Securities Uniformity; Annual Conference on Uniformity of Securities Law

SECURITIES AND EXCHANGE COMMISSION

[Release No. 33-7277, File No. S7-9-96]

Securities Uniformity; Annual Conference on Uniformity of

Securities Law

AGENCY: Securities and Exchange Commission.

ACTION: Publication of release announcing issues to be considered at a

conference on uniformity of securities laws and requesting written

comments.

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SUMMARY: In conjunction with a conference to be held on April 29, 1996,

the Commission and the North American Securities Administrators

Association, Inc. today announced a request for comments on the

proposed agenda for the conference. This meeting is intended to carry

out the policies and purposes of section 19(c) of the Securities Act of

1933, adopted as part of the Small Business Investment Incentive Act of

1980, to increase uniformity in matters concerning state and federal

regulation of securities, to maximize the effectiveness of securities

regulation in promoting investor protection, and to reduce burdens on

[[Page 15848]]

capital formation through increased cooperation between the Commission

and the state securities regulatory authorities.

DATES: The conference will be held on April 29, 1996. Written comments

must be received on or before April 25, 1996 in order to be considered

by the conference participants.

ADDRESSES: Written comments should be submitted in triplicate by April

25, 1996 to Jonathan G. Katz, Secretary, Securities and Exchange

Commission, 450 5th Street, N.W., Washington, D.C. 20549. Comments also

may be submitted electronically at the following E-mail address: rule-

[email protected]. Comments should refer to File No. S7-9-96; this file

number should be included on the subject line if E-mail is used.

Comment letters will be available for public inspection at the

Commission's Public Reference Room, 450 5th Street, N.W., Washington,

D.C. 20549. Electronically submitted comment letters will be posted on

the Commission's internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: William E. Toomey or Richard K. Wulff,

Office of Small Business Policy, Division of Corporation Finance,

Securities and Exchange Commission, 450 5th Street, N.W., Washington,

D.C. 20549, (202) 942-2950.

SUPPLEMENTARY INFORMATION:

I. Discussion

A dual system of federal-state securities regulation has existed

since the adoption of the federal regulatory structure in the

Securities Act of 1933 (the ``Securities Act'').1 Issuers

attempting to raise capital through securities offerings, as well as

participants in the secondary trading markets, are responsible for

complying with the federal securities laws as well as all applicable

state laws and regulations. It has long been recognized that there is a

need to increase uniformity between federal and state regulatory

systems, and to improve cooperation among those regulatory bodies so

that capital formation can be made easier while investor protections

are retained.

\1\ 15 U.S.C. 77a et seq.

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The importance of facilitating greater uniformity in securities

regulation was endorsed by Congress with the enactment of section 19(c)

of the Securities Act in the Small Business Investment Incentive Act of

1980.2 Section 19(c) authorizes the Commission to cooperate with

any association of state securities regulators which can assist in

carrying out the declared policy and purpose of section 19(c). The

policy of that section is that there should be greater federal and

state cooperation in securities matters, including: (1) maximum

effectiveness of regulation; (2) maximum uniformity in federal and

state standards; (3) minimum interference with the business of capital

formation; and (4) a substantial reduction in costs and paperwork to

diminish the burdens of raising investment capital, particularly by

small business, and a reduction in the costs of the administration of

the government programs involved. In order to establish methods to

accomplish these goals, the Commission is required to conduct an annual

conference. The 1996 meeting will be the thirteenth such conference.

\2\ Pub. L. 96-477, 94 Stat. 2275 (October 21, 1980).

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II. 1996 Conference

The Commission and the North American Securities Administrators

Association, Inc. (``NASAA'') 3 are planning the 1996 Conference

on Federal-State Securities Regulation (the ``Conference'') to be held

April 29, 1996 in Washington, D.C. At the Conference, representatives

from the Commission and NASAA will form into working groups in the

areas of corporation finance, market regulation, investment management,

and enforcement, to discuss methods of enhancing cooperation in

securities matters in order to improve the efficiency and effectiveness

of federal and state securities regulation. Generally, attendance will

be limited to representatives of the Commission and NASAA in an effort

to promote frank discussion. However, each working group in its

discretion may invite certain self-regulatory organizations to attend

and participate in certain sessions.

