[Federal Register Volume 61, Number 69 (Tuesday, April 9, 1996)]
[Notices]
[Pages 15847-15853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8788]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 33-7277, File No. S7-9-96]


Securities Uniformity; Annual Conference on Uniformity of 
Securities Law

AGENCY: Securities and Exchange Commission.

ACTION: Publication of release announcing issues to be considered at a 
conference on uniformity of securities laws and requesting written 
comments.

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SUMMARY: In conjunction with a conference to be held on April 29, 1996, 
the Commission and the North American Securities Administrators 
Association, Inc. today announced a request for comments on the 
proposed agenda for the conference. This meeting is intended to carry 
out the policies and purposes of section 19(c) of the Securities Act of 
1933, adopted as part of the Small Business Investment Incentive Act of 
1980, to increase uniformity in matters concerning state and federal 
regulation of securities, to maximize the effectiveness of securities 
regulation in promoting investor protection, and to reduce burdens on

[[Page 15848]]
capital formation through increased cooperation between the Commission 
and the state securities regulatory authorities.

DATES: The conference will be held on April 29, 1996. Written comments 
must be received on or before April 25, 1996 in order to be considered 
by the conference participants.

ADDRESSES: Written comments should be submitted in triplicate by April 
25, 1996 to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, 450 5th Street, N.W., Washington, D.C. 20549. Comments also 
may be submitted electronically at the following E-mail address: rule-
[email protected]. Comments should refer to File No. S7-9-96; this file 
number should be included on the subject line if E-mail is used. 
Comment letters will be available for public inspection at the 
Commission's Public Reference Room, 450 5th Street, N.W., Washington, 
D.C. 20549. Electronically submitted comment letters will be posted on 
the Commission's internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: William E. Toomey or Richard K. Wulff, 
Office of Small Business Policy, Division of Corporation Finance, 
Securities and Exchange Commission, 450 5th Street, N.W., Washington, 
D.C. 20549, (202) 942-2950.

SUPPLEMENTARY INFORMATION:

I. Discussion

    A dual system of federal-state securities regulation has existed 
since the adoption of the federal regulatory structure in the 
Securities Act of 1933 (the ``Securities Act'').1 Issuers 
attempting to raise capital through securities offerings, as well as 
participants in the secondary trading markets, are responsible for 
complying with the federal securities laws as well as all applicable 
state laws and regulations. It has long been recognized that there is a 
need to increase uniformity between federal and state regulatory 
systems, and to improve cooperation among those regulatory bodies so 
that capital formation can be made easier while investor protections 
are retained.

    \1\ 15 U.S.C. 77a et seq.
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    The importance of facilitating greater uniformity in securities 
regulation was endorsed by Congress with the enactment of section 19(c) 
of the Securities Act in the Small Business Investment Incentive Act of 
1980.2 Section 19(c) authorizes the Commission to cooperate with 
any association of state securities regulators which can assist in 
carrying out the declared policy and purpose of section 19(c). The 
policy of that section is that there should be greater federal and 
state cooperation in securities matters, including: (1) maximum 
effectiveness of regulation; (2) maximum uniformity in federal and 
state standards; (3) minimum interference with the business of capital 
formation; and (4) a substantial reduction in costs and paperwork to 
diminish the burdens of raising investment capital, particularly by 
small business, and a reduction in the costs of the administration of 
the government programs involved. In order to establish methods to 
accomplish these goals, the Commission is required to conduct an annual 
conference. The 1996 meeting will be the thirteenth such conference.

    \2\ Pub. L. 96-477, 94 Stat. 2275 (October 21, 1980).
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II. 1996 Conference

    The Commission and the North American Securities Administrators 
Association, Inc. (``NASAA'') 3 are planning the 1996 Conference 
on Federal-State Securities Regulation (the ``Conference'') to be held 
April 29, 1996 in Washington, D.C. At the Conference, representatives 
from the Commission and NASAA will form into working groups in the 
areas of corporation finance, market regulation, investment management, 
and enforcement, to discuss methods of enhancing cooperation in 
securities matters in order to improve the efficiency and effectiveness 
of federal and state securities regulation. Generally, attendance will 
be limited to representatives of the Commission and NASAA in an effort 
to promote frank discussion. However, each working group in its 
discretion may invite certain self-regulatory organizations to attend 
and participate in certain sessions.

