January 13, 1998
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
Our Ref.
No. 97-609-CC
Internet Capital
Corporation
In your letter of December 5, 1997, you request that we concur with
your view that Internet
Capital Corporation ("ICC") may establish and operate a passive bulletin
board on an internet web site under the circumstances set forth in your letter
without registering as an investment adviser under Section 203(a) of the
Investment Advisers Act of 1940 ("Advisers Act"). n1
n1 The Divisions of
Market Regulation and Corporation Finance have responded to you by letter dated
December 22, 1997, regarding the issues that you
raised under Sections 5, 6, and 15 of the Securities Exchange Act of 1934 and
Section 5 of the Securities Act of 1933, respectively.
Facts
ICC proposes to establish an internet web
site to provide information to prospective buyers and sellers ("Participants")
of the common stock of companies that are listed on a national securities
exchange or on The Nasdaq Stock Market, Inc. ("Nasdaq") and subject to the
periodic reporting [*2]
requirements of the Securities Exchange Act of 1934. Although any company that
meets these objective criteria is eligible to be included on the web site (if it
pays the required fees to ICC), n2 ICC anticipates that the companies that
choose to be included on the web site ("Companies") will have small
capitalizations and lightly traded common stock for which there is no liquid
market.
n2 Telephone conversation between Stephen P. Reid, counsel to
ICC, and Wendy Finck Friedlander on December 22, 1997.
The web site will provide
Participants with a directory of Companies included on the web site, access to
each Company's public filings with the Commission, a brief summary of factual
information about each Company from its Form 10-K, price quotes from the
relevant stock exchange or Nasdaq for the stock of any Company, and a periodic
newsletter. The web site also will include a bulletin board designed to allow
Participants to communicate their interest in buying or selling the stock of a
Company. n3
n3 Your request for relief under the Advisers Act relates
solely to the operation of the bulletin board and does not encompass the other
aspects of ICC's proposed web site, including the periodic newsletter. [*3]
The bulletin board will include the
following information: (1) the name, address and telephone number (or other
means of contact, such as electronic mail address) of each Participant
interested in buying or selling the stock of a Company; (2) whether the
Participant is a prospective buyer or seller; (3) the number of shares sought to
be traded; (4) the proposed purchase or sale price; and (5) the date on which
the information will be removed from the bulletin board. Participants will post
this information directly onto the bulletin board. The information will remain
on the bulletin board until the Participant either indicates that a transaction
has been completed or requests that the information be deleted. ICC may limit
how long the information will be posted.
No transactions will be
effected on the bulletin board and ICC will have no role in effecting trades
between Participants. All trades will be effected by direct contact between
Participants. Neither ICC nor any affiliate of ICC will give advice regarding
the merits or shortcomings of any particular trade. Although ICC will have no
transaction records, it will retain records of the quotations listed for not
less than three [*4] years
and make the records available, upon reasonable request, to the Commission staff
and to any stock exchange or regulated market on which the common stock is
listed.
ICC will charge each Company a one-time flat fee for setting up,
and a monthly fee for maintaining, the Company's information on the web site.
Neither ICC nor any of its affiliates will receive any compensation in
connection with the purchase or sale of any stock listed on the bulletin board.
Participants who obtain access to the web site will be required to register on
their initial visit to the web site, and to provide their password on each
subsequent visit. Initially, Participants will not be charged a fee to obtain
access to the web site, but ICC may, in the future, charge Participants a
nominal one-time fee on their initial registration.
Analysis
Section 202(a)(11) of the Advisers Act
defines an "investment adviser," in relevant part, as any person who, for
compensation, engages in the business of advising others, either directly or
through publications or writings, as to the value of securities, or as to the
advisability of investing in, purchasing, or selling securities, or who, for
compensation and as [*5] part of
a regular business, issues or promulgates analyses or reports concerning
securities. Section 203(a) of the Advisers Act generally requires investment
advisers to register with the Commission, subject to certain exceptions.
You state that, in operating the bulletin board, ICC will not be
engaging in any of the activities requiring registration as an investment
adviser under Section 203(a) of the Advisers Act. The bulletin board will be
merely a passive medium for Participants to obtain information about other
Participants interested in buying or selling common stock of the Companies.
