[Federal Register Volume 63, Number 59 (Friday, March 27, 1998)]
[Rules and Regulations]
[Pages 14806-14814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8001]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 231, 241, 271, 276

[Release Nos. 33-7516, 34-39779, IA-1710, IC-23071; International 
Series Release No. 1125]


Statement of the Commission Regarding Use of Internet Web Sites 
to Offer Securities, Solicit Securities Transactions or Advertise 
Investment Services Offshore

AGENCY: Securities and Exchange Commission.

ACTION: Interpretation.

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SUMMARY: The Securities and Exchange Commission is publishing its views 
on the application of the registration obligations under the U.S. 
federal securities laws to the use of Internet Web sites to disseminate 
offering and solicitation materials for offshore sales of securities 
and investment services.

EFFECTIVE DATE: March 23, 1998.

FOR FURTHER INFORMATION CONTACT: Paul Dudek, Chief, and Rani Doyle, 
Attorney, Office of International Corporate Finance at 202-942-2990 
(with respect to Securities Act issues); Paula Jenson, Deputy Chief 
Counsel, Division of Market Regulation, at 202-942-0073 (with respect 
to broker-dealer registration issues), Elizabeth King, Senior Special 
Counsel, Division of Market Regulation, at 202-942-0140 (with respect 
to exchange registration issues); and Karrie McMillan, Assistant Chief 
Counsel, Sarah A. Wagman, Special Counsel, and Brendan C. Fox, 
Attorney, Division of Investment Management, at 202-942-0660 (with 
respect to matters relating to investment companies and investment 
advisers).

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    The Internet permits market participants to disseminate 
advertisements and other information regarding securities and 
investment services across national borders. Because persons in the 
United States have access to this securities-related information, 
market participants have expressed uncertainty about the application of 
the registration requirements of the U.S. securities laws to their 
offshore Internet offers (i.e., offers over Internet Web sites of 
securities or investment services that by their terms are not made to 
U.S. persons). Today, we are providing our views on how issuers, 
investment companies, broker-dealers, exchanges and investment advisers 
may use Internet Web sites to solicit offshore securities transactions 
and clients without the securities or investment company being 
registered with the Commission under the Securities Act of 1933\1\ or 
the Investment Company Act of 1940,\2\ or without the investment 
service provider registering under the Investment Advisers Act of 
1940,\3\ or the broker-dealer or exchange registering under the broker-
dealer and exchange registration provisions under the Securities 
Exchange Act of 1934.\4\
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    \1\ 15 U.S.C. 77a, et seq. (the ``Securities Act'').
    \2\ 15 U.S.C. 80a-1, et seq. (the ``Investment Company Act'').
    \3\ 15 U.S.C. 80b-1, et seq. (the ``Advisers Act'').
    \4\ 15 U.S.C. 78a, et seq. (the ``Exchange Act'').
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    The purpose of this interpretation is to clarify when the posting 
of offering or solicitation materials on Internet Web sites would not 
be considered activity taking place ``in the United States.'' We are 
only providing clarification on this aspect of the registration 
requirements and are not altering the fundamental requirement that all 
offers and sales in

[[Page 14807]]

the United States be registered under the U.S. securities laws or made 
under an applicable exemption.
    Under this interpretation, application of the registration 
provisions of the U.S. securities laws depends on whether Internet 
offers, solicitations or other communications are targeted to the 
United States. We would not view issuers, broker-dealers, exchanges, 
and investment advisers that implement measures that are reasonably 
designed to guard against sales or the provision of services to U.S. 
persons to have targeted persons in the United States with their 
Internet offers. Under these circumstances, Internet postings would 
not, by themselves, result in a registration obligation under the U.S. 
securities laws.
    The determination of whether measures reasonably designed to guard 
against sales to U.S. persons have been implemented depends on the 
facts and circumstances, and can be satisfied through different means. 
We discuss in this release examples of measures that are adequate to 
serve this purpose for both U.S. and foreign entities. We also discuss 
why measures that are adequate for foreign issuers would not 
necessarily be adequate measures for U.S. issuers. U.S. issuers should 
undertake more restrictive measures when using the Internet to solicit 
offshore securities transactions.
    This interpretation does not address the anti-fraud and anti-
manipulation provisions of the securities laws, which will continue to 
reach all Internet activities that satisfy the relevant jurisdictional 
tests.\5\ Even in the absence of sales in the United States, we will 
take appropriate enforcement action whenever we believe that fraudulent 
or manipulative Internet activities have originated in the United 
States or placed U.S. investors at risk. Further, we are not addressing 
the circumstances under which a U.S. court could exercise personal 
jurisdiction over a non-U.S. person with respect to that person's 
offshore Internet offer.
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    \5\ The courts have recognized U.S. jurisdiction over fraudulent 
conduct where substantial conduct or effects occur in the United 
States. See generally Itoba Ltd. v. LEP Group PLC, 54 F.3d 118 (2d 
Cir. 1995), cert. denied, 516 U.S. 1044 (1996) and Robinson v. TCI/
US West Communications Inc., 117 F.3d 900 (5th Cir. 1997) (citing 
Schoenbaum v. Firstbrook, 405 F.2d 200 (2d Cir.), rev'd on other 
grounds on rehrg. en banc, 405 F.2d 215 (2d Cir. 1968), cert. 
denied, 395 U.S. 906 (1969) (effects test)); Bersch v. Drexel 
Firestone Inc., 519 F.2d 974 (2d Cir.), cert. denied, 423 U.S. 1018 
(1975) (conduct test); Leasco Data Processing Equipment Corp. v. 
Maxwell, 468 F.2d 1326 (2d Cir. 1972) (conduct test).
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    The interaction between the U.S. securities laws and the Internet 
can be expected to continue to evolve. As technology and practice 
develop, we may revisit these and related issues.

