Annual Report 1956
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22nd Annual Report of the Securities and Exchange Commission Fiscal Year Ended June 30, 1956 UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON • 1956 For we by the Superintendent of DocuJDenta, U. S. Govern.m.ent Printing Office Waahington 25, D. C. - Price 50 centa (paper cover) SECURITIES AND EXCHANGE COMMISSION Headquarters Office 425 Second Street NW. Washington 25, D. C. COMMISSIONERS January 3, 1957 J. SINCLAIR ARMSTRONG, Chairman ANDREW DOWNEY ORRICK HAROLD c. PATTERSON EARL F. HASTINGS JAMES .C. SARGENT ORVAL L. DuBoIS, Secretary II LITTER OF TRANSBIITTAL SECURITIESAND EXCHANGECOMMISSION, Washington,D. C., January 3, 1957. SIR: On behalf of the Securities and Exchange Commission, I have the honor to transmit to you the Twenty-Second Annual Report of the Commissioncovering thefiscal yearJuly 1,1955 to June30,1956inaccor- dance 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, appioved August 22, 1940; and section 3 of the act of June 29,1949, amending the Bretton Woods Agreements Act. Respectfully, J. SINCLAIRARMBTRONQ, Chairman. TEE PRESIDENTOF THE SENATE, TEE SPEAKEROF TEE HOUSEOF REPRESENTATIVES, Washington,D. C. m TABLE OF CONTENTS Page. Foreword_________________________________________________________ XI Commissioners and staff officers_____________________________________ XIX Regional and branch offiees., , ___ _____ ________ ________ _________ xx Biographies of commissionera.; , ______ ________ __________ __________ XXI PART I ENFORCEMENT PROGRAM_____________________ _ 1 PART II LEGISLATIVE ACTIVITIES_ ______ __ ___ _____ ___ _ __ __ 8 Statutory amendments proposed by the commission________________ 8 Registration of unlisted securities________________________________ 9 Proposals to amend the exemption for small issues_________________ 11 Activities relating to amendment of Public Utility Holding Company Act of 1935_ _ _ _ __ __ _____ ________ _ 12 Nuclear reactor Iegislation., , ______ _____ ___ ___ 12 Exemption for General Public Utilities Corp______________________ 17 Other legislative proposals.Lc , , ________ _________ _ 19 Congressional hearings , _____ ____ __ _____ _ _________ ] 9 Senate special subcommittee on anti-trust and monopoly_______ 19 House special subcommittee on government information________ 2] Senate subcommittee on welfare and pension funds____________ 25 PART III REVISIONS OF RULES AND FORMS____________________________ 27 Small issues exemption-New issues of $300,000 or less_____________ 28 Proposed further amendment of regulation____________________ 31 Proposal to exempt option stock withdrawn____ _______________ 31 Revision of proxy rules..; , ______ ______ _________________ ___ 33 Recent history _ _ ______ _ ____ __ ____________ 34 Use of press, television and radio , ___ __ _ ____ ________ 35 Legislative history ____________ ____________________ _________ 36 Misrepresentations_____ _ ________ ____ ________ ____ 36 Constitutionality of the proxy rules__________________________ 38 Solicitation prior to the formal statement____________________ 39 Disclosure of identity of participants_________________________ 40 Solicitation methods and costs______________________________ 41 Stock held in "Street Name" 41 Filing of soliciting material; _ ___ _ ___ ____ _ __ ___ 41 Other revisions under consideration; __ ___ ___ _____ ____ 45 PART IV ADMINISTRATION OF THE SECURITIES ACT OF 1933________ 49 Description of the registration process____________________________ 49 Registration statement and prospectus_______________________ 49 Examination procedure.;.. __________________________________ 50 Time required to complete registration_______________________ 50 V VI CONTENTS ADMINISTRATION OF THE SECURITIES ACT OF 1933-Con. Page Volume of securities registered- _ 52 Registration statements filed_____ _ __ __ _ _ _ ____ 54 Exemption from registration for small issues-$300,000 or less_______ 56 Exemption offerings under regulations A and D_______________ 58 Denial or suspension of exemption--------------------------- 61 Exempt offerings under regulation B_________________________ 67 Report of sales, ______ ____ ____________ _ _ 68 Results obtained by the registration process----------------------- 68 Sto~orderproceedings----------------------------------_______ 71 Litigation under the Securities Act of 1933________________________ 81 Injunctive actions , _ __ ____ __ ___________________ 81 Participation as amicus curiae__ _ _ _ __ _ _ _ _ _ _ _ _ 84 Disclosure of commission's confidential files..; ___________ __ _____ 85 PART V ADMINISTRATION~:OF;..THE SECURITIES EXCHANGE ACT OF 1934___________________________________________________________ 