    \3\ NASAA is an association of securities administrators from 
each of the 50 states, the District of Columbia, Puerto Rico, Mexico 
and twelve Canadian Provinces and Territories.
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    Representatives of the Commission and NASAA currently are 
formulating an agenda for the Conference. As part of that process the 
public, securities associations, self-regulatory organizations, 
agencies, and private organizations are invited to participate through 
the submission of written comments on the issues set forth below. In 
addition, comment is requested on other appropriate subjects sought to 
be included in the Conference agenda. All comments will be considered 
by the Conference attendees.

III. Tentative Agenda and Request for Comments

    The tentative agenda for the Conference consists of the following 
topics in the areas of corporation finance, investment management, 
market regulation and oversight, and enforcement.

(1) Corporation Finance Issues

A. Uniform Limited Offering Exemption

    Congress specifically acknowledged the need for a uniform limited 
offering exemption in enacting section 19(c) of the Securities Act and 
authorized the Commission to cooperate with NASAA in its development. 
The Commission working with the states toward this goal, developed Rule 
505 of Regulation D, the federal exemption for certain limited 
offerings, while NASAA crafted the complementary Uniform Limited 
Offering Exemption (``ULOE'').
    ULOE provides the framework for a uniform exemption from state 
registration for certain issues of securities which would be exempt 
from federal registration by virtue of Regulation D. To date, more than 
half the states have adopted some form of ULOE. Both the Commission and 
NASAA continue to make a concerted effort toward its universal 
adoption.
    A Bill pending in the Congress (H.R.3005) would add a new Section 
18 to the Securities Act of 1933 and prohibit state blue sky regulation 
of most securities offerings. Section 18(a) of this proposed 
legislation would, with specified exceptions, preempt state blue sky 
regulation over any securities registered under the Securities Act or, 
subject to a ``uniform scheme'' approach, exempt from Securities Act 
registration pursuant to Sections 3(b) or 4(2).
    The conferees will discuss the possible impact of this Bill on 
ULOE, and on state-federal cooperation in general. Further, 
consideration will be given to whether there are alternative exemptive 
methods which might be suitable for coordination among the states and 
the federal system, either within or outside of the ULOE framework.

B. Small Business Initiative

    On July 30, 1992, and April 28, 1993 the Commission adopted a 
number of rulemaking changes, often described as the Small Business 
Initiative, which were designed to streamline and simplify the 
Commission's regulatory system applicable to the public sale of 
securities by small businesses, and to provide new opportunities for 
investors, consistent with the Commission's

[[Page 15849]]
obligations to protect such investors.4 Among other things, the 
ceiling for the Regulation A exemption was raised from $1,500,000 to 
$5,000,000, and issuers contemplating a Regulation A offering were, for 
the first time, permitted to use a written document to ``test the 
waters'' for investor interest prior to assuming the expense of an 
offering.

    \4\ Securities Act Release Nos. 6949 (July 30, 1992) [57 FR 
36442]; 6996 (April 28, 1993) [58 FR 26509].
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    The participants will discuss the impact of these changes, and the 
need for any additional exemptive relief in the small business area. 
The participants will also review their experience with amended 
Regulation A and the use of ``test the waters'' documents.
    On June 27, 1995, the Commission issued three releases that, if 
adopted, could provide additional assistance to small business: a new 
section 3(b) exemption for certain California limited issues,5 
relief from Section 12(g) registration for small issuers 6 and 
revision of the Rule 144 holding periods.7 The participants will 
consider these proposals and discuss whether they will have a 
beneficial effect on small business.

    \5\ Securities Act Release No. 7185 California (June 27, 1995) 
[60 FR 35638].
    \6\ Securities Act Release No. 7186 (June 27, 1995) [60 FR 
35642].
    \7\ Securities Act Release No. 7187 (June 27, 1995) [60 FR 
35645].
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    Public comment is invited on the efficacy of the Small Business 
Initiative as a whole. Comment is also sought with respect to any other 
exemptions that might be developed to enhance the ability of small 
issuers to raise capital, while protecting legitimate interests of 
investors.