II. Background

A. The Global Reach of the Internet

    The development of the Internet presents numerous opportunities and 
benefits for consumers and investors throughout the world. It also 
presents significant challenges for regulators charged with protecting 
consumers and investors. Regulators in many countries are attempting to 
administer their respective laws to preserve important protections 
provided by their regulatory schemes without stifling the Internet's 
vast communications potential.\6\ We share this goal in our 
administration of the U.S. securities laws.\7\
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    \6\ See President William J. Clinton and Vice President Albert 
Gore, Jr., A Framework for Global Electronic Commerce (1997), 
<http://www.iitf.nist.gov/eleccomm/ecomm.htm>; European Ministerial 
Conference, ``Global Information Networks: Realizing the 
Potential,'' July 6-8, 1997, Ministerial Declaration, Global 
Informational Networks, <http://www2.echo.lu/bonn/final.html>.
    \7\ For a discussion of recent Commission actions addressing the 
Internet, see The Impact of Recent Technological Advances on the 
Securities Markets, Report prepared by the Staff of the U.S. 
Securities and Exchange Commission pursuant to Section 510(a) of the 
National Securities Markets Improvements Act of 1996 (Oct. 1997) 
<http://www.sec.gov/news/studies/techrp97. htm>.
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    Information posted on Internet Web sites concerning securities and 
investments can be made readily available without regard to geographic 
and political boundaries.\8\ Additionally, the interactive nature of 
the Internet makes it possible for investors to purchase electronically 
the securities or services offered. For these and other reasons, we 
believe that the use of the Internet by market participants and 
investors presents significant issues under the U.S. securities laws.
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    \8\ Wilske and Schiller, International Jurisdiction in 
Cyberspace: Which States May Regulate the Internet?, <http://
www.law.indiana.edu/fcj/pubs/v50/no1/wilske.html>, Section 
II.A.2.(c).
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    Although this release focuses on Internet Web sites, the Internet 
offers a variety of forms of communication. We distinguish between Web 
site postings and more targeted Internet communication methods. More 
targeted communication methods are comparable to traditional mail 
because the sender directs the information to a particular person, 
group or entity. These methods include e-mail and technology that 
allows mass e-mailing or ``spamming.'' Information posted on a Web 
site, however, is not sent to any particular person, although it is 
available for anyone to search for and retrieve.\9\ Offerors using 
those more targeted technologies must assume the responsibility of 
identifying when their offering materials are being sent to persons in 
the United States and must comply fully with the U.S. securities laws.
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    \9\ The Web site sponsor can aid Internet searches by adding 
``tags'' to its Web site that facilitate a search engine identifying 
the site as containing information relating to targeted topics. 
Generally, we will not view the use of tags relating to securities 
or investments as transforming the Web site into a targeted 
communication that would require additional measures to assure 
against sales to U.S. persons, such as blocking access by U.S. 
persons to the offering materials.
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B. Regulation of Offers

    Many registration requirements under the U.S. securities laws are 
triggered when an offer of securities or financial services, such as 
brokerage or investment advisory services, is made to the general 
public.
     Under the Securities Act, absent an exemption, an issuer 
that offers or sells securities in the United States through use of the 
mails or other means of interstate commerce must register the offering 
with the Commission.\10\ An offering of securities may be exempt from 
registration if it is conducted as a ``private placement,'' without any 
general solicitation of investors.\11\
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    \10\ Section 5 of the Securities Act, 15 U.S.C. 77e.
    \11\ See, e.g., Section 4(2) of the Securities Act, 15 U.S.C. 
77d(2); Regulation D [17 CFR 230.501-508].
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     Under the Investment Company Act, a foreign investment 
company may not use the mails or other means of interstate commerce to 
publicly offer its securities in the United States or to U.S. persons 
unless the investment company receives an order from the Commission 
permitting it to register under the Investment Company Act.\12\ A 
foreign investment company may, however, make a private offer of its 
securities in the United States or to U.S. persons in reliance on one 
of the exclusions from the definition of ``investment company'' under 
the Investment Company Act.\13\
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    \12\ Section 7(d) of the Investment Company Act, 15 U.S.C. 80a-
7(d).
    \13\ See Section 3(c)(1) and Section 3(c)(7) of the Investment 
Company Act, 15 U.S.C. 80a-3(c)(1), 15 U.S.C. 80a-3(c)(7). See also 
Staff no-action letter, Goodwin, Procter & Hoar (available Feb. 28, 
1997) (``Goodwin Procter'').
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     Under the Advisers Act, an adviser is prohibited from 
using the mails or other means of interstate commerce in connection 
with its business as an investment adviser, unless the adviser is 
registered with the Commission, or is exempted or excluded from the 
requirement to register.\14\
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    \14\ Section 203(a) of the Advisers Act, 15 U.S.C. 80b-3(a).
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     Under the Exchange Act, a broker or dealer generally must 
register with the Commission if it uses the mails or any means of 
interstate commerce to effect

[[Page 14808]]

transactions in, or to induce or attempt to induce the purchase or sale 
of, any security.\15\
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    \15\ Section 15(a) of the Exchange Act, 15 U.S.C. 78o(a).
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     Under the Exchange Act, an exchange generally must 
register with the Commission if it uses the mails or any means of 
interstate commerce for the purpose of using its facilities to effect 
any transaction in a security or to report any such transaction.\16\
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    \16\ Section 6 of the Exchange Act, 15 U.S.C. 78f.
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    The posting of information on a Web site may constitute an offer of 
securities or investment services for purposes of the U.S. securities 
laws.\17\ Our discussion of these issues will proceed on the assumption 
that the Web site contains information that constitutes an ``offer'' of 
securities or investment services under the U.S. securities laws.\18\ 
Because anyone who has access to the Internet can obtain access to a 
Web site unless the Web site sponsor adopts special procedures to 
restrict access, the pertinent legal issue is whether those Web site 
postings are offers in the United States that must be registered.
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    \17\ See, e.g., Securities Act Release No. 7233, Question 20 
(Oct. 6, 1995) [60 FR 53458] (``The placing of the offering 
materials on the Internet would not be consistent with the 
prohibition against general solicitation or advertising in Rule 
502(c) of Regulation D.'').
    \18\ We also assume that the Internet is an instrument of 
interstate commerce and that its use satisfies the ``jurisdictional 
means'' requirements of the federal securities laws. See American 
Library Ass'n v. Pataki, 969 F. Supp. 160, 161 (S.D.N.Y. 1997).
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III. Offshore Offers and Solicitations on the Internet

