the member of the exchange must ordinarily file certain limited information concerning the issuer.3 When a listed security is registered pursuant to section 12 of the Exchange Act, it becomes a "security registered on a national securities exchange." By virtue of subsection (f) of section 12, a security admitted to unlisted trading privileges in likewise deemed a "security registered on a national securities exchange" for most purposes under the act. But by rules of the Commission pursuant to said subsection (f) and section 14 (a), securities admitted to unlisted trading privileges have been exempted from sections 12, 13, 14, and 16 of the act. In consequence, the issuer of a security admitted to unlisted trading privileges need not file the detailed registration statement required pursuant to section 12 nor the periodic reports required pursuant to section 13. It thus escapes not only the duty of disclosure but also the risk of civil liability under section 18 and of criminal liability under section 32 for false or misleading statements in either the registration statement or the reports. Such information as may be obtainable by the member of the exchange on whose application the security is admitted to unlisted trading not only is limited in amount but also lacks the assurance of accuracy provided by such liability. The issuer of such a security need not comply with the requirements concerning solicitation of proxies which apply to the issuers of listed and registered securities by virtue of regulations of the Commission issued pursuant to section 14. The officers, directors, and principal stockholders of such an issuer may trade in the securities thereof without regard to the provisions of section 16 concerning disclosure of ownership and accountability for trading profits which govern trading by officers, directors, and principal stockholders of issuers of equity securities registered under the Exchange Act.

5

By regulation, the Commission provided that "securities admitted to unlisted trading privileges prior to March 1, 1934", should be deemed to include

(1) Bonds, debentures, or notes admitted to unlisted trading privileges prior to March 1, 1934, the obligation of which had been modified since February 28, 1934, only by change of maturity and/or rate of interest;

(2) Certificates of deposit or other certificates or receipts for securities coming under (1) above, if said certificates or receipts had themselves been admitted to unlisted trading privileges prior to March 1, 1934;

Cf. discussion, infra, pp. 8, 9.

The exemption from secs. 12 and 13 was required by the very concept of unlisted trading. The exemption from secs. 14 and 16 seemed to the Commission to be required inasmuch as the theory of these sections is that the obligations thereunder flow from the voluntary assumption by the issuer and its management of these duties as a condition of retaining its exchange market-an assumption which cannot be made in the case of unlisted trading.

Rule AT3, appendix I.

(3) Additional issues since February 28, 1934, authorized prior to March 1, 1934, with regard to any security admitted to unlisted trading privileges prior to March 1, 1934; and

(4) Such other stocks, bonds, or other securities as were substantially equivalent to or represented securities admitted to unlisted trading privileges prior to March 1, 1934, as the Commission might specify upon application by the exchange. Pursuant to subsection (f) of section 12, the Commission prescribed terms and conditions upon which the continuance of unlisted trading privileges might be permitted. Express provision was made for the termination of such privileges upon the statutory dates or "after due notice, at such earlier date as the Commission may at any time by rules and regulations or by order prescribe as to any or all securities included in the application."

Unlisted trading privileges, granted pursuant to clause (2) of subsection (f) of section 12, expired at midnight on June 30, 1935. This clause authorized the extension until July 1, 1935, of unlisted trading privileges on any exchange to securities registered on any other exchange, which securities had been listed on such other exchange on March 1, 1934. At the time, the expiration of these privileges created no particular problem, owing to the continuance of unlisted trading privileges on exchanges for securities which had been admitted to such trading on such exchanges prior to March 1, 1934. The privilege will expire even for such securities at midnight on May 31, 1936, unless the Congress shall otherwise provide.

the member of the exchange must ordinarily file certain limited information concerning the issuer.3 When a listed security is registered pursuant to section 12 of the Exchange Act, it becomes a "security registered on a national securities exchange." By virtue of subsection (f) of section 12, a security admitted to unlisted trading privileges in likewise deemed a "security registered on a national securities exchange" for most purposes under the act. But by rules of the Commission pursuant to said subsection (f) and section 14 (a), securities admitted to unlisted trading privileges have been exempted from sections 12, 13, 14, and 16 of the act. In consequence, the issuer of a security admitted to unlisted trading privileges need not file the detailed registration statement required pursuant to section 12 nor the periodic reports required pursuant to section 13. It thus escapes not only the duty of disclosure but also the risk of civil liability under section 18 and of criminal liability under section 32 for false or misleading statements in either the registration statement or the reports. Such information as may be obtainable by the member of the exchange on whose application the security is admitted to unlisted trading not only is limited in amount but also lacks the assurance of accuracy provided by such liability. The issuer of such a security need not comply with the requirements concerning solicitation of proxies which apply to the issuers of listed and registered securities by virtue of regulations of the Commission issued pursuant to section 14. The officers, directors, and principal stockholders of such an issuer may trade in the securities thereof without regard to the provisions of section 16 concerning disclosure of ownership and accountability for trading profits which govern trading by officers, directors, and principal stockholders of issuers of equity securities registered under the Exchange Act.

