Stock Exchange Regulation

unless such investment banker believes that such transaction was a bona fide purchase and sale of such security, or which purports to quote the bid price or asked price for any security, unless such investment banker believes that such quotation represents a bona fide bid for, or offer of, such security. If nominal quotations are used or given they shall be clearly stated to be only nominal quotations.

SEC. 5. Offers to buy and sell.-No investment banker shall make any offer to buy or sell any security at a stated price from or to any person unless such investment banker is prepared to purchase or sell, as the case may be, at such price. SEC. 6. Compensation and gratuities.-No investment banker shall, directly or indirectly, give, permit to be given, or offer to give, anything of value

(a) To any employee, agent, or representative of another person for the purpose of influencing or rewarding the act of such employee, agent or representative in relation to the business of the employer of such employee, the principal of such agent, or the represented party, without the knowledge and consent of such employer, principal or represented party; or

(b) To any officer or employee of any bank, trust company or insurance company except for services actually rendered or to be rendered, and in no case without the knowledge and consent of such bank, trust company or insurance company; or

(c) To any person for the purpose of influencing or rewarding the action of such person in connection with the publication or circulation in any newspaper, investment service, or similar publication of any matter which has, or is intended to have, an effect upon the market price of any security, provided that this paragraph (c) shall not be construed to apply to matter which is clearly paid advertising; or

(d) To any director, official, officer or employee, of any issuer, for the purpose of influencing or rewarding the action of any such director, official, officer or employee, in connection with the issue or sale by such issuer or any person controlled by such issuer of any new securities of such issuer or of any such controlled person.

For the purposes of this section the giving of anything of value to a member of the family of any person shall be regarded as the giving of a thing of value to such person.

In order to comply with the requirements of the National Recovery Administration is is expressly stated that nothing in this section 6 shall be construed to apply to the free and general distribution of articles commonly used for advertising.

SEC. 7. Registered investment bankers.—(a) No registered investment banker shall, in any transaction with any investment banker not registered under article X hereof, allow or grant to such nonregistered investment banker any allowance, commission, or discount usually and customarily to be allowed to another dealer; nor shall any registered investment banker join with any investment banker not registered under article X hereof in any syndicate or group contemplating distribution to the public of any issue of securities; nor shall any registered investment banker sell any security to or buy any security from any investment banker not registered under article X hereof, except at the same price at which at the time of such transaction such registered investment banker would buy or sell such security, as the case may be, from or to a person who is a member of the public not engaged in the investment banking business.

(b) The provisions of this section 7 shall not apply to an investment banker in a foreign country who is not eligible for registration under article X hereof, but in any transaction with any such foreign investment banker a registered investment banker shall as a condition to such transaction secure from such foreign investment banker an agreement that, in making any sales to purchasers within the United States of securities acquired as a result of such transaction, he shall conform to the provisions of this section 7 to the same extent as though he were an investment banker registered under article X.

(c) No investment banker who is not a registered investment banker shall represent that he is a registered investment banker and no registered investment banker shall advertise or hold himself out to the public as a registered in vestment banker except as shall be permitted by regulations from time to time prescribed by the investment bankers code committee.

SEC. 8. District rules.-Every investment banker shall, with respect to any transaction in any district, comply with any additional rule established in such district as provided in sections 5, 6, and 7 of article XI hereof.

such customer or prospective customer, unless such customer or prospective customer shall have previously given written permission therefor to the investment banker employing such salesman. As used in this section the term "salesman" shall include any investment banker, or any partner, officer or employee thereof who does any act or thing in this section described.

SEC. 4. Orders taken by salesmen.-Any investment banker who employs any salesman shall require that all orders taken by such salesman for the purchase of or subscription to any security shall be subject to acceptance and confirmation by such investment banker.

ARTICLE VIII. RULES PERTAINING PRIMARILY TO INVESTMENT COMPANIES

SECTION 1. If any investment banker has agreed to manage, or give investment advice to the management of an investment company (sometimes known as an "investment trust") all or part of the securities of which are held by the public or if any partner or officer or employee of any investment banker is an officer or director of any investment company all or part of the securities of which are held by the public

(a) Such investment banker shall not for his own account sell to or purchase from such investment company any securities unless a majority of the members of the board of directors of such investment company are not such partners, officers, or employees, and unless the transaction is previously approved after full disclosure by a majority of such members of the board of directors of the investment

company.

(b) Such investment banker shall use his best efforts to cause the investment company to prepare and distribute to its stockholders quarterly statements and annual financial statements, such annual statements to conform to the standards for such annual statements required by section 1 of article IV hereof.

(c) If such investment banker has received any compensation or commission for acting as agent for the investment company, or if such investment company has purchased from or sold to such investment banker any securities, or if the investment company has engaged in any other transaction in which the investment banker has a financial interest, the investment banker shall use his best efforts to see that full disclosure of such transactions is made by the company to the stockholders at an annual or special meeting. Where the investment banker has acted simply as broker for the execution of orders on a securities exchange it shall be sufficient disclosure if the total amount of securities dealt in and the total amount of commissions received shall be stated.

