to its initial offering of securities under the Securities Act 
of 1933 (15 U.S.C. 77a et seq.) (or the most recent post-effective 
amendment thereto) or the close of the period covered by the previously 
transmitted annual shareholder report.

[54 FR 10321, Mar. 13, 1989, as amended at 57 FR 56836, Dec. 1, 1992]



Sec. 270.8b-20  Additional information.

    In addition to the information expressly required to be included in 
a registration statement or report, there shall be added such further 
material information, if any, as may be necessary to make the required 
statements, in

[[Page 765]]

the light of the circumstances under which they are made, not 
misleading.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-21  Information unknown or not available.

    Information required need be given only insofar as it is known or 
reasonably available to the registrant. If any required information is 
unknown and not reasonably available to the registrant, either because 
the obtaining thereof would involve unreasonable effort or expense, or 
because it rests peculiarly within the knowledge of another person not 
affiliated with the registrant, the information may be omitted subject 
to the following conditions:
    (a) The registrant shall give such information on the subject as it 
possesses or can acquire without unreasonable effort or expense, 
together with the sources thereof.
    (b) The registrant shall include a statement either showing that 
unreasonable effort or expense would be involved or indicating the 
absence of any affiliation with the person within whose knowledge the 
information rests and stating the result of a request made to such 
person for the information.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-22  Disclaimer of control.

    If the existence of control is open to reasonable doubt in any 
instance, the registrant may disclaim the existence of control and any 
admission thereof; in such case, however, the registrant shall state the 
material facts pertinent to the possible existence of control.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-23  Incorporation by reference.

    (a) Any registrant may incorporate by reference, in answer or 
partial answer to any item of a registration statement or report, any 
information contained elsewhere in the statement or report or any 
information contained in any other statement, report or prospectus filed 
with the Commission under any Act administered by it, so long as a copy 
of the other statement, report or prospectus is filed with each copy of 
the registration statement or report in which it is incorporated by 
reference. In the case of a registration statement, report, or 
prospectus filed in electronic format, the registrant need not file a 
copy of the document incorporated by reference if that document also was 
filed in electronic format. A registrant may incorporate by reference 
matter contained in an exhibit, however, only to the extent permitted by 
Sec. Sec. 270.8b-24 and 270.8b-32.
    (b) Any financial statement filed with the Commission pursuant to 
any act administered by the Commission may be incorporated by reference 
in a registration statement or report, filed with the Commission by the 
same or any other person, if it substantially conforms to the 
requirements of the form on which the statement or report is filed.
    (c) Material incorporated by reference shall be clearly identified 
in the reference. An express statement that the specified matter is 
incorporated by reference shall be made at the particular place in the 
registration statement or report where the information is required. 
Matter shall not be incorporated by reference in any case where such 
incorporation would render the statement incomplete, unclear or 
confusing.

[18 FR 8576, Dec. 19, 1953, as amended at 19 FR 2779, May 14, 1954; 58 
FR 14860, Mar. 18, 1993; 64 FR 27896, May 21, 1999; 65 FR 24802, Apr. 
27, 2000]



Sec. 270.8b-24  Summaries or outlines of documents.

    Where an item requires a summary or outline of the provisions of any 
document, only a brief statement shall be made, in succinct and 
condensed form, as to the most important provisions of the document. In 
addition to such statement, the summary or outline may incorporate by 
reference particular items, sections, or paragraphs of any exhibit and 
may be qualified in its entirety by such reference. Matter contained in 
an exhibit may be incorporated by reference in answer to an item only to 
the extent permitted by this section.

[18 FR 8576, Dec. 19, 1953]

[[Page 766]]



Sec. 270.8b-25  Extension of time for furnishing information.

    (a) Subject to paragraph (b) of this section, if it is impractical 
to furnish any required information, document or report at the time it 
is required to be filed, there may be filed with the Commission as a 
separate document an application (a) identifying the information, 
document or report in question, (b) stating why the filing thereof at 
the time required is impracticable, and (c) requesting an extension of 
time for filing the information, document or report to a specified date 
not more than 60 days after the date it would otherwise have to be 
filed. The application shall be deemed granted unless the Commission, 
within 10 days after receipt thereof, shall enter an order denying the 
application. Section 270.0-5 (Rule N-5) shall not apply to such 
applications.
    (b) If it is impracticable to furnish any document or report 
required to be filed in electronic format at the time it is required to 
be filed, the electronic filer may file under the temporary hardship 
provision of rule 201 of Regulation S-T (Sec. 232.201 of this chapter) 
or may submit a written application for a continuing hardship exemption, 
in accordance with rule 202 of Regulation S-T (Sec. 232.202 of this 
chapter). Applications for such exemptions shall be considered in 
accordance with the provisions of those sections and paragraphs (h) and 
(i) of Sec. 200.30-5 of this chapter.

[18 FR 8576, Dec. 19, 1953, as amended at 58 FR 14860, Mar. 18, 1993; 60 
FR 14630, Mar. 20, 1995]



Sec. 270.8b-30  Additional exhibits.

    A company may file such exhibits as it may desire, in addition to 
those required by the appropriate form. Such exhibits shall be so marked 
as to indicate clearly the subject matters to which they refer.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-31  Omission of substantially identical documents.

    In any case where two or more indentures, contracts, franchises, or 
other documents required to be filed as exhibits are substantially 
identical in all material respects except as to the parties thereto, the 
dates of execution, or other details, copies of only one of such 
documents need be filed, with a schedule identifying the other documents 
omitted and setting forth the material details in which such documents 
differ from the documents filed. The Commission may at any time in its 
discretion require the filing of copies of any documents so omitted.

[18 FR 8576, Dec. 19, 1953]



Sec. 270.8b-32  Incorporation of exhibits by reference.

    (a) Except as provided in paragraph (c) of this section, any 
document or part thereof filed with the Commission pursuant to any Act 
administered by the Commission may, subject to the limitations of Sec. 
228.10(f) and Sec. 229.10(d) of this chapter, be incorporated by 
reference as an exhibit to any registration statement or report filed 
with the Commission by the same or any other person.
    (b) If any modification has occurred in the text of any document 
incorporated by reference since the filing thereof, a statement 
containing the text of such modification and the date thereof shall be 
filed with the reference.
    (c) Electronic filings. A registrant may incorporate by reference 
into a registration statement or report required to be filed 
electronically only exhibits that have been filed in electronic format, 
unless the exhibit has been filed in paper under a hardship exemption 
(Sec. Sec. 232.201 or 232.202 of this chapter) and any required 
confirming copy has been submitted.

(Sec. 19, 48 Stat. 85, as amended, secs. 13, 15, 23, 48 Stat. 894, 895, 
901, as amended, sec. 20, 49 Stat. 833, secs. 305, 307, 314, 319, 53 
Stat. 1154, 1156, 1167, 1173, as amended, sec. 39, 54 Stat. 841; 15 
U.S.C. 77s, 78m, 78o, 78w, 79t, 77eee, 77ggg, 77nnn, 77sss, 80a-38)

[18 FR 8576, Dec. 19, 1953, as amended at 29 FR 2421, Feb. 13, 1964; 58 
FR 14860, Mar. 18, 1993; 60 FR 32825, June 23, 1995; 64 FR 27896, May 
21, 1999; 65 FR 24802, Apr. 27, 2000]



Sec. 270.8f-1  Deregistration of certain registered investment companies.

    A registered investment company that seeks a Commission order 
declaring that it is no longer an investment company may file an 
application with

[[Page 767]]

the Commission on Form N-8F (17 CFR 274.218) if the investment company:
    (a) Has sold substantially all of its assets to another registered 
investment company or merged into or consolidated with another 
registered investment company;
    (b) Has distributed substantially all of its assets to its 
shareholders and has completed, or is in the process of, winding up its 
affairs;
    (c) Qualifies for an exclusion from the definition of ``investment 
company'' under section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or section 
3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the Act; or
    (d) Has become a business development company.

    Note to Sec. 270.8f-1:
    Applicants who are not eligible to use Form N-8F to file an 
application to deregister may follow the general guidance for filing 
applications under rule 0-2 (17 CFR 270.0-2) of this chapter.

[64 FR 19471, Apr. 21, 1999]



Sec. 270.10b-1  Definition of regular broker or dealer.

    The term regular broker or dealer of an investment company shall 
mean:
    (a) One of the ten brokers or dealers that received the greatest 
dollar amount of brokerage commissions by virtue of direct or indirect 
participation in the company's portfolio transactions during the 
company's most recent fiscal year;
    (b) One of the ten brokers or dealers that engaged as principal in 
the largest dollar amount of portfolio transactions of the investment 
company during the company's most recent fiscal year; or
    (c) One of the ten brokers or dealers that sold the largest dollar 
amount of securities of the investment company during the company's most 
recent fiscal year.

[49 FR 40572, Oct. 17, 1984]



Sec. 270.10e-1  Death, disqualification, or bona fide resignation of 
directors.

    If a registered investment company, by reason of the death, 
disqualification, or bona fide resignation of any director, does not 
meet any requirement of the Act or any rule or regulation thereunder 
regarding the composition of the company's board of directors, the 
operation of the relevant subsection of the Act, rule, or regulation 
will be suspended as to the company:
    (a) For 90 days if the vacancy may be filled by action of the board 
of directors; or
    (b) For 150 days if a vote of stockholders is required to fill the 
vacancy.

[66 FR 3758, Jan. 16, 2001]



Sec. 270.10f-1  Conditional exemption of certain underwriting transactions.

    Any purchase or other acquisition by a registered management company 
acting, pursuant to a written agreement, as an underwriter of securities 
of an issuer which is not an investment company shall be exempt from the 
provisions of section 10(f) (54 Stat. 806; 15 U.S.C. 80a-10) upon the 
following conditions:
    (a) The party to such agreement other than such registered company 
is a principal underwriter of such securities, which principal 
underwriter (1) is a person primarily engaged in the business of 
underwriting and distributing securities issued by other persons, 
selling securities to customers, or related activities, whose gross 
income normally is derived principally from such business or related 
activities, and (2) does not control or is not under common control with 
such registered company.
    (b) No public offering of the securities underwritten by such 
agreement has been made prior to the execution thereof.
    (c) Such securities have been effectively registered pursuant to the 
Securities Act of 1933 (48 Stat. 74; 15 U.S.C. 77a-aa) prior to the 
execution of such agreement.
    (d) In regard to any securities underwritten, whether or not 
purchased, by the registered company pursuant to such agreement, such 
company shall be allowed a rate of gross commission, spread, concession 
or other profit not less than the amount allowed to such principal 
underwriter, exclusive of any amounts received by such principal 
underwriter as a management fee from other principal underwriters.
    (e) Such agreement is authorized by resolution adopted by a vote of 
not less than a majority of the board of directors of such registered 
company, none

[[Page 768]]

of which majority is an affiliated person of such principal underwriter, 
of the issuer of the securities underwritten pursuant to such agreement 
or of any person engaged in a business described in paragraph (a)(1) of 
this section.
    (f) The resolution required in paragraph (e) of this section shall 
state that it has been adopted pursuant to this section, and shall 
incorporate the terms of the proposed agreement by attaching a copy 
thereof as an exhibit or otherwise.
    (g) A copy of the resolution required in paragraph (e) of this 
section, signed by each member of the board of directors of the 
registered company who voted in favor of its adoption, shall be 
transmitted to the Commission not later than the fifth day succeeding 
the date on which such agreement is executed.

[Rule N-10F-1, 6 FR 1191, Feb. 28, 1941]



Sec. 270.10f-2  Exercise of warrants or rights received on portfolio 
securities.

    Any purchase or other acquisition of securities by a registered 
investment company pursuant to the exercise of warrants or rights to 
subscribe to or to purchase securities shall be exempt from the 
provisions of section 10(f) (section 10(f), 54 Stat. 807; 15 U.S.C. 80a-
10) of the Act, Provided, That the warrants or rights so exercised (a) 
were offered or issued to such company as a security holder on the same 
basis as all other holders of the class or classes of securities to whom 
such warrants or rights were offered or issued, and (b) do not exceed 5 
percent of the total amount of such warrants or rights so issued.

[Rule N-10F-2, 9 FR 339, Jan. 8, 1944]



Sec. 270.10f-3  Exemption for the acquisition of securities during the 
existence of an underwriting or selling syndicate.

    (a) Definitions--(1) Domestic Issuer means any issuer other than a 
foreign government, a national of any foreign country, or a corporation 
or other organization incorporated or organized under the laws of any 
foreign country.
    (2) Eligible Foreign Offering means a public offering of securities, 
conducted under the laws of a country other than the United States, that 
meets the following conditions:
    (i) The offering is subject to regulation by a ``foreign financial 
regulatory authority,'' as defined in section 2(a)(50) of the Act [15 
U.S.C. 80a-2(a)(50)], in such country;
    (ii) The securities are offered at a fixed price to all purchasers 
in the offering (except for any rights to purchase securities that are 
required by law to be granted to existing security holders of the 
issuer);
    (iii) Financial statements, prepared and audited in accordance with 
standards required or permitted by the appropriate foreign financial 
regulatory authority in such country, for the two years prior to the 
offering, are made available to the public and prospective purchasers in 
connection with the offering; and
    (iv) If the issuer is a Domestic Issuer, it meets the following 
conditions:
    (A) It has a class of securities registered pursuant to section 
12(b) or 12(g) of the Securities Exchange Act of 1934 [15 U.S.C. 78l(b) 
or 78l(g)] or is required to file reports pursuant to section 15(d) of 
the Securities Exchange Act of 1934 [15 U.S.C. 78o(d)]; and
    (B) It has filed all the material required to be filed pursuant to 
section 13(a) or 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 
78m(a) or 78o(d)] for a period of at least twelve months immediately 
preceding the sale of securities made in reliance upon this (or for such 
shorter period that the issuer was required to file such material).
    (3) Eligible Municipal Securities means ``municipal securities,'' as 
defined in section 3(a)(29) of the Securities Exchange Act of 1934 [15 
U.S.C. 78c(a)(29)], that have received an investment grade rating from 
at least one NRSRO; provided, that if the issuer of the municipal 
securities, or the entity supplying the revenues or other payments from 
which the issue is to be paid, has been in continuous operation for less 
than three years, including the operation of any predecessors, the 
securities shall have received one of the three highest ratings from an 
NRSRO.

[[Page 769]]

    (4) Eligible Rule 144A Offering means an offering of securities that 
meets the following conditions:
    (i) The securities are offered or sold in transactions exempt from 
registration under section 4(2) of the Securities Act of 1933 [15 U.S.C. 
77d(2)], rule 144A thereunder [Sec. 230.144A of this chapter], or rules 
501-508 thereunder [Sec. Sec. 230.501-230.508 of this chapter];
    (ii) The securities are sold to persons that the seller and any 
person acting on behalf of the seller reasonably believe to include 
qualified institutional buyers, as defined in Sec. 230.144A(a)(1) of 
this chapter; and
    (iii) The seller and any person acting on behalf of the seller 
reasonably believe that the securities are eligible for resale to other 
qualified institutional buyers pursuant to Sec. 230.144A of this 
chapter.
    (5) NRSRO has the same meaning as that set forth in Sec. 270.2a-
7(a)(14).
    (6) Managed portion of a portfolio of a registered investment 
company means a discrete portion of a portfolio of a registered 
investment company for which a subadviser is responsible for providing 
investment advice, provided that:
    (i) The subadviser is not an affiliated person of any investment 
adviser, promoter, underwriter, officer, director, member of an advisory 
board, or employee of the registered investment company; and
    (ii) The subadviser's advisory contract:
    (A) Prohibits it from consulting with any subadviser of the 
investment company that is a principal underwriter or an affiliated 
person of a principal underwriter concerning transactions of the 
investment company in securities or other assets; and
    (B) Limits its responsibility in providing advice to providing 
advice with respect to such portion.
    (7) Series of a series company means any class or series of a 
registered investment company that issues two or more classes or series 
of preferred or special stock, each of which is preferred over all other 
classes or series with respect to assets specifically allocated to that 
class or series.
    (8) Subadviser means an investment adviser as defined in section 
2(a)(20)(B) of the Act (15 U.S.C. 80a-2(a)(20)(B)).
    (b) Exemption for purchases by series companies and investment 
companies with managed portions. For purposes of this section and 
section 10(f) of the Act (15 U.S.C. 80a-10(f)), each Series of a Series 
Company, and each Managed Portion of a registered investment company, is 
deemed to be a separate investment company. Therefore, a purchase or 
acquisition of a security by a registered investment company is exempt 
from the prohibitions of section 10(f) of the Act if section 10(f) of 
the Act would not prohibit such purchase if each Series and each Managed 
Portion of the company were a separately registered investment company.
    (c) Exemption for other purchases. Any purchase of securities by a 
registered investment company prohibited by section 10(f) of the Act [15 
U.S.C. 80a-10(f)] shall be exempt from the provisions of such section if 
the following conditions are met:
    (1) Type of Security. The securities to be purchased are:
    (i) Part of an issue registered under the Securities Act of 1933 (15 
U.S.C. 77a--aa) that is being offered to the public;
    (ii) Part of an issue of government securities, as defined in 
section 2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16));
    (iii) Eligible Municipal Securities;
    (iv) Securities sold in an Eligible Foreign Offering; or
    (v) Securities sold in an Eligible Rule 144A Offering.
    (2) Timing and Price. (i) The securities are purchased prior to the 
end of the first day on which any sales are made, at a price that is not 
more than the price paid by each other purchaser of securities in that 
offering or in any concurrent offering of the securities (except, in the 
case of an Eligible Foreign Offering, for any rights to purchase that 
are required by law to be granted to existing security holders of the 
issuer); and
    (ii) If the securities are offered for subscription upon exercise of 
rights, the securities shall be purchased on or before the fourth day 
preceding the day on which the rights offering terminates.

[[Page 770]]

    (3) Reasonable Reliance. For purposes of determining compliance with 
paragraphs (b)(1)(iv) and (b)(2)(i) of this section, an investment 
company may reasonably rely upon written statements made by the issuer 
or a syndicate manager, or by an underwriter or seller of the securities 
through which such investment company purchases the securities.
    (4) Continuous operation. If the securities to be purchased are part 
of an issue registered under the Securities Act of 1933 (15 U.S.C. 77a-
aa) that is being offered to the public, are government securities (as 
defined in section 2(a)(16) of the Act (15 U.S.C. 80a-2(a)(16))), or are 
purchased pursuant to an Eligible Foreign Offering or an Eligible Rule 
144A Offering, the issuer of the securities must have been in continuous 
operation for not less than three years, including the operations of any 
predecessors.
    (5) Firm Commitment Underwriting. The securities are offered 
pursuant to an underwriting or similar agreement under which the 
underwriters are committed to purchase all of the securities being 
offered, except those purchased by others pursuant to a rights offering, 
if the underwriters purchase any of the securities.
    (6) Reasonable Commission. The commission, spread or profit received 
or to be received by the principal underwriters is reasonable and fair 
compared to the commission, spread or profit received by other such 
persons in connection with the underwriting of similar securities being 
sold during a comparable period of time.
    (7) Percentage limit. (i) Generally. The amount of securities of any 
class of such issue to be purchased by the investment company, 
aggregated with purchases by any other investment company advised by the 
investment company's investment adviser, and any purchases by another 
account with respect to which the investment adviser has investment 
discretion if the investment adviser exercised such investment 
discretion with respect to the purchase, does not exceed the following 
limits:
    (A) If purchased in an offering other than an Eligible Rule 144A 
Offering, 25 percent of the principal amount of the offering of such 
class; or
    (B) If purchased in an Eligible Rule 144A Offering, 25 percent of 
the total of:
    (1) The principal amount of the offering of such class sold by 
underwriters or members of the selling syndicate to qualified 
institutional buyers, as defined in Sec. 230.144A(a)(1) of this 
chapter; plus
    (2) The principal amount of the offering of such class in any 
concurrent public offering.
    (ii) Exemption from percentage limit. The requirement in paragraph 
(c)(7)(i) of this section applies only if the investment adviser of the 
investment company is, or is an affiliated person of, a principal 
underwriter of the security; and
    (iii) Separate aggregation. The requirement in paragraph (c)(7)(i) 
of this section applies independently with respect to each investment 
adviser of the investment company that is, or is an affiliated person 
of, a principal underwriter of the security.
    (8) Prohibition of Certain Affiliate Transactions. Such investment 
company does not purchase the securities being offered directly or 
indirectly from an officer, director, member of an advisory board, 
investment adviser or employee of such investment company or from a 
person of which any such officer, director, member of an advisory board, 
investment adviser or employee is an affiliated person; provided, that a 
purchase from a syndicate manager shall not be deemed to be a purchase 
from a specific underwriter if:
    (i) Such underwriter does not benefit directly or indirectly from 
the transaction; or
    (ii) In respect to the purchase of Eligible Municipal Securities, 
such purchase is not designated as a group sale or otherwise allocated 
to the account of any person from whom this paragraph prohibits the 
purchase.
    (9) Periodic Reporting. The existence of any transactions effected 
pursuant to this section shall be reported on the Form N-SAR [Sec. 
274.101 of this chapter] of the investment company and a written record 
of each such transaction, setting forth from whom the securities were 
acquired, the identity of the underwriting syndicate's members, the

[[Page 771]]

terms of the transaction, and the information or materials upon which 
the determination described in paragraph (b)(10)(iii) of this section 
was made shall be attached thereto.
    (10) Board Review. The board of directors of the investment company, 
including a majority of the directors who are not interested persons of 
the investment company:
    (i) Has approved procedures, pursuant to which such purchases may be 
effected for the company, that are reasonably designed to provide that 
the purchases comply with all the conditions of this section;
    (ii) Approves such changes to the procedures as the board deems 
necessary; and
    (iii) Determines no less frequently than quarterly that all 
purchases made during the preceding quarter were effected in compliance 
with such procedures.
    (11) Board Composition, Selection, and Representation. (i) A 
majority of the directors of the investment company are not interested 
persons of the company, and those directors select and nominate any 
other disinterested directors of the company; and
    (ii) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel.
    (12) Maintenance of Records. The investment company:
    (i) Shall maintain and preserve permanently in an easily accessible 
place a written copy of the procedures, and any modification thereto, 
described in paragraphs (b)(10)(i) and (b)(10)(ii) of this section; and
    (ii) Shall maintain and preserve for a period not less than six 
years from the end of the fiscal year in which any transactions 
occurred, the first two years in an easily accessible place, a written 
record of each such transaction, setting forth from whom the securities 
were acquired, the identity of the underwriting syndicate's members, the 
terms of the transaction, and the information or materials upon which 
the determination described in paragraph (b)(10)(iii) of this section 
was made.

[62 FR 42408, Aug. 7, 1997, as amended at 66 FR 3758, Jan. 16, 2001; 67 
FR 31079, May 8, 2002; 68 FR 3152, Jan. 22, 2003]



Sec. 270.11a-1  Definition of ``exchange'' for purposes of section 11 of 
the Act.

    (a) For the purposes of section 11 of the Act, the term exchange as 
used therein shall include the issuance of any security by a registered 
investment company in an amount equal to the proceeds, or any portion of 
the proceeds, paid or payable--
    (1) Upon the repurchase, by or at the instance of such issuer, of an 
outstanding security the terms of which provide for its termination, 
retirement or cancellation, or
    (2) Upon the termination, retirement or cancellation of an 
outstanding security of such issuer in accordance with the terms 
thereof.
    (b) A security shall not be deemed to have been repurchased by or at 
the instance of the issuer, or terminated, retired or canceled in 
accordance with the terms of the security if--
    (1) The security was redeemed or repurchased at the instance of the 
holder; or
    (2) A security holder's account was closed for failure to make 
payments as prescribed in the security or instruments pursuant to which 
the security was issued, and notice of intention to close the account 
was mailed to the security holder, and he had a reasonable time in which 
to meet the deficiency; or
    (3) Sale of the security was restricted to a specified, limited 
group of persons and, in accordance with the terms of the security or 
the instruments pursuant to which the security was issued, upon its 
being transferred by the holder to a person not a member of the group 
eligible to purchase the security, the issuer required the surrender of 
the security and paid the redemption price thereof.
    (c) The provisions of paragraph (a) of this section shall not apply 
if, following the repurchase of an outstanding security by or at the 
instance of the issuer or the termination, retirement or cancellation of 
an outstanding

[[Page 772]]

security in accordance with the terms thereof--
    (1) The proceeds are actually paid to the security holder by or on 
behalf of the issuer within 7 days, and
    (2) No sale and no offer (other than by way of exchange) of any 
security of the issuer is made by or on behalf of the issuer to the 
person to whom such proceeds were paid, within 60 days after such 
payment.
    (d) The provisions of paragraph (a) of this section shall not apply 
to the repurchase, termination, retirement, or cancellation of a 
security outstanding on the effective date of this section or issued 
pursuant to a subscription agreement or other plan of acquisition in 
effect on such date.

(Sec. 11, 54 Stat. 808; 15 U.S.C. 80a-11)

[32 FR 10728, July 21, 1967]



Sec. 270.11a-2  Offers of exchange by certain registered separate 

accounts or others the terms of which do not require prior Commission 
approval.

    (a) As used in this section:
    (1) Deferred sales load shall mean any sales load, including a 
contingent deferred sales load, that is deducted upon redemption or 
annuitization of amounts representing all or a portion of a 
securityholder's interest in a separate account;
    (2) Exchanged security shall include not only the security or 
securities (or portion[s] thereof) of a securityholder actually 
exchanged pursuant to an exchange offer but also any security or 
securities (or portion[s] thereof) of the securityholder previously 
exchanged for the exchanged security or its predecessors;
    (3) Front-end sales load shall mean any sales load that is deducted 
from one or more purchase payments made by a securityholder before they 
are invested in a separate account; and
    (4) Purchase payments made for the acquired security, as used in 
paragraphs (c)(2) and (d)(2) of this section, shall not include any 
purchase payments made for the exchanged security or any appreciation 
attributable to those purchase payments that are transferred to the 
offering account in connection with an exchange.
    (b) Notwithstanding section 11 of the Act [15 U.S.C. 80a-11], any 
registered separate account or any principal underwriter for such an 
account (collectively, the ``offering account'') may make or cause to be 
made an offer to the holder of a security of the offering account, or of 
any other registered separate account having the same insurance company 
depositor or sponsor as the offering account or having an insurance 
company depositor or sponsor that is an affiliate of the offering 
account's depositor or sponsor, to exchange his security (or portion 
thereof) (the ``exchanged security'') for a security (or portion 
thereof) of the offering account (the ``acquired security'') without the 
terms of such exchange offer first having been submitted to and approved 
by the Commission, as provided below:
    (1) If the securities (or portions thereof) involved are variable 
annuity contracts, then
    (i) The exchange must be made on the basis of the relative net asset 
values of the securities to be exchanged, except that the offering 
account may deduct at the time of the exchange
    (A) An administrative fee which is disclosed in the part of the 
offering account's registration statement under the Securities Act of 
1933 relating to the prospectus, and
    (B) Any front-end sales load permitted by paragraph (c) of this 
section, and
    (ii) Any deferred sales load imposed on the acquired security by the 
offering account shall be calculated in the manner prescribed by 
paragraph (d) or (e) of this section; or
    (2) If the securities (or portions thereof) involved are variable 
life insurance contracts offered by a separate account registered under 
the Act as a unit investment trust, then the exchange must be made on 
the basis of the relative net asset values of the securities to be 
exchanged, except that the offering account may deduct at the time of 
the exchange an administrative fee which is disclosed in the part of the 
offering account's registration statement under the Securities Act of 
1933 relating to the prospectus.
    (c) If the offering account imposes a front-end sales load on the 
acquired security, then such sales load

[[Page 773]]

    (1) Shall be a percentage that is no greater than the excess of the 
rate of the front-end sales load otherwise applicable to that security 
over the rate of any front-end sales load previously paid on the 
exchanged security, and
    (2) Shall not exceed 9 percent of the sum of the purchase payments 
made for the acquired security and the exchanged security.
    (d) If the offering account imposes a deferred sales load on the 
acquired security and the exchanged security was also subject to a 
deferred sales load, then any deferred sales load imposed on the 
acquired security:
    (1) Shall be calulated as if
    (i) The holder of the acquired security had been the holder of that 
security from the date on which he became the holder of the exchanged 
security and
    (ii) Purchase payments made for the exchanged security had been made 
for the acquired security on the date on which they were made for the 
exchanged security; and
    (2) Shall not exceed 9 percent of the sum of the purchase payments 
made for the acquired security and the exchanged security.
    (e) If the offering account imposes a deferred sales load on the 
acquired security and a front-end sales load was paid on the exchanged 
security, then any deferred sales load imposed on the acquired security 
may not be imposed on purchase payments made for the exchanged security 
or any appreciation attributable to purchase payments made for the 
exchanged security that are transferred in connection with the exchange.
    (f) Notwithstanding the foregoing, no offer of exchange shall be 
made in reliance on this section if both a front-end sales load and a 
deferred sales load are to be imposed on the acquired security or if 
both such sales loads are imposed on the exchanged security.

(Sec. 11(a) (15 U.S.C. 80a-11(a)) and sec. 38(a) (15 U.S.C. 80a-37(a)) 
of the Act)

[48 FR 36245, Aug. 10, 1983]



Sec. 270.11a-3  Offers of exchange by open-end investment companies 
other than separate accounts.

    (a) For purposes of this rule:
    (1) Acquired security means the security held by a securityholder 
after completing an exchange pursuant to an exchange offer;
    (2) Administrative fee means any fee, other than a sales load, 
deferred sales load or redemption fee, that is
    (i) Reasonably intended to cover the costs incurred in processing 
exchanges of the type for which the fee is charged, Provided that: the 
offering company will maintain and preserve records of any determination 
of the costs incurred in connection with exchanges for a period of not 
less than six years, the first two years in an easily accessible place. 
The records preserved under this provision shall be subject to 
inspection by the Commission in accordance with section 31(b) of the Act 
(15 U.S.C. 80a-30(b)) as if such records were records required to be 
maintained under rules adopted under section 31(a) of the Act (15 U.S.C. 
80a-30a)); or
    (ii) A nominal fee as defined in paragraph (a)(8) of this section;
    (3) Deferred sales load means any amount properly chargeable to 
sales or promotional expenses that is paid by a shareholder after 
purchase but before or upon redemption;
    (4) Exchanged security means
    (i) The security actually exchanged pursuant to an exchange offer, 
and
    (ii) Any security previously exchanged for such security or for any 
of its predecessors;
    (5) Group of investment companies means any two or more registered 
open-end investment companies that hold themselves out to investors as 
related companies for purposes of investment and investor services, and
    (i) That have a common investment adviser or principal underwriter, 
or
    (ii) The investment adviser or principal underwriter of one of the 
companies is an affiliated person as defined in section 2(a)(3) of the 
Act (15 U.S.C. 80a-2(a)(3)) of the investment adviser or principal 
underwriter of each of the other companies;
    (6) Offering company means a registered open-end investment company 
(other than a registered separate account) or any principal underwriter 
thereof that makes an offer (an ``exchange offer'') to the holder of a 
security of that company, or of another

[[Page 774]]

open-end investment company within the same group of investment 
companies as the offering company, to exchange that security for a 
security of the offering company;
    (7) Redemption fee means any fee (other than a sales load, deferred 
sales load or administrative fee) that is paid to the fund and is 
reasonably intended to compensate the fund for expenses directly related 
to the redemption of fund shares; and
    (8) Nominal fee means a slight or de minimis fee.
    (b) Nothwithstanding section 11(a) of the Act (15 U.S.C. 80a-11(a)), 
and except as provided in paragraphs (d) and (e) of this section, in 
connection with an exchange offer an offering company may cause a 
securityholder to be charged a sales load on the acquired security, a 
redemption fee, an administrative fee, or any combination of the 
foregoing, Provided that:
    (1) Any administrative fee or scheduled variation thereof is applied 
uniformly to all securityholders of the class specified;
    (2) Any redemption fee charged with respect to the exchanged 
security or any scheduled variation thereof
    (i) Is applied uniformly to all securityholders of the class 
specified, and
    (ii) Does not exceed the redemption fee applicable to a redemption 
of the exchanged security in the absence of an exchange.

Any scheduled variation of a redemption fee must be reasonably related 
to the costs to the fund of processing the type of redemptions for which 
the fee is charged;
    (3) No deferred sales load is imposed on the exchanged security at 
the time of an exchange;
    (4) Any sales load charged with respect to the acquired security is 
a percentage that is no greater than the excess, if any, of the rate of 
the sales load applicable to that security in the absence of an exchange 
over the sum of the rates of all sales loads previously paid on the 
exchanged security, Provided that:
    (i) The percentage rate of any sales load charged when the acquired 
security is redeemed, that is solely the result of a deferred sales load 
imposed on the exchanged security, may be no greater than the excess, if 
any, of the applicable rate of such sales load, calculated in accordance 
with paragraph (b)(5) of this section, over the sum of the rates of all 
sales loads previously paid on the acquired security, and
    (ii) In no event may the sum of the rates of all sales loads imposed 
prior to and at the time the acquired security is redeemed, including 
any sales load paid or to be paid with respect to the exchanged 
security, exceed the maximum sales load rate, calculated in accordance 
with paragraph (b)(5) of this section, that would be applicable in the 
absence of an exchange to the security (exchanged or acquired) with the 
highest such rate;
    (5) Any deferred sales load charged at the time the acquired 
security is redeemed is calculated as if the holder of the acquired 
security had held that security from the date on which he became the 
holder of the exchanged security, Provided that:
    (i) The time period during which the acquired security is held need 
not be included when the amount of the deferred sales load is 
calculated, if the deferred sales load is
    (A) reduced by the amount of any fees collected on the acquired 
security under the terms of any plan of distribution adopted in 
accordance with rule 12b-1 under the Act (17 CFR 270.12b-1) (a ``12b-1 
plan''), and
    (B) Solely the result of a sales load imposed on the exchanged 
security, and no other sales loads, including deferred sales loads, are 
imposed with respect to the acquired security,
    (ii) The time period during which the exchanged security is held 
need not be included when the amount of the deferred sales load on the 
acquired security is calculated, if
    (A) The deferred sales load is reduced by the amount of any fees 
previously collected on the exchanged security under the terms of any 
12b-1 plan, and
    (B) The exchanged security was not subject to any sales load, and
    (iii) The holding periods in this subsection may be computed as of 
the end of the calendar month in which a security was purchased or 
redeemed;
    (6) The prospectus of the offering company discloses

[[Page 775]]

    (i) The amount of any administrative or redemption fee imposed on an 
exchange transaction for its securities, as well as the amount of any 
administrative or redemption fee imposed on its securityholders to 
acquire the securities of other investment companies in an exchange 
transaction, and
    (ii) If the offering company reserves the right to change the terms 
of or terminate an exchange offer, that the exchange offer is subject to 
termination and its terms are subject to change;
    (7) Any sales literature or advertising that mentions the existence 
of the exchange offer also discloses
    (i) The existence of any administrative fee or redemption fee that 
would be imposed at the time of an exchange; and
    (ii) If the offering company reserves the right to change the terms 
of or terminate the exchange offer, that the exchange offer is subject 
to termination and its terms are subject to change;
    (8) Whenever an exchange offer is to be terminated or its terms are 
to be amended materially, any holder of a security subject to that offer 
shall be given prominent notice of the impending termination or 
amendment at least 60 days prior to the date of termination or the 
effective date of the amendment, Provided that:
    (i) No such notice need be given if the only material effect of an 
amendment is to reduce or eliminate an administrative fee, sales load or 
redemption fee payable at the time of an exchange, and
    (ii) No notice need be given if, under extraordinary circumstances, 
either
    (A) There is a suspension of the redemption of the exchanged 
security under section 22(e) of the Act [15 U.S.C. 80a-22(e)] and the 
rules and regulations thereunder, or
    (B) The offering company temporarily delays or ceases the sale of 
the acquired security because it is unable to invest amounts effectively 
in accordance with applicable investment objectives, policies and 
restrictions; and
    (9) In calculating any sales load charged with respect to the 
acquired security:
    (i) If a securityholder exchanges less than all of his securities, 
the security upon which the highest sales load rate was previously paid 
is deemed exchanged first; and
    (ii) If the exchanged security was acquired through reinvestment of 
dividends or capital gains distributions, that security is deemed to 
have been sold with a sales load rate equal to the sales load rate 
previously paid on the security on which the dividend was paid or 
distribution made.
    (c) If either no sales load is imposed on the acquired security or 
the sales load imposed is less than the maximum allowed by paragraph 
(b)(4) of this section, the offering company may require the exchanging 
securityholder to have held the exchanged security for a minimum period 
of time previously established by the offering company and applied 
uniformly to all securityholders of the class specified.
    (d) Any offering company that has previously made an offer of 
exchange may continue to impose fees or sales loads permitted by an 
order under section 11(a) of the Act upon shares purchased before the 
earlier of (1) One year after the effective date of this section, or (2) 
When the offer has been brought into compliance with the terms of this 
section, and upon shares acquired through reinvestment of dividends or 
capital gains distributions based on such shares, until such shares are 
redeemed.
    (e) Any offering company that has previously made an offer of 
exchange cannot rely on this section to amend such prior offer unless
    (1) The offering company's prospectus disclosed, during at least the 
two year period prior to the amendment of the offer (or, if the fund is 
less than two years old, at all times the offer has been outstanding) 
that the terms of the offer were subject to change, or
    (2) The only effect of such change is to reduce or eliminate an 
administrative fee, sales load or redemption fee payable at the time of 
an exchange.

[54 FR 35185, Aug. 24, 1989, as amended at 61 FR 49016, Sept. 17, 1996]

[[Page 776]]



Sec. 270.12b-1  Distribution of shares by registered open-end management 
investment company.

    (a)(1) Except as provided in this section, it shall be unlawful for 
any registered open-end management investment company (other than a 
company complying with the provisions of section 10(d) of the Act (15 
U.S.C. 80a-10(d))) to act as a distributor of securities of which it is 
the issuer, except through an underwriter.
    (2) For purposes of this section, such a company will be deemed to 
be acting as a distributor of securities of which it is the issuer, 
other than through an underwriter, if it engages directly or indirectly 
in financing any activity which is primarily intended to result in the 
sale of shares issued by such company, including, but not necessarily 
limited to, advertising, compensation of underwriters, dealers, and 
sales personnel, the printing and mailing of prospectuses to other than 
current shareholders, and the printing and mailing of sales literature.
    (b) A registered, open-end management investment company 
(``Company'') may act as a distributor of securities of which it is the 
issuer: Provided, That any payments made by such company in connection 
with such distribution are made pursuant to a written plan describing 
all material aspects of the proposed financing of distribution and that 
all agreements with any person relating to implementation of the plan 
are in writing: And further provided, That:
    (1) Such plan has been approved by a vote of at least a majority of 
the outstanding voting securities of such company, if adopted after any 
public offering of the company's voting securities or the sale of such 
securities to persons who are not affiliated persons of the company, 
affiliated persons of such persons, promoters of the company, or 
affiliated persons of such promoters;
    (2) Such plan, together with any related agreements, has been 
approved by a vote of the board of directors of such company, and of the 
directors who are not interested persons of the company and have no 
direct or indirect financial interest in the operation of the plan or in 
any agreements related to the plan, cast in person at a meeting called 
for the purpose of voting on such plan or agreements; and
    (3) Such plan or agreement provides, in substance:
    (i) That it shall continue in effect for a period of more than one 
year from the date of its execution or adoption only so long as such 
continuance is specifically approved at least annually in the manner 
described in paragraph (b)(2) of this section;
    (ii) That any person authorized to direct the disposition of monies 
paid or payable by such company pursuant to the plan or any related 
agreement shall provide to the company's board of directors, and the 
directors shall review, at least quarterly, a written report of the 
amounts so expended and the purposes for which such expenditures were 
made; and
    (iii) In the case of a plan, that it may be terminated at any time 
by vote of a majority of the members of the board of directors of the 
company who are not interested persons of the company and have no direct 
or indirect financial interest in the operation of the plan or in any 
agreements related to the plan or by vote of a majority of the 
outstanding voting securities of such company; and
    (iv) In the case of an agreement related to a plan,
    (A) That it may be terminated at any time, without the payment of 
any penalty, by vote of a majority of the members of the board of 
directors of such company who are not interested persons of the company 
and have no direct or indirect financial interest in the operation of 
the plan or in any agreements related to the plan or by vote of a 
majority of the outstanding voting securities of such company on not 
more than sixty days' written notice to any other party to the 
agreement, and
    (B) For its automatic termination in the event of its assignment; 
and
    (4) Such plan provides that it may not be amended to increase 
materially the amount to be spent for distribution without shareholder 
approval and that all material amendments of the plan must be approved 
in the manner described in paragraph (b)(2) of this section;
    (5) Such plan is implemented and continued in a manner consistent 
with

[[Page 777]]

the provisions of paragraphs (c), (d), and (e) of this section;
    (c) A registered open-end management investment company may rely on 
the provisions of paragraph (b) of this section only if:
    (1) A majority of the directors of the company are not interested 
persons of the company, and those directors select and nominate any 
other disinterested directors of the company; and
    (2) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel;
    (d) In considering whether a registered open-end management 
investment company should implement or continue a plan in reliance on 
paragraph (b) of this section, the directors of such company shall have 
a duty to request and evaluate, and any person who is a party to any 
agreement with such company relating to such plan shall have a duty to 
furnish, such information as may reasonably be necessary to an informed 
determination of whether such plan should be implemented or continued; 
in fulfilling their duties under this paragraph the directors should 
consider and give appropriate weight to all pertinent factors, and 
minutes describing the factors considered and the basis for the decision 
to use company assets for distribution must be made and preserved in 
accordance with paragraph (f) of this section;
    Note: For a discussion of factors which may be relevant to a 
decision to use company assets for distribution, see Investment Company 
Act Releases Nos. 10862, September 7, 1979, and 11414, October 28, 1980.
    (e) A registered open-end management investment company may 
implement or continue a plan pursuant to paragraph (b) of this section 
only if the directors who vote to approve such implementation or 
continuation conclude, in the exercise of reasonable business judgment 
and in light of their fiduciary duties under state law and under 
sections 36(a) and (b) (15 U.S.C. 80a-35 (a) and (b)) of the Act, that 
there is a reasonable likelihood that the plan will benefit the company 
and its shareholders; and
    (f) A registered open-end management investment company must 
preserve copies of any plan, agreement or report made pursuant to this 
section for a period of not less than six years from the date of such 
plan, agreement or report, the first two years in an easily accessible 
place.
    (g) If a plan covers more than one series or class of shares, the 
provisions of the plan must be severable for each series or class, and 
whenever this section provides for any action to be taken with respect 
to a plan, that action must be taken separately for each series or class 
affected by the matter. Nothing in this paragraph (g) shall affect the 
rights of any purchase class under Sec. 270.18f-3(e)(2)(iii).

[45 FR 73905, Nov. 7, 1980, as amended at 60 FR 11885, Mar. 2, 1995; 61 
FR 49011, Sept. 17, 1996; 62 FR 51765, Oct. 3, 1997; 66 FR 3758, Jan. 
16, 2001]



Sec. 270.12d2-1  Definition of insurance company for purposes of 
sections 12(d)(2) and 12(g) of the Act.

    For purposes of sections 12(d)(2) and 12(g) of the Act [15 U.S.C. 
80a-12(d)(2) and 80a-12(g)], insurance company shall include a foreign 
insurance company as that term is used in rule 3a-6 under the Act (17 
CFR 270.3a-6).

[56 FR 56300, Nov. 4, 1991]



Sec. 270.12d3-1  Exemption of acquisitions of securities issued by 
persons engaged in securities related businesses.

    (a) Notwithstanding section 12(d)(3) of the Act, a registered 
investment company, or any company or companies controlled by such 
registered investment company (``acquiring company'') may acquire any 
security issued by any person that, in its most recent fiscal year, 
derived 15 percent or less of its gross revenues from securities related 
activities unless the acquiring company would control such person after 
the acquisition.
    (b) Notwithstanding section 12(d)(3) of the Act, an acquiring 
company may acquire any security issued by a person that, in its most 
recent fiscal year, derived more than 15 percent of its gross revenues 
from securities related activities, provided that:
    (1) Immediately after the acquisition of any equity security, the 
acquiring company owns not more than five percent of the outstanding 
securities of

[[Page 778]]

that class of the issuer's equity securities;
    (2) Immediately after the acquisition of any debt security, the 
acquiring company owns not more than ten percent of the outstanding 
principal amount of the issuer's debt securities; and
    (3) Immediately after any such acquisition, the acquiring company 
has invested not more than five percent of the value of its total assets 
in the securities of the issuer.
    (c) Notwithstanding paragraphs (a) and (b) of this section, this 
section does not exempt the acquisition of:
    (1) A general partnership interest; or
    (2) A security issued by the acquiring company's promoter, principal 
underwriter, or any affiliated person of such promoter, or principal 
underwriter; or
    (3) A security issued by the acquiring company's investment adviser, 
or an affiliated person of the acquiring company's investment adviser, 
other than a security issued by a subadviser or an affiliated person of 
a subadviser of the acquiring company provided that:
    (i) Prohibited relationships. The subadviser that is (or whose 
affiliated person is) the issuer is not, and is not an affiliated person 
of, an investment adviser responsible for providing advice with respect 
to the portion of the acquiring company that is acquiring the 
securities, or of any promoter, underwriter, officer, director, member 
of an advisory board, or employee of the acquiring company;
    (ii) Advisory contract. The advisory contracts of the Subadviser 
that is (or whose affiliated person is) the issuer, and any Subadviser 
that is advising the portion of the acquiring company that is purchasing 
the securities:
    (A) Prohibit them from consulting with each other concerning 
transactions of the acquiring company in securities or other assets, 
other than for purposes of complying with the conditions of paragraphs 
(a) and (b) of this section; and
    (B) Limit their responsibility in providing advice to providing 
advice with respect to a discrete portion of the acquiring company's 
portfolio.
    (d) For purposes of this section:
    (1) Securities related activities are a person's activities as a 
broker, a dealer, an underwriter, an investment adviser registered under 
the Investment Advisers Act of 1940, as amended, or as an investment 
adviser to a registered investment company.
    (2) An issuer's gross revenues from its own securities related 
activities and from its ratable share of the securities related 
activities of enterprises of which it owns 20 percent or more of the 
voting or equity interest should be considered in determining the degree 
to which an issuer is engaged in securities related activities. Such 
information may be obtained from the issuer's annual report to 
shareholders, the issuer's annual reports or registration statement 
filed with the Commission, or the issuer's chief financial officer.
    (3) Equity security is as defined in Sec. 240.3a-11 of this 
chapter.
    (4) Debt security includes all securities other than equity 
securities.
    (5) Determination of the percentage of an acquiring company's 
ownership of any class of outstanding equity securities of an issuer 
shall be made in accordance with the procedures described in the rules 
under Sec. 240.16 of this chapter.
    (6) Where an acquiring company is considering acquiring or has 
acquired options, warrants, rights, or convertible securities of a 
securities related business, the determination required by paragraph (b) 
of this section shall be made as though such options, warrants, rights, 
or conversion privileges had been exercised.
    (7) The following transactions will not be deemed to be an 
acquisition of securities of a securities related business:
    (i) Receipt of stock dividends on securities acquired in compliance 
with this section;
    (ii) Receipt of securities arising from a stock-for-stock split on 
securities acquired in compliance with this section;
    (iii) Exercise of options, warrants, or rights acquired in 
compliance with this section;
    (iv) Conversion of convertible securities acquired in compliance 
with this section; and
    (v) Acquisition of Demand Features or Guarantees, as these terms are 
defined in Sec. Sec. 270.2a-7(a)(8) and 270.2a-

[[Page 779]]

7(a)(15) respectively, provided that, immediately after the acquisition 
of any Demand Feature or Guarantee, the company will not, with respect 
to 75 percent of the total value of its assets, have invested more than 
ten percent of the total value of its assets in securities underlying 
Demand Features or Guarantees from the same institution. For the 
purposes of this section, a Demand Feature or Guarantee will be 
considered to be from the party to whom the company will look for a 
payment of the exercise price.
    (8) Any class or series of an investment company that issues two or 
more classes or series of preferred or special stock, each of which is 
preferred over all other classes or series with respect to assets 
specifically allocated to that class or series, shall be treated as if 
it is a registered investment company.
    (9) Subadviser means an investment adviser as defined in section 
2(a)(20)(B) of the Act (15 U.S.C. 80a-2(a)(20)(B)).

[58 FR 49427, Sept. 23, 1993, as amended at 61 FR 13982, Mar. 28, 1996; 
62 FR 64986, Dec. 9, 1997; 66 FR 36162, July 11, 2001; 68 FR 3152, Jan. 
22, 2003]



Sec. 270.13a-1  Exemption for change of status by temporarily diversified 
company.

    A change of its subclassification by a registered management company 
from that of a diversified company to that of a nondiversified company 
shall be exempt from the provisions of section 13(a)(1) of the Act (54 
Stat. 811; 15 U.S.C. 80a-13), if such change occurs under the following 
circumstances:
    (a) Such company was a nondiversified company at the time of its 
registration pursuant to section 8(a) (54 Stat. 803; 15 U.S.C. 80a-8), 
or thereafter legally became a nondiversified company.
    (b) After its registration and within 3 years prior to such change, 
such company became a diversified company.
    (c) At the time such company became a diversified company, its 
registration statement filed pursuant to section 8(b) (54 Stat. 803; 15 
U.S.C. 80a-8), as supplemented and modified by any amendments and 
reports theretofore filed, did not stated that the registrant proposed 
to become a diversified company.

[Rule N-13A-1, 6 FR 3967, Aug. 8, 1941]



Sec. 270.14a-1  Use of notification pursuant to regulation E under the 
Securities Act of 1933.

    For the purposes of section 14(a)(3) of the Act, registration of 
securities under the Securities Act of 1933 by a small business 
investment company operating under the Small Business Investment Act of 
1958 shall be deemed to include the filing of a notification under Rule 
604 of Regulation E promulgated under said Act if provision is made in 
connection with such notification which in the opinion of the Commission 
adequately insures (a) that after the effective date of such 
notification such company will not issue any security or receive any 
proceeds of any subscription for any security until firm agreements have 
been made with such company by not more than twenty-five responsible 
persons to purchase from it securities to be issued by it for an 
aggregate net amount which plus the then net worth of the company, if 
any, will equal at least $100,000; (b) that said aggregate net amount 
will be paid into such company before any subscriptions for such 
securities will be accepted from any persons in excess of twenty-five; 
(c) that arrangements will be made whereby any proceeds so paid in, as 
well as any sales load, will be refunded to any subscriber on demand 
without any deduction, in the event that the net proceeds so received by 
the company do not result in the company having a net worth of at least 
$100,000 within ninety days after such notification becomes effective.

[25 FR 3512, Apr. 22, 1960]



Sec. 270.14a-2  Exemption from section 14(a) of the Act for certain 
registered separate accounts and their principal underwriters.

    (a) A registered separate account, and any principal underwriter for 
such account, shall be exempt from section 14(a) of the Act (15 U.S.C. 
80a-14(a)) with respect to a public offering of variable annuity 
contracts participating in such account if, at the commencement of such 
offering, the insurance company establishing and maintaining such 
separate account shall have (1) a combined capital and surplus, if a 
stock company, or (2) an unassigned surplus, if a mutual company,

[[Page 780]]

of not less than $1,000,000 as set forth in the balance sheet of such 
insurance company contained in the registration statement or any 
amendment thereto relating to such contracts filed pursuant to the 
Securities Act of 1933.
    (b) Any registered management investment company which has as a 
promoter an insurance company meeting the requirements of paragraph (a) 
of this section and which offers its securities to separate accounts of 
such insurance company registered under the Act as unit investment 
trusts (``trust accounts''), and any principal underwriter for such 
investment company, shall be exempt from section 14(a) with respect to 
such offering and to the offering of such securities to trust accounts 
of other insurance companies meeting the requirements of paragraph (a) 
of this section.
    (c) Any registered management investment company exempt from section 
14(a) of the Act pursuant to paragraph (b) of this section shall be 
exempt from sections 15(a), 16(a), and 32(a)(2) of the Act (15 U.S.C. 
80a-15(a), 80a-16(a), and 80a-31(a)(2)), to the extent prescribed in 
rules 15a-3, 16a-1, and 32a-2 under the Act (17 CFR 270.15a-3, 270.16a-
1, and 270.32a-2), provided that such investment company complies with 
the conditions set forth in those rules as if it were a separate 
account.

(Secs. 6(c) and 38(a) of the Act (15 U.S.C. 80a-6(c) and 80a-37(a), 
respectively))

[49 FR 1479, Jan. 12, 1984]



Sec. 270.14a-3  Exemption from section 14(a) of the Act for certain 
registered unit investment trusts and their principal underwriters.

    (a) A registered unit investment trust (hereinafter referred to as 
the ``Trust'') engaged exclusively in the business of investing in 
eligible trust securities, and any principal underwriter for the Trust, 
shall be exempt from section 14(a) of the Act with respect to a public 
offering of Trust units: Provided, That:
    (1) At the commencement of such offering the Trust holds at least 
$100,000 principal amount of eligible trust securities (or delivery 
statements relating to contracts for the purchase of any such securities 
which, together with cash or an irrevocable letter of credit issued by a 
bank in the amount required for their purchase, are held by the Trust 
for purchase of the securities);
    (2) If, within ninety days from the time that the Trust's 
registration statement has become effective under the Securities Act of 
1933 (15 U.S.C. 77a et seq.) the net worth of the Trust declines to less 
than $100,000 or the Trust is terminated, the sponsor for the Trust 
shall--
    (i) Refund, on demand and without deduction, all sales charges to 
any unitholders who purchased Trust units from the sponsor (or from any 
underwriter or dealer participating in the distribution), and
    (ii) Liquidate the eligible trust securities held by the Trust and 
distribute the proceeds thereof to the unitholders of the Trust;
    (3) The sponsor instructs the trustee when the eligible trust 
securities are deposited in the Trust that, in the event that 
redemptions by the sponsor or any underwriter of units constituting a 
part of the unsold units results in the Trust having a net worth of less 
than 40 percent of the principal amount of the eligible trust securities 
(or delivery statements relating to contracts for the purchase of any 
such securities which, together with cash or an irrevocable letter of 
credit issued by a bank in the amount required for their purchase, are 
held by the Trust for purchase of the securities) initially deposited in 
the Trust--
    (i) The trustee shall terminate the Trust and distribute the assets 
thereof to the unitholders of the Trust, and
    (ii) The sponsor for the Trust shall refund, on demand and without 
deduction, all sales charges to any unitholder who purchased Trust units 
from the sponsor or from any underwriter or dealer participating in the 
distribution.
    (b) For the purposes of determining the availability of the 
exemption provided by the foregoing subsection, the term ``eligible 
trust securities'' shall mean:
    (1) Securities (other than convertible securities) which are issued 
by a corporation and which have their interest

[[Page 781]]

or dividend rate fixed at the time they are issued;
    (2) Interest bearing obligations issued by a state, or by any 
agency, instrumentality, authority or political subdivision thereof;
    (3) Government securities; and
    (4) Units of a previously issued series of the Trust: Provided, 
That:
    (i) The aggregate principal amount of units of existing series so 
deposited shall not exceed 10% of the aggregate principal amount of the 
portfolio of the new series;
    (ii) The aggregate principal amount of units of any particular 
existing series so deposited shall not exceed 5% of the aggregate 
principal amount of the portfolio of the new series;
    (iii) No units shall be so deposited which do not substantially meet 
investment quality criteria at least as high as those applicable to the 
new series in which such units are deposited;
    (iv) The value of the eligible trust securities underlying units of 
an existing series deposited in a new series shall not, by reason of 
maturity of such securities according to their terms within ten years 
following the date of deposit, be reduced sufficiently for such existing 
series to be voluntarily terminated;
    (v) Units of existing series so deposited shall constitute units 
purchased by the sponsor as market maker and not remaining unsold units 
from the original distribution of such units; and
    (vi) The sponsor shall deposit units of existing series in the new 
series without a sales charge.

(Secs. 6(c) and 38(a) (15 U.S.C. 80a-6(c) and 15 U.S.C. 80a-37(a)))

[44 FR 29646, May 22, 1979; 44 FR 40064, July 9, 1979]



Sec. 270.15a-1  Exemption from stockholders' approval of certain small 
investment advisory contracts.

    An investment adviser of a registered investment company shall be 
exempt from the requirement of sections 15(a) and 15(e) of the Act (54 
Stat. 812; 15 U.S.C. 80a-15) that the written contract pursuant to which 
he acts shall have been approved by the vote of a majority of the 
outstanding votingsecurities of such company, if the following 
conditions are met:
    (a) Such investment adviser is not an affiliated person of such 
company (except as investment adviser) nor of any principal underwriter 
for such company.
    (b) His compensation as investment adviser of such company in any 
fiscal year of the company during which any such contract is in effect 
either (1) is not more than $100 or (2) is not more than $2,500 and not 
more than \1/40\ of 1 percent of the value of the company's net assets 
averaged over the year or taken as of a definite date or dates within 
the year.
    (c) The aggregate compensation of all investment advisers of such 
company exempted pursuant to this section in any fiscal year of the 
company either (1) is not more than $200 or (2) is not more than \1/20\ 
of 1 percent of the value of the company's net assets averaged over the 
year or taken as of a definite date or dates within the year.

[Rule N-15A-1, 6 FR 2275, Jan. 8, 1944]



Sec. 270.15a-2  Annual continuance of contracts.

    (a) For purposes of sections 15(a) and 15(b) of the Act, the 
continuance of a contract for a period more than two years after the 
date of its execution shall be deemed to have been specifically approved 
at least annually by the board of directors or by a vote of a majority 
of the outstanding voting securities of a registered investment company 
if such approval occurs:
    (1) With respect to the first continuance of a contract, during the 
90 days prior to and including the earlier of (i) the date specified in 
such contract for its termination in the absence of such approval, or 
(ii) the second anniversary of the date upon which such contract was 
executed; or
    (2) With respect to any subsequent continuance of a contract, during 
the 90 days prior to and including the first anniversary of the date 
upon which the most recent previous annual continuance of such contract 
became effective.
    (b) The provisions of paragraph (a) of this section shall not apply 
to any continuance of a contract which shall have been approved not 
later than 90 days after the date of adoption of this section, provided 
that such contract shall expire, by its terms, not later than 17

[[Page 782]]

months from the date of adoption of this section.
    Note: This section does not establish the exclusive method of 
complying with the Act. It provides one procedure by which a registered 
investment company may comply with the applicable provisions of sections 
15(a) and 15(b) of the Act; it does not preclude any other appropriate 
procedure. Any annual continuance of a contract approved in accordance 
with the provisions of paragraph (a)(1) or (a)(2) of Sec. 270.15a-2 
will constitute a renewal of such contract for the purposes of section 
15(c) of the Act, and therefore such renewal must be approved by the 
disinterested directors within the times specified in the section for a 
continuance.

[41 FR 41911, Sept. 24, 1976]



Sec. 270.15a-3  Exemption for initial period of investment adviser of 

certain registered separate accounts from requirement of security holder 
approval of investment advisory contract.

    (a) An investment adviser of a registered separate account shall be 
exempt from the requirement under section 15(a) of the Act that the 
initial written contract pursuant to which the investment adviser serves 
or acts shall have been approved by the vote of a majority of the 
outstanding voting securities of such registered separate account, 
subject to the following conditions:
    (1) Such registered separate account qualifies for exemption from 
section 14(a) of the Act pursuant to Sec. 270.14a-2, or is exempt 
therefrom by order of the Commission upon application; and
    (2) Such written contract shall be submitted to a vote of variable 
annuity contract owners at their first meeting after the effective date 
of the registration statement under the Securities Act of 1933, as 
amended (15 U.S.C. 77a et seq.) relating to variable annuity contracts 
participating in such account: Provided, That such meeting shall take 
place within 1 year after such effective date, unless the time for the 
holding of such meeting shall be extended by the Commission upon written 
request showing good cause therefor.

(Sec. 6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12695, Aug. 5, 1969]



Sec. 270.15a-4  Temporary exemption for certain investment advisers.

    (a) For purposes of this section:
    (1) Fund means an investment company, and includes a separate series 
of the company.
    (2) Interim contract means a written investment advisory contract:
    (i) That has not been approved by a majority of the fund's 
outstanding voting securities; and
    (ii) That has a duration no greater than 150 days following the date 
on which the previous contract terminates.
    (3) Previous contract means an investment advisory contract that has 
been approved by a majority of the fund's outstanding voting securities 
and has been terminated.
    (b) Notwithstanding section 15(a) of the Act (15 U.S.C. 80a-15(a)), 
a person may act as investment adviser for a fund under an interim 
contract after the termination of a previous contract as provided in 
paragraphs (b)(1) or (b)(2) of this section:
    (1) In the case of a previous contract terminated by an event 
described in section 15(a)(3) of the Act (15 U.S.C. 80a-15(a)(3)), by 
the failure to renew the previous contract, or by an assignment (other 
than an assignment by an investment adviser or a controlling person of 
the investment adviser in connection with which assignment the 
investment adviser or a controlling person directly or indirectly 
receives money or other benefit):
    (i) The compensation to be received under the interim contract is no 
greater than the compensation the adviser would have received under the 
previous contract; and
    (ii) The fund's board of directors, including a majority of the 
directors who are not interested persons of the fund, has approved the 
interim contract within 10 business days after the termination, at a 
meeting in which directors may participate by any means of communication 
that allows all directors participating to hear each other 
simultaneously during the meeting.

[[Page 783]]

    (2) In the case of a previous contract terminated by an assignment 
by an investment adviser or a controlling person of the investment 
adviser in connection with which assignment the investment adviser or a 
controlling person directly or indirectly receives money or other 
benefit:
    (i) The compensation to be received under the interim contract is no 
greater than the compensation the adviser would have received under the 
previous contract;
    (ii) The board of directors, including a majority of the directors 
who are not interested persons of the fund, has voted in person to 
approve the interim contract before the previous contract is terminated;
    (iii) The board of directors, including a majority of the directors 
who are not interested persons of the fund, determines that the scope 
and quality of services to be provided to the fund under the interim 
contract will be at least equivalent to the scope and quality of 
services provided under the previous contract;
    (iv) The interim contract provides that the fund's board of 
directors or a majority of the fund's outstanding voting securities may 
terminate the contract at any time, without the payment of any penalty, 
on not more than 10 calendar days' written notice to the investment 
adviser;
    (v) The interim contract contains the same terms and conditions as 
the previous contract, with the exception of its effective and 
termination dates, provisions governed by paragraphs (b)(2)(i), 
(b)(2)(iv), and (b)(2)(vi) of this section, and any other differences in 
terms and conditions that the board of directors, including a majority 
of the directors who are not interested persons of the fund, finds to be 
immaterial;
    (vi) The interim contract contains the following provisions:
    (A) The compensation earned under the contract will be held in an 
interest-bearing escrow account with the fund's custodian or a bank;
    (B) If a majority of the fund's outstanding voting securities 
approve a contract with the investment adviser by the end of the 150-day 
period, the amount in the escrow account (including interest earned) 
will be paid to the investment adviser; and
    (C) If a majority of the fund's outstanding voting securities do not 
approve a contract with the investment adviser, the investment adviser 
will be paid, out of the escrow account, the lesser of:
    (1) Any costs incurred in performing the interim contract (plus 
interest earned on that amount while in escrow); or
    (2) The total amount in the escrow account (plus interest earned); 
and
    (vii)(A) A majority of the directors of the investment company are 
not interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (B) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel.

[64 FR 68023, Dec. 6, 1999, as amended 66 FR 3758, Jan. 16, 2001]



Sec. 270.16a-1  Exemption for initial period of directors of certain 
registered accounts from requirements of election by security holders.

    (a) Persons serving as the directors of a registered separate 
account shall, prior to the first meeting of such account's variable 
annuity contract owners, be exempt from the requirement of section 16(a) 
of the Act that such persons be elected by the holders of outstanding 
voting securities of such account at an annual or special meeting called 
for that purpose, subject to the following conditions:
    (1) Such registered separate account qualifies for exemption from 
section 14(a) of the Act pursuant to Sec. 270.14a-1 or is exempt 
therefrom by order of the Commission upon application; and
    (2) Such persons have been appointed directors of such account by 
the establishing insurance company; and
    (3) An election of directors for such account shall be held at the 
first meeting of variable annuity contract owners after the effective 
date of the registration statement under the Securities Act of 1933, as 
amended (15 U.S.C. 77a et seq.), relating to contracts participating in 
such account: Provided, That such meeting shall take place

[[Page 784]]

within 1 year after such effective date, unless the time for the holding 
of such meeting shall be extended by the Commission upon written request 
showing good cause therefor.

(Sec. 6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12695, Aug. 5, 1969]



Sec. 270.17a-1  Exemption of certain underwriting transactions exempted 
by Sec. 270.10f-1.

    Any transaction exempted pursuant to Sec. 270.10f-1 shall be exempt 
from the provisions of section 17(a)(1) of the Act (54 Stat. 815; 15 
U.S.C. 80a-17).

[Rule N-17A-1, 6 FR 1191, Feb. 28, 1941]



Sec. 270.17a-2  Exemption of certain purchase, sale, or borrowing transactions.

    Purchase, sale or borrowing transactions occurring in the usual 
course of business between affiliated persons of registered investment 
companies shall be exempt from section 17(a) of the Act provided (a) the 
transactions involve notes, drafts, time payment contracts, bills of 
exchange, acceptance or other property of a commercial character rather 
than of an investment character; (b) the buyer or lender is a bank; and 
(c) the seller or borrower is a bank or is engaged principally in the 
business of installment financing.

[Rule N-17A-2, 12 FR 5008, July 29, 1947]



Sec. 270.17a-3  Exemption of transactions with fully owned subsidiaries.

    (a) The following transactions shall be exempt from section 17(a) of 
the Act:
    (1) Transactions solely between a registered investment company and 
one or more of its fully owned subsidiaries or solely between two or 
more fully owned subsidiaries of such company.
    (2) Transactions solely between any subsidiary of a registered 
investment company and one or more fully owned subsidiaries of such 
subsidiary or solely between two or more fully owned subsidiaries of 
such subsidiary.
    (b) The term fully owned subsidiary as used in this section, means a 
subsidiary (1) all of whose outstanding securities, other than 
directors' qualifying shares, are owned by its parent and/or the 
parent's other fully owned subsidiaries, and (2) which is not indebted 
to any person other than its parent and/or the parent's other fully 
owned subsidiaries in an amount which is material in relation to the 
particular subsidiary, excepting (i) indebtedness incurred in the 
ordinary course of business which is not overdue and which matures 
within one year from the date of its creation, whether evidenced by 
securities or not, and (ii) any other indebtedness to one or more banks 
or insurance companies.

[Rule N-17A-3, 12 FR 3442, May 28, 1947]



Sec. 270.17a-4  Exemption of transactions pursuant to certain contracts.

    Transactions pursuant to a contract shall be exempt from section 
17(a) of the Act if at the time of the making of the contract and for a 
period of at least six months prior thereto no affiliation or other 
relationship existed which would operate to make such contract or the 
subsequent performance thereof subject to the provisions of said section 
17(a).

[Rule N-17A-4, 12 FR 5008, July 29, 1947]



Sec. 270.17a-5  Pro rata distribution neither ``sale'' nor ``purchase.''

    When a company makes a pro rata distribution in cash or in kind 
among its common stockholders without giving any election to any 
stockholder as to the specific assets which such stockholders shall 
receive, such distribution shall not be deemed to involve a sale to or a 
purchase from such distributing company as those terms are used in 
section 17(a) of the Act.

[20 FR 7447, Oct. 6, 1955]



Sec. 270.17a-6  Exemption for transactions with portfolio affiliates.

    (a) Exemption for transactions with portfolio affiliates. A 
transaction to which a fund, or a company controlled by a fund, and a 
portfolio affiliate of the fund are parties is exempt from the 
provisions of section 17(a) of the Act (15 U.S.C. 80a-17(a)), provided 
that none of the following persons is a party to the transaction, or has 
a direct or indirect financial interest in a party to the transaction 
other than the fund:

[[Page 785]]

    (1) An officer, director, employee, investment adviser, member of an 
advisory board, depositor, promoter of or principal underwriter for the 
fund;
    (2) A person directly or indirectly controlling the fund;
    (3) A person directly or indirectly owning, controlling or holding 
with power to vote five percent or more of the outstanding voting 
securities of the fund;
    (4) A person directly or indirectly under common control with the 
fund, other than:
    (i) A portfolio affiliate of the fund; or
    (ii) A fund whose sole interest in the transaction or a party to the 
transaction is an interest in the portfolio affiliate; or
    (5) An affiliated person of any of the persons mentioned in 
paragraphs (a)(1)-(4) of this section, other than the fund or a 
portfolio affiliate of the fund.
    (b) Definitions. (1) Financial interest. (i) The term financial 
interest as used in this section does not include:
    (A) Any interest through ownership of securities issued by the fund;
    (B) Any interest of a wholly-owned subsidiary of a fund;
    (C) Usual and ordinary fees for services as a director;
    (D) An interest of a non-executive employee;
    (E) An interest of an insurance company arising from a loan or 
policy made or issued by it in the ordinary course of business to a 
natural person;
    (F) An interest of a bank arising from a loan or account made or 
maintained by it in the ordinary course of business to or with a natural 
person, unless it arises from a loan to a person who is an officer, 
director or executive of a company which is a party to the transaction, 
or from a loan to a person who directly or indirectly owns, controls, or 
holds with power to vote, five percent or more of the outstanding voting 
securities of a company which is a party to the transaction;
    (G) An interest acquired in a transaction described in paragraph 
(d)(3) of Sec. 270.17d-1; or
    (H) Any other interest that the board of directors of the fund, 
including a majority of the directors who are not interested persons of 
the fund, finds to be not material, provided that the directors record 
the basis for that finding in the minutes of their meeting.
    (ii) A person has a financial interest in any party in which it has 
a financial interest, in which it had a financial interest within six 
months prior to the transaction, or in which it will acquire a financial 
interest pursuant to an arrangement in existence at the time of the 
transaction.
    (2) Fund means a registered investment company or separate series of 
a registered investment company.
    (3) Portfolio affiliate of a fund means a person that is an 
affiliated person (or an affiliated person of an affiliated person) of a 
fund solely because the fund, a fund under common control with the fund, 
or both:
    (i) Controls such person (or an affiliated person of such person); 
or
    (ii) Owns, controls, or holds with power to vote five percent or 
more of the outstanding voting securities of such person (or an 
affiliated person of such person).

[68 FR 3153, Jan. 22, 2003]



Sec. 270.17a-7  Exemption of certain purchase or sale transactions 
between an investment company and certain affiliated persons thereof.

    A purchase or sale transaction between registered investment 
companies or separate series of registered investment companies, which 
are affiliated persons, or affiliated persons of affiliated persons, of 
each other, between separate series of a registered investment company, 
or between a registered investment company or a separate series of a 
registered investment company and a person which is an affiliated person 
of such registered investment company (or affiliated person of such 
person) solely by reason of having a common investment adviser or 
investment advisers which are affiliated persons of each other, common 
directors, and/or common officers, is exempt from section 17(a) of the 
Act; Provided, That:
    (a) The transaction is a purchase or sale, for no consideration 
other than cash payment against prompt delivery of a security for which 
market quotations are readily available;
    (b) The transaction is effected at the independent current market 
price of

[[Page 786]]

the security. For purposes of this paragraph the ``current market 
price'' shall be:
    (1) If the security is a ``reported security'' as that term is 
defined in rule 11Aa3-1 under the Securities Exchange Act of 1934 [17 
CFR 240.11Aa3-1], the last sale price with respect to such security 
reported in the consolidated transaction reporting system 
(``consolidated system'') or the average of the highest current 
independent bid and lowest current independent offer for such security 
(reported pursuant to rule 11Ac1-1 under the Securities Exchange Act of 
1934 [17 CFR 240.11Ac1-1]) if there are no reported transactions in the 
consolidated system that day; or
    (2) If the security is not a reported security, and the principal 
market for such security is an exchange, then the last sale on such 
exchange or the average of the highest current independent bid and 
lowest current independent offer on such exchange if there are no 
reported transactions on such exchange that day; or
    (3) If the security is not a reported security and is quoted in the 
NASDAQ System, then the average of the highest current independent bid 
and lowest current independent offer reported on Level 1 of NASDAQ; or
    (4) For all other securities, the average of the highest current 
independent bid and lowest current independent offer determined on the 
basis of reasonable inquiry;
    (c) The transaction is consistent with the policy of each registered 
investment company and separate series of a registered investment 
company participating in the transaction, as recited in its registration 
statement and reports filed under the Act;
    (d) No brokerage commission, fee (except for customary transfer 
fees), or other remuneration is paid in connection with the transaction;
    (e) The board of directors of the investment company, including a 
majority of the directors who are not interested persons of such 
investment company,
    (1) Adopts procedures pursuant to which such purchase or sale 
transactions may be effected for the company, which are reasonably 
designed to provide that all of the conditions of this section in 
paragraphs (a) through (d) have been complied with,
    (2) Makes and approves such changes as the board deems necessary, 
and
    (3) Determines no less frequently than quarterly that all such 
purchases or sales made during the preceding quarter were effected in 
compliance with such procedures;
    (f)(1) A majority of the directors of the investment company are not 
interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (2) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel; and
    (g) The investment company (1) maintains and preserves permanently 
in an easily accessible place a written copy of the procedures (and any 
modifications thereto) described in paragraph (e) of this section, and 
(2) maintains and preserves for a period not less than six years from 
the end of the fiscal year in which any transactions occurred, the first 
two years in an easily accessible place, a written record of each such 
transaction setting forth a description of the security purchased or 
sold, the identity of the person on the other side of the transaction, 
the terms of the purchase or sale transaction, and the information or 
materials upon which the determinations described in paragraph (e)(3) of 
this section were made.

[46 FR 17013, Mar. 17, 1981, as amended at 58 FR 49921, Sept. 24, 1993; 
66 FR 3758, Jan. 16, 2001]



Sec. 270.17a-8  Mergers of affiliated companies.

    (a) Exemption of affiliated mergers. A Merger of a registered 
investment company (or a series thereof) and one or more other 
registered investment companies (or series thereof) or Eligible 
Unregistered Funds is exempt from sections 17(a)(1) and (2) of the Act 
(15 U.S.C. 80a-17(a)(1)-(2)) if:
    (1) Surviving company. The Surviving Company is a registered 
investment company (or a series thereof).

[[Page 787]]

    (2) Board determinations. As to any registered investment company 
(or series thereof) participating in the Merger (``Merging Company''):
    (i) The board of directors, including a majority of the directors 
who are not interested persons of the Merging Company or of any other 
company or series participating in the Merger, determines that:
    (A) Participation in the Merger is in the best interests of the 
Merging Company; and
    (B) The interests of the Merging Company's existing shareholders 
will not be diluted as a result of the Merger.
    Note to paragraph (a)(2)(i): For a discussion of factors that may be 
relevant to the determinations in paragraph (a)(2)(i) of this section, 
see Investment Company Act Release No. 25666, July 18, 2002.
    (ii) The directors have requested and evaluated such information as 
may reasonably be necessary to their determinations in paragraph 
(a)(2)(i) of this section, and have considered and given appropriate 
weight to all pertinent factors.
    (iii) The directors, in making the determination in paragraph 
(a)(2)(i)(B) of this section, have approved procedures for the valuation 
of assets to be conveyed by each Eligible Unregistered Fund 
participating in the Merger. The approved procedures provide for the 
preparation of a report by an Independent Evaluator, to be considered in 
assessing the value of any securities (or other assets) for which market 
quotations are not readily available, that sets forth the fair value of 
each such asset as of the date of the Merger.
    (iv) The determinations required in paragraph (a)(2)(i) of this 
section and the bases thereof, including the factors considered by the 
directors pursuant to paragraph (a)(2)(ii) of this section, are recorded 
fully in the minute books of the Merging Company.
    (3) Shareholder approval. Participation in the Merger is approved by 
the vote of a majority of the outstanding voting securities (as provided 
in section 2(a)(42) of the Act (15 U.S.C. 80a-2(a)(42))) of any Merging 
Company that is not a Surviving Company, unless--
    (i) No policy of the Merging Company that under section 13 of the 
Act (15 U.S.C. 80a-13) could not be changed without a vote of a majority 
of its outstanding voting securities, is materially different from a 
policy of the Surviving Company;
    (ii) No advisory contract between the Merging Company and any 
investment adviser thereof is materially different from an advisory 
contract between the Surviving Company and any investment adviser 
thereof, except for the identity of the investment companies as a party 
to the contract;
    (iii) Directors of the Merging Company who are not interested 
persons of the Merging Company and who were elected by its shareholders, 
will comprise a majority of the directors of the Surviving Company who 
are not interested persons of the Surviving Company; and
    (iv) Any distribution fees (as a percentage of the fund's average 
net assets) authorized to be paid by the Surviving Company pursuant to a 
plan adopted in accordance with Sec. 270.12b-1 are no greater than the 
distribution fees (as a percentage of the fund's average net assets) 
authorized to be paid by the Merging Company pursuant to such a plan.
    (4) Board composition; independent directors. (i) A majority of the 
directors are not interested persons of the Merging Company and those 
directors select and nominate any other disinterested directors.
    (ii) Any person who acts as legal counsel for the disinterested 
directors is an independent legal counsel.
    (5) Merger records. Any Surviving Company preserves written records 
that describe the Merger and its terms for six years after the Merger 
(and for the first two years in an easily accessible place).
    (b) Definitions. For purposes of this section:
    (1) Merger means the merger, consolidation, or purchase or sale of 
substantially all of the assets between a registered investment company 
(or a series thereof) and another company;
    (2) Eligible Unregistered Fund means:
    (i) A collective trust fund, as described in section 3(c)(11) of the 
Act (15 U.S.C. 80a-3(c)(11));
    (ii) A common trust fund or similar fund, as described in section 
3(c)(3) of the Act (15 U.S.C. 80a-3(c)(3)); or

[[Page 788]]

    (iii) A separate account, as described in section 2(a)(37) of the 
Act (15 U.S.C. 80a-2(a)(37)), that is neither registered under section 8 
of the Act, nor required to be so registered;
    (3) Independent Evaluator means a person who has expertise in the 
valuation of securities and other financial assets and who is not an 
interested person, as defined in section 2(a)(19) of the Act (15 U.S.C. 
80a-2(a)(19)), of the Eligible Unregistered Fund or any affiliate 
thereof except the Merging Company; and
    (4) Surviving Company means a company in which shareholders of a 
Merging Company will obtain an interest as a result of a Merger.

[67 FR 48518, July 24, 2002]



Sec. 270.17a-9  Purchase of certain securities from a money market 
fund by an affiliate, or an affiliate of an affiliate.

    The purchase of a security that is no longer an Eligible Security 
(as defined in paragraph (a)(10) of Sec. 270.2a-7) from an open-end 
investment company holding itself out as a ``money market'' fund shall 
be exempt from section 17(a) of the Act [15 U.S.C. 80a-17(a)], provided 
that:
    (a) The purchase price is paid in cash; and
    (b) The purchase price is equal to the greater of the amortized cost 
of the security or its market price (in each case, including accrued 
interest).

[61 FR 13983, Mar. 28, 1996, as amended at 62 FR 64986, Dec. 9, 1997]



Sec. 270.17a-10  Exemption for transactions with certain subadvisory 
affiliates.

    (a) Exemption. A person that is prohibited by section 17(a) of the 
Act (15 U.S.C. 80a-17(a)) from entering into a transaction with a fund 
solely because such person is, or is an affiliated person of, a 
subadviser of the fund, or a subadviser of a fund that is under common 
control with the fund, may nonetheless enter into such transaction, if:
    (1) Prohibited relationship. The person is not, and is not an 
affiliated person of, an investment adviser responsible for providing 
advice with respect to the portion of the fund for which the transaction 
is entered into, or of any promoter, underwriter, officer, director, 
member of an advisory board, or employee of the fund.
    (2) Prohibited conduct. The advisory contracts of the subadviser 
that is (or whose affiliated person is) entering into the transaction, 
and any subadviser that is advising the fund (or portion of the fund) 
entering into the transaction:
    (i) Prohibit them from consulting with each other concerning 
transactions for the fund in securities or other assets; and
    (ii) If both such subadvisers are responsible for providing 
investment advice to the fund, limit the subadvisers' responsibility in 
providing advice with respect to a discrete portion of the fund's 
portfolio.
    (b) Definitions.
    (1) Fund means a registered investment company and includes a 
separate series of a registered investment company.
    (2) Subadviser means an investment adviser as defined in section 
2(a)(20)(B) of the Act (15 U.S.C. 80a-2(a)(20)(B)).

[68 FR 3153, Jan. 22, 2003]



Sec. 270.17d-1  Applications regarding joint enterprises or arrangements 
and certain profit-sharing plans.

    (a) No affiliated person of or principal underwriter for any 
registered investment company (other than a company of the character 
described in section 12(d)(3) (A) and (B) of the Act) and no affiliated 
person of such a person or principal underwriter, acting as principal, 
shall participate in, or effect any transaction in connection with, any 
joint enterprise or other joint arrangement or profit-sharing plan in 
which any such registered company, or a company controlled by such 
registered company, is a participant, and which is entered into, adopted 
or modified subsequent to the effective date of this rule, unless an 
application regarding such joint enterprise, arrangement or profit-
sharing plan has been filed with the Commission and has been granted by 
an order entered prior to the submission of such plan or modification to 
security holders for approval, or prior to such adoption or modification 
if not so submitted, except that the provisions of this rule shall not 
preclude any

[[Page 789]]

affiliated person from acting as manager of any underwriting syndicate 
or other group in which such registered or controlled company is a 
participant and receiving compensation therefor.
    (b) In passing upon such applications, the Commission will consider 
whether the participation of such registered or controlled company in 
such joint enterprise, joint arrangement or profit-sharing plan on the 
basis proposed is consistent with the provisions, policies and purposes 
of the Act and the extent to which such participation is on a basis 
different from or less advantageous than that of other participants.
    (c) ``Joint enterprise or other joint arrangement or profit-sharing 
plan'' as used in this section shall mean any written or oral plan, 
contract, authorization or arrangement, or any practice or understanding 
concerning an enterprise or undertaking whereby a registered investment 
company or a controlled company thereof and any affiliated person of or 
a principal underwriter for such registered investment company, or any 
affiliated person of such a person or principal underwriter, have a 
joint or a joint and several participation, or share in the profits of 
such enterprise or undertaking, including, but not limited to, any stock 
option or stock purchase plan, but shall not include an investment 
advisory contract subject to section 15 of the Act.
    (d) Notwithstanding the requirements of paragraph (a) of this 
section, no application need be filed pursuant to this section with 
respect to any of the following:
    (1) Any profit-sharing, stock option or stock purchase plan provided 
by any controlled company which is not an investment company for its 
officers, directors or employees, or the purchase of stock or the 
granting, modification or exercise of options pursuant to such a plan, 
provided:
    (i) No individual participates therein who is either: (a) An 
affiliated person of any investment company which is an affiliated 
person of such controlled company; or (b) an affiliated person of the 
investment adviser or principal underwriter of such investment company; 
and
    (ii) No participant has been an affiliated person of such investment 
company, its investment adviser or principal underwriter during the life 
of the plan and for six months prior to, as the case may be: (a) 
Institution of the profit-sharing plan; (b) the purchase of stock 
pursuant to a stock purchase plan; or (c) the granting of any options 
pursuant to a stock option plan.
    (2) Any plan provided by any registered investment company or any 
controlled company for its officers or employees if such plan has been 
qualified under section 401 of the Internal Revenue Code of 1954 and all 
contributions paid under said plan by the employer qualify as deductible 
under section 404 of said Code.
    (3) Any loan or advance of credit to, or acquisition of securities 
or other property of, a small business concern, or any agreement to do 
any of the foregoing (``Investments''), made by a bank and a small 
business investment company (SBIC) licensed under the Small Business 
Investment Act of 1958, whether such transactions are contemporaneous or 
separated in time, where the bank is an affiliated person of either (i) 
the SBIC or (ii) an affiliated person of the SBIC; but reports 
containing pertinent details as to Investments and transactions relating 
thereto shall be made at such time, on such forms and by such persons as 
the Commission may from time to time prescribe.
    (4) The issuance by a registered investment company which is 
licensed by the Small Business Administration pursuant to the Small 
Business Investment Act of 1958 of stock options which qualify under 
section 422 of the Internal Revenue Code, as amended, and which conform 
to Sec. 107.805(b) of Chapter I of Title 13 of the Code of Federal 
Regulations.
    (5) Any joint enterprise or other joint arrangement or profit-
sharing plan (``joint enterprise'') in which a registered investment 
company or a company controlled by such a company, is a participant, and 
in which a portfolio affiliate (as defined in Sec. 270.17a-6(b)(3)) of 
such registered investment company is also a participant, provided that:
    (i) None of the persons identified in Sec. 270.17a-6(a) is a 
participant in the

[[Page 790]]

joint enterprise, or has a direct or indirect financial interest in a 
participant in the joint enterprise (other than the registered 
investment company);
    (ii) Financial interest.
    (A) The term financial interest as used in this section does not 
include:
    (1) Any interest through ownership of securities issued by the 
registered investment company;
    (2) Any interest of a wholly owned subsidiary of the registered 
investment company;
    (3) Usual and ordinary fees for services as a director;
    (4) An interest of a non-executive employee;
    (5) An interest of an insurance company arising from a loan or 
policy made or issued by it in the ordinary course of business to a 
natural person;
    (6) An interest of a bank arising from a loan to a person who is an 
officer, director, or executive of a company which is a participant in 
the joint transaction or from a loan to a person who directly or 
indirectly owns, controls, or holds with power to vote, five percent or 
more of the outstanding voting securities of a company which is a 
participant in the joint transaction;
    (7) An interest acquired in a transaction described in paragraph 
(d)(3) of this section; or
    (8) Any other interest that the board of directors of the investment 
company, including a majority of the directors who are not interested 
persons of the investment company, finds to be not material, provided 
that the directors record the basis for that finding in the minutes of 
their meeting.
    (B) A person has a financial interest in any party in which it has a 
financial interest, in which it had a financial interest within six 
months prior to the investment company's participation in the 
enterprise, or in which it will acquire a financial interest pursuant to 
an arrangement in existence at the time of the investment company's 
participation in the enterprise.
    (6) The receipt of securities and/or cash by an investment company 
or a controlled company thereof and an affiliated person of such 
investment company or an affiliated person of such person pursuant to a 
plan of reorganization: Provided, That no person identified in Sec. 
270.17a-6(a)(1) or any company in which such a person has a direct or 
indirect financial interest (as defined in paragraph (d)(5)(iii) of this 
section):
    (7) Any arrangement regarding liability insurance policies (other 
than a bond required pursuant to rule 17g-1 (Sec. 270.17g-1) under the 
Act); Provided, That
    (i) The investment company's participation in the joint liability 
insurance policy is in the best interests of the investment company;
    (ii) The proposed premium for the joint liability insurance policy 
to be allocated to the investment company, based upon its proportionate 
share of the sum of the premiums that would have been paid if such 
insurance coverage were purchased separately by the insured parties, is 
fair and reasonable to the investment company;
    (iii) The joint liability insurance policy does not exclude coverage 
for bona fide claims made against any director who is not an interested 
person of the investment company, or against the investment company if 
it is a co-defendant in the claim with the disinterested director, by 
another person insured under the joint liability insurance policy;
    (iv) The board of directors of the investment company, including a 
majority of the directors who are not interested persons with respect 
thereto, determine no less frequently than annually that the standards 
described in paragraphs (d)(7)(i) and (ii) of this section have been 
satisfied; and
    (v)(A) A majority of the directors of the investment company are not 
interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (B) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel.
    (8) An investment adviser's bearing expenses in connection with a 
merger, consolidation or purchase or sale of

[[Page 791]]

substantially all of the assets of a company which involves a registered 
investment company of which it is an affiliated person.

[22 FR 426, Jan. 23, 1957, as amended at 26 FR 11240, Nov. 29, 1961; 35 
FR 13123, Aug. 18, 1970; 39 FR 37973, Oct. 25, 1974; 44 FR 58503, Oct. 
10, 1979; 44 FR 58908, Oct. 12, 1979; 45 FR 12409, Feb. 26, 1980; 66 FR 
3758, Jan. 16, 2001; 68 FR 3153, Jan. 22, 2003]



Sec. 270.17d-2  Form for report by small business investment company 
and affiliated bank.

    Form N-17D-1 is hereby prescribed as the form for reports required 
by paragraph (d)(3) of Sec. 270.17d-1.

[26 FR 11240, Nov. 29, 1961]



Sec. 270.17d-3  Exemption relating to certain joint enterprises or 

arrangements concerning payment for distribution of shares of a 
registered open-end management investment company.

    An affiliated person of, or principal underwriter for, a registered 
open-end management investment company and an affiliated person of such 
a person or principal underwriter shall be exempt from section 17(d) of 
the Act (15 U.S.C. 80a-17(d)) and rule 17d-1 thereunder (17 CFR 270.17d-
1), to the extent necessary to permit any such person or principal 
underwriter to enter into a written agreement with such company whereby 
the company will make payments in connection with the distribution of 
its shares, Provided, That:
    (a) Such agreement is made in compliance with the provisions of 
Sec. 270.12b-1; and
    (b) No other registered management investment company which is 
either an affiliated person of such company or an affiliated person of 
such a person is a party to such agreement.

[45 FR 73905, Nov. 7, 1980]



Sec. 270.17e-1  Brokerage transactions on a securities exchange.

    For purposes of section 17(e)(2)(A) of the Act [15 U.S.C. 80a-
17(e)(2)(A)], a commission, fee or other remuneration shall be deemed as 
not exceeding the usual and customary broker's commission, if:
    (a) The commission, fee, or other remuneration received or to be 
received is reasonable and fair compared to the commission, fee or other 
remuneration received by other brokers in connection with comparable 
transactions involving similar securities being purchased or sold on a 
securities exchange during a comparable period of time;
    (b) The board of directors, including a majority of the directors of 
the investment company who are not interested persons thereof:
    (1) Has adopted procedures which are reasonably designed to provide 
that such commission, fee, or other remuneration is consistent with the 
standard described in paragraph (a) of this section;
    (2) Makes and approves such changes as the board deems necessary; 
and
    (3) Determines no less frequently than quarterly that all 
transactions effected pursuant to this section during the preceding 
quarter (other than transactions in which the person acting as broker is 
a person permitted to enter into a transaction with the investment 
company by Sec. 270.17a-10) were effected in compliance with such 
procedures;
    (c)(1) A majority of the directors of the investment company are not 
interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (2) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel; and
    (d) The investment company:
    (1) Shall maintain and preserve permanently in an easily accessible 
place a copy of the procedures (and any modification thereto) described 
in paragraph (b)(1) of this section; and
    (2) Shall maintain and preserve for a period not less than six years 
from the end of the fiscal year in which any transactions occurred, the 
first two years in an easily accessible place, a record of each such 
transaction (other than any transaction in which the person acting as 
broker is a person permitted to enter into a transaction with the 
investment company by Sec. 270.17a-10) setting forth the amount and 
source of the commission, fee or other remuneration received or to be 
received, the identity of the person acting as broker,

[[Page 792]]

the terms of the transaction, and the information or materials upon 
which the findings described in paragraph (b)(3) of this section were 
made.

[44 FR 37203, June 26, 1979, as amended at 58 FR 49921, Sept. 24, 1993; 
66 FR 3759, Jan. 16, 2001; 68 FR 3154, Jan. 22, 2003]



Sec. 270.17f-1  Custody of securities with members of national securities 
exchanges.

    (a) No registered management investment company shall place or 
maintain any of its securities or similar investments in the custody of 
a company which is a member of a national securities exchange as defined 
in the Securities Exchange Act of 1934 (whether or not such company 
trades in securities for its own account) except pursuant to a written 
contract which shall have been approved, or if executed before January 
1, 1941, shall have been ratified not later than that date, by a 
majority of the board of directors of such investment company.
    (b) The contract shall require, and the securities and investments 
shall be maintained in accordance with the following:
    (1) The securities and similar investments held in such custody 
shall at all times be individually segregated from the securities and 
investments of any other person and marked in such manner as to clearly 
identify them as the property of such registered management company, 
both upon physical inspection thereof and upon examination of the books 
of the custodian. The physical segregation and marking of such 
securities and investments may be accomplished by putting them in 
separate containers bearing the name of such registered management 
investment company or by attaching tags or labels to such securities and 
investments.
    (2) The custodian shall have no power or authority to assign, 
hypothecate, pledge or otherwise to dispose of any such securities and 
investments, except pursuant to the direction of such registered 
management company and only for the account of such registered 
investment company.
    (3) Such securities and investments shall be subject to no lien or 
charge of any kind in favor of the custodian or any persons claiming 
through the custodian.
    (4) Such securities and investments shall be verified by actual 
examination at the end of each annual and semi-annual fiscal period by 
an independent public accountant retained by the investment company, and 
shall be examined by such accountant at least one other time, chosen by 
the accountant, during each fiscal year. A certificate of such 
accountant stating that an examination of such securities has been made, 
and describing the nature and extent of the examination, shall be 
attached to a completed Form N-17f-1 (17 CFR 274.219) and transmitted to 
the Commission promptly after each examination.
    (5) Such securities and investments shall, at all times, be subject 
to inspection by the Commission through its employees or agents.
    (6) The provisions of paragraphs (b) (1), (2) and (3) of this 
section shall not apply to securities and similar investments bought for 
or sold to such investment company by the company which is custodian 
until the securities have been reduced to the physical possession of the 
custodian and have been paid for by such investment company: Provided, 
That the company which is custodian shall take possession of such 
securities at the earliest practicable time. Nothing in this 
subparagraph shall be construed to relieve any company which is a member 
of a national securities exchange of any obligation under existing law 
or under the rules of any national securities exchange.
    (c) A copy of any contract executed or ratified pursuant to 
paragraph (a) of this section shall be transmitted to the Commission 
promptly after execution or ratification unless it has been previously 
transmitted.
    (d) Any contract executed or ratified pursuant to paragraph (a) of 
this section shall be ratified by the board of directors of the 
registered management investment company at least annually thereafter.

[Rule N-17F-1, 5 FR 4317, Oct. 31, 1940, as amended at 54 FR 32049, Aug. 
4, 1989]

[[Page 793]]



Sec. 270.17f-2  Custody of investments by registered management 
investment company.

