(Sec. 10, 48 Stat. 891; 15 U.S.C. 78j)

[13 FR 8183, Dec. 22, 1948, as amended at 18 FR 5087, Aug. 26, 1953; 38 FR 9665, Apr. 18, 1973]

CROSS REFERENCE: For interpretative release applicable to § 240.10b-2, see No. 1411 in tabulation, Part 241 of this chapter.

NOTE: Following are FEDERAL REGISTER Citations to Exchange Distribution Plans of various stock exchanges and the actions of SEC declaring the plans effective:

1. New York Stock Exchange: 18 FR 5087, Aug. 26, 1953; 19 FR 1317, Mar. 9, 1954; 20 FR 971, Feb. 16, 1955; 20 FR 1375, Mar. 8, 1955; 20 FR 6576, Sept. 8, 1955; 20 FR 8284, Nov. 4, 1955.

2. American Stock Exchange: 18 FR 6236, Sept. 30, 1953; 19 FR 1419, Mar. 13, 1954; 20 FR 1375, Mar. 8, 1955; 20 FR 1846, Mar. 26, 1955; 20 FR 6576, Sept. 8, 1955.

3. San Francisco Stock Exchange: 18 FR 6576, Oct. 24, 1953; 19 FR 1713, Mar. 30, 1954; 20 FR 1375, Mar. 8, 1955; 20 FR 6576, Sept. 8, 1955.

4. Midwest Stock Exchange: 19 FR 2808, May 15, 1954; 20 FR 1375, Mar. 8, 1955; 20 FR 6576, Sept. 8, 1955.

§ 240.10b-3 Employment of manipulative and deceptive devices by brokers or dealers.

(a) 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.

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(b) It shall be unlawful for any municipal securities dealer directly or indirectly, by the use of any means or instrumentality of interstate merce, 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 municipal security, 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.

§ 240.10b-4 Short tendering of securities.

(a) It shall constitute a "manipulative or deceptive device or contrivance" as used in section 10(b) of the Act for any person, in response to an offer for, or to a request or invitation for tenders of, any security,

(1) To tender any security for his own account unless (i) he owns the security or, (ii) he owns a security convertible into or exchangeable for, or owns an option, warrant or right to purchase the tendered security, intends to acquire the tendered security, by conversion, exchange, or exercise of such option, warrant, or right to the extent necessary to deliver the tendered security, and, upon the acceptance of his tender, he does convert, exchange, or exercise such option, warrant, or right to the extent necessary to deliver the tendered security: Provided, however, That if he tenders a security on the basis of his ownership of an option to purchase such security, he shall have reason to believe that the maker or writer of the option has title to and possession of such security and will promptly deliver it upon exercise of the option; or,

(2) To tender or guarantee the tender of any security on behalf of another person, unless (i) such security is in the possession of the person making the tender or giving the guarantee, or (ii) the person making the tender or giving the guarantee, upon information furnished by the person on whose behalf the tender or guarantee is made, has reason to believe that such person owns the security tendered and, as soon as possible, without undue inconvenience or expense, will deliver the security for the purpose of the tender to the person making the tender or giving the guarantee, or (iii)

the person on whose behalf the tender or guarantee is made owns a security convertible into, or exchangeable for, or owns an option, warrant, or right to purchase the tendered security and the person making the tender has reason to believe that such other person intends to acquire the tendered security, by the conversion, exchange, or exercise of such option, warrant or right to the extent necessary to deliver the tendered security: Provided, however, That if the tender or guarantee of the tender of a security is made on the basis of the ownership of an option to purchase such security, the person making the tender or guarantee shall have reason to believe that the maker or writer of the option has title to and possession of such security and will promptly deliver it upon exercise of the option.