87 Regulation of exchanges and exchange trading-------------------- 88 Registration and exemption of exchanges_____________________ 88 Exchange rules and disciplinary actions______________________ 89 Registration of securities on exchanges___________________________ 89 Market value of securities traded on exchanges-------------------- 91 Comparative over-the-counter statisties , _ 92 Delisting of securities from exchanges.; _ 94 Unlisted trading privileges on exchanges-------------------------- 95 Volume of unlisted trading_______ __ ____ ________ ___ ___ 95 Applications for unlisted trading privileges-------------------- 96 Block distributions reported by exchanges------------------------ 96 Manipulation and stabilization; ____________ ___ __________ _ 97 Manipulation., ________ __ ________ __ ____ _ _ 97 Insiders' security transactions and holdings----------------------- 100 Recovery of short swing trading profits----------------------- 101 Regulation of proxies , _ _______ _ ____________ _ __ 101 Scope of proxy regulation----------------------------------- 101 Statistics relating to proxy statements________________________ 102 Stockholders' proposals.L,.; __ ____ ________ __ 102 Ratio of soliciting to non-soliciting companies----------------- 104 Proxy contests____________________________________________ 104 Regulation of broker-dealers and over-the-counter markets__________ 105 Registration_ _ ______________ _____ _____ ________ 105 Administrative proceedings- _______ ________ __ __ ___ 106 Financial statements .; __ _______ ___ ___ _ __ 111 Net capital rule , 111 Broker-dealer inspections; _____________________ _ __ 112 Supervision o('activitie( of- N ASD, Ino , ______ ____ ________ ___ ___________________ 114 Disciplinary actions.L; , ______ _____ ____ 115 Commission review of NASD disciplinary actions______________ 116 Commission review of action on membership------------------ 117 Commission action on NASD rules__________________________ 118 Litigation under the Securities Exchange Act of 1934______________ 119 Proxy litigation___________________________________________ 121 Inside reporting litigation; __ 123 Participation as amicus curiae_______________________________ 124 CONTENTS vn PART VI ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COM- PANY ACT OF 1935____________________________________________ 126 Composition of registered holding company systems, ______________ 126 Developments in active registered systems__ ______________________ 129 Other registered holding companies; _ _ ____ _ 145 Financing of registered public utility holding company systems, _____ 148 Financing standards-Importance of capitalization ratios___________ 156 Financing of electric generating companies supplying facilities of the Atomic Energy Commission______ _____ ________ _ ____ 161 Rules, forms and statements of policy _ ___ ________ 164 Relationships with state public utility commissions., _ ______________ 166 PART VII PARTICIPATION OF THE COMMISSION IN CORPORATE REOR- GANIZATIONS UNDER CHAPTER X OF THE NATIONAL BANKRUPTCY ACT, AS AMENDED__________________________ 172 Summary of activities___ ____ ____________ _________________ 172 Timing of participation_____ __ _________________ ____ 173 Examinations and reports on plans of reorganization, _________ 174 Activities with respect to allowances_________________________ 176 Commission's activities under Chapter XL ___________________ 178 PART VIII ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939__ 180 PART IX ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF 1940___________________________________________________________ 182 Companies registered under the aet, _____________________________ 182 Types of new investment companies registered., __ ______________ 182 Growth of investment company assets____________________________ 183 Study of size of investment companies; _ _ ________________________ 183 Current information , _ ___________________________________ 184 Applications and proceedings.Lc ,., _______________________________ 184 Rules and regulations.L; , __________ _____________________ 189 Litigation under the Investment Company Act of 1940_____________ 190 Recent developments , _ ________________________________________ 191 Investment clubs______ __ ____ __________________ 191 Liquidation or withdrawal plans.r. , ; _____________________ _ 192 Certain insurance company contracts; _ _ _ _ __________ 192 PART X ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF 1940___________________________________________________________ 193 Administrative proceedings , ________ _________________ _ 193 Litigation under the Investment Advisers Act of 1940_____________