The following are some of the more commonly encountered rules of the SEC. The list highlights the most prominent features of the rules and is not intended as a legal interpretation. The rules are listed in numerical order.
Rule 3b-3: Definition of Short Sale defines short sale as one in which the seller does not own the Security sold or which is consummated by delivery of a borrowed security; ownership is defined in terms of securities, Convertibles, Options and Subscription Warrants.
Rule 10a-1: Short sales known as the Short Sale Rule, prohibits a short sale of securities below the price of the last regular trade and at that price unless it was higher than the last different price preceding it. In determining the price at which a short sale can be made after a security goes Ex-Dividend, Ex-Rights or ex- any other distribution, all sales prices prior to the ex- date may be reduced by the amount of the distribution.
Rule 10b-2: Solicitation of purchases on an exchange to facilitate distribution of securities prohibits parties concerned with a Primary Distribution or a Secondary Distribution of a security from soliciting orders for the issue other than through the offering circular or formal Prospectus.
Rule 10b-4: Short tendering of securities prohibits a Short Tender-the sale of borrowed securities (as in Selling Short) to a person making a Tender Offer.
Rule 10b-6: Prohibitions against trading by persons interested in a distribution rule that prohibits issuers, underwriters, broker-dealers, or others involved in a Distribution of securities from buying the issue, or rights to it, during the distribution. The section permits transactions between the issuer and the underwriters and among the participating underwriters as required to carry out a distribution. The law extends to a repurchase by the issuer or to a purchase by participants in a new issue of Convertible securities already on the market and convertible into the securities being offered.
Rule 10b-7: Stabilizing to effect a distribution provisions governing market Stabilization activities by issuers or underwriters in securities offerings.
Rule 10b-8: Distributions through rights prohibits market price Manipulation by interested parties in a Rights Offering.
Rule 10b-10: Confirmation of transactions sets minimum information and disclosure requirements for the written confirmations of sales or purchases that broker-dealers send to clients, including disclosure of whether a firm is acting as Agent (broker) or as Principal (dealer).
Rule 10b-13: Other purchases during tender offer or exchange offer prohibits a person making a cash tender offer or an offer to exchange one Equity security for another from taking a position in the security being tendered or in a security Convertible into the security being tendered until the tender offer or exchange offer expires.
Rule 10b-16: Credit terms in margin transactions terms and conditions concerning the interest charges on Margin loans to brokerage customers and the broker's disclosure responsibilities to borrowers.
Rule 11A: Floor trading regulations rules governing floor trading by exchange members, including those concerning Priority and Precedence of transactions, transactions for the accounts of persons associated with members, Hedge transactions, exchange bond trading, transactions by Registered Competitive Market Makers and Registered Equity Market Makers and transactions between members. Of current relevence to Nasdaq's Supermontage is the Limit Order Display Rule, which is covered by Rule 11Ac1-4. Generally, this rule requires market makers to display the full size of customer orders that are priced at or above the market maker's bid or offer. New order execution and order-routing disclosure rules designed to enable investors to analyze and compare executions in different market centers, defined as exchange specialists, OTC market makers, and alternative trading systems.
Rule 12b-1: see 12b-1 Mutual Fund.
Rule 13d: Acquisition of beneficial interest disclosures required by any person who directly or indirectly acquires a beneficial interest of 5% or more of any class of a registered equity security. See also Williams Act.
Rule 13e: Repurchase of shares by issuers prohibits purchase by an issuer of its own shares during a Tender Offer for its shares and regulates Going Private transactions by issuers or their affiliates.
Rule 14a: Solicitation of proxies sets forth the information and documentation required with Proxy materials distributed to shareholders of a public corporation.
Rule 14d: Tender offers regulations and restrictions covering public Tender Offers and related disclosure requirements. See also Williams Act.
Rule 15c2-1: Hypothecation of customers' securities regulates a broker-dealer's Safekeeping of customers securities in a Margin Account prohibiting the Commingling of customers accounts without the consent of the respective customers and the commingling of customers' accounts with the securities of non-customers, and limiting broker borrowings secured by customers' collateral to the aggregate amount of customers' indebtedness. See also Hypothecation.