\3\ NASAA is an association of securities administrators from

each of the 50 states, the District of Columbia, Puerto Rico, Mexico

and twelve Canadian Provinces and Territories.

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Representatives of the Commission and NASAA currently are

formulating an agenda for the Conference. As part of that process the

public, securities associations, self-regulatory organizations,

agencies, and private organizations are invited to participate through

the submission of written comments on the issues set forth below. In

addition, comment is requested on other appropriate subjects sought to

be included in the Conference agenda. All comments will be considered

by the Conference attendees.

III. Tentative Agenda and Request for Comments

The tentative agenda for the Conference consists of the following

topics in the areas of corporation finance, investment management,

market regulation and oversight, and enforcement.

(1) Corporation Finance Issues

A. Uniform Limited Offering Exemption

Congress specifically acknowledged the need for a uniform limited

offering exemption in enacting section 19(c) of the Securities Act and

authorized the Commission to cooperate with NASAA in its development.

The Commission working with the states toward this goal, developed Rule

505 of Regulation D, the federal exemption for certain limited

offerings, while NASAA crafted the complementary Uniform Limited

Offering Exemption (``ULOE'').

ULOE provides the framework for a uniform exemption from state

registration for certain issues of securities which would be exempt

from federal registration by virtue of Regulation D. To date, more than

half the states have adopted some form of ULOE. Both the Commission and

NASAA continue to make a concerted effort toward its universal

adoption.

A Bill pending in the Congress (H.R.3005) would add a new Section

18 to the Securities Act of 1933 and prohibit state blue sky regulation

of most securities offerings. Section 18(a) of this proposed

legislation would, with specified exceptions, preempt state blue sky

regulation over any securities registered under the Securities Act or,

subject to a ``uniform scheme'' approach, exempt from Securities Act

registration pursuant to Sections 3(b) or 4(2).

The conferees will discuss the possible impact of this Bill on

ULOE, and on state-federal cooperation in general. Further,

consideration will be given to whether there are alternative exemptive

methods which might be suitable for coordination among the states and

the federal system, either within or outside of the ULOE framework.

B. Small Business Initiative

On July 30, 1992, and April 28, 1993 the Commission adopted a

number of rulemaking changes, often described as the Small Business

Initiative, which were designed to streamline and simplify the

Commission's regulatory system applicable to the public sale of

securities by small businesses, and to provide new opportunities for

investors, consistent with the Commission's

[[Page 15849]]

obligations to protect such investors.4 Among other things, the

ceiling for the Regulation A exemption was raised from $1,500,000 to

$5,000,000, and issuers contemplating a Regulation A offering were, for

the first time, permitted to use a written document to ``test the

waters'' for investor interest prior to assuming the expense of an

offering.

\4\ Securities Act Release Nos. 6949 (July 30, 1992) [57 FR

36442]; 6996 (April 28, 1993) [58 FR 26509].

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The participants will discuss the impact of these changes, and the

need for any additional exemptive relief in the small business area.

The participants will also review their experience with amended

Regulation A and the use of ``test the waters'' documents.

On June 27, 1995, the Commission issued three releases that, if

adopted, could provide additional assistance to small business: a new

section 3(b) exemption for certain California limited issues,5

relief from Section 12(g) registration for small issuers 6 and

revision of the Rule 144 holding periods.7 The participants will

consider these proposals and discuss whether they will have a

beneficial effect on small business.

\5\ Securities Act Release No. 7185 California (June 27, 1995)

[60 FR 35638].

\6\ Securities Act Release No. 7186 (June 27, 1995) [60 FR

35642].

\7\ Securities Act Release No. 7187 (June 27, 1995) [60 FR

35645].