C. Disclosure Policy and Standards

a. Electronic Delivery of Disclosure Documents

    On October 6, 1995, the Commission issued an interpretive release 
8 and related rule proposals 9 addressing the use of 
electronic media to deliver or transmit information under the federal 
securities laws. These initiatives reflect the Commission's continuing 
recognition of the benefits that electronic technology provides to the 
financial markets. These releases are premised on the belief that the 
use of electronic media should be at least an equal alternative to the 
use of paper delivery. However, until such time as electronic media 
becomes more universally accessible and accepted, the Commission 
expects that paper delivery of information will continue to be 
available. Conference participants will consider these matters.

    \8\ Securities Act Release No. 7233 (October 13, 1995) [60 FR 
53458].
    \9\ Securities Act Release No. 7234 (October 13, 1995) [60 FR 
53468].
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b. June 1995 Initiatives

    On June 27, 1995, the Commission issued an additional five 
releases, four proposing rule changes and one stating interpretive 
positions, to streamline disclosure, facilitate capital raising and 
deter abusive practices.10 The releases related to executive 
compensation disclosure,11 accepting abbreviated financial 
statements 12, and permitting solicitations of interest prior to 
initial public offerings 13. The Commission also issued a release 
14 proposing amendments to the financial statement requirements 
for significant acquisitions and proposing to require reporting of 
unregistered equity sales. The conferees will discuss the releases as 
well as the public comments received by the Commission.

    \10\ The Commission issued a release proposing to amend the 
financial statement requirements for significant acquisitions and 
require reporting of unregistered equity sales. These issues arose 
out of a review of offshore capital-raising practices. See 
Securities Act Release No. 7189 (June 28, 1995) [60 FR 35656]. In 
connection with this review, the Commission also issued an 
interpretive release regarding problematic practices under 
Regulation S, as discussed below. See Securities Act Release No. 
7190 (June 28, 1995) [60 FR 35663].
    \11\ Securities Act Release No. 7184 (June 27, 1995) [60 FR 
35633].
    \12\ Securities Act Release No. 7183 (June 27, 1995) [60 FR 
35604].
    \13\ Securities Act Release No. 7188 (June 28, 1995) [60 FR 
35648].
    \14\ Securities Act Release No. 7189 (June 28, 1995) [60 FR 
35656].
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D. Multinational Securities Offerings

    The Commission's recent interpretation of Regulation S, contained 
in a release stating its views with respect to certain practices in 
connection with offers, sales and resales of securities purportedly 
made in offshore transactions pursuant to Regulation S,15 also 
will be considered by the conferees. Comment is specifically requested 
on ways to coordinate federal and state treatment of multinational 
offerings.

    \15\ Securities Act Release No. 7190 (June 28, 1995) [60 FR 
35663].
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E. Advisory Committee on the Capital Formation and Regulatory Processes

    In February 1995, the Commission created an Advisory Committee on 
the Capital Formation and Regulatory Processes. The objective of the 
Committee is to assist the Commission in evaluating the efficiency of 
the regulatory process relating to public offerings of securities, 
secondary market trading and corporate reporting. Its deliberations 
have focused on the development of a company registration system for 
adoption by the Commission. Under the model of a company registration 
system developed by the Committee, eligible companies would be able to 
issue securities relying on a more company-focused, as opposed to a 
transaction-focused system.
    Companies would register with the Commission and file periodic 
reports. Thereafter, routine securities issuances, such as financings, 
as well as sales by affiliates and sales of what are currently known as 
restricted shares, could be consummated without significant additional 
registration procedures.
    The Committee has developed three basic goals in connection with 
its consideration of a company registration system. The first goal is 
to eliminate unnecessary regulatory costs and uncertainties that impede 
a company's access to capital, without impairing investor protection.
    The second goal is to eliminate the many complexities resulting 
from the current registration system, including the need for issuers 
and investors to monitor and maintain the lines between the public 
registered market and the offshore or private unregistered markets.
    The final goal is to enhance the level and reliability of 
disclosure provided to the markets by all issuers on a continuous 
basis, not just when the issuer episodically conducts a securities 
offering.
    The Committee plans to issue a report containing its 
recommendations in the near future. The Commission would then consider 
the recommendations and either propose rulemaking or legislation, or 
seek further public comment with respect to the Committee's 
recommendations. The conferees will consider issues developed by the 
Advisory Committee with a view to coordinating the federal and state 
systems of securities regulation.