A. General Approach

    Some may argue that regulators could best protect investors by 
requiring registration or licensing for any Internet offer of 
securities or investment services that their residents could access. As 
a practical matter, however, the adoption of such an approach by 
securities regulators could preclude some of the most promising 
Internet applications by investors, issuers, and financial service 
providers.
    The regulation of offers is a fundamental element of federal and 
some U.S. state securities regulatory schemes. Absent the transaction 
of business in the United States or with U.S. persons, however, our 
interest in regulating solicitation activity is less compelling.\19\ We 
believe that our investor protection concerns are best addressed 
through the implementation by issuers and financial service providers 
of precautionary measures that are reasonably designed to ensure that 
offshore Internet offers are not targeted to persons in the United 
States or to U.S. persons.\20\
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    \19\ Under a resolution adopted by the North American Securities 
Administrators Association (``NASAA''), states are encouraged to 
take appropriate steps to exempt Internet offers from the 
registration provisions of their securities laws when the offers 
indicate that the securities are not being offered to residents of 
their state and the offers are not otherwise specifically made to 
any persons in their state. Sales of the securities that were the 
subject of the Internet offer could be made in that state after the 
offering has been registered and the final prospectus has been 
delivered to investors, or where the sales are exempt from 
registration. NASAA, Resolution Regarding Securities Offered on the 
Internet (adopted Jan. 7, 1996), 1996 CCH Par. 7040 (Jan. 1996).
    According to NASAA, 32 states have implemented the resolution 
and 15 states have indicated an intent to do so.
    Several foreign authorities have provided guidance on Internet 
and securities related issues. See, e.g., Policy Statement 107 on 
Electronic Prospectuses (Sept. 1996) <http://www.asc.gov.au> 
(Australia); Notice and Interpretation Note, Trading Securities and 
Providing Advice Respecting Securities on the Internet (Mar. 3, 
1997), NIN #97/9 (British Columbia, Canada).
    \20\ We use the term ``U.S. person'' as it is defined in Rule 
902(k) of Regulation S under the Securities Act [17 CFR 230.902(k)], 
which is premised on residence in the United States, regardless of 
any temporary presence outside the United State. See Securities Act 
Release No. 7505 (Feb. 18, 1998) [63 FR 9632 (Feb. 25, 1998)] 
(renumbering CFR sections). ``U.S. person'' generally has the same 
meaning for purposes of Section 7(d) of the Investment Company Act 
as under Rule 902(k) of Regulation S under the Securities Act. See 
Goodwin Procter, supra note 13. For purposes of this release, we 
deem Internet offers ``targeted at the United States'' to include 
Internet offers targeted to U.S. persons. Cf. Rule 902(h)(2) of 
Regulation S [17 CFR 230.902(h)(2)] (offers targeting identifiable 
groups of U.S. persons offshore are not offshore transactions).
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B. Procedures Reasonably Designed to Avoid Targeting the United States

    When offerors implement adequate measures to prevent U.S. persons 
from participating in an offshore Internet offer, we would not view the 
offer as targeted at the United States and thus would not treat it as 
occurring in the United States for registration purposes. What 
constitutes adequate measures will depend on all the facts and 
circumstances of any particular situation. We generally would not 
consider an offshore Internet offer made by a non-U.S. offeror as 
targeted at the United States, however, if:

     The Web site includes a prominent disclaimer making it 
clear that the offer is directed only to countries other than the 
United States. For example, the Web site could state that the 
securities or services are not being offered in the United States or 
to U.S. persons, or it could specify those jurisdictions (other than 
the United States) in which the offer is being made;\21\ and
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    \21\ The disclaimer would have to be meaningful. For example, 
the disclaimer could state, ``This offering is intended only to be 
available to residents of countries within the European Union.'' 
Because of the global reach of the Internet, a disclaimer that 
simply states, ``The offer is not being made in any jurisdiction in 
which the offer would or could be illegal,'' however, would not be 
meaningful. In addition, if the disclaimer is not on the same screen 
as the offering material, or is not on a screen that must be viewed 
before a person can view the offering materials, it would not be 
meaningful.
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     The Web site offeror implements procedures that are 
reasonably designed to guard against sales to U.S. persons in the 
offshore offering. For example, the offeror could ascertain the 
purchaser's residence by obtaining such information as mailing 
addresses or telephone numbers (or area code) prior to the sale. 
This measure will allow the offeror to avoid sending or delivering 
securities, offering materials, services or products to a person at 
a U.S. address or telephone number.

    These procedures are not exclusive; other procedures that suffice 
to guard against sales to U.S. persons also can be used to demonstrate 
that the offer is not targeted at the United States. Regardless of the 
precautions adopted, however, we would view solicitations that appear 
by their content to be targeted at U.S. persons as made in the United 
States. Examples of this type of solicitation include purportedly 
offshore offers that emphasize the investor's ability to avoid U.S. 
income taxes on the investments.\22\ We are concerned that the advice 
that we provide to assist those who attempt to comply with both the 
letter and spirit of the securities laws will be used by others as a 
pretext to violate those laws. Sham offshore offerings or procedures, 
or other schemes will not allow issuers or promoters to escape their 
registration obligations under the U.S. securities laws.
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    \22\ In our view, while a relevant factor, the fact that an 
Internet offeror posts offering materials in English even though it 
is based in a non-English speaking country will not, by itself, 
demonstrate that the offer is targeted at the United States.
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C. Effect of Attempts by U.S. Persons to Evade Restrictions

    We recognize that U.S. persons may respond falsely to residence 
questions, disguise their country of residence by using non-resident 
addresses, or use other devices, such as offshore nominees, in order to 
participate in offshore offerings of securities or investment services. 
Thus, even if the foreign market participant has taken measures 
reasonably designed to guard against sales to U.S. persons, a U.S. 
person nevertheless could circumvent those measures.
    In our view, if a U.S. person purchases securities or investment 
services notwithstanding adequate procedures reasonably designed to 
prevent the purchase, we would not view the Internet offer after the 
fact as having been targeted at the United

[[Page 14809]]

States, absent indications that would put the issuer on notice that the 
purchaser was a U.S. person. This information might include (but is not 
limited to): receipt of payment drawn on a U.S. bank; provision of a 
U.S. taxpayer identification or social security number; or, statements 
by the purchaser indicating that, notwithstanding a foreign address, he 
or she is a U.S. resident. Confronted with such information, we would 
expect offerors to take steps to verify that the purchaser is not a 
U.S. person before selling to that person.\23\ Additionally, if despite 
its use of measures that appear to be reasonably designed to prevent 
sales to U.S. persons, the offeror discovers that it has sold to U.S. 
persons, it may need to evaluate whether other measures may be 
necessary to provide reasonable assurance against future sales to U.S. 
persons.
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    \23\ These additional steps could include a request for further 
evidence (e.g., a copy of a passport or driver's license).
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D. Third-Party Web Services

    An issuer, underwriter or other type of offshore Internet offeror 
may seek to have its offering materials posted on a third-party's Web 
site. In that event, if the offeror uses a third-party Web service that 
employs at least the same level of precautions against sales to U.S. 
persons as would be adequate for the offshore Internet offeror to 
employ, we would not view the third-party's Web site as an offer that 
is targeted to the United States.\24\
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    \24\ Governmental authorities or securities exchanges could post 
issuer information that is required by law to be filed with them, 
including prospectuses, on their Web sites without restriction. 
Securities exchanges, however, should consider the U.S. registration 
implications of their Web sites as a whole. See infra Section VII.B
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    When an offeror, or those acting on its behalf, uses a third-
party's Web site to generate interest in the Internet offer, more 
stringent precautions by the offeror than those outlined in Section 
III.B. may be warranted. These precautions may include limiting access 
to its Internet offering materials to persons who can demonstrate that 
they are not U.S. persons. For example, additional precautions may be 
called for when the Internet offeror:
     Posts offering or solicitation material or otherwise 
causes the offer to be listed on an investment-oriented Web site that 
has a significant number of U.S. clients or subscribers, or where U.S. 
investors could be expected to search for information about investment 
opportunities or services; or
     Arranges for direct or indirect hyperlinks from a third-
party investment-oriented page to its own Web page containing the 
offering material.