Neither ICC nor the bulletin board will advise Participants about the value of
securities or the advisability of investing in, purchasing, or selling a
Company's common stock.
In a 1996 letter to Angel Capital Electronic
Network, n4 the staff considered whether non-profit institutions that operated
an electronic listing service (similar to the bulletin board proposed here) to
facilitate the trading of the securities of unaffiliated companies were required
to register as investment advisers. In concluding that these institutions did
not need to register, the staff relied particularly on representations [*6] that the institutions: (1) would not be
involved in any purchase or sale negotiations arising from the listing service;
and (2) would not give advice regarding the merits or shortcomings of any
particular trade.
n4 Angel Capital Electronic Network (pub. avail. Oct.
25, 1996).
We concur with your view that ICC may establish and operate
the proposed bulletin board without registering as an investment adviser. To be
an investment adviser under Section 202(a)(11), a person must receive
compensation and provide investment advice. n5 ICC will not be
an investment adviser because, in operating the bulletin board, ICC will not
provide investment advice. Our position is based particularly on your
representation that neither ICC nor any of its affiliates will give advice
regarding the merits or shortcomings of any particular trade. While our position
also is based on your representation that ICC will play no role in effecting
trades between Participants, we note that a bulletin board sponsor may
facilitate trades between participants without necessarily being deemed to be an
investment adviser, provided that the sponsor's involvement does not constitute
giving investment advice. [*7] n6
n5 Under Section 202(a)(11), a person who does not give advice about
securities may still be an investment adviser if the person issues analyses or
reports concerning securities. We believe that the sponsorship of a passive
bulletin board of the type described in this letter does not constitute the
issuance of analyses or reports concerning securities.
n6 We express no
view as to whether facilitating trades between Participants may raise other
issues under the federal securities laws, including whether the bulletin board
sponsor would be acting as a "broker," or whether the bulletin board would be an
"exchange," under the Securities Exchange Act of 1934.
The staff
previously has stated that it will no longer respond to letters regarding the
status under the Advisers Act of companies that establish and operate electronic
bulletin boards to facilitate the trading of their own securities unless they
present a novel or unique issue. n7 Having now stated our views with respect to
the status under the Advisers Act of companies that establish and operate
electronic bulletin boards to facilitate the trading of the securities of
unaffiliated companies, the staff will no longer [*8] respond to letters in this area unless they
present a novel or unique issue.
n7 See PerfectData Corporation (pub.
avail. Aug. 5, 1996) (issuer that sponsors bulletin board to facilitate trading
of its securities and does not provide investment advice regarding trades is not
an investment adviser).
Wendy Finck Friedlander
Senior
Counsel
INQUIRY-1:
REID & Co.
A PROFESSIONAL LAW CORPORATION
533 LORING AVENUE
LOS ANGELES, CALIFORNIA 90024-2523
TELEPHONE (310) 470-0999
FACSIMILE (310) 470-2288
E-MAIL REIDCO@EARTHLINK.NET
December 5, 1997
Ms. Catherine
McGuire
Associate Director/Chief Counsel
Division of Market Regulation
Securities and Exchange Commission
450 Fifth Street, NW, Mail Stop 5-10
Washington, D.C. 20549
Ms. Catherine Dixon
Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW, Mail Stop 3-3
Washington, D.C. 20549
Mr. Douglas Scheidt
Associate Director/Chief Counsel
Division of
Investment Management
Securities and Exchange Commission
450 Fifth
Street, NW, Mail Stop 10-6
Washington, D.C. 20549
Re: Internet
Capital Corporation
Securities Exchange Act of 1934 (Sections 5, 6
and 15)
Investment Advisors Act of 1940 (Section [*9] 203(a))
Securities Act of 1933
(Section 5)
Dear Ms. McGuire & Dixon & Mr.
