[Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31038]


[[Page Unknown]]

[Federal Register: December 20, 1994]


SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 230

[Release No. 33-7120; International Series Release No. 760; File No. 
S7-36-94]
RIN 3235-AG26

 

Amendments To Clarify Safe Harbors for Broker-Dealer Research 
Reports

AGENCY: Securities and Exchange Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Commission is proposing today amendments relating to the 
safe harbor provisions of Rules 138 and 139 under the Securities Act of 
1933. The proposed amendments are intended to clarify the availability 
of the safe harbor provisions of Rule 138 relating to broker-dealer 
research reports on individual companies and the availability of the 
safe harbor provisions of Rule 139 for broker-dealer industry research 
reports which include sizable, first-time foreign registrants.

DATES: Comments should be received on or before January 19, 1995.

ADDRESSES: Comment letters should refer to File Number S7-36-94 and be 
submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities 
and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. 
The Commission will make all comments available for public inspection 
and copying in its Public Reference Room at the same address.

FOR FURTHER INFORMATION CONTACT: Annemarie Tierney, (202) 942-2990, 
Office of International Corporate Finance, Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 450 Fifth Street NW., 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: As described in detail below, the 
Commission is proposing amendments to Rule 138\1\ and Rule 139\2\ 
under the Securities Act of 1933 (the ``Securities Act'').\3\
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    \1\17 CFR 230.138.
    \2\17 CFR 230.139.
    \3\15 U.S.C. 77a et seq.
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I. Availability of Research Report Safe Harbors

A. Rule 139 Safe Harbor

    Rule 139 under the Securities Act provides safe harbor protection 
from the registration requirements of that Act for the distribution by 
broker-dealers of information, opinions or recommendations concerning 
issuers in the process of registering securities under the Securities 
Act.
    Prior to April 1994, reliance on the safe harbor for research 
reports concerning a foreign private issuer were conditioned on 
eligibility of the foreign private issuer for use of Form F-3.4 On 
April 19, 1994, the Commission adopted amendments to Rule 139 that make 
the rule available for offerings by foreign private issuers that would 
be eligible to use Form F-3 but for the 12-month reporting requirement 
if the issuer meets an alternative offshore trading history test.5 
Under the alternative test, a foreign private issuer must have been 
listed or quoted on a designated offshore securities market6 for a 
period of at least 12 months.
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    \4\17 CFR 239.33.
    \5\Release No. 33-7053 (Apr. 19, 1994), 59 FR 21644.
    \6\``Designated offshore securities market'' is defined in Rule 
902(a) of Regulation S (17 CFR 230.902(a)).
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    In adopting these amendments, the Commission intended that broker-
dealers would be able to rely upon Rule 139 for sizable foreign private 
issuers with respect to which there is a stream of corporate 
information available in the marketplace, including qualifying foreign 
issuers registering securities with the Commission for the first time. 
As drafted, however, the amendments did not make clear that the 
elimination of the reporting history requirement included the 
elimination of the requirement that a foreign issuer be previously 
reporting pursuant to the Securities Exchange Act of 1934 (the 
``Exchange Act'')7 and have filed at least one annual report.
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    \7\15 U.S.C. 78a et seq.
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    The amendments proposed today revise Rule 139 to make clear that 
the special provisions adopted last year for sizable foreign issuers 
are also available for those issuers' initial public offerings in the 
United States.8
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    \8\In order to make the rule available to first-time sizable 
foreign registrants, the Commission is proposing to amend the first 
sentence of the rule to provide that a foreign private issuer that 
meets the requirements of paragraph (a)(2) of the Rule need not 
previously have been reporting pursuant to the Exchange Act. In 
addition, language would be added to paragraph (a)(2) to provide 
that such foreign private issuer need not have filed an annual 
report as a condition of eligibility for the rule.
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B. Rule 138 Safe Harbor