    (a) The securities and similar investments of a registered 
management investment company may be maintained in the custody of such 
company only in accordance with the provisions of this section. 
Investments maintained by such a company with a bank or other company 
whose functions and physical facilities are supervised by Federal or 
State authority under any arrangement whereunder the directors, 
officers, employees or agents of such company are authorized or 
permitted to withdraw such investments upon their mere receipt, are 
deemed to be in the custody of such company and may be so maintained 
only upon compliance with the provisions of this section.
    (b) Except as provided in paragraph (c) of this section, all such 
securities and similar investments shall be deposited in the safekeeping 
of, or in a vault or other depository maintained by, a bank or other 
company whose functions and physical facilities are supervised by 
Federal or State authority. Investments so deposited shall be physically 
segregated at all times from those of any other person and shall be 
withdrawn only in connection with transactions of the character 
described in paragraph (c) of this section.
    (c) The first sentence of paragraph (b) of this section shall not 
apply to securities on loan which are collateralized to the extent of 
their full market value, or to securities hypothecated, pledged, or 
placed in escrow for the account of such investment company in 
connection with a loan or other transaction authorized by specific 
resolution of its board of directors, or to securities in transit in 
connection with the sale, exchange, redemption, maturity or conversion, 
the exercise of warrants or rights, assents to changes in terms of the 
securities, or other transactions necessary or appropriate in the 
ordinary course of business relating to the management of securities.
    (d) Except as otherwise provided by law, no person shall be 
authorized or permitted to have access to the securities and similar 
investments deposited in accordance with paragraph (b) of this section 
except pursuant to a resolution of the board of directors of such 
investment company. Each such resolution shall designate not more than 
five persons who shall be either officers or responsible employees of 
such company and shall provide that access to such investments shall be 
had only by two or more such persons jointly, at least one of whom shall 
be an officer; except that access to such investments shall be permitted 
(1) to properly authorized officers and employees of the bank or other 
company in whose safekeeping the investments are placed and (2) for the 
purpose of paragraph (f) of this section to the independent public 
accountant jointly with any two persons so designated or with such 
officer or employee of such bank or such other company. Such investments 
shall at all times be subject to inspection by the Commission through 
its authorized employees or agents accompanied, unless otherwise 
directed by order of the Commission, by one or more of the persons 
designated pursuant to this paragraph.
    (e) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the safekeeping of the bank or other 
company, shall sign a notation in respect of such deposit, withdrawal or 
order which shall show (1) the date and time of the deposit, withdrawal 
or order, (2) the title and amount of the securities or other 
investments deposited, withdrawn or ordered to be withdrawn, and an 
identification thereof by certificate numbers or otherwise, (3) the 
manner of acquisition of the securities or similar investments deposited 
or the purpose for which they have been withdrawn, or ordered to be 
withdrawn, and (4) if withdrawn and delivered to another person the name 
of such person. Such notation shall be transmitted promptly to an 
officer or director of the investment company designated by its board of 
directors who shall not be a person designated for the purpose of 
paragraph (d) of this section. Such notation shall be on serially 
numbered forms and shall be preserved for at least one year.
    (f) Such securities and similar investments shall be verified by 
actual examination by an independent public accountant retained by the 
investment

[[Page 794]]

company at least three times during each fiscal year, at least two of 
which shall be chosen by such accountant without prior notice to such 
company. A certificate of such accountant stating that an examination of 
such securities and investments has been made, and describing the nature 
and extent of the examination, shall be attached to a completed Form N-
17f-2 (17 CFR 274.220) and transmitted to the Commission promptly after 
each examination.

[Rule N-17F-2, 12 FR 6717, Oct. 11, 1947, as amended at 54 FR 32049, 
Aug. 4, 1989]



Sec. 270.17f-3  Free cash accounts for investment companies with bank 
custodians.

    No registered investment company having a bank custodian shall hold 
free cash except, upon resolution of its board or directors, a petty 
cash account may be maintained in an amount not to exceed $500: 
Provided, That such account is operated under the imprest system and is 
maintained subject to adequate controls approved by the board of 
directors over disbursements and reimbursements including, but not 
limited to fidelity bond coverage of persons having access to such 
funds.

(Sec. 17(f), 54 Stat. 815, 15 U.S.C. 80a-17(f), sec. 9, Pub. L. 91-547, 
84 Stat. 1420)

[37 FR 9989, May 18, 1972]



Sec. 270.17f-4  Custody of investment company assets with a securities 
depository.

    (a) Custody arrangement with a securities depository. A fund's 
custodian may place and maintain financial assets, corresponding to the 
fund's security entitlements, with a securities depository or 
intermediary custodian, if the custodian:
    (1) Is at a minimum obligated to exercise due care in accordance 
with reasonable commercial standards in discharging its duty as a 
securities intermediary to obtain and thereafter maintain such financial 
assets;
    (2) Is required to provide, promptly upon request by the fund, such 
reports as are available concerning the internal accounting controls and 
financial strength of the custodian; and
    (3) Requires any intermediary custodian at a minimum to exercise due 
care in accordance with reasonable commercial standards in discharging 
its duty as a securities intermediary to obtain and thereafter maintain 
financial assets corresponding to the security entitlements of its 
entitlement holders.
    (b) Direct dealings with securities depository. A fund may place and 
maintain financial assets, corresponding to the fund's security 
entitlements, directly with a securities depository, if:
    (1) The fund's contract with the securities depository or the 
securities depository's written rules for its participants:
    (i) Obligate the securities depository at a minimum to exercise due 
care in accordance with reasonable commercial standards in discharging 
its duty as a securities intermediary to obtain and thereafter maintain 
financial assets corresponding to the fund's security entitlements; and
    (ii) Requires the securities depository to provide, promptly upon 
request by the fund, such reports as are available concerning the 
internal accounting controls and financial strength of the securities 
depository; and
    (2) The fund has implemented internal control systems reasonably 
designed to prevent unauthorized officer's instructions (by providing at 
least for the form, content and means of giving, recording and reviewing 
all officer's instructions).
    (c) Definitions. For purposes of this section the terms:
    (1) Clearing corporation, financial asset, securities intermediary, 
and security entitlement have the same meanings as is attributed to 
those terms in Sec. 8-102, Sec. 8-103, and Sec. Sec. 8-501 through 8-
511 of the Uniform Commercial Code, 2002 Official Text and Comments, 
which are incorporated by reference in this section pursuant to 5 U.S.C. 
552(a) and 1 CFR part 51. The Director of the Federal Register has 
approved this incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. You may obtain a copy of the Uniform 
Commercial Code from the National Conference of Commissioners on Uniform 
State Laws, 211 East Ontario Street, Suite 1300, Chicago, Il 60611.

[[Page 795]]

You may inspect a copy at the following addresses: Louis Loss Library, 
U.S. Securities and Exchange Commission, 450 5th Street, NW., 
Washington, DC 20549, and Office of the Federal Register, National 
Archives and Records Administration, 800 North Capitol Street, NW, Suite 
700, Washington, DC.
    (2) Custodian means a bank or other person authorized to hold assets 
for the fund under section 17(f) of the Act (15 U.S.C. 80a-17(f)) or 
Commission rules in this chapter, but does not include a fund itself, a 
foreign custodian whose use is governed by Sec. 270.17f-5 or Sec. 
270.17f-7, or a vault, safe deposit box, or other repository for 
safekeeping maintained by a bank or other company whose functions and 
physical facilities are supervised by a federal or state authority if 
the fund maintains its own assets there in accordance with Sec. 
270.17f-2.
    (3) Fund means an investment company registered under the Act and, 
where the context so requires with respect to a fund that is a unit 
investment trust or a face-amount certificate company, includes the 
fund's trustee.
    (4) Intermediary custodian means any subcustodian that is a 
securities intermediary and is qualified to act as a custodian.
    (5) Officer's instruction means a request or direction to a 
securities depository or its operator, or to a registered transfer 
agent, in the name of the fund by one or more persons authorized by the 
fund's board of directors (or by the fund's trustee, if the fund is a 
unit investment trust or a face-amount certificate company) to give the 
request or direction.
    (6) Securities depository means a clearing corporation that is:
    (i) Registered with the Commission as a clearing agency under 
section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1); or
    (ii) A Federal Reserve Bank or other person authorized to operate 
the federal book entry system described in the regulations of the 
Department of Treasury codified at 31 CFR 357, Subpart B, or book-entry 
systems operated pursuant to comparable regulations of other federal 
agencies.

[68 FR 8442, Feb. 20, 2003]



Sec. 270.17f-5  Custody of investment company assets outside the United States.

    (a) Definitions. For purposes of this section:
    (1) Eligible Foreign Custodian means an entity that is incorporated 
or organized under the laws of a country other than the United States 
and that is a Qualified Foreign Bank or a majority-owned direct or 
indirect subsidiary of a U.S. Bank or bank-holding company.
    (2) Foreign Assets means any investments (including foreign 
currencies) for which the primary market is outside the United States, 
and any cash and cash equivalents that are reasonably necessary to 
effect the Fund's transactions in those investments.
    (3) Foreign Custody Manager means a Fund's or a Registered Canadian 
Fund's board of directors or any person serving as the board's delegate 
under paragraphs (b) or (d) of this section.
    (4) Fund means a management investment company registered under the 
Act (15 U.S.C. 80a) and incorporated or organized under the laws of the 
United States or of a state.
    (5) Qualified Foreign Bank means a banking institution or trust 
company, incorporated or organized under the laws of a country other 
than the United States, that is regulated as such by the country's 
government or an agency of the country's government.
    (6) Registered Canadian Fund means a management investment company 
incorporated or organized under the laws of Canada and registered under 
the Act pursuant to the conditions of Sec. 270.7d-1.
    (7) U.S. Bank means an entity that is:
    (i) A banking institution organized under the laws of the United 
States;
    (ii) A member bank of the Federal Reserve System;
    (iii) Any other banking institution or trust company organized under 
the laws of any state or of the United States, whether incorporated or 
not, doing business under the laws of any state or of the United States, 
a substantial portion of the business of which consists of receiving 
deposits or exercising fiduciary powers similar to those permitted to 
national banks under the authority of the Comptroller

[[Page 796]]

of the Currency, and which is supervised and examined by state or 
federal authority having supervision over banks, and which is not 
operated for the purpose of evading the provisions of this section; or
    (iv) A receiver, conservator, or other liquidating agent of any 
institution or firm included in paragraphs (a)(7)(i), (ii), or (iii) of 
this section.
    (b) Delegation. A Fund's board of directors may delegate to the 
Fund's investment adviser or officers or to a U.S. Bank or to a 
Qualified Foreign Bank the responsibilities set forth in paragraphs 
(c)(1), (c)(2), or (c)(3) of this section, provided that:
    (1) Reasonable Reliance. The board determines that it is reasonable 
to rely on the delegate to perform the delegated responsibilities;
    (2) Reporting. The board requires the delegate to provide written 
reports notifying the board of the placement of Foreign Assets with a 
particular custodian and of any material change in the Fund's foreign 
custody arrangements, with the reports to be provided to the board at 
such times as the board deems reasonable and appropriate based on the 
circumstances of the Fund's arrangements; and
    (3) Exercise of Care. The delegate agrees to exercise reasonable 
care, prudence and diligence such as a person having responsibility for 
the safekeeping of the Fund's Foreign Assets would exercise, or to 
adhere to a higher standard of care, in performing the delegated 
responsibilities.
    (c) Maintaining Assets with an Eligible Foreign Custodian. A Fund or 
its Foreign Custody Manager may place and maintain the Fund's Foreign 
Assets in the care of an Eligible Foreign Custodian, provided that:
    (1) General Standard. The Foreign Custody Manager determines that 
the Foreign Assets will be subject to reasonable care, based on the 
standards applicable to custodians in the relevant market, if maintained 
with the Eligible Foreign Custodian, after considering all factors 
relevant to the safekeeping of the Foreign Assets, including, without 
limitation:
    (i) The Eligible Foreign Custodian's practices, procedures, and 
internal controls, including, but not limited to, the physical 
protections available for certificated securities (if applicable), the 
method of keeping custodial records, and the security and data 
protection practices;
    (ii) Whether the Eligible Foreign Custodian has the requisite 
financial strength to provide reasonable care for Foreign Assets;
    (iii) The Eligible Foreign Custodian's general reputation and 
standing; and
    (iv) Whether the Fund will have jurisdiction over and be able to 
enforce judgments against the Eligible Foreign Custodian, such as by 
virtue of the existence of offices in the United States or consent to 
service of process in the United States.
    (2) Contract. The arrangement with the Eligible Foreign Custodian is 
governed by a written contract that the Foreign Custody Manager has 
determined will provide reasonable care for Foreign Assets based on the 
standards specified in paragraph (c)(1) of this section.
    (i) The contract must provide:
    (A) For indemnification or insurance arrangements (or any 
combination) that will adequately protect the Fund against the risk of 
loss of Foreign Assets held in accordance with the contract;
    (B) That the Foreign Assets will not be subject to any right, 
charge, security interest, lien or claim of any kind in favor of the 
Eligible Foreign Custodian or its creditors, except a claim of payment 
for their safe custody or administration or, in the case of cash 
deposits, liens or rights in favor of creditors of the custodian arising 
under bankruptcy, insolvency, or similar laws;
    (C) That beneficial ownership of the Foreign Assets will be freely 
transferable without the payment of money or value other than for safe 
custody or administration;
    (D) That adequate records will be maintained identifying the Foreign 
Assets as belonging to the Fund or as being held by a third party for 
the benefit of the Fund;
    (E) That the Fund's independent public accountants will be given 
access to those records or confirmation of the contents of those 
records; and

[[Page 797]]

    (F) That the Fund will receive periodic reports with respect to the 
safekeeping of the Foreign Assets, including, but not limited to, 
notification of any transfer to or from the Fund's account or a third 
party account containing assets held for the benefit of the Fund.
    (ii) The contract may contain, in lieu of any or all of the 
provisions specified in paragraph (c)(2)(i) of this section, other 
provisions that the Foreign Custody Manager determines will provide, in 
their entirety, the same or a greater level of care and protection for 
the Foreign Assets as the specified provisions, in their entirety.
    (3)(i) Monitoring the Foreign Custody Arrangements. The Foreign 
Custody Manager has established a system to monitor the appropriateness 
of maintaining the Foreign Assets with a particular custodian under 
paragraph (c)(1) of this section, and to monitor performance of the 
contract under paragraph (c)(2) of this section.
    (ii) If an arrangement with an Eligible Foreign Custodian no longer 
meets the requirements of this section, the Fund must withdraw the 
Foreign Assets from the Eligible Foreign Custodian as soon as reasonably 
practicable.
    (d) Registered Canadian Funds. Any Registered Canadian Fund may 
place and maintain its Foreign Assets outside the United States in 
accordance with the requirements of this section, provided
    (1) The Foreign Assets are placed in the care of an overseas branch 
of a U.S. Bank that has aggregate capital, surplus, and undivided 
profits of a specified amount, which must not be less than $500,000; and
    (2) The Foreign Custody Manager is the Fund's board of directors, 
its investment adviser or officers, or a U.S. Bank.
    Note to Sec. 270.17f-5:
    When a Fund's (or its custodian's) custody arrangement with an 
Eligible Securities Depository (as defined in Sec. 270.17f-7) involves 
one or more Eligible Foreign Custodians through which assets are 
maintained with the Eligible Securities Depository, Sec. 270.17f-5 will 
govern the Fund's (or its custodian's) use of each Eligible Foreign 
Custodian, while Sec. 270.17f-7 will govern an Eligible Foreign 
Custodian's use of the Eligible Securities Depository.

[65 FR 25637, May 3, 2000]



Sec. 270.17f-6  Custody of investment company assets with Futures 
Commission Merchants and Commodity Clearing Organizations.

    (a) A Fund may place and maintain cash, securities, and similar 
investments with a Futures Commission Merchant in amounts necessary to 
effect the Fund's transactions in Exchange-Traded Futures Contracts and 
Commodity Options, Provided that:
    (1) The manner in which the Futures Commission Merchant maintains 
the Fund's assets shall be governed by a written contract, which 
provides that:
    (i) The Futures Commission Merchant shall comply with the 
segregation requirements of section 4d(2) of the Commodity Exchange Act 
(7 U.S.C. 6d(2)) and the rules thereunder (17 CFR Chapter I) or, if 
applicable, the secured amount requirements of rule 30.7 under the 
Commodity Exchange Act (17 CFR 30.7);
    (ii) The Futures Commission Merchant, as appropriate to the Fund's 
transactions and in accordance with the Commodity Exchange Act (7 U.S.C. 
1 through 25) and the rules and regulations thereunder (including 17 CFR 
part 30), may place and maintain the Fund's assets to effect the Fund's 
transactions with another Futures Commission Merchant, a Clearing 
Organization, a U.S. or Foreign Bank, or a member of a foreign board of 
trade, and shall obtain an acknowledgment, as required under rules 
1.20(a) or 30.7(c) under the Commodity Exchange Act [17 CFR 1.20(a) or 
30.7(c)], as applicable, that such assets are held on behalf of the 
Futures Commission Merchant's customers in accordance with the 
provisions of the Commodity Exchange Act; and
    (iii) The Futures Commission Merchant shall promptly furnish copies 
of or extracts from the Futures Commission Merchant's records or such 
other information pertaining to the Fund's assets as the Commission 
through its employees or agents may request.
    (2) Any gains on the Fund's transactions, other than de minimis 
amounts, may be maintained with the Futures Commission Merchant only 
until the next business day following receipt.

[[Page 798]]

    (3) If the custodial arrangement no longer meets the requirements of 
this section, the Fund shall withdraw its assets from the Futures 
Commission Merchant as soon as reasonably practicable.
    (b) For purposes of this section:
    (1) Clearing Organization means a clearing organization as defined 
in rule 1.3(d) under the Commodity Exchange Act (17 CFR 1.3(d)) and 
includes a clearing organization for a foreign board of trade.
    (2) Exchange-Traded Futures Contracts and Commodity Options means 
commodity futures contracts, options on commodity futures contracts, and 
options on physical commodities traded on or subject to the rules of:
    (i) Any contract market designated for trading such transactions 
under the Commodity Exchange Act and the rules thereunder; or
    (ii) Any board of trade or exchange outside the United States, as 
contemplated in Part 30 under the Commodity Exchange Act.
    (3) Fund means an investment company registered under the Act (15 
U.S.C. 80a-1 et seq.).
    (4) Futures Commission Merchant means any person that is registered 
as a futures commission merchant under the Commodity Exchange Act and 
that is not an affiliated person of the Fund or an affiliated person of 
such person.
    (5) U.S. or Foreign Bank means a bank, as defined in section 2(a)(5) 
of the Act (15 U.S.C. 80a-2(a)(5)), or a banking institution or trust 
company that is incorporated or organized under the laws of a country 
other than the United States and that is regulated as such by the 
country's government or an agency thereof.

[61 FR 66212, Dec. 17, 1996]



Sec. 270.17f-7  Custody of investment company assets with a foreign 
securities depository.

    (a) Custody arrangement with an eligible securities depository. A 
Fund, including a Registered Canadian Fund, may place and maintain its 
Foreign Assets with an Eligible Securities Depository, provided that:
    (1) Risk-limiting safeguards. The custody arrangement provides 
reasonable safeguards against the custody risks associated with 
maintaining assets with the Eligible Securities Depository, including:
    (i) Risk analysis and monitoring. (A) The fund or its investment 
adviser has received from the Primary Custodian (or its agent) an 
analysis of the custody risks associated with maintaining assets with 
the Eligible Securities Depository; and
    (B) The contract between the Fund and the Primary Custodian requires 
the Primary Custodian (or its agent) to monitor the custody risks 
associated with maintaining assets with the Eligible Securities 
Depository on a continuing basis, and promptly notify the Fund or its 
investment adviser of any material change in these risks.
    (ii) Exercise of care. The contract between the Fund and the Primary 
Custodian states that the Primary Custodian will agree to exercise 
reasonable care, prudence, and diligence in performing the requirements 
of paragraphs (a)(1)(i)(A) and (B) of this section, or adhere to a 
higher standard of care.
    (2) Withdrawal of assets from eligible securities depository. If a 
custody arrangement with an Eligible Securities Depository no longer 
meets the requirements of this section, the Fund's Foreign Assets must 
be withdrawn from the depository as soon as reasonably practicable.
    (b) Definitions. The terms Foreign Assets, Fund, Qualified Foreign 
Bank, Registered Canadian Fund, and U.S. Bank have the same meanings as 
in Sec. 270.17f-5. In addition:
    (1) Eligible Securities Depository means a system for the central 
handling of securities as defined in Sec. 270.17f-4 that:
    (i) Acts as or operates a system for the central handling of 
securities or equivalent book-entries in the country where it is 
incorporated, or a transnational system for the central handling of 
securities or equivalent book-entries;
    (ii) Is regulated by a foreign financial regulatory authority as 
defined under section 2(a)(50) of the Act (15 U.S.C. 80a-2(a)(50));

[[Page 799]]

    (iii) Holds assets for the custodian that participates in the system 
on behalf of the Fund under safekeeping conditions no less favorable 
than the conditions that apply to other participants;
    (iv) Maintains records that identify the assets of each participant 
and segregate the system's own assets from the assets of participants;
    (v) Provides periodic reports to its participants with respect to 
its safekeeping of assets, including notices of transfers to or from any 
participant's account; and
    (vi) Is subject to periodic examination by regulatory authorities or 
independent accountants.
    (2) Primary Custodian means a U.S. Bank or Qualified Foreign Bank 
that contracts directly with a Fund to provide custodial services 
related to maintaining the Fund's assets outside the United States.
    Note to Sec. 270.17f-7:
    When a Fund's (or its custodian's) custody arrangement with an 
Eligible Securities Depository involves one or more Eligible Foreign 
Custodians (as defined in Sec. 270.17f-5) through which assets are 
maintained with the Eligible Securities Depository, Sec. 270.17f-5 will 
govern the Fund's (or its custodian's) use of each Eligible Foreign 
Custodian, while Sec. 270.17f-7 will govern an Eligible Foreign 
Custodian's use of the Eligible Securities Depository.

[65 FR 25638, May 3, 2000]



Sec. 270.17g-1  Bonding of officers and employees of registered management 
investment companies.

    (a) Each registered management investment company shall provide and 
maintain a bond which shall be issued by a reputable fidelity insurance 
company, authorized to do business in the place where the bond is 
issued, against larceny and embezzlement, covering each officer and 
employee of the investment company, who may singly, or jointly with 
others, have access to securities or funds of the investment company, 
either directly or through authority to draw upon such funds or to 
direct generally the disposition of such securities, unless the officer 
or employee has such access solely through his position as an officer or 
employee of a bank (hereinafter referred to as ``covered persons'').
    (b) The bond may be in the form of (1) an individual bond for each 
covered person or a schedule or blanket bond covering such persons, (2) 
a blanket bond which names the registered management investment company 
as the only insured (hereinafter referred to as ``single insured bond'') 
or (3) a bond which names the registered management investment company 
and one or more other parties as insureds (hereinafter referred to as a 
``joint insured bond''), such other insured parties being limited to (i) 
persons engaged in the management or distribution of the shares of the 
registered investment company, (ii) other registered investment 
companies which are managed and/or whose shares are distributed by the 
same persons (or affiliates of such persons), (iii) persons who are 
engaged in the management and/or distribution of shares of companies 
included in paragraph (b)(3)(i) of this section, (iv) affiliated persons 
of any registered management investment company named in the bond or of 
any person included in paragraph (b)(3)(i) or (b)(3)(iii) of this 
section who are engaged in the administration of any registered 
management investment company named as insured in the bond, and (v) any 
trust, pension, profit-sharing or other benefit plan for officers, 
directors or employees of persons named in the bond.
    (c) A bond of the type described in paragraph (b)(1) or (b)(2) of 
this section shall provide that it shall not be cancelled, terminated or 
modified except after written notice shall have been given by the acting 
party to the affected party and to the Commission not less than sixty 
days prior to the effective date of cancellation, termination or 
modification. A joint insured bond described in paragraph (b)(3) of this 
section shall provide, that (1) it shall not be cancelled terminated or 
modified except after written notice shall have been given by the acting 
party to the affected party, and by the fidelity insurance company to 
all registered investment companies named as insureds and to the 
Commission, not less than sixty days prior to the effective date of 
cancellation, termination, or modification and (2) the fidelity 
insurance company shall furnish each

[[Page 800]]

registered management investment company named as an insured with (i) a 
copy of the bond and any amendment thereto promptly after the execution 
thereof, (ii) a copy of each formal filing of a claim under the bond by 
any other named insured promptly after the receipt thereof, and (iii) 
notification of the terms of the settlement of each such claim prior to 
the execution of the settlement.
    (d) The bond shall be in such reasonable form and amount as a 
majority of the board of directors of the registered management 
investment company who are not ``interested persons'' of such investment 
company as defined by section 2(a)(19) of the Act shall approve as often 
as their fiduciary duties require, but not less than once every twelve 
months, with due consideration to all relevant factors including, but 
not limited to, the value of the aggregate assets of the registered 
management investment company to which any covered person may have 
access, the type and terms of the arrangements made for the custody and 
safekeeping of such assets, and the nature of the securities in the 
company's portfolio: Provided, however, That (1) the amount of a single 
insured bond shall be at least equal to an amount computed in accordance 
with the following schedule:

------------------------------------------------------------------------
      Amount of registered management
  investment company gross assets--at the    Minimum amount of bond (in
  end of the most recent fiscal  quarter              dollars)
        prior to date (in dollars)
------------------------------------------------------------------------
Up to 500,000.............................  50,000.
500,000 to 1,000,000......................  75,000.
1,000,000 to 2,500,000....................  100,000.
2,500,000 to 5,000,000....................  125,000.
5,000,000 to 7,500,000....................  150,000.
7,500,000 to 10,000,000...................  175,000.
10,000,000 to 15,000,000..................  200,000.
15,000,000 to 20,000,000..................  225,000.
20,000,000 to 25,000,000..................  250,000.
25,000,000 to 35,000,000..................  300,000.
35,000,000 to 50,000,000..................  350,000.
50,000,000 to 75,000,000..................  400,000.
75,000,000, to 100,000,000................  450,000.
100,000,000 to 150,000,000................  525,000.
150,000,000 to 250,000,000................  600,000.
250,000,000 to 500,000,000................  750,000.
500,000,000 to 750,000,000................  900,000.
750,000,000 to 1,000,000,000..............  1,000,000.
1,000,000,000 to 1,500,000,000............  1,250,000.
1,500,000,000 to 2,000,000,000............  1,500,000.
Over 2,000,000,000........................  1,500,000 plus 200,000 for
                                             each 500,000,000 of gross
                                             assets up to a maximum bond
                                             of 2,500,000.
------------------------------------------------------------------------

    (2) A joint insured bond shall be in an amount at least equal to the 
sum of (i) the total amount of coverage which each registered management 
investment company named as an insured would have been required to 
provide and maintain individually pursuant to the schedule hereinabove 
had each such registered management investment company not been named 
under a joint insured bond, plus (ii) the amount of each bond which each 
named insured other than a registered management investment company 
would have been required to provide and maintain pursuant to federal 
statutes or regulations had it not been named as an insured under a 
joint insured bond.
    (e) No premium may be paid for any joint insured bond or any 
amendment thereto unless a majority of the board of directors of each 
registered management investment company named as an insured therein who 
are not ``interested persons'' of such company shall approve the portion 
of the premium to be paid by such company, taking all relevant factors 
into consideration including, but not limited to, the number of the 
other parties named as insured, the nature of the business activities of 
such other parties, the amount of the joint insured bond, and the amount 
of the premium for such bond, the ratable allocation of the premium 
among all parties named as insureds, and the extent to which the share 
of the premium allocated to the investment company is less than the 
premium such company would have had to pay if it had provided and 
maintained a single insured bond.
    (f) Each registered management investment company named as an 
insured in a joint insured bond shall enter into an agreement with all 
of the other named insureds providing that in the event recovery is 
received under the bond as a result of a loss sustained by the 
registered management investment company and one or more other named 
insureds, the registered management investment company shall receive an 
equitable and proportionate share of the recovery, but at least equal to 
the amount which it would have received had it provided and maintained a 
single insured bond with

[[Page 801]]

the minimum coverage required by paragraph (d)(1) of this section.
    (g) Each registered management investment company shall:
    (1) File with the Commission (i) within 10 days after receipt of an 
executed bond of the type described in paragraph (b)(1) or (2) of this 
section or any amendment thereof, (a) a copy of the bond, (b) a copy of 
the resolution of a majority of the board of directors who are not 
``interested persons'' of the registered management investment company 
approving the form and amount of the bond, and (c) a statement as to the 
period for which premiums have been paid; (ii) within 10 days after 
receipt of an executed joint insured bond, or any amendment thereof, (a) 
a copy of the bond, (b) a copy of the resolution of a majority of the 
board of directors who are not ``interested persons'' of the registered 
management investment company approving the amount, type, form and 
coverage of the bond and the portion of the premium to be paid by such 
company, (c) a statement showing the amount of the single insured bond 
which the investment company would have provided and maintained had it 
not been named as an insured under a joint insured bond, (d) a statement 
as to the period for which premiums have been paid, and (e) a copy of 
each agreement between the investment company and all of the other named 
insureds entered into pursuant to paragraph (f) of this section; and 
(iii) a copy of any amendment to the agreement entered into pursuant to 
paragraph (f) of this section within 10 days after the execution of such 
amendment,
    (2) File with the Commission, in writing, within five days after the 
making of any claim under the bond by the investment company, a 
statement of the nature and amount of the claim,
    (3) File with the Commission, within five days of the receipt 
thereof, a copy of the terms of the settlement of any claim made under 
the bond by the investment company, and
    (4) Notify by registered mail each member of the board of directors 
of the investment company at his last known residence address of (i) any 
cancellation, termination or modification of the bond, not less than 
forty-five days prior to the effective date of the cancellation or 
termination or modification, (ii) the filing and of the settlement of 
any claim under the bond by the investment company, at the time the 
filings required by paragraph (g) (2) and (3) of this section are made 
with the Commission, and (iii) the filing and of the proposed terms of 
settlement of any claim under the bond by any other named insured, 
within five days of the receipt of a notice from the fidelity insurance 
company.
    (h) Each registered management investment company shall designate an 
officer thereof who shall make the filings and give the notices required 
by paragraph (g) of this section.
    (i) Where the registered management investment company is an 
unincorporated company managed by a depositor, trustee or investment 
adviser, the terms ``officer'' and ``employee'' shall include, for the 
purposes of this rule, the officers and employees of the depositor, 
trustee, or investment adviser.
    (j) Any joint insured bond provided and maintained by a registered 
management investment company and one or more other parties shall be a 
transaction exempt from the provisions of section 17(d) of the Act (15 
U.S.C. 80a-17(d)) and the rules thereunder, if:
    (1) The terms and provisions of the bond comply with the provisions 
of this section;
    (2) The terms and provisions of any agreement required by paragraph 
(f) of this section comply with the provisions of that paragraph; and
    (3)(i) A majority of the directors of the investment company are not 
interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (ii) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel.
    (k) At the next anniversary date of an existing fidelity bond, but 
not later than one year from the effective date of this rule, 
arrangements between registered management investment companies and 
fidelity insurance companies and arrangements between registered 
management investment companies and other parties named as insureds 
under joint insured bonds which

[[Page 802]]

would not permit compliance with the provisions of this rule shall be 
modified by the parties so as to effect such compliance.

[39 FR 10579, Mar. 21, 1974, as amended at 66 FR 3759, Jan. 16, 2001]



Sec. 270.17j-1  Personal investment activities of investment company personnel.

    (a) Definitions. For purposes of this section:
    (1) Access Person means:
    (i) Any director, officer, general partner or Advisory Person of a 
Fund or of a Fund's investment adviser.
    (A) If an investment adviser is primarily engaged in a business or 
businesses other than advising Funds or other advisory clients, the term 
Access Person means any director, officer, general partner or Advisory 
Person of the investment adviser who, with respect to any Fund, makes 
any recommendation, participates in the determination of which 
recommendation will be made, or whose principal function or duties 
relate to the determination of which recommendation will be made, or 
who, in connection with his or her duties, obtains any information 
concerning recommendations on Covered Securities being made by the 
investment adviser to any Fund.
    (B) An investment adviser is ``primarily engaged in a business or 
businesses other than advising Funds or other advisory clients'' if, for 
each of its most recent three fiscal years or for the period of time 
since its organization, whichever is less, the investment adviser 
derived, on an unconsolidated basis, more than 50 percent of its total 
sales and revenues and more than 50 percent of its income (or loss), 
before income taxes and extraordinary items, from the other business or 
businesses.
    (ii) Any director, officer or general partner of a principal 
underwriter who, in the ordinary course of business, makes, participates 
in or obtains information regarding, the purchase or sale of Covered 
Securities by the Fund for which the principal underwriter acts, or 
whose functions or duties in the ordinary course of business relate to 
the making of any recommendation to the Fund regarding the purchase or 
sale of Covered Securities.
    (2) Advisory Person of a Fund or of a Fund's investment adviser 
means:
    (i) Any employee of the Fund or investment adviser (or of any 
company in a control relationship to the Fund or investment adviser) 
who, in connection with his or her regular functions or duties, makes, 
participates in, or obtains information regarding the purchase or sale 
of Covered Securities by a Fund, or whose functions relate to the making 
of any recommendations with respect to the purchases or sales; and
    (ii) Any natural person in a control relationship to the Fund or 
investment adviser who obtains information concerning recommendations 
made to the Fund with regard to the purchase or sale of Covered 
Securities by the Fund.
    (3) Control has the same meaning as in section 2(a)(9) of the Act 
[15 U.S.C. 80a-2(a)(9)].
    (4) Covered Security means a security as defined in section 2(a)(36) 
of the Act [15 U.S.C. 80a-2(a)(36)], except that it does not include:
    (i) Direct obligations of the Government of the United States;
    (ii) Bankers' acceptances, bank certificates of deposit, commercial 
paper and high quality short-term debt instruments, including repurchase 
agreements; and
    (iii) Shares issued by open-end Funds.
    (5) Fund means an investment company registered under the Investment 
Company Act.
    (6) An Initial Public Offering means an offering of securities 
registered under the Securities Act of 1933 [15 U.S.C. 77a], the issuer 
of which, immediately before the registration, was not subject to the 
reporting requirements of sections 13 or 15(d) of the Securities 
Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)].
    (7) Investment Personnel of a Fund or of a Fund's investment adviser 
means:
    (i) Any employee of the Fund or investment adviser (or of any 
company in a control relationship to the Fund or investment adviser) 
who, in connection with his or her regular functions or duties, makes or 
participates in making recommendations regarding the purchase or sale of 
securities by the Fund.
    (ii) Any natural person who controls the Fund or investment adviser 
and who obtains information concerning

[[Page 803]]

recommendations made to the Fund regarding the purchase or sale of 
securities by the Fund.
    (8) A Limited Offering means an offering that is exempt from 
registration under the Securities Act of 1933 pursuant to section 4(2) 
or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, 
rule 505, or rule 506 [17 CFR 230.504, 230.505, or 230.506] under the 
Securities Act of 1933.
    (9) Purchase or sale of a Covered Security includes, among other 
things, the writing of an option to purchase or sell a Covered Security.
    (10) Security Held or to be Acquired by a Fund means:
    (i) Any Covered Security which, within the most recent 15 days:
    (A) Is or has been held by the Fund; or
    (B) Is being or has been considered by the Fund or its investment 
adviser for purchase by the Fund; and
    (ii) Any option to purchase or sell, and any security convertible 
into or exchangeable for, a Covered Security described in paragraph 
(a)(10)(i) of this section.
    (b) Unlawful Actions. It is unlawful for any affiliated person of or 
principal underwriter for a Fund, or any affiliated person of an 
investment adviser of or principal underwriter for a Fund, in connection 
with the purchase or sale, directly or indirectly, by the person of a 
Security Held or to be Acquired by the Fund:
    (1) To employ any device, scheme or artifice to defraud the Fund;
    (2) To make any untrue statement of a material fact to the Fund or 
omit to state a material fact necessary in order to make the statements 
made to the Fund, in light of the circumstances under which they are 
made, not misleading;
    (3) To engage in any act, practice or course of business that 
operates or would operate as a fraud or deceit on the Fund; or
    (4) To engage in any manipulative practice with respect to the Fund.
    (c) Code of Ethics.
    (1) Adoption and Approval of Code of Ethics.
    (i) Every Fund (other than a money market fund or a Fund that does 
not invest in Covered Securities) and each investment adviser of and 
principal underwriter for the Fund, must adopt a written code of ethics 
containing provisions reasonably necessary to prevent its Access Persons 
from engaging in any conduct prohibited by paragraph (b) of this 
section.
    (ii) The board of directors of a Fund, including a majority of 
directors who are not interested persons, must approve the code of 
ethics of the Fund, the code of ethics of each investment adviser and 
principal underwriter of the Fund, and any material changes to these 
codes. The board must base its approval of a code and any material 
changes to the code on a determination that the code contains provisions 
reasonably necessary to prevent Access Persons from engaging in any 
conduct prohibited by paragraph (b) of this section. Before approving a 
code of a Fund, investment adviser or principal underwriter or any 
amendment to the code, the board of directors must receive a 
certification from the Fund, investment adviser or principal underwriter 
that it has adopted procedures reasonably necessary to prevent Access 
Persons from violating the Fund's, investment adviser's, or principal 
underwriter's code of ethics. The Fund's board must approve the code of 
an investment adviser or principal underwriter before initially 
retaining the services of the investment adviser or principal 
underwriter. The Fund's board must approve a material change to a code 
no later than six months after adoption of the material change.
    (iii) If a Fund is a unit investment trust, the Fund's principal 
underwriter or depositor must approve the Fund's code of ethics, as 
required by paragraph (c)(1)(ii) of this section. If the Fund has more 
than one principal underwriter or depositor, the principal underwriters 
and depositors may designate, in writing, which principal underwriter or 
depositor must conduct the approval required by paragraph (c)(1)(ii) of 
this section, if they obtain written consent from the designated 
principal underwriter or depositor.
    (2) Administration of Code of Ethics. (i) The Fund, investment 
adviser and principal underwriter must use reasonable

[[Page 804]]

diligence and institute procedures reasonably necessary to prevent 
violations of its code of ethics.
    (ii) No less frequently than annually, every Fund (other than a unit 
investment trust) and its investment advisers and principal underwriters 
must furnish to the Fund's board of directors, and the board of 
directors must consider, a written report that:
    (A) Describes any issues arising under the code of ethics or 
procedures since the last report to the board of directors, including, 
but not limited to, information about material violations of the code or 
procedures and sanctions imposed in response to the material violations; 
and
    (B) Certifies that the Fund, investment adviser or principal 
underwriter, as applicable, has adopted procedures reasonably necessary 
to prevent Access Persons from violating the code.
    (3) Exception for Principal Underwriters. The requirements of 
paragraphs (c)(1) and (c)(2) of this section do not apply to any 
principal underwriter unless:
    (i) The principal underwriter is an affiliated person of the Fund or 
of the Fund's investment adviser; or
    (ii) An officer, director or general partner of the principal 
underwriter serves as an officer, director or general partner of the 
Fund or of the Fund's investment adviser.
    (d) Reporting Requirements of Access Persons--(1) Reports Required. 
Unless excepted by paragraph (d)(2) of this section, every Access Person 
of a Fund (other than a money market fund or a Fund that does not invest 
in Covered Securities) and every Access Person of an investment adviser 
of or principal underwriter for the Fund, must report to that Fund, 
investment adviser or principal underwriter:
    (i) Initial Holdings Reports. No later than 10 days after the person 
becomes an Access Person, the following information:
    (A) The title, number of shares and principal amount of each Covered 
Security in which the Access Person had any direct or indirect 
beneficial ownership when the person became an Access Person;
    (B) The name of any broker, dealer or bank with whom the Access 
Person maintained an account in which any securities were held for the 
direct or indirect benefit of the Access Person as of the date the 
person became an Access Person; and
    (C) The date that the report is submitted by the Access Person.
    (ii) Quarterly Transaction Reports. No later than 10 days after the 
end of a calendar quarter, the following information:
    (A) With respect to any transaction during the quarter in a Covered 
Security in which the Access Person had any direct or indirect 
beneficial ownership:
    (1) The date of the transaction, the title, the interest rate and 
maturity date (if applicable), the number of shares and the principal 
amount of each Covered Security involved;
    (2) The nature of the transaction (i.e., purchase, sale or any other 
type of acquisition or disposition);
    (3) The price of the Covered Security at which the transaction was 
effected;
    (4) The name of the broker, dealer or bank with or through which the 
transaction was effected; and
    (5) The date that the report is submitted by the Access Person.
    (B) With respect to any account established by the Access Person in 
which any securities were held during the quarter for the direct or 
indirect benefit of the Access Person:
    (1) The name of the broker, dealer or bank with whom the Access 
Person established the account;
    (2) The date the account was established; and
    (3) The date that the report is submitted by the Access Person.
    (iii) Annual Holdings Reports. Annually, the following information 
(which information must be current as of a date no more than 30 days 
before the report is submitted):
    (A) The title, number of shares and principal amount of each Covered 
Security in which the Access Person had any direct or indirect 
beneficial ownership;
    (B) The name of any broker, dealer or bank with whom the Access 
Person maintains an account in which any securities are held for the 
direct or indirect benefit of the Access Person; and

[[Page 805]]

    (C) The date that the report is submitted by the Access Person.
    (2) Exceptions from Reporting Requirements. (i) A person need not 
make a report under paragraph (d)(1) of this section with respect to 
transactions effected for, and Covered Securities held in, any account 
over which the person has no direct or indirect influence or control.
    (ii) A director of a Fund who is not an ``interested person'' of the 
Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C. 80a-
2(a)(19)], and who would be required to make a report solely by reason 
of being a Fund director, need not make:
    (A) An initial holdings report under paragraph (d)(1)(i) of this 
section and an annual holdings report under paragraph (d)(1)(iii) of 
this section; and
    (B) A quarterly transaction report under paragraph (d)(1)(ii) of 
this section, unless the director knew or, in the ordinary course of 
fulfilling his or her official duties as a Fund director, should have 
known that during the 15-day period immediately before or after the 
director's transaction in a Covered Security, the Fund purchased or sold 
the Covered Security, or the Fund or its investment adviser considered 
purchasing or selling the Covered Security.
    (iii) An Access Person to a Fund's principal underwriter need not 
make a report to the principal underwriter under paragraph (d)(1) of 
this section if:
    (A) The principal underwriter is not an affiliated person of the 
Fund (unless the Fund is a unit investment trust) or any investment 
adviser of the Fund; and
    (B) The principal underwriter has no officer, director or general 
partner who serves as an officer, director or general partner of the 
Fund or of any investment adviser of the Fund.
    (iv) An Access Person to an investment adviser need not make a 
quarterly transaction report to the investment adviser under paragraph 
(d)(1)(ii) of this section if all the information in the report would 
duplicate information required to be recorded under Sec. Sec. 275.204-
2(a)(12) or 275.204-2(a)(13) of this chapter.
    (v) An Access Person need not make a quarterly transaction report 
under paragraph (d)(1)(ii) of this section if the report would duplicate 
information contained in broker trade confirmations or account 
statements received by the Fund, investment adviser or principal 
underwriter with respect to the Access Person in the time period 
required by paragraph (d)(1)(ii), if all of the information required by 
that paragraph is contained in the broker trade confirmations or account 
statements, or in the records of the Fund, investment adviser or 
principal underwriter.
    (3) Review of Reports. Each Fund, investment adviser and principal 
underwriter to which reports are required to be made by paragraph (d)(1) 
of this section must institute procedures by which appropriate 
management or compliance personnel review these reports.
    (4) Notification of Reporting Obligation. Each Fund, investment 
adviser and principal underwriter to which reports are required to be 
made by paragraph (d)(1) of this section must identify all Access 
Persons who are required to make these reports and must inform those 
Access Persons of their reporting obligation.
    (5) Beneficial Ownership. For purposes of this section, beneficial 
ownership is interpreted in the same manner as it would be under Sec. 
240.16a-1(a)(2) of this chapter in determining whether a person is the 
beneficial owner of a security for purposes of section 16 of the 
Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and 
regulations thereunder. Any report required by paragraph (d) of this 
section may contain a statement that the report will not be construed as 
an admission that the person making the report has any direct or 
indirect beneficial ownership in the Covered Security to which the 
report relates.
    (e) Pre-approval of Investments in IPOs and Limited Offerings. 
Investment Personnel of a Fund or its investment adviser must obtain 
approval from the Fund or the Fund's investment adviser before directly 
or indirectly acquiring beneficial ownership in any securities in an 
Initial Public Offering or in a Limited Offering.

[[Page 806]]

    (f) Recordkeeping Requirements. (1) Each Fund, investment adviser 
and principal underwriter that is required to adopt a code of ethics or 
to which reports are required to be made by Access Persons must, at its 
principal place of business, maintain records in the manner and to the 
extent set out in this paragraph (f), and must make these records 
available to the Commission or any representative of the Commission at 
any time and from time to time for reasonable periodic, special or other 
examination:
    (A) A copy of each code of ethics for the organization that is in 
effect, or at any time within the past five years was in effect, must be 
maintained in an easily accessible place;
    (B) A record of any violation of the code of ethics, and of any 
action taken as a result of the violation, must be maintained in an 
easily accessible place for at least five years after the end of the 
fiscal year in which the violation occurs;
    (C) A copy of each report made by an Access Person as required by 
this section, including any information provided in lieu of the reports 
under paragraph (d)(2)(v) of this section, must be maintained for at 
least five years after the end of the fiscal year in which the report is 
made or the information is provided, the first two years in an easily 
accessible place;
    (D) A record of all persons, currently or within the past five 
years, who are or were required to make reports under paragraph (d) of 
this section, or who are or were responsible for reviewing these 
reports, must be maintained in an easily accessible place; and
    (E) A copy of each report required by paragraph (c)(2)(ii) of this 
section must be maintained for at least five years after the end of the 
fiscal year in which it is made, the first two years in an easily 
accessible place.
    (2) A Fund or investment adviser must maintain a record of any 
decision, and the reasons supporting the decision, to approve the 
acquisition by investment personnel of securities under paragraph (e), 
for at least five years after the end of the fiscal year in which the 
approval is granted.

[64 FR 46834, Aug. 27, 1999; 65 FR 12943, Mar. 10, 2000]



Sec. 270.18c-1  Exemption of privately held indebtedness.

    The issuance or sale of more than one class of senior securities 
representing indebtedness by a small business investment company, 
licensed under the Small Business Investment Act of 1958, shall not be 
prohibited by section 18(c) so long as such small business investment 
company does not have outstanding any publicly held indebtedness, and 
all securities of any such class are (a) privately held by the Small 
Business Administration, or banks, insurance companies or other 
institutional investors, (b) not intended to be publicly distributed, 
and (c) not convertible into, exchangeable for, or accompanied by any 
option to acquire, any equity security.

[26 FR 11240, Nov. 29, 1961]



Sec. 270.18c-2  Exemptions of certain debentures issued by small 
business investment companies.

    (a) The issuance or sale of any class of senior security 
representing indebtedness by a small business investment company 
licensed under the Small Business Investment Act of 1958 shall not be 
prohibited by section 18(c) of the Act provided such senior security 
representing indebtedness is (1) not convertible into, exchangeable for, 
or accompanied by an option to acquire any equity security; (2) fully 
guaranteed as to timely payment of all principal and interest by the 
Small Business Administration and backed by the full faith and credit of 
the United States; and (3) subordinated to any other debt securities not 
issued pursuant to this section or, if such security is not so 
subordinated, that such security, according to its own terms, will not 
be preferred over any other unsecured debt securities in the payment of 
principal and interest: And further provided, That all other debt 
securities then outstanding issued by such small business investment 
company were issued as permitted by Sec. 270.18c-1 or this section.
    (b) Any security issued and sold as permitted by paragraph (a) of 
this section shall be deemed for purposes of Sec. 270.18c-1 to be 
privately held by the Small Business Administration and for purposes of 
Sec. 270.18c-1 shall not be

[[Page 807]]

deemed to be publicly held outstanding indebtedness.
    (c) The issuance or sale of any security as permitted by paragraph 
(a) of this section shall not be deemed to be a sale to any person other 
than the Small Business Administration by any small business investment 
company licensed under the Small Business Investment Company Act of 1958 
which is exempt from any provision of the Investment Company Act, if 
such exemption is conditioned on such company not offering or selling 
its securities to any person other than the Small Business 
Administration.

(Secs. 6(c), 38(a), 54 Stat. 800, 841, 15 U.S.C. 80a-6(c), 80a-37(a))

[37 FR 7590, Apr. 18, 1972]



Sec. 270.18f-1  Exemption from certain requirements of section 18(f)(1) 

(of the Act) for registered open-end investment companies which have 
the right to redeem in kind.

    (a) A registered open-end investment company which has the right to 
redeem securities of which it is the issuer in assets other than cash 
may file with the Commission at any time a notification of election on 
Form N-18F-1 (Sec. 274.51 of this chapter) committing itself to pay in 
cash all requests for redemption by any shareholder of record, limited 
in amount with respect to each shareholder during any 90-day period to 
the lesser of
    (1) $250,000 or
    (2) 1 percent of the net asset value of such company at the 
beginning of such period.
    (b) An election pursuant to paragraph (a) of this section:
    (1) Shall be described in either the prospectus or the Statement of 
Additional Information, at the discretion of the investment company, and
    (2) Shall be irrevocable while this Sec. 270.18f-1 is in effect 
unless the Commission by order upon application permits the withdrawal 
of such notification of election as being appropriate in the public 
interest and consistent with the protection of investors.
    (c) Upon making the election described in paragraph (a) of this 
section, an investment company shall be exempt from the requirements of 
section 18(f)(1) (of the Act) to the extent necessary for such company 
to effectuate redemptions in the manner set forth in such paragraph.

(Secs. 7, 10, and 19 of the Securities Act of 1933 (15 U.S.C. 77g, 77j, 
and 77s) and secs. 8, 30 and 38 of the Investment Company Act of 1940 
(15 U.S.C. 80a-8, 80a-29 and 80a-37))

[36 FR 11919, June 23, 1971, as amended at 48 FR 37940, Aug. 22, 1983]



Sec. 270.18f-2  Fair and equitable treatment for holders of each class 
or series of stock of series investment companies.

    (a) For purposes of this Sec. 270.18f-2 a series company is a 
registered open-end investment company which, in accordance with the 
provisions of section 18(f)(2) of the Act, issues two or more classes or 
series of preferred or special stock each of which is preferred over all 
other classes or series in respect of assets specifically allocated to 
that class or series. Any matter required to be submitted by the 
provisions of the Act or of applicable State law, or otherwise, to the 
holders of the outstanding voting securities of a series company shall 
not be deemed to have been effectively acted upon less approved by the 
holders of a majority of the outstanding voting securities of each class 
or series of stock affected by such matter.
    (b) For the purposes of paragraph (a) of this Sec. 270.18f-2, a 
class or series of stock will be deemed to be affected by such a matter, 
unless (1) the interests of each class or series in the matter are 
substantially identical, or (2) the matter does not affect any interest 
of such class or series.
    (c)(1) With respect to the submission of an investment advisory 
contract to the holders of the outstanding voting securities of a series 
company for the approval required by section 15(a) of the Act, such 
matter shall be deemed to be effectively acted upon with respect to any 
class or series of securities of such company if a majority of the 
outstanding voting securities of such class or series vote for the 
approval of such matter, notwithstanding (i) that such matter has not 
been approved by the holders of a majority of the outstanding voting 
securities of any other class or series affected by such matter, and 
(ii) that such matter has not been

[[Page 808]]

approved by the vote of a majority of the outstanding voting securities 
of such company, provided that if such a majority is required by State 
law or otherwise, such requirement shall apply.
    (2) If any class or series of securities of a series company fails 
to approve an investment advisory contract in the manner required by 
paragraph (c)(1) of this section, the investment adviser of such company 
may continue to serve or act in such capacity for the period of time 
pending such required approval of such contract, of a new contract with 
the same or different adviser, or other definitive action: Provided, 
That the compensation received by such investment adviser during such 
period is equal to no more than its actual costs incurred in furnishing 
investment advisory services to such class or series or the amount it 
would have received under the advisory contract, whichever is less.
    (d) With respect to the submission of a change in investment policy 
to the holders of the outstanding voting securities of a series company 
for the approval required by section 13 of the Act, such matter shall be 
deemed to have been effectively acted upon with respect to any class or 
series of such company if a majority of the outstanding voting 
securities of such class or series vote for the approval of such matter, 
notwithstanding (1) that such matter has not been approved by the 
holders of a majority of the outstanding voting securities of any other 
class or series affected by such matter, and (2) that such matter has 
not been approved by the vote of a majority of the outstanding voting 
securities of such company: Provided, That if such a majority is 
required by State law or otherwise, such requirement shall apply.
    (e) The submission to shareholders of the selection of the 
independent public accountant of a series company required by section 
32(a) (of the Act) shall be exempt from the separate voting requirements 
of paragraph (a) of this Sec. 270.18f-2.
    (f) The submission to shareholders of a contract with a principal 
underwriter of a series company required by section 15(b) of the Act 
shall be exempt from the separate voting requirements of paragraph (a) 
of this Sec. 270.18f-2.
    (g) The submission to shareholders of nominees for election as 
directors required by section 16(a) of the Act shall be exempt from the 
separate voting requirements of paragraph (a) of this Sec. 270.18f-2.
    (h) For the purposes of this Sec. 270.18f-2 a ``majority of the 
outstanding voting securities'' of a class or series, (1) when used with 
respect to a matter required by any provision of the Act to be submitted 
to the outstanding voting securities of a series company, shall have the 
same meaning as a ``majority of the outstanding voting securities of a 
company'' as defined in section 2(a)(42) of the Act; and (2) when used 
with respect to any other matter required to be submitted to the 
outstanding voting securities of a series company, shall mean the lesser 
of (i) the minimum vote of the outstanding voting securities of a 
company required by applicable State law or other applicable 
requirement, or (ii) the minimum vote specified by paragraph (1) of this 
paragraph (h), unless State law requires approval of such matters by a 
specified percentage of the outstanding voting securities of a 
particular class or series, in which case, State law shall apply.

(Secs. 6(c), 13, 15(a), 15(b), 16(a), 18(f)(2), 32(a), 54 Stat. 800, 
811, 812, 813, 817, 838, 841, 15 U.S.C. 80a-6(c), 80a-13, 80a-15(b), 
80a-16(a), 80a-18(f)(2), 80a-31(a), 80a-37(a), Pub. L. 91-547, 84 Stat. 
1421)

[37 FR 17386, Aug. 26, 1972]



Sec. 270.18f-3  Multiple class companies.

    Notwithstanding sections 18(f)(1) and 18(i) of the Act (15 U.S.C. 
80a-18(f)(1) and (i), respectively), a registered open-end management 
investment company or series or class thereof established in accordance 
with section 18(f)(2) of the Act (15 U.S.C. 80a-18(f)(2)) whose shares 
are registered on Form N-1A [Sec. Sec. 239.15A and 274.11A of this 
chapter] (``company'') may issue more than one class of voting stock, 
provided that:
    (a) Each class:
    (1)(i) Shall have a different arrangement for shareholder services 
or the distribution of securities or both, and

[[Page 809]]

shall pay all of the expenses of that arrangement;
    (ii) May pay a different share of other expenses, not including 
advisory or custodial fees or other expenses related to the management 
of the company's assets, if these expenses are actually incurred in a 
different amount by that class, or if the class receives services of a 
different kind or to a different degree than other classes; and
    (iii) May pay a different advisory fee to the extent that any 
difference in amount paid is the result of the application of the same 
performance fee provisions in the advisory contract of the company to 
the different investment performance of each class;
    (2) Shall have exclusive voting rights on any matter submitted to 
shareholders that relates solely to its arrangement;
    (3) Shall have separate voting rights on any matter submitted to 
shareholders in which the interests of one class differ from the 
interests of any other class; and
    (4) Shall have in all other respects the same rights and obligations 
as each other class.
    (b) Expenses may be waived or reimbursed by the company's adviser, 
underwriter, or any other provider of services to the company.
    (c)(1) Income, realized gains and losses, unrealized appreciation 
and depreciation, and Fundwide Expenses shall be allocated based on one 
of the following methods (which method shall be applied on a consistent 
basis):
    (i) To each class based on the net assets of that class in relation 
to the net assets of the company (``relative net assets'');
    (ii) To each class based on the Simultaneous Equations Method;
    (iii) To each class based on the Settled Shares Method, provided 
that the company is a Daily Dividend Fund (such a company may allocate 
income and Fundwide Expenses based on the Settled Shares Method and 
realized gains and losses and unrealized appreciation and depreciation 
based on relative net assets);
    (iv) To each share without regard to class, provided that the 
company is a Daily Dividend Fund that maintains the same net asset value 
per share in each class; that the company has received undertakings from 
its adviser, underwriter, or any other provider of services to the 
company, agreeing to waive or reimburse the company for payments to such 
service provider by one or more classes, as allocated under paragraph 
(a)(1) of this section, to the extent necessary to assure that all 
classes of the company maintain the same net asset value per share; and 
that payments waived or reimbursed under such an undertaking may not be 
carried forward or recouped at a future date; or
    (v) To each class based on any other appropriate method, provided 
that a majority of the directors of the company, and a majority of the 
directors who are not interested persons of the company, determine that 
the method is fair to the shareholders of each class and that the 
annualized rate of return of each class will generally differ from that 
of the other classes only by the expense differentials among the 
classes.
    (2) For purposes of this section:
    (i) Daily Dividend Fund means any company that has a policy of 
declaring distributions of net income daily, including any money market 
fund that determines net asset value using the amortized cost method 
permitted by Sec. 270.2a-7;
    (ii) Fundwide Expenses means expenses of the company not allocated 
to a particular class under paragraph (a)(1) of this section;
    (iii) The Settled Shares Method means allocating to each class based 
on relative net assets, excluding the value of subscriptions receivable; 
and
    (iv) The Simultaneous Equations Method means the simultaneous 
allocation to each class of each day's income, realized gains and 
losses, unrealized appreciation and depreciation, and Fundwide Expenses 
and reallocation to each class of undistributed net investment income, 
undistributed realized gains or losses, and unrealized appreciation or 
depreciation, based on the operating results of the company, changes in 
ownership interests of each class, and expense differentials between the 
classes, so that the annualized rate of return of each class generally 
differs from that of the other

[[Page 810]]

classes only by the expense differentials among the classes.
    (d) Any payments made under paragraph (a) of this section shall be 
made pursuant to a written plan setting forth the separate arrangement 
and expense allocation of each class, and any related conversion 
features or exchange privileges. Before the first issuance of a share of 
any class in reliance upon this section, and before any material 
amendment of a plan, a majority of the directors of the company, and a 
majority of the directors who are not interested persons of the company, 
shall find that the plan as proposed to be adopted or amended, including 
the expense allocation, is in the best interests of each class 
individually and the company as a whole; initial board approval of a 
plan under this paragraph (d) is not required, however, if the plan does 
not make any change in the arrangements and expense allocations 
previously approved by the board under an existing order of exemption. 
Before any vote on the plan, the directors shall request and evaluate, 
and any agreement relating to a class arrangement shall require the 
parties thereto to furnish, such information as may be reasonably 
necessary to evaluate the plan.
    (e)(1) A majority of the directors of the investment company are not 
interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (2) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel.
    (f) Nothing in this section prohibits a company from offering any 
class with:
    (1) An exchange privilege providing that securities of the class may 
be exchanged for certain securities of another company; or
    (2) A conversion feature providing that shares of one class of the 
company (the ``purchase class'') will be exchanged automatically for 
shares of another class of the company (the ``target class'') after a 
specified period of time, provided that:
    (i) The conversion is effected on the basis of the relative net 
asset values of the two classes without the imposition of any sales 
load, fee, or other charge;
    (ii) The expenses, including payments authorized under a plan 
adopted pursuant to Sec. 270.12b-1 (``rule 12b-1 plan''), for the 
target class are not higher than the expenses, including payments 
authorized under a rule 12b-1 plan, for the purchase class; and
    (iii) If the shareholders of the target class approve any increase 
in expenses allocated to the target class under paragraphs (a)(1)(i) and 
(a)(1)(ii) of this section, and the purchase class shareholders do not 
approve the increase, the company will establish a new target class for 
the purchase class on the same terms as applied to the target class 
before that increase.
    (3) A conversion feature providing that shares of a class in which 
an investor is no longer eligible to participate may be converted to 
shares of a class in which that investor is eligible to participate, 
provided that:
    (i) The investor is given prior notice of the proposed conversion; 
and
    (ii) The conversion is effected on the basis of the relative net 
asset values of the two classes without the imposition of any sales 
load, fee, or other charge.

[60 FR 11885, Mar. 2, 1995, as amended at 62 FR 51765, Oct. 3, 1997; 66 
FR 3759, Jan. 16, 2001]



Sec. 270.19a-1  Written statement to accompany dividend payments by 
management companies.

    (a) Every written statement made pursuant to section 19 by or on 
behalf of a management company shall be made on a separate paper and 
shall clearly indicate what portion of the payment per share is made 
from the following sources:
    (1) Net income for the current or preceding fiscal year, or 
accumulated undistributed net income, or both, not including in either 
case profits or losses from the sale of securities or other properties.
    (2) Accumulated undistributed net profits from the sale of 
securities or other properties (except that an open-end company may 
treat as a separate source its net profits from such sales during its 
current fiscal year).
    (3) Paid-in surplus or other capital source.

[[Page 811]]


To the extent that a payment is properly designated as being made from a 
source specified in paragraph (a) (1) or (2) of this section, it need 
not be designated as having been made from a source specified in this 
paragraph.
    (b) If the payment is made in whole or in part from a source 
specified in paragraph (a)(2) of this section the written statement 
shall indicate, after giving effect to the part of such payment so 
specified, the deficit, if any, in the aggregate of (1) accumulated 
undistributed realized profits less losses on the sale of securities or 
other properties and (2) the net unrealized appreciation or depreciation 
of portfolio securities, all as of a date reasonably close to the end of 
the period as of which the dividend is paid. Any statement made pursuant 
to the preceding sentence shall specify the amount, if any, of such 
deficit which represents unrealized depreciation of portfolio 
securities.
    (c) Accumulated undistributed net income and accumulated 
undistributed net profits from the sale of securities or other 
properties shall be determined, at the option of the company, either (1) 
from the date of the organization of the company, (2) from the date of a 
reorganization, as defined in clause (A) or (B) of section 2(a)(33) of 
the Act (54 Stat. 790; 15 U.S.C. 80a-2(a)(33)), (3) from the date as of 
which a write-down of portfolio securities was made in connection with a 
corporate readjustment, approved by stockholders, of the type known as 
``quasi- reorganization,'' or (4) from January 1, 1925, to the close of 
the period as of which the dividend is paid, without giving effect to 
such payment.
    (d) For the purpose of this section, open-end companies which upon 
the sale of their shares allocate to undistributed income or other 
similar account that portion of the consideration received which 
represents the approximate per share amount of undistributed net income 
included in the sales price, and make a corresponding deduction from 
undistributed net income upon the purchase or redemption of shares, need 
not treat the amounts so allocated as paid-in surplus or other capital 
source.
    (e) For the purpose of this section, the source or sources from 
which a dividend is paid shall be determined (or reasonably estimated) 
to the close of the period as of which it is paid without giving effect 
to such payment. If any such estimate is subsequently ascertained to be 
inaccurate in a significant amount, a correction thereof shall be made 
by a written statement pursuant to section 19(a) of the Act or in the 
first report to stockholders following discovery of the inaccuracy.
    (f) Insofar as a written statement made pursuant to section 19(a) of 
the Act relates to a dividend on preferred stock paid for a period of 
less than a year, a company may elect to indicate only that portion of 
the payment which is made from sources specified in paragraph (a)(1) of 
this section, and need not specify the sources from which the remainder 
was paid. Every company which in any fiscal year elects to make a 
statement pursuant to the preceding sentence shall transmit to the 
holders of such preferred stock, at a date reasonably near the end of 
the last dividend period in such fiscal year, a statement meeting the 
requirements of paragraph (a) of this section on an annual basis.
    (g) The purpose of this section, in the light of which it shall be 
construed, is to afford security holders adequate disclosure of the 
sources from which dividend payments are made. Nothing in this section 
shall be construed to prohibit the inclusion in any written statement of 
additional information in explanation of the information required by 
this section. Nothing in this section shall be construed to permit a 
dividend payment in violation of any State law or to prevent compliance 
with any requirement of State law regarding dividends consistent with 
this rule.

    Cross Reference: For interpretative release applicable to Sec. 
270.19a-1, see No. 71 in tabulation, part 271 of this chapter.

[Rule N-19-1, 6 FR 1114, Feb. 25, 1941. Redesignated at 36 FR 22901, 
Dec. 2, 1971 and amended at 38 FR 8593, Apr. 4, 1973]

[[Page 812]]



Sec. 270.19b-1  Frequency of distribution of capital gains.

    (a) No registered investment company which is a ``regulated 
investment company'' as defined in section 851 of the Internal Revenue 
Code of 1986 (``Code'') shall distribute more than one capital gain 
dividend (``distribution''), as defined in section 852(b)(3)(C) of the 
Code, with respect to any one taxable year of the company, other than a 
distribution otherwise permitted by this rule or made pursuant to 
section 855 of the Code which is supplemental to the prior distribution 
with respect to the same taxable year of the company and which does not 
exceed 10% of the aggregate amount distributed for such taxable year.
    (b) No registered investment company which is not a ``regulated 
investment company'' as defined in section 851 of the Code shall make 
more than one distribution of long-term capital gains, as defined in the 
Code, in any one taxable year of the company: Provided, That a unit 
investment trust may distribute capital gain dividends received from a 
``regulated investment company'' within a reasonable time after receipt.
    (c) The provisions of this rule shall not apply to a unit investment 
trust (hereinafter referred to as the ``Trust'') engaged exclusively in 
the business of investing in eligible trust securities (as defined in 
Rule 14a-3(b) (17 CFR 270.14a-3(b)) under this Act); Provided, That:
    (1) The capital gain distribution is a result of--
    (i) An issuer's calling or redeeming an eligible trust security held 
by the Trust,
    (ii) The sale of an eligible trust security by the Trust to provide 
funds for redemption of Trust units when the amount received by the 
Trust for such sale exceeds the amount required to satisfy the 
redemption distribution,
    (iii) The sale of an eligible trust security to maintain 
qualification of the Trust as a ``regulated investment company'' under 
section 851 of the Code,
    (iv) Regular distributions of principal and prepayment of principal 
on eligible trust securities, or
    (v) The sale of an eligible trust security in order to maintain the 
investment stability of the Trust; and
    (2) Capital gains distributions are clearly described as such in a 
report to the unitholder which accompanies each such distribution.
    (d) For purposes of paragraph (c) of this section, sales made to 
maintain the investment stability of the Trust means sales made to 
prevent deterioration of the value of the eligible trust securities held 
in the Trust portfolio when one or more of the following factors exist:
    (1) A default in the payment of principal or interest on an eligible 
trust security;
    (2) An action involving the issuer of an eligible trust security 
which adversely affects the ability of such issuer to continue payment 
of principal or interest on its eligible trust securities; or
    (3) A change in market, revenue or credit factors which adversely 
affects the ability of such issuer to continue payment of principal or 
interest on its eligible trust securities.
    (e) If a registered investment company because of unforeseen 
circumstances in a particular taxable year proposes to make a 
distribution which would be prohibited by the provisions of this 
section, it may file a request with the Commission for authorization to 
make such a distribution. Such request shall comply with the 
requirements of Sec. 270.0-2 of this chapter and shall set forth the 
pertinent facts and explain the circumstances which the company believes 
justify such distribution. The request shall be deemed granted unless 
the Commission within 15 days after receipt thereof shall deny such 
request as not being necessary or appropriate in the public interest or 
for the protection of investors and notify the company in writing of 
such denial.
    (f) A registered investment company may make one additional 
distribution of long-term capital gains, as defined in the Code, with 
respect to any one taxable year of the company, which distribution is 
made, in whole or in part, for the purpose of not incurring any tax 
under section 4982 of the Code. Such additional distribution may be

[[Page 813]]

made prior or subsequent to any distribution otherwise permitted by 
paragraph (a) of this section.

(Secs. 6(c), 19(b) (15 U.S.C. 80a-19(b), and sec. 38(a)))

[36 FR 22901, Dec. 2, 1971, as amended at 44 FR 29647, May 22, 1979; 44 
FR 40064, July 9, 1979; 52 FR 42428, Nov. 5, 1987]



Sec. 270.20a-1  Solicitation of proxies, consents and authorizations.

    (a) No person shall solicit or permit the use of his or her name to 
solicit any proxy, consent, or authorization with respect to any 
security issued by a registered Fund, except upon compliance with 
Regulation 14A (Sec. 240.14a-1 of this chapter), Schedule 14A (Sec. 
240.14a-101 of this chapter), and all other rules and regulations 
adopted pursuant to section 14(a) of the Securities Exchange Act of 1934 
that would be applicable to such solicitation if it were made in respect 
of a security registered pursuant to section 12 of the Securities 
Exchange Act of 1934. Unless the solicitation is made in respect of a 
security registered on a national securities exchange, none of the 
soliciting material need be filed with such exchange.
    (b) If the solicitation is made by or on behalf of the management of 
the investment company, then the investment adviser or any prospective 
investment adviser and any affiliated person thereof as to whom 
information is required in the solicitation shall upon request of the 
investment company promptly transmit to the investment company all 
information necessary to enable the management of such company to comply 
with the rules and regulations applicable to such solicitation. If the 
solicitation is made by any person other than the management of the 
investment company, on behalf of and with the consent of the investment 
adviser or prospective investment adviser, then the investment adviser 
or prospective investment adviser and any affiliated person thereof as 
to whom information is required in the solicitation shall upon request 
of the person making the solicitation promptly transmit to such person 
all information necessary to enable such person to comply with the rules 
and regulations applicable to the solicitation.
    Instruction. Registrants that have made a public offering of 
securities and that hold security holder votes for which proxies, 
consents, or authorizations are not being solicited pursuant to the 
requirements of this section should refer to section 14(c) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78n(c)) and the information 
statement requirements set forth in the rules thereunder.

[25 FR 1865, Mar. 3, 1960, as amended at 37 FR 1472, Jan. 29, 1972; 52 
FR 48985, Dec. 29, 1987; 57 FR 1102, Jan. 10, 1992; 59 FR 52700, Oct. 
19, 1994]



Sec. Sec. 270.20a-2--270.20a-4  [Reserved]



Sec. 270.22c-1  Pricing of redeemable securities for distribution, 
redemption and repurchase.

    (a) No registered investment company issuing any redeemable 
security, no person designated in such issuer's prospectus as authorized 
to consummate transactions in any such security, and no principal 
underwriter of, or dealer in, any such security shall sell, redeem, or 
repurchase any such security except at a price based on the current net 
asset value of such security which is next computed after receipt of a 
tender of such security for redemption or of an order to purchase or 
sell such security: Provided, That:
    (1) This paragraph shall not prevent a sponsor of a unit investment 
trust (hereinafter referred to as the ``Trust'') engaged exclusively in 
the business of investing in eligible trust securities (as defined in 
Rule 14a-3(b) (17 CFR 270.14a-3(b))) from selling or repurchasing Trust 
units in a secondary market at a price based on the offering side 
evaluation of the eligible trust securities in the Trust's portfolio, 
determined at any time on the last business day of each week, effective 
for all sales made during the following week, if on the days that such 
sales or repurchases are made the sponsor receives a letter from a 
qualified evaluator stating, in its opinion, that:
    (i) In the case of repurchases, the current bid price is not higher 
than the offering side evaluation, computed on the last business day of 
the previous week; and

[[Page 814]]

    (ii) In the case of resales, the offering side evaluation, computed 
as of the last business day of the previous week, is not more than one-
half of one percent ($5.00 on a unit representing $1,000 principal 
amount of eligible trust securities) greater than the current offering 
price.
    (2) This paragraph shall not prevent any registered investment 
company from adjusting the price of its redeemable securities sold 
pursuant to a merger, consolidation or purchase of substantially all of 
the assets of a company which meets the conditions specified in Sec. 
270.17a-8.
    (b) For the purposes of this section,
    (1) The current net asset value of any such security shall be 
computed no less frequently than once daily, Monday through Friday, at 
the specific time or times during the day that the board of directors of 
the investment company sets, in accordance with paragraph (e) of this 
section, except on:
    (i) Days on which changes in the value of the investment company's 
portfolio securities will not materially affect the current net asset 
value of the investment company's redeemable securities;
    (ii) Days during which no security is tendered for redemption and no 
order to purchase or sell such security is received by the investment 
company; or
    (iii) Customary national business holidays described or listed in 
the prospectus and local and regional business holidays listed in the 
prospectus; and
    (2) A ``qualified evaluator'' shall mean any evaluator which 
represents it is in a position to determine, on the basis of an informal 
evaluation of the eligible trust securities held in the Trust's 
portfolio, whether--
    (i) The current bid price is higher than the offering side 
evaluation, computed on the last business day of the previous week, and
    (ii) The offering side evaluation, computed as of the last business 
day of the previous week, is more than one-half of one percent ($5.00 on 
a unit representing $1,000 principal amount of eligible trust 
securities) greater than the current offering price.
    (c) Notwithstanding the provisions above, any registered separate 
account offering variable annuity contracts, any person designated in 
such account's prospectus as authorized to consummate transactions in 
such contracts, and any principal underwriter of or dealer in such 
contracts shall be permitted to apply the initial purchase payment for 
any such contract at a price based on the current net asset value of 
such contract which is next computed:
    (1) Not later than two business days after receipt of the order to 
purchase by the insurance company sponsoring the separate account 
(``insurer''), if the contract application and other information 
necessary for processing the order to purchase (collectively, 
``application'') are complete upon receipt; or
    (2) Not later than two business days after an application which is 
incomplete upon receipt by the insurer is made complete, Provided, That, 
if an incomplete application is not made complete within five business 
days after receipt,
    (i) The prospective purchaser shall be informed of the reasons for 
the delay, and
    (ii) The initial purchase payment shall be returned immediately and 
in full, unless the prospective purchaser specifically consents to the 
insurer retaining the purchase payment until the application is made 
complete.
    (3) As used in this section:
    (i) Prospective Purchaser shall mean either an individual 
contractowner or an individual participant in a group contract.
    (ii) Initial Purchase Payment shall refer to the first purchase 
payment submitted to the insurer by, or on behalf of, a prospective 
purchaser.
    (d) The board of directors shall initially set the time or times 
during the day that the current net asset value shall be computed, and 
shall make and approve such changes as the board deems necessary.

(Secs. 6(c), 22(c) and 38(a), 15 U.S.C. 80a-6(c), 80a-22(c) and 80a-
37(a))

[44 FR 29647, May 22, 1979, as amended at 44 FR 48660, Aug. 20, 1979; 45 
FR 12409, Feb. 26, 1980; 50 FR 7911, Feb. 27, 1985; 50 FR 24763, June 
13, 1985; 50 FR 42682, Oct. 22, 1985; 58 FR 49922, Sept. 24, 1993]

[[Page 815]]



Sec. 270.22d-1  Exemption from section 22(d) to permit sales of 

redeemable securities at prices which reflect sales loads set 
pursuant to a schedule.

    A registered investment company that is the issuer of redeemable 
securities, a principal underwriter of such securities or a dealer 
therein shall be exempt from the provisions of section 22(d) to the 
extent necessary to permit the sale of such securities at prices that 
reflect scheduled variations in, or elimination of, the sales load. 
These price schedules may offer such variations in or elimination of the 
sales load to particular classes of investors or transactions, Provided, 
That:
    (a) The company, the principal underwriter and dealers in the 
company's shares apply any scheduled variation uniformly to all offerees 
in the class specified;
    (b) The company furnishes to existing shareholders and prospective 
investors adequate information concerning any scheduled variation, as 
prescribed in applicable registration statement form requirements;
    (c) Before making any new sales load variation available to 
purchasers of the company's shares, the company revises its prospectus 
and statement of additional information to describe that new variation; 
and
    (d) The company advises existing shareholders of any new sales load 
variation within one year of the date when that variation is first made 
available to purchasers of the company's shares.

(Secs. 6(c) (15 U.S.C. 80a-6(c)) and 38(a) (15 U.S.C. 80a-37(a)))

[50 FR 7911, Feb. 27, 1985]



Sec. 270.22d-2  Exemption from section 22(d) for certain registered 
separate accounts.

    A registered separate account, any principal underwriter for such 
account, any dealer in contracts or units of interest or participations 
in such contracts issued by such account and any insurance company 
maintaining such account shall, with respect to any variable annuity 
contracts, units, or participations therein issued by such account, be 
exempted from section 22(d) to the extent necessary to permit the sale 
of such contracts, units or participations by such persons at prices 
which reflect variations in the sales load or in any administrative 
charge or other deductions from the purchase payments; Provided, 
however, That (a) the prospectus discloses as precisely as possible the 
amount of the variations and the circumstances, if any, in which such 
variations shall be available or describes the basis for such variations 
and the manner in which entitlement shall be determined, and (b) any 
such variations reflect differences in costs or services and are not 
unfairly discriminatory against any person.

(Secs. 6(c) (15 U.S.C. 80a-6(c)) and 38(a) (15 U.S.C. 80a-37(a)))

[40 FR 33970, Aug. 13, 1975. Redesignated at 50 FR 7911, Feb. 27, 1985]



Sec. 270.22e-1  Exemption from section 22(e) of the Act during annuity 

payment period of variable annuity contracts participating in certain 
registered separate accounts.

    (a) A registered separate account, shall during the annuity payment 
period of variable annuity contracts participating in such account, be 
exempt from the provisions of section 22(e) of the Act prohibiting the 
suspension of the right of redemption or postponement of the date of 
payment or satisfaction upon redemption of any redeemable security, with 
respect to such contracts under which payments are being made based upon 
life contingencies.

(Sec. 6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12696, Aug. 5, 1969]



Sec. 270.22e-2  Pricing of redemption requests in accordance with Rule 22c-1.

    An investment company shall not be deemed to have suspended the 
right of redemption if it prices a redemption request by computing the 
net asset value of the investment company's redeemable securities in 
accordance with the provisions of Rule 22c-1.

[50 FR 24764, June 13, 1985]



Sec. 270.23c-1  Repurchase of securities by closed-end companies.

    (a) A registered closed-end company may purchase for cash a security 
of

[[Page 816]]

which it is the issuer, subject to the following conditions:
    (1) If the security is a stock entitled to cumulative dividends, 
such dividends are not in arrears.
    (2) If the security is a stock not entitled to cumulative dividends, 
at least 90 percent of the net income of the issuer for the last 
preceding fiscal year, determined in accordance with good accounting 
practice and not including profits or losses realized from the sale of 
securities or other properties, was distributed to its shareholders 
during such fiscal year or within 60 days after the close of such fiscal 
year.
    (3) If the security to be purchased is junior to any class of 
outstanding security of the issuer representing indebtedness (except 
notes or other evidences of indebtedness held by a bank or other person, 
the issuance of which did not involve a public offering) all securities 
of such class shall have an asset coverage of at least 300 percent 
immediately after such purchase; and if the security to be purchased is 
junior to any class of outstanding senior security of the issuer which 
is a stock, all securities of such class shall have an asset coverage of 
at least 200 percent immediately after such purchase, and shall not be 
in arrears as to dividends.
    (4) The seller of the security is not to the knowledge of the issuer 
an affiliated person of the issuer.
    (5) Payment of the purchase price is accompanied or preceded by a 
written confirmation of the purchase.
    (6) The purchase is made at a price not above the market value, if 
any, or the asset value of such security, whichever is lower, at the 
time of such purchase.
    (7) The issuer discloses to the seller or, if the seller is acting 
through a broker, to the seller's broker, either prior to or at the time 
of purchase the approximate or estimated asset coverage per unit of the 
security to be purchased.
    (8) No brokerage commission is paid by the issuer to any affiliated 
person of the issuer in connection with the purchase.
    (9) The purchase is not made in a manner or on a basis which 
discriminates unfairly against any holders of the class of securities 
purchased.
    (10) If the security is a stock, the issuer has, within the 
preceding six months, informed stockholders of its intention to purchase 
stock of such class by letter or report addressed to all the 
stockholders of such class.
    (11) The issuer files with the Commission, on or before the tenth 
day of the calendar month following the month in which the purchase 
occurs, two copies of a report of purchases made during the month, 
together with a copy of any written solicitation to purchase securities 
under this rule sent or given during the month by or on behalf of the 
issuer to ten or more persons. Form N-23C-1 is hereby prescribed as the 
form to be used for such report.
    (b) Notwithstanding the conditions of paragraph (a) of this section, 
a closed-end company may purchase fractional interests in, or fractional 
rights to receive, any security of which it is the issuer.
    (c) This rule does not apply to purchase of securities made pursuant 
to section 23(c)(1) or (2) of the Act (54 Stat. 825; 15 U.S.C. 80a-23). 
A registered closed-end company may file an application with the 
Commission for an order under section 23(c)(3) of the Act permitting the 
purchase of any security of which it is the issuer which does not meet 
the conditions of this rule and which is not to be made pursuant to 
section 23(c)(1) or (2) of the Act.
    (d) This rule relates exclusively to the requirements of section 
23(c) of the Act, and the provisions hereof shall not be construed to 
authorize any action which contravenes any other applicable law, 
statutory or otherwise, or the provision of any indenture or other 
instrument pursuant to which securities of the issuer were issued.

[Rule N-23C-1, 7 FR 10424, Dec. 15, 1942]

    Cross Reference: For interpretative release applicable to Sec. 
270.23c-1, see No. 78 in tabulation, part 271 of this chapter.

    Effective Date Note: At 68 FR 64975, Nov. 17, 2003, Sec. 270.23c-1 
was amended by revising paragraph (a)(11), effective July 15, 2004. For 
the convenience of the user the revised text is set forth as follows:

Sec. 270.23c-1  Repurchases of securities by closed-end companies.

    (a) * * *
    (11) The issuer files with the Commission, as an exhibit to Form N-
CSR (Sec. 249.331 and

[[Page 817]]

Sec. 274.128), a copy of any written solicitation to purchase 
securities under this section sent or given during the period covered by 
the report by or on behalf of the issuer to 10 or more persons.

                                * * * * *



Sec. 270.23c-2  Call and redemption of securities issued by registered 
closed-end companies.

    (a) Notwithstanding the provisions of Sec. 270.23c-1 (Rule N-23c-
1), a registered closed-end investment company may call or redeem any 
securities of which it is the issuer, in accordance with the terms of 
such securities or the charter, indenture or other instrument pursuant 
to which such securities were issued: Provided, That, if less than all 
the outstanding securities of a class or series are to be called or 
redeemed the call or redemption shall be made by lot, on a pro rata 
basis, or in such other manner as will not discriminate unfairly against 
any holder of the securities of such class or series.
    (b) A registered closed-end investment company which proposes to 
call or redeem any securities of which it is the issuer shall file with 
the Commission notice of its intention to call or redeem such securities 
at least 30 days prior to the date set for the call or redemption; 
Provided, however, That if notice of the call or the redemption is 
required to be published in a newspaper or otherwise, notice shall be 
given to the Commission at least 10 days in advance of the date of 
publication. Such notice shall be filed in triplicate and shall include 
(1) the title of the class of securities to be called or redeemed, (2) 
the date on which the securities are to be called or redeemed, (3) the 
applicable provisions of the governing instrument pursuant to which the 
securities are to be called or redeemed and, (4) if less than all the 
outstanding securities of a class or series are to be called or 
redeemed, the principal amount or number of shares and the basis upon 
which the securities to be called or redeemed are to be selected.

[Rule N-23C-2, 7 FR 6669, Aug. 25, 1942]



Sec. 270.23c-3  Repurchase offers by closed-end companies.

    (a) Definitions. For purposes of this section:
    (1) Periodic interval shall mean an interval of three, six, or 
twelve months.
    (2) Repurchase offer shall mean an offer pursuant to this section by 
an investment company to repurchase common stock of which it is the 
issuer.
    (3) Repurchase offer amount shall mean the amount of common stock 
that is the subject of a repurchase offer, expressed as a percentage of 
such stock outstanding on the repurchase request deadline, that an 
investment company offers to repurchase in a repurchase offer. The 
repurchase offer amount shall not be less than five percent nor more 
than twenty-five percent of the common stock outstanding on a repurchase 
request deadline. Before each repurchase offer, the repurchase offer 
amount for that repurchase offer shall be determined by the directors of 
the company.
    (4) Repurchase payment deadline with respect to a tender of common 
stock shall mean the date by which an investment company must pay 
securities holders for any stock repurchased. A repurchase payment 
deadline shall occur seven days after the repurchase pricing date 
applicable to such tender.
    (5) Repurchase pricing date with respect to a tender of common stock 
shall mean the date on which an investment company determines the net 
asset value applicable to the repurchase of the securities. A repurchase 
pricing date shall occur no later than the fourteenth day after a 
repurchase request deadline, or the next business day if the fourteenth 
day is not a business day. In no event shall an investment company 
determine the net asset value applicable to the repurchase of the stock 
before the close of business on the repurchase request deadline.
    (i) For an investment company making a repurchase offer pursuant to 
paragraph (b) of this section, the number of days between the repurchase 
request deadline and the repurchase pricing date for a repurchase offer 
shall be the maximum number specified by the company pursuant to 
paragraph (b)(2)(i)(D) of this section.

[[Page 818]]

    (ii) For an investment company making a repurchase offer pursuant to 
paragraph (c) of this section, the repurchase pricing date shall be such 
date as the company shall disclose to security holders in the 
notification pursuant to paragraph (b)(4) of this section with respect 
to such offer.
    (iii) For purposes of paragraph (b)(1) of this section, a repurchase 
pricing date may be a date earlier than the date determined pursuant to 
paragraph (a)(5) (i) or (ii) of this section if, on or immediately 
following the repurchase request deadline, it appears that the use of an 
earlier repurchase pricing date is not likely to result in significant 
dilution of the net asset value of either stock that is tendered for 
repurchase or stock that is not tendered.
    (6) Repurchase request shall mean the tender of common stock in 
response to a repurchase offer.
    (7) Repurchase request deadline with respect to a repurchase offer 
shall mean the date by which an investment company must receive 
repurchase requests submitted by security holders in response to that 
offer or withdrawals or modifications of previously submitted repurchase 
requests. The first repurchase request deadline after the effective date 
of the registration statement for the common stock that is the subject 
of a repurchase offer, or after a shareholder vote adopting the 
fundamental policy specifying a company's periodic interval, whichever 
is later, shall occur no later than two periodic intervals thereafter.
    (b) Periodic repurchase offers. A registered closed-end company or a 
business development company may repurchase common stock of which it is 
the issuer from the holders of the stock at periodic intervals, pursuant 
to repurchase offers made to all holders of the stock, Provided that:
    (1) The company shall repurchase the stock for cash at the net asset 
value determined on the repurchase pricing date and shall pay the 
holders of the stock by the repurchase payment deadline except as 
provided in paragraph (b)(3) of this section. The company may deduct 
from the repurchase proceeds only a repurchase fee, not to exceed two 
percent of the proceeds, that is paid to the company and is reasonably 
intended to compensate the company for expenses directly related to the 
repurchase. A company may not condition a repurchase offer upon the 
tender of any minimum amount of shares.
    (2)(i) The company shall repurchase the security pursuant to a 
fundamental policy, changeable only by a majority vote of the 
outstanding voting securities of the company, stating:
    (A) That the company will make repurchase offers at periodic 
intervals pursuant to this section, as this section may be amended from 
time to time;
    (B) The periodic intervals between repurchase request deadlines;
    (C) The dates of repurchase request deadlines or the means of 
determining the repurchase request deadlines; and
    (D) The maximum number of days between each repurchase request 
deadline and the next repurchase pricing date.
    (ii) The company shall include a statement in its annual report to 
shareholders of the following:
    (A) Its policy under paragraph (b)(2)(i) of this section; and
    (B) With respect to repurchase offers by the company during the 
period covered by the annual report, the number of repurchase offers, 
the repurchase offer amount and the amount tendered in each repurchase 
offer, and the extent to which in any repurchase offer the company 
repurchased stock pursuant to the procedures in paragraph (b)(5) of this 
section.
    (iii) A company shall be deemed to be making repurchase offers 
pursuant to a policy within paragraph (b)(2)(i) of this section if:
    (A) The company makes repurchase offers to its security holders at 
periodic intervals and, before May 14, 1993, has disclosed in its 
registration statement its intention to make or consider making such 
repurchase offers; and
    (B) The company's board of directors adopts a policy specifying the 
matters required by paragraph (b)(2)(i) of this section, and the 
periodic interval specified therein conforms generally to the frequency 
of the company's prior repurchase offers.
    (3)(i) The company shall not suspend or postpone a repurchase offer 
except pursuant to a vote of a majority of the directors, including a 
majority of the

[[Page 819]]

directors who are not interested persons of the company, and only:
    (A) If the repurchase would cause the company to lose its status as 
a regulated investment company under Subchapter M of the Internal 
Revenue Code [26 U.S.C. 851-860];
    (B) If the repurchase would cause the stock that is the subject of 
the offer that is either listed on a national securities exchange or 
quoted in an inter-dealer quotation system of a national securities 
association to be neither listed on any national securities exchange nor 
quoted on any inter-dealer quotation system of a national securities 
association;
    (C) For any period during which the New York Stock Exchange or any 
other market in which the securities owned by the company are 
principally traded is closed, other than customary week-end and holiday 
closings, or during which trading in such market is restricted;
    (D) For any period during which an emergency exists as a result of 
which disposal by the company of securities owned by it is not 
reasonably practicable, or during which it is not reasonably practicable 
for the company fairly to determine the value of its net assets; or
    (E) For such other periods as the Commission may by order permit for 
the protection of security holders of the company.
    (ii) If a repurchase offer is suspended or postponed, the company 
shall provide notice to security holders of such suspension or 
postponement. If the company renews the repurchase offer, the company 
shall send a new notification to security holders satisfying the 
requirements of paragraph (b)(4) of this section.
    (4)(i) No less than twenty-one and no more than forty-two days 
before each repurchase request deadline, the company shall send to each 
holder of record and to each beneficial owner of the stock that is the 
subject of the repurchase offer a notification providing the following 
information:
    (A) A statement that the company is offering to repurchase its 
securities from security holders at net asset value;
    (B) Any fees applicable to such repurchase;
    (C) The repurchase offer amount;
    (D) The dates of the repurchase request deadline, repurchase pricing 
date, and repurchase payment deadline, the risk of fluctuation in net 
asset value between the repurchase request deadline and the repurchase 
pricing date, and the possibility that the company may use an earlier 
repurchase pricing date pursuant to paragraph (a)(5)(iii) of this 
section;
    (E) The procedures for security holders to tender their shares and 
the right of the security holders to withdraw or modify their tenders 
until the repurchase request deadline;
    (F) The procedures under which the company may repurchase such 
shares on a pro rata basis pursuant to paragraph (b)(5) of this section;
    (G) The circumstances in which the company may suspend or postpone a 
repurchase offer pursuant to paragraph (b)(3) of this section;
    (H) The net asset value of the common stock computed no more than 
seven days before the date of the notification and the means by which 
security holders may ascertain the net asset value thereafter; and
    (I) The market price, if any, of the common stock on the date on 
which such net asset value was computed, and the means by which security 
holders may ascertain the market price thereafter.
    (ii) The company shall file three copies of the notification with 
the Commission within three business days after sending the notification 
to security holders. Those copies shall be accompanied by copies of Form 
N-23c-3 (Sec. 274.221 of this chapter) (``Notification of Repurchase 
Offer''). The format of the copies shall comply with the requirements 
for registration statements and reports under Sec. 270.8b-12 of this 
chapter.
    (iii) For purposes of sending a notification to a beneficial owner 
pursuant to paragraph (b)(4)(i) of this section, where the company knows 
that shares of common stock that is the subject of a repurchase offer 
are held of record by a broker, dealer, voting trustee, bank, 
association or other entity that exercises fiduciary powers in nominee

[[Page 820]]

name or otherwise, the company shall follow the procedures for 
transmitting materials to beneficial owners of securities that are set 
forth in Sec. 240.14a-13 of this chapter.
    (5) If security holders tender more than the repurchase offer 
amount, the company may repurchase an additional amount of stock not to 
exceed two percent of the common stock outstanding on the repurchase 
request deadline. If the company determines not to repurchase more than 
the repurchase offer amount, or if security holders tender stock in an 
amount exceeding the repurchase offer amount plus two percent of the 
common stock outstanding on the repurchase request deadline, the company 
shall repurchase the shares tendered on a pro rata basis; Provided, 
however, That this provision shall not prohibit the company from:
    (i) Accepting all stock tendered by persons who own, beneficially or 
of record, an aggregate of not more than a specified number which is 
less than one hundred shares and who tender all of their stock, before 
prorating stock tendered by others; or
    (ii) Accepting by lot stock tendered by security holders who tender 
all stock held by them and who, when tendering their stock, elect to 
have either all or none or at least a minimum amount or none accepted, 
if the company first accepts all stock tendered by security holders who 
do not so elect.
    (6) The company shall permit tenders of stock for repurchase to be 
withdrawn or modified at any time until the repurchase request deadline 
but shall not permit tenders to be withdrawn or modified thereafter.
    (7)(i) The current net asset value of the company's common stock 
shall be computed no less frequently than weekly on such day and at such 
specific time or times during the day that the board of directors of the 
company shall set.
    (ii) The current net asset value of the company's common stock shall 
be computed daily on the five business days preceding a repurchase 
request deadline at such specific time or times during the day that the 
board of directors of the company shall set.
    (iii) For purposes of section 23(b) [15 U.S.C. 80a-23(b)], the 
current net asset value applicable to a sale of common stock by the 
company shall be the net asset value next determined after receipt of an 
order to purchase such stock. During any period when the company is 
offering its common stock, the current net asset value of the common 
stock shall be computed no less frequently than once daily, Monday 
through Friday, at the specific time or times during the day that the 
board of directors of the company shall set, except on:
    (A) Days on which changes in the value of the company's portfolio 
securities will not materially affect the current net asset value of the 
common stock;
    (B) Days during which no order to purchase its common stock is 
received, other than days when the net asset value would otherwise be 
computed pursuant to paragraph (b)(7)(i) of this section; or
    (C) Customary national, local, and regional business holidays 
described or listed in the prospectus.
    (8)(i) A majority of the directors of the investment company are not 
interested persons of the company, and those directors select and 
nominate any other disinterested directors of the company; and
    (ii) Any person who acts as legal counsel for the disinterested 
directors of the company is an independent legal counsel.
    (9) Any senior security issued by the company or other indebtedness 
contracted by the company either shall mature by the next repurchase 
pricing date or shall provide for the redemption or call of such 
security or the repayment of such indebtedness by the company by the 
next repurchase pricing date, either in whole or in part, without 
penalty or premium, as necessary to permit the company to repurchase 
securities in such repurchase offer amount as the directors of the 
company shall determine in compliance with the asset coverage 
requirements of section 18 [15 U.S.C. 80a-18] or 61 [15 U.S.C. 80a-60], 
as applicable.
    (10)(i) From the time a company sends a notification to shareholders 
pursuant to paragraph (b)(4) of this section until the repurchase 
pricing date, a percentage of the company's assets

[[Page 821]]

equal to at least 100 percent of the repurchase offer amount shall 
consist of assets that can be sold or disposed of in the ordinary course 
of business, at approximately the price at which the company has valued 
the investment, within a period equal to the period between a repurchase 
request deadline and the repurchase payment deadline, or of assets that 
mature by the next repurchase payment deadline.
    (ii) In the event that the company's assets fail to comply with the 
requirements in paragraph (b)(10)(i) of this section, the board of 
directors shall cause the company to take such action as it deems 
appropriate to ensure compliance.
    (iii) In supervising the company's operations and portfolio 
management by the investment adviser, the company's board of directors 
shall adopt written procedures reasonably designed, taking into account 
current market conditions and the company's investment objectives, to 
ensure that the company's portfolio assets are sufficiently liquid so 
that the company can comply with its fundamental policy on repurchases, 
and comply with the liquidity requirements of paragraph (b)(10)(i) of 
this section. The board of directors shall review the overall 
composition of the portfolio and make and approve such changes to the 
procedures as the board deems necessary.
    (11) The company, or any underwriter for the company, shall comply, 
as if the company were an open-end company, with the provisions of 
section 24(b) [15 U.S.C. 80a-24(b)] and rules issued thereunder with 
respect to any advertisement, pamphlet, circular, form letter, or other 
sales literature addressed to or intended for distribution to 
prospective investors.
    (c) Discretionary repurchase offers. A registered closed-end company 
or a business development company may repurchase common stock of which 
it is the issuer from the holders of the stock pursuant to a repurchase 
offer that is not made pursuant to a fundamental policy and that is made 
to all holders of the stock not earlier than two years after another 
offer pursuant to this paragraph (c) if the company complies with the 
requirements of paragraphs (b) (1), (3), (4), (5), (6), (7)(ii), (8), 
(10)(i), and (10)(ii) of this section.
    (d) Exemption from the definition of redeemable security. A company 
that makes repurchase offers pursuant to paragraph (b) or (c) of this 
section shall not be deemed thereby to be an issuer of redeemable 
securities within section 2(a)(32) [15 U.S.C. 80a-2(a)(32)].