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Public comment is invited on the efficacy of the Small Business

Initiative as a whole. Comment is also sought with respect to any other

exemptions that might be developed to enhance the ability of small

issuers to raise capital, while protecting legitimate interests of

investors.

C. Disclosure Policy and Standards

a. Electronic Delivery of Disclosure Documents

On October 6, 1995, the Commission issued an interpretive release

8 and related rule proposals 9 addressing the use of

electronic media to deliver or transmit information under the federal

securities laws. These initiatives reflect the Commission's continuing

recognition of the benefits that electronic technology provides to the

financial markets. These releases are premised on the belief that the

use of electronic media should be at least an equal alternative to the

use of paper delivery. However, until such time as electronic media

becomes more universally accessible and accepted, the Commission

expects that paper delivery of information will continue to be

available. Conference participants will consider these matters.

\8\ Securities Act Release No. 7233 (October 13, 1995) [60 FR

53458].

\9\ Securities Act Release No. 7234 (October 13, 1995) [60 FR

53468].

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b. June 1995 Initiatives

On June 27, 1995, the Commission issued an additional five

releases, four proposing rule changes and one stating interpretive

positions, to streamline disclosure, facilitate capital raising and

deter abusive practices.10 The releases related to executive

compensation disclosure,11 accepting abbreviated financial

statements 12, and permitting solicitations of interest prior to

initial public offerings 13. The Commission also issued a release

14 proposing amendments to the financial statement requirements

for significant acquisitions and proposing to require reporting of

unregistered equity sales. The conferees will discuss the releases as

well as the public comments received by the Commission.

\10\ The Commission issued a release proposing to amend the

financial statement requirements for significant acquisitions and

require reporting of unregistered equity sales. These issues arose

out of a review of offshore capital-raising practices. See

Securities Act Release No. 7189 (June 28, 1995) [60 FR 35656]. In

connection with this review, the Commission also issued an

interpretive release regarding problematic practices under

Regulation S, as discussed below. See Securities Act Release No.

7190 (June 28, 1995) [60 FR 35663].

\11\ Securities Act Release No. 7184 (June 27, 1995) [60 FR

35633].

\12\ Securities Act Release No. 7183 (June 27, 1995) [60 FR

35604].

\13\ Securities Act Release No. 7188 (June 28, 1995) [60 FR

35648].

\14\ Securities Act Release No. 7189 (June 28, 1995) [60 FR

35656].

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D. Multinational Securities Offerings

The Commission's recent interpretation of Regulation S, contained

in a release stating its views with respect to certain practices in

connection with offers, sales and resales of securities purportedly

made in offshore transactions pursuant to Regulation S,15 also

will be considered by the conferees. Comment is specifically requested

on ways to coordinate federal and state treatment of multinational

offerings.

\15\ Securities Act Release No. 7190 (June 28, 1995) [60 FR

35663].

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E. Advisory Committee on the Capital Formation and Regulatory Processes

In February 1995, the Commission created an Advisory Committee on

the Capital Formation and Regulatory Processes. The objective of the

Committee is to assist the Commission in evaluating the efficiency of

the regulatory process relating to public offerings of securities,

secondary market trading and corporate reporting. Its deliberations

have focused on the development of a company registration system for

adoption by the Commission. Under the model of a company registration

system developed by the Committee, eligible companies would be able to

issue securities relying on a more company-focused, as opposed to a

transaction-focused system.

Companies would register with the Commission and file periodic

reports. Thereafter, routine securities issuances, such as financings,

as well as sales by affiliates and sales of what are currently known as

restricted shares, could be consummated without significant additional

registration procedures.

The Committee has developed three basic goals in connection with

its consideration of a company registration system. The first goal is

to eliminate unnecessary regulatory costs and uncertainties that impede

a company's access to capital, without impairing investor protection.

The second goal is to eliminate the many complexities resulting

from the current registration system, including the need for issuers

and investors to monitor and maintain the lines between the public

registered market and the offshore or private unregistered markets.

