UNITED STATES OF AMERICA LETTER OF TRANSMITTAL SECURITIES AND EXCHANGE COMMISSION, SIR: I have the honor to transmit herewith the results of the Commission's investigation of trading in unlisted securities upon exchanges, together with its recommendations. This report was prepared and is submitted in pursuance of section 12 (f) of the Securities Exchange Act of 1934. By direction of the Commission: J. M. LANDIS, Chairman. The PRESIDENT OF THE SENATE, The SPEAKER OF THE HOUSE OF REPRESENTATIVES, Washington, D. C. III Significance for the smaller exchanges. Significance for the New York Curb Exchange...... Relation to the problem of over-the-counter trading- Analysis... PART III Brief statement of case of opposition to continuance of unlisted Analysis of case of opposition to continuance of unlisted trading- Objection on the ground that the exchange should not have power 4 455 6 6 ས 778 9 10 12 Objection that continuance of unlisted trading will involve dis- 13 Objection that distinction between fully listed securities and 13 Certain considerations in favor of continuing the privilege of unlisted Danger of decline in security values.. The danger to the smaller exchanges Opportunity to extend scope of exchange trading in securities for which exchange market is appropriate and concerning which 15 Probability of gradual decline of unlisted trading if new admissions 16 PART V. APPENDIXES Page Appendix I. Definition of "listed" and "admitted to unlisted trading privileges". 25 Appendix II. Rules of the Commission governing unlisted trading privileges__ Appendix III. Statistics relative to listed and unlisted securities on registered national securities exchanges-- Registered national securities exchanges on which unlisted trading is and is not permitted.. Unduplicated totals of unlisted securities on registered national securities exchanges. - Unduplicated totals of listed securities on registered national securities Unlisted securities on registered national securities exchanges-- Comparative analysis of listed and unlisted bonds on registered Comparative analysis of listed and unlisted stocks on registered national securities exchanges. 29 30 30 31, 32 33 34 35 36 37 Appendix IV. Delisting of securities from registered national securities exchanges. 38 Appendix V. Resolutions of board of governors of the New York Curb Exchange relative to admission of securities to unlisted trading privileges, and application blanks.. 38 Resolutions of the board of governors.. 38 Application blank for admission of stocks to unlisted trading... - - Requirements for regular members re admission of stocks to unlisted trading.. 39 Application blank for admission of bonds to unlisted trading. Requirements for regular members re admission of bonds to unlisted trading___ Appendix VI. Securities listed on the New York Stock Exchange which 49 51 SECURITIES AND EXCHANGE COMMISSION REPORT ON TRADING IN UNLISTED SECURITIES PART I BACKGROUND OF THE PROBLEM By section 12 of the Securities Exchange Act of 1934 trading in securities on national securities exchanges was prohibited unless such securities were duly registered in accordance with the provisions of said section. In subsection (f), however, a limited exception was made for securities admitted to unlisted trading privileges. The Securities and Exchange Commission was authorized by rules and regulations to prescribe terms and conditions under which an exchange might continue until June 1, 1936, unlisted trading privileges for securities which had been admitted to such privileges on such exchange prior to March 1, 1934. The Commission was likewise empowered to prescribe terms and conditions under which an exchange might extend until July 1, 1935, unlisted trading privileges for any security registered on any other exchange which security had been listed on such other exchange on March 1, 1934. By the same subsection the Commission was "directed to make a study of trading in unlisted securities upon exchanges and to report the results of its study and its recommendations to Congress on or before January 3, 1936." This report is submitted pursuant to said subsection. 1 At the outset, it may be useful briefly to indicate the distinction. between a listed security and one admitted to unlisted trading privileges. In general, a listed security may be described as a security admitted to full trading privileges on an exchange upon application of the issuer thereof. As a condition to listing, the issuer is required by the rules of the exchange to file certain significant information concerning the structure and financial condition. A security admitted to unlisted trading privileges, on the other hand, is one admitted upon application of a member of the exchange, ordinarily without regard to the preferences of the issuer.2 In consequence, the application is not supplemented by information furnished by the issuer, although 1 For a more complete definition, see rule AT1 of the Commission, set forth in appendix I. Under exceptional circumstances an exchange may refuse to admit a security to unlisted trading priv ileges if the issuer protests. |