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In addition, in the case of any security issued by any subdivision of any State of the United States, to include in the prospectus, if any, or, if there is no prospectus, to otherwise disclose to each purchaser of such security, the record of tax collections of such issuer for the preceding 3 years where available.
Sec. 3. Investment recommendations.- Where an investment banker recommends to an investor the purchase or exchange of any security, to have reasonable grounds for believing the security to be acquired by the investor is a suitable investment for such investor upon the basis of the facts, if any, disclosed by such investor as to his other security holdings and as to his investment situation and needs.
Sec. 5. Salesmen's compensation.—To compensate his salesmen in a manner consistent with the applications of the principles set forth in sections 1 and 4 of this article.
SEC. 6. Financial condition of issuer.—To keep himself reasonably informed of the financial condition of the issuer of any issue of securities of which he acted as originator, so long as any material part of such issue shall be outstanding in the hands of investors, and to endeavor to cause the issuer to meet his promises and obligations to investors.
This section is intended to apply to respect to issues of securities originated prior to the effective date of the rules as well as to issues originated thereafter.
SEC. 7. Written order or confirmation.--To require a customer, wherever practicable, to give a written order or a written confirmation of any oral order for any transaction in securities.
SEC. 8. Charges for services.- To make his charges for services performed, including miscellaneous services such as collection of moneys due for principal, dividends, or interest; exchange or transfer of securities; appraisals; safekeeping or custody of securities, and other services, reasonable and not unfairly discriminatory between customers.
SEC. 9. Sinking-fund provisions.- If an originator of an issue of bonds or other interest-bearing obligations for distribution to the public, to cause the issuer to make provision for the retirement of such issue in whole or in part before maturity, through a sinking fund or otherwise, where such provision is appropriate to safeguard the interest of investors who purchase such securities.
SEC. 10. Delivery of definitive or temporary securities of issuer.-In distributing new issues of securities, to deliver as promptly as possible after the public offering date, definitive or temporary securities of the issuer.
Sec. 11. Duration of selling syndicates and selling groups.-If the manager of & selling syndicate or selling group-to form such syndicate or selling group for the shortest period which, in the judgment of the manager, is sufficient for the purpose for which it is formed.
ARTICLE IV. RULES PERTAINING PRIMARILY TO ORIGINATION OF ISSUES
SECTION 1. Agreements required of issuers.—No investment banker shall be the originator of any issue of securities (other than any of the classes of securities mentioned in section 3 of the Securities Act of 1933 and other than any security issued by a foreign government or political subdivision thereof) where the aggregate amount at which such issue is to be offered to the public exceeds $100,000, unless the issuer of such securities shall agree with the originator as follows:
(a) Term of agreements.—To comply with the requirements of this section so long as any part of such issue of securities shall remain outstanding.
(6) Annual financial statements.-To cause for each fiscal year to be prepared by independent public or certified accountants, an income statement, surplus statement and summary of changes in reserves for such fiscal year and a balance sheet as of the end of such year of the issuer as a separate corporate entity and of each corporation in which it holds, directly or indirectly, a majority of the voting stock (hereinafter in this section called a subsidiary) together with such further information as may be necessary to disclose all intercompany holdings and transactions; or, in lieu thereof, eliminating all intercompany transactions, a similar set of consolidated financial statements of the issuer and any or all of its subsidiaries accompanied by financial statements of the issuer as a separate entity and of any subsidiary not consolidated.
If any such consolidated statements exclude any subsidiary, (1) the caption shall indicate the degree of consolidation; (2) the income statement shall show, either in a footnote or otherwise, the issuer's proportion of the difference between current earnings or losses and the dividends of such unconsolidated subsidiary for the period accounted for in such income statement; and (3) the balance sheet
shall show, in a footnote or otherwise, the extent to which the equity of the issuer in such subsidiary has been increased or diminished since the date of acquisition As a result of profits, losses, and distributions.
Such statements shall show the existence of any default in interest or in sinking fund or amortization payments and any arrears of any cumulative dividends of the issuer or of any subsidiary whether consolidated or unconsolidated.