The final goal is to enhance the level and reliability of

disclosure provided to the markets by all issuers on a continuous

basis, not just when the issuer episodically conducts a securities

offering.

The Committee plans to issue a report containing its

recommendations in the near future. The Commission would then consider

the recommendations and either propose rulemaking or legislation, or

seek further public comment with respect to the Committee's

recommendations. The conferees will consider issues developed by the

Advisory Committee with a view to coordinating the federal and state

systems of securities regulation.

F. Task Force on Disclosure Simplification

Chairman Arthur Levitt organized the Task Force on Disclosure

Simplification in August 1995 to review forms and rules relating to

capital-raising transactions, periodic reporting pursuant to the

Exchange Act, proxy solicitations, and tender offers and beneficial

ownership reports under the Williams Act. The goal was to simplify the

disclosure process and, consistent with investor protection, to make

regulation of capital formation more efficient.

To aid its review, the Task Force met over a seven-month period

with issuing

[[Page 15850]]

companies, investor groups, underwriters, accounting firms, lawyers and

others who participate daily in the capital markets. These participants

helped the Task Force to identify and formulate reforms that reduce

costs and regulatory burdens without impairing the transparency and

integrity of our capital markets. None suggested wholesale

deregulation, and virtually all emphasized the importance of basic

regulatory goals to preserve orderly markets.

The Task Force recommendations fall into three broad categories:

(1) Weeding out forms and regulations that are duplicative of other

requirements or have outlived their usefulness;

(2) Requiring more readable and informative disclosure documents; and

(3) Reducing the cost of securities offerings and increasing access of

smaller companies to the securities markets.

The Conference participants will consider the general

recommendations of the Task Force.

G. Derivatives

During the last several years, there has been substantial growth in

the use of derivative financial instruments, other financial

instruments, and commodity instruments. The Commission recognizes that

these instruments can be effective tools for managing exposures to

market risk. During 1994, however, some Commission registrant's

experienced significant, and sometimes unexpected, losses in market

risk sensitive instruments. In light of these losses and the

substantial growth in the use of market risk sensitive instruments, the

Commission continued its derivatives initiatives in 1995. Included in

these initiatives was the release of proposed amendments that would

supplement disclosures currently required by generally accepted

accounting principles and Commission rules and make information about

derivative financial instruments, other financial instruments, and

derivative commodity instruments more useful to readers assessing the

market risk associated with these instruments. Conferees will discuss

this latest Commission initiative, as well as, the application of

federal and state securities laws to derivatives and other market

sensitive instruments.

(2) Market Regulation Issues

A. Central Registration Depository (``CRD'') Redesign

a. Implementation

The CRD system is a computer system operated by the National

Association of Securities Dealers, Inc. (``NASD'') that allows ``one-

stop'' filing for registration and that maintains information regarding

broker-dealers and their associated persons for regulatory purposes.

The NASD is in the process of implementing a comprehensive plan to

redesign the CRD and to expand its use by federal and state securities

regulators as a tool for broker-dealer regulation. As a result of the

NASD's efforts, the redesigned CRD system ultimately is expected to

provide the Commission, self-regulatory organizations (``SROs''), and

state securities regulators with: (i) streamlined capture and display

of data; (ii) better access to registration and disciplinary

information through the use of standardized and specialized computer

searches; and (iii) electronic filing of uniform registration and

licensing forms, including Forms U-4, U-5, BD and BDW, discussed below.

The NASD plans to implement the redesigned CRD in phases. The NASD

plans to begin conducting a two-month pilot test of the redesigned CRD.

Following completion of the pilot test, the NASD will begin Phase I of

the implementation of the redesigned CRD. During Phase I, the NASD will

convert broker-dealer registration information contained in the old CRD

system to the redesigned CRD format. During Phase II of the

implementation process, the Commission, the SROs, and state securities

regulators will be provided direct access to broker-dealer registration

information (including information filed by applicants for broker-

dealer registration) contained in the redesigned CRD system. Among

other things, federal and state securities regulators and the SROs will

be provided with the ability to search through hundreds of thousands of

records to: identify problem brokers, flag problem brokers who have

left the industry so that they can be reviewed should they attempt to

return to the business, and target firms and branches for examination

in a more effective way.