[58 FR 19343, Apr. 14, 1993; 58 FR 29695, May 21, 1993, as amended at 66 
FR 3759, Jan. 16, 2001]



Sec. 270.24b-1  Definitions.

    (a) The term form letter as used in section 24(b) of the Act 
includes (1) one of a series of identical sales letters, and (2) any 
sales letter a substantial portion of which consists of a statement 
which is in essence identical with similar statements in sales letters 
sent to 25 or more persons within any period of 90 consecutive days.
    (b) The term distribution as used in section 24(b) of the Act 
includes the distribution or redistribution to prospective investors of 
the content of any written sales literature, whether such distribution 
or redistribution is effected by means of written or oral 
representations or statements.
    (c) The terms rules and regulations as used in section 24 (a) and 
(c) of the Act shall include the forms for registration of securities 
under the Securities Act of 1933 and the related instructions thereto.

(Sec. 19, 48 Stat. 85, as amended, sec. 319, 53 Stat. 1173; 15 U.S.C. 
77s, 77sss)

[Rule N-24B-1, 6 FR 3020, June 21, 1941, as amended by 21 FR 1046, Feb. 
15, 1956]



Sec. 270.24b-2  Filing copies of sales literature.

    Copies of material filed with the Commission for the sole purpose of 
complying with section 24(b) of the Act either shall be accompanied by a 
letter of transmittal which makes appropriate references to said section 
or shall make such appropriate reference on the face of the material. 
Such material shall be submitted to the Commission in paper only, 
whether or not the

[[Page 822]]

investment company to which the material relates is otherwise required 
to file in electronic format.

[Rule N-24B-2, 6 FR 3020, June 21, 1941, as amended at 58 FR 14860, Mar. 
18, 1993]



Sec. 270.24b-3  Sales literature deemed filed.

    Any advertisement, pamphlet, circular, form letter or other sales 
literature addressed to or intended for distribution to prospective 
investors shall be deemed filed with the Commission for purposes of 
section 24(b) of the Act [15 U.S.C. 80a-24(b)] upon filing with a 
national securities association registered under section 15A of the 
Securities Exchange Act of 1934 [15 U.S.C. 78o] that has adopted rules 
providing standards for the investment company advertising practices of 
its members and has established and implemented procedures to review 
that advertising.

[53 FR 3880, Feb. 10, 1988]



Sec. 270.24e-1  Filing of certain prospectuses as post-effective 
amendments to registration statements under the Securities Act of 1933.

    Section 24(e) of the Act requires that when a prospectus is revised 
so that it may be available for use in compliance with section 10(a)(3) 
of the Securities Act of 1933 for a period extending beyond the time 
when the previous prospectus would have ceased to be available for such 
use, such revised prospectus, in order to meet the requirements of 
section 10 of said Act, must be filed as an amendment to the 
registration statement under said Act and such amendment must have 
become effective prior to the use of the revised prospectus. Except as 
hereinabove provided, section 24(e) of the Act shall not be deemed to 
govern the times and conditions under which post-effective amendments 
shall be filed to registration statements under the Securities Act of 
1933.

(Sec. 24, 54 Stat. 825, as amended; 15 U.S.C. 80a-24)

[20 FR 2856, Apr. 28, 1955, as amended at 62 FR 47938, Sept. 12, 1997]



Sec. 270.24f-2  Registration under the Securities Act of 1933 of 
certain investment company securities.

    (a) General. Any face-amount certificate company, open-end 
management company or unit investment trust (``issuer'') that is deemed 
to have registered an indefinite amount of securities pursuant to 
section 24(f) of the Act (15 U.S.C. 80a-24(f)) must not later than 90 
days after the end of any fiscal year during which it has publicly 
offered such securities, file Form 24F-2 (17 CFR 274.24) with the 
Commission. Form 24F-2 must be prepared in accordance with the 
requirements of that form, and must be accompanied by the payment of a 
registration fee with respect to the securities sold during the fiscal 
year in reliance upon registration pursuant to section 24(f) of the Act 
calculated in the manner specified in section 24(f) of the Act and in 
the Form. An issuer that pays the registration fee more than 90 days 
after the end of its fiscal year must pay interest in the manner 
specified in section 24(f) of the Act and in Form 24F-2.
    (b) Issuer ceasing operations; mergers and other transactions. For 
purposes of this section, if an issuer ceases operations, the date the 
issuer ceases operations will be deemed to be the end of its fiscal 
year. In the case of a liquidation, merger, or sale of all or 
substantially all of the assets (``merger'') of the issuer, the issuer 
will be deemed to have ceased operations for the purposes of this 
section on the date the merger is consummated; provided, however, that 
in the case of a merger of an issuer or a series of an issuer 
(``Predecessor Issuer'') with another issuer or a series of an issuer 
(``Successor Issuer''), the Predecessor Issuer will not be deemed to 
have ceased operations and the Successor issuer will assume the 
obligations, fees, and redemption credits of the Predecessor Issuer 
incurred pursuant to section 24(f) of the Act and Sec. 270.24e-2 (as in 
effect prior to October 11, 1997; see 17 CFR part 240 to end, revised as 
of April 1, 1997) if the Successor Issuer:
    (1) had no assets or liabilities, other than nominal assets or 
liabilities, and no operating history immediately prior to the merger;

[[Page 823]]

    (2) Acquired substantially all of the assets and assumed 
substantially all of the liabilities and obligations of the Predecessor 
Issuer; and
    (3) The merger is not designed to result in the Predecessor Issuer 
merging with, or substantially all of its assets being acquired by, an 
issuer (or a series of an issuer) that would not meet the conditions of 
paragraph (b)(1) of this section.
    (c) Counting days. To determine the date on which Form 24F-2 must be 
filed with the Commission under paragraph (a) of this section, the first 
day of the 90-day period is the first calendar day of the fiscal year 
following the fiscal year for which the Form is to be filed. If the last 
day of the 90-day period falls on a Saturday, Sunday, or federal 
holiday, the period ends on the first business day thereafter.

    Note to paragraph (c): For example, a Form 24F-2 for a fiscal year 
ending on June 30 must be filed no later than September 28. If September 
28 falls on a Saturday, Sunday, the Form must be filed on the following 
Monday.

[62 FR 47938, Sept. 12, 1997]



Sec. 270.26a-1  Payment of administrative fees to the depositor or 

principal underwriter of a unit investment trust; exemptive relief 
for separate accounts.

    (a) For purposes of section 26(a)(2)(C) of the Act, payment of a fee 
to the depositor of or a principal underwriter for a registered unit 
investment trust, or to any affiliated person or agent of such depositor 
or underwriter (collectively, ``depositor''), for bookkeeping or other 
administrative services provided to the trust shall be allowed the 
custodian or trustee (``trustee'') as an expense, Provided, That such 
fee is an amount not greater than the expenses, without profit: (1) 
Actually paid by such depositor directly attributable to the services 
provided and (2) increased by the services provided directly by such 
depositor, as determined in accordance with generally accepted 
accounting principles consistently applied.
    (b) A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from the provisions of 
sections 26(a) and 27(c)(2) of the Act [15 U.S.C. 80a-26(a) and 80a-
27(c)(2)] with respect to any variable annuity contract participating in 
such account to the extent necessary to permit the deduction of any fee 
that would be allowed a trustee as an expense as provided in paragraph 
(a) of this section, Provided, That the standard used in paragraph (a) 
of this section shall be applied as follows: if the separate account 
reserves the right to increase the fee, the fee shall not be greater 
than the cost of the services to be provided for one year; if the fee is 
guaranteed not to increase for a specified period of time, the fee shall 
not be greater than the average expected cost of the services to be 
provided during the period of the guarantee.

(Sec. 6(c), 26(a), and 38(a) (15 U.S.C. 80a-6(c), 80a-26(a), and 80a-
37(a)))

[49 FR 31063, Aug. 3, 1984]



Sec. 270.26a-2  Exemptions from certain provisions of sections 26 

and 27 for registered separate accounts and others regarding 
custodianship of and deduction of certain fees and charges from 
the assets of such accounts.

    A registered separate account, and any depositor of or principal 
underwriter for such account, shall be exempt from the provisions of 
Sections 26(a) and 27(c)(2) of the Act [15 U.S.C. 80a-26(a) and 80a-
27(c)(2)] with respect to any variable annuity contract participating in 
such account to the extent necessary:
    (a) To permit the insurance company that sponsors such account to 
hold the assets of the separate account and to hold such assets not 
pursuant to a trust indenture or other such instrument;
    (b) To permit any separate account registered under the Act as a 
unit investment trust to hold the securities of any underlying portfolio 
companies in uncertificated form;
    (c) To permit any separate account registered under the Act as a 
management investment company to hold its assets in any manner permitted 
by section 17(f) of the Act [15 U.S.C. 80a-17(f)] or any rules 
thereunder; and
    (d) To permit the deduction from the assets of the separate account 
of

[[Page 824]]

amounts for premium taxes imposed by any State or other governmental 
entity and, if the separate account is registered under the Act as an 
open-end management investment company, an investment advisory fee.

(Secs. 6(c) and 38(a) (15 U.S.C. 80a-6(c) and 80a-37(a), respectively))

[49 FR 31064, Aug. 3, 1984]



Sec. 270.27a-1  Conditions for compliance with and exemptions from 

certain provisions of section 27(a)(1) and section 27(h)(1) of the 
Act for certain registered separate accounts.

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall with respect to any variable annuity 
contract participating in such account, be deemed to satisfy the 
requirements of section 27(a)(1) and section 27(h)(1) of the Act if such 
contract provides for a sales load which will not exceed 9 per centum of 
the total payments to be made thereon as of a date not later than the 
end of the 12th year of such payments: Provided, That if a contract be 
issued for any stipulated shorter payment period the sales load under 
such contract shall not exceed 9 per centum of the total payments 
thereunder for such period.

[36 FR 11645, June 17, 1971]



Sec. 270.27a-2  Exemption from section 27(a)(3) and section 27(h)(3) 
of the Act for certain registered separate accounts.

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall be exempt from paragraph (3) of 
section 27(a) and paragraph (3) of section 27(h) of the Act: Provided, 
That with respect to any variable annuity contract participating in such 
account the proportionate amount of sales load deducted from any payment 
during the contract period shall not exceed the proportionate amount 
deducted from any prior payment during the contract period.

[36 FR 11645, June 17, 1971]



Sec. 270.27a-3  Exemption from section 27(a)(4) and section 27(h)(5) 
of the Act for certain registered separate accounts.

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall be exempt from paragraph (4) of 
section 27(a) of the Act and paragraph (5) of section 27(h) of the Act 
as to payments under any variable annuity contract participating in such 
account which (1) is purchased in connection with a plan which meets the 
requirements for qualification under section 401 of the Internal Revenue 
Code of 1954, as amended (Code), or the requirements for deduction of 
the employer's contributions under section 404(a)(2) of the Code, or (2) 
meets the requirements of section 403(b) of the Code, but such 
exemptions shall apply only to contributions or payments within the 
exclusion allowance for any employee under section 403(b) except as 
clause (3) hereof applies, or (3) permits no sales load deduction from 
any payment in excess of 9 per centum of such payment.

[36 FR 11645, June 17, 1971, as amended at 36 FR 23624, Dec. 11, 1971]



Sec. 270.27c-1  Exemption from section 27(c)(1) and section 27(d) of 

the Act during annuity payment period of variable annuity contracts 
participating in certain registered separate accounts.

    (a) A registered separate account, and any depositor of or 
underwriter for such account, shall, during the annuity payment period 
of variable annuity contracts participating in such account, be exempt 
from the requirement of paragraph (1) of section 27(c) of the Act that a 
periodic payment plan certificate be a redeemable security and from 
section 27(d) of the Act with respect to such contracts under which 
payments are being made based upon life contingencies.

(Sec. 6(c), 54 Stat. 800, 841; sec. 16, 84 Stat. 1424, 15 U.S.C. 80a-
27(h))

[36 FR 11645, June 17, 1971]

[[Page 825]]



Sec. 270.27d-1  Reserve requirements for principal underwriters and 

depositors to carry out the obligations to refund charges required 
by section 27(d) and section 27(f) of the Act.

    (a)(1) Every depositor of or principal underwriter for the issuer of 
a periodic payment plan certificate sold subject to section 27(d) or 
section 27(f) of the Act or both, shall deposit and maintain funds in a 
segregated trust account as a reserve and as security for the purpose of 
assuring the refund of charges required by sections 27(d) and 27(f) of 
the Act.
    (2) The assets of such trust account may be held as cash or invested 
only in one or more of (i) government securities as defined in section 
2(a)(16) of the Act (except equity securities) or (ii) negotiable 
certificates of deposit issued by a bank, as defined in section 2(a)(5) 
of the Act and having capital and surplus of at least $10 million: 
Provided, That no such investment may have a maturity of more than 5 
years, no more than 50 percent of the assets may be invested in 
obligations having a maturity of more than 1 year, and certificates of 
deposit of a single issuer may not constitute more than 10 percent of 
the value of the assets in the account.
    (3) Any income, gains, or losses from assets allocated to such 
account, whether or not realized, shall be credited to or charged 
against such account without regard to other income, gains, or losses of 
the depositor or principal underwriter.
    (4) The assets of such trust account may be withdrawn only as 
permitted by paragraph (f) of this section and shall in no event be 
chargeable with liabilities arising out of any aspect of the business of 
the depositor or principal underwriter other than assuring the ability 
of the depositor or principal underwriter to refund the amounts required 
by such sections.
    (b) For purposes of this section:
    (1) ``Excess sales load'' on any payment is that portion of the 
sales load in excess of 15 percent of that payment.
    (2) ``Monthly payment'' shall be the amount of the smallest monthly 
installment scheduled to be paid during the life of the plan. If 
payments are required or permitted to be made on a basis less frequently 
than monthly, an equivalent monthly payment shall be the amount 
determined by dividing the smallest minimum payment required or 
permitted in a payment period by the number of months included in such 
period.
    (3) The assets in the segregated trust account shall be valued as 
follows: (i) With respect to securities for which market quotations are 
readily available, the market value of such securities; and (ii) with 
respect to other securities, fair value as determined in good faith by 
the depositor or principal underwriter.
    (c) For every periodic payment plan certificate governed by section 
27(d), the depositor or principal underwriter shall deposit into the 
segregated trust account not less than 45 percent of the excess sales 
load on each of the first six monthly payments or their equivalent.
    (d) For all periodic payment plan certificates governed by section 
27(d) which have not been surrendered in accordance with their terms, 
and for which the depositor or principal underwriter may be liable for 
the refund of any sales load, the depositor or principal underwriter 
shall maintain in the segregated trust account an amount equal to not 
less than 15% of the total refundable sales load on the payments made on 
those certificates. The depositor or principal underwriter shall also 
maintain in the segregated trust account such additional amounts as the 
Commission by order may require for the depositor or principal 
underwriter to carry out refund obligations pursuant to sections 27(d) 
and 27(f) of the Act.
    (e) For every periodic payment plan certificate governed by section 
27(f) of the Act, and for which the depositor or principal underwriter 
has no obligation to refund any excess sales load pursuant to section 
27(d) of the Act, the depositor or principal underwriter shall deposit 
and maintain during the refund period, at least the following amounts in 
the segregated trust account:
    (1) For certificates that require monthly payments of $100 or less, 
20 percent of the difference between the gross payments made and the net 
amount invested;
    (2) For certificates that require monthly payments in excess of $100 
and

[[Page 826]]

for single payment plan certificates, 30 percent of the difference 
between the gross payments made and the net amount invested;
    (3) For certificates with respect to which the holder is entitled to 
receive the greater of the refund provided by section 27(f) (of the Act) 
or a refund of total payments and upon which a total of at least $1,000 
has been paid, 100 percent of the difference between the gross payments 
made and net amount invested; and
    (4) Such additional amounts as the Commission by order may require 
to carry out the obligation to refund charges pursuant to section 27(f) 
of the Act.
    (f) Assets may be withdrawn from the segregated trust account by 
each depositor or principal underwriter:
    (1) To refund excess sales load to a certificate holder exercising 
the right of surrender specified in section 27(d) of the Act; or
    (2) To refund to a certificate holder exercising the right of 
withdrawal specified in section 27(f) of the Act the difference between 
the amount of his gross payments and the net amount invested; or
    (3) For any other purpose: Provided, however, That such withdrawal 
shall not reduce the segregated trust account to an amount less than the 
sum of (i) 130 percent of the amount required to be maintained by 
paragraph (d) of this section, if any, and (ii) 100 percent of that 
amount required to be maintained by paragraph (e) of this section, if 
any.
    (g) The minimum amounts required to be maintained by paragraphs (d) 
and (e) of this section shall be computed at least monthly. Any 
additional deposits required by paragraph (d) or (e) of this section 
shall be made immediately after such computation, and any withdrawals 
permitted by paragraph (f)(3) of this section may be made only at such 
time.
    (h) Nothing in this section shall be construed to prohibit a 
depositor or principal underwriter, acting as such for two or more 
registered investment companies issuing periodic payment plan 
certificates, from combining in a single segregated trust account the 
reserves for such companies required by this section.
    (i) The refunds required to be made to certificate holders pursuant 
to sections 27(d) and 27(f) (of the Act) shall be paid in cash not more 
than 7 days from the date the certificate is received in proper form by 
the custodian bank or such other paying agent as may be designated under 
the periodic payment plan.
    (j) Each depositor or principal underwriter shall file with the 
Commission, within the appropriate period of time specified, an 
Accounting of Segregated Trust Account. Form N-27D-1 (Sec. 274.127d-1 
of this chapter) is hereby prescribed as such accounting form.

[36 FR 13136, July 15, 1971, as amended at 40 FR 50712, Oct. 31, 1975]



Sec. 270.27d-2  Insurance company undertaking in lieu of segregated 
trust account.

    (a) Any depositor of or principal underwriter for the issuer of a 
periodic payment plan certificate sold subject to section 27(d) or 27(f) 
of the Act, or both, shall be exempt from the requirements of Sec. 
270.27d-1 if an insurance company (as defined in section 2(a)(17) of the 
Act) undertakes in writing to guarantee the performance of all 
obligations of such depositor or principal underwriter to refund charges 
under sections 27(d) and 27(f) of the Act and paragraph (b) of this 
section: Provided, however, That:
    (1) Such insurance company at all times shall have (i) combined 
capital paid-up, gross paid in and contributed surplus and unassigned 
surplus, if a stock company, or (ii) unassigned surplus, if a mutual 
company, at least equal to the larger of (a) $1 million or (b) 200 
percent of the amount of the total refund obligation of the depositor or 
underwriter pursuant to sections 27(d) and 27(f) (of the Act) less any 
liability reserve established by such insurance company to meet such 
obligations; and
    (2) Such depositor or underwriter shall file or cause to be filed 
with the Commission as an exhibit to the registration statement or any 
amendment thereto pursuant to the Securities Act of 1933 of the 
registered investment company issuing periodic payment plan

[[Page 827]]

certificates (i) a copy of such written undertaking, and any amendment 
thereto, (ii) an annual statement certified by a responsible officer of 
the insurance company indicating that at least on a monthly basis 
throughout its fiscal year the insurance company has met the 
requirements of the proviso in paragraph (a)(1) of this section, and 
(iii) a Statement of Financial Condition (Balance Sheet) of the 
insurance company certified by an independent public accountant. Such 
balance sheet shall be filed at least annually, within 90 days after the 
close of the insurance company's fiscal year.
    (b) The refunds required to be made to certificate holders pursuant 
to sections 27(d) and 27(f) (of the Act) shall be paid in cash not more 
than 7 days from the date the certificate is received in proper form by 
the custodian bank or such other paying agent as may be designated under 
the periodic payment plan.

[36 FR 13137, July 15, 1971]



Sec. 270.27e-1  Requirements for notice to be mailed to certain purchasers 
of periodic payment plan certificates sold subject to section 27(d) of the Act.

    (a) The notice required by section 27(e) of the Act shall be sent by 
first class mail and shall be accompanied by a written instruction sheet 
and a return form to be used in connection with the exercise of the 
surrender right described in the notice. No other written or graphic 
material may be included with such notice.
    (b) In the event that regular payments throughout the first 18 
months of the plan are required less frequently than monthly, such a 
notice shall be mailed to any certificate holder who has missed any 
payment or payments equal to or greater in amount than the amount of 
payments which, if missed, would have required the mailing of a notice 
if equal monthly payments had been required during such 15- or 18-month 
periods.
    (c) Any payment not made within 31 days after it is due shall be 
deemed a missed payment whether or not an equivalent payment is made 
subsequently by the certificate holder.
    (d) In the event any such notice is not mailed prior to 15 days 
before the expiration of the 18th month, the certificate holder shall 
have 15 days from the date such notice is mailed within which to 
exercise the right of surrender described therein. Nothing herein 
contained shall require a second notice to be mailed to any certificate 
holder who has been mailed a notice within 30 days following 15 months 
after the issuance of his certificate.
    (e) Notwithstanding the requirements of section 27(e) of the Act, no 
notice need be mailed to a certificate holder if, at the time such 
notice would be required to be mailed, he would not be entitled to 
receive any refund of sales loading upon surrender of his certificate.
    (f) Form N-27E-1 is hereby prescribed to inform certificate holders 
of their right to surrender their certificates pursuant to section 27(d) 
of the Act. The text of Form N-27E-1 is as follows:

 Form N-27E-1--Notice to Periodic Payment Plan Certificate Holders of 8 
     Months Surrender Rights With Respect to Periodic Payment Plan 
                            Certificates \2\
---------------------------------------------------------------------------

    \2\ See the General Instructions to Form N-27E-1 in paragraph (f) of 
Sec. 270.27e-1 of this chapter, 36 FR 13138.
---------------------------------------------------------------------------

                                Important

(Date of mailing)
Re: --(1) ------.
    Dear --(2) ------: This notice is required to be sent to all 
purchasers of plan certificates pursuant to laws administered by the 
U.S. Securities and Exchange Commission. You should read it carefully 
and retain it with your financial records.
    You have missed --(3) ------ after your -- (4) ------ plan 
certificate was issued. Until -- (5) ------ you will be entitled to 
surrender your plan certificate and receive, in addition to the value of 
your account on the date your certificate is received, a refund of that 
portion of the sales charges you have paid in excess of 15 percent of 
the gross payments under your plan.
    For example, if your certificate had been received for surrender -- 
(6) ------ you would have received a total of $ -- (7) ------ for it 
(the value of your account $ -- (8) ------ plus a refund of $ -- (9) --
---- of the sales charges you have paid). After your right expires you 
will be entitled to receive only the value of your account. Of course, 
the value of your account will vary from day to day and by the

[[Page 828]]

date your right expires it may be more or less than it is today.
    In determining whether to exercise your right to terminate your 
plan, you should consider that, while the average sales charge deducted 
from your payments has amounted to -- (10) ------ percent of the total 
payments made, the sales charge for the remainder of the payments under 
the plan, if you continue the plan, will be -- (11) ------and the 
average sales charge if you complete the plan will be -- (12) ------ 
percent. Exercising your right to terminate your plan, however, will 
result in a net sales charge of 15 percent of your total payments. 
Accordingly, if you believe you may discontinue making further payments 
on your plan, it would probably be to your advantage to exercise this 
right now.
    If you wish to exercise your right to terminate your plan, you may 
return your certificate to -- (13) ------ by -- (14) ------ in 
accordance with the enclosed instructions.
Very truly yours,
                                                         -- (15) ------.

                        Form N-27E-1 Instructions

    General instructions. A. The notice shall be legible and shall be 
printed or typed on letter-sized paper. It shall be in modern type at 
least as large as 10-point modern type. All type shall be leaded at 
least 2 points. Parenthetical references should be completed in 
accordance with the itemized instructions below and need not be 
underlined or boldfaced.
    B. The notice shall bear the letterhead of the sender and the 
mailing date. An inconspicuous reference to the form number may appear 
on the notice.
    Itemized instructions. Insert the following in the corresponding 
numbered spaces on Form N-27E-1:
    (1) The name of the plan and the account number of the certificate 
holder. An additional internal recordkeeping reference may also be 
included at the option of the sender.
    (2) The name of certificate holder or an identification such as 
``Investor'' or ``Planholder.''
    (3) Whichever of the following statements is appropriate: ``three or 
more payments during the first 15 months'' or ``a payment after the 15th 
month.''
    (4) The name of the plan.
    (5) The date of the first business day which is 18 months from the 
date of the issuance of the certificate or in the event such notice is 
not mailed prior to 15 days before the expiration of the 18th month, the 
date of the first business day which is 15 days from the date such 
notice is mailed.
    (6) A date which is not more than 2 business days prior to the date 
of the notice.
    (7) The sum of Items 8 and 9.
    (8) The value of the account payable to the certificate holder if 
the certificate had been received on the date set forth in Item 6. In 
the event such certificate holder has made a partial withdrawal in 
accordance with the terms of his certificate, the notice may state after 
the first sentence in the third paragraph that ``The value of your 
account reflects the partial withdrawal which you made previously.''
    (9) The amount as of the date set forth in Item 6 which is equal to 
that part of the excess paid for sales loading which is over 15 percent 
of the gross payments made by the certificate holder.
    (10) Average percentage deducted for sales charges to the date set 
forth in Item 6.
    (11) The percentage to be deducted for sales charges after the date 
set forth in Item 6.
    If the holder has made less than 12 monthly payments, the following 
shall be substituted for the first sentence of the third paragraph of 
the notice:
    ``In determining whether to exercise your right to terminate your 
plan, you should consider that, while the sales charge deducted from 
your payments has amounted to ------ (10) percent of the total payments 
made, the sales charge for the next ------ (11a) payments will be ------ 
(11b) percent and the sales charge for the remainder of the payments 
will be ------ (11c) percent. If you complete the plan, the average 
sales charge will be ------ (12) percent.''
    (11a) The number of payments yet to be made which are subject to the 
initial sales to completion.
    (11b) The percentage to be deducted from sales charges from such 
payments.
    (11c) The percentage to be deducted for sales charges from all 
subsequent payments.
    (12) Average percentage to be deducted for sales charges from 
inception of the plan to completion.
    (13) Name and address of custodian bank or other person authorized 
to accept surrendered certificates.
    (14) Same date as in Item 5.
    (15) The name of a responsible officer of the sender, with his 
title.

[36 FR 13137, July 15, 1971, as amended at 36 FR 14727, Aug. 11, 1971; 
37 FR 9990, May 18, 1972]



Sec. 270.27f-1  Notice of right of withdrawal required to be mailed 

to periodic payment plan certificate holders and exemption from section 
27(f) for certain periodic payment plan certificates.

    (a) The notice and statement of charges (notice) required by section 
27(f) of the Act shall be sent by first-class mail and shall be 
accompanied by a written instruction sheet and a return form to be used 
in connection with the exercise of the right of withdrawal described in 
the notice. Except

[[Page 829]]

for a confirmation slip, the plan certificate, and any notice required 
by applicable State law, no other written or graphic material may be 
included with such notice.
    (b) The notice may be mailed by the issuer, the principal 
underwriter for, or the depositor of, the issuer or a recordkeeping 
agent for the issuer if the custodian bank has delegated the mailing of 
the notice to any of them or the issuer has been permitted to operate 
without a custodian bank by Commission order.
    (c) Solely for purposes of section 27(f) of the Act, the postmark 
date on the envelope containing the certificate shall determine whether 
a certificate has been surrendered within the 45-day period.
    (d) Form N-27F-1 is hereby prescribed to inform certificate holders, 
other than holders of plans upon which the amount of sales load deducted 
from any payment does not exceed 9 percent of any payment and variable 
annuity contracts, of their withdrawal right pursuant to section 27(f) 
of the Act. The text of Form N-27F-1 is as follows:

 Form N-27F-1 Notice to Periodic Payment Plan Certificate Holders of 45-
 Day Withdrawal Right With Respect to Periodic Payment Plan Certificates

                                Important

(Date of mailing)
Re: ---- (1) ----
    Dear ---- (2) ----: This notice is required to be sent to all 
purchasers of plan certificates pursuant to laws administered by the 
U.S. Securities and Exchange Commission. You should read it carefully 
and retain it with your financial records.
    Of the $ ---- (3) ---- you have paid on your ---- (4) ---- plan, 
representing ---- (5) ---- regular monthly payments, $ ---- (6) ---- or 
---- (7) ---- percent has been deducted for various charges.
[The following sentence is to be included when any periodic payment 
remains outstanding in which the sales load charges exceed 9 percent of 
such payment.]
    A total of $ ---- (8) ---- or ---- (9) ---- percent of your first --
-- (10) ---- monthly payments will be deducted from those payments for 
similar charges.
    Charges of $ ---- (11) ---- or ---- (12) ---- percent will be 
deducted from each subsequent payment. You have until ---- (13) ---- to 
surrender your certificate for any reason and receive a refund of all of 
the charges which have been deducted from your payments, and, in 
addition, the value of your account on the date your certificate is 
received.
    In determining whether or not to exercise your right you should 
consider, among other things, the projected cost of your investment and 
your ability to make the scheduled payments over the life of your plan 
as they become due. Your plan provides for ---- (14) ---- payments of $ 
---- (15) ---- per ---- (16) ----, or total payments of $ ---- (17) --
--. If you made all of the scheduled payments over the full term of your 
plan, the total deductions would be $ ---- (18) ---- or an effective 
charge of ---- (19) ---- percent of your total payments. However, if you 
do not complete your program, the deduction of various charges from your 
initial payments will result in your paying effective charges in excess 
of that rate. For a more complete description of the charges deducted 
under your plan, carefully review your prospectus.
    If you wish to exercise your right of withdrawal, return your plan 
certificate to ---- (20) ---- by ---- (21) ---- in accordance with the 
enclosed instructions.
    Very truly yours,
    ---- (22) ----.

                  Instructions for Use of Form N-27F-1

    General instructions. A. The notice shall be legible and shall be 
printed or typed on letter-size paper. It shall be in modern type at 
least as large as 10-point modern type. All type shall be leaded at 
least 2 points. Parenthetical references should be completed in 
accordance with the Itemized Instructions below and need not be 
underlined or boldfaced.
    B. The notice shall bear the letterhead of the sender and the 
mailing date. An inconspicuous reference to the form number may appear 
on the notice.
    Itemized Instructions. Insert the following in the corresponding 
numbered spaces on Form N-27F-1.
    (1) The name of the plan and the account number of the certificate 
holder. An additional internal record keeping reference may also be 
included at the option of the sender.
    (2) The name of certificate holder or an identification such as 
``Investor'' or ``Planholder.''
    (3) The total amount paid by the certificate holder as of the date 
of the mailing.
    (4) The name of the plan.
    (5) The number of regular monthly payments or their equivalent made 
by the certificate holder as of the date of mailing.
    (6) The total amount deducted for all charges from the amount paid 
by the certificate holder as of the date of the mailing.
    (7) The percentage that the total charges set forth in Item (6) are 
of the total payments included under Item (3) above.
    (8) The total dollar amount of all charges scheduled to be deducted 
from the payments

[[Page 830]]

made by the certificate holder before the first regular payment upon 
which there would be a reduction in the rate of the applicable sales 
charge below 9 percent of the certificate holder's gross payment.
    (9) The percentage that the total charges set forth in Item 8 are of 
the total payments included under Instruction 8 above.
    (10) The number of regular monthly payments required to be made 
before the rate of the sales charges deducted from such regular payment 
is reduced to less than 9 percent of the certificate holder's gross 
payment.
    (11) The dollar amount of the charges to be deducted from each 
payment made by the certificate holder after the first regular payment 
upon which there would be a reduction in the rate of the applicable 
sales charge below 9 percent of the certificate holder's gross payment. 
If a portion of the payments is used for the purchase of completion 
insurance, the amount attributable thereto shall not be included as a 
charge and the following phrase shall be added: ``Apart from insurance 
premiums based upon the amount of coverage in effect at the time of 
payment.''
    (12) The percentage that the amount of the charges set forth in Item 
11 are of the amount of the payment included under Instruction 11 above.
    (13) The date which is 45 days from the date on which the notice 
will be mailed.
    (14) The number of monthly or quarterly payments provided for under 
the plan.
    (15) The dollar amount of each scheduled periodic payment to be made 
by the certificate holder.
    (16) The period (e.g., month, quarter) for which payments are 
scheduled to be made under the plan.
    (17) The dollar amount of total payments scheduled to be made over 
the full term of the plan by the certificate holder.
    (18) The total dollar amount of all charges scheduled to be deducted 
over the full term of the plan.
    (19) The percentage that the total charges as set forth in Item 18 
are of the total payments scheduled to be made by the certificate holder 
over the full term of the plan.
    (20) The name and address of the custodian bank or other person 
authorized to accept surrendered certificates.
    (21) The date which is 45 days from the date on which the notice 
will be mailed.
    (22) The name of a responsible officer of the sender with his title.

(Secs. 27(e), 27(f), 38(a), 54 Stat. 829, 841; 15 U.S.C. 80a-27(e), 80a-
27(f), 80a-37(a); sec. 16, Pub. L. 91-547, 84 Stat. 1424-1425; sec. 
6(c), 15 U.S.C. 80a-6(c))

[36 FR 24055, Dec. 18, 1971, as amended at 37 FR 9990, May 18, 1972; 45 
FR 17958, Mar. 20, 1980]



Sec. 270.27g-1  Election to be governed by section 27(h).

    (a) If any registered investment company which issues or intends to 
issue a periodic payment plan certificate chooses to be governed by the 
provisions of section 27(h) (of the Act) rather than the provisions of 
sections 27 (a) and (d) (of the Act), it shall signify such choice by 
filing with the Commission as an exhibit to its registration statement 
filed under the Securities Act of 1933 a written Notice of Election to 
be so governed.
    (b) Any registered investment company issuing periodic payment plan 
certificates which has elected, in accordance with paragraph (a) of this 
section, to be governed by the provisions of section 27(h) of the Act 
may thereafter withdraw such election by filing with the Commission, in 
the manner specified for filing a Notice of Election, a written Notice 
of Withdrawal of Election: Provided, however, That no such withdrawal of 
election shall be made within 12 months of an election by such company 
under paragraph (a) of this section and, provided further that such 
company may not thereafter elect to be governed by the provisions of 
section 27(h) (of the Act) until an additional 12-month period has 
elapsed.

[36 FR 13139, July 15, 1971]



Sec. 270.27h-1  Exemptions from section 27(h)(4) for certain payments.

    (a) For purposes of this section and section 27(h)(4) of the Act (1) 
``minimum monthly payment, or its equivalent,'' shall be the amount of 
the smallest monthly installment scheduled to be made during the life of 
the plan; and (2) ``quarter'' shall be the 3-month period which 
commences on the date a periodic payment plan is issued and each 3-month 
period thereafter.
    (b) The provisions of section 27(h) (4) (of the Act) shall not apply 
to:
    (1) That portion of the first payment on a periodic payment plan 
certificate which equals the amount of five minimum monthly payments: 
Provided, however, That the deduction for sales load on any other 
payments received during the first quarter after the

[[Page 831]]

issuance of the certificate may not exceed the sales load applicable to 
payments subsequent to the first 48 monthly payments or their 
equivalent;
    (2) A payment or payments received in any subsequent quarter which 
equals the amount of three minimum monthly payments: Provided, however, 
That after an amount equivalent to three minimum monthly payments (not 
including payments of arrears) is received in any such subsequent 
quarter the deduction for sales load on any additional payments received 
in such quarter may not exceed the sales load applicable to payments 
subsequent to the first 48 monthly payments or their equivalent;
    (3) Payments of arrears by a certificate holder who is delinquent in 
his payments; and
    (4) Any payments made on a periodic payment plan certificate out of 
the proceeds of completion insurance received upon the death of the 
certificate holder.

[36 FR 13139, July 15, 1971]



Sec. 270.28b-1  Investment in loans partially or wholly guaranteed 
under the Servicemen's Readjustment Act of 1944, as amended.

    (a) The term qualified investments as used in section 28(b) of the 
Investment Company Act of 1940 shall include:
    (1) Any loan, any portion of which is guaranteed under Title III of 
the Servicemen's Readjustment Act of 1944, as amended, and which is 
secured by a first lien on real estate: Provided, The amount of the loan 
not so guaranteed does not exceed 66\2/3\ percent of the reasonable 
value of such real estate as determined by proper appraisal made by an 
appraiser designated by the Administrator of Veterans' Affairs;
    (2) Any secondary loan the full amount of which is guaranteed under 
section 505(a) of Title III of the above mentioned act and which is 
secured by a second lien on real estate:

Provided, however, That any such loan shall be deemed a qualified 
investment only so long as (i) insurance policies are required to be 
procured and maintained in an amount sufficient to protect the security 
against the risks or hazards to which it may be subjected to the extent 
customary in the locality, and (ii) the loan shall remain guaranteed 
under Title III of the Servicemen's Readjustment Act of 1944, as 
amended, to the extent specified in paragraph (a) (1) or (2) of this 
section, as the case may be.
    (b) Loans made pursuant to this section shall be valued at the 
original principal amount of the loan less all payments made thereon 
which have been applied to the reduction of such principal amount.

(Secs. 28(b), 38, 54 Stat. 832, 841; 15 U.S.C. 80a-28(b), 80a-38)

[Rule N-28B-1, 11 FR 6483, June 13, 1946]



Sec. 270.30a-1  Annual reports for unit investment trusts.

    Every registered unit investment trust shall file an annual report 
on Form N-SAR with respect to each calendar year not more than sixty 
calendar days after the close of each year. A registered unit investment 
trust that has filed a registration statement with the Commission 
registering its securities for the first time under the Securities Act 
of 1933 is relieved of this reporting obligation with respect to any 
reporting period or portion thereof prior to the date on which that 
registration statement becomes effective or is withdrawn.

[68 FR 5365, Feb. 3, 2003]



Sec. 270.30a-2  Certification of Form N-CSR.

    (a) Each report filed on Form N-CSR (Sec. Sec. 249.331 and 274.128 
of this chapter) by a registered management investment company must 
include certifications in the form specified in Item 11(a)(2) of Form N-
CSR and such certifications must be filed as an exhibit to such report. 
Each principal executive and principal financial officer of the 
investment company, or persons performing similar functions, at the time 
of filing of the report must sign a certification.
    (b) Each report on Form N-CSR filed by a registered management 
investment company under Section 13(a) or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that contains 
financial statements must be accompanied by the certifications required 
by Section 1350 of Chapter 63 of Title 18 of the United

[[Page 832]]

States Code (18 U.S.C. 1350) and such certifications must be furnished 
as an exhibit to such report as specified in Item 11(b) of Form N-CSR. 
Each principal executive and principal financial officer of the 
investment company (or equivalent thereof) must sign a certification. 
This requirement may be satisfied by a single certification signed by an 
investment company's principal executive and principal financial 
officers.
    (c) A person required to provide a certification specified in 
paragraph (a) or (b) of this section may not have the certification 
signed on his or her behalf pursuant to a power of attorney or other 
form of confirming authority.

[68 FR 36671, June 18, 2003, as amended at 68 FR 67011, Nov. 28, 2003; 
68 FR 69223, Dec. 11, 2003]

    Effective Date Note: At 69 FR 11264, Mar. 9, 2004, Sec. 270.30a-2 
was amended by revising the section heading and paragraph (a), effective 
May 10, 2004. For the convenience of the user the revised text is set 
forth as follows:

Sec. 270.30a-2  Certification of Form N-CSR and Form N-Q.

    (a) Each report filed on Form N-CSR (Sec. Sec. 249.331 and 274.128 
of this chapter) or Form N-Q (Sec. Sec. 249.332 and 274.130 of this 
chapter) by a registered management investment company must include 
certifications in the form specified in Item 11(a)(2) of Form N-CSR or 
Item 3 of Form N-Q, as applicable, and such certifications must be filed 
as an exhibit to such report. Each principal executive and principal 
financial officer of the investment company, or persons performing 
similar functions, at the time of filing of the report must sign a 
certification.

                                * * * * *



Sec. 270.30a-3  Controls and procedures.

    (a) Every registered management investment company, other than a 
small business investment company registered on Form N-5 (Sec. Sec. 
239.24 and 274.5 of this chapter), must maintain disclosure controls and 
procedures (as defined in paragraph (c) of this section) and internal 
control over financial reporting (as defined in paragraph (d) of this 
section).
    (b) Each such registered management investment company's management 
must evaluate, with the participation of the company's principal 
executive and principal financial officers, or persons performing 
similar functions, the effectiveness of the company's disclosure 
controls and procedures, within the 90-day period prior to the filing 
date of each report on Form N-CSR (Sec. Sec. 249.331 and 274.128 of 
this chapter).
    (c) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of a registered 
management investment company that are designed to ensure that 
information required to be disclosed by the investment company on Form 
N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter) is recorded, 
processed, summarized, and reported within the time periods specified in 
the Commission's rules and forms. Disclosure controls and procedures 
include, without limitation, controls and procedures designed to ensure 
that information required to be disclosed by an investment company in 
the reports that it files or submits on Form N-CSR is accumulated and 
communicated to the investment company's management, including its 
principal executive and principal financial officers, or persons 
performing similar functions, as appropriate to allow timely decisions 
regarding required disclosure.
    (d) The term internal control over financial reporting is defined as 
a process designed by, or under the supervision of, the registered 
management investment company's principal executive and principal 
financial officers, or persons performing similar functions, and 
effected by the company's board of directors, management, and other 
personnel, to provide reasonable assurance regarding the reliability of 
financial reporting and the preparation of financial statements for 
external purposes in accordance with generally accepted accounting 
principles and includes those policies and procedures that:
    (1) Pertain to the maintenance of records that in reasonable detail 
accurately and fairly reflect the transactions and dispositions of the 
assets of the investment company;
    (2) Provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and 
expenditures of the investment company are being

[[Page 833]]

made only in accordance with authorizations of management and directors 
of the investment company; and
    (3) Provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use, or disposition of the 
investment company's assets that could have a material effect on the 
financial statements.

[68 FR 36671, June 18, 2003]

    Effective Date Note: At 69 FR 11264, Mar. 9, 2004, Sec. 270.30a-3 
was amended by revising paragraphs (b) and (c), effective May 10, 2004. 
For the convenience of the user the revised text is set forth as 
follows:

Sec. 270.30a-3  Controls and procedures.

                                * * * * *

    (b) Each such registered management investment company's management 
must evaluate, with the participation of the company's principal 
executive and principal financial officers, or persons performing 
similar functions, the effectiveness of the company's disclosure 
controls and procedures, within the 90-day period prior to the filing 
date of each report on Form N-CSR (Sec. Sec. 249.331 and 274.128 of 
this chapter) and Form N-Q (Sec. Sec. 249.332 and 274.130 of this 
chapter).
    (c) For purposes of this section, the term disclosure controls and 
procedures means controls and other procedures of a registered 
management investment company that are designed to ensure that 
information required to be disclosed by the investment company on Form 
N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter) and Form N-Q 
(Sec. Sec. 249.332 and 274.130 of this chapter) is recorded, processed, 
summarized, and reported within the time periods specified in the 
Commission's rules and forms. Disclosure controls and procedures 
include, without limitation, controls and procedures designed to ensure 
that information required to be disclosed by an investment company in 
the reports that it files or submits on Form N-CSR and Form N-Q is 
accumulated and communicated to the investment company's management, 
including its principal executive and principal financial officers, or 
persons performing similar functions, as appropriate to allow timely 
decisions regarding required disclosure.

                                * * * * *



Sec. 270.30b1-1  Semi-annual report for registered management investment 
companies.

    Every registered management investment company shall file a semi-
annual report on Form N-SAR (Sec. 274.101 of this chapter) not more 
than sixty calendar days after the close of each fiscal year and fiscal 
second quarter. A registered management investment company that has 
filed a registration statement with the Commission registering its 
securities for the first time under the Securities Act of 1933 is 
relieved of this reporting obligation with respect to any reporting 
period or portion thereof prior to the date on which that registration 
statement becomes effective or is withdrawn.

[68 FR 5365, Feb. 3, 2003]



Sec. 270.30b1-2  Semi-annual report for totally-owned registered management 
investment company subsidiary of registered management investment company.

    Notwithstanding the provisions of rules 30a-1 and 30b1-1, a 
registered investment company that is a totally-owned subsidiary of a 
registered management investment company need not file a semi-annual 
report on Form N-SAR if financial information with respect to that 
subsidiary is reported in the parent's semi-annual report on Form N-SAR.

[54 FR 10321, Mar. 13, 1989]



Sec. 270.30b1-3  Transition reports.

    Every registered management investment company filing reports on 
Form N-SAR that changes its fiscal year end shall file a report on Form 
N-SAR not more than 60 calendar days after the later of either the close 
of the transition period or the date of the determination to change the 
fiscal year end which report shall not cover a period longer than six 
months.

[68 FR 5365, Feb. 3, 2003]



Sec. 270.30b1-4  Report of proxy voting record.

    Every registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec. Sec. 239.24 
and 274.5 of this chapter), shall file an annual report on Form N-PX 
(Sec. 274.129 of this chapter) not later than August 31 of each year, 
containing the registrant's proxy voting record for the most recent 
twelve-month period ended June 30.

[68 FR 6581, Feb. 7, 2003]

[[Page 834]]



Sec. 270.30b1-5  Quarterly report.

    Every registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec. Sec. 239.24 
and 274.5 of this chapter), shall file a quarterly report on Form N-Q 
(Sec. Sec. 249.332 and 274.130 of this chapter) not more than 60 days 
after the close of the first and third quarters of each fiscal year. A 
registered management investment company that has filed a registration 
statement with the Commission registering its securities for the first 
time under the Securities Act of 1933 is relieved of this reporting 
obligation with respect to any reporting period or portion thereof prior 
to the date on which that registration statement becomes effective or is 
withdrawn.

[69 FR 11264, Mar. 9, 2004]

    Effective Date Note: At 69 FR 11264, Mar. 9, 2004, Sec. 270.30b1-5 
was added, effective May 10, 2004.



Sec. 270.30b2-1  Filing of reports to stockholders.

    (a) Every registered management investment company shall file a 
report on Form N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter) 
not later than 10 days after the transmission to stockholders of any 
report that is required to be transmitted to stockholders under Sec. 
270.30e-1.
    (b) A registered investment company shall file with the Commission a 
copy of every periodic or interim report or similar communication 
containing financial statements that is transmitted by or on behalf of 
such registered investment company to any class of such company's 
security holders and that is not required to be filed with the 
Commission under paragraph (a) of this section. The filing shall be made 
not later than 10 days after the transmission to security holders.

[68 FR 5366, Feb. 3, 2003]



Sec. 270.30d-1  Designation of periodic reports under the Securities 
Exchange Act of 1934.

    A registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec. Sec. 239.24 
and 274.5 of this chapter), that is required to file annual and 
quarterly reports pursuant to section 13(a) or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall satisfy its 
requirement to file such reports by the filing, in accordance with the 
rules and procedures specified therefor, of reports on Form N-CSR 
(Sec. Sec. 249.331 and 274.128 of this chapter). A registered unit 
investment trust or a small business investment company registered on 
Form N-5 that is required to file annual and quarterly reports pursuant 
to section 13(a) or 15(d) of the Securities Exchange Act of 1934 shall 
satisfy its requirement to file such reports by the filing, in 
accordance with the rules and procedures specified therefor, of reports 
on Form N-SAR (Sec. Sec. 249.330 and 274.101 of this chapter).

[68 FR 5366, Feb. 3, 2003]

    Effective Date Note: At 69 FR 11264, Mar. 9, 2004, Sec. 270.30d-1 
was revised, effective May 10, 2004. For the convenience of the user the 
revised text is set forth as follows:

Sec. 270.30d-1  Filing of copies of reports to shareholders.

    A registered management investment company, other than a small 
business investment company registered on Form N-5 (Sec. Sec. 239.24 
and 274.5 of this chapter), that is required to file annual and 
quarterly reports pursuant to section 13(a) or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall satisfy its 
requirement to file such reports by the filing, in accordance with the 
rules and procedures specified therefor, of reports on Form N-CSR 
(Sec. Sec. 249.331 and 274.128 of this chapter) and Form N-Q 
(Sec. Sec. 249.332 and 274.130 of this chapter). A registered unit 
investment trust or a small business investment company registered on 
Form N-5 that is required to file annual and quarterly reports pursuant 
to section 13(a) or 15(d) of the Securities Exchange Act of 1934 shall 
satisfy its requirement to file such reports by the filing, in 
accordance with the rules and procedures specified therefor, of reports 
on Form N-SAR (Sec. Sec. 249.330 and 274.101 of this chapter).



Sec. 270.30e-1  Reports to stockholders of management companies.

    (a) Every registered management company shall transmit to each 
stockholder of record, at least semi-annually, a report containing the 
information required to be included in such reports by the company's 
registration statement form under the 1940 Act, except that the initial 
report of a newly

[[Page 835]]

registered company shall be made as of a date not later than the close 
of the fiscal year or half-year occurring on or after the date on which 
the company's notification of registration under the 1940 Act is filed 
with the Commission.
    (b) If any matter was submitted during the period covered by the 
shareholder report to a vote of shareholders, through the solicitation 
of proxies or otherwise, furnish the following information:
    (1) The date of the meeting and whether it was an annual or special 
meeting.
    (2) If the meeting involved the election of directors, the name of 
each director elected at the meeting and the name of each other director 
whose term of office as a director continued after the meeting.
    (3) A brief description of each matter voted upon at the meeting and 
the number of votes cast for, against or withheld, as well as the number 
of abstentions and broker non-votes as to each such matter, including a 
separate tabulation with respect to each matter or nominee for office.

    Instruction. The solicitation of any authorization or consent (other 
than a proxy to vote at a shareholders' meeting) with respect to any 
matter shall be deemed a submission of such matter to a vote of 
shareholders within the meaning of this paragraph (b).

    (c) Each report shall be transmitted within 60 days after the close 
of the period for which such report is being made.
    (d) An open-end company may transmit a copy of its currently 
effective prospectus or Statement of Additional Information, or both, 
under the Securities Act, in place of any report required to be 
transmitted to shareholders by this section, provided that the 
prospectus or Statement of Additional Information, or both, include all 
the information that would otherwise be required to be contained in the 
report by this section. Such prospectus or Statement of Additional 
Information, or both, shall be transmitted within 60 days after the 
close of the period for which the report is being made.
    (e) The period of time within which any report prescribed by this 
rule shall be transmitted may be extended by the Commission upon written 
request showing good cause therefor. Section 270.0-5 shall not apply to 
such requests.
    (f)(1) A company will be considered to have transmitted a report to 
shareholders who share an address if:
    (i) The company transmits a report to the shared address;
    (ii) The company addresses the report to the shareholders as a group 
(for example, ``ABC Fund [or Corporation] Shareholders,'' ``Jane Doe and 
Household,'' ``The Smith Family'') or to each of the shareholders 
individually (for example, ``John Doe and Richard Jones''); and
    (iii) The shareholders consent in writing to delivery of one report.
    (2) The company need not obtain written consent from a shareholder 
under paragraph (f)(1)(iii) of this section if all of the following 
conditions are met:
    (i) The shareholder has the same last name as the other 
shareholders, or the company reasonably believes that the shareholders 
are members of the same family;
    (ii) The company has transmitted a notice to the shareholder at 
least 60 days before the company begins to rely on this section 
concerning transmission of reports to that shareholder. The notice must 
be a separate written statement and:
    (A) State that only one report will be delivered to the shared 
address unless the company receives contrary instructions;
    (B) Include a toll-free telephone number or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
shareholder can use to notify the company that he or she wishes to 
receive a separate report;
    (C) State the duration of the consent;
    (D) Explain how a shareholder can revoke consent;
    (E) State that the company will begin sending individual copies to a 
shareholder within 30 days after the company receives revocation of the 
shareholder's consent; and
    (F) Contain the following prominent statement, or similar clear and 
understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Shareholder Documents''. This statement also must 
appear on the envelope in which the notice is delivered.

[[Page 836]]

Alternatively, if the notice is delivered separately from other 
communications to investors, this statement may appear either on the 
notice or on the envelope in which the notice is delivered;

    Note to Paragraph (f)(2)(ii):
    The notice should be written in plain English. See Sec. 
230.421(d)(2) of this chapter for a discussion of plain English 
principles.

    (iii) The company has not received the reply form or other 
notification indicating that the shareholder wishes to continue to 
receive an individual copy of the report, within 60 days after the 
company sent the notice; and
    (iv) The company transmits the report to a post office box or to a 
residential street address. The company can assume a street address is a 
residence unless it has information that indicates it is a business.
    (3) At least once a year, the company must explain to shareholders 
who have consented under paragraph (f)(1)(iii) or paragraph (f)(2) of 
this section how they can revoke their consent. The explanation must be 
reasonably designed to reach these investors. If a shareholder, orally 
or in writing, revokes consent to delivery of one report to a shared 
address, the company must begin sending individual copies to that 
shareholder within 30 days after the company receives the revocation.
    (4) For purposes of this section, address means a street address, a 
post office box number, an electronic mail address, a facsimile 
telephone number, or other similar destination to which paper or 
electronic documents are transmitted, unless otherwise provided in this 
section. If the company has reason to believe that the address is a 
street address of a multi-unit building, the address must include the 
unit number.

[46 FR 36126, July 14, 1981, as amended at 48 FR 37940, Aug. 22, 1983; 
48 FR 44477, Sept. 29, 1983; 50 FR 26160, June 25, 1985; 57 FR 56836, 
Dec. 1, 1992; 59 FR 52700, Oct. 19, 1994; 61 FR 24657, May 15, 1996; 64 
FR 62547, Nov. 16, 1999. Redesignated and amended at 66 FR 3759, Jan. 
16, 2001]



Sec. 270.30e-2  Reports to shareholders of unit investment trusts.

    (a) At least semiannually every registered unit investment trust 
substantially all the assets of which consist of securities issued by a 
management company must transmit to each shareholder of record 
(including record holders of periodic payment plan certificates), a 
report containing all the applicable information and financial 
statements or their equivalent, required by Sec. 270.30d-1 to be 
included in reports of the management company for the same fiscal 
period. Each of these reports must be transmitted within the period 
allowed the management company by Sec. 270.30e-1 for transmitting 
reports to its shareholders.
    (b) Any report required by this section will be considered 
transmitted to a shareholder of record if the unit investment trust 
satisfies the conditions set forth in Sec. 270.30e-1(f) with respect to 
that shareholder.

[64 FR 62547, Nov. 16, 1999. Redesignated and amended at 66 FR 3759, 
Jan. 16, 2001]



Sec. 270.30h-1  Applicability of section 16 of the Exchange Act to section 30(h).

    (a) The filing of any statement prescribed under section 16(a) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78p(a)) shall satisfy the 
corresponding requirements of section 30(h) of the Act (15 U.S.C. 80a-
29(h)).
    (b) The rules under section 16 of the Securities Exchange Act of 
1934 (15 U.S.C. 78p) shall apply to any duty, liability or prohibition 
imposed with respect to a transaction involving any security of a 
registered closed-end company under section 30(h) of the Act (15 U.S.C. 
80a-29(h)).
    (c) No statements need be filed pursuant to section 30(h) of the Act 
(15 U.S.C. 80a-29(h)) by an affiliated person of an investment adviser 
in his or her capacity as such if such person is solely an employee, 
other than an officer, of such investment adviser.

[67 FR 43537, June 28, 2002]



Sec. 270.31a-1  Records to be maintained by registered investment 

companies, certain majority-owned subsidiaries thereof, and other 
persons having transactions with registered investment companies.

    (a) Every registered investment company, and every underwriter, 
broker, dealer, or investment adviser which is a majority-owned 
subsidiary of such a

[[Page 837]]

company, shall maintain and keep current the accounts, books, and other 
documents relating to its business which constitute the record forming 
the basis for financial statements required to be filed pursuant to 
section 30 of the Investment Company Act of 1940 and of the auditor's 
certificates relating thereto.
    (b) Every registered investment company shall maintain and keep 
current the following books, accounts, and other documents:
    (1) Journals (or other records of original entry) containing an 
itemized daily record in detail of all purchases and sales of securities 
(including sales and redemptions of its own securities), all receipts 
and deliveries of securities (including certificate numbers if such 
detail is not recorded by custodian or transfer agent), all receipts and 
disbursements of cash and all other debits and credits. Such records 
shall show for each such transaction the name and quantity of 
securities, the unit and aggregate purchase or sale price, commission 
paid, the market on which effected, the trade date, the settlement date, 
and the name of the person through or from whom purchased or received or 
to whom sold or delivered. In the case of a money market fund, also 
identify the provider of any Demand Feature or Guarantee (as defined in 
Sec. 270.2a-7(a)(8) or Sec. 270.2a-7(a)(15) respectively) and give a 
brief description of the nature of the Demand Feature or Guarantee 
(e.g., unconditional demand feature, conditional demand feature, letter 
of credit, or bond insurance) and, in a subsidiary portfolio investment 
record, provide the complete legal name and accounting and other 
information (including sufficient information to calculate coupons, 
accruals, maturities, puts, and calls) necessary to identify, value, and 
account for each investment.
    (2) General and auxiliary ledgers (or other records) reflecting all 
assets, liability, reserve, capital, income and expense accounts, 
including:
    (i) Separate ledger accounts (or other records) reflecting the 
following:
    (a) Securities in transfer;
    (b) Securities in physical possession;
    (c) Securities borrowed and securities loaned;
    (d) Monies borrowed and monies loaned (together with a record of the 
collateral therefor and substitutions in such collateral);
    (e) Dividends and interest received;
    (f) Dividends receivable and interest accrued.

    Instruction. (a) and (b) of this subdivision shall be stated in 
terms of securities quantities only; (c) and (d) of this subdivision 
shall be stated in dollar amounts and securities quantities as 
appropriate; (e) and (f) of this subdivision shall be stated in dollar 
amounts only.

    (ii) Separate ledger accounts (or other records) for each portfolio 
security, showing (as of trade dates) (a) the quantity and unit and 
aggregate price for each purchase, sale, receipt, and delivery of 
securities and commodities for such accounts, and (b) all other debits 
and credits for such accounts. Securities positions and money balances 
in such ledger accounts (or other records) shall be brought forward 
periodically but not less frequently than at the end of fiscal quarters. 
Any portfolio security, the salability of which is conditioned, shall be 
so noted. A memorandum record shall be available setting forth, with 
respect to each portfolio security account, the amount and declaration 
ex-dividend, and payment dates of each dividend declared thereon.
    (iii) Separate ledger accounts (or other records) for each broker-
dealer bank or other person with or through which transactions in 
portfolio securities are effected, showing each purchase or sale of 
securities with or through such persons, including details as to the 
date of the purchase or sale, the quantity and unit and aggregate price 
of such securities, and the commissions or other compensation paid to 
such persons. Purchases or sales effected during the same day at the 
same price may be aggregated.
    (iv) Separate ledger accounts (or other records), which may be 
maintained by a transfer agent or registrar, showing for each 
shareholder of record of the investment company the number of shares of 
capital stock of the company held. In respect of share accumulation 
accounts (arising from periodic investment plans, dividend reinvestment 
plans, deposit of issued shares by

[[Page 838]]

the owner thereof, etc.), details shall be available as to the dates and 
number of shares of each accumulation, and except with respect to 
already issued shares deposited by the owner thereof, prices of each 
such accumulation.
    (3) A securities record or ledger reflecting separately for each 
portfolio security as of trade date all ``long'' and ``short'' positions 
carried by the investment company for its own account and showing the 
location of all securities long and the off-setting position to all 
securities short. The record called for by this paragraph shall not be 
required in circumstances under which all portfolio securities are 
maintained by a bank or banks or a member or members of a national 
securities exchange as custodian under a custody agreement or as agent 
for such custodian.
    (4) Corporate charters, certificates of incorporation or trust 
agreements, and by-laws, and minute books of stockholders' and 
directors' or trustees' meetings; and minute books of directors' or 
trustees' committee and advisory board or advisory committee meetings.
    (5) A record of each brokerage order given by or in behalf of the 
investment company for, or in connection with, the purchase or sale of 
securities, whether executed or unexecuted. Such record shall include 
the name of the broker, the terms and conditions of the order and of any 
modification or cancellation thereof, the time of entry or cancellation, 
the price at which executed, and the time of receipt of report of 
execution. The record shall indicate the name of the person who placed 
the order in behalf of the investment company.
    (6) A record of all other portfolio purchases or sales showing 
details comparable to those prescribed in paragraph (b)(5) of this 
section.
    (7) A record of all puts, calls, spreads, straddles, and other 
options in which the investment company has any direct or indirect 
interest or which the investment company has granted or guaranteed; and 
a record of any contractual commitments to purchase, sell, receive or 
deliver securities or other property (but not including open orders 
placed with broker-dealers for the purchase or sale of securities, which 
may be cancelled by the company on notices without penalty or cost of 
any kind); containing, at least, an identification of the security, the 
number of units involved, the option price, the date of maturity, the 
date of issuance, and the person to whom issued.
    (8) A record of the proof of money balances in all ledger accounts 
(except shareholder accounts), in the form of trial balances. Such trial 
balances shall be prepared currently at least once a month.
    (9) A record for each fiscal quarter, which shall be completed 
within ten days after the end of such quarter, showing specifically the 
basis or bases upon which the allocation of orders for the purchase and 
sale of portfolio securities to named brokers or dealers and the 
division of brokerage commissions or other compensation on such purchase 
and sale orders among named persons were made during such quarter. The 
record shall indicate the consideration given to (i) sales of shares of 
the investment company by brokers or dealers, (ii) the supplying of 
services or benefits by brokers or dealers to the investment company, 
its investment adviser or principal underwriter or any persons 
affiliated therewith, and (iii) any other considerations other than the 
technical qualifications of the brokers and dealers as such. The record 
shall show the nature of the services or benefits made available, and 
shall describe in detail the application of any general or specific 
formula or other determinant used in arriving at such allocation of 
purchase and sale orders and such division of brokerage commissions or 
other compensation. The record shall also include the identities of the 
persons responsible for the determination of such allocation and such 
division of brokerage commissions or other compensation.
    (10) A record in the form of an appropriate memorandum identifying 
the person or persons, committees, or groups authorizing the purchase or 
sale of portfolio securities. Where an authorization is made by a 
committee or group, a record shall be kept of the names of its members 
who participated in the authorization. There shall be retained as part 
of the record required by

[[Page 839]]

this paragraph any memorandum, recommendation, or instruction supporting 
or authorizing the purchase or sale of portfolio securities. The 
requirements of this paragraph are applicable to the extent they are not 
met by compliance with the requirements of paragraph (b)(4) of this 
section.
    (11) Files of all advisory material received from the investment 
adviser, any advisory board or advisory committee, or any other persons 
from whom the investment company accepts investment advice, other than 
material which is furnished solely through uniform publications 
distributed generally.
    (12) The term ``other records'' as used in the expressions 
``journals (or other records of original entry)'' and ``ledger accounts 
(or other records)'' shall be construed to include, where appropriate, 
copies of voucher checks, confirmations, or similar documents which 
reflect the information required by the applicable rule or rules in 
appropriate sequence and in permanent form, including similar records 
developed by the use of automatic data processing systems.
    (c) Every underwriter, broker, or dealer which is a majority-owned 
subsidiary of a registered investment company shall maintain in the form 
prescribed therein such accounts, books and other documents as are 
required to be maintained by brokers and dealers by rule adopted under 
section 17 of the Securities Exchange Act of 1934.
    (d) Every depositer of any registered investment company, and every 
principal underwriter for any registered investment company other than a 
closed-end investment company, shall maintain such accounts, books and 
other documents as are required to be maintained by brokers and dealers 
by rule adopted under section 17 of the Securities Exchange Act of 1934, 
to the extent such records are necessary or appropriate to record such 
person's transactions with such registered investment company.
    (e) Every investment advisor which is a majority-owned subsidiary of 
a registered investment company shall maintain in the form prescribed 
therein such accounts, books and other documents as are required to be 
maintained by registered investment advisers by rule adopted under 
section 204 of the Investment Advisers Act of 1940.
    (f) Every investment adviser not a majority-owned subsidiary of a 
registered investment company shall maintain such accounts, books and 
other documents as are required to be maintained by registered 
investment advisers by rule adopted under section 204 of the Investment 
Advisers Act of 1940, to the extent such records are necessary or 
appropriate to record such person's transactions with such registered 
investment company.

(Sec. 31, 54 Stat. 838; 15 U.S.C. 80a-30)

[27 FR 11993, Dec. 5, 1962, as amended at 61 FR 13983, Mar. 28, 1996; 62 
FR 64986, Dec. 9, 1997]



Sec. 270.31a-2  Records to be preserved by registered investment 

companies, certain majority-owned subsidiaries thereof, and other 
persons having transactions with registered investment companies.

    (a) Every registered investment company shall:
    (1) Preserve permanently, the first two years in an easily 
accessible place, all books and records required to be made pursuant to 
paragraphs (1) through (4) of Sec. 270.31a-1(b);
    (2) Preserve for a period not less than six years from the end of 
the fiscal year in which any transactions occurred, the first two years 
in an easily accessible place, all books and records required to be made 
pursuant to paragraphs (5) through (12) or Sec. 270.31a-1(b) and all 
vouchers, memoranda, correspondence, checkbooks, bank statements, 
cancelled checks, cash reconciliations, cancelled stock certificates, 
and all schedules evidencing and supporting each computation of net 
asset value of the investment company shares, and other documents 
required to be maintained by Sec. 270.31a-1(a) and not enumerated in 
Sec. 270.31a-1(b);
    (3) Preserve for a period not less than 6 years from the end of the 
fiscal year last used, the first 2 years in an easily accessible place, 
any advertisement, pamphlet, circular, form letter or other sales 
literature addressed to or intended for distribution to prospective 
investors;

[[Page 840]]

    (4) Preserve for a period not less than six years, the first two 
years in an easily accessible place, any record of the initial 
determination that a director is not an interested person of the 
investment company, and each subsequent determination that the director 
is not an interested person of the investment company. These records 
must include any questionnaire and any other document used to determine 
that a director is not an interested person of the company; and
    (5) Preserve for a period not less than six years, the first two 
years in an easily accessible place, any materials used by the 
disinterested directors of an investment company to determine that a 
person who is acting as legal counsel to those directors is an 
independent legal counsel.
    (b) Every underwriter, broker, or dealer which is a majority-owned 
subsidiary of a registered investment company shall preserve for the 
periods prescribed therein such accounts, books and other documents as 
are required to be preserved by brokers and dealers by rule adopted 
under section 17 of the Securities Exchange Act of 1934.
    (c) Every depositor of any registered investment company, and every 
principal underwriter for any registered investment company other than a 
closed-end company, shall preserve for a period of not less than six 
years such accounts, books and other documents as are required to be 
maintained by brokers and dealers by rule adopted under section 17 of 
the Securities Exchange Act of 1934, to the extent such records are 
necessary or appropriate to record such person's transactions with such 
registered investment company.
    (d) Every investment adviser which is a majority-owned subsidiary of 
a registered investment company shall preserve for the periods 
prescribed therein such accounts, books and other documents as are 
required to be preserved by investment advisers by rule adopted under 
section 204 of the Investment Advisers Act of 1940.
    (e) Every investment adviser not a majority-owned subsidiary of a 
registered investment company shall preserve for a period of not less 
than six years such accounts, books and other documents as are required 
to be maintained by registered investment advisers by rule adopted under 
section 204 of the Investment Advisers Act of 1940, to the extent such 
records are necessary or appropriate to record such person's 
transactions with such registered investment company.
    (f) Micrographic and electronic storage permitted.--(1) General. The 
records required to be maintained and preserved under this part may be 
maintained and preserved for the required time by, or on behalf of, an 
investment company on:
    (i) Micrographic media, including microfilm, microfiche, or any 
similar medium; or
    (ii) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section.
    (2) General requirements. The investment company, or person that 
maintains and preserves records on its behalf, must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its examiners or other representatives) or the directors of the company 
may request:
    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the original record, a duplicate copy of the record on any medium 
allowed by this section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the investment company, or 
person that maintains and preserves records on its behalf, must 
establish and maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, the directors of the investment company,

[[Page 841]]

and the Commission (including its examiners and other representatives); 
and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
    (4) Notwithstanding the provisions of paragraphs (a) through (e) of 
this section, any record, book or other document may be destroyed in 
accordance with a plan previously submitted to and approved by the 
Commission. A plan shall be deemed to have been approved by the 
Commission if notice to the contrary has not been received within 90 
days after submission of the plan to the Commission.

[27 FR 11994, Dec. 5, 1962, as amended at 38 FR 7797, Mar. 26, 1973; 51 
FR 42209, Nov. 24, 1986; 53 FR 3880, Feb. 10, 1988; 66 FR 3759, Jan. 16, 
2001; 66 FR 29228, May 30, 2001]



Sec. 270.31a-3  Records prepared or maintained by other than person 
required to maintain and preserve them.

    (a) If the records required to be maintained and preserved pursuant 
to the provisions of Sec. Sec. 270.31a-1 and 270.31a-2 are prepared or 
maintained by others on behalf of the person required to maintain and 
preserve such records, the person required to maintain and preserve such 
records shall obtain from such other person an agreement in writing to 
the effect that such records are the property of the person required to 
maintain and preserve such records and will be surrendered promptly on 
request.
    (b) In cases where a bank or member of a national securities 
exchange acts as custodian, transfer agent, or dividend disbursing 
agent, compliance with this section shall be considered to have been met 
if such bank or exchange member agrees in writing to make any records 
relating to such service available upon request and to preserve for the 
periods prescribed in Sec. 270.31a-2 any such records as are required 
to be maintained by Sec. 270.31a-1.

(Sec. 31, 54 Stat. 838; 15 U.S.C. 80a-30)

[27 FR 11994, Dec. 5, 1962]



Sec. 270.32a-1  Exemption of certain companies from affiliation provisions 
of section 32(a).

    A registered investment company shall be exempt from the provisions 
of paragraph (1) of section 32(a) of the Act (54 Stat. 838; 15 U.S.C. 
80a-31), insofar as said paragraph requires that independent public 
accounts for such company be selected by a majority of certain members 
of the board of directors, if:
    (a) Such company meets the conditions of paragraphs (1) to (8), 
inclusive, of section 10(d) of the Act (54 Stat. 807; 15 U.S.C. 80a-10); 
and
    (b) Such accountants are selected by a majority of all the members 
of the board of directors.

[Rule N-32A-1, 6 FR 6631, Dec. 23, 1941]



Sec. 270.32a-2  Exemption for initial period from vote of security 

holders on independent public accountant for certain registered 
separate accounts.

    (a) A registered separate account shall be exempt from the 
requirement under paragraph (2) of section 32(a) of the Act that 
selection of an independent public accountant shall have been submitted 
for ratification or rejection at the next succeeding annual meeting of 
security owners, subject to the following conditions:
    (1) Such registered separate account qualifies for exemption from 
section 14(a) of the Act pursuant to Sec. 270.14a-2, or is exempt 
therefrom by order of the Commission upon application; and
    (2) The selection of such accountant shall be submitted for 
ratification or rejection to variable annuity contract owners at their 
first meeting after the effective date of the registration statement 
under the Securities Act of 1933, as amended (15 U.S.C. 77a et seq.), 
relating to contracts participating in such account: Provided, That such 
meeting shall take place within 1 year after such effective date, unless 
the time for the holding of such meeting shall be extended by the 
Commission upon written request showing good cause therefor.

(Sec. 6, 54 Stat. 800; 15 U.S.C. 80a-6)

[34 FR 12696, Aug. 5, 1969]

[[Page 842]]



Sec. 270.32a-3  Exemption from provision of section 32(a)(1) regarding 

the time period during which a registered management investment company 
must select an independent public accountant.

    (a) A registered management investment company (``company'') 
organized in a jurisdiction that does not require it to hold regular 
annual meetings of its stockholders, and which does not hold a regular 
annual stockholders' meeting in a given fiscal year, shall be exempt in 
that fiscal year from the requirement of section 32(a)(1) of the Act (15 
U.S.C. 80a-31(a)(1)) that the independent public accountant 
(``accountant'') be selected at a board of directors meeting held within 
30 days before or after the beginning of the fiscal year or before the 
annual meeting of stockholders in that year, provided, that such company 
is either:
    (1) In a set of investment companies as defined in paragraph (b) of 
this section, if not all the members of such set have an identical 
fiscal year end and if such company selects an accountant at a board of 
directors meeting held within 90 days before or after the beginning of 
that fiscal year; or
    (2) Not in a set of investment companies, or is in a set, each of 
whose members has the same fiscal year end, and if such company selects 
an accountant at a board of directors meeting held within 30 days before 
or 90 days after the beginning of that fiscal year.
    (b) For purposes of this rule, ``set of investment companies'' means 
any two or more registered management investment companies that hold 
themselves out to investors as related companies for purposes of 
investment and investor services, and
    (1) That have a common investment adviser or principal underwriter, 
or
    (2) If the investment adviser or principal underwriter of one of the 
companies is an affiliated person as defined in section 2(a)(3)(C) of 
the Act (15 U.S.C. 80a-2(a)(3)(C)) of the investment adviser or 
principal underwriter of each of the other companies.

[54 FR 31332, July 28, 1989]



Sec. 270.32a-4  Independent audit committees.

    A registered management investment company or a registered face-
amount certificate company is exempt from the requirement of section 
32(a)(2) of the Act (15 U.S.C. 80a-32(a)(2)) that the selection of the 
company's independent public accountant be submitted for ratification or 
rejection at the next succeeding annual meeting of shareholders, if:
    (a) The company's board of directors has established a committee, 
composed solely of directors who are not interested persons of the 
company, that has responsibility for overseeing the fund's accounting 
and auditing processes (``audit committee'');
    (b) The company's board of directors has adopted a charter for the 
audit committee setting forth the committee's structure, duties, powers, 
and methods of operation or set forth such provisions in the fund's 
charter or bylaws; and
    (c) The company maintains and preserves permanently in an easily 
accessible place a copy of the audit committee's charter and any 
modification to the charter.

[66 FR 3759, Jan. 16, 2001]



Sec. 270.34b-1  Sales literature deemed to be misleading.

    Any advertisement, pamphlet, circular, form letter, or other sales 
literature addressed to or intended for distribution to prospective 
investors that is required to be filed with the Commission by section 
24(b) of the Act [15 U.S.C. 80a-24(b)] (``sales literature'') shall have 
omitted to state a fact necessary in order to make the statements made 
therein not materially misleading unless the sales literature includes 
the information specified in paragraphs (a) and (b) of this section.
    Note to introductory text of Sec. 270.34 b-1: The fact that the 
sales literature includes the information specified in paragraphs (a) 
and (b) of this section does not relieve the investment company, 
underwriter, or dealer of any obligations with respect to the sales 
literature under the antifraud provisions of the federal securities 
laws. For guidance about factors to be weighed in determining whether 
statements, representations, illustrations, and descriptions contained 
in investment

[[Page 843]]

company sales literature are misleading, see Sec. 230.156 of this 
chapter.
    (a) Sales literature for a money market fund shall contain the 
information required by paragraph (b)(4) of Sec. 230.482 of this 
chapter, presented in the manner required by paragraph (b)(5) of Sec. 
230.482 of this chapter.
    (b)(1) Except as provided in paragraph (b)(3) of this section:
    (i) In any sales literature that contains performance data for an 
investment company, include the disclosure required by paragraph (b)(3) 
of Sec. 230.482 of this chapter, presented in the manner required by 
paragraph (b)(5) of Sec. 230.482 of this chapter.
    (ii) In any sales literature for a money market fund:
    (A) Accompany any quotation of yield or similar quotation purporting 
to demonstrate the income earned or distributions made by the money 
market fund with a quotation of current yield specified by paragraph 
(e)(1)(i) of Sec. 230.482 of this chapter;
    (B) Accompany any quotation of the money market fund's tax 
equivalent yield or tax equivalent effective yield with a quotation of 
current yield as specified in Sec. 230.482(d)(1)(iii) of this chapter; 
and
    (C) Accompany any quotation of the money market fund's total return 
with a quotation of the money market fund's current yield specified in 
paragraph (e)(1)(i) of Sec. 230.482 of this chapter. Place the 
quotations of total return and current yield next to each other, in the 
same size print, and if there is a material difference between the 
quoted total return and the quoted current yield, include a statement 
that the yield quotation more closely reflects the current earnings of 
the money market fund than the total return quotation.
    (iii) In any sales literature for an investment company other than a 
money market fund that contains performance data:
    (A) Include the total return information required by paragraph 
(d)(3) of Sec. 230.482 of this chapter;
    (B) Accompany any quotation of performance adjusted to reflect the 
effect of taxes (not including a quotation of tax equivalent yield or 
other similar quotation purporting to demonstrate the tax equivalent 
yield earned or distributions made by the company) with the quotations 
of total return specified by paragraph (d)(4) of Sec. 230.482 of this 
chapter;
    (C) If the sales literature (other than sales literature for a 
company that is permitted under Sec. 270.35d-1(a)(4) to use a name 
suggesting that the company's distributions are exempt from federal 
income tax or from both federal and state income tax) represents or 
implies that the company is managed to limit or control the effect of 
taxes on company performance, include the quotations of total return 
specified by paragraph (d)(4) of Sec. 230.482 of this chapter;
    (D) Accompany any quotation of yield or similar quotation purporting 
to demonstrate the income earned or distributions made by the company 
with a quotation of current yield specified by paragraph (d)(1) of Sec. 
230.482 of this chapter; and
    (E) Accompany any quotation of tax equivalent yield or other similar 
quotation purporting to demonstrate the tax equivalent yield earned or 
distributions made by the company with a quotation of tax equivalent 
yield specified in paragraph (d)(2) and current yield specified by 
paragraph (d)(1) of Sec. 230.482 of this chapter.
    (2) Any performance data included in sales literature under 
paragraphs (b)(1)(ii) or (iii) of this section must meet the currentness 
requirements of paragraph (g) of Sec. 230.482 of this chapter.
    (3) The requirements specified in paragraph (b)(1) of this section 
shall not apply to any quarterly, semi-annual, or annual report to 
shareholders under Section 30 of the Act (15 U.S.C. 80a-29) containing 
performance data for a period commencing no earlier than the first day 
of the period covered by the report; nor shall the requirements of 
paragraphs (d)(3)(ii), (d)(4)(ii), and (g) of Sec. 230.482 of this 
chapter apply to any such periodic report containing any other 
performance data.
    Note: Sales literature (except that of a money market fund) 
containing a quotation of yield or tax equivalent yield must also 
contain the total return information. In the case of sales literature, 
the currentness provisions apply from the date of distribution

[[Page 844]]

and not the date of submission for publication.

[58 FR 19055, Apr. 12, 1993; 58 FR 21927, Apr. 26, 1993, as amended at 
62 FR 64986, Dec. 9, 1997; 63 FR 13987, Mar. 23, 1998; 66 FR 9018, Feb. 
5, 2001; 68 FR 57779, Oct. 6, 2003]



Sec. 270.35d-1  Investment company names.

    (a) For purposes of section 35(d) of the Act (15 U.S.C. 80a-34(d)), 
a materially deceptive and misleading name of a Fund includes:
    (1) Names suggesting guarantee or approval by the United States 
government. A name suggesting that the Fund or the securities issued by 
it are guaranteed, sponsored, recommended, or approved by the United 
States government or any United States government agency or 
instrumentality, including any name that uses the words ``guaranteed'' 
or ``insured'' or similar terms in conjunction with the words ``United 
States'' or ``U.S. government.''
    (2) Names suggesting investment in certain investments or 
industries. A name suggesting that the Fund focuses its investments in a 
particular type of investment or investments, or in investments in a 
particular industry or group of industries, unless:
    (i) The Fund has adopted a policy to invest, under normal 
circumstances, at least 80% of the value of its Assets in the particular 
type of investments, or in investments in the particular industry or 
industries, suggested by the Fund's name; and
    (ii) Either the policy described in paragraph (a)(2)(i) of this 
section is a fundamental policy under section 8(b)(3) of the Act (15 
U.S.C. 80a-8(b)(3)), or the Fund has adopted a policy to provide the 
Fund's shareholders with at least 60 days prior notice of any change in 
the policy described in paragraph (a)(2)(i) of this section that meets 
the requirements of paragraph (c) of this section.
    (3) Names suggesting investment in certain countries or geographic 
regions. A name suggesting that the Fund focuses its investments in a 
particular country or geographic region, unless:
    (i) The Fund has adopted a policy to invest, under normal 
circumstances, at least 80% of the value of its Assets in investments 
that are tied economically to the particular country or geographic 
region suggested by its name;
    (ii) The Fund discloses in its prospectus the specific criteria used 
by the Fund to select these investments; and
    (iii) Either the policy described in paragraph (a)(3)(i) of this 
section is a fundamental policy under section 8(b)(3) of the Act (15 
U.S.C. 80a-8(b)(3)), or the Fund has adopted a policy to provide the 
Fund's shareholders with at least 60 days prior notice of any change in 
the policy described in paragraph (a)(3)(i) of this section that meets 
the requirements of paragraph (c) of this section.
    (4) Tax-exempt Funds. A name suggesting that the Fund's 
distributions are exempt from federal income tax or from both federal 
and state income tax, unless the Fund has adopted a fundamental policy 
under section 8(b)(3) of the Act (15 U.S.C. 80a-8(b)(3)):
    (i) To invest, under normal circumstances, at least 80% of the value 
of its Assets in investments the income from which is exempt, as 
applicable, from federal income tax or from both federal and state 
income tax; or
    (ii) To invest, under normal circumstances, its Assets so that at 
least 80% of the income that it distributes will be exempt, as 
applicable, from federal income tax or from both federal and state 
income tax.
    (b) The requirements of paragraphs (a)(2) through (a)(4) of this 
section apply at the time a Fund invests its Assets, except that these 
requirements shall not apply to any unit investment trust (as defined in 
section 4(2) of the Act (15 U.S.C. 80a-4(2))) that has made an initial 
deposit of securities prior to July 31, 2002. If, subsequent to an 
investment, these requirements are no longer met, the Fund's future 
investments must be made in a manner that will bring the Fund into 
compliance with those paragraphs.
    (c) A policy to provide a Fund's shareholders with notice of a 
change in a Fund's investment policy as described in paragraphs 
(a)(2)(ii) and (a)(3)(iii) of this section must provide that:
    (1) The notice will be provided in plain English in a separate 
written document;

[[Page 845]]

    (2) The notice will contain the following prominent statement, or 
similar clear and understandable statement, in bold-face type: 
``Important Notice Regarding Change in Investment Policy''; and
    (3) The statement contained in paragraph (c)(2) of this section also 
will appear on the envelope in which the notice is delivered or, if the 
notice is delivered separately from other communications to investors, 
that the statement will appear either on the notice or on the envelope 
in which the notice is delivered.
    (d) For purposes of this section:
    (1) Fund means a registered investment company and any series of the 
investment company.
    (2) Assets means net assets, plus the amount of any borrowings for 
investment purposes.

[66 FR 8518, Feb. 1, 2001; 66 FR 14828, Mar. 14, 2001]



Sec. 270.38a-1  Compliance procedures and practices of certain investment 
companies.

    (a) Each registered investment company and business development 
company (``fund'') must:
    (1) Policies and procedures. Adopt and implement written policies 
and procedures reasonably designed to prevent violation of the Federal 
Securities Laws by the fund, including policies and procedures that 
provide for the oversight of compliance by each investment adviser, 
principal underwriter, administrator, and transfer agent of the fund;
    (2) Board approval. Obtain the approval of the fund's board of 
directors, including a majority of directors who are not interested 
persons of the fund, of the fund's policies and procedures and those of 
each investment adviser, principal underwriter, administrator, and 
transfer agent of the fund, which approval must be based on a finding by 
the board that the policies and procedures are reasonably designed to 
prevent violation of the Federal Securities Laws by the fund, and by 
each investment adviser, principal underwriter, administrator, and 
transfer agent of the fund;
    (3) Annual review. Review, no less frequently than annually, the 
adequacy of the policies and procedures of the fund and of each 
investment adviser, principal underwriter, administrator, and transfer 
agent and the effectiveness of their implementation;
    (4) Chief compliance officer. Designate one individual responsible 
for administering the fund's policies and procedures adopted under 
paragraph (a)(1) of this section:
    (i) Whose designation and compensation must be approved by the 
fund's board of directors, including a majority of the directors who are 
not interested persons of the fund;
    (ii) Who may be removed from his or her responsibilities by action 
of (and only with the approval of) the fund's board of directors, 
including a majority of the directors who are not interested persons of 
the fund;
    (iii) Who must, no less frequently than annually, provide a written 
report to the board that, at a minimum, addresses:
    (A) The operation of the policies and procedures of the fund and 
each investment adviser, principal underwriter, administrator, and 
transfer agent of the fund, any material changes made to those policies 
and procedures since the date of the last report, and any material 
changes to the policies and procedures recommended as a result of the 
annual review conducted pursuant to paragraph (a)(3) of this section; 
and
    (B) Each Material Compliance Matter that occurred since the date of 
the last report; and
    (iv) Who must, no less frequently than annually, meet separately 
with the fund's independent directors.
    (b) Unit investment trusts. If the fund is a unit investment trust, 
the fund's principal underwriter or depositor must approve the fund's 
policies and procedures and chief compliance officer, must receive all 
annual reports, and must approve the removal of the chief compliance 
officer from his or her responsibilities.
    (c) Undue influence prohibited. No officer, director, or employee of 
the fund, its investment adviser, or principal underwriter, or any 
person acting under such person's direction may directly or indirectly 
take any action to coerce, manipulate, mislead, or fraudulently 
influence the fund's chief compliance

[[Page 846]]

officer in the performance of his or her duties under this section.
    (d) Recordkeeping. The fund must maintain:
    (1) A copy of the policies and procedures adopted by the fund under 
paragraph (a)(1) that are in effect, or at any time within the past five 
years were in effect, in an easily accessible place; and
    (2) Copies of materials provided to the board of directors in 
connection with their approval under paragraph (a)(2) of this section, 
and written reports provided to the board of directors pursuant to 
paragraph (a)(4)(iii) of this section (or, if the fund is a unit 
investment trust, to the fund's principal underwriter or depositor, 
pursuant to paragraph (b) of this section) for at least five years after 
the end of the fiscal year in which the documents were provided, the 
first two years in an easily accessible place; and
    (3) Any records documenting the fund's annual review pursuant to 
paragraph (a)(3) of this section for at least five years after the end 
of the fiscal year in which the annual review was conducted, the first 
two years in an easily accessible place.
    (e) Definitions. For purposes of this section:
    (1) Federal Securities Laws means the Securities Act of 1933 (15 
U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a-mm), 
the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), 
the Investment Company Act of 1940 (15 U.S.C. 80a), the Investment 
Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley 
Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by 
the Commission under any of these statutes, the Bank Secrecy Act (31 
U.S.C. 5311-5314; 5316-5332) as it applies to funds, and any rules 
adopted thereunder by the Commission or the Department of the Treasury.
    (2) A Material Compliance Matter means any compliance matter about 
which the fund's board of directors would reasonably need to know to 
oversee fund compliance, and that involves, without limitation:
    (i) A violation of the Federal securities laws by the fund, its 
investment adviser, principal underwriter, administrator or transfer 
agent (or officers, directors, employees or agents thereof),
    (ii) A violation of the policies and procedures of the fund, its 
investment adviser, principal underwriter, administrator or transfer 
agent, or
    (iii) A weakness in the design or implementation of the policies and 
procedures of the fund, its investment adviser, principal underwriter, 
administrator or transfer agent.

[68 FR 74729, Dec. 24, 2003]



Sec. 270.45a-1  Confidential treatment of names and addresses of dealers 
of registered investment company securities.

    (a) Exhibits calling for the names and addresses of dealers to or 
through whom principal underwriters of registered investment companies 
are currently offering securities and which are required to be furnished 
with registration statements filed pursuant to section 8(b) of the Act 
(54 Stat. 804; 15 U.S.C. 80a-8), or periodic reports filed pursuant to 
section 30(a) or section 30(b)(1) of the Act (54 Stat. 836; 15 U.S.C. 
80a-30), shall be the subject of confidential treatment and shall not be 
made available to the public, except that the Commission may by order 
make such exhibits available to the public if, after appropriate notice 
and opportunity for hearing, it finds that public disclosure of such 
material is necessary or appropriate in the public interest or for the 
protection of investors.
    (b) The exhibits referred to in paragraph (a) of this section shall 
be filed in quadruplicate with the Commission at the time the 
registration statement or periodic report is filed. Such exhibits shall 
be enclosed in a separate envelope marked ``Confidential Treatment'' and 
addressed to the Chairman, Securities and Executive Commission, 
Washington, DC. Confidential treatment requests shall be submitted in 
paper only, whether or not the registrant is required to file in 
electronic format.

[Rule N-45A-1, 7 FR 197, Jan. 10, 1942, as amended at 20 FR 7036, Sept. 
20, 1955; 58 FR 14860, Mar. 18, 1993]

[[Page 847]]



Sec. 270.57b-1  Exemption for downstream affiliates of business development 
companies.

    Notwithstanding subsection (b)(2) of section 57 of the Act, the 
provisions of subsection (a) of that section shall not apply to any 
person (a) solely because that person is directly or indirectly 
controlled by a business development company or (b) solely because that 
person is, within the meaning of section 2(a)(3) (C) or (D) of the Act 
[15 U.S.C. 80a-2(a)(3) (C) or (D)], an affiliated person of a person 
described in (a) of this section.

[46 FR 16674, Mar. 13, 1981]



Sec. 270.60a-1  Exemption for certain business development companies.

    Section 12(d)(1) (A) and (C) of the Act shall not apply to the 
acquisition by a business development company of the securities of a 
small business investment company licensed to do business under the 
Small Business Investment Act of 1958 which is operated as a wholly-
owned subsidiary of the business development company.

[46 FR 16674, Mar. 13, 1981]



         PART 271_INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Statement of the Commission respecting distinctions        12   Nov. 16, 1940  11 FR 10991.
 between the reporting requirements of section
 16(a) of the Securities Exchange Act of 1934 and
 section 30(f) of the Investment Company Act of
 1940.
Letter of General Counsel relating to sections(b)          69   Feb. 19, 1941   Do.
 and 26(c).
Letter of the Director of the Investment Company           71   Feb. 21, 1941   Do.
 Division relating to section 19 and Rule N-19-1
 (17 CFR, 270.19a-1).
Statement by the Commission relating to section            78    Mar. 4, 1941   Do.
 23(c)(3) and Rule N-23C-1 (17 CFR, 270.23c-1).
Letter of General Counsel relating to section 22(d)        87   Mar. 14, 1941  11 FR 10992.
Letter of General Counsel relating to section 22(d)        89   Mar. 13, 1941   Do.
Letter of General Counsel relating to section 24(b)       150   June 20, 1941   Do.
Opinion of General Counsel relating to sections           167   July 23, 1941  11 FR 10993.
 8(b)(1) and 13(a).
Letter of General Counsel relating to section 10(a)       214  Sept. 15, 1941  11 FR 10994.
Extract from letter of the Director of the                446    Feb. 5, 1943   Do.
 Corporation Finance Division relating to sections
 20 and 34(b).
Excerpts from letters of the Director of the              448   Feb. 17, 1943   Do.
 Corporation Finance Division relating to section
 14 and Schedule 14A under Regulation X-14.
Letter of the Director of the Corporation Finance         735    Jan. 3, 1945  11 FR 10995.
 Division relating to section 20 of the Investment
 Company Act of 1940 and to Rule X-14A-7 under the
 Securities Exchange Act of 1934 (17 CFR, 240.14a-
 7).
Statement of the Commission on the offering of           3187    Feb. 6, 1961  26 FR 1275.
 common stock to the public at a per share price
 substantially in excess of the net asset value of
 the stock.
Opinion of the Commission that ``Equity Funding,''       3480    May 22, 1962  27 FR 5190.
 ``Secured Funding,'' or ``Life Funding''
 constitutes an investment contract and when
 publicly offered is required to be registered
 under the Securities Act of 1933.
Statement of the Commission advising all registered      3542  Sept. 21, 1962  27 FR 9652.
 investment companies to divest themselves of
 interest and securities acquired in contravention
 of the provisions of section 12(d)(3) of the
 Investment Company Act of 1940 within a reasonable
 period of time.
Statement of the Commission advising any closed-end      3548    Oct. 3, 1962  27 FR 9987.
 investment company contemplating repurchase of its
 own shares to consult with the Division of
 Corporate re nature of disclosure to be made to
 security holders.
Opinion and statement of the Commission in regard        4426    Dec. 7, 1965  30 FR 15420.
 to proper reporting of deferred income taxes
 arising from installment sales.
Statement of the Commission to clarify the meaning       4483   Jan. 19, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Statement of the Commission setting the date of May      4516   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.

[[Page 848]]

 
Staff interpretative and no-action positions             5510    Oct. 8, 1968  33 FR 15650.
 relating to property rights of an investment
 company and its investment adviser in the
 company's name and to the status of arrangement
 funding qualified Self-Employed Individual's
 Retirement Plans with life insurance contracts and
 investment company securities. The staff's
 comments do not purport to be an official
 expression of the Commission.
Statement of the Director of the Commission's            5554    Dec. 3, 1968  33 FR 18576.
 Division of Corporate Regulation re the filing of
 supplements to investment company prospectuses
 under the Securities Act of 1933 as a result of
 changes in stock exchange rules effective December
 5, 1968 relating to ``customer-directed give ups''.
Interpretative positions of the Division of              5569   Dec. 27, 1968  34 FR 382.
 Corporate Regulation on questions relating to Rule
 22c-1 which was adopted Oct. 16, 1968; text of
 questions and answers.
Statement of the Commission setting forth emergency      5632   Mar. 12, 1969  34 FR 5547.
 procedures adopted by the Division of Corporate
 Regulation to expedite processing of registration
 statements, amendments, and proxy statements.
Letter by Philip A. Loomis, Jr., General Counsel     ........   Nov. 10, 1969  34 FR 18543.
 for the Commission, explaining obligations of
 mutual fund managements and brokers with respect
 to commissions on portfolio brokerage of mutual
 funds.
Commission's statement discussing restricted             5847   Oct. 21, 1969  35 FR 19989.
 securities.
Commission's statement that disclosure requirements      6026   Apr. 13, 1970  35 FR 19991.
 set forth in release of October 21, 1969 will be
 applied to lists of portfolio securities set forth
 not only in registration statements but also in
 reports to the Commission and to shareholders, in
 sales literature and in proxy statements.
Publication of the Commission's guidelines re            6082   June 23, 1970  36 FR 12103.
 applicability of Federal securities law to offer
 and sale outside the U.S. of shares of registered
 open-end investment companies.
Statement of the Commission reminding reporting          6209   Oct. 15, 1970  35 FR 16733.
 companies of obligation re Commission's rules to
 file reports on a timely basis.
Commission's views relating to important questions       6295   Dec. 23, 1970  35 FR 19986.
 re the accounting by registered investment
 companies for investment securities in their
 financial statements and in the periodic
 computations of net asset value for the purpose of
 pricing their shares.
Publication of the Commission's procedure to be          6330   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
First in a series of statements by the Commission        6336    Feb. 2, 1971  36 FR 2867.
 alerting registered companies, their counsel, and
 other interested persons re certain changes made
 in the Investment Company Act of 1940 by Pub. L.
 91-547 (1970 Act) such as approval of investment
 advisory contracts which should be considered in
 connection with 1971 annual meetings.
The Commission's views on the purchase, redemption,      6366    Mar. 5, 1971  36 FR 4978.
 or repurchase of fund shares.
Second in a series of statements by the Commission       6392   Mar. 19, 1971  36 FR 5840.
 calling attention to some important provisions of
 Pub. L. 91-547 (1970 Act) which in this case
 require companies that issue periodic payment
 plans and face-amount certificates to take certain
 actions.
Third in a series of statements by the Commission        6430    Apr. 2, 1971  36 FR 7897.
 on problems arising under Pub. L. 91-547 (1970
 Act) re registration and regulation of insurance
 company separate accounts used as funding vehicles
 for certain employee stock bonus, pension and
 profit sharing plans.
Publication by the Commission of certain important       6440    Apr. 6, 1971  36 FR 8729.
 amendments relating to the repeal and modification
 of certain exemptions by the Investment Company
 Amendments Act of 1970 (Pub. L. 91-547) and to the
 pyramiding of investment companies and the
 regulation of fund holding companies under the
 same act.
Commission's statement on amendments contained in        6506     May 5, 1971  36 FR 9130.
 Pub. L. 91-547 concerning policies of a registered
 investment company; ineligibility of certain
 persons to serve as employees of a registered
 company; legal standards for investment company
 reorganizations of unit investment trusts; and
 filing of certain legal documents with the
 Commission.
Commission's interpretative position relating to         6480    May 10, 1971  36 FR 9627.
 judiciary duty of Directors of a Registered
 Investment Company.
Commission's issuance of guidelines for additional       6568   June 11, 1971  36 FR 12164.
 disclosures for contractual plan prospectuses
 concerning new refund and election provisions of
 the Investment Company Amendments Act of 1970
 (Pub. L. 91-547).
Commission's guidelines relating to checking             6863   Jan. 29, 1972  37 FR 1474.
 accounts established by investment companies
 having bank custodians.
Commission endorses the establishment by all             7091    Apr. 5, 1972  37 FR 6850.
 publicly held companies of audit committees
 composed of outside directors.
Commission's statement of factors to be considered       7113   Apr. 19, 1972  37 FR 7690.
 in connection with investment company advisory
 contracts containing incentive arrangements.