F. Task Force on Disclosure Simplification

    Chairman Arthur Levitt organized the Task Force on Disclosure 
Simplification in August 1995 to review forms and rules relating to 
capital-raising transactions, periodic reporting pursuant to the 
Exchange Act, proxy solicitations, and tender offers and beneficial 
ownership reports under the Williams Act. The goal was to simplify the 
disclosure process and, consistent with investor protection, to make 
regulation of capital formation more efficient.
    To aid its review, the Task Force met over a seven-month period 
with issuing

[[Page 15850]]
companies, investor groups, underwriters, accounting firms, lawyers and 
others who participate daily in the capital markets. These participants 
helped the Task Force to identify and formulate reforms that reduce 
costs and regulatory burdens without impairing the transparency and 
integrity of our capital markets. None suggested wholesale 
deregulation, and virtually all emphasized the importance of basic 
regulatory goals to preserve orderly markets.
    The Task Force recommendations fall into three broad categories:

(1) Weeding out forms and regulations that are duplicative of other 
requirements or have outlived their usefulness;
(2) Requiring more readable and informative disclosure documents; and
(3) Reducing the cost of securities offerings and increasing access of 
smaller companies to the securities markets.
    The Conference participants will consider the general 
recommendations of the Task Force.

G. Derivatives

    During the last several years, there has been substantial growth in 
the use of derivative financial instruments, other financial 
instruments, and commodity instruments. The Commission recognizes that 
these instruments can be effective tools for managing exposures to 
market risk. During 1994, however, some Commission registrant's 
experienced significant, and sometimes unexpected, losses in market 
risk sensitive instruments. In light of these losses and the 
substantial growth in the use of market risk sensitive instruments, the 
Commission continued its derivatives initiatives in 1995. Included in 
these initiatives was the release of proposed amendments that would 
supplement disclosures currently required by generally accepted 
accounting principles and Commission rules and make information about 
derivative financial instruments, other financial instruments, and 
derivative commodity instruments more useful to readers assessing the 
market risk associated with these instruments. Conferees will discuss 
this latest Commission initiative, as well as, the application of 
federal and state securities laws to derivatives and other market 
sensitive instruments.

(2) Market Regulation Issues

A. Central Registration Depository (``CRD'') Redesign

a. Implementation

    The CRD system is a computer system operated by the National 
Association of Securities Dealers, Inc. (``NASD'') that allows ``one-
stop'' filing for registration and that maintains information regarding 
broker-dealers and their associated persons for regulatory purposes. 
The NASD is in the process of implementing a comprehensive plan to 
redesign the CRD and to expand its use by federal and state securities 
regulators as a tool for broker-dealer regulation. As a result of the 
NASD's efforts, the redesigned CRD system ultimately is expected to 
provide the Commission, self-regulatory organizations (``SROs''), and 
state securities regulators with: (i) streamlined capture and display 
of data; (ii) better access to registration and disciplinary 
information through the use of standardized and specialized computer 
searches; and (iii) electronic filing of uniform registration and 
licensing forms, including Forms U-4, U-5, BD and BDW, discussed below.
    The NASD plans to implement the redesigned CRD in phases. The NASD 
plans to begin conducting a two-month pilot test of the redesigned CRD. 
Following completion of the pilot test, the NASD will begin Phase I of 
the implementation of the redesigned CRD. During Phase I, the NASD will 
convert broker-dealer registration information contained in the old CRD 
system to the redesigned CRD format. During Phase II of the 
implementation process, the Commission, the SROs, and state securities 
regulators will be provided direct access to broker-dealer registration 
information (including information filed by applicants for broker-
dealer registration) contained in the redesigned CRD system. Among 
other things, federal and state securities regulators and the SROs will 
be provided with the ability to search through hundreds of thousands of 
records to: identify problem brokers, flag problem brokers who have 
left the industry so that they can be reviewed should they attempt to 
return to the business, and target firms and branches for examination 
in a more effective way.
    Among other things, the participants will discuss the status of the 
CRD implementation process, and issues relating to the conversion of 
existing registration information to the redesigned CRD and electronic 
filing of uniform forms.