Among other things, the participants will discuss the status of the

CRD implementation process, and issues relating to the conversion of

existing registration information to the redesigned CRD and electronic

filing of uniform forms.

b. Forms Disclosure

In connection with the CRD redesign, NASAA adopted amendments to

certain aspects of Form U-4, the uniform form for registration of

associated persons of a broker-dealer.16 These amendments did not

include amendments to new Item 22-I, which requires disclosure of

certain customer complaints and proceedings. The appropriate level of

disclosure of customer complaints, as well as settlements, arbitration

awards, and civil judgments, has been the subject of extensive

discussions among the securities industry, NASAA, the NASD, and the

Commission. The participants will discuss the status of these

discussions at the Conference.

\16\ See NASAA Reports (CCH) para. 4161 (1994). NASAA also

adopted similar amendments to Form BD. NASAA Reports (CCH) para.

5061 (1995).

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B. Books and Records Revisions

The Commission has been working with representatives of NASAA to

develop proposed amendments to the books and records requirements of

Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934

(``Exchange Act'') to reflect the concerns of the states. These

proposed amendments will include requirements that broker-dealers

maintain additional records relating to such matters as sales

practices, licensing and compensation of registered representatives,

investor suitability, customer complaints, exceptional or unusual

commissions or trading frequency, due diligence with respect to

recommended securities, correspondence, and marketing materials.

The Commission intends to publish the proposed amendments prior to

the Conference and anticipates that the participants will discuss the

proposed amendments and related issues at the Conference.

C. Bank Securities Activities

In December 1994, the NASD proposed rules that would govern the

conduct of member broker-dealers operating on financial institution

premises.17 The proposed rules are intended to provide guidance

with respect to the activities of bank-affiliated broker-dealers and

third-party broker-dealers operating on the premises of financial

institutions pursuant to a networking arrangement. The NASD recently

submitted to the Commission a revised rule proposal designed to address

a number of issues

[[Page 15851]]

raised by commenters with respect to the original NASD proposal.

\17\ See NASD Notice To Members 94-94 (December 1994).

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The proposed rule change sets forth specific requirements for

members doing business on the premises of financial institutions as

they relate to: (1) setting; (2) networking and brokerage affiliate

arrangements; (3) compensation of registered and unregistered persons;

(4) customer disclosure and written acknowledgments; (5) use of

confidential financial information; and (6) communications with the

public. The Commission anticipates that the Conference participants

will discuss the NASD's proposed rule change.

D. Regulation of Foreign Broker-Dealers

In October 1995, NASAA adopted amendments to the Uniform Securities

Act to permit Canadian broker-dealers, subject to certain conditions,

to effect transactions for Canadian citizens temporarily residing in

the United States with whom Canadian broker-dealers have a bona fide

pre-existing relationship as well as in the Canadian retirement

accounts of Canadian citizens residing permanently in the United

States, without registering as broker-dealers with the states.18

Such Canadian broker-dealers also are exempt from all the requirements

of the Uniform Securities Act, except the antifraud provisions and the

requirements set forth in Section 201-A of the Act. The participants

will discuss the NASAA amendments, particularly in light of Rule 15a-6

under the Exchange Act, the federal exemption from broker-dealer

registration for foreign broker-dealers effecting transactions

primarily with U.S. institutional customers. Rule 15a-6(a)(4)(iii)

includes a similar, but not identical, exemption from broker-dealer

registration for foreign broker-dealers effecting transactions with

foreign persons temporarily present in the United States with whom the

foreign broker-dealer has a bona fide, pre-existing relationship.

Participants also will discuss the Uniform Securities Act provision in

relation to the registration requirements imposed by the Securities

Act.

\18\ See NASAA Reports (CCH) para. 4861A (1995).

