Page images
PDF
EPUB

change, such security shall be exempt from the operation of section 7(c) (2) to the extent necessary to render lawful any direct or indirect extension or maintenance of credit thereon or any

direct or indirect arrangement therefor v would not have been unlawful if such security been a security (other than an exempted ser registered on a national securities exchange

HYPOTHECATION OF CUSTOMERS' SECURITIES

Rule 8c-1. Hypothecation of Customers' Securities

(a) General provisions. No member of a national securities exchange, and no broker or dealer who transacts a business in securities through the medium of any such member shall, directly or indirectly, hypothecate or arrange for or permit the continued hypothecation of any securities carried for the account of any customer under cir

cumstances

(1) that will permit the commingling of securities carried for the account of any such customer with securities carried for the account of any other customer, without first obtaining the written consent of each such customer to such hypothecation;

(2) that will permit such securities to be commingled with securities carried for the account of any person other than a bona fide customer of such member, broker or dealer under a lien for a loan made to such member, broker or dealer; or

(3) that will permit securities carried for the account of customers to be hypothecated, or subjected to any lien or liens or claim or claims of the pledgee or pledgees, for a sum which exceeds the aggregate indebtedness of all customers in respect of securities carried for their accounts; except that this clause shall not be deemed to be violated by reason of an excess arising on any day through the reduction of the aggregate indebtedness of customers on such a day: Provided, That funds or securities in an amount sufficient to eliminate such excess are paid or placed in transfer to pledgees for the purpose of reducing the sum of the liens or claims to which securities carried for the account of customers are subjected as promptly as practicable after such reduction occurs, but before the lapse of one-half hour after the commencement of banking hours on the next banking day at the place where the largest principal amount of loans of such member, broker or dealer are payable and, in any event, before such member, broker or dealer on such day has obtained or increased any bank loan collateralized by securities carried for the account of customers.

(b) Definitions. For the purposes of

rule

(1) the term "customer" shall not be deere include any general or special partner or director or officer of such member, broke dealer, or any participant, as such, in any group or syndicate account with such men broker or dealer or with any partner, office director thereof;

(2) the term "securities carried for the act of any customer" shall be deemed to mean:

(i) securities received by or on behalf of s member, broker or dealer for the account of £ customer;

(ii) securities sold and appropriated by s member, broker or dealer to a customer, exe that if such securities were subject to a lien w appropriated to a customer they shall not deemed to be "securities carried for the accom of any customer" pending their release from St lien as promptly as practicable;

(iii) securities sold, but not appropriated. such member, broker or dealer to a customer w has made any payment therefor, to the extent the such member, broker or dealer owns and has re ceived delivery of securities of like kind, except that if such securities were subject to a lien whe such payment was made they shall not be deeme to be "securities carried for the account of any customer" pending their release from such lien & promptly as practicable;

(3) "aggregate indebtedness" shall not be deemed to be reduced by reason of uncollected items. In computing aggregate indebtedness, related guaranteed and guarantor accounts shall be treated as a single account and considered on a consolidated basis, and balances in accounts carrying both long and short positions shall be adjusted by treating the market value of the securities required to cover such short positions as though such market value were a debit; and

(4) in computing the sum of the liens or claims to which securities carried for the account of customers of a member, broker or dealer are subject, any rehypothecation of such securities by another

n

I

per, broker or dealer who is subject to this or to Rule 15c2-1 shall be disregarded.

Exemption for cash accounts. The prons of paragraph (a) (1) hereof shall not y to any hypothecation of securities carried he account of a customer in a special cash unt within the meaning of section 4 (c) of ulation T of the Board of Governors of the eral Reserve System: Provided, That at or bethe completion of the transaction of purchase uch securities for, or of sale of such securities such customer, written notice is given or sent to 1 customer disclosing that such securities are may be hypothecated under circumstances ch will permit the commingling thereof with arities carried for the account of other cusers. The term "the completion of the transion" shall have the meaning given to such term Rule 15c1-1(b).