[[Page 849]]

 
Applicability of Commission's policy statement on        7170    May 18, 1972  37 FR 9988.
 the future structure of securities markets to
 selection of brokers and payment of commissions by
 institutional managers.
Commission's statement and policy on misleading pro      7204    June 9, 1972  37 FR 11559.
 rata stock distributions to shareholders.
Commission's guidelines prepared by the Division of      7220    June 9, 1972  37 FR 12790.
 Corporate Regulation for use in preparing and
 filing registration statements for open-end and
 closed-end management investment companies on
 Forms S-4 and S-5.
Guidelines prepared by the Commission's Division of      7221    June 9, 1972  37 FR 12790.
 Corporate Regulation for use in preparation and
 filing of registration statements for both open-
 end and closed-end management investment companies
 on Form N-8B-1.
Commission's guidelines on independence of               7264    July 5, 1972  37 FR 14294.
 certifying accountants; example cases and
 Commission's conclusions.
Commission's decisions on advisory committee             7390    Mar. 1, 1973  38 FR 5457.
 recommendations regarding commencement of
 enforcement proceedings and termination of staff
 investigations.
Commission's interpretation of risk-sharing in           7395    Oct. 5, 1972  37 FR 20937.
 pooling-of-interest accounting.
Amendment of previous interpretation (AS-130) of         7606   Jan. 18, 1973  38 FR 1734.
 risk-sharing test in pooling-of-interest
 accounting.
Commission expresses concern with failure of             7856   July 10, 1973  38 FR 18366.
 issuers to timely file periodic and current
 reports.
Commission's conclusion as to certain problems           7955  Sept. 10, 1973  38 FR 24635.
 relating to the effect of treasury stock
 transaction on accounting for business
 combinations.
Commission request for comments on Accounting            8025   Oct. 17, 1973  38 FR 28819.
 Series Release No. 146.
Commission's statement on procedure to be followed       8236    Mar. 7, 1974  39 FR 8916.
 upon issuance of a notice pursuant to Rule 0-5.
Commission's statement of policy and                    7955A   Apr. 12, 1974  39 FR 14588.
 interpretations.
Commission's views on business combinations              8410    July 3, 1974  39 FR 26719.
 involving open-end investment companies.
Commission's guidelines for filings related to           8433   July 22, 1974  39 FR 28520.
 extractive reserves and natural gas supplies.
Commission's statement on two-tier real estate           8456   Sept. 5, 1974  39 FR 32129.
 investment companies.
Division of Investment Management Regulation             8752   Apr. 24, 1975  40 FR 17986.
 Interpretive Position Relating to Rule 22c-1.
Commission's guidelines in Accounting Series             8819   June 13, 1975  40 FR 27441.
 Release No. 148.
Commission's guidelines for filing of application        8959    Oct. 2, 1975  40 FR 45424.
 for Order permitting registration of foreign
 investment companies.
Commission's statements of investment policies of        9011   Oct. 30, 1975  40 FR 54241.
 money market funds relating to industry
 concentration.
Procedures for filing and processing registration        9426  Sept. 13, 1976  41 FR 39012.
 statements and post-effective amendments filed by                             41 FR 46851.
 registered investment companies.
Valuation of debt instruments by money market funds      9786    May 31, 1977  42 FR 28999.
 and certain other open end investment companies.
Rescission of certain accounting series releases...      9817   June 15, 1977  42 FR 33282.
Withdrawal of undertaking required of investment         9889   Aug. 12, 1977  42 FR 42196.
 companies.
Disclosure of management remuneration..............      9900   Aug. 18, 1977  42 FR 43058;
                                                                               42 FR 46047.
Bearing of distribution expenses by mutual funds...      9915   Aug. 31, 1977  42 FR 44810.
Division of investment management interpretative         9932  Sept. 15, 1977  42 FR 47553.
 position relating to rights offerings by closed-
 end investment companies below net asset value.
Disclosure of management remuneration..............     10112    Feb. 6, 1978  43 FR 6060.
Sales load variation in special offerings to permit     10419    Oct. 4, 1978  43 FR 47492;
 mutual fund shareholders to purchase additional                               43 FR 52022.
 shares.
Disclosure of management remuneration..............     10597   Feb. 22, 1979  44 FR 16368.
General statement of policy regarding exemptive         10653    Apr. 5, 1979  44 FR 21629.
 provisions relating to annuity and insurance
 contracts.
General statement of policy regarding securities        10666   Apr. 18, 1979  44 FR 25128.
 trading practices of registered investment
 companies.
Shareholder communications, shareholder                 10860   Sept. 6, 1979  44 FR 53426.
 participation in the corporate electoral process
 and corporate governance generally.
Statement of staff position on pooled income funds.     11016   Jan. 10, 1980  45 FR 3258.
Effect of credit controls on the operations of          11088   Mar. 14, 1980  45 FR 17954.
 certain registered investment companies including
 money market refunds.
Effective of the termination of credit controls on      11263   July 21, 1980  45 FR 49917.
 the operations of certain registered investment
 companies including money market funds.
Indemnification by investment companies............     11330   Sept. 4, 1980  45 FR 62423;
                                                                               45 FR 67082.
Issuance of ``Retail Repurchase Agreements'' by         11958  Sept. 25, 1981  46 FR 48637.
 banks and savings and loan associations.
Effect of revenue ruling 81-225 on issuers and          11960  Sept. 28, 1981  46 FR 48640.
 holders of certain variable annuity contracts.
Disclosure of management remuneration..............     12070    Dec. 3, 1981  46 FR 60421.

[[Page 850]]

 
Statement of staff position on adoption of              12274    Mar. 5, 1982  47 FR 10518.
 permanent notification forms for business
 development companies.
Statement of staff position regarding securities        13005    Feb. 2, 1983  48 FR 5894.
 trading practices of registered investment
 companies.
Public statements by corporate representatives.....     13718   Jan. 13, 1984  49 FR 2469.
Statement of position of Commission's Division of       14492   Apr. 30, 1985  50 FR 19339.
 Investment Management.
Statement of the Commission Regarding Disclosure        16509    Aug. 1, 1988  53 FR 29228.
 Obligations of Companies Affected by the
 Government's Defense Contract Procurement Inquiry
 and Related Issues.
Management's discussion and analysis of financial       16961    May 18, 1989  54 FR 22427.
 condition and results of operations; certain
 investment company disclosure.
Status under the Investment Company Act of 1940 of      17681   Aug. 17, 1990  55 FR 34551.
 United States Branches or Agencies of Foreign
 Banks Issuing Securities;Interpretive Release.
Ownership reports and trading by officers,              18114   Apr. 26, 1991  56 FR 19928.
 directors and principal security holders.
Use of electronic media for delivery purposes......     21399    Oct. 6, 1995  60 FR 53467.
Use of electronic media for delivery purposes......     21945     May 9, 1996  60 FR 24651.
Statement of the Commission Regarding Use of            23071   Mar. 23, 1998  63 FR 14813
 Internet Web Sites to Offer Securities, Solicit
 Securities Transactions or Advertise Investment
 Services Offshore.
Statement of the Commission Regarding Disclosure of     23366   July 29, 1998  63 FR 41404.
 Year 2000 Issues and Consequences by Public
 Companies, Investment Advisers, Investment
 Companies, and Municipal Securities Issuers.
Interpretive Matters Concerning Independent             24083   Oct. 14, 1999  64 FR 59877.
 Directors of Investment Companies..
Use of electronic media............................     24426   Apr. 28, 2000  65 FR 25857.
Commission Guidance on Mini-Tender Offers and           24564   July 24, 2000  65 FR 46588.
 Limited Partnership Tender Offers.
Exemption From Section 101(c)(1) of the Electronic      24582   July 27, 2000  65 FR 47284.
 Signatures in Global and National Commerce Act for
 Registered Investment Companies.
Application of the Electronic Signatures in Global      25003   June 14, 2001  66 FR 33176.
 and National Commerce Act to Record Retention
 Requirements Pertaining to Issuers.
----------------------------------------------------------------------------------------------------------------



PART 274_FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940--Table of Contents




Sec.
274.0-1 Availability of forms.

                    Subpart A_Registration Statements

274.5 Form N-5, for registration statement of small business investment 
          company under the Securities Act of 1933 and the Investment 
          Company Act of 1940.
274.10 Form N-8A, for notification of registration.
274.11 Form N-1, registration statement of open end management 
          investment companies.
274.11A Form N-1A, registration statement of open-end management 
          investment companies.
274.11a-1 Form N-2, registration statement of closed end management 
          investment companies.
274.11b Form N-3, registration statement of separate accounts organized 
          as management investment companies.
274.11c Form N-4, registration statement of separate accounts organized 
          as unit investment trusts.
274.11d Form N-6, registration statement of separate accounts organized 
          as unit investment trusts that offer variable life insurance 
          policies.
274.12 Form N-8B-2, registration statement of unit investment trusts 
          which are currently issuing securities.
274.13 Form N-8B-3, registration statement of unincorporated management 
          investment companies currently issuing periodic payment plan 
          certificates.
274.14 Form N-8B-4, registration statements of face-amount certificate 
          companies.
274.15 Form N-6F, notice of intent to elect to be subject to sections 55 
          through 65 of the Investment Company Act of 1940.
274.24 Form 24F-2, annual filing of securities sold pursuant to 
          registration of certain investment company securities.
274.51 Form N-18F-1, for notification of election pursuant to Sec. 
          270.18f-1 of this chapter.
274.53 Form N-54A, notification of election to be subject to sections 55 
          through 65 of the Investment Company Act of 1940 filed 
          pursuant to section 54(a) of the Act.
274.54 Form N-54C, notification of withdrawal of election to be subject 
          to sections 55 through 65 of the Investment Company Act of 
          1940 filed pursuant to section 54(c) of the Investment Company 
          Act of 1940.

[[Page 851]]

                       Subpart B_Forms for Reports

274.101 Form N-SAR, semi-annual report of registered investment 
          companies.
274.102-274.126 [Reserved]
274.127d-1 Form N-27D-1, accounting of segregated trust account.
274.127e-1 Form N-27E-1, notice to periodic payment plan certificate 
          holders of 18-month surrender rights with respect to periodic 
          payment plan certificates.
274.127f-1 Form N-27F-1, notice of periodic payment plan certificate 
          holders of 45-day withdrawal right with respect to periodic 
          payment plan certificates.
274.128 Form N-CSR, certified shareholder report.
274.129 Form N-PX, annual report of proxy voting record of registered 
          management investment company.
274.130 Form N-Q, quarterly schedule of portfolio holdings of registered 
          management investment company.
274.200 Form N-17D-1, report filed by small business investment company 
          (SBIC) registered under the Investment Company Act of 1940 and 
          an affiliated bank, with respect to investments by the SBIC 
          and the bank, submitted pursuant to paragraph (d)(3) of Sec. 
          270.17d-1 of this chapter.

                  Subpart C_Forms for Other Statements

274.201 Form N-23C-1, statement by registered closed-end investment 
          company with respect to purchases of its own securities 
          pursuant to Rule 23c-1 during the last calendar month.
274.202 Form 3, initial statement of beneficial ownership of securities.
274.203 Form 4, statement of changes in beneficial ownership of 
          securities.
274.218 Form N-8F, application for deregistration of certain registered 
          investment companies.
274.219 Form N-17f-1, cover page for each certificate of accounting of 
          securities and similar investments of a management investment 
          company in the custody of a member of a national securities 
          exchange, filed pursuant to rule 17f-1.
274.220 Form N-17f-2, cover page for each certificate of accounting of 
          securities and similar investments in the custody of a 
          registered management investment company, filed pursuant to 
          rule 17f-2.
274.221 Form N-23c-3, Notification of repurchase offer.

                     Subpart D_Forms for Exemptions

274.301 Notification of claim of exemption pursuant to Rule 6e-2 or Rule 
          6e-3(T) under the Investment Company Act.
274.302 Form N-27I-1, notice of right of withdrawal and refund for 
          variable life insurance contractholders required pursuant to 
          Rule 6e-2 (Sec. 270.6e-2 of this chapter).
274.303 Form N-27I-2, notice of withdrawal right and statement of 
          charges for variable life insurance contractholders required 
          pursuant to Rule 6e-2 (Sec. 270.6e-2 of this chapter).

                  Subpart E_Forms for Electronic Filing

274.401 [Reserved]
274.402 Form ID, uniform application for access codes to file on EDGAR.
274.403 Form SE, form for submission of paper format exhibits by 
          electronic filers.
274.404 Form TH--Notification of reliance on temporary hardship 
          exemption.

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 
78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise noted.
    Section 274.101 is also issued under secs. 3(a), 406, and 407, Pub. 
L. 107-204, 116 Stat. 745.
    Section 274.128 is also issued under 15 U.S.C. 78j-1, 7202, 7233, 
7241, 7264, and 7265; and 18 U.S.C. 1350.
    Section 274.130 is also issued under 15 U.S.C. 7202 and 7241.

    Effective Date Note: At 69 FR 11264, Mar. 9, 2004, the authority 
citation for part 274 was amended by adding the citation for Sec. 
274.130, effective May 10, 2004.

    Source: 33 FR 19003, Dec. 20, 1968, unless otherwise noted.



Sec. 274.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Investment Company Act of 1940.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional and district 
offices. (See Sec. 200.11 of this chapter for the addresses of SEC 
regional and district offices)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994]

[[Page 852]]



                    Subpart A_Registration Statements



Sec. 274.5  Form N-5, for registration statement of small business 

investment company under the Securities Act of 1933 and the Investment 
Company Act of 1940.

    This form shall be used for the registration statement under both 
sections 6 and 7 of the Securities Act of 1933 (15 U.S.C. 77f, 77g) and 
section 8(b) of the Investment Company Act of 1940 (15 U.S.C. 80a-8(b)), 
by a small business investment company which is licensed as such under 
the Small Business Investment Act of 1958 or which has received 
preliminary approval of the Small Business Administration and has been 
notified by that Administration that it may submit a license 
application.

    Editorial Note: For Federal Register citations affecting Form N-5, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.10  Form N-8A, for notification of registration.

    This form shall be used as the notification of registration filed 
with the Commission pursuant to section 8(a) of the Investment Company 
Act of 1940.

    Editorial Note: For Federal Register citations affecting Form N-8A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.11  Form N-1, registration statement of open-end management 
investment companies.

    Form N-1 shall be used as the registration statement to be filed 
pursuant to Section 8(b) of the Investment Company Act of 1940 by open-
end management investment companies that are separate accounts of 
insurance companies. This form shall also be used for registration under 
the Securities Act of 1933 of the securities of all such companies. This 
form is not applicable for small business investment companies which 
register pursuant to Sec. Sec. 239.24 and 274.5 of this chapter.

[49 FR 32060, Aug. 10, 1984, as amended at 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-1, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.11A  Form N-1A, registration statement of open-end management 
investment companies.

    Form N-1A shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by open-
end management investment companies other than separate accounts of 
insurance companies or companies which issue periodic payment plan 
certificates or which are sponsors or depositors of companies issuing 
such certificates. This form shall be used for registration under the 
Securities Act of 1933 of the securities of all open-end management 
investment companies other than registered separate accounts of 
insurance companies. This form is not applicable for small business 
investment companies which register pursuant to Sec. 293.24 and Sec. 
274.5 of this chapter.

[48 FR 37940, Aug. 22, 1983, as amended at 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-1A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.11a-1  Form N-2, registration statement of closed end management 
investment companies.

    This form shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by closed 
end management investment companies other than companies which isssue 
periodic payment plan certificates or which are sponsors or depositors 
of companies issuing such certificates. This form also shall be used for 
registration under the Securities Act of 1933 of the securities of all 
closed end management investment companies. This form is not applicable 
for small business investment companies which register pursuant to 
Sec. Sec. 239.24 and 274.5 of this chapter.

[43 FR 39553, Sept. 5, 1978, as amended at 59 FR 52701, Oct. 19, 1994]

[[Page 853]]


    Editorial Note: For Federal Register citations affecting Form N-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.11b  Form N-3, registration statement of separate accounts 
organized as management investment companies.

    Form N-3 shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by 
separate accounts that offer variable annuity contracts to register as 
management investment companies. This form shall also be used for 
registration under the Securities Act of 1933 of the securities of such 
separate accounts (Sec. 239.17a of this chapter).

[50 FR 26161, June 25, 1985]

    Editorial Note: For Federal Register citations affecting Form N-3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.11c  Form N-4, registration statement of separate accounts 
organized as unit investment trusts.

    Form N-4 shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by 
separate accounts that offer variable annuity contracts to register as 
unit investment trusts. This form shall also be used for registration 
under the Securities Act of 1933 of the securities of such separate 
accounts (Sec. 239.17b of this chapter).

[50 FR 26161, June 25, 1985]

    Editorial Note: For Federal Register citations affecting Form N-4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.11d  Form N-6, registration statement of separate accounts 

organized as unit investment trusts that offer variable life insurance 
policies.

    Form N-6 shall be used as the registration statement to be filed 
pursuant to section 8(b) of the Investment Company Act of 1940 by 
separate accounts that offer variable life insurance policies to 
register as unit investment trusts. This form shall also be used for 
registration under the Securities Act of 1933 of the securities of such 
separate accounts (Sec. 239.17c of this chapter).

[67 FR 19870, Apr. 23, 2002



Sec. 274.12  Form N-8B-2, registration statement of unit investment 
trusts that are currently issuing securities.

    This form shall be used as the registration statement to be filed, 
pursuant to section 8(b) of the Investment Company Act of 1940, by unit 
investment trusts other than separate accounts that are currently 
issuing securities, including unit investment trusts that are issuers of 
periodic payment plan certificates.

[67 FR 19870, Apr. 23, 2002]



Sec. 274.13  Form N-8B-3, registration statement of unincorporated 

management investment companies currently issuing periodic payment 
plan certificates.

    (a) This form shall be used for registration statement to be filed, 
pursuant to section 8(b) of the Investment Company Act of 1940, by 
unincorporated management investment companies currently issuing 
periodic payment plan certificates.

    Editorial Note: For Federal Register citations affecting Form N-8B-
3, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.14  Form N-8B-4, registration statements of face-amount certificate 
companies.

    This form shall be used for registration statements of face-amount 
certificate companies registered under the Investment Company Act of 
1940.

    Editorial Note: For Federal Register citations affecting Form N-8B-
4, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

[[Page 854]]



Sec. 274.15  Form N-6F, notice of intent to elect to be subject to sections 
55 through 65 of the Investment Company Act of 1940.

    This form shall be used by a company that would be excluded from the 
definition of an investment company by section 3(c)(1) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-3(c)(1)], except that at the time of 
filing it proposes to make a public offering of its securities as a 
business development company, to notify the Securities and Exchange 
Commission that the company intends in good faith to file, within 90 
days, a notification of election to become subject to the provisions of 
sections 55 through 65 of the Investment Company Act of 1940 [15 U.S.C. 
80a-54 through 64].

The text of the form is set forth in the appendix to this release.\1\
---------------------------------------------------------------------------

    \1\ A copy of Form N-6F accompanied this release as originally filed 
in the Office of the Federal Register.

[47 FR 10520, Mar. 11, 1982]



Sec. 274.24  Form 24F-2, annual filing of securities sold pursuant to 
registration of certain investment company securities.

    Form 24F-2 shall be used as the annual report filed by face amount 
certificate companies, open-end management companies, and unit 
investment trusts pursuant to Sec. 270.24f-2 of this chapter for 
reporting securities sold during the fiscal year.

[62 FR 47940, Sept. 12, 1997]

    Editorial Note: For Federal Register citations affecting Form 24F-2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.51  Form N-18F-1, for notification of election pursuant to 
Sec. 270.18f-1 of this chapter.

    (a) This form shall be filed with the Commission in triplicate as 
the notification of election pursuant to Sec. 270.18f-1 of this chapter 
by a registered open-end investment company to commit itself to pay in 
cash all redemptions requested by a shareholder of record as provided in 
said section.

[36 FR 11920, June 23, 1971 as amended at 36 FR 20504, Oct. 23, 1971; 39 
FR 36003, Oct. 7, 1974; 59 FR 52701, Oct. 19, 1994]

    Editorial Note: For Federal Register citations affecting Form N-18F-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.53  Form N-54A, notification of election to be subject to 

sections 55 through 65 of the Investment Company Act of 1940 filed 
pursuant to section 54(a) of the Act.

    This form shall be used pursuant to section 54(a) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-53(a)] by a company of the type 
defined in sections 2(a)(48) (A) and (B) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-2(a)(48) (A) and (B) to notify the Securities and 
Exchange Commission of its election to be subject to the provisions of 
sections 55 through 65 of said Act [15 U.S.C. 80a-54 through 64].

The text of the form is set forth in the appendix to this release.\2\
---------------------------------------------------------------------------

    \2\ A copy of Form N-54A accompanied this release as originally 
filed in the Office of the Federal Register.

[47 FR 10520, Mar. 11, 1982]



Sec. 274.54  Form N-54C, notification of withdrawal of election to be 

subject to sections 55 through 65 of the Investment Company Act of 1940 
filed pursuant to section 54(c) of the Investment Company Act of 1940.

    This form shall be used pursuant to section 54(c) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-53(c)] by a business development 
company to file a notice of withdrawal of its election under section 
54(a) of the Investment Company Act of 1940 [15 U.S.C. 80a-53(a)].

The text of the form is set forth in the appendix to this release.\3\
---------------------------------------------------------------------------

    \3\ A copy of Form N-54C accompanied this release as originally 
filed in the Office of the Federal Register.

[47 FR 10520, Mar. 11, 1982]

[[Page 855]]



                       Subpart B_Forms for Reports



Sec. 274.101  Form N-SAR, semi-annual report of registered investment 
companies.

    This form shall be used by registered management investment 
companies for semi-annual or annual reports to be filed pursuant to rule 
30b1-1 (17 CFR 270.30b1-1) and by registered unit investment trusts for 
annual reports to be filed pursuant to rule 30a-1 (17 CFR 270.30a-1).

[68 FR 5366, Feb. 3, 2003]

    Editorial Note: For Federal Register citations affecting Form N-SAR, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. Sec. 274.102-274.126  [Reserved]



Sec. 274.127d-1  Form N-27D-1 accounting of segregated trust account.

    This form shall be completed and filed with the Commission as a 
report required by Sec. 270.27d-1 of this chapter by each depositor or 
principal underwriter, within 15 days after the close of each quarter 
during the first 2 years after the effective date of Sec. 270.27d-1 of 
this chapter, and thereafter this form shall be filed annually on or 
before January 31 of the following calendar year. Each investment 
company for which a segregated trust account is established shall be 
listed on the cover page. Two copies of the form, plus an additional 
copy for each registered investment company covered, shall be filed and 
the filing shall be signed by an authorized representative of the 
depositor or underwriter.

[36 FR 24056, Dec. 18, 1971]



Sec. 274.127e-1  Form N-27E-1, notice to periodic payment plan certificate 
holders of 18-month surrender rights with respect to periodic payment plan 
          certificates.

    This form is to be reproduced by the issuer or any depositor of or 
underwriter for such issuer and will not be available at the Securities 
and Exchange Commission. For required text of the form see paragraph (f) 
of Sec. 270.27e-1 of this chapter.

[36 FR 13139, July 15, 1971]

    Editorial Note: For Federal Register citations affecting Form N-27E-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.127f-1  Form N-27F-1, notice to periodic payment plan certificate 

holders of 45-day withdrawal right with respect to periodic payment plan 
certificates.

    This form is to be reproduced by the issuer or any depositor of or 
underwriter for such issuer and will not be available at the Securities 
and Exchange Commission. For required text of the form see paragraph (d) 
of Sec. 270.27f-1 of this chapter.

[45 FR 17958, Mar. 20, 1980]

    Editorial Note: For Federal Register citations affecting Form N-27F-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.128  Form N-CSR, certified shareholder report.

    This form shall be used by registered management investment 
companies to file reports pursuant to Sec. 270.30b2-1(a) of this 
chapter not later than 10 days after the transmission to stockholders of 
any report that is required to be transmitted to stockholders under 
Sec. 270.30e-1 of this chapter.

[68 FR 5368, Feb. 3, 2003]



Sec. 274.129  Form N-PX, annual report of proxy voting record of 
registered management investment company.

    This form shall be used by registered management investment 
companies, other than small business investment companies registered on 
Form N-5 (Sec. Sec. 239.24 and 274.5 of this chapter), for annual 
reports to be filed not later than August 31 of each year, containing 
the company's proxy voting record for the most recent twelve-month 
period ended June 30, pursuant to section 30 of the Investment Company 
Act of 1940 and Sec. 270.30b1-4 of this chapter.

[68 FR 6584, Feb. 7, 2003]

[[Page 856]]



Sec. 274.130  Form N-Q, quarterly schedule of portfolio holdings of 
registered management investment company.

    This form shall be used by registered management investment 
companies, other than small business investment companies registered on 
Form N-5 (Sec. Sec. 239.24 and 274.5 of this chapter), to file reports 
pursuant to Sec. 270.30b1-5 of this chapter not later than 60 days 
after the close of the first and third quarters of each fiscal year.

[69 FR 11271, Mar. 9, 2004]

    Effective Date Note: At 69 FR 11271, Mar. 9, 2004, Sec. 274.130 was 
added, effective May 10, 2004.



Sec. 274.200  Form N-17D-1, report filed by small business investment 

company (SBIC) registered under the Investment Company Act of 1940 and 
an affiliated bank, with respect to investments by the SBIC and the bank, 
submitted pursuant to paragraph (d)(3) of Sec. 270.17d-1 of 
this chapter.

    This form shall be filed pursuant to Rule 17d-2 (Sec. 270.17d-2 of 
this chapter) as the report required, under subparagraph (d)(3) of Rule 
17d-1 (Sec. 270.17d-1(d)(3) of this chapter), to be filed, either 
jointly or separately, by a small business investment company (SBIC) 
licensed as such under the Small Business Investment Act of 1958, and by 
a bank which is an affiliated person of either the SBIC or of an 
affiliated person of the SBIC, with respect to investments in a small 
business concern by the SBIC and the bank.



                  Subpart C_Forms for Other Statements



Sec. 274.201  Form N-23C-1, statement by registered closed-end investment 

company with respect to purchases of its own securities pursuant to 
Rule 23c-1 during the last calendar month.

    This form shall be filed, pursuant to subparagraph (a)(11) of Rule 
23c-1 (Sec. 270.23c-1(a)(11) of this chapter) and section 23(c) of the 
Investment Company Act of 1940, by a registered closed-end investment 
company for reporting monthly purchases of securities of which it is the 
issuer, on or before the tenth day of the calendar month following the 
month in which the purchase occurs; but no report need be filed for any 
month in which there have been no such purchases.

    Editorial Note: For Federal Register citations affecting Form N-23C-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.

    Effective Date Note: At 68 FR 64975, Nov. 17, 2003, Sec. 274.201 
was removed, effective July 15, 2004.



Sec. 274.202  Form 3, initial statement of beneficial ownership of 
securities.

    This form shall be filed pursuant to Sec. 270.30h-1 for initial 
statements of beneficial ownership of securities required to be filed 
pursuant to section 30(h) of the Investment Company Act of 1940 (15 
U.S.C. 80a-29(h)). (Same as Sec. 249.103 of this chapter.)

[67 FR 43537, June 28, 2002]

    Editorial Note: For Federal Register citations affecting Form 3, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.203  Form 4, statement of changes in beneficial ownership of 
securities.

    This form shall be filed pursuant to Sec. 270.30h-1 for statements 
of changes in beneficial ownership of securities required to be filed 
pursuant to section 30(h) of the Investment Company Act of 1940 (15 
U.S.C. 80a-29(h)). (Same as Sec. 249.104 of this chapter.)

[67 FR 43537, June 28, 2002]

    Editorial Note: For Federal Register citations affecting Form 4, see 
the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.218  Form N-8F, application for deregistration of certain 
registered investment companies.

    This form must be used as the application for an order of the 
Commission in cases in which the applicant is a registered investment 
company that:
    (a) Has sold substantially all of its assets to another registered 
investment company or merged into or consolidated with another 
registered investment company;

[[Page 857]]

    (b) Has distributed substantially all of its assets to its 
shareholders and has completed, or is in the process of, winding up its 
affairs;
    (c) Qualifies for an exclusion from the definition of ``investment 
company'' under section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or section 
3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the Act; or
    (d) Has become a business development company.

[64 FR 19471, Apr. 21, 1999]

    Editorial Note: For Federal Register citations affecting Form N-8F, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.219  Form N-17f-1, cover page for each certificate of accounting 

of securities and similar investments of a management investment company 
in the custody of a member of a national securities exchange, filed 
pursuant to rule 17f-1.

[54 FR 32049, Aug. 4, 1989]

    Editorial Note: For Federal Register citations affecting Form N-17f-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.220  Form N-17f-2, cover page for each certificate of accounting 

of securities and similar investments in the custody of a registered 
management investment company, filed pursuant to rule 17f-2.

[54 FR 32049, Aug. 4, 1989]

    Editorial Note: For Federal Register citations affecting Form N-17f-
2, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.221  Form N-23c-3, Notification of repurchase offer.

    Form N-23c-3 shall be filed with copies of notifications of 
repurchase offers submitted to the Commission as required under rule 
23c-3 (Sec. 270.23c-3 of this chapter).

[58 FR 19345, Apr. 14, 1993]

    Editorial Note: For Federal Register citations affecting Form N-23c-
3, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



                     Subpart D_Forms for Exemptions

    Authority: Secs. 6(c), (15 U.S.C. 80a-6(c)), 6(e), (15 U.S.C. 80a-
6(e)), 38(a), 15 U.S.C. 80a-37(a) of the Act.



Sec. 274.301  Notification of claim of exemption pursuant to Rule 6e-2 
or Rule 6e-3(T) under the Investment Company Act.

    This form shall be filed with the Commission as required by Sec. 
270.6e-2 or Sec. 270.6e-3(T) of this chapter by each insurance company 
with respect to each separate account for which exemption is claimed 
pursuant to Sec. 270.6e-2 or Sec. 270.6e-3(T).

[49 FR 47228, Dec. 3, 1984]

    Editorial Note: For Federal Register citations affecting Form N-6EI-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.302  Form N-27I-1, notice of right of withdrawal and refund 

for variable life insurance contractholders required pursuant to Rule 
6e-2 (Sec. 270.6e-2 of this chapter).

[41 FR 47032, Oct. 27, 1976]

    Editorial Note: For Federal Register citations affecting Form N-27I-
1, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 274.303  Form N-27I-2, notice of withdrawal right and statement of 

charges for variable life insurance contract holders required pursuant 
to Rule 6e-2 (Sec. 270.6e-2 of this chapter).

[41 FR 47032, Oct. 27, 1976]

    Editorial Note: For Federal Register citations affecting Form N-27I-
2, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



                  Subpart E_Forms for Electronic Filing

    Source: 50 FR 40485, Oct. 4, 1985, unless otherwise noted.

[[Page 858]]



Sec. 274.401  [Reserved]



Sec. 274.402  Form ID, uniform application for access codes to file on EDGAR.

    (a) Form ID is to be used by registrants, third party filers, or 
their agents for the purpose of requesting assignment of access codes to 
permit filing on EDGAR, as follows:
    (1) Central Index Key (CIK)--uniquely identifies each filer, filing 
agent, and training agent.
    (2) CIK Confirmation Code (CCC)--used in the header of a filing in 
conjunction with the CIK of the filer to ensure that the filing has been 
authorized by the filer.
    (3) Password (PW)--allows a filer, filing agent or training agent to 
log on to the EDGAR system, submit filings, and change its CCC.
    (4) Password Modification Authorization Code (PMAC)--allows a filer, 
filing agent or training agent to change its Password.
    (b) Form ID also may be used for the purpose of requesting a 
reassignment of their CCC, PW and PMAC.

[57 FR 18221, Apr. 29, 1992]

    Editorial Note: For Federal Register citations affecting Form ID, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.403  Form SE, form for submission of paper format exhibits by 
electronic filers.

    This form shall be used by an electronic filer for the submission of 
any paper format document relating to an otherwise electronic filing, as 
provided in rule 311 of Regulation S-T (Sec. 232.311 of this chapter).

[58 FR 14861, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form SE, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 274.404  Form TH--Notification of reliance on temporary hardship exemption.

    Form TH shall be filed by any electronic filer who submits to the 
Commission, pursuant to a temporary hardship exemption, a document in 
paper format that otherwise would be required to be submitted 
electronically, as prescribed by rule 201(a) of Regulation S-T (Sec. 
232.201(a) of this chapter).

[58 FR 14861, Mar. 18, 1993]

    Editorial Note: For Federal Register citations affecting Form TH, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



PART 275_RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940--Table of Contents




Sec.
275.0-2 General procedures for serving non-residents.
275.0-3 References to rules and regulations.
275.0-4 General requirements of papers and applications.
275.0-5 Procedure with respect to applications and other matters.
275.0-6 Incorporation by reference in applications.
275.0-7 Small entities under the Investment Advisers Act for purposes of 
          the Regulatory Flexibility Act.
275.202(a)(1)-1 Certain transactions not deemed assignments.
275.203-1 Application for investment adviser registration.
275.203-2 Withdrawal from investment adviser registration.
275.203-3 Hardship exemptions.
275.203(b)(3)-1 Definition of ``client'' of an investment adviser.
275.203A-1 Eligibility for SEC registration; switching to or from SEC 
          registration.
275.203A-2 Exemptions from prohibition on Commission registration.
275.203A-3 Definitions.
275.203A-4 Investment advisers registered with a State securities 
          commission.
275.203A-5--275.203A-6 [Reserved]
275.204-1 Amendments to application for registration.
275.204-2 Books and records to be maintained by investment advisers.
275.204-3 Written disclosure statements.
275.204-4--275.205-5 [Reserved]
275.205-1 Definition of ``investment performance'' of an investment 
          company and ``investment record'' of an appropriate index of 
          securities prices.
275.205-2 Definition of ``specified period'' over which the asset value 
          of the company or fund under management is averaged.
275.205-3 Exemption from the compensation prohibition of section 
          205(a)(1) for investment advisers.
275.206 (3)-1 Exemption of investment advisers registered as broker-
          dealers in

[[Page 859]]

          connection with the provision of certain investment advisory 
          services.
275.206(3)-2 Agency cross transactions for advisory clients.
275.206(4)-1 Advertisements by investment advisers.
275.206(4)-2 Custody of funds or securities of clients by investment 
          advisers.
275.206(4)-3 Cash payments for client solicitations.
275.206(4)-4 Financial and disciplinary information that investment 
          advisers must disclose to clients.
275.206(4)-6 Proxy voting.
275.206(4)-7 Compliance procedures and practices.
275.222-1 Definitions.
275.222-2 Definition of ``client'' for purposes of the national de 
          mimimis standard.

    Authority: 15 U.S.C. 80b-2(a)(11)(F), 80b-2(a)(17), 80b-3, 80b-4, 
80b-6(4), 80b-6a, 80b-11, unless otherwise noted.
    Section 275.203A-1 is also issued under 15 U.S.C. 80b-3a.
    Section 275.203A-2 is also issued under 15 U.S.C. 80b-3a.
    Section 275.204-2 is also issued under 15 U.S.C. 80b-6.
    Section 275.205-3 is also issued under 15 U.S.C. 80b-5(e).



Sec. 275.0-2  General procedures for serving non-residents.

    (a) General procedures for serving process, pleadings, or other 
papers on non-resident investment advisers, general partners and 
managing agents. Under Forms ADV and ADV-NR [17 CFR 279.1 and 279.4], a 
person may serve process, pleadings, or other papers on a non-resident 
investment adviser, or on a non-resident general partner or non-resident 
managing agent of an investment adviser by serving any or all of its 
appointed agents:
    (1) A person may serve a non-resident investment adviser, non-
resident general partner, or non-resident managing agent by furnishing 
the Commission with one copy of the process, pleadings, or papers, for 
each named party, and one additional copy for the Commission's records.
    (2) If process, pleadings, or other papers are served on the 
Commission as described in this section, the Secretary of the Commission 
(Secretary) will promptly forward a copy to each named party by 
registered or certified mail at that party's last address filed with the 
Commission.
    (3) If the Secretary certifies that the Commission was served with 
process, pleadings, or other papers pursuant to paragraph (a)(1) of this 
section and forwarded these documents to a named party pursuant to 
paragraph (a)(2) of this section, this certification constitutes 
evidence of service upon that party.
    (b) Definitions. For purposes of this section:
    (1) Managing agent means any person, including a trustee, who 
directs or manages, or who participates in directing or managing, the 
affairs of any unincorporated organization or association other than a 
partnership.
    (2) Non-resident means:
    (i) An individual who resides in any place not subject to the 
jurisdiction of the United States;
    (ii) A corporation that is incorporated in or that has its principal 
office and place of business in any place not subject to the 
jurisdiction of the United States; and
    (iii) A partnership or other unincorporated organization or 
association that has its principal office and place of business in any 
place not subject to the jurisdiction of the United States.
    (3) Principal office and place of business has the same meaning as 
in Sec. 275.203A-3(c) of this chapter.

[65 FR 57448, Sept. 22, 2000]



Sec. 275.0-3  References to rules and regulations.

    The term rules and regulations refers to all rules and regulations 
adopted by the Commission pursuant to the Act, including the forms for 
registration and reports and the accompanying instructions thereto.

[30 FR 4129, Mar. 30, 1965]



Sec. 275.0-4  General requirements of papers and applications.

    (a) Filings. (1) All papers required to be filed with the Commission 
shall, unless otherwise provided by the rules and regulations, be 
delivered through the mails or otherwise to the Securities and Exchange 
Commission, Washington, DC 20549. Except as otherwise provided by the 
rules and regulations, such papers shall be deemed to have been filed 
with the Commission on the

[[Page 860]]

date when they are actually received by it.
    (2) All filings required to be made electronically with the 
Investment Adviser Registration Depository (``IARD'') shall, unless 
otherwise provided by the rules and regulations in this part, be deemed 
to have been filed with the Commission upon acceptance by the IARD. 
Filings required to be made through the IARD on a day that the IARD is 
closed shall be considered timely filed with the Commission if filed 
with the IARD no later than the following business day.
    (3) Filings required to be made through the IARD during the period 
in December of each year that the IARD is not available for submission 
of filings shall be considered timely filed with the Commission if filed 
with the IARD no later than the following January 7.

    Note to Paragraph (a)(3): Each year the IARD shuts down to filers 
for several days during the end of December to process renewals of state 
notice filings and registrations. During this period, advisers are not 
able to submit filings through the IARD. Check the Commission's Web site 
at http://www.sec.gov/iard for the dates of the annual IARD shutdown.
    (b) Formal specifications respecting applications. Every application 
for an order under any provision of the Act, for which a form with 
instructions is not specifically prescribed, and every amendment to such 
application, shall be filed in quintuplicate. One copy shall be signed 
by the applicant, but the other four copies may have facsimile or typed 
signatures. Such applications shall be on paper no larger than 8\1/2\x11 
inches in size. To the extent that the reduction of larger documents 
would render them illegible, those documents may be filed on paper 
larger than 8\1/2\x11 inches in size. The left margin should be at least 
1\1/2\ inches wide and, if the application is bound, it should be bound 
on the left side. All typewritten or printed matter (including deficits 
in financial statements) should be set forth in black so as to permit 
photocopying and microfilming.
    (c) Authorization respecting applications. (1) Every application for 
an order under any provision of the Act, for which a form with 
instructions is not specifically prescribed and which is executed by a 
corporation, partnership, or other company and filed with the 
Commission, shall contain a concise statement of the applicable 
provisions of the articles of incorporation, bylaws, or similar 
documents, relating to the right of the person signing and filing such 
application to take such action on behalf of the applicant, and a 
statement that all such requirements have been complied with and that 
the person signing and filing the same is fully authorized to do so. If 
such authorization is dependent on resolutions of stockholders, 
directors, or other bodies, such resolutions shall be attached as an 
exhibit to, or the pertinent provisions thereof shall be quoted in, the 
application.
    (2) If an amendment to any such application shall be filed, such 
amendment shall contain a similar statement or, in lieu thereof, shall 
state that the authorization described in the original application is 
applicable to the individual who signs such amendment and that such 
authorization still remains in effect.
    (3) When any such application or amendment is signed by an agent or 
attorney, the power of attorney evidencing his authority to sign shall 
contain similar statements and shall be filed with the Commission.
    (d) Verification of applications and statements of fact. Every 
application for an order under any provision of the Act, for which a 
form with instructions is not specifically prescribed and every 
amendment to such application, and every statement of fact formally 
filed in support of, or in opposition to, any application or declaration 
shall be verified by the person executing the same. An instrument 
executed on behalf of a corporation shall be verified in substantially 
the following form, but suitable changes may be made in such form for 
other kinds of companies and for individuals:

    State of ------------------------------------ County of ------------
--------, SS:------------
    The undersigned being duly sworn deposes and says that he has duly 
executed the attached -------------------- dated ----------, 19----, for 
and on behalf of ------------------------ (Name of company); that he is 
the ---------------- (Title of officer) of such company; and that all 
action by stockholders, directors, and other bodies

[[Page 861]]

necessary to authorize deponent to execute and file such instrument has 
been taken. Deponent further says that he is familiar with such 
instrument, and the contents thereof, and that the facts therein set 
forth are true to the best of his knowledge, information and belief.

(Signature)_____________________________________________________________

(Type or print name beneath)____________________________________________
    Subscribed and sworn to before me a -------------------- (Title of 
officer) this ---------- day of ----------, 19----.

    [official seal]

    My commission expires------------

    (e) Statement of grounds for application. Each application should 
contain a brief statement of the reasons why the applicant is deemed to 
be entitled to the action requested with a reference to the provisions 
of the Act and of the rules and regulations under which application is 
made.
    (f) Name and address. Every application shall contain the name and 
address of each applicant and the name and address of any person to whom 
any applicant wishes any question regarding the application to be 
directed.
    (g) Proposed notice. A proposed notice of the proceeding initiated 
by the filing of the application shall accompany each application as an 
exhibit thereto and, if necessary, shall be modified to reflect any 
amendments to such application.
    (h) Definition of application. For purposes of this rule, an 
``application'' means any application for an order of the Commission 
under the Act other than an application for registration as an 
investment adviser.
    (i) The manually signed original (or in the case of duplicate 
original) one duplicate originals of all registrations, applications, 
statements, reports, or other documents filed under the Investment 
Advisers Act of 1940, as amended, shall be numbered sequentially (in 
addition to any internal numbering which otherwise may be present) by 
handwritten, typed, printed, or other legible form of notation from the 
facing page of the document through the last page of that document and 
any exhibits or attachments thereto. Further, the total number of pages 
contained in a numbered original shall be set forth on the first page of 
the document.

(15 U.S.C. 77s (48 Stat. 85); 15 U.S.C. 78w (48 Stat. 901); 15 U.S.C. 
79c and 79t (49 Stat. 810, 833); 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss 
(53 Stat. 1154, 1156, 1167, 1173); 15 U.S.C. 80w-37, 80c-39 (54 Stat. 
841, 342); 15 U.S.C. 80b-3, 80b-4, 80b-11 (54 Stat. 850, 852, 855))

[41 FR 39019, Sept. 14, 1976, as amended at 44 FR 4666, Jan. 23, 1979; 
47 FR 58239, Dec. 30, 1982; 68 FR 42248, July 17, 2003]



Sec. 275.0-5  Procedure with respect to applications and other matters.

    The procedure hereinbelow set forth will be followed with respect to 
any proceeding initiated by the filing of an application, or upon the 
Commission's own motion, pursuant to any section of the Act or any rule 
or regulation thereunder, unless in the particular case a different 
procedure is provided:
    (a) Notice of the initiation of the proceeding will be published in 
the Federal Register and will indicate the earliest date upon which an 
order disposing of the matter may be entered. The notice will also 
provide that any interested person may, within the period of time 
specified therein, submit to the Commission in writing any facts bearing 
upon the desirability of a hearing on the matter and may request that a 
hearing be held, stating his reasons therefor and the nature of his 
interest in the matter.
    (b) An order disposing of the matter will be issued as of course 
following the expiration of the period of time referred to in paragraph 
(a) of this section, unless the Commission thereafter orders a hearing 
on the matter.
    (c) The Commission will order a hearing on the matter, if it appears 
that a hearing is necessary or appropriate in the public interest or for 
the protection of investors, (1) upon the request of any interested 
person or (2) upon its own motion.
    (d) Definition of application. For purposes of this rule, an 
``application'' means any application for an order of the Commission 
under the Act other than an application for registration as an 
investment adviser.

[41 FR 39020, Sept. 14, 1976, as amended at 61 FR 49962, Sept. 24, 1996]

[[Page 862]]



Sec. 275.0-6  Incorporation by reference in applications.

    (a) A person filing an application may, subject to the limitations 
of Sec. 228.10(f) and Sec. 229.10(d) of this chapter, incorporate by 
reference as an exhibit to such application any document or part 
thereof, including any financial statement or part thereof, previously 
or concurrently filed with the Commission pursuant to any act 
administered by the Commission. The incorporation may be made whether 
the matter incorporated was filed by such applicant or any other person. 
If any modification has occurred in the text of any such document since 
the filing thereof, the applicant shall file with the reference a 
statement containing the text of any such modification and the date 
thereof. If the number of copies of any document previously or 
concurrently filed with the Commission is less than the number required 
to be filed with the application which incorporates such document, the 
applicant shall file therewith as many additional copies of the document 
as may be necessary to meet the requirements of the application.
    (b) Notwithstanding paragraph (a) of this section, a certificate of 
an independent public accountant or accountants previously or 
concurrently filed may not be incorporated by reference in any 
application unless the written consent of the accountant or accountants 
to such incorporation is filed with the application.
    (c) In each case of incorporation by reference, the matter 
incorporated shall be clearly identified in the reference. An express 
statement shall be made to the effect that the specified matter is 
incorporated in the application at the particular place where the 
information is required.
    (d) Notwithstanding paragraph (a) of this section, no application 
shall incorporate by reference any exhibit or financial statement which 
(1) has been withdrawn, or (2) was filed under any act administered by 
the Commission in connection with a registration which has ceased to be 
effective, or (3) is contained in an application for registration, 
registration statement, or report subject, at the time of the 
incorporation by reference, to pending proceedings under section 8(b) 
(15 U.S.C. 77a-8(b)) or 8(d) (15 U.S.C. 77a-8(d)) of the Securities Act 
of 1933 (15 U.S.C. 77a-1 et seq.), section 8(e) (15 U.S.C. 80a-8(e)) of 
the Investment Company Act of 1940, section 15(b)(4)(A) (15 U.S.C. 78a-
15(b)(4)(A)) of the Securities Exchange Act of 1934 (15 U.S.C. 78a-1 et 
seq.), section 203(e)(1) (15 U.S.C. 80b-3(e)(1)) of the Investment 
Advisers Act of 1940 or to an order entered under any of those sections.
    (e) Notwithstanding paragraph (a) of this section, the Commission 
may refuse to permit incorporation by reference in any case in which in 
its judgment such incorporation would render an application incomplete, 
unclear, or confusing.
    (f) Definition of Application. For purposes of this rule, an 
``application'' means any application for an order of the Commission 
under the Act other than an application for registration as an 
investment adviser.
    Note: Prior to incorporating by reference any document as an exhibit 
to an application, applicants are advised to review Sec. 228.10(f) and 
Sec. 229.10(d) of this chapter as in effect at the time the application 
is filed to determine whether such incorporation by reference would be 
permissible under that rule.

[41 FR 39020, Sept. 14, 1976, as amended at 60 FR 32825, June 23, 1995]



Sec. 275.0-7  Small entities under the Investment Advisers Act for 
purposes of the Regulatory Flexibility Act.

    (a) For purposes of Commission rulemaking in accordance with the 
provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 
601 et seq.) and unless otherwise defined for purposes of a particular 
rulemaking proceeding, the term small business or small organization for 
purposes of the Investment Advisers Act of 1940 shall mean an investment 
adviser that:
    (1) Has assets under management, as defined under Section 203A(a)(2) 
of the Act (15 U.S.C. 80b-3a(a)(2)) and reported on its annual updating 
amendment to Form ADV (17 CFR 279.1), of less than $25 million, or such 
higher amount as the Commission may by rule deem appropriate under 
Section 203A(a)(1)(A) of the Act (15 U.S.C. 80b-3a(a)(1)(A));

[[Page 863]]

    (2) Did not have total assets of $5 million or more on the last day 
of the most recent fiscal year; and
    (3) Does not control, is not controlled by, and is not under common 
control with another investment adviser that has assets under management 
of $25 million or more (or such higher amount as the Commission may deem 
appropriate), or any person (other than a natural person) that had total 
assets of $5 million or more on the last day of the most recent fiscal 
year.
    (b) For purposes of this section:
    (1) Control means the power, directly or indirectly, to direct the 
management or policies of a person, whether through ownership of 
securities, by contract, or otherwise.
    (i) A person is presumed to control a corporation if the person:
    (A) Directly or indirectly has the right to vote 25 percent or more 
of a class of the corporation's voting securities; or
    (B) Has the power to sell or direct the sale of 25 percent or more 
of a class of the corporation's voting securities.
    (ii) A person is presumed to control a partnership if the person has 
the right to receive upon dissolution, or has contributed, 25 percent or 
more of the capital of the partnership.
    (iii) A person is presumed to control a limited liability company 
(LLC) if the person:
    (A) Directly or indirectly has the right to vote 25 percent or more 
of a class of the interests of the LLC;
    (B) Has the right to receive upon dissolution, or has contributed, 
25 percent or more of the capital of the LLC; or
    (C) Is an elected manager of the LLC.
    (iv) A person is presumed to control a trust if the person is a 
trustee or managing agent of the trust.
    (2) Total assets means the total assets as shown on the balance 
sheet of the investment adviser or other person described above under 
paragraph (a)(3) of this section, or the balance sheet of the investment 
adviser or such other person with its subsidiaries consolidated, 
whichever is larger.

[63 FR 35515, June 30, 1998, as amended at 65 FR 57448, Sept. 22, 2000]



Sec. 275.202(a)(1)-1  Certain transactions not deemed assignments.

    A transaction which does not result in a change of actual control or 
management of an investment adviser is not an assignment for purposes of 
section 205(a)(2) of the Act.

[51 FR 32907, Sept. 17, 1986; 64 FR 2567, Jan. 15, 1999]



Sec. 275.203-1  Application for investment adviser registration.

    (a) Form ADV. To apply for registration with the Commission as an 
investment adviser, you must complete and file Form ADV (17 CFR 279.1) 
by following the instructions in the Form.
    (b) Electronic filing. (1) If you apply for registration after 
January 1, 2001, you must file electronically with the Investment 
Adviser Registration Depository (IARD), unless you have received a 
hardship exemption under Sec. 275.203-3.

    Note to Paragraph (b)(1):
    Information on how to file with the IARD is available on the 
Commission's website at http://www.sec.gov/iard.

    (2) You are not required to file with the Commission a copy of Part 
II of Form ADV if you maintain a copy of your Part II (and any brochure 
you deliver to clients) in your files. The copy maintained in your files 
is considered filed with the Commission.

    Note to Paragraph (b)(2):
    The Commission has proposed, but not adopted, substantial changes to 
Part II of Form ADV. Thus, the rules for preparing, delivering, and 
offering Part II (or a brochure containing at least the information 
contained in Part II) have not changed. If you are an SEC-registered 
adviser, however, you no longer have to file Part II with the 
Commission. Instead, you must keep a copy in your files, and update the 
information in your Part II whenever it becomes materially inaccurate. 
State law may continue to require you to file Part II with the 
appropriate State securities authority on paper, regardless of whether 
you are filing Part 1 on paper or through the IARD.

    (c) When filed. Each Form ADV is considered filed with the 
Commission upon acceptance by the IARD.
    (d) Filing fees. You must pay NASD (the operator of the IARD) a 
filing fee. The Commission has approved the amount of the filing fee. No 
portion of

[[Page 864]]

the filing fee is refundable. Your completed application for 
registration will not be accepted by NASD, and thus will not be 
considered filed with the Commission, until you have paid the filing 
fee.

[65 FR 57448, Sept. 22, 2000; 65 FR 81737, Dec. 27, 2000; 68 FR 42248, 
July 17, 2003]

    Editorial Note: For Federal Register citations affecting Form ADV, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 275.203-2  Withdrawal from investment adviser registration.

    (a) Form ADV-W. You must file Form ADV-W (17 CFR 279.2) to withdraw 
from investment adviser registration with the Commission (or to withdraw 
a pending registration application).
    (b) Electronic filing. Once you have filed your Form ADV (17 CFR 
279.1) (or any amendments to Form ADV) electronically with the 
Investment Adviser Registration Depository (IARD), any Form ADV-W you 
file must be filed with the IARD, unless you have received a hardship 
exemption under Sec. 275.203-3.
    (c) Effective date--upon filing. Each Form ADV-W filed under this 
section is effective upon acceptance by the IARD, provided however that 
your investment adviser registration will continue for a period of sixty 
days after acceptance solely for the purpose of commencing a proceeding 
under section 203(e) of the Act (15 U.S.C. 80b-3(e)).
    (d) Filing fees. You do not have to pay a fee to file Form ADV-W 
through the IARD.
    (e) Form ADV-W is a report. Each Form ADV-W required to be filed 
under this section is a ``report'' within the meaning of sections 204 
and 207 of the Act (15 U.S.C. 80b-4 and 80b-7).

[65 FR 57449, Sept. 22, 2000]



Sec. 275.203-3  Hardship exemptions.

    This section provides two ``hardship exemptions'' from the 
requirement to make Advisers Act filings electronically with the 
Investment Adviser Registration Depository (IARD).
    (a) Temporary hardship exemption--(1) Eligibility for exemption. If 
you are registered or are registering with the Commission as an 
investment adviser and submit electronic filings on the Investment 
Adviser Registration Depository (IARD) system, but have unanticipated 
technical difficulties that prevent you from submitting a filing to the 
IARD system, you may request a temporary hardship exemption from the 
requirements of this chapter to file electronically.
    (2) Application procedures. To request a temporary hardship 
exemption, you must:
    (i) File Form ADV-H (17 CFR 279.3) in paper format with no later 
than one business day after the filing that is the subject of the ADV-H 
was due; and
    (ii) Submit the filing that is the subject of the Form ADV-H in 
electronic format with the IARD no later than seven business days after 
the filing was due.
    (3) Effective date--upon filing. The temporary hardship exemption 
will be granted when you file a completed Form ADV-H.
    (b) Continuing hardship exemption--(1) Eligibility for exemption. If 
you are a ``small business'' (as described in paragraph (b)(5) of this 
section), you may apply for a continuing hardship exemption.
    The period of the exemption may be no longer than one year after the 
date on which you apply for the exemption.
    (2) Application procedures. To apply for a continuing hardship 
exemption, you must file Form ADV-H at least ten business days before a 
filing is due. The Commission will grant or deny your application within 
ten business days after you file Form ADV-H.
    (3) Effective date--upon approval. You are not exempt from the 
electronic filing requirements until and unless the Commission approves 
your application. If the Commission approves your application, you may 
submit your filings to NASD in paper format for the period of time for 
which the exemption is granted.
    (4) Criteria for exemption. Your application will be granted only if 
you are able to demonstrate that the electronic filing requirements of 
this chapter are prohibitively burdensome or expensive.
    (5) Small business. You are a ``small business'' for purposes of 
this section if

[[Page 865]]

you are required to answer Item 12 of Form ADV (17 CFR 279.1) and 
checked ``no'' to each question in Item 12 that you were required to 
answer.

    Note to Paragraph (b):
    NASD will charge you an additional fee covering its cost to convert 
to electronic format a filing made in reliance on a continuing hardship 
exemption.

[65 FR 57449, Sept. 22, 2000; 65 FR 81738, Dec. 27, 2000, as amended at 
68 FR 42248, July 17, 2003]



Sec. 275.203(b)(3)-1  Definition of ``client'' of an investment adviser.

    Preliminary Note to Sec. 203(b)(3)-1:
    This rule is a safe harbor and is not intended to specify the 
exclusive method for determining who may be deemed a single client for 
purposes of section 203(b)(3) of the Act.

    (a) General. For purposes of section 203(b)(3) of the Act (15 U.S.C. 
80b-3(b)(3)), the following are deemed a single client:
    (1) A natural person, and:
    (i) Any minor child of the natural person;
    (ii) Any relative, spouse, or relative of the spouse of the natural 
person who has the same principal residence;
    (iii) All accounts of which the natural person and/or the persons 
referred to in this paragraph (a)(1) are the only primary beneficiaries; 
and
    (iv) All trusts of which the natural person and/or the persons 
referred to in this paragraph (a)(1) are the only primary beneficiaries;
    (2)(i) A corporation, general partnership, limited partnership, 
limited liability company, trust (other than a trust referred to in 
paragraph (a)(1)(iv) of this section), or other legal organization (any 
of which are referred to hereinafter as a ``legal organization'') that 
receives investment advice based on its investment objectives rather 
than the individual investment objectives of its shareholders, partners, 
limited partners, members, or beneficiaries (any of which are referred 
to hereinafter as an ``owner''); and
    (ii) Two or more legal organizations referred to in paragraph 
(a)(2)(i) of this section that have identical owners.
    (b) Special Rules. For purposes of this section:
    (1) An owner must be counted as a client if the investment adviser 
provides investment advisory services to the owner separate and apart 
from the investment advisory services provided to the legal 
organization, Provided, however, that the determination that an owner is 
a client will not affect the applicability of this section with regard 
to any other owner;
    (2) An owner need not be counted as a client of an investment 
adviser solely because the investment adviser, on behalf of the legal 
organization, offers, promotes, or sells interests in the legal 
organization to the owner, or reports periodically to the owners as a 
group solely with respect to the performance of or plans for the legal 
organization's assets or similar matters;
    (3) A limited partnership is a client of any general partner or 
other person acting as investment adviser to the partnership;
    (4) Any person for whom an investment adviser provides investment 
advisory services without compensation need not be counted as a client; 
and
    (5) An investment adviser that has its principal office and place of 
business outside of the United States must count only clients that are 
United States residents; an investment adviser that has its principal 
office and place of business in the United States must count all 
clients.
    (c) Holding Out. Any investment adviser relying on this section 
shall not be deemed to be holding itself out generally to the public as 
an investment adviser, within the meaning of section 203(b)(3) of the 
Act (15 U.S.C. 80b-3(b)(3)), solely because such investment adviser 
participates in a non-public offering of interests in a limited 
partnership under the Securities Act of 1933.

[62 FR 28132, May 22, 1997]



Sec. 275.203A-1  Eligibility for SEC registration; switching to or 
from SEC registration.

    (a) Eligibility for SEC registration--(1) Threshold for SEC 
registration--$30 million of assets under management. If the State where 
you maintain your principal office and place of business has enacted an 
investment adviser statute, you are not required to register with the 
Commission, unless:
    (i) You have assets under management of at least $30,000,000, as 
reported on your Form ADV (17 CFR 279.1); or

[[Page 866]]

    (ii) You are an investment adviser to an investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1).
    (2) Exemption for investment advisers having between $25 and $30 
million of assets under management. If the State where you maintain your 
principal office and place of business has enacted an investment adviser 
statute, you may register with the Commission if you have assets under 
management of at least $25,000,000 but less than $30,000,000, as 
reported on your Form ADV (17 CFR 279.1). This paragraph (a)(2) shall 
not apply if:
    (i) You are an investment adviser to an investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 to 
80a-64); or
    (ii) You are eligible for an exemption described in Sec. 275.203A-2 
of this chapter.

    Note to Paragraphs (a)(1) and (a)(2):
    Paragraphs (a)(1) and (a)(2) of this section together make SEC 
registration optional for certain investment advisers that have between 
$25 and $30 million of assets under management.

    (b) Switching to or from SEC registration--(1) State-registered 
advisers--switching to SEC registration. If you are registered with a 
State securities authority, you must apply for registration with the 
Commission within 90 days of filing an annual updating amendment to your 
Form ADV reporting that you have at least $30 million of assets under 
management.
    (2) SEC-registered advisers--switching to State registration. If you 
are registered with the Commission and file an annual updating amendment 
to your Form ADV reporting that you no longer have $25 million of assets 
under management (or are not otherwise eligible for SEC registration), 
you must file Form ADV-W (17 CFR 279.2) to withdraw your SEC 
registration within 180 days of your fiscal year end (unless you then 
have at least $25 million of assets under management or are otherwise 
eligible for SEC registration). During this period while you are 
registered with both the Commission and one or more State securities 
authorities, the Investment Advisers Act of 1940 and applicable State 
law will apply to your advisory activities.

[65 FR 57449, Sept. 22, 2000]



Sec. 275.203A-2  Exemptions from prohibition on Commission registration.

    The prohibition of section 203A(a) of the Act (15 U.S.C. 80b-3a(a)) 
does not apply to:
    (a) Nationally recognized statistical rating organizations. An 
investment adviser that is a nationally recognized statistical rating 
organization, as that term is used in paragraphs (c)(2)(vi)(E), (F), and 
(H) of Sec. 240.15c3-1 of this chapter.
    (b) Pension Consultants. (1) An investment adviser that is a 
``pension consultant,'' as defined in this section, with respect to 
assets of plans having an aggregate value of at least $50,000,000.
    (2) An investment adviser is a pension consultant, for purposes of 
paragraph (b) of this section, if the investment adviser provides 
investment advice to:
    (i) Any employee benefit plan described in section 3(3) of the 
Employee Retirement Income Security Act of 1974 (``ERISA'') [29 U.S.C. 
1002(3)];
    (ii) Any governmental plan described in section 3(32) of ERISA (29 
U.S.C. 1002(32)); or
    (iii) Any church plan described in section 3(33) of ERISA (29 U.S.C. 
1002(33)).
    (3) In determining the aggregate value of assets of plans, include 
only that portion of a plan's assets for which the investment adviser 
provided investment advice (including any advice with respect to the 
selection of an investment adviser to manage such assets). Determine the 
aggregate value of assets by cumulating the value of assets of plans 
with respect to which the investment adviser was last employed or 
retained by contract to provide investment advice during a 12-month 
period ended within 90 days of filing an annual updating amendment to 
Form ADV (17 CFR 279.1).
    (c) Investment advisers controlling, controlled by, or under common 
control with an investment adviser registered with the Commission. An 
investment adviser that controls, is controlled by, or is under common 
control with, an investment

[[Page 867]]

adviser eligible to register, and registered with, the Commission 
(``registered adviser''), provided that the principal office and place 
of business of the investment adviser is the same as that of the 
registered adviser. For purposes of this paragraph, control means the 
power to direct or cause the direction of the management or policies of 
an investment adviser, whether through ownership of securities, by 
contract, or otherwise. Any person that directly or indirectly has the 
right to vote 25 percent or more of the voting securities, or is 
entitled to 25 percent or more of the profits, of an investment adviser 
is presumed to control that investment adviser.
    (d) Investment advisers expecting to be eligible for Commission 
registration within 120 Days. An investment adviser that:
    (1) Immediately before it registers with the Commission, is not 
registered or required to be registered with the Commission or a 
securities commissioner (or any agency or officer performing like 
functions) of any State and has a reasonable expectation that it would 
be eligible to register with the Commission within 120 days after the 
date the investment adviser's registration with the Commission becomes 
effective;
    (2) Indicates on Schedule D of its Form ADV (17 CFR 279.1) that it 
will withdraw from registration with the Commission if, on the 120th day 
after the date the investment adviser's registration with the Commission 
becomes effective, the investment adviser would be prohibited by section 
203A(a) of the Act (15 U.S.C. 80b-3a(a)) from registering with the 
Commission; and
    (3) Notwithstanding Sec. 275.203A-1(b)(2) of this chapter, files a 
completed Form ADV-W (17 CFR 279.2) withdrawing from registration with 
the Commission within 120 days after the date the investment adviser's 
registration with the Commission becomes effective.
    (e) Multi-state investment advisers. An investment adviser that:
    (1) Upon submission of its application for registration with the 
Commission, is required by the laws of 30 or more States to register as 
an investment adviser with the securities commissioners (or any agencies 
or officers performing like functions) in the respective States, and 
thereafter would, but for this section, be required by the laws of at 
least 25 States to register as an investment adviser with the securities 
commissioners (or any agencies or officers performing like functions) in 
the respective States;
    (2) Indicates on Schedule D of its Form ADV that the investment 
adviser has reviewed the applicable State and federal laws and has 
concluded that, in the case of an application for registration with the 
Commission, it is required by the laws of 30 or more States to register 
as an investment adviser with the State securities authorities in the 
respective States or, in the case of an amendment to Form ADV, it would 
be required by the laws of at least 25 States to register as an 
investment adviser with the State securities authorities in the 
respective States, within 90 days prior to the date of filing Form ADV;
    (3) Undertakes on Schedule D of its Form ADV to withdraw from 
registration with the Commission if the adviser indicates on an annual 
updating amendment to Form ADV that the investment adviser would be 
required by the laws of fewer than 25 States to register as an 
investment adviser with the securities commissioners (or any agencies or 
officers performing like functions) in the respective States, and that 
the investment adviser would be prohibited by section 203A(a) of the Act 
(15 U.S.C. 80b-3a(a)) from registering with the Commission, by filing a 
completed Form ADV-W within 180 days of the adviser's fiscal year end 
(unless the adviser then has at least $25 million of assets under 
management or is otherwise eligible for SEC registration); and
    (4) Maintains in an easily accessible place a record of the States 
in which the investment adviser has determined it would, but for the 
exemption, be required to register for a period of not less than five 
years from the filing of a Form ADV that includes a representation that 
is based on such record.
    (f) Internet investment advisers. (1) An investment adviser that:
    (i) Provides investment advice to all of its clients exclusively 
through an interactive website, except that the investment adviser may 
provide investment advice to fewer than 15 clients

[[Page 868]]

through other means during the preceding twelve months;
    (ii) Maintains, in an easily accessible place, for a period of not 
less than five years from the filing of a Form ADV that includes a 
representation that the adviser is eligible to register with the 
Commission under paragraph (f) of this section, a record demonstrating 
that it provides investment advice to its clients exclusively through an 
interactive website in accordance with the limits in paragraph (f)(1)(i) 
of this section; and
    (iii) Does not control, is not controlled by, and is not under 
common control with, another investment adviser that registers with the 
Commission under paragraph (c) of this section solely in reliance on the 
adviser registered under paragraph (f) of this section as its registered 
adviser.
    (2) For purposes of paragraph (f) of this section, interactive 
website means a website in which computer software-based models or 
applications provide investment advice to clients based on personal 
information each client supplies through the website.
    (3) An investment adviser may rely on the definition of client in 
Sec. 275.203(b)(3)-1 in determining whether it provides investment 
advice to fewer than 15 clients under paragraph (f)(1)(i) of this 
section.

[62 FR 28133, May 22, 1997, as amended at 63 FR 39715, 39716, July 24, 
1998; 65 FR 57450, Sept. 22, 2000; 67 FR 77625, Dec. 18, 2003]



Sec. 275.203A-3  Definitions.

    For purposes of section 203A of the Act (15 U.S.C. 80b-3a) and the 
rules thereunder:
    (a)(1) Investment adviser representative. ``Investment adviser 
representative'' of an investment adviser means a supervised person of 
the investment adviser:
    (i) Who has more than five clients who are natural persons (other 
than excepted persons described in paragraph (a)(3)(i) of this section); 
and
    (ii) More than ten percent of whose clients are natural persons 
(other than excepted persons described in paragraph (a)(3)(i) of this 
section).
    (2) Notwithstanding paragraph (a)(1) of this section, a supervised 
person is not an investment adviser representative if the supervised 
person:
    (i) Does not on a regular basis solicit, meet with, or otherwise 
communicate with clients of the investment adviser; or
    (ii) Provides only impersonal investment advice.
    (3) For purposes of this section:
    (i) ``Excepted person'' means a natural person who is a qualified 
client as described in Sec. 275.205-3(d)(1).
    (ii) ``Impersonal investment advice'' means investment advisory 
services provided by means of written material or oral statements that 
do not purport to meet the objectives or needs of specific individuals 
or accounts.
    (4) Supervised persons may rely on the definition of ``client'' in 
Sec. 275.203(b)(3)-1 to identify clients for purposes of paragraph 
(a)(1) of this section, except that supervised persons need not count 
clients that are not residents of the United States.
    (b) Place of business. ``Place of business'' of an investment 
adviser representative means:
    (1) An office at which the investment adviser representative 
regularly provides investment advisory services, solicits, meets with, 
or otherwise communicates with clients; and
    (2) Any other location that is held out to the general public as a 
location at which the investment adviser representative provides 
investment advisory services, solicits, meets with, or otherwise 
communicates with clients.
    (c) Principal office and place of business. ``Principal office and 
place of business'' of an investment adviser means the executive office 
of the investment adviser from which the officers, partners, or managers 
of the investment adviser direct, control, and coordinate the activities 
of the investment adviser.

[62 FR 28134, May 22, 1997, as amended at 63 FR 39715, July 24, 1998]



Sec. 275.203A-4  Investment advisers registered with a State securities 
commission.

    The Commission shall not assert a violation of section 203 of the 
Act (15 U.S.C. 80b-3) (or any provision of the Act to which an 
investment adviser becomes subject upon registration under section 203 
of the Act (15 U.S.C. 80b-3)) for the failure of an investment adviser

[[Page 869]]

registered with the securities commission (or any agency or office 
performing like functions) in the State in which it has its principal 
office and place of business to register with the Commission if the 
investment adviser reasonably believes that it does not have assets 
under management of at least $30,000,000 and is therefore not required 
to register with the Commission.

[62 FR 28134, May 22, 1997]



Sec. Sec. 275.203A-5--275.203A-6  [Reserved]



Sec. 275.204-1  Amendments to application for registration.

    (a) When amendment is required. You must amend your Form ADV (17 CFR 
279.1):
    (1) At least annually, within 90 days of the end of your fiscal 
year; and
    (2) More frequently, if required by the instructions to Form ADV.
    Note to Paragraph (a): Information on how to file with the 
Investment Adviser Registration Depository (``IARD'') is available on 
our website at www.sec.gov/iard.
    (b) Electronic filing of amendments. (1) You must file all 
amendments to Part 1A of your Form ADV electronically with the IARD, 
unless you have received a continuing hardship exemption under Sec. 
275.203-3.
    (2) If you have received a continuing hardship exemption under Sec. 
275.203-3, you must, when you are required to amend your Form ADV, file 
a completed Part 1A of Form ADV on paper with the SEC by mailing it to 
the NASD.
    (c) Special rule for Part II. You are not required to file with the 
Commission a copy of Part II of Form ADV if you maintain a copy of your 
Part II (and any brochure you deliver to clients) in your files. The 
copy maintained in your files is considered filed with the Commission.

    Note to Paragraph (c):
    The Commission has proposed, but not adopted, substantial changes to 
Part II of Form ADV. Thus, the rules for preparing, delivering, and 
offering Part II (or a brochure containing at least the information 
contained in Part II) have not changed. If you are an SEC-registered 
adviser, however, you no longer have to file Part II with the 
Commission. Instead, you must keep a copy in your files, and update the 
information in your Part II whenever it becomes materially inaccurate. 
State law may continue to require you to file Part II with the 
appropriate State securities authority on paper, regardless of whether 
you are filing Part 1 on paper or through the IARD.

    (d) Filing fees. You must pay the NASD (the operator of the IARD) an 
initial filing fee when you first electronically file Part 1A of Form 
ADV. After you pay the initial filing fee, you must pay an annual filing 
fee each time you file your annual updating amendment. No portion of 
either fee is refundable. The Commission has approved the filing fees. 
Your amended Form ADV will not be accepted by NASD, and thus will not be 
considered filed with the Commission, until you have paid the filing 
fee.
    (e) Amendments to Form ADV are reports. Each amendment required to 
be filed under this section is a ``report'' within the meaning of 
sections 204 and 207 of the Act (15 U.S.C. 80b-4 and 80b-7).

[65 FR 57450, Sept. 22, 2000; 65 FR 81738, Dec. 27, 2000, as amended at 
68 FR 42248, July 17, 2003]



Sec. 275.204-2  Books and records to be maintained by investment advisers.

    (a) Every investment adviser registered or required to be registered 
under section 203 of the Act (15 U.S.C. 80b-3) shall make and keep true, 
accurate and current the following books and records relating to its 
investment advisory business;
    (1) A journal or journals, including cash receipts and 
disbursements, records, and any other records of original entry forming 
the basis of entries in any ledger.
    (2) General and auxiliary ledgers (or other comparable records) 
reflecting asset, liability, reserve, capital, income and expense 
accounts.
    (3) A memorandum of each order given by the investment adviser for 
the purchase or sale of any security, of any instruction received by the 
investment adviser concerning the purchase, sale, receipt or delivery of 
a particular security, and of any modification or cancellation of any 
such order or instruction. Such memoranda shall show the

[[Page 870]]

terms and conditions of the order, instruction, modification or 
cancellation; shall identify the person connected with the investment 
adviser who recommended the transaction to the client and the person who 
placed such order; and shall show the account for which entered, the 
date of entry, and the bank, broker or dealer by or through whom 
executed where appropriate. Orders entered pursuant to the exercise of 
discretionary power shall be so designated.
    (4) All check books, bank statements, cancelled checks and cash 
reconciliations of the investment adviser.
    (5) All bills or statements (or copies thereof), paid or unpaid, 
relating to the business of the investment adviser as such.
    (6) All trial balances, financial statements, and internal audit 
working papers relating to the business of such investment adviser.
    (7) Originals of all written communications received and copies of 
all written communications sent by such investment adviser relating to 
(i) any recommendation made or proposed to be made and any advice given 
or proposed to be given, (ii) any receipt, disbursement or delivery of 
funds or securities, or (iii) the placing or execution of any order to 
purchase or sell any security: Provided, however, (a) That the 
investment adviser shall not be required to keep any unsolicited market 
letters and other similar communications of general public distribution 
not prepared by or for the investment adviser, and (b) that if the 
investment adviser sends any notice, circular or other advertisement 
offering any report, analysis, publication or other investment advisory 
service to more than 10 persons, the investment adviser shall not be 
required to keep a record of the names and addresses of the persons to 
whom it was sent; except that if such notice, circular or advertisement 
is distributed to persons named on any list, the investment adviser 
shall retain with the copy of such notice, circular or advertisement a 
memorandum describing the list and the source thereof.
    (8) A list or other record of all accounts in which the investment 
adviser is vested with any discretionary power with respect to the 
funds, securities or transactions of any client.
    (9) All powers of attorney and other evidences of the granting of 
any discretionary authority by any client to the investment adviser, or 
copies thereof.
    (10) All written agreements (or copies thereof) entered into by the 
investment adviser with any client or otherwise relating to the business 
of such investment adviser as such.
    (11) A copy of each notice, circular, advertisement, newspaper 
article, investment letter, bulletin or other communication that the 
investment adviser circulates or distributes, directly or indirectly, to 
10 or more persons (other than persons connected with such investment 
adviser), and if such notice, circular, advertisement, newspaper 
article, investment letter, bulletin or other communication recommends 
the purchase or sale of a specific security and does not state the 
reasons for such recommendation, a memorandum of the investment adviser 
indicating the reasons therefor.
    (12)(i) A record of every transaction in a security in which the 
investment adviser or any advisory representative (as defined in 
paragraph (a)(12)(iii)(A) of this section) of the investment adviser 
has, or by reason of the transaction acquires, any direct or indirect 
beneficial ownership, except:
    (A) Transactions effected in any account over which neither the 
investment adviser nor any advisory representative of the investment 
adviser has any direct or indirect influence or control; and
    (B) Transactions in securities that are: direct obligations of the 
Government of the United States; bankers' acceptances, bank certificates 
of deposit, commercial paper, and high quality short-term debt 
instruments, including repurchase agreements; or shares issued by 
registered open-end investment companies.
    (ii) The record required by paragraph (a)(12)(i) of this section 
must state the title and amount of the security involved; the date and 
nature of the transaction (i.e., purchase, sale or other acquisition or 
disposition); the price at which it was effected; and the name of the 
broker, dealer, or bank

[[Page 871]]

with or through whom the transaction was effected. Any record required 
by paragraph (a)(12)(i) of this section also may contain a statement 
declaring that the record of the transaction will not be construed as an 
admission that the investment adviser or advisory representative has any 
direct or indirect beneficial ownership in the security. A transaction 
must be recorded no later than 10 days after the end of the calendar 
quarter in which the transaction was effected. An investment adviser 
will be considered to have made a record required by paragraph 
(a)(12)(i) of this section if:
    (A) The investment adviser receives a broker trade confirmation or 
account statement in the time period required by this paragraph 
(a)(12)(ii);
    (B) The broker trade confirmation, account statement or other 
records of the investment adviser contains all the information required 
by this paragraph (a)(12)(ii);
    (C) The investment adviser keeps the broker trade confirmation, 
account statement, and other records containing the information required 
by this paragraph (a)(12)(ii); and
    (D) All broker trade confirmations and account statements that are 
printed on paper and kept under paragraph (a)(12)(ii)(C) of this section 
are organized in a manner that allows easy access to and retrieval of 
any particular confirmation or statement.
    (iii) For purposes of this paragraph--
    (A) The term advisory representative shall mean any partner, officer 
or director of the investment adviser; any employee who makes any 
recommendation, who participates in the determination of which 
recommendation shall be made, or whose functions or duties relate to the 
determination of which recommendation shall be made; any employee who, 
in connection with his duties, obtains any information concerning which 
securities are being recommended prior to the effective dissemination of 
such recommendations or of the information concerning such 
recommendations; and any of the following persons who obtain information 
concerning securities recommendations being made by such investment 
advisor prior to the effective dissemination of such recommendations or 
of the information concerning such recommendations: (1) Any person in a 
control relationship to the investment advisor, (2) any affiliated 
person of such controlling person, and (3) any affiliated person of such 
affiliated person.
    (B) Beneficial ownership will be interpreted in the same manner as 
it would be under Sec. 240.16a-1(a)(2) of this chapter in determining 
whether a person has beneficial ownership of a security for purposes of 
section 16 of the Securities Exchange Act of 1934 [15 U.S.C. 78p] and 
the rules and regulations thereunder.
    (C) Control shall have the same meaning as that set forth in section 
2(a)(9) of the Investment Company Act of 1940, as amended.
    (iv) An investment adviser shall not be deemed to have violated the 
provisions of paragraph (a)(12) of this section because of his failure 
to record securities transactions of any advisory representative if he 
establishes that he instituted adequate procedures and used reasonable 
diligence to obtain promptly reports of all transactions required to be 
recorded.
    (13)(i) Notwithstanding the provisions of paragraph (a)(12) of this 
section, an investment adviser that is primarily engaged in a business 
or businesses other than advising registered investment companies or 
other advisory clients, must maintain a record of every transaction in a 
security in which the investment adviser or any advisory representative 
(as defined in paragraph (a)(13)(iii)(A) of this section) of the 
investment adviser has, or by reason of the transaction acquires, any 
direct or indirect beneficial ownership, except:
    (A) Transactions effected in any account over which neither the 
investment adviser nor any advisory representative of the investment 
adviser has any direct or indirect influence or control; and
    (B) Transactions in securities that are: direct obligations of the 
Government of the United States; bankers' acceptances, bank certificates 
of deposit, commercial paper, and high quality short-term debt 
instruments, including repurchase agreements; or shares issued by 
registered open-end investment companies.

[[Page 872]]

    (ii) The record required by paragraph (a)(13)(i) of this section 
must state the title and amount of the security involved; the date and 
nature of the transaction (i.e., purchase, sale or other acquisition or 
disposition); the price at which it was effected; and the name of the 
broker, dealer or bank with or through whom the transaction was 
effected. Any record required by paragraph (a)(13)(i) of this section 
also may contain a statement declaring that the record of the 
transaction will not be construed as an admission that the investment 
adviser or advisory representative has any direct or indirect beneficial 
ownership in the security. A transaction must be recorded no later than 
10 days after the end of the calendar quarter in which the transaction 
was effected. An investment adviser will be considered to have made a 
record required by paragraph (a)(13)(i) of this section if:
    (A) The investment adviser receives a broker trade confirmation or 
account statement in the time period required by this paragraph 
(a)(13)(ii);
    (B) The broker trade confirmation, account statement or other 
records of the investment adviser contains all the information required 
by this paragraph (a)(13)(ii);
    (C) The investment adviser keeps the broker trade confirmation, 
account statement, and other records containing the information required 
by this paragraph (a)(13)(ii); and
    (D) All broker trade confirmations and account statements that are 
printed on paper and kept under paragraph (a)(13)(ii)(C) of this section 
are organized in a manner that allows easy access to and retrieval of 
any particular confirmation or statement.
    (iii) For purposes of this paragraph--
    (A) The term advisory representative, when used in connection with a 
company primarily engaged in a business or businesses other than 
advising registered investment companies or other advisory clients, 
shall mean any partner, officer, director, or employee of the investment 
adviser who makes any recommendation, who participates in the 
determination of which recommendation shall be made, or whose functions 
or duties relate to the determination of which recommendation shall be 
made, or who, in connection with his duties, obtains any information 
concerning which securities are being recommended prior to the effective 
dissemination of such recommendations or of the information concerning 
such recommendations; and any of the following persons who obtain 
information concerning securities recommendation being made by such 
investment adviser prior to the effective dissemination of such 
recommendations or of the information concerning such recommendations: 
(1) Any person in a control relationship to the investment adviser, (2) 
any affiliated person of such controlling person, and (3) any affiliated 
person of such affiliated person.
    (B) Beneficial ownership will be interpreted in the same manner as 
it would be under Sec. 240.16a-1(a)(2) of this chapter in determining 
whether a person has beneficial ownership of a security for purposes of 
section 16 of the Securities Exchange Act of 1934 [15 U.S.C. 78p] and 
the rules and regulations thereunder.
    (C) Control shall have the same meaning as that set forth in section 
2(a)(9) of the Investment Company Act of 1940, as amended.
    (D) An investment adviser is ``primarily engaged in a business or 
businesses other than advising registered investment companies or other 
advisory clients'' when, for each of its most recent three fiscal years 
or for the period of time since organization, whichever is lesser, the 
investment adviser derived, on an unconsolidated basis, more than 50 
percent of (1) its total sales and revenues, and (2) its income (or 
loss) before income taxes and extraordinary items, from such other 
business or businesses.
    (iv) An investment adviser shall not be deemed to have violated the 
provisions of this paragraph (a)(13) because of his failure to record 
securities transactions of any advisory representative if he establishes 
that he instituted adequate procedures and used reasonable diligence to 
obtain promptly reports of all transactions required to be recorded.

[[Page 873]]

    (14) A copy of each written statement and each amendment or revision 
thereof, given or sent to any client or prospective client of such 
investment adviser in accordance with the provisions of Rule 204-3 under 
the Act, and a record of the dates that each written statement, and each 
amendment or revision thereof, was given, or offered to be given, to any 
client or prospective client who subsequently becomes a client.
    (15) All written acknowledgments of receipt obtained from clients 
pursuant to Sec. 275.206(4)-3(a)(2)(iii)(B) and copies of the 
disclosure documents delivered to clients by solicitors pursuant to 
Sec. 275.206(4)-3.
    (16) All accounts, books, internal working papers, and any other 
records or documents that are necessary to form the basis for or 
demonstrate the calculation of the performance or rate of return of any 
or all managed accounts or securities recommendations in any notice, 
circular, advertisement, newspaper article, investment letter, bulletin 
or other communication that the investment adviser circulates or 
distributes, directly or indirectly, to 10 or more persons (other than 
persons connected with such investment adviser); provided, however, 
that, with respect to the performance of managed accounts, the retention 
of all account statements, if they reflect all debits, credits, and 
other transactions in a client's account for the period of the 
statement, and all worksheets necessary to demonstrate the calculation 
of the performance or rate of return of all managed accounts shall be 
deemed to satisfy the requirements of this paragraph.
    (17)(i) A copy of the investment adviser's policies and procedures 
formulated pursuant to Sec. 275.206(4)-7(a) of this chapter that are in 
effect, or at any time within the past five years were in effect, and
    (ii) Any records documenting the investment adviser's annual review 
of those policies and procedures conducted pursuant to Sec. 275.206(4)-
7(b) of this chapter.
    (b) If an investment adviser subject to paragraph (a) of this 
section has custody or possession of securities or funds of any client, 
the records required to be made and kept under paragraph (a) of this 
section shall include:
    (1) A journal or other record showing all purchases, sales, receipts 
and deliveries of securities (including certificate numbers) for such 
accounts and all other debits and credits to such accounts.
    (2) A separate ledger account for each such client showing all 
purchases, sales, receipts and deliveries of securities, the date and 
price of each purchase and sale, and all debits and credits.
    (3) Copies of confirmations of all transactions effected by or for 
the account of any such client.
    (4) A record for each security in which any such client has a 
position, which record shall show the name of each such client having 
any interest in such security, the amount or interest of each such 
client, and the location of each such security.
    (c)(1) Every investment adviser subject to paragraph (a) of this 
section who renders any investment supervisory or management service to 
any client shall, with respect to the portfolio being supervised or 
managed and to the extent that the information is reasonably available 
to or obtainable by the investment adviser, make and keep true, accurate 
and current:
    (i) Records showing separately for each such client the securities 
purchased and sold, and the date, amount and price of each such purchase 
and sale.
    (ii) For each security in which any such client has a current 
position, information from which the investment adviser can promptly 
furnish the name of each such client, and the current amount or interest 
of such client.
    (2) Every investment adviser subject to paragraph (a) of this 
section that exercises voting authority with respect to client 
securities shall, with respect to those clients, make and retain the 
following:
    (i) Copies of all policies and procedures required by Sec. 
275.206(4)-6.
    (ii) A copy of each proxy statement that the investment adviser 
receives regarding client securities. An investment adviser may satisfy 
this requirement by relying on a third party to

[[Page 874]]

make and retain, on the investment adviser's behalf, a copy of a proxy 
statement (provided that the adviser has obtained an undertaking from 
the third party to provide a copy of the proxy statement promptly upon 
request) or may rely on obtaining a copy of a proxy statement from the 
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) 
system.
    (iii) A record of each vote cast by the investment adviser on behalf 
of a client. An investment adviser may satisfy this requirement by 
relying on a third party to make and retain, on the investment adviser's 
behalf, a record of the vote cast (provided that the adviser has 
obtained an undertaking from the third party to provide a copy of the 
record promptly upon request).
    (iv) A copy of any document created by the adviser that was material 
to making a decision how to vote proxies on behalf of a client or that 
memorializes the basis for that decision.
    (v) A copy of each written client request for information on how the 
adviser voted proxies on behalf of the client, and a copy of any written 
response by the investment adviser to any (written or oral) client 
request for information on how the adviser voted proxies on behalf of 
the requesting client.
    (d) Any books or records required by this section may be maintained 
by the investment adviser in such manner that the identity of any client 
to whom such investment adviser renders investment supervisory services 
is indicated by numerical or alphabetical code or some similar 
designation.
    (e)(1) All books and records required to be made under the 
provisions of paragraphs (a) to (c)(1)(i), inclusive, and (c)(2) of this 
section (except for books and records required to be made under the 
provisions of paragraphs (a)(11), (a)(16), and (a)(17)(i) of this 
section), shall be maintained and preserved in an easily accessible 
place for a period of not less than five years from the end of the 
fiscal year during which the last entry was made on such record, the 
first two years in an appropriate office of the investment adviser.
    (2) Partnership articles and any amendments thereto, articles of 
incorporation, charters, minute books, and stock certificate books of 
the investment adviser and of any predecessor, shall be maintained in 
the principal office of the investment adviser and preserved until at 
least three years after termination of the enterprise.
    (3) Books and records required to be made under the provisions of 
paragraphs (a)(11) and (a)(16) of this rule shall be maintained and 
preserved in an easily accessible place for a period of not less than 
five years, the first two years in an appropriate office of the 
investment adviser, from the end of the fiscal year during which the 
investment adviser last published or otherwise disseminated, directly or 
indirectly, the notice, circular, advertisement, newspaper article, 
investment letter, bulletin or other communication.
    (f) An investment adviser subject to paragraph (a) of this section, 
before ceasing to conduct or discontinuing business as an investment 
adviser shall arrange for and be responsible for the preservation of the 
books and records required to be maintained and preserved under this 
section for the remainder of the period specified in this section, and 
shall notify the Commission in writing, at its principal office, 
Washington, D.C. 20549, of the exact address where such books and 
records will be maintained during such period.
    (g) Micrographic and electronic storage permitted.--(1) General. The 
records required to be maintained and preserved pursuant to this part 
may be maintained and preserved for the required time by an investment 
adviser on:
    (i) Micrographic media, including microfilm, microfiche, or any 
similar medium; or
    (ii) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section.
    (2) General requirements. The investment adviser must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its examiners or other representatives) may request:

[[Page 875]]

    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the original record, a duplicate copy of the record on any medium 
allowed by this section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the investment adviser must 
establish and maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized personnel 
and the Commission (including its examiners and other representatives); 
and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
    (h)(1) Any book or other record made, kept, maintained and preserved 
in compliance with Sec. Sec. 240.17a-3 and 240.17a-4 of this chapter 
under the Securities Exchange Act of 1934, which is substantially the 
same as the book or other record required to be made, kept, maintained 
and preserved under this section, shall be deemed to be made, kept 
maintained and preserved in compliance with this section.
    (2) A record made and kept pursuant to any provision of paragraph 
(a) of this section, which contains all the information required under 
any other provision of paragraph (a) of this section, need not be 
maintained in duplicate in order to meet the requirements of the other 
provision of paragraph (a) of this section.
    (i) As used in this section the term ``discretionary power'' shall 
not include discretion as to the price at which or the time when a 
transaction is or is to be effected, if, before the order is given by 
the investment adviser, the client has directed or approved the purchase 
or sale of a definite amount of the particular security.
    (j)(1) Except as provided in paragraph (j)(3) of this section, each 
non-resident investment adviser registered or applying for registration 
pursuant to section 203 of the Act shall keep, maintain and preserve, at 
a place within the United States designated in a notice from him as 
provided in paragraph (j)(2) of this section true, correct, complete and 
current copies of books and records which he is required to make, keep 
current, maintain or preserve pursuant to any provisions of any rule or 
regulation of the Commission adopted under the Act.
    (2) Except as provided in paragraph (j)(3) of this section, each 
nonresident investment adviser subject to this paragraph (j) shall 
furnish to the Commission a written notice specifying the address of the 
place within the United States where the copies of the books and records 
required to be kept and preserved by him pursuant to paragraph (j)(1) of 
this section are located. Each non-resident investment adviser 
registered or applying for registration when this paragraph becomes 
effective shall file such notice within 30 days after such rule becomes 
effective. Each non-resident investment adviser who files an application 
for registration after this paragraph becomes effective shall file such 
notice with such application for registration.
    (3) Notwithstanding the provisions of paragraphs (j)(1) and (2) of 
this section, a non-resident investment adviser need not keep or 
preserve within the United States copies of the books and records 
referred to in said paragraphs (j)(1) and (2), if:
    (i) Such non-resident investment adviser files with the Commission, 
at the time or within the period provided by paragraph (j)(2) of this 
section, a written undertaking, in form acceptable to the Commission and 
signed by a duly authorized person, to furnish to the Commission, upon 
demand, at its principal office in Washington, D.C., or at any Regional 
or District Office of the Commission designated in such demand, true, 
correct, complete and current copies of any or all of the books and 
records which he is required to make, keep current, maintain or preserve 
pursuant to any provision of any rule or regulation of the Commission 
adopted under the Act, or any part of

[[Page 876]]

such books and records which may be specified in such demand. Such 
undertaking shall be in substantially the following form:

    The undersigned hereby undertakes to furnish at its own expense to 
the Securities and Exchange Commission at its principal office in 
Washington, D.C. or at any Regional or District Office of said 
Commission specified in a demand for copies of books and records made by 
or on behalf of said Commission, true, correct, complete and current 
copies of any or all, or any part, of the books and records which the 
undersigned is required to make, keep current or preserve pursuant to 
any provision of any rule or regulation of the Securities and Exchange 
Commission under the Investment Advisers Act of 1940. This undertaking 
shall be suspended during any period when the undersigned is making, 
keeping current, and preserving copies of all of said books and records 
at a place within the United States in compliance with Rule 204-2(j) 
under the Investment Advisers Act of 1940. This undertaking shall be 
binding upon the undersigned and the heirs, successors and assigns of 
the undersigned, and the written irrevocable consents and powers of 
attorney of the undersigned, its general partners and managing agents 
filed with the Securities and Exchange Commission shall extend to and 
cover any action to enforce same.


and
    (ii) Such non-resident investment adviser furnishes to the 
Commission, at his own expense 14 days after written demand therefor 
forwarded to him by registered mail at his last address of record filed 
with the Commission and signed by the Secretary of the Commission or 
such person as the Commission may authorize to act in its behalf, true, 
correct, complete and current copies of any or all books and records 
which such investment adviser is required to make, keep current or 
preserve pursuant to any provision of any rule or regulation of the 
Commission adopted under the Act, or any part of such books and records 
which may be specified in said written demand. Such copies shall be 
furnished to the Commission at its principal office in Washington, D.C., 
or at any Regional or District Office of the Commission which may be 
specified in said written demand.
    (4) For purposes of this rule the term non-resident investment 
adviser shall have the meaning set out in Sec. 275.0-2(d)(3) under the 
Act.
    (k) Every investment adviser that registers under section 203 of the 
Act (15 U.S.C. 80b-3) after July 8, 1997 shall be required to preserve 
in accordance with this section the books and records the investment 
adviser had been required to maintain by the State in which the 
investment adviser had its principal office and place of business prior 
to registering with the Commission.

[26 FR 5002, June 6, 1961, as amended at 31 FR 10921, Aug. 17, 1966; 40 
FR 8549, Feb. 28, 1975; 40 FR 45162, Oct. 1, 1975; 44 FR 7877, Feb. 7, 
1979; 44 FR 42130, July 18, 1979; 50 FR 2543, Jan. 17, 1985; 53 FR 
32035, Aug. 23, 1988; 59 FR 5946, Feb. 9, 1994; 62 FR 28135, May 22, 
1997; 64 FR 46838, Aug. 27, 1999; 66 FR 29228, May 30, 2001; 68 FR 6592, 
Feb. 7, 2003; 68 FR 74730, Dec. 24, 2003]



Sec. 275.204-3  Written disclosure statements.