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E. Amendments to The Trading Practices Rules

On April 19, 1994, the Commission published a concept release

soliciting comment on anti-manipulation regulation of securities

offerings. Since these rules were adopted and last significantly

amended, there have been substantial changes in the structure of the

securities markets, new kinds of trading instruments and strategies,

enhanced transparency of securities transactions, expanded surveillance

capabilities, and transformation of the capital raising process. In

particular, the rise in the number of, and demand for, multinational

offerings has required careful coordination of the interaction of the

anti-manipulation rules with foreign distribution practices and

regulatory requirements. The dominant themes in the comment letters

were: (i) restructuring anti-manipulation regulation as non-exclusive

safe-harbors; (ii) shortening the cooling-off periods; (iii) easing the

application of anti-manipulation regulation in multinational

distributions; (iv) allowing investors greater flexibility in

conducting non-shareholder dividend reinvestment and stock purchase

plans; and (v) providing greater flexibility under Rules 10b-7 and 10b-

8. With respect to Rule 10b-6, commenters also recommended: (i)

narrowing the definition of ``affiliated purchasers;'' (ii) eliminating

the ``same class and series'' analysis for purposes of debt securities;

(iii) expanding the exclusion for certain Rule 144A transactions; (iv)

permitting the distribution of research reports in the ordinary course

of business; and (v) providing greater relief for basket transactions.

Participants will discuss issues relating to revision of the trading

practices rules.

F. Arbitration

On January 22, 1996, the NASD's Arbitration Policy Task Force

(``Task Force'') released its report on securities arbitration. In

particular, the report makes recommendations to improve the arbitration

of disputes between securities firms and their customers. The

participants will discuss the recommendations made by the Task sForce.

G. Municipal Securities Disclosure

In November 1994 the Commission adopted amendments to Rule 15c2-12

in order to further deter fraud in the municipal securities market. The

amendments prohibit a broker, dealer, or municipal securities dealer

from underwriting a primary offering of municipal securities unless it

has reasonably determined that an issuer of municipal securities or an

obligated person has undertaken to provide certain annual financial

information and event notices to nationally recognized municipal

securities information repositories (``NRMSIRs'') and/or the Municipal

Securities Rulemaking Board (``MSRB'') and state information

depositories.19 The amendments also prohibit those same entities

from recommending the purchase or sale of a municipal security in the

secondary market unless they have procedures in place that provide

reasonable assurance that they will receive promptly any event notices

with respect to that security. The amendments provide certain

exemptions, including one for small and infrequent issuers of municipal

securities.

\19\ The Division issued six no-action letters recognizing

applicants as NRMSIRs for purposes of Rule 15c2-12 under the

Exchange Act. NRMSIRs will receive official statements, annual

financial information, notices of material events, and notices of a

failure to provide annual financial information undertaken to be

provided in accordance with Rule 15c2-12. NRMSIRs will make this

information available to the public. The entities that received

recognition as NRMSIRs are: 1) Bloomberg, L.P. of Princeton, NJ; 2)

Thomson Municipal Services, Inc. (a/k/a The Bond Buyer) of New York,

NY; 3) Disclosure, Inc. of Bethesda, MD; 4) Kenny Information

Systems of New York, NY; 5) Moody's Investors Service of New York,

NY; and 6) R.R. Donnelley & Sons Company of Hudson, MA. In addition,

the Division has recognized state information depositories in Texas,

Idaho, and Michigan.

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The Division of Market Regulation (``Division'') has issued several

letters regarding the application of the amendments. The Conference

participants will discuss these developments and other matters with

respect to municipal securities.

H. Internet Fraud/Electronic Delivery

On October 23, 1995, NASAA announced the formation of a Blue Ribbon

panel from industry, academia, and regulatory agencies, including the

Commission, to consider key areas of federal-state regulation,

including issues relating to the Internet. NASAA also recently adopted

a resolution on the development of a uniform policy concerning

securities offerings through the Internet. This resolution follows

initiatives by various states to exempt Internet offerings from state

registration under certain conditions. The Commission staff similarly

has established programs to address a wide range of Internet issues.