IV. Additional Issues Under the Securities Act

    Our Securities Act analysis assumes that the information posted on 
a Web site would, were we to deem it to occur in the United States, 
constitute an ``offer'' within the meaning of Section 5(c) of the 
Securities Act and Regulation S, a ``public offering'' prohibited under 
Section 4(2) of the Act, a ``general solicitation or general 
advertising'' prohibited under Rule 502(c) of Regulation D,\25\ and a 
``directed selling effort'' prohibited under Regulation S.\26\ The 
focus of our analysis, then, is under what circumstances should we deem 
offshore Internet offers to which U.S. persons can gain access not to 
occur in the United States.
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    \25\ Rule 502(c) under the Securities Act [17 CFR 240.502(c)].
    \26\ Rule 902(c) [17 CFR 230.902(C)].
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A. Offshore Offerings by Foreign Issuers

1. Regulation S
    When a foreign issuer is making an unregistered offshore Internet 
offer and does not plan to sell securities in the United States as part 
of the offering, it should implement the general measures outlined in 
Section III.B. to avoid targeting the United States. Assuming that the 
offering is made pursuant to Regulation S, the offering must comply 
with all of the applicable requirements under that regulation, 
including the requirement that all offers and sales be made in 
``offshore transactions.''\27\
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    \27\ Rule 902(h) and Rule 903 of Regulations S [17 CFR 
230.902(h) and 230.903]. The issuer's or underwriter's use of an 
Internet Web site to offer securities will not, by itself, prevent 
bona fide offshore purchasers in a Regulation S offering from 
reselling into the United States pursuant to registration or an 
exemption, such as Rule 144A [17 CFR 230.144A], provided that: (1) 
those purchasers are not part of the selling group; (2) those 
purchasers are not affiliated with the issuer or any member of the 
selling group; and (3) the issuer's or underwriter's use of the Web 
site was not undertaken as part of an arrangement with, or on behalf 
of, such offshore purchasers.
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2. U.S. Exempt Component
    Foreign issuers commonly make offshore offerings concurrently with 
private offerings to U.S. institutional buyers. An offering exempt 
under Section 4(2) of the Securities Act may not involve ``any public 
offering.'' Regulation D specifically prohibits the offer or sale of 
securities through a ``general solicitation or general advertising.'' 
Publicly accessible Web site postings may not be used as a means to 
locate investors to participate in a pending or imminent U.S. offering 
relying on those provisions. If a Web site posting would be 
inappropriate for a U.S. private placement, an issuer should not 
attempt to accomplish the same result indirectly through the posting of 
an offshore Internet offer.
    In addition to implementing the type of precautionary measures 
previously discussed, foreign issuers could implement other procedures 
to prevent their offshore Internet offers from being used to solicit 
participants for their U.S.-based exempt offerings, including:

     The Internet offeror could allow unrestricted access to 
its offshore Internet offering materials, but not permit persons 
responding to the offshore Internet offering to participate in its 
exempt U.S. offering, even if otherwise qualified to do so. In that 
situation, the offeror would keep a record of all persons responding 
over the Internet and all persons who otherwise indicate that they 
are responding to the offshore Internet offering;\28\ or
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    \28\ To identify those persons who are responding to the 
Internet offer, the Web site could provide telephone numbers, 
contact persons, or addresses that differ from those used in the 
offeror's other, more traditional offering materials. Under an 
approach suggested in staff no-action letters, the offeror could 
communicate with U.S. persons on the list to determine whether they 
are accredited investors with a view towards permitting their 
participation in separate, future exempt U.S. offerings by the 
issuer or, where the Web site offeror is an intermediary, other 
issuers. See Staff no-action letters, Royce Exchange Fund (available 
Aug. 28, 1996); Bateman Eichler (available Dec. 3, 1985); E.F. 
Hutton & Co. (available Dec. 3, 1985); Woodtrails-Seattle (available 
Aug. 9, 1982). Likewise, any investor solicited by the issuer or 
underwriter prior to or independent of the Web site posting could 
participate in the private offer, regardless of whether the investor 
may have viewed the posted offshore offering materials.
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     The Web site offeror could ensure that access to the 
posted offering materials is limited to those viewers who first 
provide their residence information and, in doing so, do not provide 
information such as a U.S. area code or address that indicates that 
they are a U.S. person.\29\ Thus, U.S. persons could obtain access 
only by misrepresenting their residence information.\30\

    \29\ This step could be accomplished in multiple ways. For 
example, when a person reaches the Web site and then attempts to 
move to a section that includes offering information, a screen could 
ask for the required residence information. After the user enters 
the information, the area code and address could be automatically 
and immediately screened to eliminate further access to those who 
match a U.S. area code or address. Alternately, the offeror could 
require a password and not assign a password until it verifies that 
address information, or it could block access by using technology 
that recognizes the country from which the Web site is being 
accessed.
    \30\ Web site offerors must act in good faith to screen U.S. 
persons from viewing offering information. A screening mechanism 
that suggests ways of easy bypass would not be evidence of good 
faith.
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    We believe that it would not be advisable for us to dictate the use 
of any one particular technology or screening method to protect against 
general solicitation in these instances. Any less

[[Page 14810]]

costly, less intrusive method that is equally or more effective than 
those that we have suggested would be adequate as well.
    In addition, the posted offering materials should relate only to 
the offshore offering.\31\ The materials should contain only that 
information (if any) concerning the private U.S. offering that is 
required by foreign law to be provided to investors participating in 
the offshore public offering.\32\
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    \31\ A foreign issuer that wishes to use an Internet Web site to 
conduct the concurrent private placement in the United States could 
follow the general procedures developed in the domestic context for 
private placements on the Internet. See, e.g., Staff no-action 
letters, IPONET (available July 26, 1996); Lamp Technologies, Inc. 
(available May 29, 1997). Under these procedures, the public offer 
posted on the Web site may not provide a hyperlink or otherwise 
alert the viewer to any Web site containing private placement 
offering materials.
    \32\ Rule 135c under the Securities Act [17 CFR 230.135c] 
provides useful guidance on what limited information could be 
included on the Web site under these circumstances.
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B. Offshore Offerings by U.S. Issuers

    Our approach to the use of Web sites to post offshore securities 
offerings distinguishes between domestic and foreign issuers.\33\ For 
the following reasons, additional precautions are justified for Web 
sites operated by domestic issuers purporting not to make a public 
offering in the United States:

    \33\ We use the term ``foreign issuer'' as it is defined in Rule 
902(e) of Regulation S [17 CFR 230.902(e)]. See Securities Act 
Release No. 7505.
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     The substantial contacts that a U.S. issuer has with 
the United States justifies our exercise of more extensive 
regulatory jurisdiction over its securities-related activities;
     There is a strong likelihood that securities of U.S. 
issuers initially offered and sold offshore will enter the U.S. 
trading markets; and
     U.S. issuers and investors have a much greater 
expectation that securities offerings by domestic issuers will be 
subject to the U.S. securities laws.