By regulation," the Commission provided that "securities admitted to unlisted trading privileges prior to March 1, 1934", should be deemed to include

(1) Bonds, debentures, or notes admitted to unlisted trading privileges prior to March 1, 1934, the obligation of which had been modified since February 28, 1934, only by change of maturity and/or rate of interest;

(2) Certificates of deposit or other certificates or receipts for securities coming under (1) above, if said certificates or receipts had themselves been admitted to unlisted trading privileges prior to March 1, 1934;

Cf. discussion, infra, pp. 8, 9.

The exemption from secs. 12 and 13 was required by the very concept of unlisted trading. The exemption from secs. 14 and 16 seemed to the Commission to be required inasmuch as the theory of these sections is that the obligations thereunder flow from the voluntary assumption by the issuer and its management of these duties as a condition of retaining its exchange market-an assumption which cannot be made in the case of unlisted trading.

Rule AT3, appendix I.

(3) Additional issues since February 28, 1934, authorized prior to March 1, 1934, with regard to any security admitted to unlisted trading privileges prior to March 1, 1934; and

(4) Such other stocks, bonds, or other securities as were substantially equivalent to or represented securities admitted to unlisted trading privileges prior to March 1, 1934, as the Commission might specify upon application by the exchange. Pursuant to subsection (f) of section 12, the Commission prescribed terms and conditions upon which the continuance of unlisted trading privileges might be permitted. Express provision was made for the termination of such privileges upon the statutory dates or "after due notice, at such earlier date as the Commission may at any time by rules and regulations or by order prescribe as to any or all securities included in the application.'

Unlisted trading privileges, granted pursuant to clause (2) of subsection (f) of section 12, expired at midnight on June 30, 1935. This clause authorized the extension until July 1, 1935, of unlisted trading privileges on any exchange to securities registered on any other exchange, which securities had been listed on such other exchange on March 1, 1934. At the time, the expiration of these privileges created no particular problem, owing to the continuance of unlisted trading privileges on exchanges for securities which had been admitted to such trading on such exchanges prior to March 1, 1934. The privilege will expire even for such securities at midnight on May 31, 1936, unless the Congress shall otherwise provide.

41522°-36-2

PART II

MAGNITUDE AND SIGNIFICANCE OF THE PROBLEM

IN GENERAL

Of the 23 exchanges which have been registered as national securities exchanges, 16 permit unlisted trading pursuant to the terms and conditions of subsection (f) of section 12 and the rules of the Commission. Currently, taking account of all national securities exchanges, 1,370 issues of stock,' involving a total of 1,875,291,931 shares, and 564 issues of bonds in a total face amount of $6,882,396,436, are admitted to unlisted trading privileges. Listed securities, again taking account of all national securities exchanges, include 2,645 issues of stock,2 involving a total of 2,158,464,297 shares, and 1,681 issues of bonds in a total face amount of $25,426,422,544. Securities admitted to unlisted trading thus constitute a substantial fraction of all securities traded on exchanges.3

The comparative extent of unlisted trading is much more striking when the figures for the New York Stock Exchange are omitted from the total. The New York Stock Exchange, of course, is the primary listed market of the Nation. It permits no unlisted trading. Taking account of the other 22 exchanges, securities admitted to unlisted trading amount to 1,370 issues of stock,' involving a total of 1,875,291,931 shares, and 564 issues of bonds in a total face amount of $6,882,396,436 as against listed securities amounting to 1,735 issues of stock, involving a total of 1,326,777,428 shares and 513 issues of bonds in a total face amount of $6,207,102,920.

5

A comparison between the trading volume of securities admitted to unlisted trading and that of listed securities is equally illuminating. The comparison may be made through certain illustrative samples.

1 Including voting trust certificates, certificates of deposit, American depositary receipts, and other securities, excepting bonds.

* Including other securities, excepting bonds.

See appendix III. These figures have been adjusted to eliminate duplication. In the appraisal of these figures certain cautions must be observed. Comparative figures representing the number of issues, if considered alone, may tend to give a distorted picture by reason of the inactivity of many issues. Similarly, comparative figures on number of shares may convey a misleading impression unless adjustment is made for differences in value between different shares. These figures should therefore be considered in the light of the data on comparative trading volume set forth infra, p. 5.

• Including other securities, excepting bonds.

Id.

See appendix III. These figures for listed securities are obtained by subtracting from the unduplicated total for all exchanges a figure representing listed issues on the New York Stock Exchange which are not listed on any other exchange. The resulting figures thus represent listed securities exclusive of those listed only on the New York Stock Exchange.