The Commission staff and NASAA have consulted on these and other issues

as part of the regular communication concerning the Internet and the

use of electronic media.

A leading area of mutual interest to both the Commission staff and

NASAA is cyberfraud, and the Commission staff and NASAA have ongoing

consultations concerning new issues raised. Other areas of concern

include securities offerings through the Internet; industry retention

of electronic records and communications; computer security;

[[Page 15852]]

unregistered brokerage, investment advisory and other regulated

financial business conducted through the Internet; foreign exchange and

foreign financial sector access to the U.S. through electronic media;

and industry and investor education about the use of electronic media

for securities business.

In addition, on October 6, 1995, the Commission published an

interpretive release expressing its views on the electronic delivery of

certain documents, such as prospectuses, annual reports, and proxy

solicitation materials.20 As directed by the Commission in this

release, the Division is studying the feasibility of electronic

delivery of confirmation statements, as well as other information

required under the Exchange Act. The Conference participants will

discuss these and other matters concerning the Internet and the use of

electronic media.

\20\ Securities Act Release No. 7233 (Oct. 6, 1995), 60 FR 53458

(Oct. 13, 1995).

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I. Continuing Education

On February 8, 1995, the Commission approved uniform proposals by

the MSRB, NASD, American Stock Exchange, Inc. (``Amex''), Chicago Board

Options Exchange, Inc. (``CBOE''), Chicago Stock Exchange, Inc.,

Pacific Stock Exchange, Inc., and Philadelphia Stock Exchange, Inc. to

implement a continuing education program for registered persons. This

program includes a Regulatory Element requiring uniform, periodic

training in regulatory matters, and a Firm Element requiring broker-

dealers to maintain ongoing programs to keep their registered persons

up-to-date on job and product related subjects.

A permanent Council on Continuing Education (``Council''), composed

of broker-dealer and SRO representatives, is charged with the

responsibility of providing ongoing input to the continuing education

program. The Council currently is working on substantial revisions to

the Regulatory Element to incorporate into the program new and more

challenging learning exercises. The Council also is considering the

development of a ``sales supervisor'' training module. The participants

will discuss issues involving the maintenance and refinement of the

program.

J. Compliance Inspections and Examinations Issues

a. Sales Practice Activities/Joint Regulatory Examination Sweep

In November 1995, the Commission completed a joint regulatory sales

practice examination sweep (``Sweep'') in cooperation with the NASD,

the New York Stock Exchange (``NYSE''), and NASAA (collectively the

``Working Group''). The objective of the Sweep was to identify possible

problem registered representatives and to ensure that appropriate

supervisory mechanisms are in place or, where necessary, to take

appropriate enforcement action against those individuals. The

participants will discuss the results of the Sweep, as well as

recommendations made by the Working Group as a result of the findings.

b. Coordinated Examinations

On November 28, 1995, the Commission entered into a Memorandum of

Understanding (``MOU'') with the examining SROs and NASAA to promote

cooperation and coordination among the examining authorities, as well

as to eliminate unnecessary and burdensome duplication in the broker-

dealer examination process. The key provisions of the MOU provide for:

(1) Annual National and Regional Planning Summits among the Commission,

Amex, CBOE, the NASD, the NYSE, and NASAA; (2) coordination of broker-

dealer examinations by the Amex, CBOE, the NASD, and the NYSE; (3) a

computerized tracking system for all broker-dealer examinations; and

(4) use of state resources in those areas where they are most needed.

On February 9, 1996, the National Planning Summit was held at the

Commission's headquarters in Washington, D.C. The goal was to discuss

the coordination of examination schedules and examination priorities,

as well as other areas of related interest. The participants will

discuss the provisions of the MOU and the actions that need to be taken

to fulfill its objectives.