    Our experience with abusive practices under Regulation S indicates 
that we should proceed cautiously when giving guidance to U.S. issuers 
in the area of unregistered offshore offerings. As a result, we would 
not consider a U.S. issuer using a Web site to make an unregistered 
offer to have implemented reasonable measures to prevent sales to U.S. 
persons unless, in addition to the general precautions discussed above 
in Section III.B., the U.S. issuer implements password-type procedures 
that are reasonably designed to ensure that only non-U.S. persons can 
obtain access to the offer.\34\ Under this procedure, persons seeking 
access to the Internet offer would have to demonstrate to the issuer or 
intermediary that they are not U.S. persons before obtaining the 
password for the site.\35\
---------------------------------------------------------------------------

    \34\ See, e.g., IPONET and Lamp Technologies, Inc., supra note 
31. Our interpretation therefore would allow for the creation of 
limited-access systems. Eventually, closed systems may develop that 
target only non-U.S. persons and qualified U.S. investors.
    \35\ See Securities Act Release No. 7392 at n.31 (Feb. 28, 1997) 
[62 FR 9258] (issuer cannot accept at face value representations by 
investors regarding their residence). See also IPONET, supra note 
31(IPONET's activities were supervised by an entity that verified 
information provided to IPONET by people who filled out IPONET's on-
line questionnaire. Information from the questionnaires was used to 
determine whether respondents qualified as accredited investors and 
therefore were eligible to obtain password to access password-
protected Web pages where IPONET posted private offerings).
---------------------------------------------------------------------------

    In the context of broader Securities Act reform, we have been 
considering whether the current general solicitation and other offering 
communications restrictions on issuers and other offering participants 
should be modified to create greater flexibility.\36\ To the extent 
that we reform those restrictions on offering communications in the 
future, we also will consider the implications of those changes for 
unregistered offshore Internet offerings.
---------------------------------------------------------------------------

    \36\ Securities Act Release No. 7314 (July 25, 1996) [61 FR 
40044]; Securities Act Release No. 7187 (July 10, 1995) [60 FR 
356545].
---------------------------------------------------------------------------

C. Concurrent U.S. Registered Offering

    A registered offering in the United States that takes place 
concurrently with an unregistered offshore Internet offer presents 
concerns because of the Securities Act's restrictions on making offers 
prior to the filing of a registration statement or, in the case of 
written or published offers, outside of the statutory prospectus. 
Consistent with these requirements, therefore, premature posting of 
offering information must be avoided. Existing Commission rules that 
provide a safe harbor for announcements of anticipated offerings 
provide guidance in this respect.\37\ The Commission is considering 
whether to provide further guidance or to make further changes 
concerning concurrent U.S. registered offerings and offshore Internet 
offers in the context of broader Securities Act reforms.
---------------------------------------------------------------------------

    \37\ See, e.g., Rule 135 under the Securities Act [17 CFR 
230.135].
---------------------------------------------------------------------------

D. Underwriters

    Just as an issuer must take reasonable steps to avoid offers of 
unregistered securities in the United States, so too must persons 
acting on behalf of the issuer, such as underwriters or distributors. 
These persons, for purposes of the Securities Act, stand in the place 
of the issuer.
    Thus, regardless of whether the underwriter is foreign or domestic, 
what constitutes measures reasonably designed to prevent sales to U.S. 
persons will depend on the status of the issuer. For example, if the 
issuer is domestic and precautionary measures would call for its Web 
site containing offshore offering information to be password-protected, 
so too should the information be protected on the underwriter's Web 
site.\38\
---------------------------------------------------------------------------

    \38\ This, however, would not include bona fide research that 
complies with the Commission's safe harbor rules for research 
reports. See Rules 137-139 under the Securities Act [17 CFR 230.137-
230.139]. Cf. Exchange Act Rule 15a-6(a)(2) [17 CFR 240.15a-6(a)(2)] 
(conditional exemption from U.S. broker-dealer registration for 
foreign broker-dealers that furnish research reports to ``major 
institutional investors'' as defined in the rule).
---------------------------------------------------------------------------

V. Additional Issues Under the Investment Company Act

    This portion of the release addresses certain issues that arise 
under the Investment Company Act when a foreign fund (that is, an 
investment company that is organized under the laws of a jurisdiction 
other than the United States) makes an offshore Internet offer of its 
securities. In general, as with other types of securities offerings, we 
would not consider an Internet offer by a foreign fund to cause the 
fund to be subject to regulation or registration under the Investment 
Company Act if the foreign fund implements measures reasonably designed 
to guard against sales to U.S. persons.
    The issue raised by the use of the Internet is whether a foreign 
fund's Internet offer that can be accessed by U.S. persons should be 
considered a public offer in the United States.\39\ Consistent with our 
position under the Securities Act, if a foreign fund implements 
measures reasonably designed to guard against sales to U.S. persons, we 
would not consider the foreign fund's Internet offer to be targeted to 
U.S. persons, and therefore would not consider the Internet offer to 
constitute a public offer in the United

[[Page 14811]]

States subjecting the foreign fund to regulation and registration under 
the Investment Company Act.
---------------------------------------------------------------------------

    \39\ Section 7(d) of the Investment Company Act generally 
prohibits a foreign fund from using U.S. jurisdictional means to 
make a public offer of its securities in the United States or to 
U.S. persons, unless the fund receives an order from the Commission 
permitting it to register under the Investment Company Act. The 
Commission may issue such an order only if it finds that it is 
legally and practically feasible to enforce the provisions of the 
Investment Company Act effectively against the foreign fund, and 
that the issuance of the order is consistent with the public 
interest and the protection of investors.
    For purposes of Section V, references to offers and sales to 
U.S. persons include offers or sales in the United States. 
Similarly, references to offers or sales in the United States 
include offers or sales to U.S. persons.
---------------------------------------------------------------------------

    An Internet offer by a foreign fund may arise in a number of 
situations. For example, a foreign fund could conduct an Internet offer 
that is targeted exclusively offshore. A foreign fund also could 
conduct an offshore Internet offer in addition to a private U.S. 
offer.\40\ We discuss these situations separately below. We also 
address the use of the Internet by unregistered U.S. funds making 
private offshore offers, and the use of other forms of Internet 
marketing of investment company securities.
---------------------------------------------------------------------------

