Rule 10b-18's conditions are designed to limit the market impact of the issuer's repurchase activity. A12: (a) The disposition of a security future and delivery or receipt of the underlying security upon settlement would be exempted by Rule 16b-6(b). 44730 (August 21, 2001), 66 FR 45138 (August 27, 2001). § 240.15b9-2 Exemption from SRO membership for OTC derivatives dealers. The calculation of the net long position must be done both at the time of tender and at the end of the proration period, or period during which securities are accepted by lot, including any extension thereof. 77b(a)(1)]. A35: The acquisition of the underlying security upon physical settlement of a long security futures position would be considered the purchase of a covered security. Part of the SEC's responsibility is to issue rules to enforce securities legislation. Interpretation: S becomes obligated to accept delivery of the 1000 XYZ common shares underlying the 10 December delivery security futures after the close of trading on December 19, 2003. 77g, 77j, 77s(a), 77ttt(a), 80a-37.

Whether settlement on that date is done by cash or by physical delivery of the underlying securities, such an instrument can be used as a hedging vehicle. http://www.sec.gov/rules/interp/33-8107.htm. 2763. Although credit may be extended in relation to security futures (e.g., advance funds to meet margin calls or make periodic variation payments), such extensions of credit are intended to support the margining system for futures contracts, a system set up to manage risk in the clearance and settlement system for this particular type of instrument. Similarly, a person obligated to deliver would be considered short at the termination of trading.

1652; 15 U.S.C. 94 See Exchange Act Section 11(a)(1)(A) [15 U.S.C. An insider who is long a cash-settled security future does not "otherwise own" the underlying securities.

78o(c)(3)(B); supra note 5.

Under the Exchange Act, only broker-dealers that limit their securities activities to security futures products and government securities pursuant to Exchange Act Rules 3a43-1111 and 3a44-1112 can be "notice-registered," as opposed to fully registered broker-dealers.113 Some have suggested identifying additional securities activities that would not trigger the need to fully register. Each security future is on 100 shares of XYZ common stock. This example assumes that the security futures were not purchased with the purpose or effect of changing or influencing control of the issuer.

§ 240.17a-2 Recordkeeping requirements relating to stabilizing activities.

9, 15, 23(a), 48 Stat. The provision in Section 2(a)(3) stating that "[a]ny offer or sale of a security futures product by or on behalf of the issuer of the securities underlying the security futures product, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell the underlying securities[,]" applies regardless of whether a security future calls for physical delivery of the underlying security or cash settlement.

The last trading day is the day on which the security future terminates trading. Deputy Secretary 109 See VII Loss & Seligman, Securities Regulation 3290 n.420 (3d ed. "98 For similar reasons, whether cash or physically-settled, security futures are securities "entitling the holder to acquire or sell an equity security" as contemplated by Rule 11a1-3(T). 745. Interpretation: W's January purchase of the security futures established a "call equivalent position" with respect to 10,000 shares of XYZ common stock. Similarly, a person obligated to deliver would be considered short at the termination of trading.

http://www.sec.gov/rules/interp/33-8107.htm § 240.14d-4 Dissemination of tender offers to security holders. On September 3, 2003, W purchases 100 December delivery security futures on XYZ common stock. § 240.18a-4 Segregation requirements for security-based swap dealers and major security-based swap participants. § 240.17g-9 Standards of training, experience, and competence for credit analysts. § 240.14f-1 Change in majority of directors. Part 240. The fact that certain financial intermediaries could want to engage in a wider range of activities that would require both full broker-dealer and full futures commission merchant registration is reflected in the statute as well.

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901 (15 U.S.C.

1377, 1379; sec. By the Commission. A36: No. 78b, 78q, 78q-1, 78w); Sections 240.17Ad-5 and 240.17Ad-10 are also issued under secs. 761(b), 124 Stat. A42: Yes. Exchange Act Rules 15c2-4 and 15c2-8 [17 CFR 240.15c2-4 and 240.15c2-8] apply to sales of security futures by brokers and dealers that constitute distributions. Q24: Will sales of security futures be subject to Rule 10a-1? 95 Exchange Act Section 11(a)(1)(D) (15 U.S.C. § 240.17a-14 Form CRS, for preparation, filing and delivery of Form CRS. Once an insider is obligated to accept delivery, he or she may include the securities underlying the security future in computing the amount of underlying securities "otherwise owned."

1504, Pub. Section 240.12g3-2 is also issued under 15 U.S.C. § 240.14e-4 Prohibited transactions in connection with partial tender offers. 49 17 CFR 240.13d-3(a). Broker-dealers have long been subject to a duty of best execution when effecting securities transactions for customers. 6, 78 Stat. Accordingly, the physical settlement of a security future is more similar to a conversion for purposes of Rule 16b-6(b). § 240.13a-1 Requirements of annual reports. 78b, 78q, and 78q-1. The non-affiliate seller of restricted securities must, therefore, establish that it is not an "underwriter" of the underlying securities. 15, 17; 15 U.S.C. Section 240.15c3-1 is also issued under 15 U.S.C. Under Rule 14e-4, a person's "net long position" in a subject security equals the excess, if any, of such person's "long position" over a person's "short position."