(d) Such investment banker shall not enter into any management or advisory service contract with such investment company providing for the payment to the investment banker of any fee or for any other compensation for managing or advising the management of the investment company unless the contract therefor has been submitted to and approved by the stockholders of the investment company. (e) Such investment banker shall use his best efforts to cause the investment company not to use the term "trust" as part of the title of such investment company unless the use of the term "trust" is justified as a matter of law.

ARTICLE IX. MISCELLANEOUS RULES

SECTION 1. Investment management.-No investment banker who is receiving a fee for managing the account of any customer or for advising a customer with respect to his investments shall sell to or buy from such customer, for his own account or as agent for any other person, unless he shall have obtained the previous written or telegraphic approval of such customer to each such transaction.

SEC. 2. Discretionary accounts.-No investment banker who is authorized to purchase or sell securities for account of a customer in his discretion shall sell to, or buy from, such customer for his own account or as agent for any other person unless he shall have obtained the previous written or telegraphic approval of such customer to each such transaction.

SEC. 3. Segregation of agency funds. Any investment banker acting as sinking fund agent, principal or coupon paying agent, dividend paying agent or in any similar capacity, who holds any funds or securities in any such capacity shall hold such funds or securities as trust funds or trust securities unless the terms of such agency agreement expressly otherwise provide.

SEC. 4. Quotations.-No investment banker shall publish or circulate, or cause to be published or circulated, any notice, circular, advertisement, newspaper article, investment service, or communication of any kind which purports to quote or to give a quotation of any transaction as a purchase or sale of any security

For the purposes of this section the giving of anything of value to a member of the family of any person shall be regarded as the giving of a thing of value to such person.

SEC. 7. Registered investment bankers.-(a) No registered investment banker shall, in any transaction with any investment banker not registered under article X hereof, allow or grant to such nonregistered investment banker any allowance, commission, or discount usually and customarily to be allowed to another dealer; nor shall any registered investment banker join with any investment banker not registered under article X hereof in any syndicate or group contemplating distribution to the public of any issue of securities; nor shall any registered investment banker sell any security to or buy any security from any investment banker not registered under article X hereof, except at the same price at which at the time of such transaction such registered investment banker would buy or sell such security, as the case may be, from or to a person who is a member of the public not engaged in the investment banking business.

(c) No investment banker who is not a registered investment banker shall represent that he is a registered investment banker and no registered investment banker shall advertise or hold himself out to the public as a registered investment banker except as shall be permitted by regulations from time to time prescribed by the investment bankers code committee.

ARTICLE X. REGISTRATION OF INVESTMENT BANKERS

SECTION 1. Registration agreement.-Each investment banker who registers under this article thereby agrees with every other investment banker who registers under this article to comply with all decisions and interpretative rulings of the investment bankers code committee under any provisions of this article, and to comply with the rules.

For any failure to so comply the registered investment banker who is guilty of such failure shall be subject to the penalties prescribed in section 8 of this article X, but such failure shall not, in itself, give rise to any civil liability to any other registered investment banker or to any other person.

SEC. 2. Eligibility for registration.-Any investment banker who is actually engaged in the investment banking business in the United States shall be eligible to be registered under this article.

If the principal office of any such person is located in a foreign country, any branch office in the United States may be designated as a principal office for the purposes of this article.

SEC. 3. Application for registration. Any investment banker desiring to be registered, shall file with the regional code committee of the district in which the principal office of the applicant is located, a statement in writing, in duplicate, stating: (a) The name of the applicant; (b) the address of the principal office and of all branch offices of the applicant; (c) if the applicant be a partnership, the names, addresses, and business addresses of the partners, including special or limited partners, specifying as to each whether he is a general or limited partner; (d) if the applicant is other than an individual or partnership, the name of the State or country where the applicant is incorporated or organized, and the names, residences, and business addresses of its directors and principal officers and of each stockholder owning more than 10 per cent of any class of the capital stock of such applicant; (e) the length of time the applicant or its predecessors have been engaged in the investment banking business.

SEC. 4. Supplementary statements. In the event that any change shall take place in the personnel of the partners, directors, principal officers, or stockholders of any registered investment banker with respect to whom information is required by the provisions of section 3 of this article to be given, such investment banker shall, within 30 days after such change has occurred, file with the regional code committee of the district in which the principal office of such investment banker is located, a supplemental statement in writing, in duplicate, setting forth all such changes in personnel, and the information required by paragraphs (c) and (d) of section 3 of this article with respect to any such new partner, director, or principal officer.