    \40\ In addition, a foreign fund also may use the Internet 
exclusively to conduct a private U.S. offer. This release doe not 
address the ability of a foreign fund to conduct a private U.S. 
offer over the Internet, except to the extent that it is relevant to 
the foreign fund's ability to simultaneously conduct an offshore 
Internet offer. See infra note 45 and accompanying text. As 
discussed above in Section I, the statements made in this release do 
not alter the requirement that all offers and sales in the United 
States must be pursuant to registration under the U.S. securities 
laws or an applicable exemption.
---------------------------------------------------------------------------

A. Internet Offers by a Foreign Fund

1. Offers Targeted Exclusively Offshore
    When a foreign fund is making an unregistered offshore Internet 
offer and does not intend to sell securities in the United States as 
part of the offering, our general statements in Section III.B. 
outlining the need for precautionary measures to avoid targeting the 
United States apply here as well. We may view an Internet offer as 
being targeted to U.S. persons, however, if the foreign fund is engaged 
in activities, either as a part of or in addition to its Internet 
offer, that are designed to attract U.S. persons to the Internet offer, 
such as advertising the existence of the foreign fund's Web site in a 
U.S. publication.
2. Foreign Funds Conducting Offshore and Private U.S. Offers
    Next, we address offshore Internet offers by foreign funds that 
also are conducting private U.S. offers.\41\ We would not consider a 
foreign fund that is concurrently conducting both a private U.S. offer 
and an offshore Internet offer to be making a public offer of its 
securities in the United States if the foreign fund implements measures 
reasonably designed to guard against public sales of its securities to 
U.S. persons, and the Internet offer is not indirectly used as a 
general solicitation for participants in the private U.S. offer. As 
stated above, what constitutes adequate measures will depend on all of 
the facts and circumstances. In addition to implementing the type of 
precautionary measures discussed in Section III.B. (with one 
modification noted below), a foreign fund could use any procedures 
reasonably designed to guard against use of its Internet offer to 
generally solicit participants in the U.S. private offer.\42\
---------------------------------------------------------------------------

    \41\ The staff previously took the position that under certain 
circumstances a foreign fund that is conducting an offshore offer 
also may make a private U.S. offer in reliance on the exclusion from 
the definition of ``investment company'' in Section 3(c)(1) of the 
Investment Company Act consistent with the public offering 
prohibition contained in Section 7(d). See Staff no-action letter, 
Touche Remnant & Co. (available Aug. 27, 1984) (``Touche Remnant''). 
In Goodwin Procter, supra note 13, the staff similarly took the 
position that under certain circumstances a foreign fund that is 
conducting an offshore offer also may make a private U.S. offer in 
reliance on the exclusion from the definition of ``investment 
company'' in Section 3(c)(7) of the Investment Company Act 
consistent with the public offering prohibition contained in Section 
7(d). the staff also has stated that if U.S. persons become 
shareholders of a foreign fund for reasons beyond the control of the 
fund or persons acting on its behalf, the fund would not be required 
to count those shareholders as U.S. persons for purposes of 
determining whether the fund may rely on the exception from the 
definition of ``investment company'' in Section 3(c)(1) of the 
Investment Company Act. See Staff no-action letter, Investment Funds 
Institute of Canada (available Mar. 4, 1996). The same position 
applies to foreign funds relying on Section 3(c)(7) of the 
Investment Company Act. See generally Goodwin Procter, supra note 
13. We take the position that Touche Remnant is superseded to the 
extent that it is inconsistent with these positions.
    \42\ See notes 28-32 supra and accompanying text.
---------------------------------------------------------------------------

    If a foreign fund that is concurrently conducting a private U.S. 
offer and an Internet offer uses a disclaimer that reflects the 
existence of two separate offers and indicates that the Internet offer 
is not being made in the United States, we would view this action as an 
indication that the fund has taken measures reasonably designed to 
guard against publicly selling its securities to U.S. persons. The 
disclaimer could state, for example, that this offer (the offshore 
Internet offer) is not being made in the United States (or identify the 
jurisdictions in which the Internet offer is being made) and that the 
offer and sale of securities in the United States is not permitted 
except pursuant to an exemption from registration.
    If, however, a foreign fund directly or indirectly provides any 
additional information on its Web site about the types of persons to 
whom offers and sales can be made pursuant to an exemption under U.S. 
law, or provides guidance on how U.S. persons may obtain this or other 
purchasing information, we would view this action as an indication that 
the foreign fund is using its Internet offer to target the United 
States, except to the extent that foreign law requires that the 
information be disclosed.\43\ Moreover, if the foreign fund provides a 
hyperlink, or otherwise directs U.S. persons, to another source that 
provides information about the private offering, we would view this 
action as an indication that the foreign fund is targeting the United 
States. In our view, either of these actions could result in the 
foreign fund making a public offer in the United States.
---------------------------------------------------------------------------

    \43\ Although Rule 135c by its terms applies only to Section 5 
of the Securities Act, we would take a similar approach with respect 
to the type of information that a foreign fund may, if required by 
foreign law, provide on its Internet site about a U.S. private offer 
without violating the public offering prohibition contained in 
Section 7(d) of the Investment Company Act. See supra note 32 and 
accompany text.
---------------------------------------------------------------------------

    A foreign fund also may be making a public offer in the United 
States if it provides any other information about the private U.S. 
offer on its Web site, except to the extent that foreign law requires 
that the information be disclosed.\44\ If the foreign fund wishes to 
provide information on its Web site relating to its private U.S. offer 
(other than information required by foreign law), it generally may do 
so without registering under the Investment Company Act if it adopts 
and implements password-type procedures with respect to that 
information.\45\
---------------------------------------------------------------------------

    \44\ An adviser to a foreign fund conducting an offshore 
Internet offer that also sponsors a U.S.-registered investment 
company with the same investment objectives and policies as the 
foreign fund may provide information about, or direct the viewer to, 
the registered U.S. offer without the Internet offer being 
considered to be a public offer of the foreign fund's securities in 
the United States.
    \45\ See Lamp Technologies, Inc. and IPONET, supra note 31. 
Prequalification and password-type procedures are intended to ensure 
that only persons eligible to privately purchase the securities can 
obtain access to a Web site used in connection with a private offer 
and that the dissemination of information through the Internet site 
does not constitute a ``general solicitation'' under Rule 502(c) of 
Regulation D under the Securities Act. In addition to the procedures 
discussed in Lamp Technologies, there may be other, equally 
effective procedures designed to restrict access to information on 
the Internet to those persons who are eligible to purchase 
securities in a private U.S. offer.
---------------------------------------------------------------------------

    As with our position under the Securities Act, we are concerned 
that our guidance with respect to the Investment Company Act may be 
used by some foreign funds that are conducting Internet offers to 
engage in activities that are part of a plan or scheme to make public 
offers in the United States. None of our statements in this release is 
intended to suggest that any foreign fund could do indirectly what it 
could not lawfully do directly.\46\
---------------------------------------------------------------------------

    \46\ See Section 48(a) of the Investment Company Act.
---------------------------------------------------------------------------

B. Offshore Offers by U.S. Funds

    As previously noted, the Commission's position on the use of the 
Internet for unregistered offshore offers generally distinguishes 
between U.S.