    (a) General requirement. Unless otherwise provided in this rule, an 
investment adviser, registered or required to be registered pursuant to 
section 203 of the Act shall, in accordance with the provisions of this 
section, furnish each advisory client and prospective advisory client 
with a written disclosure statement which may be either a copy of Part 
II of its form ADV which complies with Sec. 275.204-1(b) under the Act 
or a written document containing at least the information then so 
required by Part II of Form ADV.
    (b) Delivery. (1) An investment adviser, except as provided in 
paragraph (2), shall deliver the statement required by this section to 
an advisory client or prospective advisory client (i) not less than 48 
hours prior to entering into any written or oral investment advisory 
contract with such client or prospective client, or (ii) at the time of 
entering into any such contract, if the advisory client has a right to 
terminate the contract without penalty within five business days after 
entering into the contract.
    (2) Delivery of the statement required by paragraph (1) need not be 
made in connection with entering into (i) an investment company contract 
or (ii) a contract for impersonal advisory services.
    (c) Offer to deliver. (1) An investment adviser, except as provided 
in paragraph (2), annually shall, without

[[Page 877]]

charge, deliver or offer in writing to deliver upon written request to 
each of its advisory clients the statement required by this section.
    (2) The delivery or offer required by paragraph (c)(1) of this 
section need not be made to advisory clients receiving advisory services 
solely pursuant to (i) an investment company contract or (ii) a contract 
for impersonal advisory services requiring a payment of less than $200;
    (3) With respect to an advisory client entering into a contract or 
receiving advisory services pursuant to a contract for impersonal 
advisory services which requires a payment of $200 or more, an offer of 
the type specified in paragraph (c)(1) of this section shall also be 
made at the time of entering into an advisory contract.
    (4) Any statement requested in writing by an advisory client 
pursuant to an offer required by this paragraph must be mailed or 
delivered within seven days of the receipt of the request.
    (d) Omission of inapplicable information. If an investment adviser 
renders substantially different types of investment advisory services to 
different advisory clients, any information required by Part II of Form 
ADV may be omitted from the statement furnished to an advisory client or 
prospective advisory client if such information is applicable only to a 
type of investment advisory service or fee which is not rendered or 
charged, or proposed to be rendered or charged, to that client or 
prospective client.
    (e) Other disclosures. Nothing in this rule shall relieve any 
investment adviser from any obligation pursuant to any provision of the 
Act or the rules and regulations thereunder or other federal or state 
law to disclose any information to its advisory clients or prospective 
advisory clients not specifically required by this rule.
    (f) Sponsors of wrap fee programs. (1) An investment adviser, 
registered or required to be registered pursuant to section 203 of the 
Act, that is compensated under a wrap fee program for sponsoring, 
organizing, or administering the program, or for selecting, or providing 
advice to clients regarding the selection of, other investment advisers 
in the program, shall, in lieu of the written disclosure statement 
required by paragraph (a) of this section and in accordance with the 
other provisions of this section, furnish each client and prospective 
client of the wrap fee program with a written disclosure statement 
containing at least the information required by Schedule H of Form ADV 
(Sec. 279.1 of this chapter). Any additional information included in 
such disclosure statement should be limited to information concerning 
wrap fee programs sponsored by the investment adviser.
    (2) If an investment adviser is required under this paragraph (f) to 
furnish disclosure statements to clients or prospective clients of more 
than one wrap fee program, the investment adviser may omit from the 
disclosure statement furnished to clients and prospective clients of a 
wrap fee program or programs any information required by Schedule H that 
is not applicable to clients or prospective clients of that wrap fee 
program or programs.
    (3) An investment adviser need not furnish the written disclosure 
statement required by paragraph (f)(1) of this section to clients and 
prospective clients of a wrap fee program if another investment adviser 
is required to furnish and does furnish the written disclosure statement 
to all clients and prospective clients of the wrap fee program.
    (4) An investment adviser that is required under this paragraph (f) 
to furnish a disclosure statement to clients of a wrap fee program shall 
furnish the disclosure statement to each client of the wrap fee program 
(including clients that have previously been furnished the brochure 
required under paragraph (a) of this section) no later than October 1, 
1994.
    (g) Definitions. For the purpose of this rule:
    (1) Contract for impersonal advisory services means any contract 
relating solely to the provision of investment advisory services (i) by 
means of written material or oral statements which do not purport to 
meet the objectives

[[Page 878]]

or needs of specific individuals or accounts; (ii) through the issuance 
of statistical information containing no expression of opinion as to the 
investment merits of a particular security; or (iii) any combination of 
the foregoing services.
    (2) Entering into, in reference to an investment advisory contract, 
does not include an extension or renewal without material change of any 
such contract which is in effect immediately prior to such extension or 
renewal.
    (3) Investment company contract means a contract with an investment 
company registered under the Investment Company Act of 1940 which meets 
the requirements of section 15(c) of that Act.
    (4) Wrap fee program means a program under which any client is 
charged a specified fee or fees not based directly upon transactions in 
a client's account for investment advisory services (which may include 
portfolio management or advice concerning the selection of other 
investment advisers) and execution of client transactions.

(Secs. 204, 206(4) and 211(a) (15 U.S.C. 80b-4 and 80b-11(a)))

[44 FR 7877, Feb. 7, 1979, as amended at 47 FR 22507, May 25, 1982; 59 
FR 21661, Apr. 26, 1994]



Sec. Sec. 275.204-4--275.204-5  [Reserved]



Sec. 275.205-1  Definition of ``investment performance'' of an investment 
company and ``investment record'' of an appropriate index of securities prices.

    (a) Investment performance of an investment company for any period 
shall mean the sum of:
    (1) The change in its net asset value per share during such period;
    (2) The value of its cash distributions per share accumulated to the 
end of such period; and
    (3) The value of capital gains taxes per share paid or payable on 
undistributed realized long-term capital gains accumulated to the end of 
such period; expressed as a percentage of its net asset value per share 
at the beginning of such period. For this purpose, the value of 
distributions per share of realized capital gains, of dividends per 
share paid from investment income and of capital gains taxes per share 
paid or payable on undistributed realized long-term capital gains shall 
be treated as reinvested in shares of the investment company at the net 
asset value per share in effect at the close of business on the record 
date for the payment of such distributions and dividends and the date on 
which provision is made for such taxes, after giving effect to such 
distributions, dividends and taxes.
    (b) Investment record of an appropriate index of securities prices 
for any period shall mean the sum of:
    (1) The change in the level of the index during such period; and
    (2) The value, computed consistently with the index, of cash 
distributions made by companies whose securities comprise the index 
accumulated to the end of such period; expressed as a percentage of the 
index level at the beginning of such period. For this purpose cash 
distributions on the securities which comprise the index shall be 
treated as reinvested in the index at least as frequently as the end of 
each calendar quarter following the payment of the dividend.

                                Exhibit I
 [Method of computing the investment record of the standard & poor's 500
                stock composite index for calendar 1971]
------------------------------------------------------------------------
                                                Quarterly dividend yield-
                                                     composite index
                                               -------------------------
        Quarterly ending--         Index value                Quarterly
                                       \1\         Annual    percent \3\
                                                percent \2\   (\1/4\ of
                                                               annual)
------------------------------------------------------------------------
Dec. 1970........................        92.15  ...........  ...........
Mar. 1971........................       100.31         3.10         0.78
June 1971........................        99.70         3.11          .78
Sept. 1971.......................        98.34         3.14          .79
Dec. 1971........................       102.09         3.01          .75
------------------------------------------------------------------------
\1\ Source: Standard & Poor's Trade and Securities Statistics, Jan.
  1972, p. 33.
\2\ Id. See Standard & Poor's Trade and Securities Statistics Security
  and Price Index Record--1970 Edition, p. 133 for explanation of
  quarterly dividend yield.

[[Page 879]]

 
\3\ Quarterly percentages have been founded to two decimal places.

Change in index value for 1971: 102.09-92.15=9.94.
Accumulated value of dividends for 1971:
[GRAPHIC] [TIFF OMITTED] TC14NO91.094

    Aggregate value of dividends paid, assuming quarterly reinvestment 
and computed consistently with the index:
    (Percent yield as computed above) x (ending index value)=Aggregate 
value of dividends paid
    For 1971:

.0314x102.09=3.21

    Investment record of Standard & Poor's 500 stock composite index 
assuming quarterly reinvestment dividends:
[GRAPHIC] [TIFF OMITTED] TC14NO91.095

    The same method can be extended to cases where an investment 
company's fiscal quarters do not coincide with the fiscal quarters of 
the S & P dividend record or to instances where a ``rolling period'' is 
used for performance comparisons as indicated by the following example 
of the calculation of the investment record of the Standard & Poor's 500 
Stock Composite Index for the 12 months ended November 1971:

Index value Nov. 30, 1971.....................................     93.99
Index value Nov. 30, 1970.....................................     87.20
                                                               ---------
 Change in index value........................................      6.79
 


------------------------------------------------------------------------
                                            Dividend yield     Rate for
                                         -------------------- each month
            Quarter ending--                                  of quarter
                                           Annual   \1/4\ of  (\1/12\ of
                                            rate     annual     annual)
------------------------------------------------------------------------
Dec. 1970...............................      3.41      0.85        0.28
Mar. 1971...............................      3.10       .78         .26
June 1971...............................      3.11       .78         .26
Sept. 1971..............................      3.14       .79         .26
Dec. 1971...............................      3.01       .75         .25
------------------------------------------------------------------------

    Accumulated value of dividends reinvested:

December=1.0028
January-March=1.0078
April-June=1.0078
July-September=1.0079
October-November=1.0053 \4\
---------------------------------------------------------------------------

    \4\ The rate for October and November would be two-thirds of the 
yield for the quarter ended Sept. 30 (i.e. .667x.79=5269) since the 
yield for the quarter ended Dec. 31 would not be available as of Nov. 
30.
---------------------------------------------------------------------------

    Dividend yield:

            (1.0028x1.0078x1.0078x1.0079x 1.0053)-1.00=.0320

    Aggregate value of dividends paid computed consistently with the 
index:

.0320x93.99=3.01

    Investment record of the Standard & Poor's 500 Stock Composite Index 
for the 12 months ended November 30, 1971:
[GRAPHIC] [TIFF OMITTED] TC14NO91.096


                                                   Exhibit II
  [Method of Computing the Investment Record of the New York Stock Exchange Composite Index for Calendar 1971]
----------------------------------------------------------------------------------------------------------------
                                                                  (3)--Aggregate  (4)--Quarterly
                                                                   market value      value of
                                                                     of shares    estimated cash  (5)--Estimated
                                                      (2)--Index   listed on the    payments of      yield \4\
                (1)--Quarter ending                   value \1\   NYSE as of end   shares listed    (quarterly
                                                                    of quarter      on the NYSE      percent)
                                                                   (billions of    (millions of
                                                                   dollars) \2\    dollars) \3\
----------------------------------------------------------------------------------------------------------------
Dec. 1970..........................................        50.23  ..............  ..............
Mar. 1971..........................................        55.44           $709          $5,106            0.72
June 1971..........................................        55.09            710           4,961             .70
Sept. 1971.........................................        54.33            709           5,006             .71

[[Page 880]]

 
Dec. 1971..........................................        56.43            742           5,183             .70
----------------------------------------------------------------------------------------------------------------
\1\ Source: New York Stock Exchange Composite Index as reported daily by the New York Stock Exchange.
\2\ Source: Monthly Review, New York Stock Exchange.
\3\ Source: The Exchange, New York Stock Exchange magazine, May, Aug., Nov. 1971 and Feb. 1972 editions. Upon
  request the Statistics Division of the Research Department of the NYSE will make this figure available within
  10 days of the end of each quarter.
\4\ The ratio of column 4 to column 3.

Change in NYSE Composite Index value for 1971: 56.43-50.23=6.20.
Accumulated Value of Dividends of NYSE Composite Index for 1971:
[GRAPHIC] [TIFF OMITTED] TC14NO91.097

    Aggregate value of dividends paid on NYSE Composite Index assuming 
quarterly reinvestment:
    For 1971:

.0286x56.43=1.61

    Investment record of the New York Stock Exchange Composite Index 
assuming quarterly reinvestment of dividends:
[GRAPHIC] [TIFF OMITTED] TC14NO91.098

    The same method can be extended to cases where an investment 
company's fiscal quarters do not coincide with the fiscal quarters of 
the NYSE dividend record or to instances where a ``rolling period'' is 
used for performance comparisons as indicated by the following example 
of the calculation of the investment record of the NYSE Composite Index 
for the 12 months ended November 1971:

Index value Nov. 30, 1971.....................................     51.84
Index value Nov. 30, 1970.....................................     47.41
                                                               ---------
 Change in index value........................................      4.43
 


------------------------------------------------------------------------
                                                               Rate for
                                                   Dividend   each month
                 Quarter ending                      yield    of quarter
                                                   quarterly  (\1/12\ of
                                                    percent     annual)
------------------------------------------------------------------------
Dec. 1970.......................................        0.79        0.26
Mar. 1971.......................................         .72         .24
June 1971.......................................         .70         .23
Sept. 1971......................................         .71         .24
Dec. 1971.......................................         .70         .23
------------------------------------------------------------------------

    Accumulated value of dividends reinvested:
December=1.0026
January-March=1.0072
April-June=1.0070
July-September=1.0071
October-November=1.0047 \4\
---------------------------------------------------------------------------

    \4\ The rate for October and November would be two thirds of the 
yield for the quarter ended September 30 (i.e. .667x.71=4736), since the 
yield for the quarter ended December 31 would not be available as of 
November 30.
---------------------------------------------------------------------------

    Dividend yield:

            (1.0026x1.0072x1.0070x1.0071x 1.0047)-1.00=.0289

    Aggregate value of dividends paid computed consistently with the 
index:

.0289x51.84=1.50

    Investment record of the NYSE Composite Index for the 12 months 
ended November 30, 1971:

[[Page 881]]

[GRAPHIC] [TIFF OMITTED] TC14NO91.099


(Secs. 205, 211, 54 Stat. 852, 74 Stat. 887, 15 U.S.C. 80b-205, 80b-211; 
sec. 25, 84 Stat. 1432, 1433, Pub. L. 91-547)

[37 FR 17468, Aug. 29, 1972]



Sec. 275.205-2  Definition of ``specified period'' over which the asset 
value of the company or fund under management is averaged.

    (a) For purposes of this rule:
    (1) Fulcrum fee shall mean the fee which is paid or earned when the 
investment company's performance is equivalent to that of the index or 
other measure of performance.
    (2) Rolling period shall mean a period consisting of a specified 
number of subperiods of definite length in which the most recent 
subperiod is substituted for the earliest subperiod as time passes.
    (b) The specified period over which the asset value of the company 
or fund under management is averaged shall mean the period over which 
the investment performance of the company or fund and the investment 
record of an appropriate index of securities prices or such other 
measure of investment performance are computed.
    (c) Notwithstanding paragraph (b) of this section, the specified 
period over which the asset value of the company or fund is averaged for 
the purpose of computing the fulcrum fee may differ from the period over 
which the asset value is averaged for computing the performance related 
portion of the fee, only if:
    (1) The performance related portion of the fee is computed over a 
rolling period and the total fee is payable at the end of each subperiod 
of the rolling period; and
    (2) The fulcrum fee is computed on the basis of the asset value 
averaged over the most recent subperiod or subperiods of the rolling 
period.

(Secs. 205, 106A, 211; 54 Stat. 852, 855; 84 Stat. 1433, 15 U.S.C. 80b-
5, 80b-6a, 80b-11)

[37 FR 24896, Nov. 22, 1972]



Sec. 275.205-3  Exemption from the compensation prohibition of section 
205(a)(1) for investment advisers.

    (a) General. The provisions of section 205(a)(1) of the Act (15 
U.S.C. 80b-5(a)(1)) will not be deemed to prohibit an investment adviser 
from entering into, performing, renewing or extending an investment 
advisory contract that provides for compensation to the investment 
adviser on the basis of a share of the capital gains upon, or the 
capital appreciation of, the funds, or any portion of the funds, of a 
client, Provided, That the client entering into the contract subject to 
this section is a qualified client, as defined in paragraph (d)(1) of 
this section.
    (b) Identification of the client. In the case of a private 
investment company, as defined in paragraph (d)(3) of this section, an 
investment company registered under the Investment Company Act of 1940, 
or a business development company, as defined in section 202(a)(22) of 
the Act (15 U.S.C. 80b-2(a)(22)), each equity owner of any such company 
(except for the investment adviser entering into the contract and any 
other equity owners not charged a fee on the basis of a share of capital 
gains or capital appreciation) will be considered a client for purposes 
of paragraph (a) of this section.
    (c) Transition rule. An investment adviser that entered into a 
contract before August 20, 1998 and satisfied the conditions of this 
section as in effect on the date that the contract was entered into will 
be considered to satisfy the conditions of this section; Provided, 
however, that this section will apply with respect to any natural person 
or company who is not a party to the contract prior to and becomes a 
party to the contract after August 20, 1998.
    (d) Definitions. For the purposes of this section:
    (1) The term qualified client means:
    (i) A natural person who or a company that immediately after 
entering into the contract has at least $750,000 under the management of 
the investment adviser;

[[Page 882]]

    (ii) A natural person who or a company that the investment adviser 
entering into the contract (and any person acting on his behalf) 
reasonably believes, immediately prior to entering into the contract, 
either:
    (A) Has a net worth (together, in the case of a natural person, with 
assets held jointly with a spouse) of more than $1,500,000 at the time 
the contract is entered into; or
    (B) Is a qualified purchaser as defined in section 2(a)(51)(A) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(51)(A)) at the 
time the contract is entered into; or
    (iii) A natural person who immediately prior to entering into the 
contract is:
    (A) An executive officer, director, trustee, general partner, or 
person serving in a similar capacity, of the investment adviser; or
    (B) An employee of the investment adviser (other than an employee 
performing solely clerical, secretarial or administrative functions with 
regard to the investment adviser) who, in connection with his or her 
regular functions or duties, participates in the investment activities 
of such investment adviser, provided that such employee has been 
performing such functions and duties for or on behalf of the investment 
adviser, or substantially similar functions or duties for or on behalf 
of another company for at least 12 months.
    (2) The term company has the same meaning as in section 202(a)(5) of 
the Act (15 U.S.C. 80b-2(a)(5)), but does not include a company that is 
required to be registered under the Investment Company Act of 1940 but 
is not registered.
    (3) The term private investment company means a company that would 
be defined as an investment company under section 3(a) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-3(a)) but for the exception provided 
from that definition by section 3(c)(1) of such Act (15 U.S.C. 80a-
3(c)(1)).
    (4) The term executive officer means the president, any vice 
president in charge of a principal business unit, division or function 
(such as sales, administration or finance), any other officer who 
performs a policy-making function, or any other person who performs 
similar policy-making functions, for the investment adviser.

[63 FR 39027, July 21, 1998]



Sec. 275.206(3)-1  Exemption of investment advisers registered as 

broker-dealers in connection with the provision of certain investment 
advisory services.

    (a) An investment adviser which is a broker or dealer registered 
pursuant to section 15 of the Securities Exchange Act of 1934 shall be 
exempt from section 206(3) in connection with any transaction in 
relation to which such broker or dealer is acting as an investment 
adviser solely (1) by means of publicly distributed written materials or 
publicly made oral statements; (2) by means of written materials or oral 
statements which do not purport to meet the objectives or needs of 
specific individuals or accounts; (3) through the issuance of 
statistical information containing no expressions of opinion as to the 
investment merits of a particular security; or (4) any combination of 
the foregoing services: Provided, however, That such materials and oral 
statements include a statement that if the purchaser of the advisory 
communication uses the services of the adviser in connection with a sale 
or purchase of a security which is a subject of such communication, the 
adviser may act as principal for its own account or as agent for another 
person.
    (b) For the purpose of this Rule, publicly distributed written 
materials are those which are distributed to 35 or more persons who pay 
for such materials, and publicly made oral statements are those made 
simultaneously to 35 or more persons who pay for access to such 
statements.
    Note: The requirement that the investment adviser disclose that it 
may act as principal or agent for another person in the sale or purchase 
of a security that is the subject of investment advice does not relieve 
the investment adviser of any disclosure obligation which, depending 
upon the nature of the relationship between the investment adviser and 
the client, may be imposed by subparagraphs (1) or (2) of section 206 or 
the other provisions of the federal securities laws.

[40 FR 38159, Aug. 27, 1975]

[[Page 883]]



Sec. 275.206(3)-2  Agency cross transactions for advisory clients.

    (a) An investment adviser, or a person registered as a broker-dealer 
under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) 
and controlling, controlled by, or under common control with an 
investment adviser, shall be deemed in compliance with the provisions of 
sections 206(3) of the Act (15 U.S.C. 80b-6(3)) in effecting an agency 
cross transaction for an advisory client, if:
    (1) The advisory client has executed a written consent prospectively 
authorizing the investment adviser, or any other person relying on this 
rule, to effect agency cross transactions for such advisory client, 
provided that such written consent is obtained after full written 
disclosure that with respect to agency cross transactions the investment 
adviser or such other person will act as broker for, receive commissions 
from, and have a potentially conflicting division of loyalties and 
responsibilities regarding, both parties to such transactions;
    (2) The investment adviser, or any other person relying on this 
rule, sends to each such client a written confirmation at or before the 
completion of each such transaction, which confirmation includes (i) a 
statement of the nature of such transaction, (ii) the date such 
transaction took place, (iii) an offer to furnish upon request, the time 
when such transaction took place, and (iv) the source and amount of any 
other remuneration received or to be received by the investment adviser 
and any other person relying on this rule in connection with the 
transaction, Provided, however, That if, in the case of a purchase, 
neither the investment adviser nor any other person relying on this rule 
was participating in a distribution, or in the case of a sale, neither 
the investment adviser nor any other person relying on this rule was 
participating in a tender offer, the written confirmation may state 
whether any other remuneration has been or will be received and that the 
source and amount of such other remuneration will be furnished upon 
written request of such customer;
    (3) The investment adviser, or any other person relying in this 
rule, sends to each such client, at least annually, and with or as part 
of any written statement or summary of such account from the investment 
adviser or such other person, a written disclosure statement identifying 
the total number of such transactions during the period since the date 
of the last such statement or summary, and the total amount of all 
commissions or other remuneration received or to be received by the 
investment adviser or any other person relying on this rule in 
connection with such transactions during such period;
    (4) Each written disclosure statement and confirmation required by 
this rule includes a conspicuous statement that the written consent 
referred to in paragraph (a)(1) of this section may be revoked at any 
time by written notice to the investment adviser, or to any other person 
relying on this rule, from the advisory client; and
    (5) No such transaction is effected in which the same investment 
adviser or an investment adviser and any person controlling, controlled 
by or under common control with such investment adviser recommended the 
transaction to both any seller and any purchaser.
    (b) For purposes of this rule the term agency cross transaction for 
an advisory client shall mean a transaction in which a person acts as an 
investment adviser in relation to a transaction in which such investment 
adviser, or any person controlling, controlled by, or under common 
control with such investment adviser, acts as broker for both such 
advisory client and for another person on the other side of the 
transaction.
    (c) This rule shall not be construed as relieving in any way the 
investment adviser or another person relying on this rule from acting in 
the best interests of the advisory client, including fulfilling the duty 
with respect to the best price and execution for the particular 
transaction for the advisory client; nor shall it relieve such person or 
persons from any disclosure obligation which may be imposed by 
subparagraphs (1) or (2) of section 206 of the

[[Page 884]]

Act or by other applicable provisions of the federal securities laws.

[42 FR 29301 June 8, 1977, as amended at 48 FR 41379, Sept. 15, 1983; 62 
FR 28135, May 22, 1997]



Sec. 275.206(4)-1  Advertisements by investment advisers.

    (a) It shall constitute a fraudulent, deceptive, or manipulative 
act, practice, or course of business within the meaning of section 
206(4) of the Act (15 U.S.C. 80b-6(4)) for any investment adviser 
registered or required to be registered under section 203 of the Act (15 
U.S.C. 80b-3), directly or indirectly, to publish, circulate, or 
distribute any advertisement:
    (1) Which refers, directly or indirectly, to any testimonial of any 
kind concerning the investment adviser or concerning any advice, 
anaylsis, report or other service rendered by such investment adviser; 
or
    (2) Which refers, directly or indirectly, to past specific 
recommendations of such investment adviser which were or would have been 
profitable to any person: Provided, however, That this shall not 
prohibit an advertisement which sets out or offers to furnish a list of 
all recommendations made by such investment adviser within the 
immediately preceding period of not less than one year if such 
advertisement, and such list if it is furnished separately: (i) State 
the name of each such security recommended, the date and nature of each 
such recommendation (e.g., whether to buy, sell or hold), the market 
price at that time, the price at which the recommendation was to be 
acted upon, and the market price of each such security as of the most 
recent practicable date, and (ii) contain the following cautionary 
legend on the first page thereof in print or type as large as the 
largest print or type used in the body or text thereof: ``it should not 
be assumed that recommendations made in the future will be profitable or 
will equal the performance of the securities in this list''; or
    (3) Which represents, directly or indirectly, that any graph, chart, 
formula or other device being offered can in and of itself be used to 
determine which securities to buy or sell, or when to buy or sell them; 
or which represents directly or indirectly, that any graph, chart, 
formula or other device being offered will assist any person in making 
his own decisions as to which securities to buy, sell, or when to buy or 
sell them, without prominently disclosing in such advertisement the 
limitations thereof and the difficulties with respect to its use; or
    (4) Which contains any statement to the effect that any report, 
analysis, or other service will be furnished free or without charge, 
unless such report, analysis or other service actually is or will be 
furnished entirely free and without any condition or obligation, 
directly or indirectly; or
    (5) Which contains any untrue statement of a material fact, or which 
is otherwise false or misleading.
    (b) For the purposes of this section the term advertisement shall 
include any notice, circular, letter or other written communication 
addressed to more than one person, or any notice or other announcement 
in any publication or by radio or television, which offers (1) any 
analysis, report, or publication concerning securities, or which is to 
be used in making any determination as to when to buy or sell any 
security, or which security to buy or sell, or (2) any graph, chart, 
formula, or other device to be used in making any determination as to 
when to buy or sell any security, or which security to buy or sell, or 
(3) any other investment advisory service with regard to securities.

(Sec. 206, 54 Stat. 852, as amended; 15 U.S.C. 80b-6)

[26 FR 10549, Nov. 9, 1961, as amended at 62 FR 28135, May 22, 1997]



Sec. 275.206(4)-2  Custody of funds or securities of clients by 
investment advisers.

    (a) Safekeeping required. If you are an investment adviser 
registered or required to be registered under section 203 of the Act (15 
U.S.C. 80b-3), it is a fraudulent, deceptive, or manipulative act, 
practice or course of business within the meaning of section 206(4) of 
the Act (15 U.S.C. 80b-6(4)) for you to have custody of client funds or 
securities unless:
    (1) Qualified custodian. A qualified custodian maintains those funds 
and securities:

[[Page 885]]

    (i) In a separate account for each client under that client's name; 
or
    (ii) In accounts that contain only your clients' funds and 
securities, under your name as agent or trustee for the clients.
    (2) Notice to clients. If you open an account with a qualified 
custodian on your client's behalf, either under the client's name or 
under your name as agent, you notify the client in writing of the 
qualified custodian's name, address, and the manner in which the funds 
or securities are maintained, promptly when the account is opened and 
following any changes to this information.
    (3) Account statements to clients.--(i) By qualified custodian. You 
have a reasonable basis for believing that the qualified custodian sends 
an account statement, at least quarterly, to each of your clients for 
which it maintains funds or securities, identifying the amount of funds 
and of each security in the account at the end of the period and setting 
forth all transactions in the account during that period; or
    (ii) By adviser. (A) You send a quarterly account statement to each 
of your clients for whom you have custody of funds or securities, 
identifying the amount of funds and of each security of which you have 
custody at the end of the period and setting forth all transactions 
during that period;
    (B) An independent public accountant verifies all of those funds and 
securities by actual examination at least once during each calendar year 
at a time that is chosen by the accountant without prior notice or 
announcement to you and that is irregular from year to year, and files a 
certificate on Form ADV-E (17 CFR 279.8) with the Commission within 30 
days after the completion of the examination, stating that it has 
examined the funds and securities and describing the nature and extent 
of the examination; and
    (C) The independent public accountant, upon finding any material 
discrepancies during the course of the examination, notifies the 
Commission within one business day of the finding, by means of a 
facsimile transmission or electronic mail, followed by first class mail, 
directed to the attention of the Director of the Office of Compliance 
Inspections and Examinations; and
    (iii) Special rule for limited partnerships and limited liability 
companies. If you are a general partner of a limited partnership (or 
managing member of a limited liability company, or hold a comparable 
position for another type of pooled investment vehicle), the account 
statements required under paragraphs (a)(3)(i) or (a)(3)(ii) of this 
section must be sent to each limited partner (or member or other 
beneficial owner).
    (4) Independent representatives. A client may designate an 
independent representative to receive, on his behalf, notices and 
account statements as required under paragraphs (a)(2) and (a)(3) of 
this section.
    (b) Exceptions.--(1) Shares of mutual funds. With respect to shares 
of an open-end company as defined in section 5(a)(1) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-5(a)(1)) (``mutual fund''), you may 
use the mutual fund's transfer agent in lieu of a qualified custodian 
for purposes of complying with paragraph (a) of this section;
    (2) Certain privately offered securities. (i) You are not required 
to comply with this section with respect to securities that are:
    (A) Acquired from the issuer in a transaction or chain of 
transactions not involving any public offering;
    (B) Uncertificated, and ownership thereof is recorded only on books 
of the issuer or its transfer agent in the name of the client; and
    (C) Transferable only with prior consent of the issuer or holders of 
the outstanding securities of the issuer.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, the 
provisions of this paragraph (b)(2) are available with respect to 
securities held for the account of a limited partnership (or limited 
liability company, or other type of pooled investment vehicle) only if 
the limited partnership is audited, and the audited financial statements 
are distributed, as described in paragraph (b)(3) of this section.
    (3) Limited partnerships subject to annual audit. You are not 
required to comply with paragraph (a)(3) of this section with respect to 
the account of

[[Page 886]]

a limited partnership (or limited liability company, or another type of 
pooled investment vehicle) that is subject to audit (as defined in 
section 2(d) of Article 1 of Regulation S-X (17 CFR 210.1-02(d)) at 
least annually and distributes its audited financial statements prepared 
in accordance with generally accepted accounting principles to all 
limited partners (or members or other beneficial owners) within 120 days 
of the end of its fiscal year; and
    (4) Registered investment companies. You are not required to comply 
with this section (17 CFR 275.206(4)-2) with respect to the account of 
an investment company registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 to 80a-64).
    (c) Definitions. For the purposes of this section:
    (1) Custody means holding, directly or indirectly, client funds or 
securities, or having any authority to obtain possession of them. 
Custody includes:
    (i) Possession of client funds or securities, (but not of checks 
drawn by clients and made payable to third parties,) unless you receive 
them inadvertently and you return them to the sender promptly but in any 
case within three business days of receiving them;
    (ii) Any arrangement (including a general power of attorney) under 
which you are authorized or permitted to withdraw client funds or 
securities maintained with a custodian upon your instruction to the 
custodian; and
    (iii) Any capacity (such as general partner of a limited 
partnership, managing member of a limited liability company or a 
comparable position for another type of pooled investment vehicle, or 
trustee of a trust) that gives you or your supervised person legal 
ownership of or access to client funds or securities.
    (2) Independent representative means a person that:
    (i) Acts as agent for an advisory client, including in the case of a 
pooled investment vehicle, for limited partners of a limited partnership 
(or members of a limited liability company, or other beneficial owners 
of another type of pooled investment vehicle) and by law or contract is 
obliged to act in the best interest of the advisory client or the 
limited partners (or members, or other beneficial owners);
    (ii) Does not control, is not controlled by, and is not under common 
control with you; and
    (iii) Does not have, and has not had within the past two years, a 
material business relationship with you.
    (3) Qualified custodian means:
    (i) A bank as defined in section 202(a)(2) of the Advisers Act (15 
U.S.C. 80b-2(a)(2)) or a savings association as defined in section 
3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)) that 
has deposits insured by the Federal Deposit Insurance Corporation under 
the Federal Deposit Insurance Act (12 U.S.C. 1811);
    (ii) A broker-dealer registered under section 15(b)(1) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(1)), holding the 
client assets in customer accounts;
    (iii) A futures commission merchant registered under section 4f(a) 
of the Commodity Exchange Act (7 U.S.C. 6f(a)), holding the client 
assets in customer accounts, but only with respect to clients' funds and 
security futures, or other securities incidental to transactions in 
contracts for the purchase or sale of a commodity for future delivery 
and options thereon; and
    (iv) A foreign financial institution that customarily holds 
financial assets for its customers, provided that the foreign financial 
institution keeps the advisory clients' assets in customer accounts 
segregated from its proprietary assets.

[68 FR 56700, Oct. 1, 2003; 68 FR 61555, Oct. 28, 2003]



Sec. 275.206(4)-3  Cash payments for client solicitations.

    (a) It shall be unlawful for any investment adviser required to be 
registered pursuant to section 203 of the Act to pay a cash fee, 
directly or indirectly, to a solicitor with respect to solicitation 
activities unless:
    (1)(i) The investment adviser is registered under the Act;
    (ii) The solicitor is not a person (A) subject to a Commission order 
issued under section 203(f) of the Act, or (B) convicted within the 
previous ten years of any felony or misdemeanor involving conduct 
described in section

[[Page 887]]

203(e)(2)(A) through (D) of the Act, or (C) who has been found by the 
Commission to have engaged, or has been convicted of engaging, in any of 
the conduct specified in paragraphs (1), (5) or (6) of section 203(e) of 
the Act, or (D) is subject to an order, judgment or decree described in 
section 203(e)(4) of the Act; and
    (iii) Such cash fee is paid pursuant to a written agreement to which 
the adviser is a party; and
    Note: The investment adviser shall retain a copy of each written 
agreement required by this paragraph as part of the records required to 
be kept under Sec. 275.204-2(a)(10) of this chapter.
    (2) Such cash fee is paid to a solicitor:
    (i) With respect to solicitation activities for the provision of 
impersonal advisory services only; or
    (ii) Who is (A) a partner, officer, director or employee of such 
investment adviser or (B) a partner, officer, director or employee of a 
person which controls, is controlled by, or is under common control with 
such investment adviser: Provided, That the status of such solicitor as 
a partner, officer, director or employee of such investment adviser or 
other person, and any affiliation between the investment adviser and 
such other person, is disclosed to the client at the time of the 
solicitation or referral; or
    (iii) Other than a solicitor specified in paragraph (a)(2) (i) or 
(ii) of this section if all of the following conditions are met:
    (A) The written agreement required by paragraph (a)(1)(iii) of this 
section: (1) Describes the solicitation activities to be engaged in by 
the solicitor on behalf of the investment adviser and the compensation 
to be received therefor; (2) contains an undertaking by the solicitor to 
perform his duties under the agreement in a manner consistent with the 
instructions of the investment adviser and the provisions of the Act and 
the rules thereunder; (3) requires that the solicitor, at the time of 
any solicitation activities for which compensation is paid or to be paid 
by the investment adviser, provide the client with a current copy of the 
investment adviser's written disclosure statement required by Sec. 
275.204-3 of this chapter (``brochure rule'') and a separate written 
disclosure document described in paragraph (b) of this rule.
    (B) The investment adviser receives from the client, prior to, or at 
the time of, entering into any written or oral investment advisory 
contract with such client, a signed and dated acknowledgment of receipt 
of the investment adviser's written disclosure statement and the 
solicitor's written disclosure document.
    Note: The investment adviser shall retain a copy of each such 
acknowledgment and solicitor disclosure document as part of the records 
required to be kept under Sec. 275.204-2(a)(15) of this chapter.
    (C) The investment adviser makes a bona fide effort to ascertain 
whether the solicitor has complied with the agreement, and has a 
reasonable basis for believing that the solicitor has so complied.
    (b) The separate written disclosure document required to be 
furnished by the solicitor to the client pursuant to this section shall 
contain the following information:
    (1) The name of the solicitor;
    (2) The name of the investment adviser;
    (3) The nature of the relationship, including any affiliation, 
between the solicitor and the investment adviser;
    (4) A statement that the solicitor will be compensated for his 
solicitation services by the investment adviser;
    (5) The terms of such compensation arrangement, including a 
description of the compensation paid or to be paid to the solicitor; and
    (6) The amount, if any, for the cost of obtaining his account the 
client will be charged in addition to the advisory fee, and the 
differential, if any, among clients with respect to the amount or level 
of advisory fees charged by the investment adviser if such differential 
is attributable to the existence of any arrangement pursuant to which 
the investment adviser has agreed to compensate the solicitor for 
soliciting clients for, or referring clients to, the investment adviser.
    (c) Nothing in this section shall be deemed to relieve any person of 
any fiduciary or other obligation to which such person may be subject 
under any law.
    (d) For purposes of this section,

[[Page 888]]

    (1) Solicitor means any person who, directly or indirectly, solicits 
any client for, or refers any client to, an investment adviser.
    (2) Client includes any prospective client.
    (3) Impersonal advisory services means investment advisory services 
provided solely by means of (i) written materials or oral statements 
which do not purport to meet the objectives or needs of the specific 
client, (ii) statistical information containing no expressions of 
opinions as to the investment merits of particular securities, or (iii) 
any combination of the foregoing services.

(Secs. 204, 206, and 211 of the Advisers Act (15 U.S.C. 80b-4, 80b-6 and 
80b-11(a)))

[44 FR 42130, July 18, 1979; 54 FR 32441, Aug. 8, 1989, as amended at 62 
FR 28135, May 22, 1997; 63 FR 39716, July 24, 1998]



Sec. 275.206(4)-4  Financial and disciplinary information that investment 
advisers must disclose to clients.

    (a) It shall constitute a fraudulent, deceptive, or manipulative 
act, practice, or course of business within the meaning of section 
206(4) of the Act (15 U.S.C. 80b-6(4)) for any investment adviser 
registered or required to be registered under section 203 of the Act (15 
U.S.C. 80b-3) to fail to disclose to any client or prospective client 
all material facts with respect to:
    (1) A financial condition of the adviser that is reasonably likely 
to impair the ability of the adviser to meet contractual commitments to 
clients, if the adviser has discretionary authority (express or implied) 
or custody over such client's funds or securities, or requires 
prepayment of advisory fees of more than $500 from such client, 6 months 
or more in advance; or
    (2) A legal or disciplinary event that is material to an evaluation 
of the adviser's integrity or ability to meet contractual commitments to 
clients.
    (b) It shall constitute a rebuttable presumption that the following 
legal or disciplinary events involving the adviser or a management 
person of the adviser (any of the foregoing being referred to hereafter 
as ``person'') that were not resolved in the person's favor or 
subsequently reversed, suspended, or vacated are material within the 
meaning of paragraph (a)(2) of the rule for a period of 10 years from 
the time of the event:
    (1) A criminal or civil action in a court of competent jurisdiction 
in which the person--
    (i) Was convicted, pleaded guilty or nolo contendere (``no 
contest'') to a felony or misdemeanor, or is the named subject of a 
pending criminal proceeding (any of the foregoing referred to hereafter 
as ``action''), and such action involved: an investment-related 
business; fraud, false statements, or omissions; wrongful taking of 
property; or bribery, forgery, counterfeiting, or extortion;
    (ii) Was found to have been involved in a violation of an 
investment-related statute or regulation; or
    (iii) Was the subject of any order, judgment, or decree permanently 
or temporarily enjoining the person from, or otherwise limiting the 
person from, engaging in any investment-related activity.
    (2) Administrative proceedings before the Securities and Exchange 
Commission, and other federal regulatory agency or any state agency (any 
of the foregoing being referred to hereafter as ``agency'') in which the 
person--
    (i) Was found to have caused an investment-related business to lose 
its authorization to do business; or
    (ii) Was found to have been involved in a violation of an 
investment-related statute or regulation and was the subject of an order 
by the agency denying, suspending, or revoking the authorization of the 
person to act in, or barring or suspending the person's association 
with, an investment-related business; or otherwise significantly 
limiting the person's investment-related activities.
    (3) Self-Regulatory Organization (SRO) proceedings in which the 
person--
    (i) Was found to have caused an investment-related business to lose 
its authorization to do business; or
    (ii) Was found to have been involved in a violation of the SRO's 
rules and was the subject of an order by the SRO barring or suspending 
the person from membership or from association with other members, or 
expelling the person from membership; fining the person

[[Page 889]]

more than $2,500; or otherwise significantly limiting the person's 
investment-related activities.
    (c) The information required to be disclosed by paragraph (a) of 
this section shall be disclosed to clients promptly, and to prospective 
clients not less than 48 hours prior to entering into any written or 
oral investment advisory contract, or no later than the time of entering 
into such contract if the client has the right to terminate the contract 
without penalty within five business days after entering into the 
contract.
    (d) For purposes of this rule:
    (1) Management person means a person with power to exercise, 
directly or indirectly, a controlling influence over the management or 
policies of an adviser which is a company or to determine the general 
investment advice given to clients.
    (2) Found means determined or ascertained by adjudication or consent 
in a final SRO proceeding, administrative proceeding, or court action.
    (3) Investment-related means pertaining to securities commodities, 
banking, insurance, or real estate (including, but not limited to, 
action as or being associated with a broker, dealer, investment company, 
investment adviser, government securities broker or dealer, municipal 
securities dealer, bank, savings and loan association, entity or person 
required to be registered under the Commodity Exchange Act (7 U.S.C. 1 
et seq.), or fiduciary).
    (4) Involved means acting or aiding, abetting, causing, counseling, 
commanding, inducing, conspiring with or failing reasonably to supervise 
another in doing an act.
    (5) Self-Regulatory Organization or SRO means any national 
securities or commodities exchange, registered association, or 
registered clearing agency.
    (e) For purposes of calculating the 10-year period during which 
events are presumed to be material under paragraph (b), the date of a 
reportable event shall be the date on which the final order, judgment, 
or decree was entered, or the date on which any rights of appeal from 
preliminary orders, judgments, or decrees lapsed.
    (f) Compliance with paragraph (b) of this rule shall not relieve any 
investment adviser from the disclosure obligations of paragraph (a) of 
the rule; compliance with paragraph (a) of the rule shall not relieve 
any investment adviser from any other disclosure requirement under the 
Act, the rules and regulations thereunder, or under any other federal or 
state law.
    Note: Registered investment advisers may disclose this information 
to clients and pospective clients in their ``brochure,'' the written 
disclosure statement to clients under Rule 204-3 (17 CFR 275.204-3); 
Provided, That the delivery of the brochure satisfies the timing of 
disclosure requirements described in paragraph (c) of this rule.

[52 FR 36918, Oct, 2, 1987, as amended at 62 FR 28135, May 22, 1997]



Sec. 275.206(4)-6  Proxy voting.

    If you are an investment adviser registered or required to be 
registered under section 203 of the Act (15 U.S.C. 80b-3), it is a 
fraudulent, deceptive, or manipulative act, practice or course of 
business within the meaning of section 206(4) of the Act (15 U.S.C. 80b-
6(4)), for you to exercise voting authority with respect to client 
securities, unless you:
    (a) Adopt and implement written policies and procedures that are 
reasonably designed to ensure that you vote client securities in the 
best interest of clients, which procedures must include how you address 
material conflicts that may arise between your interests and those of 
your clients;
    (b) Disclose to clients how they may obtain information from you 
about how you voted with respect to their securities; and
    (c) Describe to clients your proxy voting policies and procedures 
and, upon request, furnish a copy of the policies and procedures to the 
requesting client.

[68 FR 6593, Feb. 7, 2003]



Sec. 275.206(4)-7  Compliance procedures and practices.

    If you are an investment adviser registered or required to be 
registered under section 203 of the Investment Advisers Act of 1940 (15 
U.S.C. 80b-3), it shall be unlawful within the meaning of section 206 of 
the Act (15 U.S.C. 80b-6) for you to provide investment advice to 
clients unless you:

[[Page 890]]

    (a) Policies and procedures. Adopt and implement written policies 
and procedures reasonably designed to prevent violation, by you and your 
supervised persons, of the Act and the rules that the Commission has 
adopted under the Act;
    (b) Annual review. Review, no less frequently than annually, the 
adequacy of the policies and procedures established pursuant to this 
section and the effectiveness of their implementation; and
    (c) Chief compliance officer. Designate an individual (who is a 
supervised person) responsible for administering the policies and 
procedures that you adopt under paragraph (a) of this section.

[68 FR 74730, Dec. 24, 2003]



Sec. 275.222-1  Definitions.

    For purposes of section 222 (15 U.S.C. 80b-18a) of the Act:
    (a) Place of business. ``Place of business'' of an investment 
adviser means:
    (1) An office at which the investment adviser regularly provides 
investment advisory services, solicits, meets with, or otherwise 
communicates with clients; and
    (2) Any other location that is held out to the general public as a 
location at which the investment adviser provides investment advisory 
services, solicits, meets with, or otherwise communicates with clients.
    (b) Principal place of business. ``Principal place of business'' of 
an investment adviser means the executive office of the investment 
adviser from which the officers, partners, or managers of the investment 
adviser direct, control, and coordinate the activities of the investment 
adviser.

[62 FR 28135, May 22, 1997]



Sec. 275.222-2  Definiton of ``client'' for purposes of the national 
de minimis standard.

    For purposes of section 222(d)(2) of the Act (15 U.S.C. 80b-
18a(d)(2)), an investment adviser may rely upon the definition of 
``client'' provided by Sec. 275.203(b)(3)-1.

[62 FR 28136, May 22, 1997]



PART 276_INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 

ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS 
THEREUNDER--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                      Release
                      Subject                           No.         Date            Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Opinion of General Counsel relating to section              2   Oct. 28, 1940  11 FR 10996.
 202(a)(11)(C) of the Investment Advisers Act of
 1940.
Opinion of the General Counsel relating to the use          8   Dec. 12, 1940   Do.
 of the name ``investment counsel'' under section
 208(c) of the Investment Advisers Act of 1940.
Opinion of Director of Trading and Exchange                40    Feb. 5, 1945  11 FR 10997.
 Division, relating to section 206 of the
 Investment Advisers Act of 1940, section 17(a) of
 the Securities Act of 1933, and sections 10(b) and
 15(c)(1) of the Securities Exchange Act of 1934.
Opinion of the General Counsel relating to the use         58   Apr. 10, 1951  16 FR 3387.
 of ``hedge clauses'' by brokers, dealers,
 investment advisers, and others.
Statement of the Commission to clarify the meaning        194   Jan. 25, 1966  31 FR 1005.
 of ``beneficial ownership of securities'' as
 relates to beneficial ownership of securities held
 by family members.
Statement of the Commission setting the date of May       196   Feb. 14, 1966  31 FR 3175.
 1, 1966 after which filings must reflect
 beneficial ownership of securities held by family
 members.
Statement of the Commission describing nature of          201    June 1, 1966  31 FR 7821.
 examination required to be made of all funds and
 securities held by an investment adviser and the
 content of related accountant's certificate.
Publication of the Commission's procedure to be           281   Jan. 25, 1971  36 FR 2600.
 followed if requests are to be met for no action
 or interpretative letters and responses thereto to
 be made available for public use.
Commission's statement of factors to be considered        315   Apr. 19, 1972  37 FR 7690.
 in connection with investment company advisory
 contracts containing incentive arrangements.
Applicability of Commission's policy statement on         318    May 18, 1972  37 FR 9988.
 the future structure of securities markets to
 selection of brokers and payment of commissions by
 institutional managers.
Commission's decisions on advisory committee              336    Mar. 1, 1973  38 FR 5457.
 recommendations regarding commencement of
 enforcement proceedings and termination of staff
 investigations.

[[Page 891]]

 
Commission's statement on obligations of                  377   June 29, 1973  38 FR 17201.
 underwriters with respect to discretionary
 accounts.
Applicability of investment advisers act to certain       563   Jan. 10, 1977  42 FR 2953;
 publications.                                                                 42 FR 8140.
Contingent advisory compensation arrangements......       721    May 16, 1980  45 FR 34876.
Applicability of investment advisers act to               770   Aug. 13, 1981  46 FR 41771.
 financial planners, pension consultants, and other
 persons who provide investment advisory services
 as an integral component of other financially
 related services.
Statement of position of Commission's Division of         969   Apr. 30, 1985  50 FR 19341.
 Investment Management.
Statement of staff interpretive position regarding       1000    Dec. 3, 1985  50 FR 49835.
 certain rules and forms; uniform registration,
 disclolsure, and reporting requirements.
Applicability of the investment Advisers Act to          1092    Oct. 8, 1987  52 FR 38400.
 financial planners, pension consultants, and other
 persons who provide investment advisory services
 as a component of other financial services.
Registration of Successors to Broker-Dealers and         1357    Jan. 4, 1993  58 FR 11.
 Investment Advisors.
Use of electronic media for delivery purposes......      1562     May 9, 1996  61 FR 24651.
Statement of the Commission Regarding Use of             1710   Mar. 23, 1998  63 FR 14814
 Internet Web Sites to Offer Securities, Solicit
 Securities Transactions or Advertise Investment
 Services Offshore.
Interpretation of Section 206(3) of the Investment       1732   July 17, 1998  63 FR 39508
 Advisers Act of 1940.
Statement of the Commission Regarding Disclosure of      1738   July 29, 1998  63 FR 41404
 Year 2000 Issues and Consequences by Public
 Companies, Investment Advisers, Investment
 Companies, and Municipal Securities Issuers.
----------------------------------------------------------------------------------------------------------------



PART 279_FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 1940--Table of Contents




Sec.
279.0-1 Availability of forms.
279.1 Form ADV, for application for registration of investment adviser 
          and for amendments to such registration statement.
279.2 Form ADV-W, notice of withdrawal from registration as investment 
          adviser.
279.3 Form ADV-H, application for a temporary or continuing hardship 
          exemption.
279.4 Form ADV-NR, appointment of agent for service of process, by non-
          resident general partner and non-resident managing agent of an 
          investment adviser.
279.5-279.7 [Reserved]
279.8 Form ADV-E, cover page for certificate of accounting of securities 
          and funds in possession or custody of an investment adviser.
279.9 [Reserved]

    Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et 
seq.

    Source: 33 FR 19005, Dec. 20, 1968, unless otherwise noted.



Sec. 279.0-1  Availability of forms.

    (a) This part identifies and describes the forms prescribed for use 
under the Investment Advisers Act of 1940.
    (b) Any person may obtain a copy of any form prescribed for use in 
this part by written request to the Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549. Any person may inspect the 
forms at this address and at the Commission's regional and district 
offices. (See Sec. 200.11 of this chapter for the addresses of SEC 
regional and district offices.)

[46 FR 17757, Mar. 20, 1981, as amended at 47 FR 26820, June 22, 1982; 
59 FR 5946, Feb. 9, 1994]



Sec. 279.1  Form ADV, for application for registration of investment 
adviser and for amendments to such registration statement.

    This form shall be filed pursuant to Rule 203-1 (Sec. 275.203-1 of 
this chapter) as an application for registration of an investment 
adviser pursuant to sections 203(c) or 203(g) of the Investment Advisers 
Act of 1940, and also as an amendment to registration pursuant to Rule 
204-1 (Sec. 275.204-1 of this chapter).

[44 FR 21008, Apr. 9, 1979]

    Editorial Note: For Federal Register citations affecting Form ADV, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 279.2  Form ADV-W, notice of withdrawal from registration as 
investment adviser.

    This form shall be filed pursuant to Rule 203-2 (Sec. 275.203-2 of 
this chapter) by a registered investment adviser as a notice of 
withdrawal from registration

[[Page 892]]

as such under the Investment Advisers Act of 1940.

    Editorial Note: For Federal Register citations affecting Form ADV-W, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 279.3  Form ADV-H, application for a temporary or continuing hardship 
exemption.

    An investment adviser must file this form under Sec. 275.203-3 of 
this chapter to request a temporary hardship exemption or apply for a 
continuing hardship exemption.

[65 FR 57451, Sept. 22, 2000]



Sec. 279.4  Form ADV-NR, appointment of agent for service of process by 

non-resident general partner and non-resident managing agent of an 
investment adviser.

    Each non-resident general partner or managing agent of an investment 
adviser must file this form under Sec. 275.0-2 of this chapter.

[65 FR 57451, Sept. 22, 2000]



Sec. Sec. 279.5--279.7  [Reserved]



Sec. 279.8  Form ADV-E, cover page for certificate of accounting of 
securities and funds in possession or custody of an investment adviser.

[54 FR 32049, Aug. 4, 1989]

    Editorial Note: For Federal Register citations affecting Form ADV-E, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 279.9  [Reserved]



PART 281_INTERPRETATIVE RELEASES RELATING TO CORPORATE REORGANIZATIONS 
UNDER CHAPTER X OF THE BANKRUPTCY ACT--Table of Contents

----------------------------------------------------------------------------------------------------------------
                                                Release
                   Subject                        No.                Date               Fed. Reg. Vol. and Page
----------------------------------------------------------------------------------------------------------------
Letter of the Commission with respect to              1  Sept. 26, 1938.............  11 FR 10997.
 transmission to the Commission of all
 petitions, answers, orders, applications,
 reports and other papers filed under Chapter
 X of the Bankruptcy Act.
Statement by the Commission summarizing               2  ......do...................  11 FR 10998.
 Chapter X of the Bankruptcy Act.
----------------------------------------------------------------------------------------------------------------



PART 285_RULES AND REGULATIONS PURSUANT TO SECTION 15(a) OF THE 
BRETTON WOODS AGREEMENTS ACT--Table of Contents




Sec.
285.1 Applicability of part.
285.2 Periodic reports.
285.3 Reports with respect to proposed distribution of primary 
          obligations.
285.4 Preparation and filing of reports.
Schedule A to Part 285

    Authority: Secs. 19, 23, 48 Stat. 85, as amended, 901, as amended, 
sec. 15, 63 Stat. 298; 15 U.S.C. 77s, 78w 22 U.S.C. 286k-1.



Sec. 285.1  Applicability of part.

    This part (Regulation BW), prescribes the reports to be filed with 
the Securities and Exchange Commission by the International Bank for 
Reconstruction and Development pursuant to section 15(a) of the Bretton 
Woods Agreements Act.

[Reg. BW, 15 FR 281, Jan. 17, 1950]



Sec. 285.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter.
    (2) Copies of the Bank's regular quarterly financial statements.
    (3) Copies of any material modifications or amendments during such 
quarter of any exhibits (other than (i) constituent documents defining 
the rights of holders of securities of other issuers

[[Page 893]]

guaranteed by the Bank and (ii) loan and guaranty agreements to which 
the Bank is a party) previously filed with the Commission under any 
statute.
    (b) Copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.

[20 FR 588, Jan. 27, 1955]



Sec. 285.3  Reports with respect to proposed distribution of primary 
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A below. 
The term ``sell'' as used in this section and in Schedule A means the 
making of a completed sale or a firm commitment to sell.

[46 FR 48179, Oct. 1, 1981]



Sec. 285.4  Preparation and filing of reports.

    (a) Every report required by this part shall be filed under cover of 
a letter of transmittal which shall state the nature of the report and 
indicate the particular rule and subdivision thereof pursuant to which 
the report is filed. At least the original of every such letter shall be 
signed on behalf of the Bank by a duly authorized officer thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec. 285.3 (Rule 3) may be filed in the 
form of a prospectus to the extent that such prospectus contains the 
information specified in Schedule A.

[Reg. BW, 15 FR 281, Jan. 17, 1950]

                         Schedule A to Part 285

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec. 285.3 (Rule 3) with respect to a 
proposed distribution of primary obligations of the Bank. Information 
not available at the time of filing the report shall be filed as 
promptly thereafter as possible.
    Item 1. Description of obligations. As to each issue of primary 
obligations of the Bank which is to be distributed, furnish the 
following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (1) any redemption provisions and (2) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
to the payment of interest or principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.
    Item 2. Distribution of obligations. (a) Outline briefly the plan of 
distribution of the obligations and state the amount of the 
participation of each principal underwriter, if any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.

[[Page 894]]

    Item 3. Distribution spread. The following information shall be 
given, in substantially the tabular form indicated, as to all 
obligations which are to be offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                   Selling
                                       Price to   discounts    Proceeds
                                          the        and        to the
                                        public   commissions     Bank
------------------------------------------------------------------------
Per..................................  ........  ...........  ..........
Total................................  ........  ...........  ..........
------------------------------------------------------------------------

    Item 4. Discounts and commissions to subunderwriters and dealers. 
State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts so paid or to be so paid.
    Item 5. Other expenses of distribution. Furnish a reasonably 
itemized statement of all expenses of the Bank in connection with the 
issuance and distribution of the obligations, except underwriters' or 
dealers' discounts and commissions.
    Instructions: Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.
    Item 6. Application of proceeds. Make a reasonably itemized 
statement of the purposes, so far as determinable, for which the net 
proceeds to the Bank from the obligations are to be used, and state the 
approximate amount to be used for each such purpose.
    Item 7. Exhibits to be furnished. The following documents shall be 
attached to or otherwise furnished as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.
    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distribution of the obligations to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.

[Reg. BW, 15 FR 281, Jan. 17, 1950, as amended at 20 FR 588, Jan. 27, 
1955]



PART 286_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 11(a) OF 
THE INTER-AMERICAN DEVELOPMENT BANK ACT--Table of Contents




Sec.
286.1 Applicability of this part.
286.2 Periodic reports.
286.3 Reports with respect to proposed distribution of primary 
          obligations.
286.4 Preparation and filing of reports.

Schedule A to Part 286

    Authority: Secs. 3-9, 11, 12, 73 Stat. 299-301; 22 U.S.C. 283a-283i.

    Source: 25 FR 10452, Nov. 1, 1960, unless otherwise noted.



Sec. 286.1  Applicability of this part.

    This part (Regulation IA) prescribes the reports to be filed with 
the Securities and Exchange Commission by the Inter-American Development 
Bank pursuant to section 11(a) of the Inter-American Development Bank 
Act.



Sec. 286.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter.
    (2) Copies of the Bank's regular quarterly financial statement.
    (3) Copies of any material modifications or amendments during such 
quarter of any exhibits (other than (i) constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
Bank, and (ii) loans and guaranty agreements to which the Bank is a 
party) previously filed with the Commission under any statute.
    (b) Copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.



Sec. 286.3  Reports with respect to proposed distribution of primary 
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States,

[[Page 895]]

a report containing the information and documents specified in Schedule 
A below. The term ``sell'' as used in this section and in Schedule A 
means the making of a completed sale or a firm commitment to sell.

[46 FR 48179, Oct. 2, 1981]



Sec. 286.4  Preparation and filing of reports.

    (a) Every report required by this part shall be filed under cover of 
a letter of transmittal which shall state the nature of the report and 
indicate the particular rule and subdivision thereof pursuant to which 
the report is filed. At least the original of every such letter shall be 
signed on behalf of the Bank by a duly authorized officer thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec. 286.3 may be filed in the form of a 
prospectus to the extent that such prospectus contains the information 
specified in Schedule A.

                         Schedule A to Part 286

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec. 286.3 with respect to a proposed 
distribution of primary obligations of the Bank. Information not 
available at the time of filing the report shall be filed as promptly 
thereafter as possible.

                   Item 1. Description of obligations

    As to each issue of primary obligations of the Bank which is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (1) any redemption provisions and (2) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
the payment of interest or principal, rank prior to the obligations to 
be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.

                   Item 2. Distribution of obligations

    (a) Outline briefly the plan of distribution of the obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.

                       Item 3. Distribution spread

    The following information shall be given, in substantially the 
tabular form indicated, as to all obligations which are to be offered 
for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                   Selling
                                       Price to   discounts    Proceeds
                                          the        and        to the
                                        public   commissions     bank
------------------------------------------------------------------------
Per unit.............................  ........  ...........  ..........
Total................................  ........  ...........  ..........
------------------------------------------------------------------------

    Item 4. Discounts and commissions to sub-underwriters and dealers

    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to

[[Page 896]]

that effect will suffice, without giving the additional amounts to be so 
paid.

                 Item 5. Other expenses of distribution

    Furnish a reasonably itemized statement of all expenses of the Bank 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions.
    Instruction. Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.

                     Item 6. Application of proceeds

    Make a reasonably itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the Bank from the 
obligations are to be used, and state the approximate amount to be used 
for each such purpose.

                    Item 7. Exhibits to be furnished

    The following documents shall be attached to or otherwise furnished 
as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.
    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distributions of the obligations, to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.



PART 287_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 11(a) OF 
THE ASIAN DEVELOPMENT BANK ACT--Table of Contents




Sec.
287.1 Applicability of this part.
287.2 Periodic reports.
287.3 Reports with respect to proposed distribution of primary 
          obligations.
287.4 Preparation and filing of reports.
287.101 Schedule A--Information required in reports pursuant to Sec. 
          287.3.

    Authority: Sec. 11, 80 Stat. 73; 22 U.S.C. 285h.

    Source: AD1, 33 FR 259, Jan. 9, 1968, unless otherwise noted.



Sec. 287.1  Applicability of this part.

    This part (Regulation AD) prescribes the reports to be filed with 
the Securities and Exchange Commission by the Asian Development Bank 
pursuant to section 11(a) of the Asian Development Bank Act.



Sec. 287.2  Periodic reports.

    (a) Within 60 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter.
    (2) Copies of the Bank's regular quarterly financial statement.
    (3) Copies of any material modifications or amendments during such 
quarter of any exhibits (other than (i) constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
Bank, and (ii) loans and guaranty agreements to which the Bank is a 
party) previously filed with the Commission under any statute.
    (b) Copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.



Sec. 287.3  Reports with respect to proposed distribution of primary obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A below. 
The term ``sell'' as used in this section and in Schedule A means the 
making of a completed sale or a firm commitment to sell.

[46 FR 48179, Oct. 1, 1981]



Sec. 287.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision

[[Page 897]]

thereof pursuant to which the report is filed. At least the original of 
every such letter shall be signed on behalf of the Bank by a duly 
authorized officer thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Rule 3 (17 CFR 287.3) may be filed in the 
form of a prospectus to the extent that such prospectus contains the 
information specified in Schedule A (17 CFR 287.101).



Sec. 287.101  Schedule A--Information required in reports pursuant to Sec. 287.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Rule 3 (17 CFR 287.3) with respect to 
a proposed distribution of primary obligations of the Bank. Information 
not available at the time of filing the report shall be filed as 
promptly thereafter as possible.

    Item 1. Description of obligations. As to each issue of primary 
obligations of the Bank which is to be distributed, furnish the 
following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (1) any redemption provisions and (2) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
to the payment of interest or principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.
    Item 2. Distribution of obligations. (a) Outline briefly the plan of 
distribution of the obligations and state the amount of the 
participation of each principal underwriter, if any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3. Distribution spread. The following information shall be 
given, in substantially the tabular form indicated, as to all 
obligations which are to be offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                   Selling
                                       Price to   discounts    Proceeds
                                          the        and        to the
                                        public   commissions     bank
------------------------------------------------------------------------
Per unit.............................  ........  ...........  ..........
Total................................  ........  ...........  ..........
------------------------------------------------------------------------

    Item 4. Discounts and commissions to subunderwriters and dealers. 
State briefly the discounts and commission to be allowed or paid to 
dealers. If any dealers are to act in the capacity of subunderwriters 
and are to be allowed or paid any additional discounts or commissions 
for action in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.
    Item 5. Other expenses of distribution. Furnish a reasonably 
itemized statement of all expenses of the Bank in connection with the 
issuance and distribution of the obligations, except underwriters' or 
dealers' discounts and commissions.
    Instruction. Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.

[[Page 898]]

    Item 6. Application of proceeds. Make a reasonably itemized 
statement of the purposes, so far as determinable, for which the net 
proceeds to the Bank from the obligations are to be used, and state the 
approximate amount to be used for each such purpose.
    Item 7. Exhibits to be furnished. The following documents shall be 
attached to or otherwise furnished as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.
    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distributions of the obligations, to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.



PART 288_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 9(a) OF THE 
AFRICAN DEVELOPMENT BANK ACT--Table of Contents




Sec.
288.1 Applicability of this part.
288.2 Periodic reports.
288.3 Reports with respect to proposed distribution of primary 
          obligations.
288.4 Preparation and filing of reports.
288.101 Schedule A. Information required in reports pursuant to Sec. 
          288.3

    Authority: Sec. 9(a), 95 Stat. 743, 22 U.S.C. 290i-9a; sec. 19(a), 
48 Stat. 85, 15 U.S.C. 77s(a).

    Source: 50 FR 26191, June 25, 1985, unless otherwise noted.



Sec. 288.1  Applicability of this part.

    This part (Regulation AFDB) prescribes the reports to be filed with 
the Securities and Exchange Commission by the African Development Bank 
pursuant to section 9(a) of the African Development Bank Act.



Sec. 288.2  Periodic reports.

    (a) Within 60 days after the end of each of its fiscal quarters, the 
Bank shall file with the Commission the following information:
    (1) Information as to any purchases or sales by the Bank of its 
primary obligations during such quarter;
    (2) Two copies of the Bank's regular quarterly financial statement; 
and
    (3) Two copies of any material modifications or amendments during 
such quarter of any exhibits (other than (i) constituent documents 
defining the rights of holders of securities of other issuers guaranteed 
by the Bank, and (ii) loans and guaranty agreements to which the Bank is 
a party) previously filed with the Commission under any statute.
    (b) Two copies of each annual report of the Bank to its Board of 
Governors shall be filed with the Commission within 10 days after the 
submission of such report to the Board of Governors.



Sec. 288.3  Reports with respect to proposed distribution of primary 
obligations.

    The Bank shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A (17 CFR 
288.101). The term ``sell' as used in this section and in Schedule A 
means the making of a completed sale or a firm commitment to sell.



Sec. 288.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision thereof pursuant 
to which the report is filed. At least the original of every such letter 
shall be signed on behalf of the Bank by a duly authorized officer 
thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Rule 3 (17 CFR 288.3) may be filed in the 
form of

[[Page 899]]

prospectus to the extent that such prospectus contains the information 
specified in Schedule A (17 CFR 288.101).



Sec. 288.101  Schedule A. Information required in reports pursuant to Sec. 288.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Rule 3 (17 CFR 288.3) with respect to 
a proposed distribution of primary obligations of the Bank. Information 
not available at the time of filing the report shall be filed as 
promptly thereafter as possible.

                   Item 1: Description of obligations.

    As to each issue of primary obligations of the Bank which is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of (i) any redemption provisions and (ii) any 
amortization, sinking fund or retirement provisions, stating the annual 
amount, if any, which the Bank will be under obligation to apply for the 
satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the Bank will, as 
to the payment of interest or principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the Bank with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the Bank, 
if any.

                  Item 2. Distribution of obligations.

    (a) Outline briefly the plan of distribution of the obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the Bank or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the acount of the Bank or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.

                      Item 3. Distribution spread.

    The following information shall be given, in substantially the 
tabular form indicated, as to all obligations which are to be offered 
for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                  Selling
                                     Price to    discounts   Proceeds to
                                    the public      and        the bank
                                                commissions
------------------------------------------------------------------------
Per Unit.........................  ...........  ...........  ...........
      Total......................  ...........  ...........  ...........
------------------------------------------------------------------------

   Item 4. Discounts and commissions to sub-underwriters and dealers.

    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.

               Item 5. Other expenses of the distribution.

    Furnish a reasonably itemized statement of all expenses of the Bank 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions.
    Instruction. Insofar as practicable, the itemization shall include 
transfer agents' fees, cost of printing and engraving, and legal and 
accounting fees. The information may be given as subject to future 
contingencies. If the amounts of any items are not known, estimates, 
designated as such, shall be given.

                    Item 6. Application of proceeds.

    Make a reasonable itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the Bank from the 
obligations are to be used, and state the approximate amount to be used 
for each such purpose.

                    Item 7. Exhibits to be furnished.

    The following documents shall be attached to or otherwise furnished 
as a part of the report:
    (a) Copies of the constituent instruments defining the rights 
evidenced by the obligations.

[[Page 900]]

    (b) Copies of an opinion of counsel, in the English language, as to 
the legality of the obligations.
    (c) Copies of all material contracts pertaining to the issuance or 
distributions of the obligations, to which the Bank or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Copies of any prospectus or other sales literature to be 
provided by the Bank or any of the principal underwriters for general 
use in connection with the initial distribution of the obligations to 
the public.



PART 289_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 13(a) OF 
THE INTERNATIONAL FINANCE CORPORATION ACT--Table of Contents




Sec.
289.1 Applicability of this part.
289.2 Periodic reports.
289.3 Reports with respect to proposed distribution of primary 
          obligations.
289.4 Preparation and filing of reports.
289.101 Schedule A. Information required in reports pursuant to Sec. 
          289.3.

    Authority: 15 U.S.C. 77s(a); 22 U.S.C. 282m.

    Source: 56 FR 32079, July 15, 1991, unless otherwise noted.



Sec. 289.1  Applicability of this part.

    This part (Regulation IFC) prescribes the reports to be filed with 
the Securities and Exchange Commission by the International Finance 
Corporation (``IFC'') pursuant to section 13(a) of the International 
Finance Corporation Act.



Sec. 289.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters the 
IFC shall file with the Commission the following information:
    (1) Two copies of information as to any purchases or sales by the 
IFC of its primary obligations during such quarter;
    (2) Two copies of the IFC's regular quarterly financial statement; 
and
    (3) Two copies of any material modifications or amendments during 
such quarter of any exhibits (other than constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
IFC, and loan and guaranty agreements to which the IFC is a party) 
previously filed with the Commission under any statute.
    (b) Each annual report of the IFC to its Board of Governors shall be 
filed with the Commission within 10 days after the submission of such 
report to the Board of Governors.



Sec. 289.3  Reports with respect to proposed distribution of primary 
obligations.

    The IFC shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A of this 
part. The term ``sell'' as used in this section and in Schedule A of 
this Part means a completed sale, or a firm commitment to sell to an 
underwriter.



Sec. 289.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision thereof pursuant 
to which the report is filed. At least the original of every such letter 
shall be signed on behalf of the IFC by a duly authorized officer 
thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec. 289.3 may be filed in the form of a 
prospectus to the extent that such prospectus contains the information 
specified in Schedule A of this Part.



Sec. 289.101  Schedule A. Information required in reports pursuant to Sec. 289.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec. 289.3 with respect to a proposed 
distribution of primary

[[Page 901]]

obligations of the IFC. Information not available at the time of filing 
the report shall be filed as promptly thereafter as possible.
    Item 1: Description of obligations.
    As to each issue of primary obligations of the IFC that is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payments dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of:
    (i) Any redemption provisions, and
    (ii) Any amortization, sinking fund or retirement provisions, 
stating the annual amount, if any, which the IFC will be under 
obligation to apply for the satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the IFC will, as to 
the payment of interest and principal, rank prior to the obligations to 
be distributed, describe the nature and extent of such priority, to the 
extent known.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holder thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the IFC with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the IFC, 
if any.
    Item 2: Distribution of obligations.
    (a) Outline briefly the plan of distribution of the obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the IFC or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the IFC or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3: Distribution spread.
    The following information shall be given, in substantially the 
tabular form indicated, as to all primary obligations that are to be 
offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                 Selling
                                Price to the   discounts &   Proceeds to
                                   public      commissions     the IFC
------------------------------------------------------------------------
Per Unit......................  ----          ----           ----
Total.........................  ----          ----           ----
------------------------------------------------------------------------

    Item 4: Discounts and commissions to sub-underwriters and dealers.
    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.
    Item 5: Other expenses of the distribution.
    Furnish a reasonably itemized statement of all expenses of the IFC 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions that are 
provided in Items 2, 3 and 4.

                               Instruction

    Insofar as practicable, the itemization shall include transfer 
agents' fees, cost of printing and engraving, and legal and accounting 
fees. The information may be given as subject to future contingencies. 
If the amounts of any items are not known, estimates, designated as 
such, shall be given.

    Item 6: Application of proceeds.
    Make a reasonably itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the IFC from the obligations 
are to be used, and state the approximate amount to be used for each 
such purpose.

[[Page 902]]

    Item 7: Exhibits to be furnished.
    A copy of each of the following documents shall be attached to or 
otherwise furnished as a part of the report:
    (a) Each constituent instrument defining the rights evidenced by the 
obligations.
    (b) An opinion of counsel, written in the English language, as to 
the legality of the obligations.
    (c) Each material contract pertaining to the issuance or 
distribution of the obligations, to which the IFC or any principal 
underwriter of the obligations is or is to be party, except selling 
group agreements.
    (d) Each prospectus or other sales literature to be provided by the 
IFC or any of the principal underwriters for general use in connection 
with the initial distribution of the obligations to the public.



PART 290_GENERAL RULES AND REGULATIONS PURSUANT TO SECTION 9(a) OF THE 
EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT ACT--Table of Contents




Sec.
290.1 Applicability of this part.
290.2 Periodic reports.
290.3 Reports with respect to proposed distribution of obligations.
290.4 Preparation and filing of reports.
290.101 Schedule A. Information required in reports pursuant to Sec. 
          290.3.

    Authority: 15 U.S.C. 77s(a); 22 U.S.C. 2901-9.

    Source: 56 FR 32082, July 15, 1991, unless otherwise noted.



Sec. 290.1  Applicability of this part.

    This part (Regulation EBRD) prescribes the reports to be filed with 
the Securities and Exchange Commission by the European Bank for 
Reconstruction and Development (``EBRD'') pursuant to section 9(a) of 
the European Bank for Reconstruction and Development Act.



Sec. 290.2  Periodic reports.

    (a) Within 45 days after the end of each of its fiscal quarters the 
EBRD shall file with the Commission the following information:
    (1) Two copies of information as to any purchases or sales by the 
EBRD of its primary obligations during such quarter;
    (2) Two copies of the EBRD's regular quarterly financial statement; 
and
    (3) Two copies of any material modifications or amendments during 
such quarter of any exhibits (other than constituent documents defining 
the rights of holders of securities of other issuers guaranteed by the 
EBRD, and loan guaranty agreements to which the EBRD is a party) 
previously filed with the Commission under any statute.
    (b) Each annual report of the EBRD to its Board of Governors shall 
be filed with the Commission within 10 days after the submission of such 
report to the Board of Governors.



Sec. 290.3  Reports with respect to proposed distribution of obligations.

    The EBRD shall file with the Commission, on or prior to the date on 
which it sells any of its primary obligations in connection with a 
distribution of such obligations in the United States, a report 
containing the information and documents specified in Schedule A of this 
Part. The term ``sell'' as used in this section and in Schedule A of 
this Part means a completed sale, or a firm committment to sell to an 
underwriter.



Sec. 290.4  Preparation and filing of reports.

    (a) Every report required by this regulation shall be filed under 
cover of a letter of transmittal which shall state the nature of the 
report and indicate the particular rule and subdivision thereof pursuant 
to which the report is filed. At least the original of every such letter 
shall be signed on behalf of the EBRD by a duly authorized officer 
thereof.
    (b) Two copies of every report, including the letter of transmittal, 
exhibits and other papers and documents comprising a part of the report, 
shall be filed with the Commission.
    (c) The report shall be in the English language. If any exhibit or 
other paper or document filed with the report is in a foreign language, 
it shall be accompanied by a translation into the English language.
    (d) Reports pursuant to Sec. 290.3 may be filed in the form of a 
prospectus to the

[[Page 903]]

extent that such prospectus contains the information specified in 
Schedule A of this Part.



Sec. 290.101  Schedule A. Information required in reports pursuant to Sec. 290.3.

    This schedule specifies the information and documents to be 
furnished in a report pursuant to Sec. 290.3 with respect to a proposed 
distribution of primary obligations of the EBRD. Information not 
available at the time of filing the report shall be filed as promptly 
thereafter as possible.
    Item 1: Description of obligations.
    As to each issue of primary obligations of the EBRD that is to be 
distributed, furnish the following information:
    (a) The title and date of the issue.
    (b) The interest rate and interest payment dates.
    (c) The maturity date or, if serial, the plan of serial maturities. 
If the maturity of the obligation may be accelerated, state the 
circumstances under which it may be so accelerated.
    (d) A brief outline of:
    (i) Any redemption provisions and
    (ii) Any amortization, sinking fund or retirement provisions, 
stating the annual amount, if any, which the EBRD will be under 
obligation to apply for the satisfaction of such provisions.
    (e) If secured by any lien, the kind and priority thereof, and the 
nature of the property subject to the lien; if any other indebtedness is 
secured by an equal or prior lien on the same property, state the nature 
of such other liens.
    (f) If any obligations issued or to be issued by the EBRD will, as 
to the payment of interest and principal, rank prior to the obligations 
to be distributed, describe the nature and extent of such priority, to 
the extent known.
    (g) Outline briefly any provisions of the governing instruments 
under which the terms of the obligations to be distributed may be 
amended or modified by the holders thereof or otherwise.
    (h) Outline briefly any other material provisions of the governing 
instruments pertaining to the rights of the holders of the obligations 
to be distributed or pertaining to the duties of the EBRD with respect 
thereto.
    (i) The name and address of the fiscal or paying agent of the EBRD, 
if any.
    Item 2: Distribution of obligations.
    (a) Outline briefly the plan of distribution of obligations and 
state the amount of the participation of each principal underwriter, if 
any.
    (b) Describe any arrangements known to the EBRD or to any principal 
underwriter named above designed to stabilize the market for the 
obligations for the account of the EBRD or the principal underwriters as 
a group and indicate whether any transactions have already been effected 
to accomplish that purpose.
    (c) Describe any arrangements for withholding commissions, or 
otherwise, to hold each underwriter or dealer responsible for the 
distribution of his participation.
    Item 3: Distribution spread.
    The following information shall be given, in substantially the 
tabular form indicated, as to all primary obligations that are to be 
offered for cash (estimate, if necessary):

------------------------------------------------------------------------
                                                 Selling
                                Price to the   discounts &   Proceeds to
                                   public      commissions     the EBRD
------------------------------------------------------------------------
Per Unit......................  ----          ----           ----
Total.........................  ----          ----           ----
------------------------------------------------------------------------

    Item 4: Discounts and commissions to sub-underwriters and dealers.
    State briefly the discounts and commissions to be allowed or paid to 
dealers. If any dealers are to act in the capacity of sub-underwriters 
and are to be allowed or paid any additional discounts or commissions 
for acting in such capacity, a general statement to that effect will 
suffice, without giving the additional amounts to be so paid.
    Item 5: Other expenses of the distribution.
    Furnish a reasonably itemized statement of all expenses of the EBRD 
in connection with the issuance and distribution of the obligations, 
except underwriters' or dealers' discounts and commissions that are 
provided in Items 2, 3 and 4.

                               Instruction

    Insofar as practicable, the itemization shall include transfer 
agents' fees, cost of printing and engraving, and legal and accounting 
fees. The information may be given

[[Page 904]]

as subject future contingencies. If the amounts of any items are not 
known, estimates, designated as such, shall be given.

    Item 6: Application of proceeds.
    Make a reasonably itemized statement of the purposes, so far as 
determinable, for which the net proceeds to the EBRD from the 
obligations are to be used, and state the approximate amount to be used 
for each such purpose.
    Item 7: Exhibits to be furnished.
    A copy of each of the following documents shall be attached to or 
otherwise furnished as a part of the report:
    (a) Each constituent instrument defining the rights evidenced by the 
obligations.
    (b) An opinion of counsel, written in the English language, as to 
the legality of the obligations.
    (c) Each material contract pertaining to the issuance or 
distribution of the obligations, to which the EBRD or any principal 
underwriter of the obligations is or is to be a party, except selling 
group agreements.
    (d) Any prospectus or other sales literature to be provided by the 
EBRD or any of the principal underwriters for general use in connection 
with the initial distribution of the obligations to the public.



PART 300_RULES OF THE SECURITIES INVESTOR PROTECTION CORPORATION--Table of Contents




           Accounts of ``Separate'' Customers of SIPC Members

Sec.
300.100 General.
300.101 Individual accounts.
300.102 Accounts held by executors, administrators, guardians, etc.
300.103 Accounts held by a corporation, partnership or unincorporated 
          association.
300.104 Trust accounts.
300.105 Joint accounts.

             Accounts Introduced by Other Brokers or Dealers

300.200 General.
300.201 Accounts introduced by same or different broker or dealer.

         Closeout or Completion of Open Contractual Commitments

300.300 Definitions.
300.301 Contracts to be closed out or completed.
300.302 Mechanics of closeout or completion.
300.303 Report to trustee.
300.304 Retained rights of brokers or dealers.
300.305 Excluded contracts.
300.306 Completion or closeout pursuant to SIPC direction.
300.307 Completion with cash or securities of customer.
300.400 Satisfaction of customer claims for standardized options.

Rules Relating to Satisfaction of a ``Claim for Cash'' or a ``Claim for 
                              Securities''

300.500 General.
300.501 Claim for cash.
300.502 Claim for securities.
300.503 Voidable securities transactions.

    Authority: Sec. 3, 84 Stat. 1636, as amended; 15 U.S.C. 78ccc.

    Source: 44 FR 5077, Jan. 25, 1979, unless otherwise noted, unless 
otherwise noted.
    Note: The numbers to the right of the decimal points correspond with 
the respective rule numbers of the rules of the Securities Investor 
Protection Corporation (hereinafter referred to as ``SIPC'').

    Explanatory Note: Pursuant to section 3(e)(2)(D) of the Securities 
Investor Protection Act of 1970 (hereinafter referred to as ``the 
Act''), the Securities and Exchange Commission (hereinafter referred to 
as ``the Commission'') shall approve a proposed rule change submitted by 
the Securities Investor Protection Corporation if it finds that such 
proposed rule change is in the public interest and is consistent with 
the purposes of the Act, and any proposed rule change so approved shall 
be given force and effect as if promulgated by the Commission. The rules 
of this part 300 have been so approved.

           Accounts of ``Separate'' Customers of SIPC Members



Sec. 300.100  General.

    (a) For the purpose of sections 9(a)(2) and 16(12) of the Securities 
Investor Protection Act (hereinafter referred to as ``the Act''), these 
rules will be applied in determining what accounts held by a person with 
a member of SIPC (hereinafter called a ``member'') are to be deemed 
accounts held in a capacity other than his individual capacity.
    (b) Accounts held by a customer in different capacities, as 
specified by these rules, shall be deemed to be accounts of ``separate'' 
customers.

[[Page 905]]

    (c) A ``person'' as used in these rules includes, but is not limited 
to, an individual, a corporation, a partnership, an association, a joint 
stock company, a trust, an unincorporated organization, or a government 
or political subdivision thereof.
    (d) The burden shall be upon the customer to establish each capacity 
in which he claims to hold accounts separate from his individual 
capacity.



Sec. 300.101  Individual accounts.

    (a) Except as otherwise provided in these rules, all accounts held 
with a member by a person in his own name, and those which under these 
rules are deemed his individual accounts, shall be combined so as to 
constitute a single account of a separate customer.
    (b) An account held with a member by an agent or nominee for another 
person as a principal or beneficial owner shall, except as otherwise 
provided in these rules, be deemed to be an individual account of such 
principal or beneficial owner.



Sec. 300.102  Accounts held by executors, administrators, guardians, etc.

    (a) Accounts held with a member in the name of a decedent or in the 
name of his estate or in the name of the executor or administrator of 
the estate of the decedent shall be combined so as to constitute a 
single account of a separate customer.
    (b) An account held with a member by a guardian, custodian, or 
conservator for the benefit of a ward or for the benefit of a minor 
under the Uniform Gifts to Minors Act or in a similar capacity shall be 
deemed to be held by such guardian, custodian, or conservator in a 
different capacity from any account or accounts maintained by such 
person in his individual capacity.



Sec. 300.103  Accounts held by a corporation, partnership or unincorporated 
association.

    A corporation, partnership or unincorporated association holding an 
account with a member shall be deemed to be a separate customer distinct 
from the person or persons owning such corporation or comprising such 
partnership or unincorporated association if on the filing date it 
existed for a purpose other than primarily to obtain or increase 
protection under the Act.



Sec. 300.104  Trust accounts.

    (a) A trust account held with a member shall be deemed a 
``qualifying trust account'' if it is held on behalf of a valid and 
subsisting express trust created by a written instrument. No account 
held on behalf of a trust that on the filing date existed primarily to 
obtain or increase protection under the Act shall be deemed to be a 
qualifying trust account.
    (b) A qualifying trust account held with a member shall be deemed 
held by a separate customer of the member, distinct from the trustee, 
the testator or his estate, the settlor, or any beneficiary of the 
trust.
    (c) Any account held with a member on behalf of a trust which does 
not meet the requirements of paragraph (a) of this rule shall be deemed 
to be an individual account of the settlor of the trust on behalf of 
which the account is held.



Sec. 300.105  Joint accounts.

    (a) A joint account shall be deemed to be a ``qualifying joint 
account'' if it is owned jointly, whether by the owners thereof as joint 
tenants with the right of survivorship, as tenants by the entirety or as 
tenants in common, or by husband and wife as community property, but 
only if each co-owner possesses authority to act with respect to the 
entire account.
    (b) Subject to paragraph (c) of this rule, each qualifying joint 
account with a member shall be deemed held by one separate customer of 
the member.
    (c) All qualifying joint accounts with a member owned by the same 
persons shall be deemed held by the same customer so that the maximum 
protection afforded to such accounts in the aggregate shall be the 
protection afforded to one separate customer of the member
    (d) A joint account with a member which does not meet the 
requirements of paragraph (a) of this rule shall be deemed to be an 
individual or qualifying joint account of the co-owner or co-owners 
having the exclusive power to act with respect to it.

[[Page 906]]

             Accounts Introduced by Other Brokers or Dealers



Sec. 300.200  General.

    A person having one or more accounts cleared by the member on a 
fully disclosed basis for one or more introducing brokers or dealers is 
a customer of the member and shall be protected with respect to such 
account or accounts without regard to the protection available for any 
other account or accounts he may have with the member.



Sec. 300.201  Accounts introduced by same or different broker or dealer.

    All accounts of a person which are introduced by the same broker or 
dealer shall be combined and protected as the single account of a 
separate customer, unless such accounts are maintained in different 
capacities as specified in Sec. Sec. 300.100 through 300.105; accounts 
introduced by different brokers or dealers shall be protected 
separately.

         Closeout or Completion of Open Contractual Commitments

    Authority: Sec. 3, 6(d), Pub. L. 91-598, 84 Stat. 1636 (15 U.S.C. 
78ccc, 78fff(d)), as amended by secs. 3, 5, 9, Pub. L. 95-283, 92 Stat. 
249.

    Source: Sections 300.300 through 300.307 appear at 44 FR 21211, Apr. 
9, 1979, unless otherwise noted.



Sec. 300.300  Definitions.

    For the purpose of these rules, adopted pursuant to section 8(e) of 
the Securities Investor Protection Act of 1970, as amended (hereinafter 
referred to as ``the Act''):
    (a) The term failed to receive shall mean a contractual commitment 
of the debtor made in the ordinary course of business to pay to another 
broker or dealer the contract price in cash upon receipt from such 
broker or dealer of securities purchased: Provided, That the respective 
obligations of the parties remained outstanding until the close of 
business on the filing date as defined in section 16(7) of the Act 
(hereinafter referred to as the ``filing date'').
    (b) The term failed to deliver shall mean a contractual commitment 
of the debtor, made in the ordinary course of business, to deliver 
securities to another broker or dealer against receipt from such broker 
or dealer of the contract price in cash: Provided, That the respective 
obligations of the parties remained outstanding until the close of 
business on the filing date.
    (c) The term open contractual commitment shall mean a failed to 
receive or a failed to deliver which had a settlement date prior to the 
filing date and the respective obligations of the parties remained 
outstanding on the filing date or had a settlement date which occurs on 
or within three business days subsequent to the filing date: Provided, 
however, That the term ``open contractual commitment'' shall not include 
any contractual commitment for which the security which is the subject 
of the trade had not been issued by the issuer as of the trade date.
    (d) The term customer shall mean a person (other than a broker or 
dealer) in whose behalf a broker or dealer has executed a transaction 
out of which arose an open contractual commitment with the debtor, but 
shall not include any person to the extent that such person at the 
filing date (1) had a claim for property which by contract, agreement of 
understanding, or by operation of law, was a part of the capital of the 
broker or dealer who executed such transaction or was subordinated to 
the claims of creditors of such broker or dealer, or (2) had a 
relationship with the debtor which is specified in section 9(a)(4) of 
the Act.

[44 FR 21211, Apr. 9, 1979, as amended at 62 FR 10451, Mar. 7, 1997]



Sec. 300.301  Contracts to be closed out or completed.

    An open contractual commitment shall be closed out or completed if:
    (a) The open contractual commitment:
    (1) Arises from a transaction in which a customer (as defined in 
Sec. 300.300) of the other broker or dealer had an interest. For the 
purposes of this rule a customer is deemed to have an interest in a 
transaction if (i) the other broker was acting as agent for the customer 
or (ii) the other dealer was not a market maker in the security 
involved, to the extent such other dealer held a firm order from the 
customer and in connection therewith: In

[[Page 907]]

the case of a buy order, prior to executing such customer's order 
purchased as principal the same number of shares or purchased shares to 
accumulate the number of shares necessary to complete the order; or in 
the case of a sell order, prior to executing such customer's order sold 
the same number of shares or a portion thereof; and
    (2)(i) Had a settlement date on or within 30 calendar days prior to 
the filing date and the respective obligations of the parties remained 
outstanding on the filing date or had a settlement date which occurs on 
or within three business days subsequent to the filing date; and
    (ii) Had a trade date on or within three business days prior to such 
settlement date; and
    (b) The other broker or dealer can establish to the satisfaction of 
the trustee through appropriate documentation that:
    (1) In the case of a broker or dealer who maintains his records on a 
specific identification basis:
    (i) The open contractual commitment arose out of a transaction in 
which his customer had such an interest, and
    (ii) In the case of a failed to deliver of the debtor, as of the 
filing date such broker's or dealer's customer's interest had not been 
sold to such broker or dealer; or
    (2) In the case of a broker or dealer who maintains his records 
other than on a specific identification basis, he has determined that a 
customer had such an interest in a manner consistent with that used by 
such broker or dealer prior to the filing date to allocate fails to 
receive and fails to deliver in computing the special reserve bank 
account requirement pursuant to the provisions of Rule 15c3-3 under the 
Securities Exchange Act of 1934 (17 CFR 240.15c3-3); or
    (3) In the case of a broker or dealer not described in paragraph 
(b)(1) or (2) of this section, he has made the determination in a manner 
which the trustee finds to be fair and equitable.

[44 FR 21211, Apr. 9, 1979, as amended at 62 FR 10451, Mar. 7, 1997]



Sec. 300.302  Mechanics of closeout or completion.

    (a) The closeout or completion of an open contractual commitment 
meeting the requirements of Sec. 300.301 shall be effected only:
    (1) By the buy-in or sell-out of the commitment by the other broker 
or dealer in accordance with the usual trade practices initiated by the 
other broker or dealer within or promptly upon the expiration of a 
period of 30 calendar days after settlement date; or
    (2) At the option of the trustee by the delivery of securities 
against receipt of the contract price or payment of the contract price 
against the receipt of the securities at any time within 30 calendar 
days after settlement date unless the commitment previously has been 
bought-in or sold-out in accordance with paragraph (a)(1) of this 
section; or
    (3) In the event of the refusal of the other broker or dealer to 
accept completion of an open contractual commitment in accordance with 
paragraph (a)(2) of this section, or the failure of the other broker or 
dealer to promptly buy-in or sell-out a commitment in accordance with 
paragraph (a)(1) of this section, or in the event of the failure of the 
other broker or dealer to provide the trustee with appropriate 
documentation as required by Sec. 300.303, by delivery of securities 
against receipt of the contract price or payment of the contract price 
against receipt of securities, or the buy-in or sell-out of the 
commitment or cancellation of the commitment or otherwise, as may be 
appropriate, as the trustee in his discretion will most benefit the 
estate of the debtor.
    (b) In the event of a close-out of an open contractual commitment 
pursuant to paragraph (a)(1) of this section, the money differences 
resulting from such close-out shall be payable by the other broker or 
dealer to the trustee or by the trustee to the other broker or dealer, 
whichever would be entitled to receive such difference under the usual 
trade practices: Provided, however, (1) That prior to the payment of any 
such money difference by the trustee to such other broker or dealer with 
respect to transactions executed by such other broker or dealer for any 
separate

[[Page 908]]

customer account, all open contractual commitments with respect to such 
account which meet the requirements of Sec. 300.301 must have been 
completed by delivery of securities against receipt of the contract 
price or by payment of the contract price against receipt of the 
securities in conformity with paragraph (a)(2) of this section, or by 
buy-in or sell-out in conformity with paragraph (a)(1) of this section, 
and (2) that the net amount so payable by the trustee to the other 
broker or dealer shall not exceed $40,000 with respect to any separate 
customer account.



Sec. 300.303  Report to trustee.

    Promptly upon the expiration of 30 calendar days after the filing 
date, or if by the expiration of such 30-day period notice pursuant to 
section 8(a) of the Act of the commencement of proceedings has not been 
published, then as soon as practicable after publication of such notice, 
a broker or dealer who had executed transactions in securities out of 
which arose open contractual commitments with the debtor shall furnish 
to the trustee such information with respect to the buy-in, sell-out or 
other status of open contractual commitments as called for by Forms 300-
A, B and C (Sec. Sec. 301.300a-301.300c of this chapter) including 
appropriate supporting documentation and schedules.



Sec. 300.304  Retained rights of brokers or dealers.

    (a) Nothing stated in these rules shall be construed to prejudice 
the right of a broker or dealer to any claim against the debtor's 
estate, or the right of the trustee to make any claim against a broker 
or dealer, with respect to a commitment of the debtor which was 
outstanding on the filing date, but (1) which is not described in Sec. 
300.300(c), or (2) which, although described in Sec. 300.300(c), does 
not meet the requirements specified in Sec. 300.301 or was not closed 
out of completed in accordance with Sec. 300.302 or was not reported to 
the trustee in conformity with Sec. 300.303 or was not supported by 
appropriate documentation.
    (b) Nothing stated in these rules shall be construed to prejudice 
the right of a broker or dealer to a claim against the debtor's estate 
for the amount by which the money difference due the broker or dealer 
upon a buy-in or sell-out may exceed the amount paid by the trustee to 
such broker or dealer.



Sec. 300.305  Excluded contracts.

    Notwithstanding the fact that an open contractual commitment 
described in Sec. 300.300(c) meets the requirements of Sec. 300.301 
and the other requirements of these rules, a court shall not be 
precluded from canceling such commitment, awarding damages, or granting 
such other remedy as it shall deem fair and equitable if, on application 
of the trustee or SIPC, it determines that such commitment was not 
entered into in the ordinary course of business or was entered into by 
the debtor, or the broker or dealer or his customer, for the purposes of 
creating a commitment in contemplation of a liquidation proceeding under 
the Act. Such a determination shall be made after notice and opportunity 
for hearing by the debtor, such broker or dealer, or such customer, and 
may be made before or after the delivery of securities or payment of the 
contract price or before or after any buy-in or sell-out of the open 
contractual commitment, or otherwise.



Sec. 300.306  Completion or closeout pursuant to SIPC direction.

    In its discretion SIPC may, in order to prevent a substantial 
detrimental impact upon the finanical condition of one or more brokers 
or dealers, direct the closeout or completion of an open contractual 
commitment, irrespective of whether it is described in Sec. 300.300(c) 
or meets the requirements of Sec. 300.301 or has been reported in 
conformity with Sec. 300.303 or is supported by appropriate 
documentation. SIPC shall consult with the Securities and Exchange 
Commission before SIPC makes any determinations under this section.



Sec. 300.307  Completion with cash or securities of customer.