b. Forms Disclosure

    In connection with the CRD redesign, NASAA adopted amendments to 
certain aspects of Form U-4, the uniform form for registration of 
associated persons of a broker-dealer.16 These amendments did not 
include amendments to new Item 22-I, which requires disclosure of 
certain customer complaints and proceedings. The appropriate level of 
disclosure of customer complaints, as well as settlements, arbitration 
awards, and civil judgments, has been the subject of extensive 
discussions among the securities industry, NASAA, the NASD, and the 
Commission. The participants will discuss the status of these 
discussions at the Conference.

    \16\ See NASAA Reports (CCH) para. 4161 (1994). NASAA also 
adopted similar amendments to Form BD. NASAA Reports (CCH) para. 
5061 (1995).
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B. Books and Records Revisions

    The Commission has been working with representatives of NASAA to 
develop proposed amendments to the books and records requirements of 
Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934 
(``Exchange Act'') to reflect the concerns of the states. These 
proposed amendments will include requirements that broker-dealers 
maintain additional records relating to such matters as sales 
practices, licensing and compensation of registered representatives, 
investor suitability, customer complaints, exceptional or unusual 
commissions or trading frequency, due diligence with respect to 
recommended securities, correspondence, and marketing materials.
    The Commission intends to publish the proposed amendments prior to 
the Conference and anticipates that the participants will discuss the 
proposed amendments and related issues at the Conference.

C. Bank Securities Activities

    In December 1994, the NASD proposed rules that would govern the 
conduct of member broker-dealers operating on financial institution 
premises.17 The proposed rules are intended to provide guidance 
with respect to the activities of bank-affiliated broker-dealers and 
third-party broker-dealers operating on the premises of financial 
institutions pursuant to a networking arrangement. The NASD recently 
submitted to the Commission a revised rule proposal designed to address 
a number of issues

[[Page 15851]]
raised by commenters with respect to the original NASD proposal.

    \17\ See NASD Notice To Members 94-94 (December 1994).
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    The proposed rule change sets forth specific requirements for 
members doing business on the premises of financial institutions as 
they relate to: (1) setting; (2) networking and brokerage affiliate 
arrangements; (3) compensation of registered and unregistered persons; 
(4) customer disclosure and written acknowledgments; (5) use of 
confidential financial information; and (6) communications with the 
public. The Commission anticipates that the Conference participants 
will discuss the NASD's proposed rule change.

D. Regulation of Foreign Broker-Dealers

    In October 1995, NASAA adopted amendments to the Uniform Securities 
Act to permit Canadian broker-dealers, subject to certain conditions, 
to effect transactions for Canadian citizens temporarily residing in 
the United States with whom Canadian broker-dealers have a bona fide 
pre-existing relationship as well as in the Canadian retirement 
accounts of Canadian citizens residing permanently in the United 
States, without registering as broker-dealers with the states.18 
Such Canadian broker-dealers also are exempt from all the requirements 
of the Uniform Securities Act, except the antifraud provisions and the 
requirements set forth in Section 201-A of the Act. The participants 
will discuss the NASAA amendments, particularly in light of Rule 15a-6 
under the Exchange Act, the federal exemption from broker-dealer 
registration for foreign broker-dealers effecting transactions 
primarily with U.S. institutional customers. Rule 15a-6(a)(4)(iii) 
includes a similar, but not identical, exemption from broker-dealer 
registration for foreign broker-dealers effecting transactions with 
foreign persons temporarily present in the United States with whom the 
foreign broker-dealer has a bona fide, pre-existing relationship. 
Participants also will discuss the Uniform Securities Act provision in 
relation to the registration requirements imposed by the Securities 
Act.