(d) Exemption for clearing house liens. The ovisions of paragraphs (a) (2), (a) (3), and (ƒ) reof shall not apply to any lien or claim of the aring corporation, or similar department or sociation, of a national securities exchange, for loan made and to be repaid on the same calendar y, which is incidental to the clearing of transtions in securities or loans through such cororation, department, or association: Provided, owever, That for the purpose of paragraph (a) 3) hereof, "aggregate indebtedness of all customrs in respect of securities carried for their acounts" shall not include indebtedness in respect of ny securities subject to any lien or claim exempted by this paragraph.

(e) Exemption for certain liens on securities

Rule 10a-1. Short Sales

of noncustomers. The provisions of paragraph (a) (2) hereof shall not be deemed to prevent such member, broker, or dealer from permitting securities not carried for the account of a customer to be subjected (i) to a lien for a loan made against securities carried for the account of customers, or (ii) to a lien for a loan made and to be repaid on the same calendar day. For the purpose of this exemption, a loan shall be deemed to be "made against securities carried for the account of customers" if only securities carried for the account of customers are used to obtain or to increase such loan or as substitutes for other securities carried for the account of customers.

(f) Notice and certification requirements. No person subject to this section shall hypothecate any security carried for the account of a customer unless, at or prior to the time of each such hypothecation, he gives written notice to the pledgee that the security pledged is carried for the account of a customer and that such hypothecation does not contravene any provision of this rule, except that in the case of an omnibus account the member, broker or dealer for whom such account is carried may furnish a signed statement to the person carrying such account that all securities carried therein by such member, broker or dealer will be securities carried for the account of his customers and that the hypothecation thereof by such member, broker or dealer will not contravene any provision of this rule. The provisions of this paragraph shall not apply to any hypothecation of securities under any lien or claim of a pledgee securing a loan made and to be repaid on the same calendar day.

SHORT SALES

(a) No person shall, for his own account or for the account of any other person, effect on a national securities exchange a short sale of any security (1) below the price at which the last sale thereof, regular way, was effected on such exchange, or (2) at such price unless such price is above the next preceding different price at which a sale of such security, regular way, was effected on such exchange. In determining the price at which a short sale may be effected after a security goes ex-dividend, ex-right, or ex- any other distribution, all sale prices prior to the "ex" date may be reduced by the value of such distribution.

771-487 065- -2

(b) No member of a national securities exchange shall, by the use of any facility of such exchange, execute any sell order unless such order is marked either "long" or "short."

(c) No member of a national securities exchange shall mark a sell order "long" unless (1) the security to be delivered after sale is carried in the account for which the sale is to be effected, or (2) such member is informed that the seller owns. the security ordered to be sold and, as soon as is possible without undue inconvenience or expense, will deliver the security owned to the account for which the sale is to be effected.

(d) The provisions of paragraph (a) hereof shall not apply to

(1) Any sale by any person, for an account in which he has an interest, if such person owns the security sold and intends to deliver such security as soon as is possible without undue inconvenience or expense;

(2) Any member in respect of a sale, for an account in which he has no interest, pursuant to an order to sell which is marked "long";

(3) Any sale of an odd-lot;

(4) Any sale by an odd-lot dealer to offset oddlot orders of customers;

(5) Any sale by an odd-lot dealer to liquidate a long position which is less than a round lot, provided such sale does not change the position of such odd-lot dealer by more than the unit of trading;

(6) Any sale of a security on a national securities exchange effected with the approval of such exchange which is necessary to equalize the price of such security thereon with the current price of such security on another national securities exchange which is the principal exchange market for such security;

(7) Any sale of a security for a special arbitrage account by a person who then owns another security by virtue of which he is, or presently will be, entitled to acquire an equivalent number of securities of the same class as the securities sold; provided such sale, or the purchase which such sale offsets, is effected for the bona fide purpose of profiting from a current difference between the price of the security sold and the security owned and that such right of acquisition was originally attached to or represented by another security or was issued to all the holders of any class of securities of the issuer;

(8) Any sale of a security on a national securities exchange effected for a special international arbitrage account for the bona fide purpose of profiting from a current difference between the price of such security on a securities market not within or subject to the jurisdiction of the United States and on such national securities exchange; provided the seller at the time of such sale knows or, by virtue of information currently received, has reasonable grounds to believe that an offer enabling him to cover such sale is then available to him in such foreign securities market and intends to accept such offer immediately; or

(9) Any sale of a security on a national ties exchange effected in accordance with a offering plan declared effective by the Co sion pursuant to paragraph (d) of Rule 1 For the purpose of clause (8) hereof a deposi receipt for a security shall be deemed to be same security as the security represented by receipt.