    Rule 138 under the Securities Act permits publication of 
information, opinions and recommendations concerning qualifying issuers 
by broker-dealers that are participants in a distribution, so long as 
the reports contain information, opinions or recommendations regarding 
a specified class of the issuer's securities which is not the subject 
of the offering in which the broker-dealer is a participant. The rule 
defines eligible issuers as those that may register securities on Forms 
S-29 or F-2.10 The reference to Forms S-2 and F-2 is intended 
to include issuers eligible to register on Forms S-3 and F-3 as well. 
Questions have arisen as to the availability of the Rule 138 safe 
harbor for offerings registered on Form S-3 where issuers have not been 
subject to reporting requirements for 36 months. The Commission did not 
intend to change the availability of Rule 138 for those offerings when 
it reduced the reporting history requirements for Form S-311 and 
is of the view that Rule 138 is still available for offerings 
registered on Form S-3. Rule 138 is proposed to be amended to clarify 
this point. The Commission is also proposing to amend the rule to 
clarify that Form F-3 eligible issuers would qualify for the rule, as 
would qualifying first-time foreign issuers that meet the alternative 
offshore trading history test proposed for Rule 139.12
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    \9\17 CFR 239.12.
    \1\017 CFR 239.32.
    \1\117 CFR 239.13 as amended by Release No. 33-6964 (Oct. 22, 
1992) 57 FR 48970.
    \1\2In Release No. 33-6550 (Sept. 19, 1984) 49 FR 37569 at 
footnote 26, the Commission stated that ``[b]ecause the markets for 
nonconvertible senior securities and common stock differ, Rule 138 
provides a somewhat broader safe harbor [than Rule 139] in 
circumstances where the opportunity to condition the market is 
lessened.''
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    In addition, in light of the fact that shelf registration 
statements often register both debt and equity securities (on an either 
allocated or unallocated basis), the Commission is proposing to add an 
instruction to Rule 138 to codify the staff interpretation that the 
rule should be applied on an offering-by-offering basis for issuers 
which are eligible to use Forms S-3 or F-3 and are using the 
Commission's shelf registration procedures.

II. Cost-Benefit Analysis

    To fully evaluate the costs and benefits associated with the 
proposed amendments to Rule 138 and Rule 139, the Commission requests 
commenters to provide views and empirical data as to the costs and 
benefits associated with such proposals.

III. Regulatory Flexibility Act Certification

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 605(b)), the 
Chairman of the Commission has certified that the proposed amendments 
to Securities Act Rules 138 and 139 relating to broker-dealer research 
reports (17 CFR 230.138 and 17 CFR 230.139) will not, if adopted, have 
a significant impact on a substantial number of small entities. This 
certification, including the reasons therefor, is attached as Appendix 
A to this release.

IV. General Request for Comments

    Any interested person wishing to submit written comments on any 
aspect of the amendments to the rules that are subject to this release 
are requested to do so. Comments should be submitted in triplicate to 
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549 and should refer to file 
number S7-36-94.

V. Statutory Bases

    The amendments to the Commission's rule are being proposed pursuant 
to sections 6, 7, 8, 10 and 19(a) of the Securities Act of 1933, as 
amended.

List of Subjects in 17 CFR Part 230

    Reporting and recordkeeping requirements, securities

Text of Proposed Amendments

    In accordance with the foregoing, Title 17, chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The general authority citation for Part 230 continues to read in 
part as follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 
80a-37, unless otherwise noted.
* * * * *
    2. By revising Sec. 230.138 to read as follows:


Sec. 230.138  Definition of ``offer for sale'' and ``offer to sell'' in 
sections 2(10) and 5(c) in relation to certain publications.

    (a) Where a registrant which meets the requirements of paragraph 
(c)(1), (c)(2) or (c)(3) of this section proposes to file, has filed or 
has an effective registration statement under the Act relating solely 
to a nonconvertible debt security or to a nonconvertible, 
nonparticipating preferred stock, publication or distribution in the 
regular course of its business by a broker or dealer of information, 
opinions or recommendations relating solely to common stock or to debt 
or preferred stock convertible into common stock of such registrant 
shall not be deemed to constitute an offer for sale or offer to sell 
the security to which such registration statement relates for purposes 
of sections 2(10) and 5(c) of the Act (15 U.S.C. 77a et seq.) even 
though such broker or dealer is or will be a participant in the 
distribution of the security to which such registration statement 
relates.
    (b) Where a registrant which meets the requirements of paragraph 
(c)(1), (c)(2) or (c)(3) of this section proposes to file, has filed or 
has an effective registration statement under the Act relating solely 
to common stock or to debt or preferred stock convertible into common 
stock, the publication or distribution in the regular course of its 
business by a broker or dealer of information, opinions or 
recommendations relating solely to a nonconvertible debt security, or 
to a nonconvertible nonparticipating preferred stock shall not be 
deemed to constitute an offer for sale or offer to sell the security to 
which such registration statement relates for purposes of sections 
2(10) and 5(c) of the Act (15 U.S.C. 77a et seq.), even though such 
broker or dealer is or will be a participant in the distribution of the 
security to which such registration statement relates.
    (c)(1) The registrant meets all of the conditions for the use of 
Form S-2 (Sec. 239.12 of this chapter) or Form F-2 (Sec. 239.32 of this 
chapter);
    (2) The registrant meets the registrant requirements of Form S-3 
(Sec. 239.13 of this chapter) or Form F-3 (Sec. 239.33 of this 
chapter); or
    (3) The registrant is a foreign private issuer which meets all the 
registrant requirements of Form F-3 (Sec. 239.33 of this chapter), 
other than the reporting history provisions of paragraph A.1. and 
A.2.(a) of General Instruction I of such form, and meets the minimum 
float or investment grade securities provisions of either paragraph 
B.1. or B.2. of General Instruction I. of such form and the 
registrant's securities have been traded for a period of at least 12 
months on a designated offshore securities market, as defined in 
Sec. 230.902(a).