[[Page 14812]]

and foreign issuers, based upon the Commission's greater interest in 
regulating the conduct of U.S. issuers in the United States. As noted 
in Section IV.B., we will not require a U.S. issuer making an offshore 
offer over the Internet to register the offer under the Securities Act 
if it uses procedures reasonably designed to ensure that only non-U.S. 
persons may view the offer. We conclude that the same approach should 
apply under the Investment Company Act to U.S. funds making offshore 
Internet offers. Thus, we would not consider a U.S. fund making a 
private offshore offer in reliance on one of the exclusions from the 
definition of ``investment company'' in Section 3(c)(1) or Section 
3(c)(7) of the Investment Company Act to be making a public offer in 
the United States if the fund uses procedures, such as password-
protected web sites, reasonably designed to ensure the private nature 
of the offer.\47\
---------------------------------------------------------------------------

    \47\ See supra notes 34-35 and accompanying text.
---------------------------------------------------------------------------

    As noted above, we are considering whether the current restrictions 
on general solicitations in connection with private offers under the 
Securities Act should be modified.\48\ In the event that we revise 
current Securities Act restrictions on exempt private offers and 
unregistered offshore offers, we anticipate that we would consider 
parallel revisions under the Investment Company Act.
---------------------------------------------------------------------------

    \48\ See supra note 36 and accompanying text.
---------------------------------------------------------------------------

C. Other Forms of Internet Marketing of Investment Company Securities

    We analyze Internet offers made by or on behalf of a foreign fund 
in generally the same manner as offers by other types of issuers.\49\ 
If a foreign fund or persons acting on its behalf seek to use a third-
party Web site to generate interest in an offshore offer, the 
implementation of more stringent restrictions on the offshore Internet 
offer may be necessary to ensure that the offer is not being directed 
into the United States, including limiting access to the Internet 
offering materials to persons who can demonstrate that they are not 
U.S. persons.\50\
---------------------------------------------------------------------------

    \49\ See Section III.D., supra.
    \50\ Id.
---------------------------------------------------------------------------

VI. Offers of Advisory Services Under the Advisers Act

    This portion of the release addresses issues that arise under the 
Advisers Act when a foreign adviser (that is, an investment adviser 
that is organized under the laws of a jurisdiction other than the 
United States) offers its advisory services over the Internet. In 
general, a foreign adviser may be able to rely on an exemption from 
registration under the Advisers Act if it has fewer than fifteen U.S. 
clients and implements measures reasonably designed to ensure that, 
based on its Internet activities, the adviser is not holding itself out 
as an investment adviser in the United States.\51\
---------------------------------------------------------------------------

    \51\ Section 203)a) of the Advisers Act generally prohibits any 
investment adviser from using U.S. jurisdictional means in 
connection with its business as an investment adviser, unless the 
adviser is registered with the Commission, or is exempted or 
excluded from the requirement to register. Section 203(b)(3) of the 
Advisers Act provides for an exemption from registration for any 
adviser who during the course of the preceding twelve months has had 
fewer than fifteen clients and who neither holds itself out 
generally to the public as an investment adviser nor acts as an 
adviser to a U.S.-registered investment company or business 
development company. The staff has taken the position that foreign 
advisers are required to count only their U.S. clients for purposes 
of determining whether they are exempt from registration under 
Section 203(b)(3). See Protecting Investors: A Half Century of 
Investment Company Regulation, at 223 n.6 (1992); Staff no-action 
letter, Murray Johnstone Ltd. (available Oct. 7, 1994).
---------------------------------------------------------------------------

    The issue raised by a foreign investment adviser's use of the 
Internet is whether and, if so, under what circumstances, the foreign 
adviser may provide information about its advisory services over the 
Internet without being considered to be holding itself out as an 
investment adviser in the United States. We conclude that a foreign 
adviser providing advisory services over the Internet generally would 
be holding itself out as an investment adviser. Specifically, we have 
stated that we generally will consider an adviser who uses a publicly 
available electronic medium, such as the Internet, to provide 
information about its services to be holding itself out to the public 
as an adviser, and to not qualify for the exemption from registration 
contained in
    Section 203(b)(3) of the Advisers Act.\52\ If, however, the adviser 
implements measures reasonably designed to guard against directing 
information provided on the Internet about its advisory services to 
U.S. persons, we would not consider the foreign adviser to be holding 
itself out as an investment adviser in the United States for purposes 
of Section 203(b)(3).
---------------------------------------------------------------------------

    \52\ See use of Electronic Media by Broker-Dealers, Transfer 
Agents, and Investment Adviser for Delivery of Information, 
Securities Act Release No. 7288 (May 9, 1996) at text accompanying 
n. 32. But see Lamp Technologies, Inc., supra note 31.
---------------------------------------------------------------------------

    What constitutes measures reasonably designed to guard against an 
adviser holding itself out as an investment adviser in the United 
States will depend on all of the facts and circumstances. We generally 
would consider an adviser to have implemented measures reasonably 
designed to guard against holding itself out as an investment adviser 
in the United States if:

     The Web site includes a prominent disclaimer making it 
clear to whom the site materials are (or are not) directed.\53\
---------------------------------------------------------------------------

    \53\ See supra note 21 and accompaying text.
---------------------------------------------------------------------------

     The adviser implements procedures reasonably designed 
to guard against directing information about its advisory services 
to U.S. persons (e.g., obtaining sufficient residency information 
such as mailing addresses or telephone numbers prior to sending 
further information), other than to its fourteen or fewer U.S. 
clients.\54\
---------------------------------------------------------------------------

    \54\ See text following supra note 21.
---------------------------------------------------------------------------

    Other measures also may provide adequate assurance that a foreign 
adviser is not holding itself out as an investment adviser in the 
United States.

VII. Exchange Act Registration Issues

    The Internet activities of broker-dealers and markets (including 
exchanges) also raise issues under the Exchange Act. Foreign entities 
that perform these functions should consider whether their Internet 
activities would subject them to registration under the Exchange Act.