Rule 15c3-1: Net capital requirements for brokers or dealers covers Net Capital Requirements relative to the aggregate indebtedness of brokers and dealers of different types.
Rule 15c3-2: Customers' free credit balances requires a broker-dealer to notify customers with credit balances in their accounts that such balances may be withdrawn on demand.
Rule 15c3-3: Customer-protection reserves and custody of securities regulates the handling of customers' fully paid securities and excess Margin securities (security value in excess of Margin Requirements) with broker-dealers. Fully paid securities must be segregated, and the broker must make weekly deposits to a Special Reserve Bank Account for the Exclusive Benefit of Customers.
Rules 15g-2,-3,-5,-6,-9, and -100 set forth disclosure standards and sales practice requirements relative to the Penny Stock market.
Rule 17a-12 sets strict standards for accounting, auditing, and financial reporting of OTC Derivatives Dealers.
Rule 17f-1: Missing, lost, counterfeit, or stolen securities requires exchanges, broker-dealers, clearing agencies, banks and transfer agents to report promptly to both the SEC and the appropriate law enforcement agency any knowledge of missing, lost, counterfeit, or stolen securities and to check with the SEC whenever a security comes into their possession to make sure it has not been reported at large.
Rule 19b-3: Prohibiting fixing of rates of commission by exchanges prohibits fixed commissions on stock exchange transactions pursuant to the Securities Act Amendments of 1975.
Rule 19c-3: Off-board trading by exchange members permits securities listed on an exchange after April 26, 1979, to be traded off the exchange by member firms, a step toward an experimental National Market System in compliance with the Securities Act Amendments of 1975.
Rule 19c-4: One share, one vote prohibits U.S. Exchanges and the NASD from listing or providing quotes for any issuer of stock with more voting power than other common shares of the same issuer.
Rule 36a1-2 Exempts OTC Derivatives Dealers from the provisions of the Securities Investor Protection Act of 1970, citing special requirements detailed in Rule 15a-1.
In the wake of the Enron bankruptcy, the SEC in mid-2002 was considering rule changes that would shorten the time companies have to issue earnings reports. Under proposed rules, quarterly reports would be required within 30 days of the end of the quarter rather than 45 days, and annual reports within 60 days of the end of the fiscal year, instead of 90 days.
Rule 144: Public sale of unregistered securities sets forth the conditions under which a holder of unregistered securities may make a public sale without filing a formal Registration Statement. No Letter Security purchased through a Private Placement may be sold for at least two years after the date of purchase. Thereafter, during any three-month period, the following amounts may be sold: if listed securities, the greater of 1% of the amount outstanding or the average trading volume within the four preceding weeks; if unlisted, 1% of outstandings. Securities may be sold only in broker's transactions.
Rule 145: Securities acquired in recapitalization persons who acquire securities as a result of reclassification, Merger, consolidation, or transfer of corporate assets may sell such securities without Registration under stipulated conditions.
Rule 156: Mutual fund sales literature forbids false and misleading sales materials promoting Investment Company securities.
Rule 237: Public sale of unregistered securities expanding on Rule 144, provides that five years after full payment for the purchase of privately placed securities, the lesser of $50,000 of such securities or 1% of the securities outstanding in a particular Class may be sold within a one year period.
Rule 254: Registration of small issues provides for simplified registration of small issues ($1.5 million or less in the mid-1980s) including a short-form Registration Statement and Prospectus. See also Regulation A.
Rule 415: Shelf registration permits corporations to file a Registration for securities they intend to issue in the future when market conditions are favorable. See also Shelf Registration.
Rule 419: Blank-check companies (companies that issue penny stock before operations have begun or before engaging in an acquisition or merger with an unspecified business entity) must put investors' funds in an escrow account for the benefit of the purchaser.
The full text of SEC rules, including four volumes of Exchange Act Rules and Regulations and alphabetical Regulations, including Regulation ATS (Alternative Trading Systems Rules 300 through 303) and Regulation S-T (Electronic Filings), can be accessed at www.bowne.com. See also Hedge Fund; Regulation A; Regulation D; Regulation Fd; Regulation S; Short Sale Rule.