    \18\ See NASAA Reports (CCH) para. 4861A (1995).
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E. Amendments to The Trading Practices Rules

    On April 19, 1994, the Commission published a concept release 
soliciting comment on anti-manipulation regulation of securities 
offerings. Since these rules were adopted and last significantly 
amended, there have been substantial changes in the structure of the 
securities markets, new kinds of trading instruments and strategies, 
enhanced transparency of securities transactions, expanded surveillance 
capabilities, and transformation of the capital raising process. In 
particular, the rise in the number of, and demand for, multinational 
offerings has required careful coordination of the interaction of the 
anti-manipulation rules with foreign distribution practices and 
regulatory requirements. The dominant themes in the comment letters 
were: (i) restructuring anti-manipulation regulation as non-exclusive 
safe-harbors; (ii) shortening the cooling-off periods; (iii) easing the 
application of anti-manipulation regulation in multinational 
distributions; (iv) allowing investors greater flexibility in 
conducting non-shareholder dividend reinvestment and stock purchase 
plans; and (v) providing greater flexibility under Rules 10b-7 and 10b-
8. With respect to Rule 10b-6, commenters also recommended: (i) 
narrowing the definition of ``affiliated purchasers;'' (ii) eliminating 
the ``same class and series'' analysis for purposes of debt securities; 
(iii) expanding the exclusion for certain Rule 144A transactions; (iv) 
permitting the distribution of research reports in the ordinary course 
of business; and (v) providing greater relief for basket transactions. 
Participants will discuss issues relating to revision of the trading 
practices rules.

F. Arbitration

    On January 22, 1996, the NASD's Arbitration Policy Task Force 
(``Task Force'') released its report on securities arbitration. In 
particular, the report makes recommendations to improve the arbitration 
of disputes between securities firms and their customers. The 
participants will discuss the recommendations made by the Task sForce.

G. Municipal Securities Disclosure

    In November 1994 the Commission adopted amendments to Rule 15c2-12 
in order to further deter fraud in the municipal securities market. The 
amendments prohibit a broker, dealer, or municipal securities dealer 
from underwriting a primary offering of municipal securities unless it 
has reasonably determined that an issuer of municipal securities or an 
obligated person has undertaken to provide certain annual financial 
information and event notices to nationally recognized municipal 
securities information repositories (``NRMSIRs'') and/or the Municipal 
Securities Rulemaking Board (``MSRB'') and state information 
depositories.19 The amendments also prohibit those same entities 
from recommending the purchase or sale of a municipal security in the 
secondary market unless they have procedures in place that provide 
reasonable assurance that they will receive promptly any event notices 
with respect to that security. The amendments provide certain 
exemptions, including one for small and infrequent issuers of municipal 
securities.

    \19\ The Division issued six no-action letters recognizing 
applicants as NRMSIRs for purposes of Rule 15c2-12 under the 
Exchange Act. NRMSIRs will receive official statements, annual 
financial information, notices of material events, and notices of a 
failure to provide annual financial information undertaken to be 
provided in accordance with Rule 15c2-12. NRMSIRs will make this 
information available to the public. The entities that received 
recognition as NRMSIRs are: 1) Bloomberg, L.P. of Princeton, NJ; 2) 
Thomson Municipal Services, Inc. (a/k/a The Bond Buyer) of New York, 
NY; 3) Disclosure, Inc. of Bethesda, MD; 4) Kenny Information 
Systems of New York, NY; 5) Moody's Investors Service of New York, 
NY; and 6) R.R. Donnelley & Sons Company of Hudson, MA. In addition, 
the Division has recognized state information depositories in Texas, 
Idaho, and Michigan.
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    The Division of Market Regulation (``Division'') has issued several 
letters regarding the application of the amendments. The Conference 
participants will discuss these developments and other matters with 
respect to municipal securities.

