The Securities and Exchange Commission was created under authority of the Securities Exchange Act of 1934 (15 U.S.C. 78a-78jj) and was organized on July 2, 1934. The Commission serves as adviser to United States district courts in connection with reorganization proceedings for debtor corporations in which there is a substantial public interest. The Commission also has certain responsibilities under section 15 of the Bretton Woods Agreements Act of 1945 (22 U.S.C. 286k-1) and section 851(e) of the Internal Revenue Code of 1954 (26 U.S.C. 851(e)).

The Commission is vested with quasijudicial functions. Persons aggrieved by its decisions in the exercise of those

functions have a right of review by the United States Courts of Appeals.

Activities

Full and Fair Disclosure The Securities Act of 1933 (15 U.S.C. 77a) requires issuers of securities making public offerings of securities in interstate commerce or through the mails, directly or by others on their behalf, to file with the Commission registration statements containing financial and other pertinent data about the issuer and the securities being offered. A similar requirement applies to such offerings on behalf of a controlling person of the issuer. Unless a registration statement is in effect with respect to such securities, it is unlawful

to sell the securities in interstate commerce or through the mails. (There are certain limited exemptions, such as Government securities, nonpublic offerings, and intrastate offerings, as well as offerings not exceeding $1,500,000 that comply with the Commission's Regulation A.) The effectiveness of a registration statement may be refused or suspended after a public hearing if the statement contains material misstatements or omissions, thus barring sale of the securities until it is appropriately amended.

Registration of securities does not imply approval of the issue by the Commission or that the Commission has found the registration disclosures to be accurate. It does not insure investors against loss in their purchase, but serves rather to provide information upon which investors may make an informed and realistic evaluation of the worth of the securities.

Persons responsible for filing false information with the Commission subject themselves to the risk of fine or imprisonment or both, and persons connected with the public offering may be liable in damages to purchasers of the securities if the disclosures in the registration statement and prospectus are materially defective. Also, the above act contains antifraud provisions that apply generally to the sale of securities, whether or not registered (15 U.S.C. 77a et seq.).

Regulation of Securities Markets The Securities Exchange Act of 1934 assigns to the Commission broad regulatory responsibilities over the securities markets, the self-regulatory organizations within the securities industry, and persons conducting a business in securities. Persons who execute transactions in securities generally are required to register with the Commission as broker-dealers. The Commission is directed to facilitate the establishment of a national market system for securities and a national system for the clearance and settlement of securities transactions. Securities exchanges and certain clearing agencies are required to register with the Commission, and associations of brokers

or dealers are permitted to register with the Commission. The act also provides for the establishment of the Municipal Securities Rulemaking Board to formulate rules for the municipal securities industry. The Commission oversees the selfregulatory activities of the national securities exchanges and associations, registered clearing agencies, and the Municipal Securities Rulemaking Board. In addition, the Commission regulates industry professionals, such as securities brokers and dealers, certain municipal securities professionals, government securities brokers and dealers, and transfer agents.

The act authorizes national securities exchanges, national securities associations, clearing agencies, and the Municipal Securities Rulemaking Board to adopt rules that are designed, among other things, to promote just and equitable principles of trade and to protect investors. The Commission is required to approve or disapprove most proposed rules of these self-regulatory organizations and has the power to abrogate or amend existing rules of the national securities exchanges, national securities associations, and the Municipal Securities Rulemaking Board.

In addition, the Commission has broad rulemaking authority over the activities of brokers, dealers, municipal securities dealers, securities information processors, and transfer agents. The Commission may regulate such securities trading practices as short sales and stabilizing transactions. It may regulate the trading of options on national securities exchanges and the activities of members of exchanges who trade on the trading floors. The Commission may adopt rules governing broker-dealer sales practices in dealing with investors. The Commission also is authorized to adopt rules concerning the financial responsibility of brokers and dealers and reports made by them.

The Securities Exchange Act also empowers the Board of Governors of the Federal Reserve System to prescribe rules relating to the extension of credit by brokers and dealers for securities transactions. Such rules include the

establishment of minimum margin requirements with respect to securities registered on national securities exchanges and certain securities traded over the counter (15 U.S.C. 78a et seq.). The act also requires the filing of registration statements and annual and other reports with national securities exchanges and the Commission by companies whose securities are listed upon the exchanges, and by companies that have assets of $5 million or more and 500 or more shareholders of record. In addition, companies that distributed securities pursuant to a registration statement declared effective by the Commission under the Securities Act of 1933 must also file annual and other reports with the Commission. Such applications and reports must contain financial and other data prescribed by the Commission as necessary or appropriate for the protection of investors and to ensure fair dealing. In addition, the solicitation of proxies, authorizations, or consents from holders of such registered securities must be made in accordance with rules and regulations prescribed by the Commission. These rules provide for disclosures to securities holders of information relevant to the subject matter of the solicitation.