In case there are any substantial items of profit or loss of a nonrecurring nature, such as those arising from the disposal of capital assets, they shall be expressly enumerated. If, for any reason, the examination of the accounts of any subsidiary shall have been made as of a date different from that of the issuer, that fact shall be stated either in the certificate of the accountants, or otherwise, together with a statement as to the extent of their examination of the interim transactions. Insofar as practicable the examination of the accounts of each subsidiary shall be made by or under the supervision of the same accountants who examined the accounts of the issuer, but if the accounts of any subsidiary included in any consolidated statement, are examined by public or certified accountants other than the accountants who examined the accounts of the issuer, such fact shall be noted in the certificate of the latter. If a consolidated balance sheet includes assets and liabilities of foreign subsidiaries, the percentage of total assets and liabilities included which represent the aggregate assets and liabilities of all such foreign subsidiaries shall be noted on the balance sheet. The accountant's certificates shall state the basis on which the accounts of foreign subsidiaries are included in the consolidation and there shall be set forth in the certificate or in an appended certificate any substantial differences in accounting practice employed by the foreign subsidiary or subsidiaries insofar as such differences shall be known to the certifying accountant.
Every balance sheet prepared in accordance with the above shall disclose the basis used to compute the figures at which the principal asset items are carried thereon. Where any liability of the issuer is secured on any assets of the issuer, the balance sheet shall show that such liability is secured, and if the security consists in whole of in part of current assets it shall show such fact and the general nature of such current assets. Any contingent liabilities, not expressly shown on the balance sheet, shall be shown in a footnote insofar as good accounting practice may require.
Loans or advances between the issuer and any subsidiary, or between a subsidiary and another subsidiary, whether or not consolidated, shall be shown either as separate items on the appropriate balance sheets or as footnotes to the consolidated balance sheet.
Amounts due from directors, officers, and employees (not including normal amounts arising in the ordinary course of business), and securities of the issuer (if carried as an investment), and securities of any subsidiary, shall be shown as separate items on the appropriate balance sheets.
If, for any reason, the issuer or the accountants are unable to obtain any information required for the preparation of the statements in the manner prescribed, such information need not be given, but the facts as to such inability shall be stated in the certificate of the accountants.
(c) Publication of annual financial statements.—To publish in the English language the income statement, surplus statement, summary of changes in reserves, and balance sheet required in paragraph (b) of this section with the complete certificate of the accountants, by releasing copies thereof to the public press, in the United States of America, and to furnish copies thereof to each security holder of the issuer upon request as soon as practicable after the close of the fiscal year,
(d) Slock dividends.-Not itself, and not to permit any subsidiary, directly or indirectly controlled, to take up as income stock dividends received at an amount greater than that charged against earnings, earned surplus, or both of them by the company paying such stock dividend.
(e) Surplus of subsidiaries.- Not to treat earned surplus of a subsidiary created prior to acquisition of such subsidiary as a part of earned consolidated surplus of the issuer and of its subsidiaries, and not to credit any dividends declared out of such surplus of the subsidiary to the income account of the issuer or of any other subsidiary.
(f) Intercompany profits.-To make appropriate reserves, insofar as good accounting practice may require, in respect of profits arising out of all transactions with unconsolidated subsidiaries, in either the parent company or the consolidated statements mentioned in paragraph (a).
(g) Accounting changes.-Not to make any material change in depreciation rates or policies or in accounting principles or in their application without describing such change in the next succeeding published balance sheet.
(h) Independent registrar.-To appoint a bank or trust company, or other person duly qualified to act, independent of the issuer to act as registrar in respect of the issue of stock involved in such origination and to have all certificates of that issue registered by such registrar.
(i) Publication of substitutions in collateral.—To appoint a bank or trust company to act as trustee or cotrustee under any mortgage or trust indenture under which such securities are issued; and that the issuer shall, at least 10 days prior to any substitution or release of pledged or mortgaged property which substantially affects the character or value of the property pledged or mortgaged, publisb in a daily newspaper of general circulation published in the city where the trustee has its principal place of business and also in the city where the issuer has its principal place of business, notice that such substitution or release is proposed to be made.
SEC. 2. Information regarding securities issued by subdivisions of States.---(a) No investment banker shall be the originator of any new issue of securities issued by a subdivision of any State of the United States, unless the issuer of such securities shall furnish such originator with an official statement of the issuer complying with the requirements of paragraph (b) of this section, and with the data necessary for the purposes of a legal opinion complying with the requirements of paragraph (c) of this section.
(6) Such official statement of the issuer shall disclose in the case of securities payable from ad valorem taxes: (1) the assessed valuation of the property subject to the taxing power of the issuer; (2) the total bonded debt of the issuer including the amount of such issue; (3) the population of such issuer according to the most recent United States or State census, or if no United States or State census is available, an estimate of such population; and (4) the fact, if such be the fact, that the bonded debt of such issuer does not include the debt of any other subdivision having power to levy taxes upon any or all of the property subject to the taxing power of the issuer.