(b) For the purposes of this section, a person shall be deemed to own a security if (1) he or his agent has title to it; or (2) he has purchased, or has entered into an unconditional contract, binding on both parties thereto, to purchase it but has not yet received it; or (3) he owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange; or (4) he has an option to purchase or acquire it and has exercised such option; or (5) he has rights or warrants to subscribe to it and has exercised such rights or warrants: Provided, however, That a person shall be deemed to own securities only to the extent that he has a net long position in such securities.

(Sec. 10, 48 Stat. 891; 15 U.S.C. 78j)

[33 FR 8269, June 4, 1968]

§ 240.10b-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,

(a) To employ any device, scheme, or artifice to defraud,

(b) 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

(c) 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. (Sec. 10; 48 Stat. 891; 15 U.S.C. 78j)

[13 FR 8183, Dec. 22, 1948, as amended at 16 FR 7928, Aug. 11, 1951]

§ 240.10b-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 participate 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 of any national securities exchange, either alone or with one or more other persons, to bid for or purchase for any account in which he has a beneficial interest, any security which is the subject of such distribution, or any security of the same class and series, or any right to purchase any such security, or to attempt to induce any person to purchase any such security or right, until after he has completed his participation in such distribution: Provided, however, That this section shall not prohibit:

(i) Transactions in connection with the distribution effected otherwise than on a securities exchange with the issuer or other person or persons on whose behalf such distribution is being made or among underwriters, prospective underwriters, or other persons who have agreed to participate or are participating in such distribution;

(ii) Unsolicited privately negotiated purchases, each involving a substantial amount of such security, effected neither on a securities exchange nor from or through a broker or dealer; or

(iii) Purchases by an issuer effected more than forty days after the commencement of the distribution for the purpose of satisfying a sinking fund or similar obligation to which it is subject; or

(iv) Odd-lot transactions (and the off-setting round-lot transactions hereinafter referred to) by a person registered as an odd-lot dealer in such security on a national securities exchange who offsets such odd-lot transactions in such security by round-lot transactions as promptly as possible;

or

(v) Brokerage transactions not involving solicitation of the customer's order; or

(vi) Offers to sell or the solicitation of offers to buy the securities being distributed (including securities or rights acquired in stabilizing) or securities or rights offered as principal by the person making such offer to sell or solicitation; or

(vii) The exercise of any right or conversion privilege to acquire any security; or

(viii) Stabilizing transactions not in violation of § 240.10b-7; or

(ix) Bids for or purchases of rights not in violation of § 240.10b-8; or

(x) Transactions effected on a national securities exchange in accordance with the provisions of a plan filed by such exchange under § 240.10b-2(d) and declared effective by the Commission; or

or

(xi) Purchases or bids by an underwriter, prospective underwriter dealer otherwise than on a securities exchange, 10 or more business days prior to the proposed commencement of such distribution (or 5 or more business days in the case of unsolicited purchases), if none of such purchases or bids are for the purpose of creating actual, or apparent, active trading in or raising the price of such security. In the case of securities offered pursuant to an effective registration statement under the Securities Act of 1933 the distribution shall not be deemed to commence for purposes of this subdivision prior to the effective date of the registration statement.

(b) The distribution of a security (1) which is immediately exchangeable for or convertible into another secu

rity, or (2) which entitles the holder thereof immediately to acquire another security, shall be deemed to include a distribution of such other security within the meaning of this section.

(c) The following shall be applicable for the purposes of this section.

(1) The term "underwriter" means a person who has agreed with an issuer or other person on whose behalf a distribution is to be made (i) to purchase securities for distribution or (ii) to distribute securities for or on behalf of such issuer or other person or (iii) to manage or supervise a distribution of securities for or on behalf of such issuer or other person.

(2) The term "prospective underwriter" means a person (i) who has agreed to submit or has submitted a bid to become an underwriter of securities as to which the issuer, or other person on whose behalf the distribution is to be made, has issued a public invitation for bids, or (ii) who has reached an understanding, with the issuer or other person on whose behalf a distribution is to be made, that he will become an underwriter, whether or not the terms and conditions of the underwriting have been agreed upon.