    The trustee may, if authorized by the court, complete an open 
contractual commitment of the debtor, regardless of whether it is 
described in Sec. 300.300(c) or meets the requirements of Sec. 300.301 
or has been reported to the trustee in conformity with Sec. 300.303, to 
the extent that such commitment is completed

[[Page 909]]

with customer name securities of the customer of the debtor for whose 
account the commitment was made, or with cash or securities paid or 
delivered by or for the account of such customer to the debtor or 
trustee after the filing date.



Sec. 300.400  Satisfaction of customer claims for standardized options.

    (a) For the purpose of sections 7(b)(1), 8 (b) and (d), and 16(11) 
of the Securities Investor Protection Act (hereinafter referred to as 
``the Act''), this rule will be applied in determining what a customer 
will receive in either (1) a liquidation proceeding pursuant to the Act 
or (2) a direct payment procedure pursuant to section 10 of the Act, in 
satisfaction of a claim based upon Standardized Options positions.
    (b) As promptly as practicable after the initiation of a liquidation 
proceeding or a direct payment procedure under the Act, the trustee in a 
liquidation proceeding, or SIPC in a direct payment procedure, shall 
liquidate or cause to be liquidated, by sale or purchase, all 
Standardized Options positions held for the accounts of customers.
    (c) A trustee in a liquidation proceeding, or SIPC in a direct 
payment procedure, shall calculate the dollar amount of all Standardized 
Options positions held for the account of a customer in accordance with 
section 16(11) of the Act, and credit or debit, as appropriate, the 
dollar amount so calculated to the account of such customer.
    (d) Notwithstanding paragraph (b) of this section, neither the 
trustee in a liquidation proceeding nor SIPC in a direct payment 
procedure shall be required under this rule to liquidate any short 
position in Standardized Options covered by the deposit of (1) the 
underlying securities, in the case of a call option, or (2) treasury 
bills, in the case of a put option, by or on behalf of a customer with a 
bank or other depository. Any such positions that are not liquidated 
shall be excluded from the calculation provided for in paragraph (c) of 
this section.
    (e) In no event will Standardized Options positions be delivered to 
or on behalf of customers in satisfaction of claims pursuant to section 
7(b)(1) of the Act.
    (f) In no event will Standardized Options be purchased for delivery 
to customers pursuant to section 8(d) of the Act.
    (g) This rule shall not be construed as limiting or restricting in 
any way the exercise of any right of a broker or registered clearing 
agency to liquidate or cause the liquidation of Standardized Options 
Positions.
    (h) As used in this rule the term Standardized Options means options 
traded on a national securities exchange, an automated quotation system 
of a registered securities association, or a foreign securities 
exchange.

[48 FR 49840, Oct. 28, 1983]

Rules Relating to Satisfaction of a ``Claim for Cash'' or a ``Claim for 
                              Securities''

    Source: Sections 300.500 through 300.503 appear at 53 FR 10369, Mar. 
31, 1988, unless otherwise noted.



Sec. 300.500  General.

    These rules will be applied in determining whether a securities 
transaction gives rise to a ``claim for cash'' or a ``claim for 
securities'' on the filing date of either a liquidation proceeding 
pursuant to the Securities Investor Protection Act (hereinafter referred 
to as ``the Act'') or a direct payment procedure pursuant to section 10 
of the Act.



Sec. 300.501  Claim for cash.

    (a) Where a SIPC member (``Debtor'') held securities in an account 
for a customer, the customer has a ``claim for cash'' with respect to 
any authorized securities sale:
    (1) If the Debtor has sent written confirmation to the customer that 
the securities in question have been sold for or purchased from the 
customer's account; or
    (2) Whether or not such a written confirmation has been sent, if the 
securities in question have become the subject of a completed or 
executory contract for sale for or purchase from the account.
    (b) Where the Debtor held cash in an account for a customer, the 
customer

[[Page 910]]

has a ``claim for cash'', notwithstanding the fact that the customer has 
ordered securities purchased for the account, unless:
    (1) The Debtor has sent written confirmation to the customer that 
the securities in question have been purchased for or sold to the 
customer's account; or
    (2) Whether or not such a written confirmation has been sent, if the 
securities in question have become the subject of a completed or 
executory contract for purchase for or sale to the account.



Sec. 300.502  Claim for securities.

    (a) Where the Debtor held cash in an account for a customer, the 
customer has a ``claim for securities'' with respect to any authorized 
securities purchase:
    (1) If the Debtor has sent written confirmation to the customer that 
the securities in question have been purchased for or sold to the 
customer's account; or
    (2) Whether or not such a written confirmation has been sent, if the 
securities in question have become the subject of completed or executory 
contract for sale for or purchase from the account.
    (b) Where the Debtor held securities in an account for a customer, 
the customer has a ``claim for securities'', notwithstanding the fact 
that the customer has ordered the securities sold for the account, 
unless:
    (1) The Debtor has sent written confirmation to the customer that 
the securities in question have been sold for or purchased from the 
customer's account; or
    (2) Whether or not written confirmation of the purchase has been 
sent, if the securities in question have become the subject of completed 
or executory contract for sale for or purchase form the account.



Sec. 300.503  Voidable securities transactions.

    (a) Nothing in these Series 500 Rules shall be construed as limiting 
the rights of a trustee in a liquidation proceeding under the Act to 
avoid any securities transaction as fraudulent, preferential, or 
otherwise voidable under applicable law.
    (b) Nothing in these Series 500 Rules shall be construed as limiting 
the right of the Securities Investor Protection Corporation, in a direct 
payment procedure under section 10 of the Act, to reject a claim for 
cash or a claim for securities if such claim arose out of a securities 
transaction which could have been avoided in a liquidation proceeding 
under the Act.



PART 301_FORMS, SECURITIES INVESTOR PROTECTION CORPORATION--Table of Contents




Sec.
301.0-1 Availability of forms.

    Forms for Closeout or Completion of Open Contractual Commitments

301.300a Form 300-A, for summary of buy-ins or sell-outs of all open 
          contractual commitments.
301.300b Form 300-B, for report of all fails to deliver.
301.300c Form 300-C, for report of all fails to receive.

    Authority: Sec. 3, 84 Stat. 1636 (15 U.S.C. 78ccc), as amended by 
sec. 3, Pub. L. 95-283, 92 Stat. 249.

    Source: 44 FR 21213, Apr. 9, 1979, unless otherwise noted.
    Note: Pursuant to section 3(e)(2)(D) of the Securities Investor 
Protection Act of 1970 (the ``Act''), the Securities and Exchange 
Commission (``Commission'') shall approve a proposed rule change 
submitted by the Securities Investor Protection Corporation (``SIPC'') 
if the Commission finds the rule change is in the public interest and is 
consistent with the purposes of the Act. Any rule change so approved 
shall be given force and effect as if promulgated by the Commission. The 
forms described in this part have been so approved.



Sec. 301.0-1  Availability of forms.

    The forms prescribed for use under the Securities Investor 
Protection Act of 1970, as amended, (the ``Act'') and under part 300 of 
this chapter are identified and described in this part. Copies of these 
forms may be obtained upon request to, as appropriate, the Securities 
Investor Protection Corporation (``SIPC'') at 900 Seventeenth Street, 
NW., Washington, DC 20006, or the trustee appointed in a liquidation 
proceeding under section 5 of the Act.

[[Page 911]]

    Forms for Closeout or Completion of Open Contractual Commitments



Sec. 301.300a  Form 300-A, for summary of buy-ins or sell-outs of all 
open contractual commitments.

    This form shall be filed as required by Sec. 300.303 of this 
chapter with the trustee in a proceeding under section 5 of the Act by a 
broker-dealer who executed transactions out of which arose open 
contractual commitments, as defined by Sec. 300.300(c) of this chapter, 
with the debtor in the proceeding. The form shall be used to summarize 
the buy-ins and sell-outs of those open contractual commitments and 
shall be accompanied by the forms described in Sec. Sec. 301.300b and 
301.300c.

    Editorial Note: For Federal Register citations affecting Form 300-A, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 301.300b  Form 300-B, for report of all fails to deliver.

    This form shall be filed as required by Sec. 300.303 of this 
chapter with the trustee in a proceeding under section 5 of the Act by a 
broker-dealer who executed transactions out of which arose open 
contractual commitments, as defined by Sec. 300.300(c) of this chapter, 
with the debtor in the proceeding. The form shall be used to report all 
the fails to deliver, as defined by Sec. 300.300(b) of this chapter, 
that were open on the filing date, as well as any subsequent closeouts. 
This form shall accompany the form described in Sec. 300.300a.

    Editorial Note: For Federal Register citations affecting Form 300-B, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.



Sec. 301.300c  Form 300-C, for report of all fails to receive.

    This form shall be filed as required by Sec. 300.303 of this 
chapter with the trustee in a proceeding under section 5 of the Act by a 
broker-dealer who executed transactions out of which arose open 
contractual commitments, as defined by Sec. 300.300(c) of this chapter, 
with the debtor in the proceeding. The form shall be used to report all 
the fails to receive, as defied by Sec. 300.300(a) of this chapter, 
that were open on the filing date, as well as any subsequent closeouts. 
This form shall accompany the form described in Sec. 300.300a.

    Editorial Note: For Federal Register citations affecting Form 300-C, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 913]]



                 CHAPTER IV--DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------

 SUBCHAPTER A--REGULATIONS UNDER SECTION 15C OF THE SECURITIES EXCHANGE 
                               ACT OF 1934
Part                                                                Page
400             Rules of general application................         915
401             Exemptions..................................         921
402             Financial responsibility....................         926
403             Protection of customer securities and 
                    balances................................         952
404             Recordkeeping and preservation of records...         960
405             Reports and audit...........................         966
420             Large position reporting....................         971
449             Forms, Section 15C of the Securities 
                    Exchange Act of 1934....................         977
 SUBCHAPTER B--REGULATIONS UNDER TITLE II OF THE GOVERNMENT SECURITIES 
                               ACT OF 1986
450             Custodial holdings of government securities 
                    by depository institutions..............         979

[[Page 915]]



 SUBCHAPTER A_REGULATIONS UNDER SECTION 15C OF THE SECURITIES EXCHANGE 
                               ACT OF 1934





PART 400_RULES OF GENERAL APPLICATION--Table of Contents




Sec.
400.1 Scope of regulations.
400.2 Office responsible for regulations; filing of requests for 
          exemptions, for interpretations, and of other materials.
400.3 Definitions.
400.4 Information concerning associated persons of financial 
          institutions that are government securities brokers or 
          dealers.
400.5 Amendments to application for registration and to notice of status 
          as a government securities broker or dealer.
400.6 Notice of withdrawal from business as a government securities 
          broker or dealer by a financial institution.

    Authority: 15 U.S.C. 78o-5.

    Source: 52 FR 27926, July 24, 1987, unless otherwise noted.



Sec. 400.1  Scope of regulations.

    (a) Title I of the Government Securities Act of 1986 (Pub. L. 99-
571, 100 Stat. 3208) amends the Securities Exchange Act of 1934 (48 
Stat. 881-905; 15 U.S.C. chapter 2B) (``Act'') by adding section 15C, 
authorizing the Secretary of the Treasury to promulgate regulations 
concerning the financial responsibility, protection of customer 
securities and balances, recordkeeping and reporting of brokers and 
dealers in government securities. Those regulations constitute 
subchapter A of this chapter. Unless otherwise explicitly provided, all 
regulations in this subchapter apply to all government securities 
brokers or dealers, including registered brokers or dealers and 
financial institutions.
    (b) Section 15C(a)(1)(A) of the Act (15 U.S.C. 78o-5(a)(1)(A)) 
requires all government securities brokers and government securities 
dealers, except those who are brokers or dealers registered pursuant to 
section 15 or section 15B of the Act or financial institutions, to 
register with the Securities and Exchange Commission (``Commission''). 
Regulations concerning registration are at Sec. 240.15Ca2-1 et seq. of 
this title. The Commission is responsible for the interpretation of the 
definitions of government securities broker and government securities 
dealer and of the regulations at Sec. 240.15Ca2-1 et seq.
    (c) Section 15C(a)(1)(B)(i) of the Act (15 U.S.C. 78o-5(a)(1)(B)(i)) 
requires all government securities brokers or dealers that are also 
registered brokers or dealers to notify the Commission of their status 
as government securities brokers or dealers. Regulations concerning 
notice are at Sec. 240.15Ca1-1 of this title.
    (d) Section 15C(a)(1)(B)(i) of the Act also requires all government 
securities brokers or dealers that are financial institutions to notify 
the appropriate regulatory agency, as defined in section 3(a)(34)(G) of 
the Act (15 U.S.C. 78c(a)(34)(G)), of their status as government 
securities brokers or dealers. The form of notice, Form G-FIN, is at 
Sec. 449.1 of this chapter. Forms are available from the appropriate 
regulatory agency.
    (e) Section 104 of the Government Securities Act Amendments of 1993 
(Pub. L. 103-202, 107 Stat. 2344) amended Section 15C of the Act (15 
U.S.C. 78o-5) by adding a new subsection (f), authorizing the Secretary 
of the Treasury to adopt rules to require specified persons holding, 
maintaining or controlling a large position in to-be-issued or recently-
issued Treasury securities to report such a position and make and keep 
records related to such a position. Part 420 of this subchapter contains 
the rules governing large position reporting.

[52 FR 27926, July 24, 1987, as amended at 61 FR 48348, Sept. 12, 1996]



Sec. 400.2  Office responsible for regulations; filing of requests for 
exemptions, for interpretations and of other materials.

    (a) Office responsible. The regulations in this chapter are 
promulgated by the Assistant Secretary (Domestic Finance) pursuant to a 
delegation of authority from the Secretary of the Treasury. The office 
responsible for implementation of the regulations, including 
interpretations and action on requests for exemption, classification

[[Page 916]]

or modification, is the Office of the Commissioner, Bureau of the Public 
Debt.
    (b)(1) Exemptions and classifications. Section 15C(a)(4) of the Act 
(15 U.S.C. 78o-5(a)(4)) authorizes the Secretary to exempt any 
government securities broker or dealer or class thereof, conditionally 
or unconditionally, from the requirements of registration or regulations 
promulgated under section 15C. In addition, section 15C(b)(3) of the Act 
(15 U.S.C. 78o-5(b)(3)) provides for classificatign, by the Secretary, 
of government securities brokers or dealers and authorizes the whole or 
partial exemption of classes from rules under section 15C or the 
application of different standards to different classes.
    (2) Interpretations. Although the appropriate regulatory agencies, 
as defined in Sec. 400.3, and the self-regulatory organizations, as 
defined in section 3(a)(26) of the Act (15 U.S.C. 78c(a)(26)), have 
enforcement responsibility under section 15C of the Act, Treasury is 
responsible for interpretation of section 15C(b) of the Act (15 U.S.C. 
78o-5(b)) and related sections and for interpretation and amendment of 
the regulations under this chapter (with the exception of Forms G-FIN 
and G-FINW, Sec. Sec. 449.1 and 449.2 of this chapter, which are the 
responsibility of the Board of Governors of the Federal Reserve System 
[``Board'']).
    (c) Requests for interpretations, exemptions, classifications. (1) 
Interpretations under this chapter may be provided, at the discretion of 
the Department, to firms or individuals actually or potentially affected 
by the Act or regulations, or to their representatives.
    (2) Exemptions and classifications under sections 15C (a), (b) and 
(d) of the Act (15 U.S.C. 78o-5 (a), (b), and (d)) and related sections 
and Treasury regulations thereunder may be provided at the discretion of 
the Department and after consultation with the SEC and the Board, to 
firms or individuals actually or potentially affected by the Act or 
regulations, or to their representatives.
    (3) All requests for exemptions and classifications, and all 
requests for binding interpretations, shall be in writing, and shall 
conform to the following procedures.
    (i) The names of the company or companies and all other persons 
involved shall be stated. Letters pertaining to unnamed companies or 
persons or hypothetical situations will not be answered.
    (ii) The letter must contain a concise but complete statement of all 
material facts, a complete and accurate description of the entire 
transaction if the request is transactional (even though a request may 
apply to only a portion of a transaction), and a concise and unambiguous 
statement of the request, including precise statutory and regulatory 
citations.
    (iii) The letter shall indicate why the writer believes a problem 
exists or interpretation is needed, the writer's opinion on the matter, 
and the basis for such opinion.
    (iv) In addition to requests for confidential treatment under 
paragraph (c)(7)(ii) of this section, a person may request confidential 
treatment of information that is submitted as part of, or in support of, 
a request for interpretation, exemption, or classification. A separate 
request for confidential treatment and the basis for such request shall 
be submitted at the time the information for which confidential 
treatment is requested is submitted. The request for confidential 
treatment must specifically identify the information for which such 
confidential treatment is requested. To the extent practicable, the 
information should be segregated from information for which confidential 
treatment is not requested and should be clearly marked as confidential.
    (v) Information designated as confidential in accordance with 
paragraph (c)(3)(iv) of this section shall not be disclosed to a person 
requesting such information other than in accordance with the procedures 
outlined in the Department's regulations published at 31 CFR 1.6.
    (vi) An original and two copies of each request letter shall be 
submitted to the Office of the Commissioner, Bureau of the Public Debt, 
Room 553, 999 E Street NW., Washington, DC 20239-0001. The envelope 
shall be marked ``Government Securities Act Request.'' The letter shall 
indicate in the upper right hand corner of the first page the

[[Page 917]]

particular sections of the Act and of the regulations at issue.
    (4) A written response by the Department to a request filed as 
stated in paragraph (c)(3) of this section shall be binding, with 
respect to the requester, on the Department, but shall cease to be 
binding if the facts are not as stated in the request or, prospectively, 
if the Department issues a superseding interpretation. In responding to 
such a request, the Department will, where appropriate, consult with and 
may obtain the formal concurrence of the appropriate regulatory agencies 
or their staffs. The Department understands that even if formal 
concurrence is not received the appropriate regulatory agencies and 
self-regulatory organizations will give appropriate deference to binding 
interpretations of the Department. The Department also expects the SEC 
staff to reflect such interpretations in responding, pursuant to the 
established procedures of the Commission, to no-action requests 
concerning rules the SEC enforces.
    (5) The Department may decline to issue an interpretation for any 
reason and, in particular, may require that a requester make inquiry of 
its appropriate regulatory agency, the Commission or designated 
examining authority before the Department responds to a request.
    (6) The Department will also provide informal oral and written 
advice, but such advice is not binding on the Department or on any other 
agency or organization.
    (7)(i) Except as provided in paragraphs (c)(3)(iv) and (c)(7)(ii) of 
this section, every letter or other written communication requesting the 
Department to provide interpretive legal advice under the Act or to 
grant, deny or modify an exemption, classification or modification of 
the regulations, together with any written response thereto, shall be 
made available for inspection and copying as soon as practicable after 
the response has been sent or given to the person requesting it. These 
documents will be made available at the following location: Treasury 
Department Library, Room 5030, Main Treasury Building, 1500 Pennsylvania 
Avenue NW., Washington, DC 20220.
    (ii) Any person submitting a letter or communication may also 
simultaneously submit a request that the letter or communication and the 
Department's response be accorded confidential treatment for a specified 
period of time not to exceed 120 days from the date the response has 
been made or given to such person. The request shall state the basis 
upon which the request for confidential treatment has been made. If the 
Department determines that the request for confidential treatment should 
be denied, the requester will be given 30 days to withdraw either the 
request for confidential treatment or the letter or communication 
requesting an interpretation, classification, or exemption.
    (d) Effect of Commission interpretations. Interpretations of the 
Commission and its staff (including no-action positions) and of the 
designated examining authorities, of any Commission regulation expressly 
adopted by reference in these regulations shall be of the same effect as 
if the regulation being interpreted were solely the Commission's 
regulation. However, in the event the Treasury has issued a formal 
interpretation on the subject, the Treasury understands that the 
Commission will give that interpretation appropriate deference, 
particularly with respect to both subsequent no-action positions and the 
continued validity of prior no-action positions.

[52 FR 27926, July 24, 1987, as amended at 53 FR 28984, Aug. 1, 1988]



Sec. 400.3  Definitions.

    Unless otherwise explicitly provided, in this subchapter and for the 
purposes of these regulations:
    (a) Act means the Securities Exchange Act of 1934 (48 Stat. 881, 15 
U.S.C. chapter 2B, as amended);
    (b) Appropriate regulatory agency has the meaning set out in section 
3(a)(34)(G) of the Act (15 U.S.C. 78c(a)(34)(G)), and, with respect to a 
financial institution for which an appropriate regulatory agency is not 
explicitly designated, the appropriate regulatory agency is the SEC;
    (c) Associated person means a person other than a person whose 
functions are solely clerical or ministerial:

[[Page 918]]

    (1) Directly engaged in any of the following activities in either a 
supervisory or non-supervisory capacity:
    (i) Underwriting, trading or sales of government securities;
    (ii) Financial advisory or consultant services for issuers in 
connection with the issuance of government securities;
    (iii) Research or investment advice, other than general economic 
information or advice, with respect to government securities in 
connection with the activities described in paragraphs (c)(1)(i) and 
(c)(1)(ii) of this section;
    (iv) Activities other than those specifically mentioned which 
involve communication, directly or indirectly, with public investors in 
government securities in connection with the activities described in 
paragraphs (c)(1)(i) and (c)(1)(ii) of this section; or
    (2) Directly engaged in the following activities in a supervisory 
capacity:
    (i) Processing and clearance activities with respect to government 
securities;
    (ii) Maintenance of records involving any of the activities 
described in paragraph (c)(1) of this section;

                           Provided, however,

    (3) That in the case of a financial institution,
    (i) Persons whose government securities functions: (A) Consist 
solely of carrying out the financial institution's activities in a 
fiduciary capacity and (B) are subject to examination by the appropriate 
regulatory agency for compliance with requirements applicable to 
activities by the financial institution in a fiduciary capacity, shall 
not be considered ``associated persons'';
    (ii) Persons whose sole government securities activities are, 
without exercising any investment discretion and solely at the direction 
of customers, to receive and/or transmit customer orders to purchase or 
sell government securities, but who do not give investment advice or 
receive transaction-based compensation shall not be considered 
``associated persons''; and
    (iii) Directors and senior officers of the financial institution who 
may from time to time set broad policy guidelines affecting the 
financial institution as a whole that are not directly related to the 
conduct of the financial institution's government securities business 
are not considered to be ``directly engaged'' in the activities 
described in this paragraph (c);
    (d) Board means the Board of Governors of the Federal Reserve 
System;
    (e) Branch or agency of a foreign bank means a Federal branch or 
Federal agency of a foreign bank or a State branch or State agency of a 
foreign bank as such terms are used in the International Banking Act of 
1978, Pub. L. 95-369, 92 Stat. 607;
    (f) CFTC means the Commodity Futures Trading Commission;
    (g) Commission or SEC means the Securities and Exchange Commission;
    (h) Designated examining authority and Examining Authority mean (1) 
in the case of a registered government securities broker or dealer that 
belongs to only one self-regulatory organization, such self-regulatory 
organization, and (2) in the case of a registered government securities 
broker or dealer that belongs to more than one self-regulatory 
organization, the self-regulatory organization designated by the 
Commission pursuant to section 17(d) of the Act (15 U.S.C. 78q(d)) as 
the entity with responsibility for examining such registered government 
securities broker or dealer;
    (i) Fiduciary capacity includes trustee, executor, administrator, 
registrar, transfer agent, guardian, assignee, receiver, managing agent, 
and any other similar capacity involving the sole or shared exercise of 
discretion by a financial institution having fiduciary powers that is 
supervised by a Federal or state financial institution regulatory 
agency;
    (j) Financial institution has the meaning set out in section 
3(a)(46) of the Act (15 U.S.C. 78c(a)(46)), and such term explicitly 
does not include a subsidiary or affiliate of an institution described 
in such section unless such subsidiary or affiliate is itself described 
in such section;
    (k) Government securities broker has the meaning set out in section 
3(a)(43) of the Act (15 U.S.C. 78c(a)(43)), and explicitly includes not 
only registered government securities brokers, but also registered 
brokers and financial institutions;

[[Page 919]]

    (l) Government securities dealer has the meaning set out in section 
3(a)(44) of the Act (15 U.S.C. 78c(a)(44)), and explicitly includes not 
only registered government securities dealers, but also registered 
dealers and financial institutions;
    (m) Government securities has the meaning set out in section 
3(a)(42) of the Act (15 U.S.C. 78c(a)(42));
    (n) Registered broker or dealer means a broker or dealer registered 
pursuant to section 15 or section 15B of the Act (15 U.S.C. 78o, 78o-4)) 
but does not include a municipal securities dealer that is a bank or a 
separately identifiable department or division of a bank;
    (o) Registered government securities broker or dealer means a 
government securities broker or dealer registered pursuant to section 
15C(a)(1)(A) of the Act (15 U.S.C. 78o-5(a)(1)(A));
    (p) Secretary means the Secretary of the Treasury; and
    (q) Treasury or Department means the Department of the Treasury, 
including in particular the Bureau of the Public Debt.

[52 FR 27926, July 24, 1987, as amended at 55 FR 6604, Feb. 26, 1990]



Sec. 400.4  Information concerning associated persons of financial 
institutions that are government securities brokers or dealers.

    (a) Every associated person of a financial institution that is a 
government securities broker or dealer that is not exempt pursuant to 
Part 401 of this chapter shall file with such financial institution a 
completed Form G-FIN-4 (Sec. 449.4 of this chapter) unless such person 
has on file with such financial institution a completed and current Form 
U-4 (promulgated by a self-regulatory organization) or Form MSD-4 (as 
required for associated persons of bank municipal securities dealers).
    (b) To the extent any information furnished by an associated person 
pursuant to paragraph (a) of this section (including information on a 
Form U-4 or Form MSD-4) is or becomes materially inaccurate or 
incomplete, such associated person shall promptly furnish in writing to 
such financial institution, in a form acceptable to the appropriate 
regulatory agency for such financial institution, a statement correcting 
such information.
    (c) For the purpose of verifying the information furnished by an 
associated person pursuant to paragraph (a) of this rule, every 
government securities broker or dealer that is a financial institution 
shall make inquiry of all other employers of such associated person 
during the immediately preceding three years concerning the accuracy and 
completeness of such information.
    (d) Every government securities broker or dealer that is a financial 
institution not exempt from this section pursuant to Part 401 of this 
chapter shall:
    (1) Promptly obtain and, within 10 days thereafter, file with the 
appropriate regulatory agency, in a form acceptable to such appropriate 
regulatory agency, the information required by paragraph (a) of this 
section (which shall consist of all Forms G-FIN-4 filed and a list of 
all associated persons who have filed Forms MSD-4 or U-4 with the 
financial institution since the last such filing, designating whether 
the associated person is serving in a supervisory or non-supervisory 
capacity) and by paragraph (b) of this section; and
    (2) File with the appropriate regulatory agency within 30 days after 
the termination of the status of an individual as an associated person a 
Form G-FIN-5 (Sec. 449.4 of this chapter), unless--
    (i) The financial institution is required to and has filed a Form U-
5 or Form MSD-5 with respect to such person; or
    (ii) The financial institution notifies the appropriate regulatory 
agency that the individual will remain in the financial institution's 
employment and the financial institution will continue to update the 
information about such individual as provided in paragraph (b) of this 
section and will file a Form G-FIN-5 within 30 days after the 
termination of such individual's employment with the financial 
institution.
    (e) Every notice and form filed pursuant to this section shall 
constitute a

[[Page 920]]

``report'' within the meaning of sections 15, 15C and 32(a) of the Act 
(15 U.S.C. 78o, 78o-5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27926, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec. 400.5  Amendments to application for registration and to notice 
of status as a government securities broker or dealer.

    (a)(1) If the information contained in any application for 
registration as a government securities broker or dealer (other than the 
statements required by Sec. 240.15Ca2-2 of this title) or in any 
amendment thereto, becomes inaccurate for any reason, the registered 
government securities broker or dealer shall file within 30 days 
thereafter an amendment on Form BD (Sec. 249.501 of this title) 
correcting such information, in accordance with the instructions 
provided therein.
    (2) If the information contained in any notice of status as a 
government securities broker or dealer filed by a registered broker or 
dealer, or in any amendment thereto, becomes inaccurate for any reason, 
the registered broker or dealer shall file within 30 days an amendment 
on Form BD (Sec. 249.501 of this title) correcting such information, in 
accordance with the instructions provided therein.
    (b) If the information contained in any notice of status as a 
government securities broker or dealer filed by a financial institution, 
or any amendment thereto, becomes inaccurate for any reason, the 
financial institution shall file within 30 days an amendment on Form G-
FIN (Sec. 449.1 of this chapter) correcting such information, in 
accordance with the instructions provided therein.
    (c) Every amendment filed pursuant to this section shall constitute 
a ``report'' within the meaning of sections 15, 15C and 32(a) of the Act 
(15 U.S.C. 78o, 78o-5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27926, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec. 400.6  Notice of withdrawal from business as a government securities 
broker or dealer by a financial institution.

    (a) Whenever a financial institution that is a government securities 
broker or dealer that is not exempt from the notice requirements of 
section 15C(a)(1)(B)(i) of the Act (15 U.S.C. 78o-5(a)(1)(B)(i)) and of 
Sec. 400.5 pursuant to part 401 of this chapter, ceases to act as a 
government securities broker or dealer, it shall file with the 
appropriate regulatory agency notice of such cessation on Form G-FINW 
(Sec. 449.2 of this chapter) in accordance with the instructions 
contained therein.
    (b) Except as provided in paragraph (c) of this section, a notice 
that a financial institution has ceased to act as a government 
securities broker or dealer shall become effective for all purposes on 
the 60th day after the filing thereof with the appropriate regulatory 
agency or within such shorter period of time as the appropriate 
regulatory agency determines.
    (c) If the notice described in paragraph (a) of this section is 
filed with the appropriate regulatory agency any time after the date of 
the issuance of a notice or order by the appropriate regulatory agency 
instituting proceedings pursuant to section 15C(c)(2)(A) of the Act (15 
U.S.C. 78o-5(c)(2)(A)) to censure, suspend, limit, or bar from acting as 
a government securities broker or government securities dealer the 
entity filing such notice, or if the appropriate regulatory agency has 
instituted any action against the entity filing such notice pursuant to 
section 15C(2)(B) of the Act (15 U.S.C. Sec. 78o-5(c)(2)(B)), the 
notice shall become effective pursuant to paragraph (b) of this section 
at such time and upon such terms and conditions as the appropriate 
regulatory agency deems necessary or appropriate in the public interest 
for the protection of investors.
    (d) Every notice filed pursuant to this section shall constitute a 
``report'' within the meaning of sections 15, 15C and 32(a) of the Act 
(15 U.S.C. 78o, 78o-5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27926, July 24, 1987, as amended at 60 FR 18734, Apr. 13, 1995]

[[Page 921]]



PART 401_EXEMPTIONS--Table of Contents




Sec.
401.1 Exemption for organizations handling transactions in United States 
          Savings Bonds.
401.2 Exemption for depository institutions that submit tenders for the 
          account of customers for purchase on original issue of United 
          States Treasury securities.
401.3 Exemption for financial institutions that are engaged in limited 
          government securities brokerage activities.
401.4 Exemption for financial institutions engaged in limited government 
          securities dealer activities.
401.5 Exemption for corporate credit unions transacting limited 
          government securities business with other credit unions.
401.6 Exemption for branches and agencies of foreign banks that deal 
          solely with non-United States citizens resident offshore.
401.7 Temporary exemption for certain government securities brokers and 
          dealers terminating business on or before October 31, 1987.
401.8 Temporary exemption for government securities brokers and dealers 
          that are futures commission merchants registered with the 
          CFTC.
401.9 Exemption for certain foreign government securities brokers or 
          dealers.

    Authority: Sec. 101, Pub. L. 99-571, 100 Stat. 3209 (15 U.S.C. 78o-
5(a)(4)).

    Source: 52 FR 27930, July 24, 1987, unless otherwise noted.



Sec. 401.1  Exemption for organizations handling transactions in 
United States Savings Bonds.

    An organization that handles United States Savings Bond 
transactions, including a qualified issuing or paying agent or an 
organization that accommodates customers or employees by forwarding 
requested transactions to qualified issuing or paying agents or the 
Treasury and whose transactions in government securities are limited to 
these transactions and such other activities that are exempted by the 
regulations under this subchapter, shall be exempt from the provisions 
of section 15C (a), (b) and (d) of the Act (15 U.S.C. 78o-5 (a), (b), 
(d)) and the regulations of this subchapter. For the purposes of this 
section, the term ``United States Savings Bond'' means any savings-type 
security offered by the Treasury, including all series of United States 
Savings Bonds, United States Savings Notes and United States Savings 
Stamps.



Sec. 401.2  Exemption for depository institutions that submit tenders 

for the account of customers for purchase on original issue of United 
States Treasury securities.

    (a) Subject to the requirements of paragraph (b) of this section, a 
depository institution that submits tenders or subscriptions for 
purchase on original issue of United States Treasury securities for the 
account of customers on a fully disclosed basis, whose transactions in 
government securities are limited to such transactions and such other 
activities as have been exempted by regulation under this subchapter 
shall be exempt from the provisions of section 15C (a), (b) and (d) of 
the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the regulations of this 
subchapter.
    (b) A depository institution that relies on the exemption contained 
in paragraph (a) of this section is required to comply with the 
regulations of part 450 of this chapter concerning custodial holdings of 
government securities.
    (c) For the purposes of this section, ``depository institution'' has 
the meaning stated in clauses (i) through (vi) of section 19(b)(1)(A) of 
the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)-(vi)) and also 
includes a foreign bank, an agency or branch of a foreign bank and a 
commercial lending company owned or controlled by a foreign bank (as 
such terms are used in the International Banking Act of 1978, Pub. L. 
95-369, 92 Stat. 607).



Sec. 401.3  Exemption for financial institutions that are engaged in 
limited government securities brokerage activities.

    (a)(1) Subject to the requirements of paragraph (b) of this section, 
a financial institution shall be exempt from the provisions of sections 
15C (a), (b), and (d) of the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the 
regulations of this subchapter, unless it acts as a government 
securities broker by:
    (i) Holding itself out as a government securities broker or 
interdealer broker; or
    (ii) Actively soliciting purchases or sales of government securities 
on an agency basis;

[[Page 922]]

    (2) Notwithstanding the provisions of paragraph (a)(1) of this 
section, a financial institution shall not be regarded as acting as a 
government securities broker within the meaning of this section if it:
    (i) Effects fewer than 500 government securities brokerage 
transactions (other than transactions described in Sec. Sec. 401.1 or 
401.2) per year; or
    (ii) Effects all such transactions (other than transactions 
described in Sec. Sec. 401.1 or 401.2) pursuant to a contractual or 
other arrangement with one or more government securities brokers or 
dealers each of which has registered or filed notice pursuant to section 
15C(a)(1) of the Act (15 U.S.C. 78o-5(a)(1)) (each referred to as the 
``transacting government securities broker or dealer'') under which the 
transacting government securities broker or dealer will offer securities 
services on or off the premises of the financial institution, provided 
that:
    (A) The transacting government securities broker or dealer is 
clearly identified to customers as the person performing the securities 
services;
    (B) Financial institution employees perform only clerical and 
ministerial or order-taking functions in connection with government 
securities transactions unless such employees are associated persons (as 
defined in Sec. 400.3(c) of this chapter) or registered representatives 
of the transacting government securities broker or dealer;
    (C) Financial institution employees do not receive compensation for 
government securities activities other than clerical or ministerial 
functions unless such employees are associated persons (as defined in 
Sec. 400.3(c) of this chapter) or registered representatives of the 
transacting government securities broker or dealer; and
    (D) Such services are provided on a fully disclosed basis by the 
transacting government securities broker or dealer, i.e., the 
transacting government securities broker or dealer receives and 
maintains all required information concerning each customer, its trading 
and account.
    (b)(1) A financial institution that relies on the exemption 
contained in paragraph (a) of this section is required to comply with 
the regulations of part 450 of this chapter concerning custodial 
holdings of government securities for customers.
    (2) A branch or agency of a foreign bank that relies on the 
exemption contained in paragraph (a) of this section is in addition 
required to comply with Sec. 403.5(e) of this chapter.
    (c) For the purposes of this section ``financial institution'' 
includes an insured credit union, as defined in 12 U.S.C. 1752(7).



Sec. 401.4  Exemption for financial institutions engaged in limited 
government securities dealer activities.

    (a) Subject to the requirements of paragraph (b) of this section, a 
financial institution shall be exempt from the provisions of sections 
15C (a), (b), and (d) of the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the 
regulations of this subchapter if its government securities dealer 
activities are limited to one or more of the following activities:
    (1) Sales or purchases in a fiduciary capacity;
    (2) The sale and subsequent repurchase and the purchase and 
subsequent resale of government securities pursuant to a repurchase or 
reverse repurchase agreement; and
    (3) Such other activities as have been exempted by regulation under 
this subchapter.
    (b)(1) A financial institution that relies on the exemption 
contained in paragraph (a) of this section is required to comply with:
    (i) The regulations of part 450 of this chapter concerning custodial 
holdings of government securities for customers; and
    (ii) Section 403.5(d) of this chapter concerning certain repurchase 
transactions with customers.
    (2) A branch or agency of a foreign bank that relies on the 
exemption contained in paragraph (a) of this section is in addition 
required to comply with Sec. 403.5(e) of this chapter.
    (c) For the purposes of this section ``financial institution'' 
includes an insured credit union, as defined in 12 U.S.C. 1752(7).

[[Page 923]]



Sec. 401.5  Exemption for corporate credit unions transacting limited 
government securities business with other credit unions.

    (a)(1) Subject to the requirements of paragraph (b) of this section, 
a corporate credit union shall be exempt from the provisions of section 
15C (a), (b) and (d) of the Act (15 U.S.C. 78o-5 (a), (b), (d)) and the 
regulations thereunder if its government securities dealer activities 
are limited to the sale and subsequent repurchase and the purchase and 
subsequent resale, each pursuant to a repurchase or reverse repurchase 
agreement, of government securities to other credit unions and such 
other activities as have been exempted by regulation under this part.
    (2) For the purposes of this section, ``corporate credit union'' 
means a credit union whose membership consists primarily of other credit 
unions and that is (i) a Federal credit union as defined in 12 U.S.C. 
1752(1), (ii) an insured credit union as defined in 12 U.S.C. 1752(7), 
or (iii) a member of the National Credit Union Administration Central 
Liquidity Facility.
    (b) A credit union that relies on the exemption contained in 
paragraph (a) of this section is required to comply with:
    (1) The regulations of part 450 of this chapter concerning custodial 
holdings of government securities; and
    (2) Section 403.5(d) concerning certain repurchase transactions with 
customers.



Sec. 401.6  Exemption for branches and agencies of foreign banks that 
deal solely with non-United States citizens resident offshore.

    (a) Subject to the requirements of paragraph (b) of this section, a 
branch or agency of a foreign bank shall be exempt from the provisions 
of section 15C (a), (b), and (d) of the Act (15 U.S.C. 78o-5 (a), (b), 
(d)) and the regulations of this subchapter, if all the customers with 
or on behalf of whom it engages in government securities transactions 
are limited to foreign governments, agencies of foreign governments and 
other persons and entities who are not citizens of the United States and 
who reside or, in the case of a corporation, partnership or other 
entity, have their principal place of business, outside of the United 
States.
    (b) A branch or agency that relies on the exemption contained in 
paragraph (a) of this section is required to comply with the regulations 
of part 450 of this chapter concerning custodial holdings of government 
securities.



Sec. 401.7  Temporary exemption for certain government securities brokers 
and dealers terminating business on or before October 31, 1987.

    During the period ending October 31, 1987, a government securities 
broker or dealer shall be exempt from the provisions of section l5C (a), 
(b), and (d) of the Act (15 U.S.C. 78o-5(a), (b), (d)) and the 
regulations of this subchapter if:
    (a) Its government securities broker or dealer activities are 
limited to the performance of contractual obligations entered into prior 
to July 25, 1987;
    (b) It is the subsidiary or affiliate of a government securities 
broker or dealer that has registered or given notice pursuant to section 
15C(a)(1) of the Act (15 U.S.C. 78o-5(a)(1)); and
    (c) It ceases all government securities broker or dealer activities 
on or before October 31, 1987.



Sec. 401.8  Temporary exemption for government securities brokers and 
dealers that are futures commission merchants registered with the CFTC.

    During the period ending October 31, 1987, a government securities 
broker or dealer that is a futures commission merchant shall be exempt 
from the provisions of section 15C (a), (b), and (d) of the Act (15 
U.S.C. 78o-5 (a), (b), (d)) and the regulations of this subchapter if:
    (a) It is registered with the Commodity Futures Trading Commission 
under section 4f of the Commodity Exchange Act (7 U.S.C. 6f) and the 
regulations thereunder; and
    (b) It is not currently the subject of any disciplinary action by 
any Federal or state entity regulating persons dealing in securities or 
commodities.



Sec. 401.9  Exemption for certain foreign government securities brokers or dealers.

    A government securities broker or dealer (excluding a branch or 
agency of

[[Page 924]]

a foreign bank) that is a non-U.S. resident shall be exempt from the 
provisions of sections 15C(a), (b), and (d) of the Act (15 U.S.C. 78o-
5(a), (b) and (d)) and the regulations of this subchapter provided it 
complies with the provisions of 17 CFR 240.15a-6 (SEC Rule 15a-6) as 
modified in this section.
    (a) For purposes of this section, non-U.S. resident means any person 
(including any U.S. person) engaged in business as a government 
securities broker or dealer entirely outside the U.S. that is not an 
office or branch of, or a natural person associated with, a registered 
broker or dealer, a registered government securities broker or dealer or 
a financial institution that has provided notice pursuant to Sec. 
400.1(d) of this chapter.
    (b) Within Sec. 240.15a-6 of this title, references to ``security'' 
and ``securities'' shall mean ``government securities'' as defined in 
Sec. 400.3(m) of this chapter.
    (c) Section 240.15a-6(a) of this title is modified to read as 
follows:
    ``(a) A foreign broker or dealer shall be exempt from the 
registration or notice requirements of section 15C(a)(1) of the Act to 
the extent that the foreign broker or dealer:''
    (d) Paragraph 240.15a-6(a)(2)(iii) of this title is modified to read 
as follows:
    ``(iii) If the foreign broker or dealer has established a 
relationship with a registered broker or dealer for the purpose of 
compliance with paragraph (a)(3) of this rule, this relationship is 
disclosed in all research reports and all transactions with the foreign 
broker or dealer in securities discussed in the research reports are 
effected only through that registered broker or dealer, pursuant to the 
provisions of paragraph (a)(3); and''
    (e) Paragraph 240.15a-6(a)(3)(i)(B) of this title is modified to 
read as follows:
    ``(B) Provides its appropriate regulatory agency (upon request or 
pursuant to agreements reached between any foreign securities authority, 
including any foreign government as specified in section 3(a)(50) of the 
Act, and the Commission or the U.S. Government) with any information, 
documents, or records within the possession, custody, or control of the 
foreign broker or dealer, any testimony of foreign associated persons, 
and any assistance in taking the evidence of other persons, wherever 
located, that the appropriate regulatory agency requests and that 
relates to transactions under paragraph (a)(3) of this rule, except that 
if, after the foreign broker or dealer has exercised its best efforts to 
provide this information, including requesting the appropriate 
governmental body and, if legally necessary, its customers (with respect 
to customer information) to permit the foreign broker or dealer to 
provide this information to its appropriate regulatory agency, the 
foreign broker or dealer is prohibited from providing this information 
by applicable foreign law or regulations, then this paragraph 
(a)(3)(i)(B) shall not apply and the foreign broker or dealer will be 
subject to paragraph (c) of this rule;''
    (f) Paragraphs 240.15a-6(a)(3)(iii)(A) (4), (5) and (6) of this 
title are modified to read as follows:
    ``(4) Maintaining required books and records relating to the 
transactions, including those required by Sec. 404.1 of this title for 
registered brokers and dealers (excluding registered government 
securities brokers and dealers and noticed financial institutions), 
Sec. Sec. 404.2 and 404.3 of this title for registered government 
securities brokers or dealers, and Sec. 404.4 of this title for noticed 
financial institutions;
    ``(5) Complying with part 402 of this title with respect to the 
transactions; and
    ``(6) Receiving, delivering, and safeguarding funds and securities 
in connection with the transactions on behalf of the U.S. institutional 
investor or the major U.S. institutional investor in compliance with 
Sec. 403.1 of this title for registered brokers and dealers (excluding 
registered government securities brokers and dealers and noticed 
financial institutions); Sec. Sec. 403.2, 403.3, 403.4 and 403.6 of 
this title for registered government securities brokers and dealers, and 
Sec. 403.5 of this title for noticed financial institutions.''
    (g) Paragraph 240.15a-6(a)(3)(iii)(C) of this title is modified to 
read as follows:
    ``(C) Has obtained from the foreign broker or dealer, with respect 
to each foreign associated person, the types of information specified in 
Rule 17a-3(a)(12) under the Act (17 CFR 240.17a-3(a)(12)), provided that 
the information

[[Page 925]]

required by paragraph (a)(12)(d) of that Rule shall include sanctions 
imposed by foreign securities authorities, exchanges, or associations, 
including, without limitation, those described in paragraph 
(a)(3)(ii)(B) of this rule. Notwithstanding the above, a registered 
broker or dealer that is a noticed financial institution shall comply 
with the provisions of paragraphs 404.4(a)(3)(i) (B) and (C) of this 
title, in lieu of Rule 17a-3(a)(12), provided that the information 
required by paragraphs 404.4(a)(3)(i) (B) and (C) of this title shall 
include sanctions imposed by foreign securities authorities, exchanges, 
or associations, including, without limitation, those described in 
(a)(3)(ii)(B) of this rule;''
    (h) Paragraph 240.15a-6(a)(3)(iii)(D) of this title is modified to 
read as follows:
    ``(D) Has obtained from the foreign broker or dealer and each 
foreign associated person written consent to service of process for any 
civil action brought by or proceeding before its appropriate regulatory 
agency or a self-regulatory organization (as defined in section 3(a)(26) 
of the Act), providing that process may be served on them by service on 
the registered broker or dealer in the manner set forth on the 
registered broker's or dealer's current Form BD or other appropriate 
procedure as specified by the appropriate regulatory agency; and''
    (i) Paragraph 240.15a-6(a)(3)(iii)(E) of this title is modified to 
read as follows:
    ``(E) Maintains a written record of the information and consents 
required by paragraphs (a)(3)(iii) (C) and (D) of this rule, and all 
records in connection with trading activities of the U.S. institutional 
investor or the major U.S. institutional investor involving the foreign 
broker or dealer conducted under paragraph (a)(3) of this rule, in an 
office of the registered broker or dealer located in the United States 
(with respect to nonresident registered brokers or dealers, pursuant to 
Rule 17a-7(a) under the Act (17 CFR 240.17a-7(a)), provided that in Rule 
17a-7(a) references to broker or dealer shall include government 
securities brokers or dealers, as those terms are defined in Sec. Sec. 
400.3 (k) and (l) of this title), and makes these records available to 
the appropriate regulatory agency upon request; or''
    (j) Paragraph 240.15a-6(a)(4)(i) of this title is modified to read 
as follows:
    ``(i) A registered broker or dealer, whether the registered broker 
or dealer is acting as principal for its own account or as agent for 
others, or a financial institution acting pursuant to Sec. Sec. 
401.3(a)(2)(ii) or 401.4(a)(1) of this title;''
    (k) Paragraph 240.15a-6(b)(2) of this title is modified to read as 
follows:
    ``(2) The term foreign associated person shall mean any natural 
person domiciled outside the United States who is an associated person 
(a person associated with a government securities broker or a government 
securities dealer as defined in section 3(a)(45) of the Act) of the 
foreign broker or dealer and who participates in the solicitation of a 
U.S. institutional investor or a major U.S. institutional investor under 
paragraph (a)(3) of this rule.''
    (l) Paragraph 240.15a-6(b)(3) of this title is modified to read as 
follows:
    ``(3) The term ``foreign broker or dealer'' shall mean any non-U.S. 
resident person (including any U.S. person engaged in business as a 
broker or dealer entirely outside the United States, except as otherwise 
permitted by this rule) that is not an office or branch of, or a natural 
person associated with, a registered broker or dealer, whose securities 
activities, if conducted in the United States, would be described by the 
definition of ``government securities broker'' or ``government 
securities dealer'' in sections 3(a)(43) and 3(a)(44) of the Act.''
    (m) Paragraph 240.15a-6(b)(5) of this title is modified to read as 
follows:
    ``(5) Only for the purposes of this rule, the term ``registered 
broker or dealer'' shall mean a person that is registered with the 
Commission under section 15C(a)(2) of the Act or a broker or dealer or a 
financial institution who has provided notice to its appropriate 
regulatory agency under section 15C(a)(1)(B)(ii) of the Act.''
    (n) For the purposes of this section, Sec. 240.15a-6(b) of this 
title shall include a new paragraph (8) to read as follows:
    ``(8) The term registered government securities broker or dealer has 
the meaning set out in Sec. 400.3(o) of this title.''

[[Page 926]]

    (o) For the purposes of this section, 240.15a-6(b) of this title 
shall include a new paragraph (9) to read as follows:
    ``(9) The term noticed financial institution means a financial 
institution as defined at Sec. 400.3(j) of this title that has provided 
notice to its appropriate regulatory agency pursuant to Sec. 400.1(d) 
of this title.''
    (p) For the purposes of this section, Sec. 240.15a-6(b) of this 
title shall include a new paragraph (10) to read as follows:
    ``(10) The term appropriate regulatory agency has the meaning set 
out in Sec. 400.3(b) of this title.''
    (q) Section 240.15a-6(c) of this title is modified to read as 
follows:
    ``(c) The Secretary of the Treasury, upon receiving notification 
from an appropriate regulatory agency that the laws or regulations of a 
foreign country have prohibited a foreign broker or dealer, or a class 
of foreign brokers or dealers, engaging in activities exempted by 
paragraph (a)(3) of this rule, from providing, in response to a request 
from an appropriate regulatory agency, information, documents, or 
records within its possession, custody, or control, testimony of foreign 
associated persons, or assistance in taking the evidence of other 
persons, wherever located, related to activities exempted by paragraph 
(a)(3) of this rule, may consider to be no longer applicable the 
exemption provided in paragraph (a)(3) of this rule with respect to the 
subsequent activities of the foreign broker or dealer or class of 
foreign brokers or dealers if the Secretary finds that continuation of 
the exemption is inconsistent with the public interest, the protection 
of investors and the purposes of the Government Securities Act.''

(Approved by the Office of Management and Budget under control number 
1535-0089)

[55 FR 27462, July 3, 1990; 55 FR 29293, July 18, 1990, as amended at 60 
FR 11026, Mar. 1, 1995]



PART 402_FINANCIAL RESPONSIBILITY--Table of Contents




Sec.
402.1 Application of part to registered brokers and dealers and 
          financial institutions; special rules for futures commission 
          merchants and government securities interdealer brokers; 
          effective date.
402.2 Capital requirements for registered government securities brokers 
          and dealers.
402.2a Appendix A--Calculation of market risk haircut for purposes of 
          Sec. 402.2(g)(2).
402.2b [Reserved]
402.2c Appendix C--Consolidated computations of liquid capital and total 
          haircuts for certain subsidiaries and affiliates.
402.2d Appendix D--Modification of Sec. 240.15c3-1d of this title, 
          relating to satisfactory subordination agreements, for 
          purposes of Sec. 402.2.
402.2e Appendix E--Temporary minimum requirements.

    Authority: 15 U.S.C. 78o-5(b)(1)(A), (b)(4).

    Source: 52 FR 27931, July 24, 1987, unless otherwise noted.



Sec. 402.1  Application of part to registered brokers and dealers 

and financial institutions; special rules for futures commission 
merchants and government securities interdealer brokers; effective date.

    (a) Application of part. This part applies to all government 
securities brokers and dealers, except as otherwise provided herein.
    (b) Registered brokers or dealers. This part does not apply to a 
registered broker or dealer that is subject to Sec. 240.15c3-1 of this 
title (SEC Rule 15c3-1).
    (c) Financial institutions. This part does not apply to a government 
securities broker or dealer that is a financial institution and that is:
    (1) Subject to the rules and regulations of its appropriate 
regulatory agency concerning capital requirements, or
    (2) A branch or agency of a foreign bank subject to regulation, 
supervision, and examination by state or Federal authorities having 
regulatory or supervisory authority over commercial bank and trust 
companies.
    (d) Futures commission merchants. A futures commission merchant 
subject to Sec. 1.17 of this title that is a government securities 
broker or dealer but is not a registered broker or dealer shall not be 
subject to the limitations of Sec. 402.2 but rather to the capital 
requirement of Sec. 1.17 or Sec. 240.15c3-1, except paragraph (e)(3) 
thereof, of this title, whichever is greater.
    (e) Government securities interdealer broker. (1) A government 
securities

[[Page 927]]

interdealer broker, as defined in paragraph (e)(2) of this section, may, 
with the prior written consent of the Secretary, elect not to be subject 
to the limitations of Sec. 402.2 but rather to be subject to the 
requirements of Sec. 240.15c3-1 of this title (SEC Rule 15c3-1), except 
paragraphs (c)(2)(ix) and (e)(3) thereof, and paragraphs (e)(3) through 
(8) of this section by filing such election in writing with its 
designated examining authority. A government securities interdealer 
broker may not revoke such election without the written consent of its 
designated examining authority.
    (2)(i) Government securities interdealer broker means an entity 
engaged exclusively in business as a broker that effects, on an 
initially fully disclosed or identified group basis, transactions in 
government securities for counterparties that are government securities 
brokers or dealers who have registered or given notice pursuant to 
section 15C(a)(1) of the Act (15 U.S.C. 78o-5(a)(1)), and that promptly 
transmits all funds and delivers all securities received in connection 
with its activities as a government securities interdealer broker and 
does not otherwise hold funds or securities for or owe money or 
securities to its counterparties and, except as provided in paragraph 
(e)(2)(ii) of this section, does not have or maintain any government 
securities in its proprietary or other accounts. For the purpose of this 
paragraph (e)(2)(i), ``identified group basis'' means that a 
counterparty has consented to the identity of the specific group of 
entities from which the other counterparty is chosen.
    (ii) A government securities interdealer broker may have or maintain 
government securities in its proprietary or other accounts only as a 
result of:
    (A) Engaging in overnight reverse repurchase or securities borrowed 
transactions solely for the purpose of facilitating the process of 
clearing government securities transactions;
    (B) Engaging in overnight repurchase or securities loaned 
transactions solely for the purpose of reducing its financing expense in 
connection with the clearance of government securities transactions;
    (C) Subordinated loans subject to satisfactory subordination 
agreements pursuant to Sec. 240.l5c3-1(d) of this title;
    (D) Collateral or depository requirements of a clearing corporation 
or association with which it participates in the clearance of government 
securities transactions; or
    (E) The investment of its excess cash.

The maturities of any government securities held or maintained under 
paragraph (e)(2)(ii) (C), (D), or (E) of this section may not exceed one 
year.
    (3) In order to qualify to operate under this paragraph (e), a 
government securities interdealer broker shall at all times have and 
maintain net capital, as defined in Sec. 240.15c3-1(c)(2) of this title 
with the modifications of this paragraph (e), of not less than 
$1,000,000.
    (4) For purposes of this paragraph (e), a government securities 
interdealer broker need not deduct loans to commercial banks for one 
business day of immediately available funds (commonly referred to as 
``sales of federal funds'') held by the government securities 
interdealer broker in connection with the clearance of securities on the 
day the loan is made.
    (5) For purposes of this paragraph (e), a government securities 
interdealer broker need not deduct net pair-off receivables and money 
differences until the close of business of the third business day 
following the day the funds are due and give-up receivables outstanding 
no more than 30 days from the billing date, which shall be no later than 
the last day of the month in which they arise, as otherwise would be 
required under Sec. 240.15c3-1(c)(2)(iv)(B) of this title.
    (6) For purposes of this paragraph (e), a government securities 
interdealer broker shall deduct from net worth \1/4\ of 1 percent of the 
contract value of each government securities failed-to-deliver contract 
which is outstanding 5 business days or longer. Such deduction shall be 
increased by any excess of the contract price of the failed-to-deliver 
contract over the market value of the underlying security.
    (7) For purposes of this paragraph (e), a government securities 
interdealer broker may exclude from its aggregate indebtedness 
computation indebtedness

[[Page 928]]

adequately collateralized by government securities outstanding for not 
more than one business day and offset by government securities failed to 
deliver of the same issue and quantity. In no event may a government 
securities interdealer broker exclude any overnight bank loan 
attributable to the same government securities failed-to-deliver 
contract for more than one business day. A government securities 
interdealer broker need not deduct from net worth the amount by which 
the market value of securities failed to receive outstanding longer than 
thirty (30) calendar days exceeds the contract value of those failed to 
receive as required by Sec. 240.15c3-1(c)(2)(iv)(E) of this title.
    (8)(i) For purposes of this paragraph (e), a government securities 
interdealer broker shall deduct from net worth 5 percent of its net 
exposure to each counterparty.
    (ii) Net exposure. For purposes of this paragraph (e), net exposure 
shall equal:
    (A) The sum of the dollar amount of funds, debt instruments, other 
securities, and other inventory at risk, in the first instance, to the 
government securities interdealer broker in the event of the 
counterparty's default,
    (B) Reduced, but not to less than zero, by the sum of:
    (1) The dollar amount of funds, debt instruments, other securities, 
and other inventory at risk, in the first instance, to the counterparty 
in the event of the government securities interdealer broker's default;
    (2) The deductions taken from net worth for unsecured receivables, 
repurchase and reverse repurchase deficits, aged fails to deliver, and 
aged fails to receive arising from transactions with the counterparty;
    (3) Demand deposits in the case where the counterparty is a 
commercial bank;
    (4) Loans for one business day of immediately available funds 
(commonly referred to as ``sales of federal funds'') held by the 
government securities interdealer broker in connection with the 
clearance of securities on the day the loan is made in the case where 
the counterparty is a commercial bank;
    (5) Custodial holdings of securities in the case where the 
counterparty is a clearing bank or clearing broker of the government 
securities interdealer broker; and
    (6) Exposure to a counterparty due to holding marketable instruments 
subject to market risk haircuts under appendix A to this section (Sec. 
402.2a) for which the counterparty is the obligor.
    (9) On the application of the government securities interdealer 
broker, the designated examining authority may extend the periods of 
time in this paragraph (e) if it determines that the extension is 
warranted because of exceptional circumstances and that the government 
securities interdealer broker is acting in good faith.
    (f) Effective date. This part shall be effective July 25, 1987, 
provided however, that until the last business day in October 1987, 
registered government securities brokers and dealers need not comply 
with Sec. 402.2 (a), (b), and (c) as long as:
    (1) A registered government securities broker or dealer that acts 
solely as an introducing broker within the meaning of Sec. 240.15c3-
1(a)(2) of this title has and maintains liquid capital, as defined in 
Sec. 402.2(d), in an amount of not less than $5,000; and
    (2) Any other registered government securities broker or dealer has 
and maintains liquid capital, as defined in Sec. 402.2(d), in an amount 
of not less than $50,000.

[52 FR 27931, July 24, 1987, as amended at 60 FR 11024, Mar. 1, 1995]



Sec. 402.2  Capital requirements for registered government securities 
brokers and dealers.

    (a) General rule. No government securities broker or dealer shall 
permit its liquid capital to be below an amount equal to 120 percent of 
total haircuts as defined in paragraph (g) of this section.
    (b)(1) Minimum liquid capital for brokers or dealers that carry 
customer accounts. Notwithstanding the provisions of paragraph (a) of 
this section, a government securities broker or dealer that carries 
customer or broker or dealer accounts and receives or holds funds or 
securities for those persons within the meaning of Sec. 240.15c3-
1(a)(2)(i) of this title, shall have and maintain liquid capital in an 
amount not less than $250,000 (see paragraph (a)

[[Page 929]]

of appendix E to this section, Sec. 402.2e, for temporary minimum 
requirements), after deducting total haircuts as defined in paragraph 
(g) of this section.
    (2) Minimum liquid capital for brokers or dealers that carry 
customer accounts, but do not generally hold customer funds or 
securities. Notwithstanding the provisions of paragraphs (a) and (b)(1) 
of this section, a government securities broker or dealer that carries 
customer or broker or dealer accounts and is exempt from the provisions 
of Sec. 240.15c3-3 of this title, as made applicable to government 
securities brokers and dealers by Sec. 403.4 of this chapter, pursuant 
to paragraph (k)(2)(i) thereof (17 CFR 240.15c3-3(k)(2)(i)), shall have 
and maintain liquid capital in an amount not less than $100,000 (see 
paragraph (b) of appendix E to this section, Sec. 402.2(e), for 
temporary minimum requirements), after deducting total haircuts as 
defined in paragraph (g) of this section.
    (c)(1) Minimum liquid capital for introducing brokers that receive 
securities. Notwithstanding the provisions of paragraphs (a) and (b) of 
this section, a government securities broker or dealer that introduces 
on a fully disclosed basis transactions and accounts of customers to 
another registered or noticed government securities broker or dealer but 
does not receive, directly or indirectly, funds from or for, or owe 
funds to, customers, and does not carry the accounts of, or for, 
customers shall have and maintain liquid capital in an amount not less 
than $50,000 (see paragraph (c) of appendix E to this section, Sec. 
402.2(e), for temporary minimum requirements), after deducting total 
haircuts as defined in paragraph (g) of this section. A government 
securities broker or dealer operating pursuant to this paragraph (c)(1) 
may receive, but shall not hold customer or other broker or dealer 
securities.
    (2) Minimum liquid capital for introducing brokers that do not 
receive or handle customer funds or securities. Notwithstanding the 
provisions of paragraphs (a), (b) and (c)(1) of this section, a 
government securities broker or dealer that does not receive, directly 
or indirectly, or hold funds or securities for, or owe funds or 
securities to, customers, and does not carry accounts of, or for, 
customers and that effects ten or fewer transactions in securities in 
any one calendar year for its own investment account shall have and 
maintain liquid capital in an amount not less than $25,000 (see 
paragraph (d) of appendix E to this section, Sec. 402.2(e), for 
temporary minimum requirements), after deducting total haircuts as 
defined in paragraph (g) of this section.
    (d) Liquid capital. ``Liquid capital'' means net capital as defined 
in Sec. 240.15c3-1(c)(2) of this title with the following 
modifications:
    (1) The percentages used to calculate the deductions for failed to 
deliver contracts required by Sec. 240.15c3-1(c)(2)(ix) of this title 
when the underlying instrument is a Treasury market risk instrument as 
defined in paragraph (e) of this section are the appropriate net 
position haircut factors specified in paragraph (f)(2) of this section;
    (2) The percentages used to calculate deductions required by Sec. 
240.15c3-1(c)(2)(iv)(B) of this title for securities that are Treasury 
market risk instruments are the appropriate net position haircut factors 
specified in paragraph (f)(2) of this section;
    (3) The deduction required by Sec. 240.15c3-1(c)(2)(iv)(F)(3)(i) of 
this title relating to repurchase agreement deficits shall be determined 
without reference to Sec. 240.15c3-1(c)(2)(iv)(F)(3)(i)(B) or Sec. 
240.15c3-1(c)(2)(iv)(F)(3)(i)(C);
    (4) The deductions from net worth required by Sec. Sec. 240.15c3-1 
(c)(2)(vi) and (c)(2)(viii) of this title and the adjustments to net 
worth set forth in Sec. 240.15c3-1a and Sec. 240.15c3-1b of this title 
(Appendices A and B to SEC Rule 15c3-1) are omitted;
    (5) Net pair-off receivables and money differences need not be 
deducted as otherwise would be required under Sec. 240.15c3-
1(c)(2)(iv)(B) of this title until the close of business of the third 
business day following the day the funds are due;
    (6) Give-up receivables outstanding no more than 30 days from the 
billing date, which shall be no later than the last day of the month in 
which they arise, need not be deducted as otherwise would be required 
under Sec. 240.15c3-1(c)(2)(iv)(B) of this title;

[[Page 930]]

    (7) Loans to commercial banks for one business day of immediately 
available funds (commonly referred to as ``sales of federal funds'') 
held by the government securities broker or dealer in connection with 
the clearance of securities on the day the loan is made need not be 
deducted; and
    (8) In determining net worth, all long and short positions in 
unlisted options that are Treasury market risk instruments shall be 
evaluated in the manner set forth in Sec. 240.15c3-1(c)(2)(i)(B)(1) and 
not in the manner set forth in Sec. 240.15c3-1(c)(2)(i)(B)(2) of this 
title.
    (e) Treasury market risk instruments. (1) For purposes of this part, 
the term ``Treasury market risk instrument'' means the following dollar-
denominated securities, debt instruments, and derivative instruments:
    (i) Government securities, except equity securities and those 
mortgage-backed securities described in paragraph (e)(2) of this 
section;
    (ii) Zero-coupon receipts or certificates based on marketable 
Treasury notes or bonds;
    (iii) Marketable certificates of deposit of no more than one year to 
maturity;
    (iv) Bankers acceptances;
    (v) Commercial paper of no more than one year to maturity rated in 
one of the three highest categories by at least two nationally 
recognized statistical rating organizations;
    (vi) Securities, other than equity securities, issued by 
international organizations that have a statutory exemption from the 
registration requirements of the Securities Act of 1933 and the 
Securities Exchange Act of 1934 provided their changes in yield are 
closely correlated to the changes in yield of similar Treasury 
securities, including STRIPS;
    (vii) Futures, forwards, and listed options on Treasury market risk 
instruments described in paragraphs (e)(1)(i)-(vi) of this section or on 
time deposits whose changes in yield are closely correlated with the 
Treasury market risk instruments described in paragraph (e)(1)(iii) of 
this section, settled on a cash or delivery basis;
    (viii) Options on those futures contracts described in paragraph 
(e)(1)(vii) of this section, settled on a cash or delivery basis; and
    (ix) Unlisted options on marketable Treasury bills, notes or bonds.
    (2) ``Treasury market risk instrument'' does not include mortgage-
backed securities that do not pass through to each security holder on a 
pro rata basis a distribution based on the monthly payments and 
prepayments of principal and interest on the underlying pool of mortgage 
collateral less fees and expenses.
    (f)(1) Haircut categories. For purposes of this part, the applicable 
categories within which non-zero-coupon and zero-coupon Treasury market 
risk instruments are classified are:

----------------------------------------------------------------------------------------------------------------
                         Term or type for non-zero-
       Category              coupon instruments                    Term for zero-coupon instruments
----------------------------------------------------------------------------------------------------------------
A.....................  Less than 45 days...........  Less than 45 days.
B.....................  At least 45 days but less     At least 45 days but less than 135 days.
                         than 135 days.
C.....................  At least 135 days but less    At least 135 days but less than 9 months.
                         than 9 months.
D.....................  At least 9 months but less    At least 9 months but less than 1 year, 6 months.
                         than 1 year, 6 months.
E.....................  At least 1 year, 6 months     At least 1 year, 6 months but less than 3 years.
                         but less than 3 years, 6
                         months.
F.....................  At least 3 years, 6 months    At least 3 years but less than 5 years, 6 months.
                         but less than 7 years, 6
                         months.
G.....................  At least 7 years, 6 months    At least 5 years, 6 months but less than 9 years.
                         but less than 15 years.
H.....................  15 years and over...........  At least 9 years but less than 12 years.
I.....................  ............................  At least 12 years but less than 21 years
J.....................  ............................  21 years and over.
MB....................  All fixed rate mortgage-
                         backed securities that are
                         Treasury market risk
                         instruments..
AR....................  All adjustable rate mortgage-
                         backed securities that are
                         Treasury market risk
                         instruments.
----------------------------------------------------------------------------------------------------------------

    (2) Haircut factors. For purposes of this part, the applicable net 
position and offset haircut factors to be used in the calculation of the 
Treasury market risk haircut are as follows:

[[Page 931]]



------------------------------------------------------------------------
                                                      Haircut factors
                                                 -----------------------
                                                      Net
                    Category                       position     Offsets
                                                   haircuts    (percent)
                                                   (percent)
------------------------------------------------------------------------
A...............................................        None        None
B...............................................        0.12        0.02
C...............................................        0.20        0.03
D...............................................        0.45        0.07
E...............................................        1.10        0.22
F...............................................        2.20        0.44
G...............................................        3.30        0.50
H...............................................        4.50        0.90
I...............................................        7.75        1.55
J...............................................       11.25        3.38
MB..............................................        3.30        0.66
AR..............................................        1.10        0.22
------------------------------------------------------------------------

    (3) Category pair hedging disallowance haircut factors. For purposes 
of this part, the applicable category pair hedging disallowance haircut 
factors to be used in the calculation of the Treasury market risk 
haircut are as follows:

------------------------------------------------------------------------
                                              Percent disallowed
              Category               -----------------------------------
                                       C   D   E   F   G   H   I   J  MB
------------------------------------------------------------------------
B...................................  30  40  ..  ..  ..  ..  ..  ..  ..
C...................................  ..  20  30  ..  ..  ..  ..  ..  ..
D...................................  ..  ..  20  30  40  ..  ..  ..  ..
E...................................  ..  ..  ..  20  30  40  ..  ..  ..
F...................................  ..  ..  ..  ..  20  30  40  ..  30
G...................................  ..  ..  ..  ..  ..  20  30  ..  30
H...................................  ..  ..  ..  ..  ..  ..  20  40  40
I...................................  ..  ..  ..  ..  ..  ..  ..  40  ..
------------------------------------------------------------------------

    (g) Total haircuts. ``Total haircuts'' equals the sum of the credit 
risk haircut and the market risk haircut.
    (1) Credit risk haircut. The ``credit risk haircut'' equals the sum 
of the total counterparty exposure haircut, the total concentration of 
credit haircut and the credit volatility haircut.
    (i) Net credit exposure. For purposes of this part, net credit 
exposure shall equal:
    (A) The sum of the dollar amount of funds, debt instruments, other 
securities, and other inventory at risk to the government securities 
broker or dealer in the event of the counterparty's default and the 
market value of purchased unlisted options written by the counterparty 
that are Treasury market risk instruments,
    (B) Reduced, but not to less than zero, by the sum of:
    (1) The dollar amount of funds, debt instruments, other securities, 
and other inventory at risk to the counterparty in the event of the 
government securities broker's or dealer's default and the market value 
of unlisted options written by the government securities broker or 
dealer and held by the counterparty that are Treasury market risk 
instruments;
    (2) The deductions taken from net worth for unsecured receivables, 
repurchase and reverse repurchase agreement deficits, aged fails to 
deliver, and aged fails to receive arising from transactions with the 
counterparty;
    (3) Demand deposits in the case where the counterparty is a 
commercial bank;
    (4) Loans for one business day of immediately available funds 
(commonly referred to as ``sales of federal funds'') held by the 
government securities broker or dealer in connection with the clearance 
of securities on the day the loan is made in the case where the 
counterparty is a commercial bank;
    (5) Custodial holdings of securities in the case where the 
counterparty is a clearing bank or clearing broker of the government 
securities broker or dealer; and
    (6) Exposure to a counterparty due to holding marketable instruments 
subject to market risk haircuts under appendix A to this section (Sec. 
402.2a) for which the counterparty is the obligor.
    (ii) Total counterparty exposure haircut. The ``total counterparty 
exposure haircut'' equals the sum of the counterparty exposure haircuts 
taken for all counterparties except a Federal Reserve Bank, of the 
government securities broker or dealer. The ``counterparty exposure 
haircut'' equals the product of a counterparty exposure haircut factor 
of 5 percent and the net credit exposure to a single counterparty not in 
excess of 15 percent of the government securities broker's or dealer's 
liquid capital.
    (iii) Total concentration of credit haircut. The ``total 
concentration of credit haircut'' equals the sum of the concentration of 
credit haircuts taken for all counterparties of the government 
securities broker or dealer. The ``concentration of credit haircut'' 
equals the product of a concentration of credit haircut factor of 25 
percent and the

[[Page 932]]

amount by which the net credit exposure to a single counterparty is in 
excess of 15 percent of the government securities broker's or dealer's 
liquid capital.
    (iv) Credit volatility haircut. The ``credit volatility haircut'' 
equals the product of a credit volatility haircut factor of 0.15 percent 
and the dollar amount of the larger of the gross long position or gross 
short position in those Treasury market risk instruments described in 
paragraphs (e)(1)(iii), (iv) and (v) of this section that have a term to 
maturity greater than 44 days, including futures and forwards thereon, 
settled on a cash or delivery basis, and futures and forwards on time 
deposits described in paragraph (e)(1)(vii) of this section, that have a 
term to maturity greater than 44 days, settled on a cash or delivery 
basis.
    (2) Market risk haircut. The ``market risk haircut'' equals the sum 
of the Treasury market risk haircut and the other securities haircut, 
calculated in accordance with the provisions of appendix A of this 
section, Sec. 402.2a.
    (h) Debt-equity requirements. No government securities broker or 
dealer shall permit the total of outstanding principal amounts of its 
satisfactory subordination agreements as defined in Sec. 240.15c3-1d of 
this title (appendix D to SEC Rule 15c3-1) modified as provided in 
appendix D to this section, Sec. 402.2d, to exceed the allowable levels 
set forth in Sec. 240.15c3-1(d) of this title.
    (i) Provisions relating to the withdrawal of equity capital--(1) 
Notice provisions. No equity capital of the government securities broker 
or dealer or a subsidiary or affiliate consolidated pursuant to appendix 
C to this section, Sec. 402.2c, may be withdrawn by action of a 
stockholder or partner, or by redemption or repurchase of shares of 
stock by any of the consolidated entities or through the payment of 
dividends or any similar distribution, nor may any unsecured advance or 
loan be made to a stockholder, partner, sole proprietor, employee or 
affiliate without providing written notice, given in accordance with 
paragraph (i)(1)(iv) of this section, when specified in paragraphs 
(i)(1) (i) and (ii) of this section:
    (i) Two business days prior to any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 30 percent of the government 
securities broker's or dealer's excess liquid capital. A government 
securities broker or dealer, in an emergency situation, may make 
withdrawals, advances or loans that on a net basis exceed 30 percent of 
the government securities broker's or dealer's excess liquid capital in 
any 30 calendar day period without giving the advance notice required by 
this paragraph, with the prior approval of its designated examining 
authority. When a government securities broker or dealer makes a 
withdrawal with the consent of its designated examining authority, it 
shall in any event comply with paragraph (i)(1)(ii) of this section; and
    (ii) Two business days after any withdrawals, advances or loans if 
those withdrawals, advances or loans on a net basis exceed in the 
aggregate in any 30 calendar day period, 20 percent of the government 
securities broker's or dealer's excess liquid capital.
    (iii) This paragraph (i)(1) of this section does not apply to:
    (A) Securities or commodities transactions in the ordinary course of 
business between a government securities broker or dealer and an 
affiliate where the government securities broker or dealer makes payment 
to or on behalf of such affiliate for such transaction and then receives 
payment from such affiliate for the securities or commodities 
transaction within two business days from the date of the transaction; 
or
    (B) Withdrawals, advances or loans which in the aggregate in any 
such 30 calendar day period, on a net basis, equal $500,000 or less.
    (iv) Each required notice shall be effective when received by the 
Commission in Washington, DC, the regional or district office of the 
Commission for the area in which the government securities broker or 
dealer has its principal place of business, and the government 
securities broker's or dealer's designated examining authority.
    (2) Withdrawal limitations. No equity capital of the government 
securities

[[Page 933]]

broker or dealer or a subsidiary or affiliate consolidated pursuant to 
appendix C to this section, Sec. 402.2c, may be withdrawn by action of 
a stockholder or a partner, or by redemption or repurchase of shares of 
stock by any of the consolidated entities or through the payment of 
dividends or any similar distribution, nor may any unsecured advance or 
loan be made to a stockholder, partner, sole proprietor, employee or 
affiliate if, after giving effect thereto and to any other such 
withdrawals, advances or loans and any Payments of Payment Obligations 
(as defined in Sec. 240.15c3-1d of this title, appendix D to SEC Rule 
15c3-1, modified as provided in appendix D to this section, Sec. 
402.2d) under satisfactory subordination agreements which are scheduled 
to occur within 180 calendar days following such withdrawal, advance or 
loan, either:
    (i) The ratio of liquid capital to total haircuts, determined as 
provided in Sec. 402.2, would be less than 150 percent; or
    (ii) Liquid capital minus total haircuts would be less than 120 
percent of the minimum capital required by Sec. 402.2(b) or Sec. 
402.2(c) as applicable; or
    (iii) In the case of any government securities broker or dealer 
included in such consolidation, the total outstanding principal amounts 
of satisfactory subordination agreements of the government securities 
broker or dealer (other than such agreements which qualify as equity 
under Sec. 240.15c3-1(d) of this title) would exceed 70% of the debt-
equity total as defined in Sec. 240.15c3-1(d).
    (3) Miscellaneous provisions. (i) Excess liquid capital is that 
amount in excess of the amount required by the greater of Sec. 402.2(a) 
or, Sec. Sec. 402.2 (b) or (c), as applicable. For the purposes of 
paragraphs (i)(1) and (i)(2) of this section, a government securities 
broker or dealer may use the amount of excess liquid capital, liquid 
capital and total haircuts reported in its most recently required filed 
Form G-405 for the purposes of calculating the effect of a projected 
withdrawal, advance or loan relative to excess liquid capital or total 
haircuts. The government securities broker or dealer must assure itself 
that the excess liquid capital, liquid capital or the total haircuts 
reported on the most recently required filed Form G-405 have not 
materially changed since the time such report was filed.
    (ii) The term equity capital includes capital contributions by 
partners, par or stated value of capital stock, paid-in capital in 
excess of par, retained earnings or other capital accounts. The term 
equity capital does not include securities in the securities accounts of 
partners and balances in limited partners' capital accounts in excess of 
their stated capital contributions.
    (iii) Paragraphs (i)(1) and (i)(2) of this section shall not 
preclude a government securities broker or dealer from making required 
tax payments or preclude the payment to partners of reasonable 
compensation, and such payments shall not be included in the calculation 
of withdrawals, advances or loans for purposes of paragraphs (i)(1) and 
(i)(2) of this section.
    (iv) For the purposes of this subsection (i), any transaction 
between a government securities broker or dealer and a stockholder, 
partner, sole proprietor, employee or affiliate that results in a 
diminution of the government securities broker's or dealer's liquid 
capital shall be deemed to be an advance or loan of liquid capital.
    (j) Modification of appendices to Sec. 240.15c3-1 of this title. 
For purposes of this section, appendix C to this section (Sec. 402.2c) 
is substituted for appendix C to Rule 15c3-1 (Sec. 240.15c3-1c of this 
title), and appendix D to Rule 15c3-1 (Sec. 240.15c3-1d of this title), 
relating to Satisfactory Subordination Agreements, is modified as 
provided in appendix D to this section (Sec. 402.2d).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27931, July 24, 1987, as amended at 53 FR 28984, Aug. 1, 1988; 60 
FR 11024, Mar. 1, 1995]



Sec. 402.2a  Appendix A--Calculation of market risk haircut for 
purposes of Sec. 402.2(g)(2).

    The market risk haircut is the sum of the Treasury market risk 
haircut and the other securities haircut, calculated as follows.
    (a) Treasury market risk haircut. The ``Treasury market risk 
haircut'' equals

[[Page 934]]

the sum of the total governments offset portion haircut, the total 
futures and options offset haircut, the total hedging disallowance 
haircut, and the residual net position haircut, calculated with respect 
to financings and positions in Treasury market risk instruments, except 
to the extent that a permissible election is made pursuant to paragraph 
(b)(1) of this section to include qualified positions in the calculation 
of the other securities haircut.
    (1) Total governments offset portion haircut. The ``total 
governments offset portion haircut'' equals the sum of the governments 
offset portion haircuts calculated for each category in Sec. 
402.2(f)(1). The ``governments offset portion haircuts'' equal, for each 
category in Sec. 402.2(f)(1), the product of the offset haircut factor 
for that category set out in Sec. 402.2(f)(2) and the smaller of the 
absolute values of the gross long immediate position or gross short 
immediate position for that category. Schedules B and C in paragraph (c) 
of this section can be used to make this calculation.
    (i)(A) The ``gross long immediate position'' for purposes of this 
part equals, for each category except categories MB and AR in Sec. 
402.2(f)(1), the sum of the market values of each long immediate 
position in Treasury market risk instruments with a term to maturity 
(or, in the case of a floating rate note, the time to the next scheduled 
interest rate adjustment or the term to maturity, whichever is less) 
corresponding to such category, the contract values of each reverse 
repurchase agreement with a term to maturity or time to the next 
scheduled interest rate adjustment, whichever is less, corresponding to 
that category, and the values of the cash collateral of each security 
borrowing with a term to maturity or time to next scheduled interest 
rate adjustment, whichever is less, corresponding to such category.
    (B) In the case of category MB, the ``gross long immediate 
position'' equals the sum of the market values of all long immediate 
positions in fixed rate mortgage-backed securities which are Treasury 
market risk instruments.
    (C) In the case of category AR, the ``gross long immediate 
position'' equals the sum of the market values of all long immediate 
positions in adjustable rate mortgage-backed securities which are 
Treasury market risk instruments.
    (ii)(A) The ``gross short immediate position'' for purposes of this 
section equals, for each category except categories MB and AR in Sec. 
402.2(f)(1), the sum of the market values of each short immediate 
position in Treasury market risk instruments with a term to maturity 
(or, in the case of a floating rate note, the time to the next scheduled 
interest rate adjustment or the term to maturity, whichever is less) 
corresponding to such category, and the values of funds received from 
each financing transaction (including repurchase agreements, securities 
lending secured by cash collateral, and term financings, but excluding 
subordinated debt which meets the requirements of Sec. 240.15c3-1d of 
this title modified as provided in Sec. 402.2d) with a term to maturity 
or time to the next scheduled interest rate adjustment, whichever is 
less, corresponding to that category.
    (B) In the case of category MB, the ``gross short immediate 
position'' equals the sum of the market values of all short immediate 
positions in fixed rate mortgage-backed securities which are Treasury 
market risk instruments.
    (C) In the case of category AR, the ``gross short immediate 
position'' equals the sum of the market values of all short immediate 
positions in adjustable rate mortgage-backed securities which are 
Treasury market risk instruments.
    (iii) The term long immediate position in a Treasury market risk 
instrument means, for purposes of this part:
    (A) The net long position in a Treasury market risk instrument as of 
the trade date, except when the settlement date, in the case of a 
Treasury market risk instrument except a mortgage-backed security, is 
scheduled more than five business days in the future, and, in the case 
of a mortgage-backed security, more than thirty calendar days in the 
future;
    (B) The net long when-issued position in a marketable U.S. Treasury 
security between announcement and issue date;
    (C) The net long when-issued position in a government agency or a 
government-sponsored agency debt security

[[Page 935]]

between release date and issue date; and
    (D) The net long when-issued position in a security described in 
Sec. 402.2(e)(1)(vi) between announcement date and issue date.
    (iv) The term short immediate position on a Treasury market risk 
instrument means, for purposes of this part:
    (A) The net short position in a Treasury market risk instrument as 
of the trade date, except when the settlement date, in the case of a 
Treasury market risk instrument except a mortgage-backed security, is 
scheduled more than five business days in the future, and, in the case 
of a mortgage-backed security, more than thirty calendar days in the 
future;
    (B) The net short when-issued position in a marketable U.S. Treasury 
security between announcement and issue date;
    (C) The net short when-issued position in a government agency or a 
government-sponsored agency debt security between release date and issue 
date; and
    (D) The net short when-issued position in a security described in 
Sec. 402.2(e)(1)(vi) between announcement date and issue date.
    (2) Net immediate position interim haircut. The ``net immediate 
position interim haircut'' equals, for each category in Sec. 
402.2(f)(1), the product of the net position haircut factor for that 
category and the sum of the gross long immediate position and the gross 
short immediate position for that category. For purposes of this part, a 
gross long immediate position shall be a positive number and a gross 
short immediate position shall be a negative number. Schedules B and C 
in paragraph (c) of this section can be used to make this calculation.
    (3) Total futures and options offset haircut. The ``total futures 
and options offset haircut'' equals the sum of the futures and options 
offset haircuts calculated for each category in Sec. 402.2(f)(1). The 
``futures and options offset haircut'' equals, for each category in 
Sec. 402.2(f)(1), the product of a futures and options offset factor of 
20 percent and the smaller of the absolute values of the positive and 
negative aggregate interim haircuts for that category. Schedule D in 
paragraph (c) of this section can be used to make this calculation.
    (i) Positive aggregate interim haircut. The ``positive aggregate 
interim haircut'' equals, for each category in Sec. 402.2(f)(1), the 
sum of the positive net immediate position interim haircut (see 
paragraph (a)(2) of this section), the gross long futures and forward 
interim haircut, and the positive gross options interim haircut for that 
category. Schedule D in paragraph (c) of this section can be used to 
make this calculation.
    (A) Gross long futures and forward interim haircut. The ``gross long 
futures and forward interim haircut'' equals, for each category in Sec. 
402.2(f)(1), the sum of the interim haircuts on each long futures 
position and long forward position placed, in the case of a futures or 
forward contract which is a Treasury market risk instrument except those 
on mortgage-backed securities, in the category corresponding to the sum 
of the term to maturity of the contract and the term to maturity of the 
underlying instrument at the time of the maturity of the contract or, in 
the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, in the category corresponding to the type of 
Treasury market risk mortgage-backed security.
    (1) For purposes of this part, the interim haircut on each long 
futures position and each long forward position is the product of the 
net position haircut factor for the category corresponding to, in the 
case of a futures or forward contract which is a Treasury market risk 
instrument except those on mortgage-backed securities, the maturity of 
the underlying instrument at the time of the maturity of the contract 
or, in the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, the type of Treasury market risk mortgage-
backed security and the value of the long futures position or long 
forward position evaluated at the current market price for such 
contract.
    (2) For purposes of this part, the gross long futures and forward 
interim haircut shall be a positive number.

[[Page 936]]

    (B) Positive gross options interim haircut. The ``positive gross 
options interim haircut'' equals, for each category in Sec. 
402.2(f)(1), the sum of the interim haircuts on each purchased call and 
sold put placed in the category in which the underlying instrument would 
be placed.
    (1) For purposes of this part, the ``interim haircut on each 
purchased call and sold put'' equals the lesser of the market value of 
the option or, (i) in the case of an option on a cash instrument, the 
product of the net position haircut factor for the category to which the 
underlying cash instrument corresponds and the market value of the 
underlying cash instrument or, (ii) in the case of an option on a 
futures contract, the interim haircut on the underlying futures 
contract.
    (2) For purposes of this part, the positive gross options interim 
haircut is a positive number.
    (ii) Negative aggregate interim haircut. The ``negative aggregate 
interim haircut'' equals, for each category in Sec. 402.2(f)(1), the 
sum of the negative net immediate position interim haircut (see 
paragraph (a)(2) of this section), the gross short futures and forward 
interim haircut, and the negative gross options interim haircut for that 
category. Schedule D in paragraph (c) of this section can be used to 
make this calculation.
    (A) Gross short futures and forward interim haircut. The ``gross 
short futures and forward interim haircut'' equals, for each category in 
Sec. 402.2(f)(1), the sum of the interim haircuts on each short futures 
position and short forward position placed, in the case of a futures or 
forward contract which is a Treasury market risk instrument except those 
on mortgage-backed securities, in the category corresponding to the sum 
of the term to maturity of the contract and the term to maturity of the 
underlying instrument at the time of the maturity of the contract or, in 
the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, in the category corresponding to the type of 
Treasury market risk mortgage-backed security.
    (1) For purposes of this part, the ``interim haircut on each short 
futures position and each short forward position'' is the product of the 
net position haircut factor for the category corresponding to, in the 
case of a futures or forward contract which is a Treasury market risk 
instrument except those on mortgage-backed securities, the maturity of 
the underlying instrument at the time of the maturity of the contract 
or, in the case of a futures or forward contract on Treasury market risk 
mortgage-backed securities, the type of Treasury market risk mortgage-
backed security and the value of the short futures position or short 
forward position evaluated at the current market price for such 
contract.
    (2) For purposes of this part, the gross short futures and forward 
interim haircut is a negative number.
    (B) Negative gross options interim haircut. The ``negative gross 
options interim haircut'' equals, for each category in Sec. 
402.2(f)(1), the sum of the interim haircuts on each sold call and 
purchased put placed in the category in which the underlying instrument 
would be placed.
    (1) For purposes of this part, the ``interim haircut on each sold 
call and purchased put'' equals the lesser of the market value of the 
option or, (i) in the case of an option on a cash instrument, the 
product of the net position haircut factor for the category to which the 
underlying cash instrument corresponds and the market value of the 
underlying cash instrument or, (ii) in the case of an option on a 
futures contract, the interim haircut on the underlying futures 
contract.
    (2) For purposes of this part, the negative gross options interim 
haircut is a negative number.
    (4) Total hedging disallowance haircut. The ``total hedging 
disallowance haircut'' equals the sum of the hedging disallowance 
haircuts calculated pursuant to each netting of qualified netting 
interim haircuts. The ``hedging disallowance haircut'' equals the 
absolute value of the product of the applicable category pair hedging 
disallowance haircut factor specified in Sec. 402.2(f)(3) and the 
smaller in absolute value of any two qualified netting interim haircuts, 
netted in accordance with the provisions of this paragraph. Schedule E 
in paragraph (c) of this section can be used to make this calculation.

[[Page 937]]

    (i) Qualified netting interim haircut. The term ``qualified netting 
interim haircut'' means a residual position interim haircut or a net 
residual position interim haircut.
    (A) Residual position interim haircut. The ``residual position 
interim haircut'' equals, for each category in Sec. 402.2(f)(1), the 
sum of the positive aggregate interim haircut and the negative aggregate 
interim haircut corresponding to the category, calculated in accordance 
with the provisions of paragraph (a)(3) of this section.
    (B)(1) Net residual position interim haircut. The ``net residual 
position interim haircut'' equals, for any two categories between which 
netting is permitted, the sum of (i) the residual position interim 
haircuts calculated for those categories, in the case of the category of 
the larger in absolute value of the two residual position interim 
haircuts being netted, and (ii) zero, in the case of the category of the 
smaller in absolute value of the two residual position interim haircuts 
being netted.
    (2) For the purposes of this paragraph (a)(4), netting is permitted 
only between categories for which a category pair hedging disallowance 
haircut factor has been specified in paragraph Sec. 402.2(f)(3).
    (ii) Net residual position interim haircuts shall be substituted for 
the residual position interim haircuts in the respective categories in 
which they have been placed and shall be considered as if they were 
residual position interim haircuts. New net residual position interim 
haircuts may continue to be calculated until for each category pair for 
which netting is permitted at least one of the two qualified netting 
interim haircuts is zero or both qualified netting interim haircuts are 
of the same sign.
    (5) Residual net position haircut. The ``residual net position 
haircut'' equals the sum of the absolute values of all qualified netting 
interim haircuts remaining in each category after the completion of the 
calculation of permissible nettings described in paragraph (a)(4) of 
this section. Schedule E in paragraph (c) of this section can be used to 
make this calculation.
    (b) Other securities haircut. The ``other securities haircut'' 
equals the sum of all deductions specified in Sec. 240.15c3-1 
(c)(2)(vi) and (c)(2)(viii) of this title and Sec. Sec. 240.15c3-1a and 
240.l5c3-1b of this title for long and short positions in securities, 
futures contracts, forward contracts, options, and other inventory which 
are not Treasury market risk instruments as defined in Sec. 402.2(e).
    (1) A registered government securities broker or dealer may elect to 
exclude from its calculation of the Treasury market risk haircut and 
include in its calculation of the other securities haircut long and 
short positions in Treasury market risk instruments if such positions 
form part of a hedge against long and short positions in securities, 
futures contracts, forward contracts, or options which are not Treasury 
market risk instruments. Only the portion of the total position in a 
Treasury market risk instrument that forms part of such hedge may be 
excluded from the calculation of the Treasury market risk haircut and 
included in the calculation of the other securities haircut.
    (2) For purposes of this paragraph (b), a gross long or short 
position in Treasury market risk instruments shall be considered part of 
a hedge if the inclusion of such position in the calculation of the 
other securities haircut would serve to reduce said haircut.
    (3) For purposes of this paragraph (b) as it relates to Sec. 
240.15c3-1(c)(2)(vi)(M) (``undue concentration''), references to ``10 
percent of the ``net capital''' shall be understood to refer to 10 
percent of the liquid capital and references to ``Appendix (D) (17 CFR 
240.15c3-1d)'' shall be understood to refer to such section as modified 
by Sec. 402.2d.
    (c) Schedules. This paragraph sets forth schedules which may be used 
by government securities brokers or dealers in the calculation of total 
haircuts as required by this part 402. The appropriate regulatory agency 
or designated examining authority may specify other substantially 
similar forms required to be used by government securities brokers or 
dealers in the calculation of such haircuts.

       Schedule A--Liquid Capital Requirement, Summary Computation
                        [In thousands of dollars]
1. Liquid capital \1\..........................................   ------

[[Page 938]]

 
2. Haircuts on security and financing positions including
 contractual commitments:
    a. Total governments offset portion haircut (Schedule C)...   ------
    b. Total futures and options offset haircut (Schedule D)...   ------
    c. Total hedging disallowance haircut (Schedule E).........   ------
    d. Residual net position haircut (Schedule E)..............   ------
    e. Other securities haircut (use SEC factors)..............   ------
3. Haircuts on credit exposure:
    a. Total counterparty exposure haircut.....................   ------
    b. Total concentration of credit haircut...................   ------
    c. Credit volatility haircut...............................   ------
4. Total haircuts (sum of lines 2 a through e, 3 a, b, and c)..   ------
5. Capital-to-risk ratio (line 1 divided by line 4)............  ------
 
\1\ Identical to the amount reported on line 3640 of the Report on
  Finances and Operations of Government Securities Brokers and Dealers,
  Form G-405.


[[Page 939]]

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[[Page 940]]

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[[Page 941]]

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[[Page 942]]

[GRAPHIC] [TIFF OMITTED] TC11OC91.011

                  Instructions to Schedules A through E

    Schedules A through E may be used by government securities brokers 
or dealers subject to 17 CFR 402 to determine the firm's capital-to-risk 
ratio. Section 402.2 provides that a government securities broker or 
dealer must meet the applicable minimum dollar liquid capital 
requirement and that the firm's ratio of liquid capital to risk (total 
haircuts) must be at least 1.2:1; liquid capital must exceed risk by at 
least 20 percent. Total haircuts is the risk measure used in the ratio; 
it is made up of measures of market risk and measures of credit risk. 
The market risk of a government securities broker's or dealer's 
positions is accounted for

[[Page 943]]

through the Treasury market risk haircut and the other securities 
haircut. Credit risk is accounted for in the counterparty exposure, 
concentration of credit, and credit volatility haircuts and in the 
computation of liquid capital through the various deductions and 
charges.
    Only positions in Treasury market risk instruments and financings 
may be used in the calculation of the Treasury market risk haircut. 
Treasury market risk instruments and financings are described in 17 CFR 
402.2 and in the instructions to the schedule where they are to be first 
entered. All other types of financial instruments are to be included in 
the calculation of the other securities haircut. Calculation of the 
other securities haircut is based on the SEC's Rule 15c3-1 (17 CFR 
240.15c3-1).
    Treasury market risk instruments may be excluded from the 
calculation of the Treasury market risk haircut if they are included in 
the calculation of the other securities haircut as part of a hedge 
against long and short positions in securities, futures contracts, 
forward contracts, or options that are not Treasury market risk 
instruments. Only the portion of the total position in a Treasury market 
risk instrument that forms part of such a hedge may be excluded, and the 
result of this transfer of the Treasury market risk instruments must be 
a reduction in the other securities haircut.
    The categories for classifying Treasury market risk instruments are 
designated in 17 CFR 402.2(f)(1). The categories, which are designated 
by a maturity range, contain all securities with remaining terms to 
maturity greater than or equal to the lower end of the range but less 
than the higher. A half year is always considered to be 6 months. In 
categories A through D, zero-coupon instruments are to be treated in the 
same manner as all other instruments. In categories E through J, the 
maturity designations in parentheses give the maturities of the zero-
coupon instruments to be placed in that category. All mortgage-backed 
securities that are Treasury market risk instruments are to be placed in 
category MB or category AR, depending on whether they are backed by 
conventional or adjustable-rate mortgages.
    All haircuts may be calculated to the nearest hundred dollars, 
unless such rounding would materially affect the liquid capital 
calculation.
    Appendix A to the Preamble published with the temporary regulations 
for 17 CFR part 402 (52 FR 19669, May 26, 1987) contains an example of 
the capital calculation. It may also be used as an aid in completing 
these schedules.