SEC. 5. Action on applications by regional code committee.-Upon the receipt of any application for registration the regional code committee shall cause such investigation to be made as such committee may deem necessary and proper to determine if such applicant is actually engaged in the investment banking business, and if the facts stated in such application are true and complete; and said committee shall, if requested by the applicant, give the applicant a hearing thereon. As soon as may be practicable thereafter, such committee shall forward one copy of such application to the investment bankers code committee with a certificate of the action of such regional code committee with relation thereto. SEC. 6. Action on applications by investment bankers code committee.-Upon receipt of any application for registration by the investment bankers code committee, as provided in section 5 of this article, the investment bankers code committee shall, if satisfied that the applicant is eligible to be registered in accordance with the requirements of section 2 of this article, and that no untrue statement has been made in the application, register such applicant as a registered investment banker under this article. The said committee shall, at the request of the applicant, give the applicant a hearing thereon, at which hearing the applicant shall be entitled to be heard in person and by counsel, and to submit any matters which he may desire to present.

SEC. 7. Complaints.-Every registered investment banker shall keep in each office maintained by him a copy of the code and of the rules and of all amendments from time to time made thereto, and of interpretative rulings made by the investment bankers code committee and approved by the administrator, which shall be available for the examination of any customer who makes request therefor. Any person feeling aggrieved by any act of any registered investment banker registered under this article may complain in regard thereto to any regional code committee. If such regional code committee is in a district other than the district where the principal office of such investment banker shall be located, such

committee shall make such preliminary investigation in regard to the complaint as may be practicable and shall forward the complaint and the findings of such committee to the regional code committee of the district in which is located the principal office of the investment banker against whom the complaint is made, which latter committee shall thereupon proceed to investigate the matter and to conduct such hearings in regard thereto as it may deem necessary and proper. When any complaint is filed against any registered investment banker with any regional code committee of the district in which the principal office of such investment banker is located, or when any complaint is forwarded to such committee from any other regional code committee, notice shall be given in writing to the investment banker complained against, specifying the nature of the charges and fixing a date for a hearing. Such committee may make such investigations in regard to the matter as it may deem necessary and proper, provided any investment banker who is involved in such charges shall be entitled to be heard in person and by counsel, and to submit any matters which he may desire to present.

If any regional code committee of the district in which the principal office of any registered investment banker complained against is located shall determine that there has been a violation of the code or of these rules or of any amendment thereto, or of any interpretative ruling made by the investment bankers' code committee and approved by the administrator, such committee shall transmit a report of its findings and the evidence adduced, together with its recommendations to the investment bankers code committee for action by that committee in regard to the matter.

If any registered investment banker complained against shall so request, the investment bankers' code committee shall grant such investment banker a hearing at which hearing such investment banker shall be entitled to be heard in person and by counsel, and to submit any matters which he may desire to present. For the purpose of investigating complaints against registered investment bankers, the investment bankers code committee, and any agency authorized by it, shall have the right to require the investment banker to submit a report in writing in regard to the matter involved in the complaint, and such committee shall have the right to inspect the books, records, and accounts of such investment banker with relation to the matters involved in the complaint. Any refusal on the part of any registered investment banker to make any report as called for under this section, or to permit an inspection of books, records, and accounts, as may be validly called for under this section, shall be sufficient cause for suspending or canceling the registration of such investment banker.

SEC. 8. Penalties.-The investment bankers code committee, in the administration and enforcement of this Article, may prescribe penalties not in excess of $500.00 for each violation, against any registered investment banker for any violation of the rules or for any neglect or refusal to comply with orders, directions, or decisions of the investment bankers code committee for the enforcement of the rules, including interpretative rulings made by said committee and approved by the Administrator, or suspend the registration of such investment banker for a definite period, or cancel the registration of such investment banker, as such committee may, in its discretion, deem to be just.

In any case where the investment bankers code committee shall impose any fine against any registered investment banker or shall suspend or cancel the registration of any registered investment banker, the registered investment banker against whom such fine is imposed or whose registration shall be suspended or canceled shall have the right to appeal to the administrator for a review of the facts upon which the action of the investment bankers code committee was based in the matter of the imposition of such fine or the suspension or cancelation of such registration, and the administrator shall have the right to review the facts as found by the investment bankers code committee, and to take further evidence, if he deems necessary, and the administrator may modify, affirm, or set aside the action of the investment bankers code committee in respect of such fine, suspension, or cancelation of registration.

SEC. 9. Procedure.-The investment bankers code committee shall determine the manner and form of its proceedings to be conducted under this article, and may consider and take action upon any matter at any regular meeting or at any special meeting, and in holding any hearing or conducting any investigation under this article said committee may act by one or more duly designated members, but in such event a report of the facts as found shall be submitted to a meeting of the full committee for its final action.

No member of any regional code committee or of the investment bankers code committee shall in any manner, directly or indirectly, participate in the deter

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Stock Exchange Regulation: Hearing Before the Committee on Interstate and ...