Scheidt
We are counsel to Internet Capital Corporation, a
privately-owned Nevada corporation ("ICC"), which is interested in establishing
a passive "bulletin board" described below (the "Bulletin Board") on the World
Wide Web ("Web") to provide information to prospective sellers and buyers
("Participants") of common stock ("Common Stock") of corporations
("Corporations") participating in the Bulletin Board. We hereby request that the
staff ("Staff") of the Securities and Exchange Commission (the "Commission")
concur with our view that ICC may establish the Bulletin Board without
registration (1) as a "broker" or "dealer" under Section 15(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); (2) as an "investment
adviser" under Section 203(a) of the Investment Advisers Act of 1940, as amended
(the "Advisors Act"); (3) of the Bulletin Board as a "national securities
exchange" under Section 6 of the Exchange Act; or (4) of offers and sales made
through the Bulletin Board under the Securities Act of 1933, as amended (the
"Securities Act").
I. BACKGROUND
ICC
proposes to establish [*10] the
Bulletin Board only for Corporations whose Common Stock is registered under
Section 12 of the Exchange Act or who are filing with the Commission in
accordance with Section 15(d) of the Exchange Act such supplementary and
periodic information, documents and reports as may be required pursuant to
Section 13 of the Exchange Act in respect of a security registered pursuant to
Section 12 of the Exchange Act. While the Common Stock of the Corporations will
be listed on one or more national securities exchanges or on NASDAQ, ICC
anticipates that the Corporations participating in the Bulletin Board will have
small capitalizations and trading in their Common Stock will be extremely light
and there will not be a liquid market therefor.
ICC will maintain the
Bulletin Board on a Web site (the "Site") which will also provide Participants
with access to each Corporation's public filings with the Commission (the
"Corporate Reports Page"), a brief summary of certain factual information on the
Corporation from the Corporation's Form 10-K filed with the Commission (the
"Corporate Information Page"), a directory of the Corporations included on the
Site (the "Directory"), stock quotes for any listed [*11] company ("Stock Quotes") which are
available from one of the organized stock exchanges (e.g., NYSE, AMEX, NASDAQ),
and a periodic newsletter from ICC (the "Newsletter"). Participants accessing
the Site will first be required to register, if this is their initial visit to
the Site, or to provide their confidential registration password. After
Participants have registered or their password has been accepted, they will be
presented with a screen listing the Site's Main Menu and thereafter will have
entry to the Bulletin Board, the Directory, the Corporate Information Page, the
Corporate Reports Page, Stock Quotes and/or the Newsletter.
ICC will
charge each Corporation a one-time flat fee for setting-up its information on
the Site and a monthly fee for housing and maintaining its information on the
Site. Neither ICC nor any of its affiliates will receive any compensation in
connection with the purchase or sale of any Common Stock listed on the Bulletin
Board and ICC's monthly fee will not be based upon, or related to, the number or
size of quotes or expressions of interest or the number of "hits" to a
Corporation's Corporation Information Page. Also, while ICC will not initially
receive [*12] any
compensation from the Participants for accessing the Site, ICC may require
Participants in the future to pay a nominal one-time fee on their initial
registration to access the Site.
The Corporate Reports Page will provide
Participants with access to the latest Form 10-K, Form 10-Q, Form 8-K and other
reports ("Periodic Reports") filed by each Corporation with the Commission by a
hyperlink to the Commission's EDGAR database.
The Corporation
Information Page will provide Participants with a brief summary of certain
factual information on the Corporation from the Corporation's Periodic Reports
filed with the Commission. The summary will be prepared by the Corporation
itself and will be restricted to approximately 70 words and will include a
factual description of the business of the Corporation and such other factual
information as the address and telephone number of the Corporation; the
directors, officers, transfer agent, auditors and corporate counsel of the
Corporation; the number of issued and outstanding shares of Common Stock; where
the Common Stock is traded; and the Corporation's trading symbol.
The
Newsletter will merely reprint publicly available articles on the Internet
[*13] and
the securities markets in general and will not contain articles on any of the
Corporations. In addition, neither ICC nor the articles contained in the
Newsletter will make any endorsement, analysis or recommendations with respect
to any security or any issuer or their investment quality or value. Finally, the
Newsletter will contain a boldface disclaimer that (i) none of the articles
appearing in the Newsletter were written or prepared by ICC and ICC does not
take any responsibility therefor and (ii) neither the Newsletter nor any article
contained therein is intended to constitute investment advice, a recommendation
or an endorsement to purchase any securities of a Corporation being described.