       Schedule A--Liquid Capital Requirement Summary Computation

    Schedule A is used to determine the capital-to-risk ratio by 
comparing liquid capital to total haircuts. Schedule A will be the last 
schedule completed as many of the haircuts entered on Schedule A are 
calculated on Schedules B through E.
    Line 1--Enter liquid capital, which is identical to the amount 
reported on line 3640 of the Report on Finances and Operations of 
Government Securities Brokers and Dealers, Form G-405.
    Line 2--Haircuts on ``Security and Financing Positions'' including 
contractual commitments:
    a. Enter the Total Governments Offset Portion Haircut from column 10 
of Schedule C.
    b. Enter the Total Futures and Options Offset Haircut from column 19 
of Schedule D.
    c. Enter the Total Hedging Disallowance Haircut as calculated in 
Schedule E, column 27.
    d. Enter the Residual Net Position Haircut as given in column 28 of 
Schedule E.
    e. Enter the other securities haircut as determined by applying the 
SEC haircut factors to securities, futures contracts, forward contracts, 
options and other inventory that are not Treasury market risk 
instruments as defined in 17 CFR 402.2(e). The other securities haircut 
is the sum of all applicable deductions as specified in 17 CFR 240.15c3-
1 (c)(2)(vi) and (c)(2)(viii) and in 17 CFR 240.15c3-1a and 240.15c3-1b. 
Any position(s) in Treasury market risk instruments that have been 
excluded from the calculation of the Treasury market risk haircut 
because they are part of a hedge with these other instruments are to be 
included in the calculation of this haircut.
    Line 3--Haircuts on credit exposure:
    a. Enter the total counterparty exposure haircut which is the sum of 
the counterparty exposure haircut with each counterparty, except a 
Federal Reserve Bank. A counterparty exposure haircut is equal to 5 
percent of the net credit exposure to a single counterparty which is not 
in excess of 15 percent of the government securities broker's or 
dealer's liquid capital. If the net credit exposure to a counterparty 
does exceed 15 percent of liquid capital, the excess will be used in 
calculating the total concentration of credit haircut on line 3b.
    Net credit exposure equals the difference between the government 
securities broker's or dealer's credit exposure to a single counterparty 
and that counterparty's credit exposure to the government securities 
broker or dealer. The government securities broker's or dealer's credit 
exposure to a counterparty is equal to the sum of the dollar amount of 
funds, debt instruments, other securities, and other inventory at risk 
to the government securities broker or dealer in the event of the 
counterparty's default and the market value of purchased unlisted 
options that are Treasury market risk instruments and were written by 
the counterparty.

[[Page 944]]

It does not include, however, (1) the deduction taken from net worth for 
unsecured receivables, repurchase and reverse repurchase agreement 
deficits, aged fails to deliver, and aged fails to receive arising from 
transactions with the counterparty; (2) demand deposits in the case 
where the counterparty is a commercial bank; (3) loans of immediately 
available funds (commonly referred to as ``sales of federal funds'') 
held by the government securities broker or dealer in connection with 
the clearance of securities on the day the loan is made in the case 
where the counterparty is a commercial bank; (4) custodial holdings of 
securities in the case where the counterparty is a clearing bank or 
clearing broker of the government securities broker or dealer; or (5) 
credit exposure to the counterparty due to holding marketable 
instruments for which the counterparty is the obligor.
    The counterparty's credit exposure to the government securities 
broker or dealer equals the dollar amount of funds, debt instruments, 
other securities, and other inventory at risk to the counterparty in the 
event of the government security broker's or dealer's default and any 
unlisted options written by the government securities broker or dealer 
and held by the counterparty.
    b. Enter the total concentration of credit haircut which is the sum 
of all concentration of credit haircuts applied in cases where the net 
credit exposure (as defined above) to a single counterparty is in excess 
of 15 percent of the government securities broker's or dealer's liquid 
capital. The concentration of credit haircut is 25 percent of the amount 
of net credit exposure in excess of 15 percent of the government 
securities broker's or dealer's liquid capital.
    c. Enter the credit volatility haircut which equals a factor of 0.15 
percent applied to the larger of the gross long or gross short position 
in money market instruments qualifying as Treasury market risk 
instruments which mature in 45 days or more, in futures and forwards on 
these instruments that are settled on a cash or delivery basis, and in 
futures and forwards on time deposits described in Sec. 
402.2(e)(1)(vii), that mature in 45 days or more, settled on a cash or 
delivery basis. Money market instruments qualifying as Treasury market 
risk instruments are (1) marketable certificates of deposit with no more 
than one year to maturity, (2) bankers acceptances, and (3) commercial 
paper which has no more than one year to maturity and is rated in one of 
the three highest categories by at last two nationally recognized 
statistical rating organizations.
    Line 4--Enter total haircuts which is the sum of lines 2 a through 
e, and 3 a, b, and c.
    Line 5--Enter the capital-to-risk ratio which is found by dividing 
line 1, ``Liquid capital,'' by line 4, ``Total haircuts.'' The capital-
to-risk ratio must be at least equal to 1.2:1.

  Schedule B--Calculation of Net Immediate Position in Securities and 
                               Financings

    Schedule B is used to calculate the net immediate position in and 
offset portion of securities and financings. The results are then 
carried over to Schedule C for initial haircut calculations. Futures, 
forwards, and options which are Treasury market risk instruments are to 
be entered on Schedule D.
    Positions in and financings on debt instruments other than mortgage-
backed or adjustable rate mortgage-backed securities should be placed in 
the category corresponding to their remaining term to maturity. In the 
case of a floating rate note, however, the note should be placed in the 
category corresponding to the time to the next scheduled interest rate 
adjustment or remaining term to maturity, whichever is less.
    Column 1--Under ``Financings-Long'' report in the appropriate 
category the contract value of reverse repurchase agreements and the 
value(s) of cash collateral on security borrowings. Financings so 
reported should be placed in the category corresponding to the remaining 
term to maturity or time to the next scheduled interest rate adjustment, 
whichever is less.
    Column 2--Under ``Financings-Short'' report in the appropriate 
category as a negative number the values of funds received from 
financing transactions. Include repurchase agreements, securities 
lending secured by cash collateral, and term financings, but exclude 
subordinated debt which meets the requirements of 17 CFR 240.15c3-1d as 
modified by 17 CFR 402.2d. Financings so reported should be placed in 
the category corresponding to the remaining term to maturity or time to 
the next scheduled interest rate adjustment, whichever is less.
    Columns 3 and 4--Report in the appropriate column by maturity or 
type of mortgage-backed security under ``Securities Positions'' the sum 
of the market values of immediate positions in Treasury market risk 
instruments. The net position in each individual Treasury market risk 
instrument is to be appropriately reported as a long (+) or short (-) 
position in summation with all other positions of the same category 
(long/short). Short positions are assigned a negative value. Treasury 
market risk instruments are defined in 17 CFR 402.2(e). Those to be 
reported in Schedule B are:
    (1) Government securities as defined in 17 CFR 400.3(m) except 
equity securities and mortgage-backed securities which do not pass 
through to the security holder on a pro rata basis a distribution based 
on the monthly payments and prepayments of principal and interest on the 
underlying pool of mortgage collateral less fees and expenses;

[[Page 945]]

    (2) Zero-coupon receipts or certificates based on marketable 
Treasury notes or bonds;
    (3) Marketable certificates of deposit of no more than one year to 
maturity;
    (4) Bankers acceptances;
    (5) Commercial paper of no more than one year to maturity rated in 
one of the three highest categories by at least two nationally 
recognized statistical rating organizations; and
    (6) Securities described in Sec. 402.2(e)(1)(vi).
    Report all positions as of the trade date. If the settlement date is 
scheduled for more than five business days in the future (or, in the 
case of a mortgage-backed security, more than thirty calendar days in 
the future), then report the position as a forward contract on Schedule 
D. Also, under ``Securities Positions'' in the appropriate column and 
category, report any when-issued position in a marketable Treasury 
security between announcement and issue date, any when-issued position 
in a government agency or a government-sponsored agency debt security 
between release date and issue date, and any when-issued position in a 
security described in Sec. 402.2(e)(1)(vi) between announcement date 
and issue date.
    Exclude positions in Treasury market risk instruments which form 
part of a hedge against long and short positions in securities, futures 
contracts, forward contracts, or options that are not Treasury market 
risk instruments and are to be included in the calculation of the other 
securities haircut. Only that portion of the total position in a 
Treasury market risk instrument that forms part of such a hedge may be 
excluded, and the inclusion of the Treasury market risk instruments must 
reduce the other securities haircut.
    Column 5--Under ``Total Securities and Financing Positions (+)'' 
report in the appropriate category the sum of the long financings 
(column 1) and long securities positions (column 3).
    Column 6--Under ``Total Securities and Financing Positions (-)'' 
report in the appropriate category the sum of the short financings 
(column 2) and short securities positions (column 4).
    Column 7--Under ``Offset Portions'' report in the appropriate 
category the lesser of the absolute values of the positive (column 5) or 
negative (column 6) total securities and financing positions.
    Column 8--Under ``Net Immediate Positions'' report in the 
appropriate category the sum, or net value, of the positive (column 5) 
and negative (column 6) total securities and financing positions.
    Columns 7, ``Offset Portions,'' and 8, ``Net Immediate Positions,'' 
are to be carried to Schedule C.

   Schedule C--Governments Offset Portion and Net Immediate Position 
                      Interim Haircuts Calculation

    Schedule C is used to calculate the total governments offset portion 
haircut and net immediate position interim haircuts by applying offset 
and net position haircut factors to the offset portions and net 
immediate positions in Treasury market risk instruments and financings. 
The total governments offset portion haircut is then carried to Schedule 
A, and the net immediate position interim haircuts are carried to 
Schedule D or E.
    Column 7--Transfer to column 7, ``Governments Offset Portion--$ 
Amounts,'' column seven from Schedule B, ``Offset Portions.''
    Column 9--These are the governments offset portion haircut factors 
given at 17 CFR 402.2(f)(2). They may be updated from time to time.
    Column 10--Under ``Governments Offset Portion--Haircuts'' report in 
the appropriate category the product of the corresponding values in 
column 7, ``$ Amounts,'' and in column 9, ``Factors.''
    To determine the total governments offset portion haircut, sum the 
values under ``Governments Offset Portion--Haircuts'' in column 10, and 
enter this number in the appropriate space. Carry this value to Schedule 
A, line 2a, converting, if necessary, to thousands of dollars.
    Column 8--Transfer to column 8, ``Net Immediate Positions--$ 
Amounts,'' column eight from Schedule B, ``Net Immediate Positions.''
    Column 11--These are the net immediate position haircut factors 
given at 17 CFR 402.2(f)(2). They may be updated from time to time.
    Column 12--Under ``Net Immediate Positions--Interim Haircuts'' place 
in the appropriate category the product of the corresponding values in 
column 8, ``$ Amounts,'' and in column 11, ``Factors.'' A haircut on a 
short position remains negative.
    Carry column 12 to Schedule D, or, if there are no futures, 
forwards, or options positions, to Schedule E.

  Schedule D--Consolidation of Net Immediate Position Interim Haircuts 
             with Gross Futures and Options Interim Haircuts

    Schedule D is used to enter haircuts on futures, forwards and 
options positions and to calculate the total futures and options offset 
haircut and the residual position interim haircuts as needed for 
Schedules A and E respectively. If there are no futures and options 
positions, it is not necessary to fill out Schedule D.
    Report on Schedule D futures, forwards, and options which are 
Treasury market risk instruments as defined in Sec. 402.2(e). These 
futures, forwards, and listed option contracts may be based on any of 
the Treasury market

[[Page 946]]

risk instruments described in the instructions to columns 3 and 4 on 
Schedule B or on time deposits whose changes in yield are closely 
correlated with marketable certificates of deposit which are Treasury 
market risk instruments, as described in Sec. 402.2(e)(1)(vii). Options 
on Treasury market risk futures contracts and unlisted options on 
marketable Treasury bills, notes, and bonds are also to be included. 
Futures contracts may settle on a cash or delivery basis. Any of these 
contracts which are being included as part of a hedge in the calculation 
of the other securities haircut must be excluded from Schedule D.
    Report as a forward contract any position for which the time between 
trade date and settlement date is more than five business days (30 
calendar days for a mortgage-backed security). Any when-issued position 
in a marketable Treasury security established between announcement and 
issue date, any when-issued position in a government agency or a 
government-sponsored agency debt security established between release 
date and issue date, and any when-issued position in a security 
described in Sec. 402.2(e)(1)(vi) between announcement date and issue 
date is reported in the appropriate category on Schedule B under 
``Securities Positions.''
    Column 12--Transfer to column 12, ``Net Immediate Position Interim 
Haircuts,'' column 12 from Schedule C, ``Net Immediate Positions--
Interim Haircuts,'' converting, if necessary, to thousands of dollars.
    Columns 13 and 14--Under ``Gross Interim Haircuts--Futures and 
Forward'' enter in the appropriate category the sum of the interim 
haircuts on the futures or forward positions belonging to that category. 
The interim haircut on a futures or forward position equals the product 
of the value of the position evaluated at the current market price for 
such contract and the net position haircut factor that corresponds to 
either the term to maturity of the underlying instrument or, for 
mortgage-backed securities, the type of security. The term to maturity 
of the underlying instrument is the term to maturity of the deliverable 
security at the time of the maturity of the futures or forward contract. 
The haircut on a futures or forward position on a non-mortgaged-backed 
instrument is to be entered in the category corresponding to the sum of 
the remaining time to maturity of the futures or forward contract and 
the maturity of the underlying instrument. Haircuts on futures and 
forwards on mortgage-backed securities are to be entered in the 
appropriate mortgage-backed securities category. The interim haircuts on 
long futures and forwards are positive (column 13), and on short futures 
and forwards, negative (column 14).
    Columns 15 and 16--Under ``Gross Interim Haircuts--Options'' enter, 
in the category in which the instrument directly underlying the contract 
would be entered, the lesser of (1) the market value of the option or 
(2) the net immediate position interim haircut on the underlying cash 
instrument or gross futures interim haircut on the underlying futures 
contract. Note that in the case of an option on a futures contract the 
category in which the option contract is to be entered is the sum of the 
remaining time to maturity of the futures or forward contract and the 
maturity of the instrument underlying the futures or forward contract. 
The haircut factor used to determine the gross futures interim haircut 
is that factor corresponding to the term to maturity of the deliverable 
security at the time of the maturity of the futures or forward contract. 
Gross option haircuts on purchased calls and sold puts are positive, 
those on sold calls and purchased puts are negative.
    Column 17--Under ``Aggregate Interim Haircuts (+)'' enter in the 
appropriate category, the sum of any positive net immediate position 
interim haircut (column 12) and the positive gross option (column 15) 
and gross futures and forward (column 13) interim haircuts for that 
category.
    Column 18--Under ``Aggregate Interim Haircuts (-)'' enter in the 
appropriate category, the sum of any negative net immediate position 
interim haircut (column 12) and the negative gross option (column 16) 
and gross futures and forward (column 14) interim haircuts for that 
category.
    Column 19--Under ``Futures and Options Offset Portions'' enter, in 
the appropriate category, the lesser of the absolute values of the 
positive and negative aggregate interim haircuts (columns 17 and 18) for 
that category.
    The total futures and options offset portion is the sum of the 
values in column 19 under ``Futures and Options Offset Portions.''
    The total futures and options offset haircut is the total futures 
and options offset portion multiplied by a factor of 20 percent and is 
carried to line 2b, Schedule A.
    Column 20--Enter in the appropriate category under ``Residual 
Position Interim Haircuts'' the sum, or net value, of the positive and 
negative aggregate interim haircuts. Carry this to column 20 on Schedule 
E.

 Schedule E--Calculation of Hedging Disallowance Haircuts When Netting 
                       Haircuts Across Categories

    Schedule E is used to calculate the hedging disallowance and 
residual net position haircuts which are then carried to Schedule A. The 
purpose of Schedule E is to hedge positions in different categories in 
order to reduce total haircuts. Netting the residual position interim 
haircuts reflects the risk reduction inherent in hedges between 
positions in different categories where the price volatility is 
reasonably well correlated.

[[Page 947]]

    Section 402.2(f)(3) of the rule specifies the hedging disallowance 
haircut factors for the category pairs. Netting of residual position 
interim haircuts is permitted only between any two categories for which 
a hedging disallowance haircut factor is specified. Hedging disallowance 
haircuts are similar to offset haircuts in that they are applied to the 
smaller of the two residual position interim haircuts and represent the 
portion of the hedge being ``disallowed.'' A hedging disallowance 
haircut is determined each time two residual position interim haircuts 
are netted.
    There are three levels of permissible netting corresponding to the 
three hedging disallowance haircut factors: The 20 percent, 30 percent, 
and 40 percent levels. It is not necessary to net all possible pairs at 
any one level. A greater reduction in total haircuts can sometimes be 
obtained by choosing not to net a pair at one level (e.g., the 20 
percent level) so that one element of the pair can be netted against a 
third category at another level (e.g., the 30 percent level).
    Column 20--Transfer column 20, ``Residual Position Interim 
Haircuts,'' from Schedule D. If there are no futures or options 
positions, transfer instead column 12, ``Net Immediate Positions--
Interim Haircuts,'' from Schedule C.
    Column 21--Use the matrix at 17 CFR 402.2(f)(3) to determine the 
categories from which the residual position interim haircuts may be 
paired at the 20 percent level. For each pair multiply the smaller of 
the absolute values of the two residual position interim haircuts by the 
hedging disallowance haircut factor of 20 percent, and, in the category 
of the smaller, enter the resulting hedging disallowance haircut.
    Column 22--For each pair being netted at this level, enter under 
``Net Residual Position Interim Haircuts'' (1) the sum, or net value, of 
the two residual position interim haircuts (and/or net residual position 
interim haircuts) in the category of the larger (in absolute value) of 
the two interim haircuts that were netted, and (2) a zero in the 
category of the smaller.
    These net residual position interim haircuts replace the residual 
position interim haircuts (or net residual position interim haircuts) 
from which they were derived. Net residual position interim haircuts can 
in turn be used in any other allowable netting exactly as residual 
position interim haircuts would be. If further netting of that category 
at the same level is permissible and possible, it will be necessary to 
replace the net residual position interim haircut involved with a new 
(and smaller) net residual position interim haircut in column 22.
    Since the net residual position interim haircut in any category 
containing a hedging disallowance haircut is zero, further netting with 
any such category is impossible.
    After all netting has been completed for category pairs with a 20 
percent hedging disallowance haircut factor, move on to column 23.
    Column 23--Use the matrix at 17 CFR 402.2(f)(3) to determine the 
categories from which the residual position interim haircuts and/or net 
residual position interim haircuts may be paired at the 30 percent 
level. In each category, the newest (and smallest) net residual position 
interim haircut determined by netting at the 20 percent level replaces 
the old value and must be used in hedging in that category at higher 
levels. For each pair being netted, multiply the smaller of the absolute 
values of the two (net) residual position interim haircuts by the 
hedging disallowance haircut factor of 30 percent, and in the category 
of the smaller, enter the resulting hedging disallowance haircut.
    Column 24--For each pair being netted at this level, enter under 
``Net Residual Position Interim Haircuts'' (1) the sum, or net value, of 
the two residual position interim haircuts and/or net residual position 
interim haircuts in the category of the larger (in absolute value) of 
the two interim haircuts that were netted, and (2) a zero in the 
category of the smaller.
    These net residual position interim haircuts replace the residual 
position interim haircuts (or net residual position interim haircuts) 
from which they were derived. Net residual position interim haircuts can 
in turn be used in any other allowable netting exactly as residual 
position interim haircuts would be. If further netting of that category 
at the same level is permissible and possible, it will be necessary to 
replace the net residual position interim haircut involved with a new 
(and smaller) net residual position interim haircut.
    After all netting has been completed for category pairs with a 30 
percent hedging disallowance haircut factor, continue to column 25.
    Column 25--Use the matrix at 17 CFR 402.2(f)(3) to determine the 
categories from which the residual position interim haircuts and/or net 
residual position interim haircuts may be paired at the 40 percent 
level. In each category, any new net residual position interim haircut 
determined by netting at the 20 or 30 percent level replaces the old 
value and must be used in hedging with that category at the 40 percent 
level. For each pair being netted, multiply the smaller of the absolute 
values of the two (net) residual position interim haircuts by the 
hedging disallowance haircut factor of 40 percent and, in the category 
of the smaller, enter the resulting hedging disallowance haircut.
    Column 26--For each pair being netted at this level, enter under 
``Net Residual Position Interim Haircuts'' (1) the sum, or net value, of 
the two (net) residual position interim haircuts in the category of the 
larger

[[Page 948]]

(in absolute value) of the two interim haircuts that were netted, and 
(2) a zero in the category of the smaller. If further netting of that 
category at the same level is permissible and possible, it will be 
necessary to replace the net residual position interim haircut involved 
with a new (and smaller) net residua1 position interim haircut.
    Column 27--When all possible (net) residual position interim 
haircuts have been netted, enter under ``Hedging Disallowance Haircuts'' 
all hedging disallowance haircuts calculated in the netting procedures, 
each in its appropriate category.
    Enter under ``Total Hedging Disallowance Haircut'' the sum of all 
the hedging disallowance haircuts entered in column 27. Carry to 
Schedule A, line 2c.
    Column 28--Under ``Qualified Netting Interim Haircuts'' enter in the 
appropriate category the absolute value of the haircut given under ``Net 
Residual Position Interim Haircut'' at the highest hedging disallowance 
factor used for that category (columns 26, 24, or 22). This value will 
also be the smallest of the net residual position interim haircuts in 
that category. If the position in a given category was not used in 
hedging then enter the absolute value of the residual position interim 
haircut from column 20.
    Sum the qualified netting interim haircuts, enter this value under 
``Residual Net Position Haircut,'' and carry to Schedule A, line 2d.

[52 FR 27931, July 24, 1987, as amended at 53 FR 28985, Aug. 1, 1988]



Sec. 402.2b  [Reserved]



Sec. 402.2c  Appendix C--Consolidated computations of liquid capital 
and total haircuts for certain subsidiaries and affiliates.

    (a) Consolidation. (1) A government securities broker or dealer (the 
``parent broker or dealer''), in computing its liquid capital and total 
haircuts pursuant to Sec. 402.2:
    (i) Shall consolidate in a single computation of liquid capital the 
assets and liabilities of any subsidiary or affiliate for which the 
parent broker or dealer guarantees, endorses, or assumes directly or 
indirectly the obligations or liabilities if the parent broker or dealer 
has obtained the opinion of counsel described in paragraph (b) of this 
section with respect to such subsidiary or affiliate;
    (ii) May not consolidate in a single computation of liquid capital 
the assets and liabilities of any subsidiary or affiliate for which the 
parent broker or dealer guarantees, endorses, or assumes directly or 
indirectly the obligations or liabilities if the parent broker or dealer 
has not obtained the opinion of counsel described in paragraph (b) of 
this section with respect to such subsidiary or affiliate, but in that 
event, the parent broker or dealer shall compute its total haircuts by 
adding the total haircuts of each such subsidiary or affiliate computed 
in accordance with the provisions of Sec. 402.2 to the haircuts of the 
parent broker or dealer computed separately in accordance with the 
provisions of Sec. 402.2; and
    (iii) May consolidate in its computation of liquid capital the 
assets and liabilities of any majority owned and controlled subsidiary 
or affiliate for which the parent broker or dealer does not guarantee, 
endorse or assume directly or indirectly the obligations or liabilities 
if the parent broker or dealer has obtained the opinion of counsel 
described in paragraph (b) of this section with respect to such 
subsidiary or affiliate.
    (2) With respect to any subsidiary or affiliate whose assets and 
liabilities are consolidated in the parent broker's or dealer's 
computation of liquid capital according to the provisions of paragraph 
(a)(1)(i) or (a)(1)(iii) of this section, the parent broker or dealer 
shall compute its haircuts in accordance with the provisions of Sec. 
402.2 as if the consolidated entity were one firm, or, in the 
alternative, shall add the total haircuts of each consolidated 
subsidiary or affiliate computed in accordance with the provisions of 
Sec. 402.2 to the haircuts of the parent broker or dealer computed 
separately in accordance with the provisions of Sec. 402.2.
    (b) Required counsel opinion. The opinion of counsel referred to in 
paragraph (a) of this section shall demonstrate to the satisfaction of 
the Commission, through the Designated Examining Authority, that net 
asset values, or the portion thereof related to the parent broker's or 
dealer's ownership interest in a majority owned and controlled 
subsidiary or affiliate, may be caused by the parent broker or dealer or 
an appointed trustee to be distributed to the parent broker or dealer 
within 30 calendar days. Such opinion shall also set forth the actions 
necessary to cause

[[Page 949]]

such a distribution to be made, identify the parties having the 
authority to take such actions, identify and describe the rights of 
other parties or classes of parties, including but not limited to 
customers, general creditors, subordinated lenders, minority shareholder 
employees, litigants and governmental or regulatory authorities, who may 
delay or prevent such a distribution and such other assurances as the 
Commission or the Designated Examining Authority by rule or 
interpretation may require. Such opinion shall be current and 
periodically renewed in connection with the parent broker's or dealer's 
annual audit pursuant to Sec. 240.17a-5 of this title, as made 
applicable to government securities brokers or dealers by Sec. 405.2 of 
this chapter, or upon any material change in circumstances.
    (c) Principles of consolidation. The following minimum and non-
exclusive requirements shall govern the consolidation of a subsidiary or 
affiliate in the computation of total liquid capital and total haircuts 
of a government securities broker or dealer pursuant to this section:
    (1) The total liquid capital of the government securities broker or 
dealer shall be reduced by the estimated amount of any taxes reasonably 
anticipated to be incurred upon distribution of the assets of the 
subsidiary or affiliate.
    (2) Liabilities of a consolidated subsidiary or affiliate that are 
subordinated to the claims of present and future creditors pursuant to a 
satisfactory subordination agreement shall not be added to consolidated 
net worth unless such subordination extends also to the claims of 
present or future creditors of the parent broker or dealer and all 
consolidated subsidiaries.
    (3) Subordinated liabilities of a consolidated subsidiary or 
affiliate that are consolidated in accordance with paragraph (c)(2) of 
this section may not be prepaid, repaid or accelerated if any of the 
entities included in such consolidation would otherwise be unable to 
comply with the provision of Sec. 240.15c3-1d of this title, as 
modified by Sec. 402.2d.
    (4) Each government securities broker or dealer included within the 
consolidation shall at all times be in compliance with the liquid 
capital or net capital requirement to which it is subject.
    (d) Certain Precluded Acts. Even if consolidation is not required or 
allowed under paragraph (a) of this section, no parent broker or dealer 
shall guarantee, endorse or assume directly or indirectly any obligation 
or liability of a subsidiary or affiliate unless the obligation or 
liability is reflected in the parent broker's or dealer's computation of 
liquid capital.



Sec. 402.2d  Appendix D--Modification of Sec. 240.15c3-1d of this title, 
relating to satisfactory subordination agreements, for purposes of Sec. 402.2.

    Section 240.15c3-1d of this title shall apply to government 
securities brokers and dealers subject to the requirements of Sec. 
402.2 with the following modifications.
    (a) References to ``broker or dealer'' include government securities 
brokers and dealers.
    (b) References to ``17 CFR 240.15c3-1'' mean Sec. 402.2.
    (c) Section 240.15c3-1d(a)(2)(iii) is modified to read as follows:
    ``(iii) The term ``Collateral Value'' of any securities pledged to 
secure a secured demand note shall mean the market value of such 
securities after giving effect to the haircuts specified in Sec. 402.2a 
of this title.''
    (d) References to ``17 CFR 240.15c3-1d'' mean that section as 
modified by this section.
    (e) Section 240.15c3-1d(b)(6)(iii) is modified to read as follows:
    ``(iii) The secured demand note agreement may also provide that, in 
lieu of the procedures specified in the provisions required by paragraph 
(b)(6)(ii) of this section, the lender, with the prior written consent 
of the government securities broker or dealer and the Examining 
Authority for such broker or dealer, may reduce the unpaid principal 
amount of the secured demand note. After giving effect to such 
reduction, the liquid capital, as defined in Sec. 402.2(d) of this 
title, of the government securities broker or dealer may not be less 
than 150% of the government securities broker's or dealer's total 
haircuts, as defined in Sec. 402.2(g) of this title. No single secured 
demand

[[Page 950]]

note shall be permitted to be reduced by more than 15% of its original 
principal amount and after such reduction no excess collateral may be 
withdrawn. No Examining Authority shall consent to a reduction of the 
principal amount of a secured demand note if, after giving effect to 
such reduction, liquid capital after deducting total haircuts would be 
less than 120% of the minimum dollar amount required by Sec. 402.2(b) 
or Sec. 402.2(c) of this title as applicable.''
    (f) Section 240.15c3-1d(b)(7) is modified to read as follows:
    ``(7) A government securities broker or dealer at its option but not 
at the option of the lender may, if the subordination agreement so 
provides, make a Payment of all or any portion of the Payment Obligation 
thereunder prior to the scheduled maturity date of such Payment 
Obligation (hereinafter referred to as a ``Prepayment''), but in no 
event may any Prepayment be made before the expiration of one year from 
the date such subordination agreement became effective. This restriction 
shall not apply to temporary subordination agreements which comply with 
the provisions of paragraph (c)(5) of this section. No Prepayment shall 
be made if, after giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding the 
maturities or accelerated maturities of which are scheduled to fall due 
within six months after the date such Prepayment is to occur pursuant to 
this provision or on or prior to the date on which the Payment 
Obligation in respect of such Prepayment is scheduled to mature 
disregarding this provision, whichever date is earlier) without 
reference to any projected profit or loss of the government securities 
broker or dealer, the liquid capital, as defined in Sec. 402.2(d) of 
this title, of the government securities broker or dealer would be less 
than 150% of the government securities broker's or dealer's total 
haircuts, as defined in Sec. 402.2(g) of this title. Notwithstanding 
the above, no Prepayment shall occur without the prior written approval 
of the Examining Authority for such government securities broker or 
dealer.''.
    (g) Section 240.15c3-1d(b)(8) is modified to read as follows:
    ``(i) The Payment Obligation of the government securities broker or 
dealer in respect of any subordination agreement shall be suspended and 
shall not mature if, after giving effect to Payment of such Payment 
Obligation (and to all Payments of Payment Obligations of such broker or 
dealer under any other subordination agreement(s) then outstanding which 
are scheduled to mature on or before such Payment Obligation), either 
the liquid capital, as defined in Sec. 402.2(d) of this title, of the 
government securities broker or dealer would be less than 150% of the 
government securities broker's or dealer's total haircuts, as defined in 
Sec. 402.2(g) of this title, or the government securities broker's or 
dealer's liquid capital after deducting total haircuts would be less 
than 120% of the minimum dollar amount required by Sec. 402.2(b) or 
Sec. 402.2(c) of this title, as applicable. The subordination agreement 
may provide that if the Payment Obligation of the government securities 
broker or dealer thereunder does not mature and is suspended as a result 
of the requirement of this paragraph (b)(8) for a period of not less 
than six months, the government securities broker or dealer shall 
thereupon commence the rapid and orderly liquidation of its business but 
the right of the lender to receive Payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.''.
    (h) Section 240.15c3-1d(b)(10)(ii)(B) is modified to read as 
follows:
    ``(B) The liquid capital, as defined in Sec. 402.2(d) of this 
title, of the government securities broker or dealer being less than 
120% of total haircuts, as defined in Sec. 402.2(g) of this title, 
throughout a period of 15 consecutive business days, commencing on the 
day the broker or dealer first determines and notifies the Examining 
Authority for the government securities broker or dealer, or the 
Examining Authority or the Commission first determines and notifies the 
government securities broker or dealer of such fact;''.
    (i) Section 240.15c3-1d(c)(2) is modified to read as follows:

[[Page 951]]

    ``(2) Notice of Maturity or Accelerated Maturity. Every government 
securities broker or dealer shall immediately notify the Examining 
Authority for such broker or dealer if, after giving effect to all 
Payments of Payment Obligations subordination agreements then 
outstanding which are then due or mature within the following six months 
without reference to any projected profit or loss of the broker or 
dealer, the liquid capital, as defined in Sec. 402.2(d) of this title, 
of such government securities broker or dealer, would be less than 150% 
of total haircuts, as defined in Sec. 402.2(g) of this title.''.
    (j) Section 240.15c3-1d(c)(5)(i) is modified to read as follows:
    ``(i) For the purpose of enabling a government securities broker or 
dealer to participate as an underwriter of securities or other 
extraordinary activities in compliance with the capital requirements of 
Sec. 402.2 of this title, a government securities broker or dealer 
shall be permitted, on no more than three occasions in any 12 month 
period, to enter into a subordination agreement on a temporary basis 
which has a stated term of no more than 45 days from the date such 
subordination agreement became effective. This temporary relief shall 
not apply to a government securities broker or dealer if, within the 
preceding thirty calendar days, it has given notice pursuant to Sec. 
405.3, or if immediately prior to entering into such subordination 
agreement, the liquid capital, as defined in Sec. 402.2(d) of this 
title, of such broker or dealer would be less than 150% of total 
haircuts, as defined in Sec. 402.2(g) of this title, or the amount of 
its then outstanding subordination agreements exceeds the limits 
specified in Sec. 240.15c3-1(d). Such temporary subordination agreement 
shall be subject to all other provisions of this appendix D.''.
    (k) Section 240.15c3-1d(c)(5)(ii)(A) is modified to read as follows:
    ``(A) After giving effect thereto (and to all Payments of Payment 
Obligations under any other subordinated agreements then outstanding the 
maturity or accelerated maturities of which are scheduled to fall due 
within six months after the date such prepayment is to occur pursuant to 
this provision or on or prior to the date on which the Payment 
Obligation in respect of such prepayment is schedu1ed to mature 
disregarding this provision, whichever date is earlier) without 
reference to any projected profit or loss of the government securities 
broker or dealer, the liquid capital, as defined in Sec. 402.2(d) of 
this title, of such broker or dealer, would be less than 180% of total 
haircuts, as defined in Sec. 402.2(g) of this title.''.

[52 FR 27931, July 24, 1987, as amended at 59 FR 53731, Oct. 26, 1994]



Sec. 402.2e  Appendix E--Temporary minimum requirements.

    (a) A government securities broker or dealer that falls within the 
provisions of paragraph (b)(1) of Sec. 402.2 shall maintain not less 
than the greater of:
    (1) The amount of liquid capital required under paragraph (a) of 
Sec. 402.2; or
    (2) The amount of liquid capital, after deducting total haircuts, 
of:
    (i) $25,000 through June 30, 1995;
    (ii) $100,000 from July 1, 1995 through December 31, 1995;
    (iii) $175,000 from January 1, 1996 through June 30, 1996; and
    (iv) $250,000 from July 1, 1996 and thereafter.
    (b) A government securities broker or dealer that falls within the 
provisions of paragraph (b)(2) of Sec. 402.2 shall maintain not less 
than the greater of:
    (1) The amount of liquid capital required under paragraph (a) of 
Sec. 402.2; or
    (2) The amount of liquid capital, after deducting total haircuts, 
of:
    (i) $25,000 through June 30, 1995;
    (ii) $50,000 from July 1, 1995 through December 31, 1995;
    (iii) $75,000 from January 1, 1996 through June 30, 1996; and
    (iv) $100,000 from July 1, 1996 and thereafter.
    (c) A government securities broker that falls within the provisions 
of paragraph (c)(1) of Sec. 402.2 shall maintain not less than the 
greater of:
    (1) The amount of liquid capital required under paragraph (a) of 
Sec. 402.2; or
    (2) The amount of liquid capital, after deducting total haircuts, 
of:
    (i) $5,000 through June 30, 1995;
    (ii) $20,000 from July 1, 1995 through December 31, 1995;
    (iii) $35,000 from January 1, 1996 through June 30, 1996; and

[[Page 952]]

    (iv) $50,000 from July 1, 1996 and thereafter.
    (d) A government securities broker that falls within the provisions 
of paragraph (c)(2) of Sec. 402.2 shall maintain not less than the 
greater of:
    (1) The amount of liquid capital required under paragraph (a) of 
Sec. 402.2; or
    (2) The amount of liquid capital, after deducting total haircuts, 
of:
    (i) $5,000 through June 30, 1995;
    (ii) $11,000 from July 1, 1995 through December 31, 1995;
    (iii) $18,000 from January 1, 1996 through June 30, 1996; and
    (iv) $25,000 from July 1, 1996 and thereafter.

[60 FR 11026, Mar. 1, 1995; 60 FR 12825, Mar. 8, 1995]



PART 403_PROTECTION OF CUSTOMER SECURITIES AND BALANCES--Table of Contents




Sec.
403.1 Application of part to registered brokers and dealers.
403.2 Hypothecation of customer securities.
403.3 Use of customers' free credit balances.
403.4 Customer protection--reserves and custody of securities.
403.5 Custody of securities held by financial institutions that are 
          government securities brokers or dealers.
403.6 Compliance with part by futures commission merchants.
403.7 Effective dates.

    Authority: Sec. 101, Public Law 99-571, 100 Stat. 3209; sec. 4(b), 
Public Law 101-432, 104 Stat. 963; sec. 102, sec. 106, Public Law 103-
202, 107 Stat. 2344 (15 U.S.C. 78o-5(b)(1)(A), (b)(4)).

    Source: 52 FR 27947, July 24, 1987, unless otherwise noted.



Sec. 403.1  Application of part to registered brokers and dealers.

    With respect to their activities in government securities, 
compliance by registered brokers or dealers with Sec. 240.8c-1 of this 
title (SEC Rule 8c-1), as modified by Sec. Sec. 403.2 (a), (b) and (c), 
with Sec. 240.15c2-1 of this title (SEC Rule 15c2-1), with Sec. 
240.15c3-2 of this title (SEC Rule 15c3-2), as modified by Sec. 403.3, 
and with Sec. 240.15c3-3 of this title (SEC Rule 15c3-3), as modified 
by Sec. Sec. 403.4 (a)-(d), (e)(2)-(3), (f)-(i), and (l), constitutes 
compliance with this part.

[59 FR 9405, Feb. 28, 1994]



Sec. 403.2  Hypothecation of customer securities.

    Every registered government securities broker or dealer shall comply 
with the requirements of Sec. 240.8c-1 of this title concerning 
hypothecation of customer securities with the following modifications:
    (a) In Sec. 240.8c-1(a), the words ``no government securities 
broker or dealer'' shall be substituted for the words ``no member of a 
national securities exchange, and no broker or dealer who transacts a 
business in securities through the medium of such member.''
    (b) Section 240.8c-1(d) is modified to read as follows:

    ``(d) Exemption for clearing liens. The provisions of paragraphs 
(a)(2), (a)(3) and (f) of this section shall not apply to any lien or 
claim of a clearing bank, or the clearing corporation (or similar 
department or association) of a national securities exchange or a 
registered national securities association, for a loan made to acquire 
any securities subject to said lien and to be repaid on the same 
calendar day, which loan is incidental to the clearing of transactions 
in securities or loans through such bank, corporation, department or 
association; provided, however, that for the purpose of paragraph (a)(3) 
of this section, `aggregate indebtedness of all customers in respect of 
securities carried for their accounts' shall not include indebtedness in 
respect of any securities subject to any lien or claim exempted by this 
paragraph.''

    (c) References to ``member, broker or dealer'' mean ``government 
securities broker or dealer.''



Sec. 403.3  Use of customers' free credit balances.

    Every registered government securities broker or dealer shall comply 
with the requirement of Sec. 240.15c3-2 of this title concerning the 
use of customer free credit balances. For purposes of this section, all 
references to ``broker or dealer'' in Sec. 240.15c3-2 shall include 
government securities brokers and dealers.

[[Page 953]]



Sec. 403.4  Customer protection--reserves and custody of securities.

    Every registered government securities broker or dealer shall comply 
with the requirements of Sec. Sec. 240.15c3-3 and 240.15c3-3a of this 
title (SEC Rule 15c3-3 and Exhibit A thereto), with the following 
modifications:
    (a) References to ``broker or dealer'' include government securities 
brokers and dealers.
    (b) ``Fully paid securities,'' as defined in Sec. 240.15c3-3(a)(3) 
of this title, includes all securities held by a government securities 
broker or a government securities dealer for the account of a customer 
who has made full payment for such securities.
    (c) ``Margin securities,'' as defined in Sec. 240.15c3-3(a)(4) of 
this title, includes any securities for which a customer has not made 
full payment and for which the customer has received an extension of 
credit by a government securities broker or government securities dealer 
for a portion of the purchase price.
    (d) ``Excess margin securities,'' as defined in Sec. 240.15c3-
3(a)(5) of this title, includes margin securities carried for the 
account of a customer having a market value in excess of 140 percent of 
the total of the debit balances in the customer's account or accounts 
with the broker or dealer.
    (e)(1) For purposes of this section, Sec. 240.15c3-3(b)(4)(i)(C) is 
modified to read as follows:
    ``(C) Advise the counterparty in the repurchase agreement that the 
Securities Investor Protection Act of 1970 will not provide protection 
to the counterparty with respect to the repurchase agreement.''
    (2) For purposes of this section, Sec. 240.15c3-3(b)(4)(ii) is 
modified to read as follows:
    ``(ii) For purposes of this paragraph (4), securities are in the 
broker's or dealer's control only if they are in the control of the 
broker or dealer within the meaning of Sec. 240.15c3-3(c)(1), (c)(3), 
(c)(5), (c)(6), or Sec. 403.4(f) of this title.''
    (3) For purposes of this section, Sec. 240.15c3-3(b)(4)(iv) is 
redesignated Sec. 240.15c3-3(b)(4)(iv)(A) and paragraph (b)(4)(iv)(B) 
is added to read as follows:
    ``(B) A person that is a non-U.S. citizen residing outside of the 
United States or a foreign corporation, partnership, or trust may waive, 
but only in writing, the right to receive the confirmation required by 
paragraph (b)(4)(i)(B) of this section.''
    (f)(1) Securities under the control of a broker or dealer, as 
described in Sec. 240.15c3-3(c) of this title, shall include securities 
maintained by a broker or dealer in an account at a depository 
institution, as defined in section 19(b)(A)(i)-(vi) of the Federal 
Reserve Act (12 U.S.C. 461(b)(1)(A)(i)-(vi)), which depository 
institution has a book-entry securities account at a Federal Reserve 
Bank through which it provides clearing services (``clearing bank''), 
provided the securities are maintained in a Segregated Account of the 
government securities broker or dealer. For purposes of this paragraph 
(f)(1) and paragraph (h) of this section, a Segregated Account is an 
account (other than a clearing account) of the government securities 
broker or dealer maintained on the books of a clearing bank pursuant to 
a written clearing agreement with such clearing bank which provides 
that:
    (i) Such account is established for the purpose of segregating 
securities of counterparties or customers of such broker or dealer from 
proprietary securities of the broker or dealer;
    (ii) The broker or dealer is entitled to direct the disposition of 
the securities; and
    (iii) The clearing bank does not have, and will not assert, any 
claim or lien against such securities nor will the clearing bank grant 
any third party, including any Federal Reserve Bank, any interest in 
such securities so long as they are maintained in the segregated 
account.
    (2) For purposes of this section, Sec. 240.15c3-3(c)(2) of this 
title is redesignated as paragraph (c)(2)(i) and new paragraph 
(c)(2)(ii) is added to read as follows:
    ``(ii) Are carried for the account of any customer by a government 
securities broker or dealer in an account designated exclusively for 
customers of the government securities broker or dealer with a 
registered broker or dealer or another registered government securities 
broker or dealer (the ``carrying broker or dealer'') in compliance

[[Page 954]]

with instructions of the registered government securities broker or 
dealer to the carrying broker or dealer that the securities are to be 
maintained free of any charge, lien or claim of any kind in favor of the 
carrying broker or dealer or any persons claiming through such carrying 
broker or dealer; or''.

    (g) For the purposes of this section, Sec. 240.15c3-3(d)(2) of this 
title is modified to read as follows:

    ``(2) Securities included on its books or records as failed to 
receive more than 30 calendar days, or in the case of mortgage-backed 
securities, more than 60 calendar days, then the government securities 
broker or government securities dealer shall, not later than the 
business day following the day on which such determination is made, take 
prompt steps to obtain possession or control of securities so failed to 
receive through a buy-in procedure or otherwise; or''

    (h) In addition to the notification required by Sec. 240.15c3-3(i) 
of this title, whenever any government securities broker or dealer 
instructs its clearing bank to place securities in a Segregated Account 
(as defined in paragraph (f)(1) of this section), and the clearing bank 
refuses to do so as of the close of business on that day, the broker or 
dealer shall, in accordance with Sec. 240.17a-11(f) of this title, give 
telegraphic notice of the notification by the clearing bank within 24 
hours and within 48 hours of the telegraphic notice, file a report 
stating what steps are being taken to correct the situation.
    (i) For purposes of this section, Sec. 240.15c3-3(l) of this title 
is modified to read as follows:

    ``(l) Delivery or disposition of securities. Nothing stated in this 
section shall be construed as affecting the absolute right of a customer 
of a government securities broker or dealer, unless otherwise agreed in 
writing, in the normal course of business operations following demand 
made on the broker or dealer, to receive the physical delivery of 
certificates if the securities are issued in certificated form, or to 
direct a transfer of or otherwise to exercise control over any 
securities if they are:
    ``(1) Fully-paid securities to which the customer is entitled;
    ``(2) Margin securities upon full payment by such customer to the 
broker or dealer of the customer's indebtedness to the broker or dealer; 
or
    ``(3) Excess margin securities not reasonably required to 
collateralize such customer's indebtedness to the broker or dealer.''.

    (j) Except with respect to a government securities interdealer 
broker subject to the financial responsibility requirements of Sec. 
402.1(e) and a registered government securities broker or dealer that is 
a futures commission merchant registered with the CFTC, Sec. 240.15c3-
3(e)(3) is modified for purposes of this section to read as follows:

    ``(3) Computations necessary to determine the amount required to be 
deposited as specified in paragraph (e)(1) of this section shall be made 
weekly, as of the close of the last business day of the week, and the 
deposit so computed shall be made no later than 1 hour after the opening 
of banking business on the second following business day; provided, 
however, a government securities broker or dealer registered pursuant to 
section 15C(a)(1)(A) of the Act (15 U.S.C. 78o-5 (a)(1)(A)) which has a 
ratio of liquid capital to total haircuts (calculated in accordance with 
part 402 of this chapter) of 1.8 or greater and which carries aggregate 
customer funds (as defined in paragraph (a)(10) of this section), as 
computed at the last required computation pursuant to this section, not 
exceeding $1 million, may in the alternative make the computation 
monthly, as of the close of the last business day of the month, and, in 
such event, shall deposit not less than 105 percent of the amount so 
computed no later than 1 hour after the opening of banking business on 
the second following business day. If a registered government securities 
broker or dealer, computing on a monthly basis, has, at the time of any 
required computation, a ratio of liquid capital to total haircuts of 
less than 1.8, such broker or dealer shall thereafter compute weekly as 
aforesaid until four successive weekly computations are made, none of 
which were made at a time when its ratio of liquid capital to total 
haircuts

[[Page 955]]

was less than 1.8. Computations in addition to the computation required 
in this paragraph (3), may be made as of the close of any other business 
day, and the deposits so computed shall be made no later than 1 hour 
after the opening of banking business on the second following business 
day. The registered government securities broker or dealer shall make 
and maintain a record of each such computation made pursuant to this 
paragraph (3) or otherwise and preserve such record in accordance with 
Sec. 240.17a-4.''.

    (k) Except with respect to a government securities interdealer 
broker subject to the financial responsibility requirements of Sec. 
402.1(e) and a registered government securities broker or dealer that is 
a futures commission merchant registered with the CFTC, Note E(5) of 
Sec. 240.15c3-3a of this title is modified for purposes of this section 
to read as follows:

    ``(5) Debit balances in margin accounts (other than omnibus 
accounts) shall be reduced by the amount by which any single customer's 
debit balance exceeds 25% (to the extent such amount is greater than 
$50,000) of the government securities broker's or dealer's liquid 
capital unless such broker or dealer can demonstrate that the debit 
balance is directly related to credit items in the Reserve Formula. 
Related accounts (e.g., the separate accounts of an individual, accounts 
under common control or subject to cross guarantees) shall be deemed to 
be a single customer's accounts for purposes of this provision.''.

    (l) For purposes of this section, the suspension of Sec. 240.15c3-
3(m) of this title (38 FR 12103, May 9, 1973) is no longer effective and 
the paragraph is modified to read as follows: ``(m) If a government 
securities broker or government securities dealer executes a sell order 
of a customer (other than an order to execute a sale of securities which 
the seller does not own, which for the purposes of this paragraph shall 
mean that the customer placing the sell order has identified the sale as 
a short sale to the government securities broker or dealer) and if for 
any reason whatever the government securities broker or government 
securities dealer has not obtained possession of the government 
securities, other than mortgage-backed securities, from the customer 
within 30 calendar days, or in the case of mortgage-backed securities 
within 60 calendar days, after the settlement date, the government 
securities broker or government securities dealer shall immediately 
thereafter close the transaction with the customer by purchasing, or 
otherwise obtaining, securities of like kind and quantity. For purposes 
of this paragraph (m), the term ``customer'' shall not include a broker 
or dealer who maintains a special omnibus account with another broker or 
dealer in compliance with section 4(b) of Regulation T (12 CFR 
220.4(b)).

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27947, July 24, 1987, as amended at 53 FR 28986, Aug. 1, 1988; 59 
FR 9406, Feb. 28, 1994; 60 FR 18734, Apr. 13, 1995]



Sec. 403.5  Custody of securities held by financial institutions that 
are government securities brokers or dealers.

    (a) A government securities broker or dealer that is a financial 
institution shall:
    (1) Comply with part 450 with respect to all government securities 
held for the account of customers of the financial institution in its 
capacity as a fiduciary or custodian (unless otherwise exempt pursuant 
to Sec. 450.3); and
    (2) Comply with part 450 and with paragraphs (b), (c) and (d) of 
this section with respect to all fully paid and excess margin government 
securities held for customers of the financial institution in its 
capacity as government securities broker or dealer, and government 
securities that are the subject of a repurchase agreement between the 
financial institution and certain counterparties as described in 
paragraph (d) of this section.
    (b) A financial institution shall not be in violation of the 
possession or control requirements of paragraphs (c) and (d) of this 
section if, solely as the result of normal business operations, 
temporary lags occur between the time when a security is first required 
to be in the financial institution's possession

[[Page 956]]

or control and the time when it is actually placed in possession or 
control, provided that the financial institution takes timely steps in 
good faith to establish prompt possession or control. In the event that 
a financial institution has accepted funds from a customer for the 
purchase of securities and the financial institution does not initiate 
the purchase of the specified securities by the close of the next 
business day after receipt of such customer's funds, the financial 
institution shall immediately deposit or redeposit the funds in an 
account belonging to such customer and send the customer notice of such 
deposit or redeposit.
    (c)(1) On each business day a financial institution shall determine 
the quantity and issue of such securities, if any, that are required to 
be but are not in the financial institution's possession or control. As 
appropriate to bring such securities into possession or control, the 
financial institution shall:
    (i) Promptly obtain the release of any lien, charge, or other 
encumbrance against such securities;
    (ii) Promptly obtain the return of any securities loaned;
    (iii) Take prompt steps to obtain possession or control of 
securities failed to receive for more than 30 calendar days, or in the 
case of mortgage-backed securities, for more than 60 calendar days; or
    (iv) Take prompt steps to buy in securities as necessary to the 
extent any shortage of securities in possession or control cannot be 
resolved as required by any of the above procedures.
    (2) The financial institution shall prepare and maintain a current 
and detailed description of the procedures and internal controls that it 
utilizes to comply with the possession or control requirements of this 
paragraph (c), which shall be made available upon request to its 
appropriate regulatory agency.
    (3) Nothing stated in this section shall be construed as affecting 
the absolute right of a customer of a government securities broker or 
dealer, unless otherwise agreed in writing, in the normal course of 
business operations following demand made on the broker or dealer, to 
receive the physical delivery of certificates if the securities are 
issued in certificated form, or to direct a transfer of or otherwise to 
exercise control over any securities if they are:
    (i) Fully-paid securities to which the customer is entitled;
    (ii) Margin securities upon full payment by such customer to the 
broker or dealer of the customer's indebtedness to the broker or dealer; 
or
    (iii) Excess margin securities not reasonably required to 
collateralize such customer's indebtedness to the broker or dealer.
    (d)(1) A financial institution that retains custody of securities 
that are the subject of a repurchase agreement between the financial 
institution and a counterparty shall:
    (i) Obtain the repurchase agreement in writing;
    (ii) Confirm in writing the specific securities that are the subject 
of a repurchase transaction pursuant to such agreement at the end of the 
day of initiation of the transaction and at the end of any other day 
during which other securities are substituted if the substitution 
results in a change to issuer, maturity date, par amount or coupon rate 
specified in the previous confirmation;
    (iii) Advise the counterparty in the repurchase agreement that the 
funds held by the financial institution pursuant to a repurchase 
transaction are not a deposit and therefore are not insured by the 
Federal Deposit Insurance Corporation, or the National Credit Union 
Share Insurance Fund, as applicable;
    (iv) If the counterparty agrees to grant the financial institution 
the right to substitute securities, include in the written repurchase 
agreement the provision by which the financial institution retains the 
right to substitute securities;
    (v) If the counterparty agrees to grant the financial institution 
the right to substitute securities, include in the written repurchase 
agreement the following disclosure statement, which must be prominently 
displayed in the written repurchase agreement immediately preceding the 
provision governing the right to substitution:

                          ``Required Disclosure

    The [seller] is not permitted to substitute other securities for 
those subject to this

[[Page 957]]

agreement and therefore must keep the [buyer's] securities segregated at 
all times, unless in this agreement the [buyer] grants the [seller] the 
right to substitute other securities. If the [buyer] grants the right to 
substitute, this means that the [buyer's] securities will likely be 
commingled with the [seller's] own securities during the trading day. 
The [buyer] is advised that, during any trading day that the [buyer's] 
securities are commingled with the [seller's] securities, they may be 
subject to liens granted by the [seller] to third parties and may be 
used by the [seller] for deliveries on other securities transactions. 
Whenever the securities are commingled, the [seller's] ability to 
resegregate substitute securities for the [buyer] will be subject to the 
[seller's] ability to satisfy any lien or to obtain substitute 
securities.''; and

    (vi) Maintain possession or control of securities that are the 
subject of the agreement in accordance with Sec. 450.4(a) of this 
chapter, except when exercising its right of substitution in accordance 
with the provisions of the agreement and paragraph (d)(1)(iv) of this 
section.
    (2)(i) A confirmation issued in accordance with paragraph (d)(1)(ii) 
of this section shall specify the issuer, maturity date, coupon rate, 
par amount and market value of the security and shall further identify a 
CUSIP or mortgage-backed security pool number, as appropriate, except 
that a CUSIP or a pool number is not required on the confirmation if it 
is identified in internal records of the broker or dealer that designate 
the specific security of the counterparty. For purposes of this 
paragraph (d)(2), the market value of any security that is the subject 
of the repurchase transaction shall be the most recently available bid 
price plus accrued interest, obtained by any reasonable and consistent 
methodology.
    (ii) A person that is a non-U.S. citizen residing outside of the 
United States or a foreign corporation, partnership, or trust may waive, 
but only in writing, the right to receive the confirmation required by 
paragraph (d)(1)(ii) of this section.
    (3) This paragraph (d) shall not apply to a repurchase agreement 
between the financial institution and a broker or dealer (including a 
government securities broker or dealer), a registered municipal 
securities dealer, or a director or principal officer of the financial 
institution or any person to the extent that his claim is explicitly 
subordinated to the claims of creditors of the financial institution.
    (e)(1) A government securities broker or dealer that is a branch or 
agency of a foreign bank shall keep on deposit with an insured bank (as 
that term is defined in 12 U.S.C. 1813(h)) an amount equal to the amount 
that would be required to be set aside pursuant to Sec. 240.15c3-
3(e)(1) of this title with respect to government securities of customers 
of such branch or agency that are citizens or residents of the United 
States. The amount required to be deposited pursuant to this Sec. 
403.5(e)(1) may be reduced by the amount of assets pledged or deposited 
by the branch or agency pursuant to regulations promulgated by a Federal 
or State banking regulatory agency that are attributable to liabilities 
to customers which are included both in the calculation of the required 
pledge or deposit of assets and in the calculation of the amount to be 
set aside pursuant to Sec. 240.15c3-3(e)(1) of this title.
    (2) The amount deposited in accordance with this section shall be 
pledged to the appropriate regulatory agency of the branch or agency 
making the deposit for the exclusive benefit of the customers to whom 
the credit balances are owed.
    (3) For purposes of making the calculation pursuant to Sec. 
240.15c3-3(e)(1) of this title, the terms ``free credit balances,'' 
``other credit balances'' and ``credit balances'' shall not include any 
funds placed in deposits or accounts enumerated at 12 CFR 204.2.
    (4) For purposes of making the calculation pursuant to Sec. 
240.15c3-3(e)(1) of this title, the formula set forth at Sec. 240.15c3-
3a of this title shall be modified as follows:
    (i) For purposes of this section, references to ``securities 
account,'' ``cash account,'' ``margin account'', or other customer 
accounts for purposes of this section shall not include any deposits or 
accounts enumerated at 12 CFR 204.2;
    (ii) References to ``security or ``securities shall mean U.S. 
government securities;
    (iii) References to net capital shall be inapplicable;

[[Page 958]]

    (iv) Item 2 is modified to read as follows:

    ``2. Monies borrowed by the branch or agency collateralized by 
securities carried for the account of customers. (See Note B.)'';

    (v) Item 4 is modified to read as follows:

    ``4. Customers' securities failed to receive only with respect to 
transactions for which payment has been received by and is under the 
control of the branch or agency. (See Note D.)'';

    (vi) Note B is modified to read as follows:

    ``Note B. Item 2 shall include the principal amount of Restricted 
Letters of Credit obtained by members of Options Clearing Corporation 
which are collateralized by customers' securities. Item 2 shall not 
include bank loans to customers in the ordinary course collateralized by 
the customers' U.S. government securities.''; and

    (vii) Note C is modified to read as follows:

    ``Note C. Item 3 shall include in addition to monies payable against 
customers' securities loaned the amount by which the market value of 
securities loaned exceeds the collateral value received from the lending 
of such securities. Item 3 shall exclude cash collateral received 
pursuant to a written securities lending agreement that complies fully 
with the supervisory guidelines of its appropriate regulatory agency 
that expressly govern securities lending practices.''.

    (5) Computations necessary to determine the amount required to be 
deposited as specified in paragraph (e)(1) of this section shall be made 
weekly, as of the close of the last business day of this week, and the 
deposit so computed shall be made no later than one hour after the 
opening of banking business on the second following business day.
    (6) A government securities broker or dealer that is a branch or 
agency of a foreign bank shall make and maintain a record of each 
computation made pursuant to paragraph (e)(5) of this section and 
preserve each such record for a period of not less than three years, the 
first two years in an easily accessible place.
    (f)(1) For purposes of this section, the terms ``fully paid 
securities,'' ``margin securities,'' and ``excess margin securities'' 
shall have the meanings described in Sec. 403.4 (b), (c) and (d).
    (2) For purposes of this section, the term ``customer'' shall 
include any person from whom or on whose behalf a financial institution 
that is a government securities broker or dealer has received or 
acquired or holds securities for the account of that person or funds 
resulting from transactions in securities for or with such person or 
that represent principal, interest, or other proceeds of such 
securities. The term shall not include a broker or dealer that is 
registered pursuant to section 15, 15B or 15C (a)(1)(A) of the Act (15 
U.S.C. 78o, 78o-4, 78o-5(a)(1)(A)) or that has filed notice of its 
status as a government securities broker or dealer pursuant to section 
15C(a)(1)(B) of the Act (15 U.S.C. 78o-5(a)(1)(B)) except with respect 
to securities maintained by such broker or dealer in a Segregated 
Account as defined in Sec. 403.4(f)(1) and with respect to securities 
otherwise identified by such broker or dealer as customer securities for 
purposes of maintaining possession or control of such securities as 
required by this part. The term ``customer'' shall not include a 
director or principal officer of the financial institution or any other 
person to the extent that that person has a claim for property or funds, 
which by contract, agreement or understanding, or by operation of law, 
is part of the capital of the financial institution or is subordinated 
to the claims of creditors of the financial institution.
    (g) If a financial institution executes a sell order of a customer 
(other than an order to execute a sale of securities which the seller 
does not own, which for the purposes of this paragraph shall mean that 
the customer placing the sell order has identified the sale as a short 
sale to the financial institution) and if for any reason whatever the 
financial institution has not obtained possession of the government 
securities, except mortgage-backed securities, from the customer within 
30 calendar days, or in the case of mortgage-backed securities within 60 
calendar days, after the settlement date, the financial institution 
shall immediately thereafter close the transaction with

[[Page 959]]

the customer by purchasing, or otherwise obtaining, securities of like 
kind and quantity.
    (h) The appropriate regulatory agency of a financial institution 
that is a government securities broker or dealer may extend the period 
specified in paragraphs (c)(1)(iii) and (g) of this section on 
application of the financial institution for one or more limited periods 
commensurate with the circumstances, provided the appropriate regulatory 
agency is satisfied that the financial institution is acting in good 
faith in making the application and that exceptional circumstances 
warrant such action. Each appropriate regulatory agency should make and 
preserve for a period of not less than three years a record of each 
extension granted pursuant to this paragraph, which contains a summary 
of the justification for the granting of the extension.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27947, July 24, 1987, as amended at 53 FR 28986, Aug. 1, 1988; 55 
FR 6604, Feb. 26, 1990; 59 FR 9406, Feb. 28, 1994; 60 FR 11026, Mar. 1, 
1995]



Sec. 403.6  Compliance with part by futures commission merchants.

    A registered government securities broker or dealer that is also a 
futures commission merchant registered with the CFTC shall comply with 
the provisions of this part with respect to all customer funds and 
securities except those that are incidental to the broker's or dealer's 
futures-related business, as defined in Sec. 240.3a43-1(b) of this 
title. For purposes of the preceding sentence, the term ``customer'' 
shall have the meaning set forth in Sec. 240.15c3-3(a)(1) of this 
title.



Sec. 403.7  Effective dates.

    (a) General. Except as provided in paragraphs (b) through (e) of 
this section, this part shall be effective on the last business day in 
October 1987.
    (b) Confirmations. The requirements of Sec. Sec. 403.4 and 403.5(d) 
to describe the specific securities that are the subject of a repurchase 
transaction, including the market value of such securities, on a 
confirmation at the initiation of a repurchase transaction or on 
substitution of other securities shall be effective January 31, 1988.
    (c) Written repurchase agreements. The requirement to obtain a 
repurchase agreement in writing with the provisions described in 
Sec. Sec. 403.4 and 403.5(d) shall be effective October 31, 1987, in 
the case of new customers of a government securities broker or dealer 
and shall be effective January 31, 1988, in the case of existing 
customers of a government securities broker or dealer. For purposes of 
this paragraph, an ``existing customer'' of a government securities 
broker or dealer is any counterparty with whom the government securities 
broker or dealer has entered into a repurchase transaction on or after 
January 1, 1986, but before July 25, 1987.For purposes of this 
paragraph, a ``new customer'' of a government securities broker or 
dealer is any counterparty other than an existing customer.
    (d) Disclosures. (1) For hold-in-custody repurchase transactions 
entered into before the effective date for obtaining a written 
repurchase agreement in accordance with paragraph (c) of this section, a 
government securities broker or dealer that is subject to Sec. 403.4 
shall furnish the counterparty with a separate interim disclosure 
document containing: (i) The disclosure referred to in Sec. 403.4 
concerning the Securities Investor Protection Act of 1970, and (ii) if 
applicable, the following disclosure:

                          ``Required Disclosure

    Unless the [buyer] and the [seller] have agreed to the contrary, the 
[buyer's] securities are likely to be commingled with the [seller's] own 
securities during the trading day. The [buyer] is advised that, during 
any trading day that the [buyer's] securities are commingled with the 
[seller's] securities, they will be subject to liens granted by the 
[seller] to its clearing bank and may be used by the [seller] for 
deliveries on other securities transactions. Whenever the securities are 
commingled, the [seller's] ability to resegregate substitute securities 
for the [buyer] will be subject to the [seller's] ability to satisfy the 
clearing lien or to obtain substitute securities.''.

    (2) For hold-in-custody repurchase transactions entered into before 
the effective date for obtaining a written repurchase agreement in 
accordance with

[[Page 960]]

paragraph (c) of this section, a financial institution that is subject 
to Sec. 403.5(d) shall furnish the counterparty with a separate interim 
disclosure document containing: (i) The disclosure referred to in Sec. 
403.5(d) concerning the inapplicability of deposit insurance, and (ii) 
if applicable, the following disclosure:

                          ``Required Disclosure

    Unless the [buyer] and the [seller] have agreed to the contrary, the 
[buyer's] securities are likely to be commingled with the [seller's] own 
securities during the trading day. The [buyer] is advised that, during 
any trading day that the [buyer's] securities are commingled with the 
[seller's] securities, they will be subject to liens granted by the 
[seller] to third parties and may be used by the [seller] for deliveries 
on other securities transactions. Whenever the securities are 
commingled, the [seller's] ability to resegregate substitute securities 
for the [buyer] will be subject to the [seller's] ability to satisfy any 
lien or to obtain substitute securities.''.

    (3) In the case of hold-in-custody repurchase transactions initiated 
before August 31, 1987 and terminating on or after August 31, 1987, the 
disclosure document described in this paragraph (d) must be mailed to 
the counterparties involved on or before August 31, 1987. In the case of 
a hold-in-custody repurchase transaction initiated on or after August 
31, the disclosure document described in this paragraph (d) must be 
provided to the counterparty involved no later than the day on which the 
first hold-in-custody repurchase transaction is initiated on or after 
August 31, 1987, unless the disclosure has already been provided to the 
counterparty in accordance with the preceding sentence.
    (e) Existing term repurchase transactions. Notwithstanding 
paragraphs (b), (c) and (d) of this section, the requirements of 
Sec. Sec. 403.4 and 403.5(d) (with respect to hold-in-custody 
repurchase transactions), with the exception of the requirements to 
confirm the substitution of securities subject to a repurchase 
transaction, shall not be applicable to any repurchase transaction, 
initiated on or before August 31, 1987, that, by its terms, matures on a 
specific date after August 31, 1987.

[52 FR 27947, July 24, 1987, as amended at 53 FR 28986, Aug. 1, 1988]



PART 404_RECORDKEEPING AND PRESERVATION OF RECORDS--Table of Contents




Sec.
404.1 Application of part to registered brokers and dealers.
404.2 Records to be made and kept current by registered government 
          securities brokers and dealers; records of non-resident 
          registered government securities brokers and dealers.
404.3 Records to be preserved by registered government securities 
          brokers and dealers.
404.4 Records to be made and preserved by government securities brokers 
          and dealers that are financial institutions.
404.5 Securities counts by registered government securities brokers and 
          dealers.

    Authority: 15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(2), (b)(4).

    Source: 52 FR 27952, July 24, 1987, unless otherwise noted.



Sec. 404.1  Application of part to registered brokers and dealers.

    Compliance by a registered broker or dealer with Sec. 240.17a-3 of 
this title (pertaining to records to be made), Sec. 240.17a-4 of this 
title (pertaining to preservation of records), Sec. 240.17a-13 of this 
title (pertaining to quarterly securities counts) and Sec. 240.17a-7 of 
this title (pertaining to records of non-resident brokers or dealers) 
shall constitute compliance with this part.



Sec. 404.2  Records to be made and kept current by registered government 

securities brokers and dealers; records of non-resident registered 
government securities brokers and dealers.

    (a) Every registered government securities broker or dealer shall 
comply with the requirements of Sec. 240.17a-3 of this title (SEC Rule 
17a-3), with the following modifications:
    (1) References to ``broker or dealer'' and ``broker or dealer 
registered pursuant to Section 15 of the Act'' include registered 
government securities brokers or dealers.
    (2) References to Sec. Sec. 240.17a-3, 240.17a-4, 240.17a-5, and 
240.17a-13 mean such

[[Page 961]]

sections as modified by this part and part 405 of this chapter.
    (3) (i) Except in the case of a government securities interdealer 
broker who is subject to the financial responsibility rules of Sec. 
402.1(e) of this chapter and a registered government securities broker 
or dealer that is a futures commission merchant registered with the 
CFTC, paragraph 240.17a-3(a)(1l) is modified to read as follows:

    ``(11) A record of the proof of money balances of all ledger 
accounts in the form of trial balances, and a record of the computation 
of liquid capital and total haircuts, as of the trial date, determined 
as provided in Sec. 402.2 of this title; provided however, that such 
computation need not be made by any registered government securities 
broker or dealer unconditionally exempt from part 402 of this title. 
Such trial balances and computations shall be prepared current1y at 
least once a month.''.

    (ii) For a government securities interdealer broker who is subject 
to the financial responsibility rules of Sec. 402.1(e) of this chapter, 
references to Sec. 240.15c3-1 include modifications contained in Sec. 
402.1(e) of this chapter.
    (4) Paragraph 240.17a-3(b)(1) is modified to read as follows:

    ``(1) This section shall not be deemed to require a government 
securities broker or dealer registered pursuant to section 15C(a)(1)(A) 
of the Act (15 U.S.C. 78o-5(a)(1)(A)) to make or keep such records of 
transactions cleared for such government securities broker or dealer as 
are customarily made and kept by a clearing broker or dealer pursuant to 
the requirements of Sec. Sec. 240.17a-3 and 240.17a-4: Provided, that 
the clearing broker or dealer has and maintains net capital of not less 
than $250,000 (or, in the case of a clearing broker or dealer that is a 
registered government securities broker or dealer, liquid capital less 
total haircuts, determined as provided in Sec. 402.2 of this title, of 
not less than $250,000) and is otherwise in compliance with Sec. 
240.15c3-1, Sec. 402.2 of this title, or the capital rules of the 
exchange of which such clearing broker or dealer is a member if the 
members of such exchange are exempt from Sec. 240.15c3-1 by paragraph 
(b)(2) thereof.''

    (5) The undertaking in Sec. 240.17a-3(b)(2) is modified to read as 
follows:

    ``The undersigned hereby undertakes to maintain and preserve on 
behalf of [registered government securities broker or dealer] the books 
and records required to be maintained by [registered government 
securities broker or dealer] pursuant to 17 CFR 404.2 and 404.3 and 
Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and to 
permit examination of such books and records at any time or from time to 
time during business hours by examiners or other representatives of the 
Securities and Exchange Commission, and to furnish to said Commission at 
its principal office in Washington, DC, or at any regional office of 
said Commission specified in a demand made by or on behalf of said 
Commission for copies of books and records, true, correct, complete, and 
current copies of any or all, or any part, of such books and records. 
This undertaking shall be binding upon the undersigned, and the 
successors and assigns of the undersigned.''.

    (6) Section 240.17a-3(c) is modified to read as follows:

    ``(c) This section shall not be deemed to require a government 
securities broker or dealer to make or keep such records as are required 
by paragraph (a) reflecting the sale and redemption of United States 
Savings Bonds, United States Savings Notes and United States Savings 
Stamps.''.

    (b) Every registered government securities broker or dealer shall 
comply with the requirements of Sec. 240.17h-1T of this title (SEC Rule 
17h-1T), with the following modifications:
    (1) For the purposes of this section, references to ``broker or 
dealer'' and ``broker or dealer registered with the Commission pursuant 
to Section 15 of the Act'' mean registered government securities brokers 
or dealers.
    (2) For the purposes of this section, references to Sec. Sec. 
240.17h-1T and 240.17h-2T of this title mean those sections as modified 
by Sec. Sec. 404.2(b) and 405.5, respectively.
    (3) For the purposes of this section, ``associated person'' has the 
meaning set out in Section 3(a)(18) of the Act (15

[[Page 962]]

U.S.C. 78c(a)(18)), except that natural persons are excluded.
    (4) Paragraphs 240.17h-1T(a)(1)(iii) through (vi) of this title are 
modified to read as follows:
    ``(iii) A description of all material pending legal or arbitration 
proceedings involving a Material Associated Person or the registered 
government securities broker or dealer that are required to be 
disclosed, under generally accepted accounting principles on a 
consolidated basis, by the highest level holding company that is a 
Material Associated Person.
    ``(iv) Consolidated and consolidating balance sheets, prepared in 
accordance with generally accepted accounting principles, which may be 
unaudited and which shall include the notes to the financial statements, 
as of quarter-end for the registered government securities broker or 
dealer and its highest level holding company that is a Material 
Associated Person;
    ``(v) Quarterly consolidated and consolidating income statements and 
consolidated cash flow statements, prepared in accordance with generally 
accepted accounting principles, which may be unaudited and which shall 
include the notes to the financial statements, for the registered 
government securities broker or dealer and its highest level holding 
company that is a Material Associated Person;
    ``(vi) The amount as of quarter-end, and at month-end if greater 
than quarter-end, of the aggregate long and short securities and 
commodities positions held by each Material Associated Person, including 
a separate listing of each single unhedged securities or commodities 
position, other than U.S. Treasury securities, that exceeds the 
Materiality Threshold at any month-end;''
    (5) Paragraphs 240.17h-1T(a)(3) and (a)(4) of this title are 
modified to read as follows:
    ``(3) The information, reports and records required by the 
provisions of this section shall be maintained and preserved in 
accordance with the provisions of Sec. 404.3 of this title and shall be 
kept for a period of not less than three years in an easily accessible 
place.
    ``(4) For the purposes of this section and Sec. 405.5 of this 
title, the term ``Materiality Threshold'' shall mean the greater of:
    ``(i) $100 million; or
    ``(ii) 10 percent of the registered government securities broker's 
or dealer's liquid capital based on the most recently filed Form G-405 
(or, in the case of futures commission merchants and interdealer brokers 
subject to the capital rules in Sec. Sec. 402.1(d) and 402.1(e), 
respectively, tentative net capital based on the most recently filed 
Form X-17A-5) or 10 percent of the Material Associated Person's tangible 
net worth, whichever is greater.''
    (6) Paragraph 240.17h-1T(b) of this title is modified to read as 
follows:
    ``(b) Special provisions with respect to Material Associated Persons 
subject to the supervision of certain domestic regulators. A registered 
government securities broker or dealer shall be deemed to be in 
compliance with the recordkeeping requirements of paragraph (a)(1)(iii) 
through (x) of this section with respect to a Material Associated Person 
if: * * * ''
    (7) Paragraph 240.17h-1T(c) of this title is modified to read as 
follows:
    ``(c) Special provisions with respect to Material Associated Persons 
subject to the supervision of a foreign financial regulatory authority. 
A registered government securities broker or dealer shall be deemed to 
be in compliance with the recordkeeping requirements of paragraph 
(a)(1)(iii) through (x) of this section with respect to a Material 
Associated Person if such registered government securities broker or 
dealer maintains in accordance with the provisions of this section 
copies of the reports filed by such Material Associated Person with a 
Foreign Financial Regulatory Authority. The registered government 
securities broker or dealer shall maintain a copy of the original report 
and a copy translated into the English language. For the purposes of 
this section, the term Foreign Financial Regulatory Authority shall have 
the meaning set forth in section 3(a)(52) of the Act.''
    (8) Paragraph 240.17h-1T(d) of this title is modified to read as 
follows:
    ``(d) Exemptions. (1) The provisions of this section shall not apply 
to any registered government securities broker or dealer:

[[Page 963]]

    ``(i) Which is exempt from the provisions of Sec. 240.15c3-3 of 
this title, as made applicable by Sec. 403.4, pursuant to paragraph 
(k)(2) of Sec. 240.15c3-3 of this title; or
    ``(ii) If the registered government securities broker or dealer does 
not qualify for an exemption from the provisions of Sec. 240.15c3-3 of 
this title, as made applicable by Sec. 403.4, and such registered 
government securities broker or dealer does not hold funds or securities 
for, or owe money or securities to, customers and does not carry the 
accounts of, or for, customers; unless
    ``(iii) In the case of paragraphs (d)(1)(i) or (ii) of this section, 
the registered government securities broker or dealer maintains capital 
of at least $20,000,000, including debt subordinated in accordance with 
Appendix D of Sec. 240.15c3-1 of this title, as modified by Appendix D 
of Sec. 402.2.
    ``(2) The provisions of this section shall not apply to any 
registered government securities broker or dealer which maintains 
capital of less than $250,000, including debt subordinated in accordance 
with Appendix D of Sec. 240.15c3-1 of this title, as modified by 
Appendix D of Sec. 402.2, even if the registered government securities 
broker or dealer holds funds or securities for, or owes money or 
securities to, customers or carries the accounts of, or for, customers.
    ``(3) The provisions of this section shall not apply to any 
registered government securities broker or dealer which has an 
associated person that is a registered broker or dealer, provided that:
    ``(i) The registered broker or dealer is subject to, and in 
compliance with, the provisions of Sec. 240.17h-1T and Sec. 240.17h-2T 
of this title, and
    ``(ii) All of the Material Associated Persons of the registered 
government securities broker or dealer are Material Associated Persons 
of the registered broker or dealer subject to Sec. 240.17h-1T and Sec. 
240.17h-2T of this title.
    ``(4) In calculating capital for the purposes of this paragraph, a 
registered government securities broker or dealer shall include with its 
equity capital and subordinated debt the equity capital and subordinated 
debt of any other registered government securities brokers or dealers or 
registered brokers or dealers that are associated persons of such 
registered government securities broker or dealer, except that the 
equity capital and subordinated debt of registered brokers and dealers 
that are exempt from the provisions of Sec. 240.15c3-3 of this title, 
pursuant to paragraph (k)(1) of Sec. 240.15c3-3, shall not be included 
in the capital computation.
    ``(5) The Secretary may, upon written application by a Reporting 
Registered Government Securities Broker or Dealer, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any registered government securities brokers or dealers 
that are associated persons of such Reporting Registered Government 
Securities Broker or Dealer. The term ``Reporting Registered Government 
Securities Broker or Dealer'' shall mean any registered government 
securities broker or dealer that submits such application to the 
Secretary on behalf of its associated registered government securities 
brokers or dealers.''
    (9) Paragraph 240.17h-1T(g) of this title is modified to read as 
follows:
    ``(g) Implementation schedule. Every registered government 
securities broker or dealer subject to the requirements of this section 
shall maintain and preserve the information required by paragraphs 
(a)(1)(i), (ii), and (iii) of this section commencing June 30, 1995. 
Commencing September 30, 1995, the provisions of this section shall 
apply in their entirety.''
    (c)(1) Every non-resident government securities broker or dealer 
registered or applying for registration pursuant to Section 15C of the 
Act shall comply with Sec. 240.17a-7 of this title, provided that:
    (i) For the purposes of this section, references to ``broker or 
dealer'' and ``broker or dealer registered or applying for registration 
pursuant to Section 15 of the Act'' mean registered government 
securities brokers or dealers; and
    (ii) For the purposes of this section, references to ``any rule or 
regulation of the Commission'' and ``any rule or regulation of the 
Securities and Exchange

[[Page 964]]

Commission'' mean any rule or regulation of the Secretary.
    (2) For the purposes of this section, the term ``non-resident 
government securities broker or dealer'' means:
    (i) In the case of an individual, one who resides in or has his 
principal place of business in any place not subject to the jurisdiction 
of the United States;
    (ii) In the case of a corporation, one incorporated in or having its 
principal place of business in any place not subject to the jurisdiction 
of the United States; and
    (iii) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not subject to the jurisdiction of the United States.
    (d) Effective date. Paragraph (a) of this section shall be effective 
on October 31, 1987, except that registered government securities 
brokers and dealers are required to maintain the records specified in 
Sec. 240.17a-3(a) (12), (13), (14) and (15) beginning July 25, 1987.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995; 60 
FR 20399, Apr. 26, 1995]



Sec. 404.3  Records to be preserved by registered government securities 
brokers and dealers.

    (a) Every registered government securities broker or dealer, except 
a government securities interdealer broker subject to the financial 
responsibility rules of Sec. 402.1(e) and a registered government 
securities broker or dealer that is also a futures commission merchant 
registered with the CFTC, shall comply with the requirements of Sec. 
240.17a-4 of this title (SEC Rule 17a-4), with the following 
modifications:
    (1) References to ``broker or dealer'' and ``broker and dealer 
registered pursuant to Section 15 of the Act'' include registered 
government securities brokers or dealers.
    (2) References to Sec. Sec. 240.17a-3, .17a-4, and .17a-5 mean such 
sections as modified by this part and part 405 of this chapter.
    (3) References to Sec. 240.15c3-1, relating to net capital, and 
``Computation for Net Capital'' thereunder mean Sec. 402.2 of this 
chapter and the computation of the ratio of liquid capital to total 
haircuts required thereunder.
    (4) References to Sec. 240.15c3-3, relating to possession or 
control of customer securities and balances, mean Sec. 403.4 of this 
chapter.
    (5) References to Form X-17A-5 mean Form G-405 (Sec. 449.5 of this 
chapter).
    (6) The computation described in Sec. 240.17a-4(b)(8)(x) is not 
required.
    (b) A government securities interdealer broker subject to the 
financial responsibility rules of Sec. 402.1(e) and a registered 
government securities broker or dealer that is also a futures commission 
merchant registered with the CFTC, shall comply with the requirements of 
Sec. 240.17a-4 of this title (SEC Rule 17a-4), with the following 
modifications:
    (1) References to ``broker or dealer'' and ``broker and dealer'' 
include registered government securities brokers or dealers.
    (2) References to Sec. Sec. 240.17a-3, 240.17a-4, and 240.17a-5 
mean such sections as modified by this part and part 405 of this 
chapter.
    (3) With respect to a government securities interdealer broker 
subject to the financial responsibility rules of Sec. 402.1(e) of this 
chapter, references to Sec. 240.15c3-1, relating to net capital, and 
``Computation for Net Capital'' thereunder include the modifications 
contained in Sec. 402.1(e) of this chapter.
    (4) References to Sec. 240.15c3-3, relating to possession or 
control of customer securities and balances, mean Sec. 403.4 of this 
chapter.
    (c) This section shall be effective on July 25, 1987.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec. 404.4  Records to be made and preserved by government securities 
brokers and dealers that are financial institutions.

    (a) Records to be made and kept. Every financial institution that is 
a government securities broker or dealer and that is not exempt from 
this part pursuant to part 401 of this chapter shall comply with the 
requirements of

[[Page 965]]

Sec. Sec. 404.2 and 404.3 unless such financial institution:
    (1) Is subject to 12 CFR part 12 (relating to national banks), 12 
CFR part 208 (relating to state member banks of the Federal Reserve 
System) or 12 CFR part 344 (relating to state banks that are not members 
of the Federal Reserve System), or is a United States branch or agency 
of a foreign bank and complies with 12 CFR part 12 (for federally 
licensed branches and agencies of foreign banks) or 12 CFR part 208 (for 
uninsured state-licensed branches and agencies of foreign banks) or 12 
CFR part 344 (for insured state licensed branches and agencies of 
foreign banks);
    (2) Complies with the recordkeeping requirements of Sec. 450.4(c), 
(d) and (f) of this chapter; and
    (3) Makes and keeps current:
    (i)(A) A securities record or ledger reflecting separately for each 
government security as of the settlement dates all ``long'' or ``short'' 
positions (including government securities that are the subjects of 
repurchase or reverse repurchase agreements) carried by such financial 
institution for its own account or for the account of its customers or 
others (except securities held in a fiduciary capacity) and showing the 
location of all government securities long and the offsetting position 
to all government securities short, including long security count 
differences and short security count differences classified by the date 
of the count and verification in which they were discovered, and in all 
cases the name or designation of the account in which each position is 
carried;
    (B) A complete and current Form G-FIN-4 (Sec. 449.3 of this 
chapter) or Form U-4 (promulgated by a self-regulatory organization) or 
Form MSD-4 (as required for associated persons of bank municipal 
securities dealers) for each associated person as defined in Sec. 
400.3(c) of this chapter;
    (C) A Form G-FIN-5 (Sec. 449.4 of this chapter) or Form U-5 
(promulgated by a self-regulatory organization) or Form MSD-5 (as 
required for associated persons of bank municipal securities dealers) 
for each associated person whose association has been terminated as 
provided in Sec. 400.4(d)(2) of this chapter; and
    (D) A complete and current Form G-FIN (Sec. 449.1 of this chapter) 
and, if applicable, a Form G-FINW (Sec. 449.2 of this chapter).
    (ii) For purposes of paragraph (a)(3)(i)(A) of this section, 
``safekeeping'' may be shown as a location of any securities long as 
long as the financial institution complies with the requirements of part 
450 of this chapter with respect to such securities.
    (b) Preservation of records. (1) The records required by paragraph 
(a)(3)(i)(A) of this section shall be preserved for not less than six 
years, the first two years in an easily accessible place.
    (2) The records required by paragraphs (a)(3)(i) (B) and (C) of this 
section shall be preserved for at least three years after the person who 
is the subject of the record has terminated his employment and any other 
association with the government securities broker or dealer function of 
the financial institution.
    (3) The records required by paragraph (a)(3)(i)(D) of this section 
shall be preserved for at least three years after the financial 
institution has notified the appropriate regulatory agency that it has 
ceased to function as a government securities broker or dealer.
    (c) Effective date. This section shall be effective on July 25, 
1987, except that until October 31, 1987, a financial institution 
government securities broker or dealer is not required to make and keep 
current the securities position record required by paragraph 
(a)(3)(i)(A) of this section.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 53 FR 28987, Aug. 1, 1988; 60 
FR 11026, Mar. 1, 1995; 62 FR 7155, Feb. 18, 1997]



Sec. 404.5  Securities counts by registered government securities brokers 
and dealers.

    (a) Securities counts. Every registered government securities broker 
or dealer shall comply with the requirements of Sec. 240.17a-13 of this 
title (Commission Rule 17a-13), with the modification that references to 
``broker or dealer'' and ``broker and dealer registered pursuant to 
Section 15 of the Act'' include

[[Page 966]]

registered government securities brokers or dealers.
    (b) Effective date. This section shall be effective on October 31, 
1987.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27952, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



PART 405_REPORTS AND AUDIT--Table of Contents




Sec.
405.1 Application of part to registered brokers and dealers and to 
          financial institutions; transition rule.
405.2 Reports to be made by registered government securities brokers and 
          dealers.
405.3 Notification provisions for certain registered government 
          securities brokers and dealers.
405.4 Financial recordkeeping and reporting of currency and foreign 
          transactions by registered government securities brokers and 
          dealers.
405.5 Risk assessment reporting requirements for registered government 
          securities brokers and dealers.

    Authority: 15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(2), (b)(4).

    Source: 52 FR 27954, July 24, 1987, unless otherwise noted.



Sec. 405.1  Application of part to registered brokers and dealers and 
to financial institutions; transition rule.

    (a) Compliance by registered brokers or dealers with Sec. Sec. 
240.17a-5, 240.17a-8, and 240.17a-11 of this title (Commission Rules 
17a-5, 17a-8 and 17a-11) constitutes compliance with this part.
    (b) A government securities broker or dealer that is a financial 
institution and is subject to financial reporting rules of its 
appropriate regulatory agency is exempt from the provisions of 
Sec. Sec. 405.2 and 405.3.
    (c) This part shall be effective July 25, 1987, Provided however,
    (1) That registered government securities brokers or dealers shall 
first be required to file the reports required by Sec. 240.17a-5(a), by 
virtue of Sec. 405.2, for the month and the quarter during which they 
were first required to comply with part 402 of this chapter other than 
the interim liquid capital requirements of Sec. 402.1(f); but that
    (2) For any quarter ending prior to the quarter during which they 
were first required to comply with part 402 of this chapter other than 
the interim liquid capital requirements of Sec. 402.1(f), registered 
government securities brokers or dealers shall file with the designated 
examining authority for such registered broker or dealer, within 17 
business days after the close of the quarter, an unaudited balance sheet 
(with appropriate notes) for such quarter, prepared in accordance with 
generally accepted accounting principles.



Sec. 405.2  Reports to be made by registered government securities brokers 
and dealers.

    (a) Every registered government securities broker or dealer, except 
a government securities interdealer broker subject to the financial 
responsibility requirements of Sec. 402.1(e) of this chapter and a 
government securities broker or dealer that is also a futures commission 
merchant registered with the CFTC, shall comply with the requirements of 
Sec. 240.17a-5 of this title (SEC Rule 17a-5), with the following 
modifications:
    (1) References to ``broker or dealer'' include registered government 
securities brokers and dealers.
    (2) References to ``rules of the Commission'' or words of similar 
import include, where appropriate, the regulations contained in this 
subchapter.
    (3) References to Form X-17A-5 mean Form G-405 (Sec. 449.5 of this 
chapter).
    (4) For the purposes of Sec. 240.17a-5(a)(4) of this title, the 
Commission may, on the terms and conditions stated in that subparagraph, 
declare effective a plan with respect to Form G-405, in which case, that 
plan shall be treated the same as a plan approved with respect to Form 
X-17A-5.
    (5) References to ``net capital'' mean ``liquid capital'' as defined 
in Sec. 402.2(d) of this chapter.
    (6) References to Sec. 240.15c3-1, relating to net capital, mean 
Sec. 402.2 of this chapter.
    (7) Paragraph 240.17a-5(c)(2)(ii) is modified to read as follows:

    ``(ii) A footnote containing a statement of the registered 
government securities broker's or dealer's liquid capital, total 
haircuts, and ratio of liquid capital to total haircuts, determined in 
accordance with Sec. 402.2 of this title.

[[Page 967]]

Such statement shall include summary financial statements of 
subsidiaries consolidated pursuant to Sec. 402.2c of this title, where 
material, and the effect thereof on the liquid capital, total haircuts 
and ratio of liquid capital to total haircuts of the registered 
government securities broker or dealer.''.

    (8) References to Sec. 240.15c3-3 and the exhibits thereto, 
relating to possession or control of customer securities and reserve 
requirements, mean Sec. 403.4 of this chapter.
    (9) The reference to Sec. 240.15b1-2 of this title, relating to 
financial statements to be filed upon registration, means Sec. 
240.15Ca2-2.
    (10) The supplemental report described in Sec. 240.17a-5(e)(4) of 
this title, concerning the Securities Investor Protection Act, is not 
required.
    (11) Section 240.17a-5(e)(5)(ii) is modified to read as follows:
    ``(ii) No later than February 28, 1999, every registered government 
securities broker or dealer shall file Part I of Form BD-Y2K (Sec. 
249.618 of this title) prepared as of January 15, 1999.''.
    (12) Section 240.17a-5(e)(5)(iii) is modified to read as follows:
    ``(iii)(A) No later than February 28, 1999, every registered 
government securities broker or dealer required to maintain minimum 
liquid capital pursuant to Sec. 402.2(b)(1) or (b)(2) of this title as 
of January 15, 1999, shall file Part II of Form BD-Y2K (Sec. 249.618 of 
this title). Part II of Form BD-Y2K shall address each topic in Sec. 
240.17a-5(e)(5)(iv) as of January 15, 1999.
    ``(B) No later than April 30, 1999, every registered government 
securities broker or dealer that was not required to file Part II of 
Form BD-Y2K under paragraph (e)(12)(iii)(A) of this section but was 
required to maintain minimum liquid capital pursuant to Sec. 
402.2(b)(1) or (b)(2) of this title at any time between January 16, 
1999, and March 15, 1999, shall file Part II of Form BD-Y2K. Part II of 
Form BD-Y2K shall address each topic in Sec. 240.17a-5(e)(5)(iv) as of 
March 15, 1999.
    ``(C) Any registered government securities broker or dealer that has 
an affiliated registered broker or dealer that files Form BD-Y2K subject 
to 17 CFR 240.17a-5(e)(5) will be exempted from paragraphs (e)(11) and 
(12) of this section, provided the affiliate's report encompasses the 
registered government securities broker's or dealer's transactions in, 
and holdings of, government securities. Any such registered government 
securities broker or dealer shall submit a letter stating its reliance 
on the exemption, the name of the affiliated registered broker or dealer 
that filed the report encompassing its government securities 
transactions and holdings, and the date the report was filed. The letter 
shall be filed with the SEC's principal office in Washington, D.C. and 
with the broker's or dealer's designated examining authority.''.
    (13) The report by an independent public accountant described in 
Sec. 240.17a-5(e)(5)(vi) of this title, concerning a broker's or 
dealer's process for addressing year 2000 problems, is not required.
    (14) References to Form BD-Y2K mean Form BD-Y2K in Sec. 249.618 of 
this title.
    (15) The statement described in Sec. 240.17a-5(f)(2) of this title 
shall be headed ``Notice Pursuant to Section 405.2,'' and shall be filed 
within 30 days following the effective date of registration as a 
government securities broker or dealer.
    (16) References in Sec. 240.17a-5(h)(2) of this title to Sec. 
240.17a-11 mean Sec. 405.3(a) of this chapter.
    (b) A government securities interdealer broker subject to the 
financial responsibility requirements of Sec. 402.1(e) of this chapter 
shall comply with the requirements of Sec. 240.17a-5 of this title (SEC 
Rule 17a-5), with the following modifications:
    (1) References to ``broker or dealer'' include government securities 
interdealer brokers;
    (2) References to ``rules of the Commission'' or words of similar 
import include, where appropriate, the regulations contained in this 
subchapter.
    (3) References to ``net capital'' mean net capital calculated as 
provided in Sec. 402.1(e) of this chapter.
    (4) References to Sec. 240.15c3-1, relating to net capital, include 
the modifications contained in Sec. 402.1(e) of this chapter.
    (5) References to Sec. 240.15c3-3 and the exhibits thereto, 
relating to possession or control of customer securities and

[[Page 968]]

reserve requirements, mean Sec. 403.4 of this chapter.
    (6) The reference to Sec. 240.15b1-2 of this title, relating to 
financial statements to be filed upon registration, means Sec. 
240.15Ca2-2.
    (7) The supplemental report described in Sec. 240.17a-5(e)(4) of 
this title, concerning the Securities Investor Protection Act, is not 
required.
    (8) The statement described in Sec. 240.17a-5(f)(2) of this title 
shall be headed ``Notice Pursuant to Section 405.2'' and shall be filed 
within 30 days following the effective date of registration as a 
government securities broker.
    (9) References in Sec. 240.17a-5(h)(2) of this title to Sec. 
240.17a-11 mean Sec. 405.3(b) of this chapter.
    (c) A registered government securities broker or dealer that is also 
a futures commission merchant registered with the CFTC shall comply with 
the requirements of Sec. 240.17a-5 of this title (SEC Rule 17a-5), with 
the following modifications:
    (1) References to ``broker or dealer'' include registered government 
securities brokers and dealers.
    (2) References to ``rules of the Commission'' or words of similar 
import include, where appropriate, the regulations contained in this 
subchapter.
    (3) References to Sec. 240.15c3-3 and the exhibits thereto, 
relating to possession or control of customer securities and reserve 
requirements, mean Sec. 403.4 of this chapter.
    (4) The reference to Sec. 240.15b1-2 of this title, relating to 
financial statements to be filed upon registration, means Sec. 
240.15Ca2-2.
    (5) The supplemental report described in Sec. 240.17a-5(e)(4) of 
this title, concerning the Securities Investor Protection Act, is not 
required.
    (6) The statement described in Sec. 240.17a-5(f)(2) of this title 
shall be headed ``Notice Pursuant to Sec. 405.2,'' and shall be filed 
within 30 days following the effective date of registration as a 
government securities broker or dealer.
    (7) References in Sec. 240.17a-5(h)(2) of this title to Sec. 
240.17a-11 mean Sec. 405.3(c) of this chapter.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27954, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995; 64 
FR 1737, Jan. 12, 1999]



Sec. 405.3  Notification provisions for certain registered government 
securities brokers and dealers.