Rule 10a-2. Requirements for Covering P.

chases

(a) No member of a national securities: change shall lend, or arrange for the loa any security for delivery to the broker for purchaser after sale, or shall fail to delive security on the date delivery is due, if such ber knows or has reasonable grounds to bel that the sale was effected, or will be effected. F suant to an order marked "long," unless s member knows, or has been informed by the sel (1) that the security sold has been forward to the account for which the sale was effected: (2) that the seller owns the security sold, tha is then impracticable to deliver to such accor the security owned and that he will deliver s security to such account as soon as is possible w out undue inconvenience or expense.

(b) The provisions of paragraph (a) here shall not apply (1) to the lending of a security by a member through the medium of a loan another member, or (2) to any loan, or arrange ment for the loan, of any security, or to any failur to deliver any security if, prior to such loar arrangement, or failure to deliver, the exchang upon which the sale requiring the delivery of sue security was effected finds (i) that such sale re sulted from a mistake made in good faith, (2) that due diligence was used to ascertain that the circumstances specified in clause (1) of Rule 10a1(c) existed or to obtain the information specified in clause (2) thereof, and (ii) either that the condition of the market at the time the mistake. was discovered was such that undue hardship would result from covering the transaction by a "purchase for cash," or that the mistake was made by the seller's broker and the sale was at a price permissible for a short sale under Rule 10a-1 (a).

MANIPULATIVE AND DECEPTIVE DEVICES AND CONTRIVANCES

e 10b-1. Prohibition of Use of Manipulative or Deceptive Devices or Contrivances With Respect to Certain Securities Exempted From Registration

he term manipulative or deceptive device or trivance, as used in section 10(b), is hereby ned to include any act or omission to act with pect to any security exempted from the option of section 12(a) pursuant to a rule ich specifically provides that this rule shall applicable to such security, if such act or omisn to act would have been unlawful under secn 9(a), or any rule or regulation heretofore or reafter prescribed thereunder, if done or itted to be done with respect to a security gistered on a national securities exchange, and e use of any means or instrumentality of interate commerce or of the mails or of any facility any national securities exchange to use or emoy any such device or contrivance in connection ith the purchase or sale of any such security is ereby prohibited.

ule 10b-2. Solicitation of Purchases on an Exchange to Facilitate a Distribution of Securities

(a) No person, participating or otherwise fiancially interested in the primary or secondary listribution of any security of any issuer, shall, by the use of any means or instrumentality of nterstate commerce or of the mails, or of any facility of any national securities exchange

(1) Pay or offer or agree to pay, directly or indirectly, to any person any compensation for soliciting another to purchase any security of the same issuer on a national securities exchange, or for purchasing any security of the same issuer on any such exchange for any account other than the account of the person who pays or is to pay such compensation; or

(2) Sell, offer to sell or induce an offer to buy such security, or deliver such security after sale, if, in connection with such distribution, such person has paid, or has offered or agreed to pay, directly or indirectly, to any person, any compensation for soliciting another to purchase any security of the same issuer on any national securities exchange, or for purchasing any security of the same issuer on any such exchange for any account other

than the account of the person who has paid or is to pay such compensation.

(b) No person, participating or otherwise financially interested in the primary or secondary distribution of any security of any issuer, shall cause a purchase or sale of any security of the same issuer on a national securities exchange by paying or offering or agreeing to pay, directly or indirectly, to any person any compensation for soliciting another to purchase such security on any such exchange, or for purchasing such security on any such exchange for any account other than the account of the person who pays or is to pay such compensation.