Section 240.13a-15 is also issued under secs. 12 15 U.S.C. See, e.g., infra note 97 (citing Caiola amicus curiae brief). . 78dd(c). 3(a) and 302, Pub.L. 1379, sec. Rule 3b-15 also requires that ancillary portfolio management securities activities be conducted only by associated persons of the dealer who perform substantial duties for the dealer in connection with its dealer activities in eligible OTC derivative instruments. In the following section, we'll look at the major areas in which the SEC has come up with rules to protect investors. A17: Yes, but only during the period when there are 60 or fewer days before the last trading day, or immediately upon purchase of the security future if it was acquired for the purpose of changing or influencing control of the issuer of the underlying securities.55. Because the seller of a security future, regardless of whether the security future calls for cash or physical settlement, would benefit from a decrease in value in the underlying equity security, the sale of a security future establishes a put equivalent position.

These examples and other examples in this section are for purposes of Section 16 of the Exchange Act only and do not address any other issues under the Exchange Act or the Securities Act. § 240.12g-4 Certifications of termination of registration under section 12(g). 78q, 78q-1, 78w(a)); Section 240.17Ad-1 is also issued under secs. Q33: Would Regulation M apply to the purchase of security futures during a distribution of the securities underlying the security futures?

19 An "affiliate" of an issuer is defined as a "person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer" [17 CFR 230.405]. Unlike most transactions exempt from Section 16(b), which are eligible for deferred reporting on Form 5, exercises and conversions of derivative securities that are exempt from Section 16(b) must be reported on Form 4.44 General Instruction 8 of Form 4 specifies transaction codes that should be used to identify the type of transaction being reported. Passive investors who acquire more than 5% of a class of equity security, but less than 20% of the class, and not with the purpose or effect of changing or influencing control of the issuer, may file the short-form Schedule 13G, in lieu of the Schedule 13D, within 10 days after the acquisition. 3A.

2 See Pub. L. 111-203, § 922(a), 124 Stat. 570; 15 U.S.C. 78p(a)]. § 240.15d-22 Reporting regarding asset-backed securities under section 15(d) of the Act. Cf. Exchange Act Rule 3b-13(b)(2)(i) defines an eligible OTC derivative instrument, and specifically excludes from the definition of eligible OTC derivative instrument a security that is listed or traded on a securities exchange.

Exchange Act Rule 16b-6(c)(2) sets forth the methods for determining the profits recoverable under Section 16(b) from short-swing transactions involving derivative securities with different characteristics but related to the same underlying security (e.g., the purchase and sale of call options with different strike prices and expiration dates), and from short-swing transactions involving derivative securities and the underlying security. 106-554, 114 Stat. 101 See 15 U.S.C. A38: Yes. As such, security futures settled by receipt of cash have no effect on the number of subject securities eligible to be tendered into an offer.

L. 106-554, 114 Stat. 3, 15; 15 U.S.C.

That unfair advantage may be a time and place advantage, or the ability to influence or guide an order once the order enters the system. § 240.12b-21 Information unknown or not available. A34: The actively-traded securities exception under Rule 101(c)(1) would be available to acquisitions of security futures by distribution participants and their affiliated purchasers where the underlying securities are actively-traded securities.

94-75, 9th Cong., 1st Sess. Section 240.15d-15 is also issued under secs. A Schedule 13G filer must disclose, among other things, his or her identity, residence and citizenship, and amount of securities beneficially owned.

Cash settlement of a short security future should be identified in Table I, column 3 and Table II, column 4 with the transaction code "C," and with transaction code "P" on a separate line in Table I, column 4 (to report the deemed repurchase of the underlying security). We provide guidance about the security future itself and extensions of credit in relation to that instrument. 77b(a)(11)] defines an "underwriter" as "[a]ny person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking. Questions have arisen as to the applicability of this duty to security futures products. L. 111-203, secs. For Further Information Contact: With respect to discussions concerning Securities Act and director, officer, and principal stockholder issues administered by the Division of Corporation Finance, contact Robert Plesnarski, Special Counsel (Securities Act Rule 144) or Anne Krauskopf, Special Counsel (rules under Exchange Act Section 16), (202) 942-2900, Office of Chief Counsel, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0402. A37: No. Congress stated that Section 11(d) "... strikes at one of the greatest potential evils inherent in the combination of the broker and dealer function in the same person, by assuring that he will not induce his customers to buy on credit, securities which he has undertaken to distribute to the public."

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