    (a) Every registered government securities broker or dealer, other 
than a government securities interdealer broker that is subject to the 
financial responsibility requirements of Sec. 402.1(e) and a government 
securities broker or dealer that is also a futures commission merchant 
registered with the CFTC, shall comply with the requirements of Sec. 
240.17a-11 of this title (SEC Rule 17a-11), with the following 
modifications:
    (1) References to ``broker or dealer'' include registered government 
securities brokers and dealers.
    (2) References to Sec. 240.15c3-1, relating to net capital, mean 
Sec. 402.2 of this chapter.
    (3) References to ``net capital'' mean ``liquid capital'' as defined 
in Sec. 402.2 of this chapter.
    (4) References to Sec. 240.17a-5, relating to reports and audit, 
mean Sec. 405.2(a) of this chapter.
    (5) Section 240.17a-11(c), for the purposes of this section, is 
modified to read as follows:
    ``(c) Every registered government securities broker or dealer shall 
send notice promptly (but within 24 hours) in accordance with paragraph 
(g) of this section if a computation made pursuant to the requirements 
of Sec. 402.2 of this title shows, at any time during the month, that 
its liquid capital is less than 150 percent of total haircuts, 
determined in accordance with Sec. 402.2 of this title, or that its 
capital after deducting total haircuts from liquid capital is less than 
120 percent of the registered government securities broker or dealer's 
minimum capital requirement specified in Sec. 402.2 (b) or (c) of this 
title as applicable.''
    (6) References to Sec. 240.17a-3, relating to records, mean Sec. 
404.2 of this chapter.

[[Page 969]]

    (b) A government securities interdealer broker that is subject to 
the financial responsibility requirements of Sec. 402.1(e) of this 
chapter shall comply with the requirements of Sec. 240.17a-11 of this 
title (SEC Rule 17a-11), with the following modifications:
    (1) References to ``broker or dealer'' include government securities 
interdealer brokers;
    (2) References to Sec. 240.15c3-1, relating to net capital, include 
the modifications contained in Sec. 402.1(e) of this chapter.
    (3) References to ``net capital'' mean net capital calculated as 
provided in Sec. 402.1(e) of this chapter.
    (4) References to Sec. 240.17a-5, relating to reports and audit, 
mean Sec. 405.2(b) of this chapter.
    (5) References to Sec. 240.17a-3, relating to records, mean Sec. 
404.2 of this chapter.
    (c) A registered government securities broker or dealer that is also 
a futures commission merchant registered with the CFTC shall comply with 
the requirements of Sec. 240.17a-11 of this title (SEC Rule 17a-11), 
with the following modifications:
    (1) References to ``broker or dealer'' include government securities 
brokers and dealers.
    (2) References to Sec. 240.15c3-1, relating to net capital, mean 
either Sec. 240.15c3-1 or Sec. 1.17 of this title, depending on which 
computation results in the higher net capital requirement.
    (3) References to ``net capital'' mean the higher of net capital 
calculated under Sec. 240.15c3-1 or Sec. 1.17 of this title.
    (4) References to Sec. 240.17a-5, relating to reports and audit, 
mean Sec. 405.2(c) of this chapter.
    (5) Section 240.17a-11(c) for the purposes of this section is 
modified to read as follows:
    ``(c) Every broker or dealer shall send notice promptly (but within 
24 hours) after the occurrence of the events specified in paragraphs 
(c)(1), (c)(2), (c)(3), or (c)(4) of this section in accordance with 
paragraph (g) of this section:''
    (6) A new paragraph 240.17a-11(c)(4) is added to read as follows:
    ``(4) If a computation made by a government securities broker or 
dealer that is not a registered broker or dealer but that is also a 
futures commission merchant registered with the Commodity Futures 
Trading Commission shows that:
    ``(i) The adjusted net capital of such entity is less than the 
greater of:
    ``(A) 150 percent of the appropriate minimum dollar amount required 
by Sec. 1.17(a)(1)(i), or
    ``(B) 6 percent of the following amount: The customer funds required 
to be segregated pursuant to Sec. 4d(2) of the Commodity Exchange Act 
and Sec. 1.17 of this title, less the market value of commodity options 
purchased by option customers on or subject to the rules of a contract 
market, provided, however, the deduction for each option customer shall 
be limited to the amount of customer funds in such option customer's 
account; or
    ``(ii) At any point during the month, aggregate indebtedness is in 
excess of 1200 percent of net capital or total net capital is less than 
120 percent of the minimum net capital required.''
    (7) References to Sec. 240.17a-3, relating to records, mean Sec. 
404.2 of this chapter.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27954, July 24, 1987, as amended at 59 FR 53731, Oct. 26, 1994; 
59 FR 55910, Nov. 9, 1994; 60 FR 18734, Apr. 13, 1995]



Sec. 405.4  Financial recordkeeping and reporting of currency and 
foreign transactions by registered government securities brokers and dealers.

    Every registered government securities broker or dealer who is 
subject to the requirements of the Currency and Foreign Transactions 
Reporting Act of 1970 shall comply with the reporting, recordkeeping and 
record retention requirements of 31 CFR part 103. Where 31 CFR part 103 
and Sec. 404.3 of this chapter require the same records to be preserved 
for different periods of time, such records or reports shall be 
preserved for the longer period of time.



Sec. 405.5  Risk assessment reporting requirements for registered 
government securities brokers and dealers.

    (a) Every registered government securities broker or dealer shall 
comply with the requirements of Sec. 240.17h-2T of this title (SEC Rule 
17h-2T), with the following modifications:

[[Page 970]]

    (1) For the purposes of this section, references to ``broker or 
dealer'' and ``broker or dealer registered with the Commission pursuant 
to Section 15 of the Act'' mean registered government securities brokers 
or dealers.
    (2) For the purposes of this section, references to Sec. Sec. 
240.17h-1T and 240.17h-2T of this title mean those sections as modified 
by Sec. Sec. 404.2(b) and 405.5, respectively.
    (3) For the purposes of this section, ``associated person'' has the 
meaning set out in Section 3(a)(18) of the Act (15 U.S.C. 78c(a)(18)), 
except that natural persons are excluded.
    (4) Paragraph 240.17h-2T(b) of this title is modified to read as 
follows:
    ``(b) Exemptions. (1) The provisions of this section shall not apply 
to any registered government securities broker or dealer:
    ``(i) Which is exempt from the provisions of Sec. 240.15c3-3 of 
this title, as made applicable by Sec. 403.4, pursuant to paragraph 
(k)(2) of Sec. 240.15c3-3 of this title; or
    ``(ii) If the registered government securities broker or dealer does 
not qualify for exemption from the provisions of Sec. 240.15c3-3 of 
this title, as made applicable by Sec. 403.4, and such registered 
government securities broker or dealer does not hold funds or securities 
for, or owe money or securities to, customers and does not carry the 
accounts of, or for, customers; unless
    ``(iii) In the case of paragraphs (b)(1) (i) or (ii) of this 
section, the registered government securities broker or dealer maintains 
capital of at least $20,000,000, including debt subordinated in 
accordance with Appendix D of Sec. 240.15c3-1 of this title, as 
modified by Appendix D of Sec. 402.2.
    ``(2) The provisions of this section shall not apply to any 
registered government securities broker or dealer which maintains 
capital of less than $250,000, including debt subordinated in accordance 
with Appendix D of Sec. 240.15c3-1 of this title, as modified by 
Appendix D of Sec. 402.2, even if the registered government securities 
broker or dealer holds funds or securities for, or owes money or 
securities to, customers or carries the accounts of, or for, customers.
    ``(3) The provisions of this section shall not apply to any 
registered government securities broker or dealer which has an 
associated person that is a registered broker or dealer, provided that:
    ``(i) The registered broker or dealer is subject to, and in 
compliance with, the provisions of Sec. 240.17h-1T and Sec. 240.17h-2T 
of this title, and
    ``(ii) All of the Material Associated Persons of the registered 
government securities broker or dealer are Material Associated Persons 
of the registered broker or dealer subject to Sec. 240.17h-1T and Sec. 
240.17h-2T of this title.
    ``(4) In calculating capital for the purposes of this paragraph, a 
registered government securities broker or dealer shall include with its 
equity capital and subordinated debt the equity capital and subordinated 
debt of any other registered government securities brokers or dealers or 
registered brokers or dealers that are associated persons of such 
registered government securities broker or dealer, except that the 
equity capital and subordinated debt of registered brokers and dealers 
that are exempt from the provisions of Sec. 240.15c3-3 of this title, 
pursuant to paragraph (k)(1) of Sec. 240.15c3-3, shall not be included 
in the capital computation.
    ``(5) The Secretary may, upon written application by a Reporting 
Registered Government Securities Broker or Dealer, exempt from the 
provisions of this section, either unconditionally or on specified terms 
and conditions, any registered government securities brokers or dealers 
that are associated persons of such Reporting Registered Government 
Securities Broker or Dealer. The term ``Reporting Registered Government 
Securities Broker or Dealer'' shall mean any registered government 
securities broker or dealer that submits such application to the 
Secretary on behalf of its associated registered government securities 
brokers or dealers.''
    (5) Paragraph 240.17h-2T(c) of this title is modified to read as 
follows:
    ``(c) Special provisions with respect to Material Associated Persons 
subject to the supervision of certain domestic regulators. A registered 
government securities broker or dealer shall be deemed to be

[[Page 971]]

in compliance with the reporting requirements of paragraph (a) of this 
section with respect to a Material Associated Person if such registered 
government securities broker or dealer files Items 1, 2, and 3 (in Part 
I) of Form 17-H in accordance with paragraph (a) of this section, 
provided that:
    ``(1) Such Material Associated Person is subject to examination by 
or the reporting requirements of a Federal banking agency and the 
registered government securities broker or dealer or such Material 
Associated Person furnishes in accordance with paragraph (a) of this 
section copies of reports filed by the Material Associated Person with 
the Federal banking agency pursuant to section 5211 of the Revised 
Statutes, section 9 of the Federal Reserve Act, section 7(a) of the 
Federal Deposit Insurance Act, section 10(b) of the Home Owners' Loan 
Act, or section 5 of the Bank Holding Company Act of 1956; or * * * ''
    (6) Paragraph 240.17h-2T(d) of this title is modified to read as 
follows:
    ``(d) Special provisions with respect to Material Associated Persons 
subject to the supervision of a foreign financial regulatory authority. 
A registered government securities broker or dealer shall be deemed to 
be in compliance with the reporting requirements of paragraph (a) of 
this section with respect to a Material Associated Person if such 
registered government securities broker or dealer furnishes, in 
accordance with the provisions of paragraph (a) of this section, Items 
1, 2, and 3 (in Part I) of Form 17-H and copies of the reports filed by 
such Material Associated Person with a Foreign Financial Regulatory 
Authority. The registered government securities broker or dealer shall 
file a copy of the original Foreign Financial Regulatory report and a 
copy translated into the English language. For the purposes of this 
section, the term Foreign Financial Regulatory Authority shall have the 
meaning set forth in section 3(a)(52) of the Act.''
    (7) Paragraph 240.17h-2T(f) of this title is modified to read as 
follows:
    ``(f) Implementation schedule. Every registered government 
securities broker or dealer subject to the requirements of this section 
shall file the information required by Items 1, 2 and 3 (in Part I) of 
Form 17-H by July 31, 1995. Commencing September 30, 1995, the 
provisions of this section shall apply in their entirety.''

(Approved by the Office of Management and Budget under control number 
1535-0089)

[60 FR 20401, Apr. 26, 1995]



PART 420_LARGE POSITION REPORTING--Table of Contents




Sec.
420.1 Applicability.
420.2 Definitions.
420.3 Reporting.
420.4 Recordkeeping.
420.5 Effective Date.

Appendix A to Part 420--Separate Reporting Entity.
Appendix B to Part 420--Sample Large Position Report.

    Authority: 15 U.S.C. 78o-5(f).

    Source: 61 FR 48348, Sept. 12 1996, unless otherwise noted.



Sec. 420.1  Applicability.

    (a) This part, including the Appendices, is applicable to all 
persons that participate in the government securities market, including, 
but not limited to: government securities brokers and dealers, 
depository institutions that exercise investment discretion, registered 
investment companies, registered investment advisers, pension funds, 
hedge funds and insurance companies that may control a reportable 
position in a recently-issued marketable Treasury bill, note or bond as 
those terms are defined in Sec. 420.2.
    (b) Notwithstanding paragraph (a) of this section, foreign central 
banks, foreign governments and international monetary authorities are 
exempt from this part. This exemption is not applicable to a broker, 
dealer, financial institution or other entity that engages primarily in 
commercial transactions and that may be owned in whole or in part by a 
foreign government.
    (c) Notwithstanding paragraph (a) of this section, Federal Reserve 
Banks are exempt from this part for the portion of any reportable 
position they control for their own account.



Sec. 420.2  Definitions.

    For the purposes of this part:

[[Page 972]]

    (a) ``Aggregating entity'' means a single entity (e.g., a parent 
company, affiliate, or organizational component) that is combined with 
other entities, as specified in paragraph (i) of this section, to form a 
reporting entity. In those cases where an entity has no affiliates, the 
aggregating entity is the same as the reporting entity.
    (b) ``Control'' means having the authority to exercise investment 
discretion over the purchase, sale, retention or financing of specific 
Treasury securities. Only one entity should be considered to have 
investment discretion over a particular position.
    (c) ``Gross financing position'' is the sum of the gross par amounts 
of a security issue received from financing transactions, including 
reverse repurchase agreement transactions, bonds borrowed, and as 
collateral for financial derivatives and other securities transactions 
(e.g., margin loans). In calculating the gross financing position, a 
reporting entity may not net its positions against repurchase agreement 
transactions, securities loaned, or securities pledged as collateral for 
financial derivatives and other securities transactions.
    (d) ``Large position threshold'' means, with respect to a reportable 
position, the dollar par amount such position must equal or exceed in 
order for a reporting entity to be required to submit a large position 
report. The large position threshold will be announced by the Department 
and may vary with each notice of request to report large position 
information and with each specified Treasury security. However, under no 
circumstances will a large position threshold be less than $2 billion.
    (e) ``Net fails position'' is the net par amount of ``fails to 
receive'' less ``fails to deliver'' in the same security. The net fails 
position, as reported, may not be less than zero.
    (f) ``Net trading position'' is the net sum of the following 
respective positions in the specific security issue:
    (1) Cash/immediate net settled positions;
    (2) Net when-issued positions;
    (3) Net forward positions, including next-day settling;
    (4) Net futures contract positions that require delivery of the 
specific security; and
    (5) Net holdings of STRIPS principal components of the security.
    (g) ``Recently-issued'' means:
    (1) With respect to Treasury securities that are issued quarterly or 
more frequently, the three most recent issues of the security (e.g., in 
early April, the January, February, and March 2-year notes).
    (2) With respect to Treasury securities that are issued less 
frequently than quarterly, the two most recent issues of the security.
    (3) With respect to a reopened security, the entire issue of a 
reopened security (older and newer portions) based on the date the new 
portion of the reopened security is issued by the Department (or for 
when-issued securities, the scheduled issue date).
    (4) For all Treasury securities, a security announced to be issued 
or auctioned but unissued (when-issued), starting from the date of the 
issuance announcement. The most recent issue of the security is the one 
most recently announced.
    (5) Treasury security issues other than those specified in 
paragraphs (g)(1) and (2) of this section, provided that such large 
position information is necessary and appropriate for monitoring the 
impact of concentrations of positions in Treasury securities.
    (h) ``Reportable position'' is the sum of the net trading positions, 
gross financing positions and net fails positions in a specified issue 
of Treasury securities collectively controlled by a reporting entity.
    (i) ``Reporting entity'' means any corporation, partnership, person 
or other entity and its affiliates, as further provided herein. For the 
purposes of this definition, an affiliate is any: entity that is more 
than 50% owned, directly or indirectly, by the aggregating entity or by 
any other affiliate of the aggregating entity; person or entity that 
owns, directly or indirectly, more than 50% of the aggregating entity; 
person or entity that owns, directly or indirectly, more than 50% of any 
other affiliate of the aggregating entity; or entity, a majority of 
whose board of directors or a majority of whose general

[[Page 973]]

partners are directors or officers of the aggregating entity or any 
affiliate of the aggregating entity.
    (1) Subject to the conditions prescribed in Appendix A, one or more 
aggregating entities, either separately or together with one or more 
other aggregating entities, may be recognized as a separate reporting 
entity.
    (2) Notwithstanding this definition, any persons or entities that 
intentionally act together with respect to the investing in, retention 
of, or financing of, Treasury securities are considered, collectively, 
to be one reporting entity.

[61 FR 48348, Sept. 12 1996, as amended at 67 FR 77414, Dec. 18, 2002]



Sec. 420.3  Reporting.

    (a) A reporting entity is subject to the reporting requirements of 
this section only when its reportable position equals or exceeds the 
large position threshold specified by the Department for a specific 
Treasury security issue. The Department shall provide notice of such 
threshold by issuance of a press release and subsequent publication of 
the notice in the Federal Register. Such notice will identify the 
Treasury security issue to be reported (including, where applicable, 
identification of the related STRIPS principal component); the date or 
dates (as of close of business) for which the large position information 
must be reported; and the applicable large position threshold for that 
issue. It is the responsibility of a reporting entity to take reasonable 
actions to be aware of such a notice.
    (b) A reporting entity shall select one entity from among its 
aggregating entities (i.e., the designated filing entity) as the entity 
designated to compile and file a report on behalf of the reporting 
entity. The designated filing entity shall be responsible for filing any 
large position reports in response to a notice issued by the Department 
and for maintaining the additional records prescribed in the applicable 
paragraph of Sec. 420.4.
    (c)(1) In response to a notice issued under paragraph (a) of this 
section requesting large position information, a reporting entity with a 
reportable position that equals or exceeds the specified large position 
threshold stated in the notice shall compile and report the amounts of 
the reporting entity's reportable position in the order specified, as 
follows:
    (i) Net trading position;
    (ii) Gross financing position;
    (iii) Net fails position; and
    (iv) Total reportable position.
    (2) The large position report should include the following 
additional memorandum item: a total that includes the amounts of 
securities delivered through repurchase agreements, securities loaned, 
and as collateral for financial derivatives and other securities 
transactions. This total should not be reflected in the gross financing 
position.
    (3) An illustration of a sample report is contained in Appendix B. 
The net trading position shall be one net number and reported as the 
applicable positive or negative number (or zero). The gross financing 
position and net fails position should each be reported as a single 
entry. If the amount of the net fails position is zero or less, report 
zero. All position amounts should be reported on a trade date basis and 
at par in millions of dollars.
    (4) All positions must be reported as of the close of business of 
the reporting date(s) specified in the notice.
    (5) Each submitted large position report must include the following 
administrative information in addition to the reportable position: the 
name of the reporting entity, the address of the principal place of 
business, the name and address of the designated filing entity, the 
Treasury security that is being reported, the CUSIP number for the 
security being reported, the report date or dates for which information 
is being reported, the date the report was submitted, the name and 
telephone number of the person to contact regarding information 
reported, and the name and position of the authorized individual 
submitting this report.
    (6) The large position report must be signed by one of the 
following: the chief compliance officer; chief legal officer; chief 
financial officer; chief operating officer; chief executive officer; or 
managing partner or equivalent. The

[[Page 974]]

designated filing entity must also include in the report, immediately 
preceding the signature, a statement of certification as follows:

    By signing below, I certify that the information contained in this 
report with regard to the designated filing entity is accurate and 
complete. Further, after reasonable inquiry and to the best of my 
knowledge and belief, I certify: (i) That the information contained in 
this report with regard to any other aggregating entities is accurate 
and complete; and (ii) that the reporting entity, including all 
aggregating entities, is in compliance with the requirements of 17 CFR 
Part 420.

    (7) The report must be filed before noon Eastern time on the fourth 
business day following issuance of the press release.
    (d) A report to be filed pursuant to paragraph (c) of this section 
will be considered filed when received by the Federal Reserve Bank of 
New York, Market Reports Division. The report may be filed with the 
Federal Reserve Bank of New York by facsimile or delivered hard copy. 
The Federal Reserve Bank of New York may in its discretion also 
authorize additional means of reporting.
    (e) A reporting entity that has filed a report pursuant to paragraph 
(c) of this section shall, at the request of the Department or the 
Federal Reserve Bank of New York, timely provide any supplemental 
information pertaining to such report.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[61 FR 48348, Sept. 12 1996, as amended at 67 FR 77414, Dec. 18, 2002]



Sec. 420.4  Recordkeeping.

    (a)(1) Notwithstanding the provisions of paragraphs (b) and (c) of 
this section, an aggregating entity must make and maintain records 
pursuant to this part as of its effective date, but only if the 
aggregating entity has controlled a portion of its reporting entity's 
reportable position in any Treasury security when such reportable 
position of the reporting entity has equaled or exceeded the minimum 
large position threshold specified in Sec. 420.2(d) (i.e., $2 billion) 
during the prior two-year period ending December 11, 1996. Subsequent to 
the effective date, an aggregating entity that controls a portion of its 
reporting entity's reportable position in a recently-issued Treasury 
security, when such reportable position of the reporting entity equals 
or exceeds the minimum large position threshold, shall be responsible 
for making and maintaining the records prescribed in this section.
    (2) In the case of a reporting entity whose reportable position in 
any Treasury security has equaled or exceeded the minimum large position 
threshold during the prior two-year period ending December 11, 1996, 
each such reporting entity's designated filing entity shall submit a 
letter to the Government Securities Regulations Staff, Bureau of the 
Public Debt, 999 E Street, N.W., Room 515, Washington, DC 20239, stating 
that the designated filing entity has in place, or will have in place by 
the effective date, a recordkeeping system (including policies and 
procedures) capable of making, verifying the accuracy of, and preserving 
the records required pursuant to this section. The letter shall further 
state that, after reasonable inquiry and to the best of its knowledge 
and belief, the designated filing entity represents that all other 
aggregating entities have in place, or will have in place by the 
effective date, a system (including policies and procedures) capable of 
making, verifying the accuracy of, and preserving the records required 
pursuant to this section.
    (3) The letter specified in paragraph (a)(2) of this section must be 
signed by one of the following: the chief compliance officer; chief 
legal officer; chief financial officer; chief operating officer; chief 
executive officer; or managing partner or equivalent. The letter must be 
received by the Bureau of the Public Debt no later than January 10, 
1997.
    (b) Records to be made and preserved by entities that are subject to 
the recordkeeping provisions of the Commission, the Department, or the 
appropriate regulatory agencies for financial institutions. As an 
aggregating entity, compliance by a registered broker or dealer, 
registered government securities broker or dealer, noticed financial 
institution, depository institution that exercises investment 
discretion, registered investment

[[Page 975]]

adviser, or registered investment company with the applicable 
recordkeeping provisions of the Commission, the Department, or the 
appropriate regulatory agencies for financial institutions shall 
constitute compliance with this section, provided that if such entity is 
also the designated filing entity it:
    (1) Makes and keeps copies of all large position reports filed 
pursuant to this part;
    (2) Makes and keeps supporting documents or schedules used to 
compute data for the large position reports filed pursuant to this part, 
including any certifications or schedules it receives from aggregating 
entities pertaining to their holdings of a reportable position;
    (3) Makes and keeps a chart showing the organizational entities that 
are aggregated (if applicable) in determining a reportable position; and
    (4) With respect to recordkeeping preservation requirements that 
contain more than one retention period, preserves records required by 
paragraphs (b)(1)-(3) of this section for the longest record retention 
period of applicable recordkeeping provisions.
    (c) Records to be made and kept by other entities. (1) An 
aggregating entity that is not subject to the provisions of paragraph 
(b) of this section shall make and preserve a journal, blotter, or other 
record of original entry containing an itemized record of all 
transactions that fall within the definition of a reportable position, 
including information showing the account for which such transactions 
were effected and the following information pertaining to the 
identification of each instrument: the type of security, the par amount, 
the CUSIP number, the trade date, the maturity date, the type of 
transaction (e.g., a reverse repurchase agreement), and the name or 
other designation of the person from whom sold or purchased.
    (2) If such aggregating entity is also the designated filing entity, 
then in addition, it shall make and preserve the following records:
    (i) Copies of all large position reports filed pursuant to this 
part;
    (ii) Supporting documents or schedules used to compute data for the 
large position reports filed pursuant to this part, including any 
certifications or schedules it receives from aggregating entities 
pertaining to their holdings of a reportable position; and
    (iii) A chart showing the organizational entities that are 
aggregated (if applicable) in determining a reportable position.
    (3) With respect to the records required by paragraphs (c) (1) and 
(2) of this section, each such aggregating entity shall preserve such 
records for a period of not less than six years, the first two years in 
an easily accessible place. If an aggregating entity maintains its 
records at a location other than its principal place of business, the 
aggregating entity must maintain an index that states the location of 
the records, and such index must be easily accessible at all times.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[61 FR 48350, Sept. 12 1996, as amended at 61 FR 52498, Oct. 7, 1996]



Sec. 420.5  Effective Date.

    The provisions of this part, except for Sec. 420.4(a), shall be 
first effective on March 31, 1997.

[61 FR 48350, Sept. 12 1996, as amended at 61 FR 52498, Oct. 7, 1996; 61 
FR 53996, Oct. 16, 1996]

            Appendix A to Part 420--Separate Reporting Entity

    Subject to the following conditions, one or more aggregating 
entity(ies) (e.g., parent, subsidiary, or organizational component) in a 
reporting entity, either separately or together with one or more other 
aggregating entity(ies), may be recognized as a separate reporting 
entity. All of the following conditions must be met for such entity(ies) 
to qualify for recognition as a separate reporting entity:
    (1) Such entity(ies) must be prohibited by law or regulation from 
exchanging, or must have established written internal procedures (i.e., 
Chinese walls) designed to prevent the exchange of information related 
to transactions in Treasury securities with any other aggregating 
entity;
    (2) Such entity(ies) must not be created for the purpose of 
circumventing these large position reporting rules;
    (3) Decisions related to the purchase, sale or retention of Treasury 
securities must be

[[Page 976]]

made by employees of such entity(ies). Employees of such entity(ies) who 
make decisions to purchase or dispose of Treasury securities must not 
perform the same function for other aggregating entities; and
    (4) The records of such entity(ies) related to the ownership, 
financing, purchase and sale of Treasury securities must be maintained 
by such entity(ies). Those records must be identifiable--separate and 
apart from similar records for other aggregating entities.
    To obtain recognition as a separate reporting entity, each 
aggregating entity or group of aggregating entities must request such 
recognition from the Department pursuant to the procedures outlined in 
paragraph 400.2(c) of this title. Such request must provide a 
description of the entity or group and its position within the reporting 
entity, and provide the following certification:
    ``[Name of the entity(ies)] hereby certifies that to the best of its 
knowledge and belief it meets the conditions for a separate reporting 
entity as described in Appendix A to 17 CFR Part 420. The above named 
entity also certifies that it has established written policies or 
procedures, including ongoing compliance monitoring processes, that are 
designed to prevent the entity or group of entities from:
    ``(1) Exchanging any of the following information with any other 
aggregating entity (a) positions that it holds or plans to trade in a 
Treasury security; (b) investment strategies that it plans to follow 
regarding Treasury securities; and (c) financing strategies that it 
plans to follow regarding Treasury securities, or
    ``(2) In any way intentionally acting together with any other 
aggregating entity with respect to the purchase, sale, retention or 
financing of Treasury securities.
    ``The above-named entity agrees that it will promptly notify the 
Department in writing when any of the information provided to obtain 
separate reporting entity status changes or when this certification is 
no longer valid.''
    Any entity, including any organizational component thereof, that 
previously has received recognition as a separate bidder in Treasury 
auctions from the Department pursuant to 31 CFR Part 356 is also 
recognized as a separate reporting entity without the need to request 
such status, provided such entity continues to be in compliance with the 
conditions set forth in Appendix A of 31 CFR Part 356.

          Appendix B to Part 420--Sample Large Position Report

              Formula for Determining a Reportable Position
          [$ Amounts in millions at par value as of trade date]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Security Being Reported.............            ------------------------
Date For Which Information is Being             ------------------------
 Reported...........................
1. Net Trading Position:
    Cash/Immediate Net Settled                $ ------------------------
     Positions......................
    Net When-Issued Positions for To-         $ ------------------------
     Be-Issued and Reopened Issues..
    Net Forward Settling Positions            $ ------------------------
     Including Next-Day Settling....
    Net Positions in Futures                  $ ------------------------
     Contracts Requiring Delivery of
     the Specific Security..........
    Net Holdings of STRIPS Principal          $ ------------------------
     Components of the Specific
     Security.......................
                                     -----------------------------------
        Total Net Trading Position..          $ ------------------------
2. Gross Financing Position:
    Total of securities received
     through
        Reverse Repurchase
         Agreements
            Overnight and Open......          $ ------------------------
            Term....................          $ ------------------------
        Bonds borrowed, and as                $ ------------------------
         collateral for financial
         derivatives and other
         financial transactions.....
                                     -----------------------------------
                Total Gross                  +$ ------------------------
                 Financing position.
                                     ===================================
                                     -----------------------------------

[[Page 977]]

 
(Fails to receive less fails to
 deliver. If equal to or less than
 zero, report 0.)
                                     -----------------------------------
4. Total Reportable Position........        = $ ------------------------
Memorandum 1:
    Report the total gross par
     amounts of securities delivered
     through
        Repurchase Agreements
            Overnight and Open......          $ ------------------------
            Term....................          $ ------------------------
        Securities loaned, and as             $ ------------------------
         collateral for financial
         derivatives and other
         securities transactions....
                                     -----------------------------------
                Total Memorandum 1..          $ ------------------------
Memorandum 2:
    Report the gross par amount of            $ ------------------------
     fails to deliver. Included in
     the calculation of line item 3
     (Net Fails Position)...........
------------------------------------------------------------------------


[67 FR 77415, Dec. 18, 2002; 68 FR 402, Jan. 3, 2003]



PART 449_FORMS, SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934--Table of Contents




Sec.
449.1 Form G-FIN, notification by financial institutions of status as 
          government securities broker or dealer pursuant to section 
          15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.
449.2 Form G-FINW, notification by financial institutions of cessation 
          of status as government securities broker or dealer pursuant 
          to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 
          1934 and Sec. 400.6 of this chapter.
449.3 Form G-FIN-4, notification by persons associated with financial 
          institutions that are government securities brokers and 
          dealers pursuant to section 15C(a)(1)(B)(i) of the Securities 
          Exchange Act of 1934 and Sec. 400.4 of this chapter.
449.4 Form G-FIN-5, notification of termination of association with a 
          financial institution that is a government securities broker 
          or dealer pursuant to section 15C(a)(1)(B)(i) of the 
          Securities Exchange Act of 1934 and Sec. 400.4 of this 
          chapter.
449.5 Form G-405, information required of registered government 
          securities brokers and dealers pursuant to section 15C of the 
          Securities Exchange Act of 1934 and Sec. Sec. 405.2 and 405.3 
          of this chapter.

    Authority: 15 U.S.C. 78o-5(a), (b)(1)(B), (b)(4).

    Source: 52 FR 27956, July 24, 1987, unless otherwise noted.



Sec. 449.1  Form G-FIN, notification by financial institutions of 

status as government securities broker or dealer pursuant to section 
15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.

    This form is to be used by financial institutions that are 
government securities brokers or dealers not exempt under part 401 of 
this chapter to notify their appropriate regulatory agency of their 
status. The form is promulgated by the Board of Governors of the Federal 
Reserve System and is available from the Board of Governors of the 
Federal Reserve System, the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, the Director of the Office of Thrift 
Supervision and the SEC.



Sec. 449.2  Form G-FINW, notification by financial institutions of 

cessation of status as government securities broker or dealer pursuant 
to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and 
Sec. 400.6 of this chapter.

    This form is to be used by financial institutions that are 
government securities brokers or dealers to notify their appropriate 
regulatory agency that they have ceased to function as a government 
securities broker or dealer. The form is promulgated by the Board

[[Page 978]]

of Governors of the Federal Reserve System and is available from the 
Board of Governors of the Federal Reserve System, the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, the Director of the 
Office of Thrift Supervision and the SEC.



Sec. 449.3  Form G-FIN-4, notification by persons associated with financial 

institutions that are government securities brokers and dealers pursuant 
to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and 
          Sec. 400.4 of this chapter.

    This form is to be used by associated persons of financial 
institutions that are government securities brokers or dealers to 
provide certain information to the financial institution and the 
appropriate regulatory agency concerning employment, residence, and 
statutory disqualification. The form is promulgated by the Department of 
the Treasury and is available from the Board of Governors of the Federal 
Reserve System, the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, the Director of the Office of Thrift Supervision 
and the SEC.

    Editorial Note: For Federal Register citations affecting Form G-FIN-
4, see the List of CFR Sections Affected, which appears in the Finding 
Aids section of the printed volume and on GPO Access.



Sec. 449.4  Form G-FIN-5, notification of termination of association 

with a financial institution that is a government securities broker 
or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities 
Exchange Act of 1934 and Sec. 400.4 of this chapter.

    This form is to be used by financial institutions that are 
government securities brokers or dealers to notify the appropriate 
regulatory agency of the fact that an associated person is no longer 
associated with the government securities broker or dealer function of 
the financial institution. The form is promulgated by the Department of 
the Treasury and is available from the Board of Governors of the Federal 
Reserve System, the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, the Director of the Office of Thrift Supervision 
and the SEC.



Sec. 449.5  Form G-405, information required of registered government 

securities brokers and dealers pursuant to section 15C of the Securities 
Exchange Act of 1934 and Sec. Sec. 405.2 and 405.3 of this chapter.

    This form is to be used by registered government securities brokers 
and dealers to make the monthly, quarterly and annual financial reports 
required by part 405 of this chapter. The form is promulgated by the 
Department of the Treasury and is available from the SEC and the 
designated examining authorities.

    Editorial Note: For Federal Register citations affecting Form G-405, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and on GPO Access.

[[Page 979]]



SUBCHAPTER B_REGULATIONS UNDER TITLE II OF THE GOVERNMENT SECURITIES ACT 
                                 OF 1986





PART 450_CUSTODIAL HOLDINGS OF GOVERNMENT SECURITIES BY DEPOSITORY 
INSTITUTIONS--Table of Contents




Sec.
450.1 Scope of regulations; office responsible.
450.2 Definitions.
450.3 Exemption for holdings subject to fiduciary standards.
450.4 Custodial holdings of government securities.
450.5 Effective date.

    Authority: Sec. 201, Pub. L. 99-571, 100 Stat. 3222-23 (31 U.S.C. 
3121, 9110); Sec. 101, Pub. L. 99-571, 100 Stat. 3208 (15 U.S.C. 78o-
5(b)(1)(A), (b)(4), (b)(5)(B)).

    Source: 52 FR 27957, July 24, 1987, unless otherwise noted.



Sec. 450.1  Scope of regulations; office responsible.

    (a) This part applies to depository institutions that hold 
government securities as fiduciary, custodian, or otherwise for the 
account of a customer, and that are not government securities brokers or 
dealers, as defined in sections 3(a)(43) and 3(a)(44) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(43)-(44)). Depository 
institutions exempt under part 401 of this chapter from the requirements 
of Subchapter A of this chapter must comply with this part. Certain 
depository institutions that are government securities brokers or 
dealers must also comply with this part, as well as with additional 
requirements set forth in Sec. 403.5.
    (b) The regulations in this subchapter are promulgated by the 
Assistant Secretary (Domestic Finance) pursuant to a delegation of 
authority from the Secretary of the Treasury. The office responsible for 
the regulations is the Office of the Commissioner, Bureau of the Public 
Debt. Procedures for obtaining interpretations of the regulations are 
set forth at Sec. 400.2.

[52 FR 27957, July 24, 1987, as amended at 53 FR 28987, Aug. 1, 1988]



Sec. 450.2  Definitions.

    For purposes of this subchapter:
    (a) Appropriate regulatory agency has the meaning set out in section 
3(a)(34)(G) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(34)(G)), except that the appropriate regulatory agency for--
    (1) A Federal credit union as defined in 12 U.S.C. 1752(1) and an 
insured credit union as defined in 12 U.S.C. 1752(7) is the National 
Credit Union Administration; and
    (2) Any depository institution for whom an appropriate regulatory 
agency is not explicitly specified by either section 3(a)(34)(G) or this 
paragraph, is the SEC;
    (b) Customer includes, but is not limited to, the counterparty to a 
transaction pursuant to a repurchase agreement for whom the depository 
institution retains possession of the security sold subject to 
repurchase, but does not include a broker or dealer that is registered 
pursuant to section 15, 15B or 15C(a)(1)(A) of the Act (15 U.S.C. 78o, 
78o-4, 78o-5(a)(l)(A)) or that has filed notice of its status as a 
government securities broker or dealer pursuant to section 15C(a)(1)(B) 
of the Act (15 U.S.C. 78o-5(a)(1)(B)) except as provided in Sec. 450.4.
    (c) Depository institution has the meaning stated in clauses (i) 
through (vi) of section 19(b)(1)(A) of the Federal Reserve Act (12 
U.S.C. 461(b)(1)(A) (i)-(vi)) and also includes a foreign bank, an 
agency or branch of a foreign bank and a commercial lending company 
owned or controlled by a foreign bank (as such terms are defined in the 
International Banking Act of 1978, Pub. L. 95-369, 92 Stat. 607);
    (d) Fiduciary capacity includes trustee, executor, administrator, 
registrar, transfer agent, guardian, assignee, receiver, managing agent, 
and any other similar capacity involving the sole or shared exercise of 
discretion by a depository institution having fiduciary powers that is 
supervised by a Federal or state financial institution regulatory 
agency; and
    (e) Government securities means:

[[Page 980]]



------------------------------------------------------------------------
                If . . .                            Then . . .
------------------------------------------------------------------------
(1)(i) A depository institution is a     ``Government securities'' means
 government securities broker or dealer   those obligations described in
 as defined in sections 3(a)(43) and      subparagraphs (A), (B), (C),
 3(a)(44) of the Securities Exchange      or (E) of section 3(a)(42) of
 Act of 1934 (15 U.S.C. 78c(a)(43)-       the Securities Exchange Act of
 (44)).                                   1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E))
----------------------------------------
(ii) A depository institution is exempt  ``Government securities'' means
 under Part 401 of this chapter from      those obligations described in
 the requirements of Subchapter A.        subparagraphs (A), (B), (C),
                                          or (E) of section 3(a)(42) of
                                          the Securities Exchange Act of
                                          1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E))
----------------------------------------
(2) A depository institution is not a    ``Government securities'' means
 government securities broker or dealer   those obligations described in
 as defined in sections 3(a)(43) and      subparagraphs (A), (B), or (C)
 3(a)(44) of the Securities Exchange      of section 3(a)(42) of the
 Act of 1934 (15 U.S.C. 78c(a)(43)-       Securities Exchange Act of
 (44)).                                   1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C))
------------------------------------------------------------------------


[52 FR 27957, July 24, 1987, as amended at 55 FR 6604, Feb. 26, 1990; 66 
FR 28655, May 24, 2001; 66 FR 29888, June 1, 2001]



Sec. 450.3  Exemption for holdings subject to fiduciary standards.

    (a) The Secretary has determined that the rules and standards of the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System and the Federal Deposit Insurance Corporation governing 
the holding of government securities in a fiduciary capacity by 
depository institutions subject thereto are adequate. Accordingly, such 
depository institutions are exempt from this part with respect to their 
holdings of government securities in a fiduciary capacity and their 
holdings of government securities in a custodial capacity provided that 
(1) such institution has adopted policies and procedures that would 
apply to such custodial holdings all the requirements imposed by its 
appropriate regulatory agency that are applicable to government 
securities held in a fiduciary capacity, and (2) such custodial holdings 
are subject to examination by the appropriate regulatory agency for 
compliance with such fiduciary requirements.
    (b) The Secretary expects that each appropriate regulatory agency 
will notify the Department if it materially revises its rules and 
standards governing the holding of government securities in a fiduciary 
capacity.



Sec. 450.4  Custodial holdings of government securities.

    Depository institutions that are subject to this part shall observe 
the following requirements with respect to their holdings of government 
securities for customer accounts:
    (a)(1) Except as otherwise provided in this section, a depository 
institution shall maintain possession or control of all government 
securities held for the account of customers by segregating such 
securities from the assets of the depository institution and keeping 
them free of any lien, charge or claim of any third party granted or 
created by such depository institution.
    (2)(i) Where customer securities are maintained by a depository 
institution at another depository institution, including but not limited 
to a correspondent bank or a trust company (``custodian institution''), 
the depository institution shall be in compliance with paragraph (a)(1) 
of this section if:
    (A) The depository institution notifies the custodian institution 
that such securities are customer securities;
    (B) The custodian institution maintains such securities in an 
account that is designated for customers of the depository institution 
and that does not contain proprietary securities of the depository 
institution; and
    (C) The depository institution instructs the custodian institution 
to maintain such securities free of any lien, charge, or claim of any 
kind in favor of such custodian institution or any persons claiming 
through it.
    (ii) To the extent that a custodian institution holds securities 
that have been identified as customer securities by a depository 
institution in accordance with paragraph (a)(2)(i) of this section, the 
custodian institution shall

[[Page 981]]

treat such securities as customer securities separate from any other 
securities held for the account of the depository institution.
    (3)(i) Where securities that a depository institution is required, 
pursuant to this part 450, to keep free of all liens, charges, or other 
claims (``customer securities'') are maintained by a depository 
institution at a Federal Reserve Bank, the depository institution shall 
be in compliance with paragraph (a)(1) of this section if any lien, 
charge or other claim of such Federal Reserve Bank or any person 
claiming through it against securities of the depository institution 
expressly excludes customer securities.
    (ii) Notwithstanding paragraph (a)(3)(i) of this section, a 
depository institution described in that paragraph shall be in 
compliance with paragraph (a)(1) of this section if a Federal Reserve 
Bank retains a lien on securities received during the day that are 
subsequently determined to be customer securities, provided that,
    (A) On that day, the depository institution:
    (1) Because of extraordinary circumstances, at the end of that day 
either requests a discount window advance or is unable to eliminate an 
overdraft with its Federal Reserve Bank and the Federal Reserve Bank 
extends credit to the depository institution in order to assure the 
safety and soundness or liquidity of the depository institution; and
    (2) After reasonable efforts, is unable to provide the Federal 
Reserve Bank with an adequate security interest in other collateral that 
is clearly identifiable as pledgeable by the depository institution 
sufficient to fully collateralize such extension of credit; and
    (B) The depository institution diligently pursues with the Federal 
Reserve Bank the substitution of other collateral for securities 
determined to be customer securities; and
    (C) The Federal Reserve Bank agrees that to the extent the lien 
extends to collateral of a value greater than the outstanding balance on 
the loan, customer securities will be the first collateral released from 
the lien.
    (4)(i) To the extent that a depository institution holds securities 
that have been identified to such depository institution as customer 
securities by a government securities broker or dealer, or that the 
government securities broker or dealer has instructed the depository 
institution to place in a segregated account, in accordance with part 
403 of subchapter A of this chapter, the depository institution shall 
treat such securities as customer securities separate from any other 
securities held for the account of the government securities broker or 
dealer and shall comply with all of the provisions of this section with 
respect to such customer securities, except as provided in paragraph 
(a)(4)(ii) of this section.
    (ii) A clearing bank that provides clearing services for a 
government securities broker or dealer and that maintains a segregated 
account as described in Sec. 403.4 of this chapter shall not be 
required to transfer securities to such account upon the instruction of 
the broker or dealer for whom such account is maintained if the clearing 
bank determines that such securities continue to be required as 
collateral for an extension of clearing credit to such dealer. Whenever 
a clearing bank does not segregate securities as of the close of 
business upon the instruction of such broker or dealer, it shall send a 
notification to the appropriate regulatory agency of the broker or 
dealer for whom such account is maintained. Such securities shall 
thereafter be segregated pursuant to the instruction of the broker or 
dealer as soon as they are no longer required by the clearing bank as 
collateral for the extension of clearing credit.
    (5) A depository institution that is subject to Part 403 is not 
required to maintain possession or control of margin securities as that 
term is defined in Sec. 403.5(f)(1).
    (6) Notwithstanding the requirement of paragraph (a)(1) to maintain 
possession or control of customer securities, a depository institution 
may lend such securities to a third party pursuant to the written 
agreement of the customer, if such loan of securities is carried out in 
full compliance with supervisory guidelines of its appropriate 
regulatory

[[Page 982]]

agency that expressly govern securities lending practices.
    (b)(1) Except as otherwise provided in paragraph (b)(2) of this 
section, a depository institution shall issue a confirmation or a 
safekeeping receipt for each security held for a customer in accordance 
with this section with the exception of securities that are the subject 
of repurchase transactions which are subject to the requirements of 
Sec. 403.5(d) of this chapter. The confirmation or safekeeping receipt 
shall identify the issuer, maturity date, par amount and coupon rate of 
the security being confirmed. The confirmation may be supplied to the 
customer in any manner that complies with applicable Federal banking 
regulations.
    (2) A depository institution shall not be required to send the 
confirmation or safekeeping receipt required by paragraph (b)(1) of this 
section to a customer that is a non-U.S. citizen residing outside the 
United States or a foreign corporation, partnership, or trust, if such 
customer expressly waives in writing the right to receive such 
confirmation or safekeeping receipt.
    (c) Records of government securities held for customers shall be 
maintained and shall be kept separate and distinct from other records of 
the depository institution. Such records shall:
    (1) Provide a system for identifying each customer, and each 
government security (or the amount of each issue of a government 
security issued in book-entry form) held for the customer;
    (2) Describe the customer's interest in the government security;
    (3) Indicate all receipts and deliveries of government securities 
and all receipts and disbursements of cash by the depository institution 
in connection with such securities;
    (4) Include a copy of the safekeeping receipt or a confirmation 
issued for each government security held; and
    (5) Provide an adequate basis for audit of such information.
    (d) Counts of government securities held for customers in both 
definitive and book-entry form shall be conducted at least annually and 
such counts shall be reconciled with customer account records.
    (1) Counts of book-entry securities and of definitive securities 
held outside the possession of the depository institution shall be made 
by reconciliation of the records of the depository institution with 
those of any depository, depository institution, or Federal Reserve Bank 
on whose books the depository institution has securities accounts.
    (2) The depository institution conducting the count shall also 
verify any such securities in transfer, in transit, pledged, loaned, 
borrowed, deposited, failed to receive, failed to deliver, subject to 
repurchase or reverse repurchase agreements or otherwise subject to the 
depository institution's control or direction that are not in its 
physical possession, where the securities have been in such status for 
longer than thirty days.
    (3) The dates and results of such counts and reconciliations shall 
be documented with differences noted in a security count difference 
account not later than seven business days after the date of each 
required count and verification as provided in this paragraph (d).
    (e) For purposes of this section, a depository institution shall 
treat a government securities broker or dealer as a customer with 
respect to securities maintained by such government securities broker or 
dealer in a Segregated Account as defined in Sec. 403.4(f)(1) of this 
chapter and with respect to securities otherwise identified to the 
depository institution as customer securities for purposes of 
maintaining possession or control of such securities as required by Part 
403 of this chapter. The recordkeeping requirements of paragraph (c) of 
this section require the depository institution to treat such securities 
as customer securities separate from any other securities held for the 
account of the government securities broker or dealer, but do not 
require the depository institution to keep records identifying 
individual customers of the government securities broker or dealer.
    (f) The records required by paragraphs (c) and (d)(3) of this 
section shall be preserved for not less than six

[[Page 983]]

years, the first two years in an easily accessible place.

(Approved by the Office of Management and Budget under control number 
1535-0089)

[52 FR 27957, July 24, 1987, as amended at 60 FR 11026, Mar. 1, 1995]



Sec. 450.5  Effective date.

    This part shall be effective October 31, 1987.

[[Page 985]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  Table of OMB Control Numbers
  List of CFR Sections Affected

[[Page 987]]

            Material Approved for Incorporation by Reference

                      (Revised as of April 1, 2004)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


17 CFR (PARTS 240 TO END)

SECURITIES AND EXCHANGE COMMISSION
                                                                  17 CFR


National Conference of Commissioners on Uniform State Laws

  211 East Ontario Street, Suite 1300, Chicago, 
  Illinois 60611
Uniform Commercial Code, 2002 Official Text and                270.17f-4
  Comments, Sections 8-102, 8-103, 8-501 through 
  8-511.

[[Page 989]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2004)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 990]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

[[Page 991]]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)

[[Page 992]]

      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

[[Page 993]]

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

[[Page 994]]

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)

[[Page 995]]

      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)

[[Page 996]]

         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)

[[Page 997]]

      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)

[[Page 998]]

       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)

[[Page 999]]

       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)

[[Page 1000]]

        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

[[Page 1001]]

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)

[[Page 1002]]

       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare

[[Page 1003]]

        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)

[[Page 1004]]

       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)

[[Page 1005]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)

[[Page 1006]]

         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 1007]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2004)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 1008]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 1009]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 1010]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 1011]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General

[[Page 1012]]

  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A

[[Page 1013]]

  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
   Commission
[[Page 1014]]

Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV

[[Page 1015]]

Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1017]]







                      Table of OMB Control Numbers



The OMB control numbers for Chapter II of Title 17 appear in Sec.  
200.800. For the convenience of the user, Sec.  200.800 is reprinted 
below.

   Subpart N_Commission Information Collection Requirements Under the 
              Paperwork Reduction Act: OMB Control Numbers

    Authority: 44 U.S.C. 3506; 44 U.S.C. 3507.

    Source: 67 FR 14634, Mar. 27, 2002, unless otherwise noted.

Sec.  200.800  OMB control numbers assigned pursuant to the Paperwork 
          Reduction Act.

    (a) Purpose: This subpart collects and displays the control numbers 
assigned to information collection requirements of the Commission by the 
Office of Management and Budget pursuant to the Paperwork Reduction Act 
of 1980, 44 U.S.C. 3500 et seq. This subpart displays current OMB 
control numbers for those information collection requirements of the 
Commission that are rules and regulations and codified in 17 CFR either 
in full text or incorporated by reference with the approval of the 
Director of the Office of the Federal Register.
    (b) Display.

------------------------------------------------------------------------
                                    17 CFR part or section
      Information collection         where identified and    Current OMB
           requirement                     described         Control No.
------------------------------------------------------------------------
Regulation S-X...................  PART 210................    3235-0009
Regulation S-B...................  PART 228................    3235-0417
Regulation S-K...................  PART 229................    3235-0071
Rule 154.........................  230.154.................    3235-0495
Rule 155.........................  230.155.................    3235-0549
Rule 236.........................  230.236.................    3235-0095
Rule 237.........................  230.237.................    3235-0528
Regulation A.....................  230.251 thru 230.263....    3235-0286
Regulation C.....................  230.400 thru 230.494....    3235-0074
Rule 425.........................  230.425.................    3235-0521
Rule 477.........................  230.477.................    3235-0550
Rule 489.........................  230.489.................    3235-0411
Rule 498.........................  230.498.................    3235-0488
Regulation D.....................  230.501 thru 230.506....    3235-0076
Regulation E.....................  230.601 thru 230.610a...    3235-0232
Rule 604.........................  230.604.................    3235-0232
Rule 605.........................  230.605.................    3235-0232
Rule 609.........................  230.609.................    3235-0233
Rule 701.........................  230.701.................    3235-0522
Regulation S.....................  230.901 thru 230.905....    3235-0357
Regulation S-T...................  Part 232................    3235-0424
Form SB-1........................  239.9...................    3235-0423
Form SB-2........................  239.10..................    3235-0418
Form S-1.........................  239.11..................    3235-0065
Form S-2.........................  239.12..................    3235-0072
Form S-3.........................  239.13..................    3235-0073
Form N-2.........................  239.14..................    3235-0026
Form N-1A........................  239.15A.................    3235-0307
Form S-6.........................  239.16..................    3235-0184

[[Page 1018]]

 
Form S-8.........................  239.16b.................    3235-0066
Form N-3.........................  239.17a.................    3235-0316
Form N-4.........................  239.17b.................    3235-0318
Form S-11........................  239.18..................    3235-0067
Form N-14........................  239.23..................    3235-0336
Form N-5.........................  239.24..................    3235-0169
Form S-4.........................  239.25..................    3235-0324
Form F-1.........................  239.31..................    3235-0258
Form F-2.........................  239.32..................    3235-0257
Form F-3.........................  239.33..................    3235-0256
Form F-4.........................  239.34..................    3235-0325
Form F-6.........................  239.36..................    3235-0292
Form F-7.........................  239.37..................    3235-0383
Form F-8.........................  239.38..................    3235-0378
Form F-9.........................  239.39..................    3235-0377
Form F-10........................  239.40..................    3235-0380
Form F-80........................  239.41..................    3235-0404
Form F-X.........................  239.42..................    3235-0379
Form F-N.........................  239.43..................    3235-0411
Form ET..........................  239.62..................    3235-0329
Form ID..........................  239.63..................    3235-0328
Form SE..........................  239.64..................    3235-0327
Form TH..........................  239.65..................    3235-0425
Form 1-A.........................  239.90..................    3235-0286
Form 2-A.........................  239.91..................    3235-0286
Form 144.........................  239.144.................    3235-0101
Form 1-E.........................  239.200.................    3235-0232
Form CB..........................  239.800.................    3235-0518
Rule 6a-1........................  240.6a-1................    3235-0017
Rule 6a-3........................  240.6a-3................    3235-0021
Rule 6a-4........................  240.6a-4................    3235-0554
Rule 6h-1........................  240.6h-1................    3235-0555
Rule 8c-1........................  240.8c-1................    3235-0514
Rule 9b-1........................  240.9b-1................    3235-0480
Rule 10a-1.......................  240.10a-1...............    3235-0475
Rule 10b-10......................  240.10b-10..............    3235-0444
Rule 10b-17......................  240.10b-17..............    3235-0476
Rule 10b-18......................  240.10b-18..............    3235-0474
Rule 10A-1.......................  240.10A-1...............    3235-0468
Rule 11a1-1(T)...................  240.11a1-1(T)...........    3235-0478
Rule 11Aa3-2.....................  240.11Aa3-2.............    3235-0500
Rule 11Ab2-1.....................  240.11Ab2-1.............    3235-0043
Rule 11Ac1-3.....................  240.11Ac1-3.............    3235-0435
Rule 11Ac1-4.....................  240.11Ac1-4.............    3235-0462
Rule 11Ac1-5.....................  240.11Ac1-5.............    3235-0542
Rule 11Ac1-6.....................  240.11Ac1-6.............    3235-0541
Rule 11Ac1-6.....................  240.11Ac1-6.............    3235-0541
Rule 11Ac1-7.....................  240.11Ac1-7.............    3235-0543
Rule 12a-5.......................  240.12a-5...............    3235-0079
Regulation 12B...................  240.12b-1 thru 240.12b-     3235-0062
                                    36.
Rule 12d1-3......................  240.12d1-3..............    3235-0109
Rule 12d2-1......................  240.12d2-1..............    3235-0081
Rule 12d2-2......................  240.12d2-2..............    3235-0080
Rule 12f-1.......................  240.12f-1...............    3235-0128
Rule 13a-16......................  240.13a-16..............    3235-0116
Regulation 13D/G.................  240.13d-1 thru 240.13d-7    3235-0145
Schedule 13D.....................  240.13d-101.............    3235-0145
Schedule 13G.....................  240.13d-102.............    3235-0145
Rule 13e-1.......................  240.13e-1...............    3235-0305
Rule 13e-3.......................  240.13e-3...............    3235-0007
Schedule 13E-3...................  240.13e-100.............    3235-0007
Schedule 13e-4F..................  240.13e-101.............    3235-0375
Regulation 14A...................  240.14a-1 thru 240.14a-     3235-0059
                                    12.
Schedule 14A.....................  240.14a-101.............    3235-0059
Regulation 14C...................  240.14c-1...............    3235-0057
Schedule 14C.....................  240.14c-101.............    3235-0057
Regulation 14D...................  240.14d-1 thru 240.14d-9    3235-0102
Schedule TO......................  240.14d-100.............    3235-0515
Schedule 14D-1...................  240.14d-101.............    3235-0102
Schedule 14D-9...................  240.14d-101.............    3235-0102
Schedule 14D-1F..................  240.14d-102.............    3235-0376
Schedule 14D-9F..................  240.14d-103.............    3235-0382

[[Page 1019]]

 
Regulation 14E...................  240.14e-1 thru 240.14e-2    3235-0102
Rule 14f-1.......................  240.14f-1...............    3235-0108
Rule 15a-4.......................  240.15a-4...............    3235-0010
Rule 15a-6.......................  240.15a-6...............    3235-0371
Rule 15b1-1......................  240.15b1-1..............    3235-0012
Rule 15b6-1(a)...................  240.15b6-1(a)...........    3235-0018
Rule 15c1-5......................  240.15c1-5..............    3235-0471
Rule 15c1-6......................  240.15c1-6..............    3235-0472
Rule 15c1-7......................  240.15c1-7..............    3235-0134
Rule 15c2-1......................  240.15c2-1..............    3235-0485
Rule 15c2-5......................  240.15c2-5..............    3235-0198
Rule 15c2-7......................  240.15c2-7..............    3235-0479
Rule 15c2-8......................  240.15c2-8..............    3235-0481
Rule 15c2-11.....................  240.15c2-11.............    3235-0202
Rule 15c2-12.....................  240.15c2-12.............    3235-0372
Rule 15c3-1......................  240.15c3-1..............    3235-0200
Rule 15c3-1(c)(13)...............  240.15c3-1(c)(13).......    3235-0499
Appendix F to Rule 15c3-1........  240.15c3-1f.............    3235-0496
Rule 15c3-3......................  240.15c3-3..............    3235-0078
Rule 15c3-4......................  240.15c3-4..............    3235-0497
Rule 15d-16......................  240.15d-16..............    3235-0116
Rule 15g-2.......................  240.15g-2...............    3235-0434
Rule 15g-3.......................  240.15g-3...............    3235-0392
Rule 15g-4.......................  240.15g-4...............    3235-0393
Rule 15g-5.......................  240.15g-5...............    3235-0394
Rule 15g-6.......................  240.15g-6...............    3235-0395
Rule 15g-9.......................  240.15g-9...............    3235-0385
Rule 15Aj-1......................  240.15Aj-1..............    3235-0044
Rule 15Ba2-1.....................  240.15Ba2-1.............    3235-0083
Rule 15Ba2-5.....................  240.15Ba2-5.............    3235-0088
Rule 15Bc3-1.....................  240.15Bc3-1.............    3235-0087
Rule 17a-1.......................  240.17a-1...............    3235-0208
Rule 17a-2.......................  240.17a-2...............    3235-0201
Rule 17a-3.......................  240.17a-3...............    3235-0033
Rule 17a-3(a)(16)................  240.17a-3(a)(16)........    3235-0508
Rule 17a-4.......................  240.17a-4...............    3235-0279
Rule 17a-4(b)(10)................  240.17a-4(b)(10)........    3235-0506
Rule 17a-5.......................  240.17a-5...............    3235-0123
Rule 17a-5(c)....................  240.17a-5(c)............    3235-0199
Rule 17a-6.......................  240.17a-6...............    3235-0489
Rule 17a-7.......................  240.17a-7...............    3235-0131
Rule 17a-8.......................  240.17a-8...............    3235-0092
Rule 17a-9T......................  240.17a-9T..............    3235-0524
Rule 17a-10......................  240.17a-10..............    3235-0122
Rule 17a-11......................  240.17a-11..............    3235-0085
Rule 17a-12......................  240.17a-12..............    3235-0498
Rule 17a-13......................  240.17a-13..............    3235-0035
Rule 17a-19......................  240.17a-19..............    3235-0133
Rule 17a-22......................  240.17a-22..............    3235-0196
Rule 17a-25......................  240.17a-25..............    3235-0540
Rule 17f-1(b)....................  240.17f-1(b)............    3235-0032
Rule 17f-1(c)....................  240.17f-1(c)............    3235-0037
Rule 17f-1(g)....................  240.17f-1(g)............    3235-0290
Rule 17f-2(a)....................  240.17f-2(a)............    3235-0034
Rule 17f-2(c)....................  240.17f-2(c)............    3235-0029
Rule 17f-2(d)....................  240.17f-2(d)............    3235-0028
Rule 17f-2(e)....................  240.17f-2(e)............    3235-0031
Rule 17f-5.......................  240.17f-5...............    3235-0269
Rule 17h-1T......................  240.17h-1T..............    3235-0410
Rule 17h-2T......................  240.17h-2T..............    3235-0410
Rule 17Ab2-1.....................  240.17Ab2-1(a)..........    3235-0195
Rule 17Ac2-1.....................  240.17Ac2-1.............    3235-0084
Rule 17Ad-2(c), (d), and (h).....  240.17Ad-2(c), (d) and      3235-0130
                                    (h).
Rule 17Ad-3(b)...................  240.17Ad-3(b)...........    3235-0473
Rule 17Ad-4 (b) and (c)..........  240.17Ad-4(b) and (c)...    3235-0341
Rule 17Ad-6......................  240.17Ad-6..............    3235-0291
Rule 17Ad-7......................  240.17Ad-7..............    3235-0291
Rule 17Ad-10.....................  240.17Ad-10.............    3235-0273
Rule 17Ad-11.....................  240.17Ad-11.............    3235-0274
Rule 17Ad-13.....................  240.17Ad-13.............    3235-0275
Rule 17Ad-15.....................  240.17Ad-15.............    3235-0409
Rule 17Ad-16.....................  240.17Ad-16.............    3235-0413

[[Page 1020]]

 
Rule 17Ad-17.....................  240.17Ad-17.............    3235-0469
Rule 19b-1.......................  240.19b-1...............    3235-0354
Rule 19b-4.......................  240.19b-4...............    3235-0045
Rule 19b-4(e)....................  240.19b-4(e)............    3235-0504
Rule 19b-5.......................  240.19b-5...............    3235-0507
Rule 19b-7.......................  240.19b-7...............    3235-0553
Rule 19d-1.......................  240.19d-1(b) thru           3235-0206
                                    240.19d-1(i).
Rule 19d-2.......................  240.19d-2...............    3235-0205
Rule 19d-3.......................  240.19d-3...............    3235-0204
Rule 19h-1.......................  240.19h-1(a), (c) thru      3235-0259
                                    (e), and (g).
Rule 24b-1.......................  240.24b-1...............    3235-0194
Rule 101.........................  242.101.................    3235-0464
Rule 102.........................  242.102.................    3235-0467
Rule 103.........................  242.103.................    3235-0466
Rule 104.........................  242.104.................    3235-0465
Rule 301.........................  242.301.................    3235-0509
Rule 302.........................  242.302.................    3235-0510
Rule 303.........................  242.303.................    3235-0505
Regulation FD....................  243.100 thru 243.103....    3235-0536
Regulation S-P...................  Part 248................    3235-0537
Form 1...........................  249.1...................    3235-0017
Form 1-N.........................  249.10..................    3235-0554
Form 25..........................  249.25..................    3235-0080
Form 26..........................  249.26..................    3235-0079
Form 3...........................  249.103.................    3235-0104
Form 4...........................  249.104.................    3235-0287
Form 5...........................  249.105.................    3235-0362
Form 8-A.........................  249.208a................    3235-0056
Form 10..........................  249.210.................    3235-0064
Form 10-SB.......................  249.210b................    3235-0419
Form 18..........................  249.218.................    3235-0121
Form 20-F........................  249.220f................    3235-0288
Form 40-F........................  249.240f................    3235-0381
Form 6-K.........................  249.306.................    3235-0116
Form 8-K.........................  249.308.................    3235-0060
Form 10-Q........................  249.308a................    3235-0070
Form 10-QSB......................  249.308b................    3235-0416
Form 10-K........................  249.310.................    3235-0063
Form 10-KSB......................  249.310b................    3235-0420
Form 11-K........................  249.311.................    3235-0082
Form 18-K........................  249.318.................    3235-0120
Form 12B-25......................  249.322.................    3235-0058
Form 15..........................  249.323.................    3235-0167
Form 13F.........................  249.325.................    3235-0006
Form SE..........................  249.444.................    3235-0327
Form ET..........................  249.445.................    3235-0329
Form ID..........................  249.446.................    3235-0328
Form DF..........................  249.448.................    3235-0482
Form BD..........................  249.501.................    3235-0012
Form BDW.........................  249.501a................    3235-0018
Form BD-N........................  249.501b................    3235-0556
Form X-17A-5.....................  249.617.................    3235-0123
Form X-17A-19....................  249.635.................    3235-0133
Form ATS.........................  249.637.................    3235-0509
Form ATS-R.......................  249.638.................    3235-0509
Form X-15AJ-1....................  249.802.................    3235-0044
Form X-15AJ-2....................  249.803.................    3235-0044
Form 19b-4.......................  249.819.................    3235-0045
Form 19b-4(e)....................  249.820.................    3235-0504
Form Pilot.......................  249.821.................    3235-0507
Form SIP.........................  249.1001................    3235-0043
Form MSD.........................  249.1100................    3235-0083
Form MSDW........................  249.1110................    3235-0087
Form X-17F-1A....................  249.1200................    3235-0037
Form TA-1........................  249b.100................    3235-0084
Form TA-W........................  249b.101................    3235-0151
Form TA-2........................  249b.102................    3235-0337
Form CA-1........................  249b.200................    3235-0195
Rule 1(a)........................  250.1(a)................    3235-0170
Rule 1(b)........................  250.1(b)................    3235-0170
Rule 1(c)........................  250.1(c)................    3235-0164
Rule 2...........................  250.2...................    3235-0161

[[Page 1021]]

 
Rule 3...........................  250.3...................    3235-0160
Rule 7...........................  250.7...................    3235-0165
Rule 7(d)........................  250.7(d)................    3235-0165
Rule 20(b).......................  250.20(b)...............    3235-0125
Rule 20(c).......................  250.20(c)...............    3235-0125
Rule 20(d).......................  250.20(d)...............    3235-0163
Rule 23..........................  250.23..................    3235-0125
Rule 24..........................  250.24..................    3235-0126
Rule 26..........................  250.26..................    3235-0183
Rule 29..........................  250.29..................    3235-0149
Rule 44..........................  250.44..................    3235-0147
Rule 45..........................  250.45..................    3235-0154
Rule 47(b).......................  250.47(b)...............    3235-0163
Rule 52..........................  250.52..................    3235-0369
Form 53..........................  250.53..................    3235-0426
Rule 54..........................  250.54..................    3235-0427
Rule 57(a).......................  250.57(a)...............    3235-0428
Rule 57(b).......................  250.57(b)...............    3235-0429
Rule 58..........................  250.58..................    3235-0457
Rule 62..........................  250.62..................    3235-0152
Rule 71(a).......................  250.71(a)...............    3235-0173
Rule 72..........................  250.72..................    3235-0149
Rule 83..........................  250.83..................    3235-0181
Rule 87..........................  250.87..................    3235-0552
Rule 88..........................  250.88..................    3235-0182
Rule 93..........................  250.93..................    3235-0153
Rule 94..........................  250.94..................    3235-0153
Rule 95..........................  250.95..................    3235-0162
Rule 100(a)......................  250.100(a)..............    3235-0125
Uniform System of Accounts for     Part 256................    3235-0153
 Mutual Service Companies and
 Subsidiary Service Companies,
 Public Utility Holding Company
 Act of 1935.
Preservation and Destruction of    Part 257................    3235-0306
 Records of Registered Public
 Utility Holding Companies and of
 Mutual and Subsidiary Service
 Companies.
Form U5A.........................  259.5a..................    3235-0170
Form U5B.........................  259.5b..................    3235-0170
Form U5S.........................  259.5s..................    3235-0164
Form U-1.........................  259.101.................    3235-0125
Form U-13-1......................  259.113.................    3235-0182
Form U-6B-2......................  259.206.................    3235-0163
Form U-57........................  259.207.................    3235-0428
Form U-9C-3......................  259.208.................    3235-0457
Form U-12(I)-A...................  259.212a................    3235-0173
Form U-12(I)-B...................  259.212b................    3235-0173
Form U-13E-1.....................  259.213.................    3235-0162
Form U-R-1.......................  259.221.................    3235-0152
Form U-13-60.....................  259.313.................    3235-0153
Form U-3A-2......................  259.402.................    3235-0161
Form U-3A3-1.....................  259.403.................    3235-0160
Form U-7D........................  259.404.................    3235-0165
Form U-33-S......................  259.405.................    3235-0429
Form ET..........................  259.601.................    3235-0329
Form ID..........................  259.602.................    3235-0328
Form SE..........................  259.603.................    3235-0327
Rule 7a-15 thru 7a-37............  260.7a-15 thru 260.7a-37    3235-0132
Form T-1.........................  269.1...................    3235-0110
Form T-2.........................  269.2...................    3235-0111
Form T-3.........................  269.3...................    3235-0105
Form T-4.........................  269.4...................    3235-0107
Form ET..........................  269.6...................    3235-0329
Form ID..........................  269.7...................    3235-0328
Form SE..........................  269.8...................    3235-0327
Form T-6.........................  269.9...................    3235-0391
Rule 0-1.........................  270.0-1.................    3235-0531
Rule 2a-7........................  270.2a-7................    3235-0268
Rule 2a19-1......................  270.2a19-1..............    3235-0332
Rule 3a-4........................  270.3a-4................    3235-0459
Rule 6c-7........................  270.6c-7................    3235-0276
Rule 6e-2........................  270.6e-2................    3235-0177
Rule 7d-1........................  270.7d-1................    3235-0311
Rule 7d-2........................  270.7d-2................    3235-0527

[[Page 1022]]

 
Section 8(b) of the Investment     270.8b-1 thru 270.8b-32.    3235-0176
 Company Act of 1940.
Rule 10f-3.......................  270.10f-3...............    3235-0226
Rule 11a-2.......................  270.11a-2...............    3235-0272
Rule 11a-3.......................  270.11a-3...............    3235-0358
Rule 12b-1.......................  270-12b-1...............    3235-0212
Rule 17a-7.......................  270.17a-7...............    3235-0214
Rule 17a-8.......................  270.17a-8...............    3235-0235
Rule 17e-1.......................  270.17e-1...............    3235-0217
Rule 17f-1.......................  270.17f-1...............    3235-0222
Rule 17f-2.......................  270.17f-2...............    3235-0223
Rule 17f-4.......................  270.17f-4...............    3235-0225
Rule 17f-6.......................  270.17f-6...............    3235-0447
Rule 17f-7.......................  270-17f-7...............    3235-0529
Rule 17g-1(g)....................  270.17g-1(g)............    3235-0213
Rule 17j-1.......................  270.17j-1...............    3235-0224
Rule 18f-1.......................  270.18f-1...............    3235-0211
Rule 18f-3.......................  270.18f-3...............    3235-0441
Rule 19a-1.......................  270.19a-1...............    3235-0216
Rule 20a-1.......................  270-20a-1...............    3235-0158
Rule 22d-1.......................  270-22d-1...............    3235-0310
Rule 23c-1.......................  270.23c-1...............    3235-0260
Rule 23c-3.......................  270.23c-3...............    3235-0422
Rule 27e-1.......................  270.27e-1...............    3235-0545
Rule 30b2-1......................  270.30b2-1..............    3235-0220
Rule 30d-2.......................  270.30d-2...............    3235-0494
Rule 30e-1.......................  270.30e-1...............    3235-0025
Rule 31a-1.......................  270.31a-1...............    3235-0178
Rule 31a-2.......................  270.31a-2...............    3235-0179
Rule 32a-4.......................  270.32a-4...............    3235-0530
Rule 34b-1.......................  270.34b-1...............    3235-0346
Rule 35d-1.......................  270-35d-1...............    3235-0548
Form N-5.........................  274.5...................    3235-0169
Form N-8A........................  274.10..................    3235-0175
Form N-2.........................  274.11a-1...............    3235-0026
Form N-3.........................  274.11b.................    3235-0316
Form N-4.........................  274.11c.................    3235-0318
Form N-8B-2......................  274.12..................    3235-0186
Form N-6F........................  274.15..................    3235-0238
Form 24F-2.......................  274.24..................    3235-0456
Form N-18F-1.....................  274.51..................    3235-0211
Form N-54A.......................  274.53..................    3235-0237
Form N-54C.......................  274.54..................    3235-0236
Form N-SAR.......................  274.101.................    3235-0330
Form N-27E-1.....................  274.127e-1..............    3235-0545
Form N-27F-1.....................  274.127f-1..............    3235-0546
Form N-17D-1.....................  274.200.................    3235-0229
Form N-23C-1.....................  274.201.................    3235-0230
Form N-8F........................  274.218.................    3235-0157
Form N-17F-1.....................  274.219.................    3235-0359
Form N-17F-2.....................  274.220.................    3235-0360
Form N-23c-3.....................  274.221.................    3235-0422
Form ET..........................  274.401.................    3235-0329
Form ID..........................  274.402.................    3235-0328
Form SE..........................  274.403.................    3235-0327
Rule 0-2.........................  275.0-2.................    3235-0240
Rule 203-3.......................  275.203-3...............    3235-0538
Rule 204-2.......................  275.204-2...............    3235-0278
Rule 204-3.......................  275.204-3...............    3235-0047
Rule 206(3)-2....................  275.206(3)-2............    3235-0243
Rule 206(4)-2....................  275.206(4)-2............    3235-0241
Rule 206(4)-3....................  275.206(4)-3............    3235-0242
Rule 206(4)-4....................  275.206(4)-4............    3235-0345
Form ADV.........................  279.1...................    3235-0049
Schedule I to Form ADV...........  279.1...................    3235-0490
Form ADV-W.......................  279.2...................    3235-0313
Form ADV-H.......................  379.3...................    3235-0538
Form 4-R.........................  279.4...................    3235-0240
Form 5-R.........................  279.5...................    3235-0240
Form 6-R.........................  279.6...................    3235-0240
Form 7-R.........................  279.7...................    3235-0240
Form ADV-E.......................  279.8...................    3235-0361
------------------------------------------------------------------------


[[Page 1023]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000,'' published in 
11 separate volumes.

                                  2001

17 CFR
                                                                   66 FR
                                                                    Page
Chapter II
240 Authority citation amended.......................21659, 43741, 55837
    Comment period extended........................................38370
240.3a4-2 Added; interim...........................................27796
240.3a4-3 Added; interim...........................................27796
240.3a4-4 Added; interim...........................................27796
240.3a4-5 Added; interim...........................................27796
240.3a4-6 Added; interim...........................................27796
240.3a5-1 Added; interim...........................................27798
240.3a55-1 Added...................................................44514
240.3a55-2 Added...................................................44514
240.3a55-3 Added...................................................44514
40.3b-17 Added; interim............................................27798
240.3b-18 Added; interim...........................................27798
240.6a-2 (e) revised; (f) added; authority citation removed........43741
240.6a-3 (c) added; authority citation removed.....................43741
240.6a-4 Added.....................................................43741
240.14a-101 Amended.................................................3753
    Corrected......................................................13234
240.15a-7 Added; interim...........................................27799
240.15a-8 Added; interim...........................................27799
240.15a-9 Added; interim...........................................27799
240.15a-10 Added...................................................45146
240.15b2-2 (e)(2) and (3) amended; (e)(4) added....................45147
240.15b11-1 Added..................................................45147
240.17a-3 (a)(6), (7), (12)(i) introductory text and (ii) revised; 
        (a)(12)(i)(a) through (h) redesignated as (a)(12)(i)(A) 
        through (H); (a)(17) through (22), (f) and (g) added; 
        authority citation removed; eff. 5-2-03....................55838
    (a) introductory text, (5), (11)(ii), (12)(i)(A) through (F) 
and (H) amended; eff. 5-2-03.......................................55840
240.17a-4 Authority citation removed...............................55838
    (a), (b) introductory text, (1), (4), (c), (d), (e) 
introductory text and (j) revised; (e)(5) through (8), (k) and (l) 
added; eff. 5-2-03.................................................55840
    (b)(7), (e)(1), (f)(3)(ii) and (vii) amended; eff. 5-2-03......55841
240.17a-24 Added...................................................35843
240.17Ad-7 (f) revised; authority citation removed.................21659
240.19b-4 (a) revised..............................................43743
240.19b-7 Added....................................................43743
241 Interpretive releases............................22921, 33176, 49274
242.303 (d) amended; eff. 5-2-03...................................55841
248.2 Existing text designated as (a); (b) added...................45147
248.3 (m)(5) and (6) amended; (m)(7) added; (n)(2)(i) removed; 
        (n)(2)(ii) and (iii) redesignated as new (n)(2)(i) and 
        (ii).......................................................45147
249.1a Correctly removed; CFR correction...........................36701
249.10 Form 1-N added..............................................43743
249.220f Form 20-F amended.........................................32539
249.501b Form BD-N added...........................................45147
249.819 Revised; Form 19b-4 amended................................43743
249.822 Form 19b-7 added...........................................43744
251 Interpretive releases..........................................33176
257 Authority citation added.......................................29474

[[Page 1024]]

257.1 (e) through (h) and authority citation removed; new (e) 
        added; (i) through (m) redesignated as (f) through (j).....29474
257.2 Authority citation removed...................................29474
270 Authority citation amended......................................3757
    Technical correction....................................13234, 30311
    Compliance date................................................50102
270.0-1 (a)(5) and (6) added........................................3757
270.2a-7 (a)(5), (11) and (20) revised.............................36161
270.2a19-1 Removed; eff. 5-12-01....................................3758
270.2a19-3 Added....................................................3758
270.5b-3 Added.....................................................36161
270.10e-1 Added.....................................................3758
270.10f-3 (b)(11) redesignated as (b)(12); new (b)(11) added........3758
270.12b-1 (c) revised...............................................3758
270.12d3-1 (d)(8) note removed.....................................36162
270.15a-4 (b)(2)(v) and (vi)(C)(2) amended; (b)(2)(vii) added.......3758
270.17a-7 (e)(3) amended; (f) redesignated as (g); new (f) added 
                                                                    3758
270.17a-8 Authority citation removed................................3757
    (a)(2) and (b) amended; (c) added...............................3758
270.17d-1 Authority citation removed................................3757
    (d)(7)(iii) redesignated as (d)(7)(iv); (d)(7)(ii) and new 
(iv) amended; new (d)(7)(iii) and (v) added.........................3758
270.17e-1 Authority citation removed................................3757
    (b)(3) amended; (c) redesignated as (d); new (c) added..........3759
270.17g-1 Authority citation removed................................3757
    (j) revised.....................................................3759
270.18f-3 (e) redesignated as (f); new (e) added....................3759
270.23c-3 (b)(8) revised............................................3759
270.30d-1 Authority citation removed................................3757
    Redesignated as 270.30e-1.......................................3759
270.30d-2 Redesignated as 270.30e-2.................................3759
270.30e-1 Redesignated from 270.30d-1; (a) amended; (d) revised.....3759
270.30e-2 Redesignated from 270.30d-1; (a) and (b) amended..........3759
270.31a-2 Authority citation removed................................3757
    (a)(3) amended; (a)(4) and (5) added............................3759
    (f)(1) and (2) revised; (f)(3) redesignated as (f)(4); new 
(f)(3) added.......................................................29228
270.32a-4 Added.....................................................3759
270.34b-1 (b)(1)(iii)(B) and (C) redesignated as (b)(1)(iii)(D) 
        and (E); new (b)(1)(iii)(B) and (C) added; (b)(3) revised; 
        eff. 4-16-01................................................9018
270.35d-1 Added.....................................................8518
    (a)(4) Corrected...............................................14828
271 Interpretive releases..........................................33177
274 Compliance date................................................50102
274.101 Form N-SAR amended.........................................36162
274.11A Form N-1A amended...........................................3760
    Form N-1A amended; eff. 4-16-01...........................9018, 9019
    Form N-1A corrected............................................13234
274.11a-1 Form N-2 amended..........................................3763
    Form N-2 corrected.............................................13234
274.11b Form N-3 amended............................................3765
    Form-2 corrected...............................................13234
274.24 Form 24F-2 amended..........................................14072
275 Technical correction...........................................30311
275.204-2 (g)(1) and (2) revised; (g)(3) added; authority citation 
        removed....................................................29228
242.303 (d) amended; eff. 5-2-03...................................55841
Chapter IV
450 Authority citation revised.....................................28655
450.2 (e) revised..................................................28655
    (e) table corrected............................................29888

                                  2002

17 CFR
                                                                   67 FR
                                                                    Page
Chapter II
240 Authority citation amended.........................247, 57288, 58299
240.3a4-1 Undesignated center heading removed......................19673
240.3a11-1 Revised.................................................19673
240.6h-1 Added.....................................................36762
240.10b-10 (a)(2)(i)(C), (b)(2) and (3) amended; (a)(7)(i) through 
        (iv) and authority citation removed; (e) redesignated as 
        (f); new (e) added.........................................58312

[[Page 1025]]

240.11aC1-7 Removed................................................79458
240.11d2-1 Added...................................................58313
240.12b-2 Amended..................................................58505
240.12b-12 (d) revised; authority citation removed.................36704
240.12b-15 Revised.................................................57288
240.12b-37 Added...................................................13537
240.13a-10 Note redesignated as Note 1; Note 2 added...............57288
    (b), (c), (e)(2) and (f) amended; (j) added....................58505
240.13a-14 Added...................................................57288
240.13a-15 Added...................................................57289
240.13e-102 Amended................................................36705
240.14a-3 (b)(9) revised; authority citation removed.................247
240.14a-101 Amended..................................................247
240.14d-102 Amended................................................36705
240.14d-103 Amended................................................36706
240.15c3-3 Authority citation removed; (a)(1) amended; (a)(14), 
        (15) and (o) added.........................................58299
240.15d-5 Corrected; CFR correction................................59779
240.15d-10 Note redesignated as Note 1; Note 2 added...............57289
    (b), (c), (e)(2) and (f) amended; (j) added....................58505
240.15d-14 Added...................................................57289
240.15d-15 Added...................................................57290
240.16a-2 Introductory text amended................................43535
240.16a-3 (d) revised..............................................43535
    (f)(1)(i)(A) and (g) revised...................................56467
240.16a-6 (a) introductory text and (b) revised....................56467
240.16a-8 (a)(1) revised...........................................56467
240.17a-3 (f) added................................................58299
240.17a-4 (b)(9) revised; (k) and (l) redesignated as as (l) and 
        (m); new (k) added; eff. in part 5-2-03....................58299
240.17a-5 (l)(4) added.............................................58300
240.17a-7 (a)(1) and (2) amended; (c) redesignated as (d); new (c) 
        added......................................................58300
240.17a-11 (i) added...............................................58300
240.17a-13 (e) redesignated as (f); new (e) added..................58300
240.31-1 Revised....................................................3058
    Amended........................................................46108
    (a), (d), (e) and Preliminary Note amended; (f) and (g) added 
                                                                    5202
241 Interpretive releases.......................................8, 43246
242 Authority citation revised.....................................53176
242.100 Undesignated center heading added..........................53176
242.400 Added......................................................53176
242.401 Added......................................................53176
242.402 Added......................................................53176
242.403 Added......................................................53176
242.404 Added......................................................53176
242.405 Added......................................................53176
242.406 Added......................................................53176
249 Authority citation amended.....................................57290
249.103 Amended....................................................43535
    Form 3 amended.................................................56467
249.104 Amended....................................................43535
    Form 4 amended.................................................56468
249.105 Amended....................................................43535
    Form 5 amended.................................................56468
249.220f Form 20-F amended; eff. 3-18-02 through 12-31-02..........13537
    Amended.................................................36706, 57293
249.240f Form 40-F amended..................................36707, 57294
249.250 Form F-X amended...........................................36709
249.306 Form 6-K amended...........................................36708
249.308a Form 10-Q amended.........................................57290
    Revised; Form 10-Q amended.....................................58506
249.308b Form 10-QSB amended.......................................57291
249.310 Form 10-K amended.....................................247, 57292
    Revised; Form 10-K amended.....................................58506
249.310b Form 10-KSB amended..................................248, 57293
249.330 Form N-SAR amended.........................................57296
249.480 Form CB amended............................................36707
269.5 Form F-X amended.............................................36709
270 Authority citation amended..............................19870, 57295
270.3a-1 Introductory text and (b) revised.........................43536
270.3a-2 (a) introductory text revised.............................43536
270.3a-3 Introductory text and (b) revised.........................43536
270.3a-5 (a) introductory text revised.............................43536
270.3a-6 (a) revised...............................................43536
270.6c-6 (h) introductory text revised.............................43536
270.6e-2 (b)(15)(iv) revised.......................................43536
270.6e-3(T) (b)(15)(iii)(B) revised................................43536
270.8b-11 Authority citation removed; (b) revised..................19870
270.8b-12 (b) revised..............................................19870
270.10f-3 (b)(1) and (4) revised...................................31079
270.17a-8 Revised..................................................48518

[[Page 1026]]

270.30a-2 Added....................................................57295
270.30b1-3 Amended.................................................57296
270.30f-1 Redesignated as 270.30h-1; revised.......................43537
270.30h-1 Redesignated from 270.30f-1..............................43537
274 Authority citation revised,......................19870, 57296, 69979
    Form N-1A amended..............................................19870
274.11c Form N-4 amended...........................................69979
274.11d Added......................................................19870
    Form N-6 amended...............................................69981
274.12 Revised; Form N-8B-2 amended; Form N-6 added................19870
274.101 Form N-SAR amended..................................31079, 57296
274.202 Revised....................................................43537
    Form 3 amended..........................................43537, 56467
274.203 Revised....................................................43537
275.203A-2 (f) added...............................................77625
279.1 Form ADV amended.............................................77625
Chapter IV
420.2 (c) revised..................................................77414
420.3 (c)(1), (2) and (3) revised..................................77415
420 Appendix B amended.............................................77415

                                  2003

17 CFR
                                                                   68 FR
                                                                    Page
Chapter II
240 Authority citation amended.........................4355, 5364, 46451
    Authority citation revised.........18818, 36665, 64970, 67009, 69221
240.0-2 (b) revised................................................25799
240.3a5-1 Revised...................................................8700
240.3b-18 Revised...................................................8700
240.9b-1 (b)(1) amended; (c)(8) revised; authority citation 
        removed......................................................192
240.10A-2 Added.....................................................6048
240.10A-3 Added....................................................18818
240.10b-18 Revised.................................................64970
240.12a-9 Added......................................................192
240.12b-25 heading, (a) and (b)(2)(ii) revised......................5364
240.12b-15 Revised.................................................36665
240.12h-1 (b)(2) and (c) amended; (d) and (e) added; authority 
        citation removed.............................................192
240.13a-11 (b) revised; authority citation removed..................4355
240.13a-14 (c) removed; (d), (e) and (f) redesignated as (c), (d) 
        and (e); (a), (b), new (c), (d) introductory text and (e) 
        revised; new (f) added.....................................36665
240.13a-15 (a) revised..............................................5364
    Revised........................................................36666
240.13b2-2 Revised.................................................31830
240.14a-101 Amended.................................................6048
    Amended.................................................18821, 67009
    Corrected......................................................69221
240.15a-8 Revised...................................................8701
240.15a-11 Added....................................................8701
240.15c3-3 (b)(3)(iii) revised; authority citation removed; eff. 
        4-16-03....................................................12783
240.15d-11 (b) revised; authority citation removed..................4355
240.15d-14 (c) removed; (d), (e) and (f) redesignated as (c), (d) 
        and (e); (a), (b), new (c), (d) introductory text and (e) 
        revised; new (f) added.....................................36666
240.15d-15 (a) revised..............................................5364
    Revised........................................................36667
240.16a-3 (k) added; (h) revised...................................25799
240.17a-3 (f) and (g) correctly designated as (g) and (h); 
        (12)(i), (k) and (l)(1) through (4) corrected..............15354
240.17a-5 (c)(1) introductory text amended; (c)(2) introductory 
        text and (3) revised; (c)(5) added.........................46452
240.17f-1 (c)(2)(i) amended; (c)(2)(ii) and (iii) redesignated as 
        (c)(2)(iii) and (iv); (a)(6), (7), (8), new (c)(2)(ii) and 
        (d)(3) added...............................................74400
240.17Ad-7 (i) amended.............................................74401
    (f) introductory text added; (f)(5)(ii) amended................75054
240.17Ad-12 (a)(1) amended.........................................74401
240.17Ad-19 Added..................................................74401
241 Interpretive releases.....................25283, 32311, 65822, 75065
242 Heading revised.................................................9492
242.500 Added.......................................................9492
242.501 Added.......................................................9492
242.502 Added.......................................................9492
242.503 Added.......................................................9492
242.504 Added.......................................................9492
242.505 Added.......................................................9492
244 Added...........................................................4832
    Policy statement...............................................15939
245 Added...........................................................4355

[[Page 1027]]

249 Authority citation amended......5128, 5364, 6001, 6049, 18821, 36667
    Policy statement...............................................15939
    Authority citation revised.......................64972, 67010, 69222
249.103 Form 3 amended.............................................25800
249.104 Form 4 amended.............................................25801
249.105 Form 5 amended.............................................25802
249.220f Form 20-F amended...4358, 5129, 6001, 6049, 18821, 36668, 64972
249.240f Form 40-F amended..........4359, 5130, 6001, 6049, 18822, 36670
    Form 8-K amended....................................4359, 4833, 5128
249.308a Form 10-Q amended...........................36667, 64974, 67011
    Form 10-Q corrected............................................69223
249.308b Form 10-QSB amended.........................36667, 64974, 67011
    Form 10-QSB corrected..........................................69223
249.310 Form 10-K amended.............................6050, 36668, 64974
    Regulation at 69 FR 6050 corrected.............................15355
    Form 10-K amended...............................................5131
249.310b Form 10-KSB amended....................5132, 6050, 36668, 64974
249.322 (a) revised; Form 12b-25 amended............................5364
249.330 Revised.....................................................5364
    Form N-SAR amended.......................................5366, 36672
249.331 Added.......................................................5365
    Form N-CSR added..........................................5368, 6051
    Form N-CSR amended..................6584, 18822, 36672, 64975, 67011
    Form N-CSR corrected...........................................69223
249.445 Removed....................................................25800
250.21 (b)(1) revised..............................................25800
259.601 Removed....................................................25800
260.0-5 (b) revised................................................25800
269.6 Removed......................................................25800
270 Authority citation amended...............................5365, 36671
270.0-11 Added.....................................................25146
270.3a-8 Added.....................................................37052
270.8b-15 Amended............................................5365, 36671
270.10f-3 (b) redesignated as (c); (a)(6), (7), (8) and new (b) 
        added; (c) heading and (7) revised..........................3152
270.12d3-1 (c) revised; (d)(9) added................................3152
270.17a-6 Revised...................................................3152
270.17a-10 Added....................................................3153
270.17d-1 (d)(5) and (6) revised....................................3153
270.17e-1 (b)(3) and (d) revised....................................3154
270.17f-4 Revised...................................................8442
270.23c-1 (a)(11) revised; eff. 7-15-04............................64975
270.30a-1 Revised...................................................5365
270.30a-2 Heading, (a) and (c) revised..............................5365
    Revised........................................................36671
    (a) and (b) amended............................................67011
    Corrected......................................................69223
270.30a-3 Added.....................................................5365
    Revised........................................................36671
270.30b1-1 Revised..................................................5365
270.30b1-3 Revised..................................................5365
270.30b1-4 Added....................................................6581
270.30b2-1 Revised..................................................5366
270.30d-1 Added.....................................................5366
270.34b-1 Introductory text note added; (a) and (b)(1)(i) revised; 
        (b)(1)(ii)(A), (B), (C), (iii)(A) through (E), (2) and (3) 
        amended....................................................57779
270.38a-1 Added....................................................74729
274 Authority citation revised......................................5366
    Authority citation amended.........................6051, 6581, 36672
274.11A Form N-1A amended....................................6581, 57780
274.11a-1 Form N-2 amended..........................................6582
274.11b Form N-3 amended..............................6583, 57780, 57781
274.11c Form N-4 amended....................................57781, 57782
274.11d Form N-6 amended...........................................57782
274.101 Revised; Form N-SAR amended..........................5366, 36672
274.128 Added.......................................................5368
    Form N-CSR amended............6051, 6584, 18822, 36672, 64975, 67011
    Form N-CSR corrected...........................................69223
274.129 Added; Form N-PX amended....................................6584
274.201 Removed; eff. 7-15-04......................................64975
274.202 Form 3 amended.............................................25800
274.203 Form 4 amended.............................................25801
    Form 4 corrected...............................................37044
274.401 Removed....................................................25803
275.0-4 (a) revised................................................42248
275.203-1 (d) amended..............................................42248
275.203-3 (b)(3) and note amended..................................42248
275.203A-6 Removed.................................................42248
275.204-1 Note added; (b) revised; (d) amended.....................42248
275.204-2 (c) introductory text, (1) and (2) redesignated as 
        (c)(1) introductory text, (i) and (ii); (c)(2) added; 
        (e)(1) revised..............................................6592

[[Page 1028]]

    (a)(17) added; (e)(1) revised..................................74730
275.206(4)-2 Revised...............................................56700
    Corrected......................................................61555
275.206(4)-6 Added..................................................6593
275.206(4)-7 Added.................................................74730
279.1 Form ADV amended...............................42249, 56701, 74730
279.2 Form ADV-W amended...........................................42249
279.3 Form ADV-H amended...........................................42250
Chapter IV
420 Appendix B corrected.............................................402

                                  2004

   (Regulations published from January 1, 2004, through April 1, 2004)

17 CFR
                                                                   69 FR
                                                                    Page
Chapter I
240 Compliance notification.........................................9722
240.12b-23 (a)(3)(i) and (ii) revised; (a)(3)(iii) added; eff. 8-
        23-04......................................................15618
240.13a-10 Note 1 revised; eff. 8-23-04............................15618
240.13a-11 (c) added; eff. 8-23-04.................................15618
240.15d-10 Note 1 revised; eff. 8-23-04............................15618
240.15d-11 (c) added; eff. 8-23-04.................................15618
240.17Ad-17 (a)(3)(ii) corrected; CFR correction...................13219
240.19d-4 Added; eff. 4-19-04......................................13182
249 Compliance notification.........................................9722
249.308 Form 8-K amended; eff. 8-23-04.............................15619
249.308a Form 10-Q amended; eff. 8-23-04...........................15627
249.308b Form 10-QSB amended eff. 8-23-04..........................15628
249.310 Form 10-K amended; eff. 8-23-04............................15628
249.310a Form 10-KSB amended;eff. 8-23-04..........................15629
249.331 Form N-CSR amended; eff. 5-10-04...........................11271
249.332 Added; eff. 5-10-04........................................11262
    Form N-Q added; eff. 5-10-04...................................11271
270 Compliance notification.........................................9722
270.30a-2 Heading and (a) revised; eff. 5-10-04....................11264
270.30a-3 (b) and (c) revised; eff. 5-10-04........................11264
270.30b1-5 Added; eff. 5-10-04.....................................11264
270.30d-1 Revised; eff. 5-10-04....................................11264
274 Compliance notification.........................................9722
    Authority citation amended.....................................11264
274.11A Form N-1A amended; eff. 5-10-04............................11264
274.11a-1 Form N-2 amended; eff. 5-10-04...........................11268
274.11b Form N-3 amended; eff. 5-10-04.............................11269
274.128 Form N-CSR amended; eff. 5-10-04...........................11271
274.130 Added; eff. 5-10-04........................................11271


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