(c) The provisions of this rule shall not apply in respect to any salary paid by a broker or dealer to any person regularly employed by him whose ordinary duties include the solicitation or execution of brokerage orders on a national securities exchange, if such salary represents only ordinary compensation for the discharge by such person of such duties in the regular course of his employment, and is not paid, in whole or in part, directly or indirectly, for the inducement by such person of the purchase or sale on a national securities exchange of any security of the issuer of the security in the primary or secondary distribution of which such broker or dealer is participating or otherwise financially interested.

(d) (1) The provisions of this rule shall not apply to any transaction involving the payment of compensation pursuant to the terms of an effective plan authorizing the payment of such compensation in connection with a distribution of securities, which plan has been filed with the Commission by a national securities exchange, provided that the person paying such compensation does not know or have reasonable grounds to believe, at the time he pays or offers or agrees to pay such compensation, that transactions connected with such distribution are being carried out in violation of such plan.

(2) For the purposes of this rule a plan filed with the Commission by a national securities exchange shall not become effective unless the Commission, having due regard for the public interest and for the protection of investors, declares the plan to be effective. The Commission in its declaration may impose such terms and conditions relating to the provisions of the plan and the

period of its effectiveness as it deems necessary or appropriate in the public interest or for the protection of investors.

Rule 10b-3. Employment of Manipulative and Deceptive Devices

It shall be unlawful for any broker or dealer, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, to use or employ, in connection with the purchase or sale of any security otherwise than on a national securities exchange, any act, practice, or course of business defined by the Commission to be included within the term "manipulative, deceptive, or other fraudulent device or contrivance," as such term is used in section 15 (c) (1) of the Act.

Rule 10b-5. Employment of Manipulative and Deceptive Devices

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange,

(1) to employ any device, scheme, or artifice to defraud,

(2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. Rule 10b-6. Prohibitions Against Trading by Persons Interested in a Distribution

(a) It shall constitute a "manipulative or deceptive device or contrivance" as used in section 10(b) of the Act for any person,

(1) who is an underwriter or prospective underwriter in a particular distribution of securities,

or

(2) who is the issuer or other person on whose behalf such a distribution is being made, or

(3) who is a broker, dealer, or other person who has agreed to particpate or is participating in such a distribution, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility

t

of any national securities exchange, either or with one or more other persons, to purchase for any account in which he has ficial interest, any security which is the su such distribution, or any security of the S and series, or any right to purchase any su rity, or to attempt to induce any person chase any such security or right until after = completed his participation in such distri Provided, however, That this rule shall b hibit (1) transactions in connection with th tribution effected otherwise than on a se exchange with the issuer or other person or sons on whose behalf such distribution is a made or among underwriters, prospective Ľ writers or other persons who have agree participate or are participating in such dis tion; (2) unsolicited privately negotiated chases, each involving a substantial amount of: security, effected neither on a securities exch nor from or through a broker or dealer; or purchases by an issuer effected more than 40 d after the commencement of the distribution for purpose of satisfying a sinking fund or sit obligation to which it is subject; or (4) ode transactions (and the off-setting round-lot tr actions hereinafter referred to) by a person re tered as an odd-lot dealer in such security & national securities exchange who offsets such o lot transactions in such security by roundtransactions as promptly as possible; brokerage transactions not involving solicitati of the customer's order; or (6) offers to sell or solicitation of offers to buy the securities be distributed (including securities or rights & quired in stabilizing) or securities or righ offered as principal by the person making su offer to sell or solicitation; or (7) the exercise any right or conversion privilege to acquire an security; or (8) stabilizing transactions not in vie lation of Rule 10b-7; or (9) bids for or purchase of rights not in violation of Rule 10b-8; or (10) transactions effected on a national securities ex change in accordance with the provisions of a plan filed by such exchange under Rule 10b-2(d) and declared effective by the Commission; or (11) pur chases or bids by an underwriter, prospective underwriter or dealer otherwise than on a secu t rities exchange, 10 or more business days prior to the proposed commencement of such distribu

ת

d

« PreviousContinue »