(3) A person shall be deemed to have completed his participation in a particular distribution as follows: (i) The issuer or other person on whose behalf such distribution is being made, when such distribution is completed; (ii) an underwriter, when he has distributed his participation, including all other securities of the same class acquired in connection with the distribution, and any stabilization arrangements and trading restrictions with respect to such distribution to which he is a party have been terminated; (iii) any other person, when he has distributed his participation. A person, including an underwriter or dealer, shall be deemed for purposes of this subparagraph to have distributed securities acquired by him for investment.

(4) The term "plan" shall include any bonus, profit-sharing, pension, retirement, thrift, savings, incentive, stock purchase, stock ownership, stock appreciation, stock option, dividend reinvestment or similar plan for employ

ees or shareholders of an issuer or its subsidiaries.

(d) The provisions of this section shall not apply to any of the following securities:

(1) "Exempted securities" as defined in section 3(a)(12) of the act, including securities issued, or guaranteed both as to principal and interest, by the International Bank for Reconstruction and Development; or

(2) Face-amount certificates issued by a face-amount certificate company, or redeemable securities issued by an open-end management company or a unit investment trust. Any terms used in paragraph (d)(2) of this section which are defined in the Investment Company Act of 1940 shall have the meanings specified in such act.

(e) The provisions of this section shall not apply to any distribution of securities by an issuer or a subsidiary of an issuer to employees or shareholders of the issuer or its subsidiaries, or to a trustee or other person acquiring such securities for the account of such employees or shareholders pursuant to a plan, as that term is defined in paragraph (c)(4) of this section.

(f) If the provisions of this section would apply to bids for or purchases of any equity security pursuant to an issuer tender offer, as that term is defined in Rule 13e-4(a)(2) under the Act, or to a tender offer subject to section 14(d) of the act and the rules applicable thereto, solely because the issuer has outstanding securities which are immediately convertible into, or exchangeable or exercisable for, the security for which the tender offer is to be made, such provisions shall not apply to such bids and purchases if such bids and purchases are subject to and made in accordance with the provisions of Rule 13e-4 or section 14(d) and the rules applicable thereto.

(g) This section shall not prohibit any transaction or transactions if the Commission, upon written request or upon its own motion, exempts such transaction or transactions, either unconditionally or on specified terms and conditions, as not constituting a manipulative or deceptive device or contri

vance comprehended within the purpose of this section.

(Secs. 6, 7, 10, 19, 3, 10, 16, 48 Stat. 78, 81, 85 as amended, 882, 891, 896; 15 U.S.C. 77f, 77g, 77j, 77s, 78c, 78j, 78p; secs. 3(b), 9(a)(6), 10(b), 13(e), 14(e), 15(c)(1), 23(a), 48 Stat. 882, 889, 891, 894, 895, 901, sec. 8, 49 Stat. 1379, sec. 5, 78 Stat. 569, 570, secs. 2, 3, 82 Stat. 454, 455, Secs. 1, 2, 3-5, 84 Stat. 1497, secs. 3, 18, 89 Stat. 97, 155 (15 U.S.C. 78c(b), 781(a), 78j(b), 78m(e), 780(c), 78w(a)))

[20 FR 5075, July 15, 1955, as amended at 29 FR 16857, Dec. 9, 1964; 45 FR 18915, Mar. 24, 1980; 46 FR 15134, Mar. 4, 1981; 46 FR 15498, Mar. 6, 1981]

§ 240.10b-7 Stabilizing to facilitate a distribution.

(a) Scope of section. The provisions of this section shall apply to any person who, either alone or with one or more other persons, directly or indirectly, stabilizes the price of a security to facilitate an offering of any security. It shall constitute a "manipulative or deceptive device or contrivance", as used in section 10(b) of the act, for any such 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, to effect, either alone or with one or more other persons, any transaction or series of transactions prohibited by this section.