(3) Investment Management Issues

A. Investment Company Disclosure

In recent years, the Commission has launched several initiatives

designed to improve the usefulness of the information received by

mutual fund investors while at the same time minimizing the regulatory

cost and burdens imposed on mutual funds. The conferees will discuss

ways to improve the quality of information regarding mutual funds

available to investors, as well as federal and state efforts toward

more uniform federal and state investment company disclosure

requirements.

In March 1995, the Commission issued for public comment a concept

release discussing the ways in which investment company risk disclosure

can be improved so that investors better understand the risks presented

by funds. The Commission received approximately 3700 comment letters

from individual investors and others in response to the concept

release. The conferees are expected to discuss issues relating to

investment company risk disclosure and the comments the Commission has

received.

The Commission has worked with the investment company industry and

NASAA to develop the concept of a ``profile prospectus.'' The key

element of the profile prospectus is a standardized, short form summary

that accompanies the full length prospectus and is designed to enable

mutual fund investors to better understand what they are buying. Pilot

``profiles'' developed by eight fund groups have been available to

investors starting August 1995. The conferees are expected to discuss

this initiative.

The Commission recently approved the delivery of electronic

prospectuses to potential investors as a method of complying with

Securities Act prospectus delivery requirements. The conferees are

expected to discuss the development of various means of electronic

delivery of information to investors in this rapidly developing area.

The Division of Investment Management has encouraged funds to write

prospectuses in simpler, more concise formats that are easier for

investors to understand. A number of fund complexes have responded to

the Division's initiative and have developed ``prototype'' prospectuses

for the Division's review. These prospectuses are designed to be

consistent with current Form N-1A disclosure requirements and to

provide investors with straight-forward descriptions of essential

information about funds. The conferees are expected to discuss this

initiative.

B. Investment Advisers

The Commission has sought to develop alternative approaches to

shortening the inspection cycles for investment advisers. In a speech

at the NASAA annual meeting in October 1995, Chairman Levitt suggested

one such approach would be for Congress to change the existing

regulatory scheme through legislative action.\21\ Under this

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approach, Congress would delegate certain registration and examination

responsibilities to state regulators, while the Commission would retain

exclusive responsibility for larger investment advisers, whose

activities tend to be more complicated and have an effect on national

markets. The states would regulate and examine smaller advisers who

tend to operate locally. The conferees are expected to discuss

legislative proposals in this area and other approaches to improving

the efficiency of investment adviser regulation and examinations.

\21\ ''The SEC and the States: Toward a More Perfect Union,''

Remarks by Arthur Levitt, Chairman, U.S. Securities and Exchange

Commission, before the North American Securities Administrators

Association, Vancouver, British Columbia (Oct. 23, 1995).

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Toward the same end, the Commission in July 1995 proposed improved

disclosure requirements for money market funds. The revised standards

would simplify money market fund prospectuses considerably, making them

less costly to prepare and allowing investors to focus on a short

document that contains the most essential information about the fund.

The conferees are expected to discuss this proposal and the comments

the Commission has received.

(4) Enforcement Issues

In addition to the above-stated topics, the state and federal

regulators will discuss various enforcement-related issues which are of

mutual interest.

(5) Investor Education

The Commission is pursuing a number of programs for investors on

how to invest wisely and to protect themselves from fraud and abuse.

The States and NASAA have a longstanding commitment to investor

education and the Commission is intent on coordinating and

complementing those efforts to the greatest extent possible. The

participants at the conference will discuss investor education and

potential joint projects in some of the working group sessions.

(6) General

There are a number of matters which are applicable to all, or a

number, of the areas noted above. These include EDGAR, the Commission's

electronic disclosure system, rulemaking procedures, training and

education of staff examiners and analysts and sharing of information.

The Commission and NASAA request specific public comments and

recommendations on the above-mentioned topics. Commenters should focus

on the agenda but may also discuss or comment on other proposals which

would enhance uniformity in the existing scheme of state and federal

regulation, while helping to maintain high standards of investor

protection.

Dated: April 3, 1996.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-8788 Filed 4-8-96; 8:45 am]

BILLING CODE 8010-01-P