Total common stock transactions by life insurance companies amounted to over $1.2 billion in the current quarter. Purchases declined slightly while sales rose 27 percent from the April-June period. Property and casualty insurance companies were net buyers of common stock during the third quarter-approximately $280 million-twice the net purchases of any previous quarterly period. Purchases of common stock by these firms equaled the second quarter's level, however, sales were 40 percent lower.

Stock transactions by foreigners declined to $5.3 billion during the third quarter of 1968. Both purchases and sales were at reduced levels as compared to the preceding quarter. However, net acquisitions of stock amounted to over $400 million bringing the total thus far for 1968 to almost $1.5 billion-as compared to $400 million during the comparable 1967 period.

PURCHASES, SALES, AND NET ACQUISITIONS OF COMMON STOCK BY CERTAIN FINANCIAL INSTITUTIONS AND FOREIGNERS

1 Includes only cash transactions; figures do not reflect stock dividends or splits and exclude exchanges of one security for another pursuant to conversion rights, mergers, or plans of reorganization.

2 Figures have been rounded to nearest $5,000,000 and may not add to totals. 3 Revised.

Reflects trading in domestic issues including preferred stock.

Sources: Pension funds and nonlife insurance companies, SEC; investment companies, Investment Company Institute; life insurance companies, Institute of Life Insurance; foreigners, Treasury Department.

(Attachment G)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

FEBRUARY 28, 1969.

The Securities and Exchange Commission today issued the following statement: "During the last two days representatives of the various self-regulatory groups in the securities industry have met at Securities and Exchange Commission headquarters in Washington and participated in discussions of procedures for clearing over-the-counter (OTC) transactions. These discussions are part of efforts to resolve the paperwork backlog problem on an interim, intermediate and long-term basis.

"Arrangements for the meeting were made by the Securities and Exchange Commission in January to bring together representatives of major exchanges and clearing organizations, the NASD and other interested parties to coordinate the steps that are needed to develop facilities for a national over-the-counter clearing system and to expand promptly existing facilities to improve clearance of OTČ transactions. Participants discussed the major problems, agreed on plans to increase immediately OTC clearing operations as well as future steps to be taken leading toward ultimate establishment and conversion of existing systems to a national net clearing system. The participants were told of the Congress' and Commission's deep interest in seeing that these projects are developed at the earliest possible time, consistent with sound planning requirements."

The conference marked the broadest representation of clearing experts at a meeting of this kind.

Attachment H

RESPECTING TENDER OFFERS

Public Law 90–439, commonly known as the Williams bill . . . was signed into law on July 29, 1968. It provides for increased disclosure with respect to substantial acquisitions of securities registered under the Securities Exchange Act and in connection with tender offers for such securities, together with protections against fraud in such activities, permits Commission regulation of corporations' purchases of their own shares and provides disclosure in connection with changes of a majority of the board of directors in connection with acquisitions of securities or takeover bids. It also provides for the regulation of solicitations or recommendations to accept or reject the tender offer and provides certain significant substantive protections for the investor to whom a tender offer is directed, such as a limited time in which tendered securities can be withdrawn, a limit on the time during which the tender offer can be held open, a limited period during which securities must be taken up on a pro-rata basis rather than a first-come, firstserved basis, and provides that if a person varies the terms of a tender offer by increasing the price, he must afford the benefit of that increase to persons who have already tendered their securities.

Immediately upon the enactment of the legislation, we adopted temporary regulations thereunder governing the form and content of the disclosures to be required and related matters. This was necessary since certain provisions of the legislation were not self-executing but required Commission rules in order to implement them. Such rules are contained in Regulation 13 (d) and Regulation 14(d). . .

These temporary rules were amended in August of 1968 and January, 1969, to allow certain exemptions therefrom and to provide necessary clarification. We propose to adopt permanent and comprehensive rules as soon as possible based on our experience with the temporary rules.

During the period from the effective date of the bill through February 28, 1969, filings with us have been made with respect to 54 tender offers and 167 acquisitions of securities subject to new Section 13(d). The dollar amount of the tender offers was approximately $1 billion 424 million. In this connection, it is interesting to note that of this sum, approximately $1 billion 135 million was financed by means of bank loans and another $97 million by the prior sale of securities.