H. Internet Fraud/Electronic Delivery

    On October 23, 1995, NASAA announced the formation of a Blue Ribbon 
panel from industry, academia, and regulatory agencies, including the 
Commission, to consider key areas of federal-state regulation, 
including issues relating to the Internet. NASAA also recently adopted 
a resolution on the development of a uniform policy concerning 
securities offerings through the Internet. This resolution follows 
initiatives by various states to exempt Internet offerings from state 
registration under certain conditions. The Commission staff similarly 
has established programs to address a wide range of Internet issues. 
The Commission staff and NASAA have consulted on these and other issues 
as part of the regular communication concerning the Internet and the 
use of electronic media.
    A leading area of mutual interest to both the Commission staff and 
NASAA is cyberfraud, and the Commission staff and NASAA have ongoing 
consultations concerning new issues raised. Other areas of concern 
include securities offerings through the Internet; industry retention 
of electronic records and communications; computer security;

[[Page 15852]]
unregistered brokerage, investment advisory and other regulated 
financial business conducted through the Internet; foreign exchange and 
foreign financial sector access to the U.S. through electronic media; 
and industry and investor education about the use of electronic media 
for securities business.
    In addition, on October 6, 1995, the Commission published an 
interpretive release expressing its views on the electronic delivery of 
certain documents, such as prospectuses, annual reports, and proxy 
solicitation materials.20 As directed by the Commission in this 
release, the Division is studying the feasibility of electronic 
delivery of confirmation statements, as well as other information 
required under the Exchange Act. The Conference participants will 
discuss these and other matters concerning the Internet and the use of 
electronic media.

    \20\ Securities Act Release No. 7233 (Oct. 6, 1995), 60 FR 53458 
(Oct. 13, 1995).
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I. Continuing Education

    On February 8, 1995, the Commission approved uniform proposals by 
the MSRB, NASD, American Stock Exchange, Inc. (``Amex''), Chicago Board 
Options Exchange, Inc. (``CBOE''), Chicago Stock Exchange, Inc., 
Pacific Stock Exchange, Inc., and Philadelphia Stock Exchange, Inc. to 
implement a continuing education program for registered persons. This 
program includes a Regulatory Element requiring uniform, periodic 
training in regulatory matters, and a Firm Element requiring broker-
dealers to maintain ongoing programs to keep their registered persons 
up-to-date on job and product related subjects.
    A permanent Council on Continuing Education (``Council''), composed 
of broker-dealer and SRO representatives, is charged with the 
responsibility of providing ongoing input to the continuing education 
program. The Council currently is working on substantial revisions to 
the Regulatory Element to incorporate into the program new and more 
challenging learning exercises. The Council also is considering the 
development of a ``sales supervisor'' training module. The participants 
will discuss issues involving the maintenance and refinement of the 
program.

J. Compliance Inspections and Examinations Issues

a. Sales Practice Activities/Joint Regulatory Examination Sweep

    In November 1995, the Commission completed a joint regulatory sales 
practice examination sweep (``Sweep'') in cooperation with the NASD, 
the New York Stock Exchange (``NYSE''), and NASAA (collectively the 
``Working Group''). The objective of the Sweep was to identify possible 
problem registered representatives and to ensure that appropriate 
supervisory mechanisms are in place or, where necessary, to take 
appropriate enforcement action against those individuals. The 
participants will discuss the results of the Sweep, as well as 
recommendations made by the Working Group as a result of the findings.

b. Coordinated Examinations

    On November 28, 1995, the Commission entered into a Memorandum of 
Understanding (``MOU'') with the examining SROs and NASAA to promote 
cooperation and coordination among the examining authorities, as well 
as to eliminate unnecessary and burdensome duplication in the broker-
dealer examination process. The key provisions of the MOU provide for: 
(1) Annual National and Regional Planning Summits among the Commission, 
Amex, CBOE, the NASD, the NYSE, and NASAA; (2) coordination of broker-
dealer examinations by the Amex, CBOE, the NASD, and the NYSE; (3) a 
computerized tracking system for all broker-dealer examinations; and 
(4) use of state resources in those areas where they are most needed.
    On February 9, 1996, the National Planning Summit was held at the 
Commission's headquarters in Washington, D.C. The goal was to discuss 
the coordination of examination schedules and examination priorities, 
as well as other areas of related interest. The participants will 
discuss the provisions of the MOU and the actions that need to be taken 
to fulfill its objectives.