Instruction to Rule 138

    When a registration statement relates to securities which are being 
registered for an offering to be made on a continuous or delayed basis 
pursuant to Rule 415(a)(1)(x) under the Act (Sec. 230.415(a)(1)(x)) and 
the securities which are being registered include classes of securities 
which are specified in both paragraph (a) and (b) of this section on 
either an allocated or unallocated basis, a broker or dealer may 
nonetheless rely on:
    (1) Paragraph (a) of this section when the offering in which such 
broker or dealer is or will be a participant relates solely to classes 
of securities specified in paragraph (a) of this section, and
    (2) Paragraph (b) of this section when the offering in which such 
broker or dealer is or will be a participant relates solely to classes 
of securities specified in paragraph (b) of this section.
    3. By revising the introductory text to Sec. 230.139 and paragraph 
(a)(2) to read as follows:


Sec. 230.139  Definition of ``offer for sale'' and ``offer to sell'' in 
sections 2(10) and 5(c) in relation to certain publications.

    Where a registrant which is required to file reports pursuant to 
section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.) or which is a foreign private issuer meeting the 
conditions of paragraph (a)(2) of this section proposes to file, has 
filed or has an effective registration statement under the Securities 
Act of 1933 (15 U.S.C. 77a et seq.) relating to its securities, the 
publication or distribution by a broker or dealer of information, an 
opinion or a recommendation with respect to the registrant or any class 
of its securities shall not be deemed to constitute an offer for sale 
or offer to sell the securities registered or proposed to be registered 
for purposes of sections 2(10) and 5(c) of the Act (15 U.S.C. 77a et 
seq.), even though such broker or dealer is or will be a participant in 
the distribution of such securities, if the conditions of paragraph (a) 
or (b) of this section have been met:
    (a)(1) * * *
    (2) The registrant is a foreign private issuer that meets all the 
registrant requirements of Form F-3 (Sec. 239.33 of this chapter), 
other than the reporting history provisions of paragraphs A.1. and 
A.2.(a) of General Instruction I of such form, and meets the minimum 
float or investment grade securities provisions of either paragraph 
B.1. or B.2. of General Instruction I of such form, and the 
registrant's securities have been traded for a period of at least 12 
months on a designated offshore securities market, as defined in 
Sec. 230.902(a), and such information, opinion or recommendation is 
contained in a publication which is distributed with reasonable 
regularity in the normal course of business.
* * * * *
    By the Commission.

    Dated: December 13, 1994.
Margaret H. McFarland,
Deputy Secretary.

    Note: This Appendix to the Preamble will not appear in the Code 
of Federal Regulations.

Appendix A

Securities and Exchange Commission Regulatory Flexibility Act 
Certification

    I, Arthur Levitt, Chairman of the United States Securities and 
Exchange Commission (the ``Commission''), hereby certify pursuant to 
5 U.S.C. 605(b) that proposed revisions to Rules 138 and 139 under 
the Securities Act of 1933 (the ``Securities Act''), if promulgated, 
will not have a significant economic impact on a substantial number 
of small entities. The reason for this certification is that the 
proposed revisions to the rules are intended to clarify the 
availability of the safe harbor provisions of the rules with respect 
to large domestic and foreign issuers. Any incidental impact on 
small U.S. entities is not expected to be significant.

    Dated: December 12, 1994.
Arthur Levitt,
Chairman.
[FR Doc. 94-31038 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-P