I think, for the sake of completeness, I should also point out that during the period, from the effective date of the bill through January 31, 1969, 104 offerings of securities in exchange for other securities were registered with the Commission. The dollar amount of the securities so registered was approximately $9 billion. It will thus be noted that these offerings, which are exempt from most provisions of the Williams bill, somewhat exceeded in number and far exceeded in dollar value, the cash tender offers with respect to which filings were made under the Williams bill. I do not believe this trend toward the offer of securities rather than cash in tender offers is motivated to any significant extent by a desire to avoid compliance with the requirements of the Williams bill. I suspect the principal reason for this change in emphasis was economic, particularly in view of the tight-money conditions in the last few months. Also, there has been an increasing tendency to attempt to take over large corporations and to finance a cash tender offer in a transaction which may approach a billion dollars would be very difficult. Our experience with the Williams bill has been very satisfactory. Anyone who reads the financial press can see the vast improvement in the disclosure made available to investors by reason of the Williams bill and, as I pointed out, that bill also provides important protections for shareholders with respect to the substantive terms of tender offers.

I should like to mention two other rule-making proceedings of the Commission, which are related to the Williams bill. In the course of consideration of the Williams bill, we directed the attention of Congress to the practices of so-called "short tendering," which we thought unduly favored certain investors, particularly securities firms, as compared with the other shareholders to whom a tender offer was directed. The Committee in its report suggested that the Commission could deal with this problem under its existing rule-making power under the Exchange Act, and we proceeded to do so, adopting Rule 10b-4 on May 28, 1968. This rule, in effect, prohibits the practice of short tendering.

On August 30, 1968, we published for comment a proposed Rule 10b-13 dealing with open-market purchases involved in a tender offer by a person making the offer. After reviewing the numerous and useful comments received from the public with respect to this proposal and giving the matter further consideration, I understand our staff has concluded the proposed rule was probably unduly complex and they intend to recommend to the Commission a simplified rule which will be published for further comments. Basically, the problem is that such purchases by a person making a tender offer could have a manipulative effect and could result in unfair discrimination between investors who tender their shares and investors whose shares are purchased in the open market.

There already has been certain significant litigation under the Williams bill. The most important case is the decision of the Court of Appeals for the Second Circuit in Electronic Specialty Co. v. International Controls Corp., decided January 24, 1969. In this case, plaintiffs contended that the statements in a tender offer were misleading and therefore violated Section 14 (e) of the Act, as added by the Williams bill. The decision of the Court of Appeals established the important proposition that a target corporation has standing to complain of a violation of 14 (e) and further suggested that an application for a preliminary injunction is the time when relief can best be granted, rather than attempting to unscramble the eggs after the tender offer has been completed. At the early stage, the court can require a correction of the material if necessary, as in fact occurred in this particular case. The Court of Appeals, however, concluded that the material was not in fact misleading and reversed the decision of the District Court to the contrary.

I understand that the subcommittee is interested in knowing whether or not, upon the basis of our experience with the Williams bill, we believe that any amendments to that statute would be desirable. The Commission has not developed a legislative program in this area. We do believe, however, that in the light of the great increase in takeover activity, which I discussed in my statement before the House subcommittee, consideration should be given to certain perfecting amendments to the legislation. In the first place, I think it might be desirable to reduce the ten per cent figure in Section 13 (d) (1), which requires that a report be filed if a person has acquired ten per cent of the outstanding stock of a company, to five per cent. The reason for this is that it is common for a person proposing to make a tender offer, either with cash or with securities, to first accumulate a position in the open market and, as takeover efforts are increasingly directed toward larger corporations, very substantial positions can be accumulated without reaching ten per cent. Thus, in one case involving a registered exchange offer, the proposed offeror acquired before the offering securities of the target company having a value of about $30 million without coming anywhere near ten per cent. We have also been told that persons accumulating stock prior to a tender offer have in some instances ceased buying just short of ten per cent in order to avoid the disclosure required by Section 13 (d).

Another possible change would be to amend Section 14 (e) to give the Commission a greater degree of rule-making power with respect to purchase of shares of the target company. New Section 13 (e) gives the Commission substantial rule-making authority with respect to purchases by an issuer of its own shares, but Section 14 (e) merely prohibits fraud and manipulative practices. As the law has developed, this adds little to the protection afforded by other antifraud provisions of the securities laws such as Section 10(b) and Rule 10b-5, except as it may affect the question of standing to sue, which I mentioned in connection with the Electronic Specialty case. Section 14 (e) might therefore be amended to grant to the Commission rule-making authority over purchases by a tender offeror and his associates comparable to that provided in Section 13(e) for purchase by the issuer.