(b) Definitions. Unless the context clearly indicates otherwise, for the purposes of this section the following terms shall have the meaning indicated:

(1) The term "offering at the market" shall mean an offering in which it is contemplated that any offering price set in any calendar day will be increased more than once during such day.

(2) The term "transaction" shall mean a bid or a purchase.

(3) The terms "stabilize", "stabilizes", "stabilizing" or "stabilized" shall mean the placing of any bid, or the effecting of any purchase, for the purpose of pegging, fixing or stabilizing the price of any security: Provided, however, That a bid shall not constitute a stabilizing bid unless or until it is shown in the market.

(c) Transactions must be necessary. No stabilizing bid or purchase shall be made except for the purpose of preventing or retarding a decline in the open market price of a security.

(d) Priority must be granted. Any person placing or transmitting a bid which he knows is for the purpose of stabilizing the price of any security shall disclose the purpose of such bid to the person with whom it is placed or to whom it is transmitted. Any person placing a stabilizing bid or effecting a stabilizing purchase on a securities exchange shall grant priority to any independent bid at the same price irrespective of the size of such independent bid or the time when it is entered. Any person placing a stabilizing bid or effecting a stabilizing purchase otherwise than on a securities exchange shall grant priority to any independent bid at the same price placed with or transmitted to him irrespective of the size of such independent bid or the time when it is entered. (e) Control of stabilizing. No sole distributor or syndicate or group stabilizing the price of a security nor any member or members of such syndicate or group shall maintain more than one stabilizing bid in any one market at the same price at the same time: Provided, however, That more than one such bid at the same price may be maintained otherwise than on a securities exchange by or for the account of such distributor, syndicate or group.

(f) Stabilizing at prices resulting from unlawful activity. No stabilizing shall be initiated at a price which the stabilizer knows or has reason to know is the result of activity which is fraudulent, manipulative, or deceptive under the act or any rule or regulation thereunder.

(g) Stabilizing prohibited in offerings at the market. No person shall effect any stabilizing transaction to facilitate any offering at the market.

(h) Stabilizing securities traded in more than one market. If a security is traded in more than one market, stabilizing shall not be initiated at any price which would be unlawful in the market which is the principal market for such security in the United States open for trading at the time when

such stabilizing is initiated: Provided, however, That if the principal market for such security in the United States is a securities exchange, stabilizing may be initiated in any market after the close of such exchange at the price at which stabilizing could have been initiated on such exchange at the close thereof unless the person stabilizing knows or has reason to know that other persons have offered or sold such security at a lower price after such close, except that special prices available to any group or class of persons (including employees or holders of warrants or rights) shall not limit the stabilizing price.

(i) Entering stabilizing bid on exchange prior to opening. No person shall place a stabilizing bid on a securities exchange prior to the time the opening quotations for the security on such exchange are available, unless he has been and is lawfully stabilizing such security at such price: Provided, however, That a stabilizing bid may be made immediately prior to the opening of a securities exchange at a price not in excess of the price at which stabilizing could have been initiated on such exchange at the previous close thereof, unless the person stabilizing knows or has reason to know that other persons have offered or sold such security at a lower price after such close, except that special prices available to any group or class of persons (including employees or holders of warrants or rights) shall not limit the stabilizing price.

(j) Stabilizing levels. (1) Except as provided in paragraphs (j)(2), (3) and (4) of this section, no person shall (i) begin to stabilize a security at a price higher than the highest current independent bid price for such security or (ii) raise the price at which he is stabilizing. If no bona fide market for the security being distributed exists at the time stabilizing is initiated, stabilizing may be initiated at a price not in excess of the public offering price.

(2) If the principal market for a security is a securities exchange and stabilizing is initiated on such exchange the initial stabilizing bid or purchase may be made at a price not in excess of the last independent sale price on such exchange if (i) the security has