(c) Such originator shall, either himself procure or require the issuer to procure the opinion of an attorney, other than an officer or an employee of the issuer, who is satisfactory to such originator, approving the validity of the issue. Such legal opinion shall contain a clear warning statement in regard to any limitation on the power of the issuer to tax real estate for the payment of these securities, if there be any limitation. In the case of securities which are not payable from ad valorem taxes or which are payable solely from a special fund, such legal opinion shall state the means or methods provided for the payment of such securities and whether there are any prior claims upon such special funds.
(d) The originator of such securities shall make available to investors, either in the prospectus, if any, or, if there is no prospectus, in some other manner, (1) the facts disclosed in such Official statement of the issuer; (2) the name of the attorney who shall have given such legal opinion and all matters stated in such opinion; and (3) in the case of securities which are issued in anticipation of the later sale of a refunding issue or issues and where provision is not to be made for payment of such securities at maturity in any other manner, the facts in regard thereto.
(C) No other investment banker shall participate in the distribution of any such issue of securities unless the requirements of paragraphs (a), (b), and (c) of this section shall have been complied with and unless such participant shall make available to each investor to whom he offers for sale or sells any such security the information required by paragraph (d) of this section to be made available by the originator to each investor to whom such originator offers for sale or sells such security.
SEC. 3. Interims.-(a) In all cases where interim certificates or interim receipts are delivered, any securities and/or cash received by an investment banker upon the issuance of such interim certificates or interim receipts shall (until the securities called for by such interim certificates or interim receipts are received and held, in the manner hereinafter in this section provided, for the account of the holders of the interim certificates or interim receipts) be held for the account of the holders of the interim certificates or interim receipts, deposited in a special account with a person permitted by law to receive deposits. Such person may be the investment banker or other person signing the interim certificates or interim receipts, if such investment banker or other person is so qualified. Any securities and/or cash so held by such investment banker or other person shall, pending the delivery of such securities and/or cash and/or definitive securities to the holders of interim certificates or interim receipts, be segregated from the other property of such investment banker or other person, in such manner that no person other than
the holders of the interim certificates or interim receipts can assert any right, title, or interest therein.
(6) In all cases where securities and/or cash are not received by an investment banker and held as provided in paragraph (a), such securities and/or cash shall be deposited with a corporate trustee which shall issue its trust certificates, executed as its obligation to carry out the trust, and hold such securities and/or cash for the benefit of the holders of such trust certificates pending delivery of securities in permanent form.
(c) Any prepayment in advance of delivery of temporary securities, interim certificates, interim receipts, or definitive securities shall be evidenced by the investment banker's receipted invoice or memorandum of sale.
(d) All forms of interims specified in the foregoing paragraphs shall by their text clearly indicate their precise nature; the rights of the holders thereof; the security and the amount thereof called for; the limitation of time for delivery of securities called for, if appropriate; the redemption or repayment provisions, if appropriate; provision for payment of interest, if any; negotiability, transferability, or registration provisions, if any; assignment form, if appropriate; and the name of the issuer of such interim.
SEC. 4. Tilles of new issues.-An investment banker shall not be the originator of any new issue of securities (except public securities) for distribution to investors, or participate in the distribution of any such new issue, which issue has a title which is misleading as to the lien, terms, or priority of such issue. If any new issue of public securities shall have a title which is misleading as to the lien, terms, or priority of such issue, the facts with regard thereto shall be stated in the prospeetus, if any, or, if there is no prospectus, in some other manner disclosed to each purchaser of such security.
As used in this section, the term "public securities” shall mean any securities issued by the United States or by any instrumentality thereof, or by any territory or insular possession thereof, or by the District of Columbia, or by any State of the United States, or by any subdivision of any such State.
Sec. 5. Interrelated directorates and managements. ---Any investment banker who is the originator of a new issue of securities, shall, if such investment banker or any partner or principal officer thereof shall be an officer or director of the issuer company, disclose such fact in the prospectus.
ARTICLE V. RULES PERTAINING PRIMARILY TO SELLING SYNDICATES AND SELLING
GROUPS IN CONNECTION WITH NEW ISSUES OF SECURITIES SECTION 1. Statement of issue price. The prospectus shall state the price received by the issuer for any new issue of securities offered for sale to the public, or if there is no prospectus such price shall be disclosed in some other manner to each person purchasing such new security from any member of the selling syndicate or selling group.
Sec. 2. Three-day notice of organization of selling syndicate or selling group:Any investment banker proposing to organize a selling syndicate or a selling group to distribute new securities other than those of the United States Government or any instrumentality thereof or of any State or political subdivision thereof shall mail or deliver or telegraph a copy of the prospectus or an adequate description of the security to each investment banker who is to be offered a participation in such syndicate or a membership in such selling group, at such times that, in the usual course of delivery, such prospectus or description will be received by all such investment bankers on approximately the same day and at least 3 days (excluding Sundays and holidays but including the day of delivery) before the date on which it shall be proposed to make the public offering of such securities.