Disclosure of the holdings and transactions by officers, directors, and large (10-percent) holders of equity securities of companies also is required, and any and all persons who acquire more than 5 percent of certain equity securities are required to file detailed information with the Commission and any exchange upon which such securities may be traded. Moreover, any person making a tender offer for certain classes of equity securities is required to file reports with the Commission if, as a result of the tender offer, such person would own more than 5 percent of the outstanding shares of the particular class of equity security involved. The Commission also is authorized to promulgate rules governing the repurchase by a corporate issuer of its own securities.

Regulation of Mutual Funds and Other Investment Companies The

Investment Company Act of 1940 (15 U.S.C. 80a-1-80a-64) requires investment companies to register with the Commission and regulates their activities to protect investors. The regulation covers sales load, management contracts, composition of boards of directors, and capital structure.

The act prohibits investment companies from engaging in various transactions, including transactions with affiliated persons, unless the Commission first determines that such transactions are fair. In addition, the act provides a somewhat parallel but less stringent regulation of business development companies.

Under the act, the Commission may institute court action to enjoin the consummation of mergers and other plans of reorganization of investment companies if such plans are unfair to security holders. It also may impose sanctions by administrative proceedings against investment company

management for violations of the act and other Federal securities laws and file court actions to enjoin acts and practices of management officials involving breaches of fiduciary duty and personal misconduct and to disqualify such officials from office.

Regulation of Companies Controlling Utilities The Public Utility Holding Company Act of 1935 (15 U.S.C. 79— 79z-6) provides for regulation by the Commission of the purchase and sale of securities and assets by companies in electric and gas utility holding company systems, their intrasystem transactions and service and management arrangements. It limits holding companies to a single coordinated utility system and requires simplification of complex corporate and capital structures and elimination of unfair distribution of voting power among holders of system securities.

The issuance and sale of securities by holding companies and their subsidiaries, unless exempt (subject to conditions and terms that the Commission is empowered to impose) as an issue expressly authorized by the State commission in the State in which the issuer is

incorporated, must be found by the Commission to meet statutory standards: --that the new security is reasonably adapted to the security structure and earning power of the issuer;

-that the proposed financing is necessary and appropriate to the economical and efficient operation of the company's business;

-that the consideration received and fees, commissions, and other remuneration paid are fair; and

--that the terms and conditions of the sale are not detrimental to investors, consumers, or the public.

The purchase and sale of utility properties and other assets may not be made in contravention of rules, regulations, or orders of the Commission regarding the consideration to be received, maintenance of competitive conditions, fees and commissions, accounts, disclosure of interest, and similar matters. In passing upon proposals for reorganization, merger, or consolidation, the Commission must be satisfied that the objectives of the act generally are complied with and that the terms of the proposal are fair and equitable to all classes of security holders affected.

Regulation of Investment Advisers The Investment Advisers Act of 1940 (15 U.S.C. 80b-1-80b-21) provides that persons who, for compensation, engage in the business of advising others with respect to securities must register with the Commission. The act prohibits certain fee arrangements, makes fraudulent or deceptive practices on the part of investment advisers unlawful, and requires, among other things, disclosure of any adverse personal interests the advisers may have in transactions that they effect for clients. The act authorizes the Commission, by rule, to define fraudulent and deceptive practices and prescribe means to prevent those practices.

Rehabilitation of Failing Corporations Chapter 11, section 1109(a), of the Bankruptcy Code (11 U.S.C. 1109) provides for Commission participation as a statutory party in corporate reorganization proceedings administered in Federal courts. The principal functions

of the Commission are to protect the interests of public investors involved in such cases through efforts to ensure their adequate representation and to participate on legal and policy issues that are of concern to public investors generally.

Representation of Debt Securities Holders The interests of purchasers of publicly offered debt securities issued pursuant to trust indentures are safeguarded under the provisions of the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-77bbbb). This act, among other things, requires the exclusion from such indentures of certain types of exculpatory clauses and the inclusion of certain protective provisions. The independence of the indenture trustee, who is a representative of the debt holder, is assured by proscribing certain relationships that might conflict with the proper exercise of his duties (15 U.S.C. 77aaa-77bbbb).

Enforcement Activities

The

Commission's enforcement activities are designed to secure compliance with the Federal securities laws administered by the Commission and the rules and regulations adopted thereunder. These activities include measures to:

-compel obedience to the disclosure requirements of the registration and other provisions of the acts;

-prevent fraud and deception in the purchase and sale of securities;

-obtain court orders enjoining acts and practices that operate as a fraud upon investors or otherwise violate the laws;

-suspend or revoke the registrations of brokers, dealers, and investment companies and investment advisers who willfully engage in such acts and practices;

-suspend or bar from association persons associated with brokers, dealers, investment companies and investment advisers who have violated any provision of the Federal securities laws; and -prosecute persons who have engaged in fraudulent activities or other willful violations of those laws.

In addition, attorneys, accountants, and other professionals who violate the