As I mentioned, the Williams bill, as enacted, contained an express exemption for tender offers registered under the Securities Act of 1933. This was no doubt introduced with the thought that registration would provide adequate disclosure and indeed, more comprehensive disclosure, than was contemplated by the Williams bill and that consequently application of the bill would be unnecessary and would involve some duplication. As far as disclosure is concerned, this conclusion is correct. This exclusion, however, has the effect of depriving investors to whom a registered tender offer is directed of the important substantive protections provided by subparagraphs 5, 6 and 7 of Section 14(d) dealing with the terms and conditions under which tender offers can be made, including the right to share in an increase in the offer price, and it may also have the effect of leaving solicitations in opposition to a registered tender offer regulated only by the fraud provisions, while the offeror is restricted by the registration requirement of the Securities Act of 1933. If this exemption were eliminated, we could easily avoid any duplication of disclosure administratively. Indeed, such offers could be exempted from the disclosure requirements of Section 14 (d) (1), since that information will almost inevitably be contained in the registration statement.

There is one omission in the Williams bill, which may have been inadvertent since it is not mentioned in the legislative history. If it was inadvertent, we must

bear much of the responsibility, since we did not suggest it. The Williams bill applies only to securities registered pursuant to Section 12 of the Exchange Act and to closed-end investment companies. The securities of most insurance companies are not registered pursuant to Section 12(g), because of the exemption contained in Section 12(g) (2) (G) for insurance company securities which are subject to specified state regulation. We would not wish to disturb the Congressional decision in 1964 to leave reporting, proxy solicitation and regulation of insider trading with respect to the securities of insurance companies to the state insurance commissioners. We believe, however, that the considerations which led to this decision by the Congress in 1964 may well be inapplicable to tender offers. Tender offers are frequently made on a nationwide basis and are not presently regulated by the state insurance commissioners; indeed, it might be very difficult for a state insurance commissioner to regulate a tender offer made from outside the state.

We have not had an opportunity to obtain the views of the insurance industry on this suggestion, and it would undoubtedly be necessary to ascertain their views before proceeding with any such legislation. Some insurance companies have, however, written to us suggesting that such an amendment be adopted in order to give them and their shareholders the protections afforded by the Williams bill. Insurance companies in recent periods have been the target of tender offers, although I do not recall any such situation which occurred during the consideration of the Williams bill, although there may have been some.

(Attachment I)

"BACK OFFICE PROBLEMS AND THE SMALL INVESTOR," EXCERPTED FROM STATEMENT OF HAMER H. BUDGE, CHAIRMAN OF THE SECURITIES AND EXCHANGE COMMISSION

THE BACK OFFICE PROBLEMS AND THE SMALL INVESTOR

The brokerage community today is beset with a number of problems, one of which is its inability to process the paper work involved in the execution of securities transactions. This has caused hardships to many investors. They have been inconvenienced by the late receipt of securities and funds due them and are plagued by an inability to obtain correct statements of their accounts. Moreover, their complaints may go unanswered for long periods of time and some firms are refusing to accept orders if below certain minimum amounts. That these are problems of some moment is amply demonstrated by the increasing number of complaints the Commission has been receiving from dissatisfied and in some cases bewildered investors. In 1968 alone, investors' complaints increased fourfold and in recent weeks we have been receiving an increasing number.

The ability of the industry to process transactions has not kept pace with the rise in market trading activity. In 1962, the NYSE was experiencing an average daily volume of 3.8 million shares and estimated that volume would double by 1975. This forecast was outstripped as early as 1967 when the average NYSE volume rose to 10.1 million shares. By the end of December, 1968, average daily volume had increased to 14.9 million shares.

Two major factors in the development of this situation have been (1) the failure of management of individual firms to regard the increase in activity as a permanent fixture of the business, and (2) the absence of facilities for clearing over-the-counter transactions, which involve the greatest number of firms and issues, and which have been estimated to equal or surpass, at least in number of shares, the total volume of all transactions effected on the national securities exchanges.

In the past year and a half the Commission, the self-regulatory organizations and individual firms have taken a number of steps designed to restrict activity, to strengthen financial safeguards, and to improve procedures for the clearance, transfer and delivery of securities. I would like to add that last Thursday and Friday, the Commission sponsored a conference attended by representatives of the exchanges, NASD and other interested parties for the purpose of expanding existing OTC clearing facilities and expediting efforts to develop national overthe-counter clearing facilities. The conference marked the broadest representation.