(3) Investment Management Issues

A. Investment Company Disclosure

    In recent years, the Commission has launched several initiatives 
designed to improve the usefulness of the information received by 
mutual fund investors while at the same time minimizing the regulatory 
cost and burdens imposed on mutual funds. The conferees will discuss 
ways to improve the quality of information regarding mutual funds 
available to investors, as well as federal and state efforts toward 
more uniform federal and state investment company disclosure 
requirements.
    In March 1995, the Commission issued for public comment a concept 
release discussing the ways in which investment company risk disclosure 
can be improved so that investors better understand the risks presented 
by funds. The Commission received approximately 3700 comment letters 
from individual investors and others in response to the concept 
release. The conferees are expected to discuss issues relating to 
investment company risk disclosure and the comments the Commission has 
received.
    The Commission has worked with the investment company industry and 
NASAA to develop the concept of a ``profile prospectus.'' The key 
element of the profile prospectus is a standardized, short form summary 
that accompanies the full length prospectus and is designed to enable 
mutual fund investors to better understand what they are buying. Pilot 
``profiles'' developed by eight fund groups have been available to 
investors starting August 1995. The conferees are expected to discuss 
this initiative.
    The Commission recently approved the delivery of electronic 
prospectuses to potential investors as a method of complying with 
Securities Act prospectus delivery requirements. The conferees are 
expected to discuss the development of various means of electronic 
delivery of information to investors in this rapidly developing area.
    The Division of Investment Management has encouraged funds to write 
prospectuses in simpler, more concise formats that are easier for 
investors to understand. A number of fund complexes have responded to 
the Division's initiative and have developed ``prototype'' prospectuses 
for the Division's review. These prospectuses are designed to be 
consistent with current Form N-1A disclosure requirements and to 
provide investors with straight-forward descriptions of essential 
information about funds. The conferees are expected to discuss this 
initiative.

B. Investment Advisers

    The Commission has sought to develop alternative approaches to 
shortening the inspection cycles for investment advisers. In a speech 
at the NASAA annual meeting in October 1995, Chairman Levitt suggested 
one such approach would be for Congress to change the existing 
regulatory scheme through legislative action.\21\ Under this

[[Page 15853]]
approach, Congress would delegate certain registration and examination 
responsibilities to state regulators, while the Commission would retain 
exclusive responsibility for larger investment advisers, whose 
activities tend to be more complicated and have an effect on national 
markets. The states would regulate and examine smaller advisers who 
tend to operate locally. The conferees are expected to discuss 
legislative proposals in this area and other approaches to improving 
the efficiency of investment adviser regulation and examinations.

    \21\ ''The SEC and the States: Toward a More Perfect Union,'' 
Remarks by Arthur Levitt, Chairman, U.S. Securities and Exchange 
Commission, before the North American Securities Administrators 
Association, Vancouver, British Columbia (Oct. 23, 1995).
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    Toward the same end, the Commission in July 1995 proposed improved 
disclosure requirements for money market funds. The revised standards 
would simplify money market fund prospectuses considerably, making them 
less costly to prepare and allowing investors to focus on a short 
document that contains the most essential information about the fund. 
The conferees are expected to discuss this proposal and the comments 
the Commission has received.

(4) Enforcement Issues

    In addition to the above-stated topics, the state and federal 
regulators will discuss various enforcement-related issues which are of 
mutual interest.

(5) Investor Education

    The Commission is pursuing a number of programs for investors on 
how to invest wisely and to protect themselves from fraud and abuse. 
The States and NASAA have a longstanding commitment to investor 
education and the Commission is intent on coordinating and 
complementing those efforts to the greatest extent possible. The 
participants at the conference will discuss investor education and 
potential joint projects in some of the working group sessions.

(6) General

    There are a number of matters which are applicable to all, or a 
number, of the areas noted above. These include EDGAR, the Commission's 
electronic disclosure system, rulemaking procedures, training and 
education of staff examiners and analysts and sharing of information.
    The Commission and NASAA request specific public comments and 
recommendations on the above-mentioned topics. Commenters should focus 
on the agenda but may also discuss or comment on other proposals which 
would enhance uniformity in the existing scheme of state and federal 
regulation, while helping to maintain high standards of investor 
protection.

    Dated: April 3, 1996.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8788 Filed 4-8-96; 8:45 am]
BILLING CODE 8010-01-P