Annual Report 1959
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of the !I s.Securities and Exchange II Commission Fiscal Year Ended June 30, 1959 UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON • 1959 For IIB1e by the Superintendent 01 Docwnenu, U.S. Government PrintinS Office WaehiDgton 25, D.C. - Price'l (paper coyer) SECURITIES AND EXCHANGE COMMISSION Headquarters Office 425 Second Street NW. Washington 25, D.C. COMMISSIONERS January 6,1960 EDWARD N. GADSBY, Chairman ANDREW DOWNEY ORRICK HAROLD C. PATTERSON EARL F. HASTINGS JAMES C. SARGENT • ORVAL L. DuBoIS, Secretary II LETTER OF TRANSMITTAL SECURITIES AND EXCHANGE Co:I\OnSSION, Washington, D.O., January 6, 1960. SIR: On behalf of the Securities and Exchange Commission, I have the honor to transmit to you the Twenty-Fifth Annual Report of the Commission covering the fiscal year July 1, 1958, to June 30, 1959, in accordance with the provisions of section 23 (b) of the Securities Exchange Act of 1934, approved June 6, 1934; section 23 of the Public Utility Holding Company Act of 1935, approved August 26, 1935; section 46 (a) of the Investment Company Act of 1940, approved August 22, 1940; section 216 of the Investment Advisers Act of 1940, approved August 22,1940; and section 3 of the act of June 29,1949, amending the Bretton Woods Agreement Act. Respectfully, EDWARD N. GADSBY, Ohairman. THE PRESIDENT OF THE SENATE, THE SPEAKER OF THE HOUSE OF REPRESENTATIVES, Washington, D.O. m TABLE OF CONTENTS Pan Foreword_________________________________________________________ XlU Original Commission and former eommissioners., _ _ XL Present Commission and staff offieers; _ XLI Regional and branch offices_________________________________________ XLU Biographies of oommissioners., _ _ XLIII PART I CURRENT PROBLEMS BEFORE THE COMMISSION-___________ 1 Fraud in the sale of securities___________________________________ 2 Manipulation in the securities markets___________________________ 4 Exemptions from registration and pre-filing publicity_______________ 4 Regulation of the exohanges; _ _ 6 Regulation of the over-the-counter markets_______________________ 7 Inspection of investment companies______________________________ 7 Other factors in the securities markets___________________________ 8 PART II LEGISLATIVE ACTIVITIES__ ___ ____ __ 9 Statutory amendments proposed by the COmmission________________ 9 Other legislative proposals_______________________________________ 12 Congressional hearinga, _____ _ _ __ 14 PART III REVISION OF RULES, REGULATIONS AND FORMS______________ 15 The Securities Act of 1933_______________________________________ 15 Amendment of Rule 133_____________________________________ 15 Amendment of Rule 135_____________________________________ 16 Proposed rule changes relating to assessable stock______________ 17 Proposed Rule 144__________________________________________ 17 Adoption of Rule 151 ... 18 Amendment of Rule 434A___________________________________ 18 Adoption of Regulation E-__________________________________ 19 Adoption of Form N-5______________________________________ 19 Adoption of Form 8-14_____________________________________ 20 The Securities Exchange Act of 1934______________________________ 20 Adoption of Rule 16b-8_____________________________________ 20 Amendment of Form 8-K___________________________________ 21 The Investment Company Act of 1940____________________________ 21 Adoption of Rule 3c-L_____________________________________ 21 Adoption of Rule 10f-3-Permitting acquisition of securities of underwriting syndicates______________________________ 22 Adoption of Rule 22d-l-Relating to variations in sales load ofre- deemable seeuritles, 23 Adoption of Form N-5-Registration form for small business in- J vestment companies______________________________________ 25 y VI TABLE OF CONTENTS PART IV Page ADMINISTRATION OF THE SECURITIES ACT OF 1933 _ 26 Description of the registration process: Registration statement and prospectus _ 26 Examina~onprocedure _ 27 Time required to complete registration _ 27 Volume of securities registered.. _ 28 Registration statements filed.. - _ 31 Results obtained by the registration process _ 32 Stop orderproceedings _ 35 Examinations and investigations _ 43 Exemption from registration of small issues _ 44 Exempt offerings under Regulation A _ 45 Suspension of exemption _ 46 Exempt offerings under Regulation B _ 49 Litigation under the Securities Act of 1933 _ 50 Litigation involving violations of registration and antifraud pro- visions _ 50 Litigation relating to stop order proceedings ~ _ 56 Participation as amicus curiae _ 57 PART V ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF 1934___________________________________________________________ 58 Regulation of exchanges and exchange trading____________________ 58 Registration and exemption of exchanges_____________________ 