A. Broker-Dealer Activities

    Broker-dealers must register with the Commission if they are 
physically present in the United States, or if, regardless of their 
location, they effect, induce, or attempt to induce securities 
transactions with investors in the United States. The issue, therefore, 
is whether the Commission would deem a broker-dealer's Web site to be 
an attempt to induce securities transactions with U.S. persons. Broker-
dealer Web sites may offer market information and investment tools, 
real-time or delayed quote information, market summaries, research, 
portfolio management tools, and analytic programs. Some sites also 
include information on commissions and other fees, branch office 
locations, and instructions on how to contact the broker-dealer. In 
essence, Web sites advertise the broker-dealers' services to potential 
investors with the intent of attracting securities business.
    In keeping with the general principles outlined above (Section 
III.B.), the Commission will not consider a foreign broker-dealer's 
advertising on an Internet Web site to constitute an attempt to induce 
a securities transaction with U.S. persons if the foreign broker-dealer 
takes measures reasonably designed to ensure that it does not effect 
securities transactions with U.S. persons as a result of its Internet 
activities.
    Under our general principles, as applied in the broker-dealer 
context, a

[[Page 14813]]

foreign broker-dealer generally would be considered to have taken 
measures reasonably designed to ensure it does not effect securities 
transactions with U.S. persons as a result of its Internet activities 
if it:

     Posts a prominent disclaimer on the Web site either 
affirmatively delineating the countries in which the broker-dealer's 
services are available, or stating that the services are not 
available to U.S. persons; and
     Refuses to provide brokerage services to any potential 
customer that the broker-dealer has reason to believe is, or that 
indicates that it is, a U.S. person, based on residence, mailing 
address, payment method, or other grounds.

    As a means to implement the latter procedure, the broker-dealer 
should require potential customers to provide sufficient residence 
information.
    These procedures are not exclusive. Adoption of other equally or 
more effective precautions can also suffice to demonstrate that the 
broker-dealer does not effect securities transactions with U.S. persons 
as a result of its Internet activities.
    The Commission has exempted foreign broker-dealers that effect 
transactions with U.S. customers from registering in the United States 
if these customers initiated transactions with the foreign broker-
dealers outside of the United States without solicitation. 
Specifically, Exchange Act Rule 15a-6 currently provides an exemption 
from U.S. broker-dealer registration for foreign broker-dealers that 
effect transactions in securities with or for persons that they have 
not solicited.\55\ Foreign broker-dealers that solicit transactions 
with U.S. persons, however, are required to register as broker-dealers 
in the United States.
---------------------------------------------------------------------------

    \55\ Exchange Act Rule 15a-6(a)(1) [17 CFR 240.15a-6(a)(1)].
---------------------------------------------------------------------------

    Foreign broker-dealers that have Internet Web sites and that intend 
to rely on Rule 15a-6's ``unsolicited'' exemption should ensure that 
the ``unsolicited'' customer's transactions are not in fact solicited, 
either directly or indirectly, through customers accessing their Web 
sites.\56\ In particular, these broker-dealers could obtain, as a 
precaution reasonably designed to prevent that result, affirmative 
representations from potential U.S. customers that they deem 
unsolicited that those customers have not previously accessed their Web 
sites. Alternatively, a broker-dealer could maintain records that are 
sufficiently detailed and verifiable to reliably determine that such 
U.S. customers had not obtained access to its Web site.
---------------------------------------------------------------------------

    \56\ Because a securities firm's Web site itself typically is a 
solicitation, orders routed through the Web site would not be 
considered ``unsolicited.''
---------------------------------------------------------------------------

B. Exchange Activities

    Until recently, in order to obtain current market information 
about, and to purchase or sell securities on, a foreign market, a U.S. 
investor typically contacted a U.S. broker-dealer by telephone or 
facsimile. Alternatively, the U.S. investor could directly contact a 
foreign broker-dealer that is a member of the foreign market. Today, 
however, the technology exists for investors to obtain real-time 
information about trading on foreign markets from a number of different 
sources, and to enter and execute orders on those markets 
electronically from the United States. Many exchanges, for example, 
offer Web sites through which they provide real-time quotes and other 
market information, e-mail addresses for questions, general contact and 
membership information (including the names and addresses of members), 
and other investing tools.
    The U.S. securities laws require exchanges to register with the 
Commission if they (or any broker or dealer) ``make use of the mails or 
any means or instrumentality of interstate commerce for the purpose of 
using any facility of an exchange within or subject to the jurisdiction 
of the United States to effect any transaction in a security, or to 
report any such transaction.'' \57\ The Commission currently is 
considering the question of under what circumstances a foreign market 
that provides the ability in the United States for U.S. persons to 
trade directly in the market must register as a U.S. exchange.\58\
---------------------------------------------------------------------------

    \57\ Section 5 of the Exchange Act, 15 U.S.C. 78e.
    \58\ Exchange Act Release No. 38672 (May 23, 1997).
---------------------------------------------------------------------------

    At this time, however, the Commission will not apply the exchange 
registration requirements to a foreign market that sponsors a Web site 
generally advertising the foreign exchange, disseminating quotes 
(including real-time quotes with counterparty identification), or 
allowing orders to be directed to the market through its Web site, so 
long as the exchange takes steps reasonably designed to prevent U.S. 
persons from directing orders to the market through its Web site. In 
our view, an exchange generally would be considered to have taken steps 
reasonably designed to prevent U.S. persons from accessing the market 
through its Web site if it:

     Posts a disclaimer on the Web site affirmatively 
stating either the countries in which the exchange's services are 
directly available, or that the exchange's services are not directly 
available to U.S. persons;
     Requires potential members or direct participants in 
the exchange to state their residence and mailing address;
     Refuses to allow trading on the exchange through the 
Web site by any person that the exchange has reason to believe, or 
that indicates it, is a U.S. person; and
     Refrains from making arrangements to provide U.S. 
persons with access to the exchange over the Internet indirectly 
through its members.\59\
---------------------------------------------------------------------------

    \59\ This last step would preclude an exchange from relying on 
this release if it, for example, sets the terms under which exchange 
members provide Internet access to the exchange, or makes 
arrangements for U.S. persons to directly clear and settle trades 
conducted on the exchange through the Internet. Foreign exchanges 
that knowingly provide U.S. persons with access to their trading 
facilities through the Internet would not be able to rely on this 
interpretation, and may be required to register with the Commission.
---------------------------------------------------------------------------

List of Subjects

17 CFR Parts 231, 241 and 276

    Securities.

17 CFR Part 271

    Investment companies, Securities.

Amendments to the Code of Federal Regulations

    For the reasons set forth in the preamble, the Commission is 
amending Title 17, Chapter II of the Code of Federal Regulations as 
follows:

PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF 
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

    1. Part 231 is amended by adding Release No. 33-7516 and the 
release date of March 23, 1998, to the list of interpretative releases.

PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES 
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

    2. Part 241 is amended by adding Release No. 34-39779 and the 
release date of March 23, 1998, to the list of interpretative releases.

PART 271--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 
COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

    3. Part 271 is amended by adding Release No. IC-23071 and the 
release date of March 23, 1998, to the list of interpretative releases.

[[Page 14814]]

PART 276--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 
ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

    4. Part 276 is amended by adding Release No. IA-1710 and the 
release date of March 23, 1998, to the list of interpretative releases.

    By the Commission.

    Dated: March 23, 1998.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8001 Filed 3-26-98; 8:45 am]
BILLING CODE 8010-01-P