Sec. 3. Membership in selling syndicates and selling groups.—No investment banker proposing to organize a selling syndicate or a selling group shall invite or permit any person to be a participant in such selling syndicate or a member in such selling group unless such person is an investment banker actually engaged in the investment banking business.
Sec. 4. Price.-Each selling syndicate agreement and selling group agreement shall set forth the price at which the new securities are to be sold to the public or the formula by which such price can be ascertained.
No participant in a selling syndicate or member of a selling group shall, during the life of such selling syndicate or selling group, offer the new securities being distributed by such syndicate or group at any price below such public offering price. It shall be deemed a reduction of such offering price for a participant in a selling syndicate or a member of a selling group to allow any deduction, abatement, concession, or commission whatsoever, either directly or indirectly; provided that any
investment banker may allow to another investment banker a commission or concession if and to the extent that provision is made therefor in the agreement creating the selling syndicate or the selling group. No such commission or concession shall be allowed, however, to another investment banker who is not subject to these supplementary provisions unless he effectively agrees with the investment banker allowing him such commission or concession that he will be bound by the provisions of the following paragraph.
Any investment banker receiving such commission or concession in respect of any new security shall not resell such security to a person during the life of the selling syndicate or selling group at a price less than the price at which such security could be sold at the same time to the same person by a participant in such selling syndicate or by a member of such selling group.
SEC. 5. Presyndicate sales.—No investment banker shall organize, manage, or participate in a selling syndicate or selling group to offer a new issue of securities to the public if, within 30 days prior to the formation of such syndicate or group, he shall, at a price lower than the offering price to the public, have sold or given a right to purchase, or shall have assisted the issuer in selling or giving a right to purchase, any part of such new issue to any person other than an investment banker otherwise than as an essential step in the plan for the sale to the public of such new issue of securities.
SEC. 6. Trades in connection with new issues.- No investment banker who is a participant in any selling syndicate or a member of any selling group shall enter into any agreement or arrangement with any purchaser of the new securities being distributed by such syndicate or group whereby, either directly or indirectly, as a condition of the purchase, such investment banker will accept any other securities (except securities which are being refunded or redeemed in connection with or by means of such new issue of securities) in trade in payment of all or any part of the purchase price of such new securities. The foregoing provision shall not, however, prevent such investment banker from accepting such other securities as agent for sale, in which case the investment banker shall make the usual charge for such services and such investment banker may allow the purchaser of the new securities to apply towards the purchase price thereof any net proceeds realized from the sale of such other securities.
Sec. 7. Requirement of down payment.—(a) Except as hereinafter provided in paragraph (c) of this section, whenever a participant in a selling syndicate, or a member of a selling group, accepts a subscription subject to allotment for the purchase of a new security to be distributed by such selling syndicate or selling group, he shall require the person making the subscription to deposit with him a down payment of not less than 5 percent of the public offering price on the securities subscribed for.
(6) Except as hereinafter provided in paragraph (c) of this section, whenever new securities are subscribed for subject to allotment from the manager by a participant in a selling syndicate or a member of a selling group he shall at the time of such subscription make a down payment of not less than 5 percent of the public offering price. . Such down payments shall be deposited by the manager in a special account with one or more incorporated banks, trust companies or persons permitted to receive deposits, provided, however, that they shall in all cases be deposited with a bank, trust company or person other than the manager.
(c) No down payment as required by paragraph (a) of this section shall be required from any purchaser who may be prevented by law from making such payment in advance of the delivery of the security purchased; and the participant or member who accepted the subscription of such purchaser shall furnish the manager of the selling syndicate or selling group evidence of such fact satisfactory to the manager, and in such case such participant or member shall not be required to make the down payment as required by paragraph (b) of this section; and the fact that such down payment is not required in any such case shall not be considered as a concession under section 4 of this article. The requirements of paragraph (b) shall not be compulsory in the case of a selling syndicate where all the participants were parties to the purchase from the issuer of the new security to be distributed.
Sec. 8. Requirements as to confirmations of sales.- No participant in a selling syndicate and no member of a selling group shall confirm à sale or a subscription from any purchaser unless
(a) Such participant or member has reasonable grounds to believe that such purchaser is bona fide and responsible;
(6) A copy of the prospectus, if any, has been delivered to such purchaser or accompanies the confirmation;