58 Disciplinary actions_______ __ _____ ____ 58 Commission rate study_____________________________________ 59 Activities of floor traders and specialists______________________ 60 Registration of securities on exchanges___________________________ 60 Statistics relating to registration_____________________________ 61 Market value of securities traded on exchanges____________________ 62 Assets of domestic companies with common stocks on exehauges., 64 Foreign stock on exchanges_________________________________ 65 Comparative over-the-counter statistics______________________ 65 Delisting of securities from exchanges____________________________ 68 Delisting proceedings under section 19(a)_____________________ 71 Unlisted trading privileges on exchanges__________________________ 71 Applications for unlisted trading privileges____________________ 74 Block distributions reported by exchanges________________________ 75 Manipulation and stabilizatlon., _ _ __ _________ 76 Manipula~on_____________________________________________ 76 Stabilization ______________________________________________ 79 Insiders' security holdings and transactions_______________________ 80 O~ership reports_________________________________________ 81 Recovery of short swing trading profits by issuer______________ 82 Regulation of proxies; __ __ ____ __ 82 Scope of proxy regulation___________________________________ 82 Statistics relating to proxy statements________________________ 83 Stockholder proposals; __ _ 83 Ratio of soliciting to non-soliciting companies_________________ 84 Proxy contests____________________________________________ 84 TABLE OF CONTENTS VII ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF 1934-Continued ,Page Regulation of broker-dealers and over-the-counter markets__________ 84 Registration; ______ _ _ ________ _ 84 Administrative proceedings; 85 Net capital rule___________________________________________ 105 Financial statementa.; __ _____ _ _ _ 105 Broker-dealer inspections, _______ _________ ___ _ 106 Supervision of activities of National Association of Securities Dealers, Inc________________________________________________________ 108 NASD disciplinary actions__________________________________ 109 Commission review of NASD disciplinary action_______________ 111 Commission review of N ASD action on membership _ __________ 113 Litigation under the Securities Exchange Act of 1934_ _ _ ___________ 114 Anti-fraud litigation _ _______ __ _________ _______ 114 Cases under the net capital rule_____________________________ 116 Litigation involving broker-dealer registration and reporting requirements____________________________________________ 117 Proxy litigation , ____ ____ _ 118 Contempt proceedings_____ __ 118 Participation as amicus curiae_______________________________ 119 PART VI ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COM- PANY ACT OF 1935___________________________________________ 120 Composition of registered holding company systems-summary of changes____________________________________________________ 120 Developments in individual registered systems_____________________ 123 Financing of active registered public utility holding companies and their subsidiaries______ ________ __ ___ 134 Competitive bidding; _______ ____ ______________ _____ 136 Protective provisions of first mortgage bonds and preferred stocks of public utility companies______ _________ ___ _ 137 PART VII PARTICIPATION OF THE COMMISSION IN CORPORATE RE- ORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT, AS AMENDED___________________________________________ 142 Summary of activities_______ __ ____ ______ _______ _ 142 The Commission as a party to proceedings________________________ 143 Procedural matters; ____ __ ___ _____ _____ 144 Problems in connection with the administration of estates ,_____ 145 'I'ruetee's investigations ~_____ 147 Activities regarding protective committees________________________ 147 Activities with regard to allowances______________________________ 148 Advisory reports on plans of reorganization ~__________ 150 PART VIII ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939____ 156 vm TABLE OF -CONTEN',l'S PART IX ADMINISTRATION OF THE INVESTMENT COMPANY ACT Page OF 1940_______________________________________________________ 157 Companies registered under the Act______________________________ 157 Growth of investment company assets____________________________ 158 Program for inspection of investment companies :.__ 159 Study of size of investment companies___________________________ 160 Current informatlon., _ __ 160 Applications and proceedings____________________________________ 161 Litigation under the Investment Company Act of 1940_____________ 164 PART X ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF 1940___________________________________________________________