The Bulletin Board will provide Participants with the following
information: (1) the name, address and telephone number (or other contact
mechanisms such as electronic mail addresses) of each interested buyer and
seller; (2) the number of shares of Common Stock to be involved in the trade;
(3) whether the Participant is a prospective buyer or seller; (4) the proposed
price of the Common Stock in the trade; and (5) the date on which the
information will be removed from the Bulletin Board. [*14] Participants would transmit the above
information only by direct interface using the Bulletin Board. The information
would remain on the Bulletin Board until such time as the Participant either
indicates that a transaction was completed or requests that the information be
deleted, although ICC also may put a time limit on how long the information will
be posted.
No transactions would be reflected on the Bulletin Board
itself, and ICC will have no role in effecting trades between Participants;
rather all trades would be effected only by direct contact between the
Participants. Although ICC would have no transaction records, it will retain
records of the quotations listed for not less than three years and make them
available to the Staff and any stock exchange or regulated market on which the
Common Stock is listed on reasonable request therefor. Each Participant would be
required to rely on its own exemption under the Securities Act including,
without limitation, Section 4(1) thereof.
Neither ICC nor any affiliate
of ICC will (1) be involved in any purchase or sale negotiations arising from
the Bulletin Board; (2) give advice regarding the merits or shortcomings of any
particular trade; [*15] (3)
use the Bulletin Board, directly or indirectly, to offer to buy or sell
securities, except in compliance with the securities laws; (4) receive, transfer
or hold funds or securities as an incident of operating the Bulletin Board; or
(5) directly or indirectly facilitate the clearance or settlement of any
securities transactions other than to refer Participants to a "bank" as defined
in Section 3(a)(6) of the Exchange Act.
The screens and hard copy by
which the data of the Bulletin Board will be provided to Participants will
include the following notifications, disclaimers and information:
. Markets Listing the Common Stock. Identification of the national securities exchange or other regulated securities market that lists each Corporation's Common Stock:
. The Bulletin Board is Not an Exchange, Etc. Neither ICC nor the Bulletin Board is a registered national securities exchange, securities information processor, broker, dealer or investment adviser;
. Transfer Agent For the Common Stock. The name, address and telephone number of the transfer agent for each Corporation's Common Stock;
. Identification of Broker-Dealers. Any person that is a broker-dealer, [*16] an associated person of broker-dealer or who has a state securities license is responsible for identifying that fact;
. Two-Sided Quotes Prohibited. "Two-sided quotes," in which a person indicates a bid to buy at one price and an offer to sell at a higher price, are prohibited;
. Postings Informational Only. The postings on the Bulletin Board are informational only. They are not in any way to be deemed or construed to be offers or firm quotes by ICC or any of the parties involved, rather they are merely a list of the names, addresses and telephone numbers of potentially interested sellers and buyers, the number of shares of Common Stock which may be involved in a trade and the proposed price at which a trade could occur. ICC does not make any representation or warranty regarding any information posted on the Bulletin Board or assure that any trade will occur as to any number of shares or at any price. Any and all trades between Participants must be executed by the Participants independent of ICC or any of its affiliates;
. Application of Securities Laws.Federal and applicable state securities laws (including the anti-fraud and anti-manipulation provisions) apply [*17] to any offer made or transaction consummated using the Bulletin Board;
. Federal Registration Requirements. The registration requirements of the federal securities laws apply to all offers and sales through the Bulletin Board, absent an available exemption. Each participant is responsible for ascertaining the availability of its own federal securities law exemption. Offers and sales of control or restricted securities may be made in reliance upon the exemption contained in Section 4(1) of the Securities Act if the requirements of Rule 144 including the "manner of sale" requirements, are satisfied. Please note that the public information volume, manner of sale and notification requirements of Rule 144 do not apply to transactions that satisfy the requirements of Rule 144(k);
. State Securities Laws. Any offer made or transaction consummated using the Bulletin Board is subject to compliance with applicable state securities laws. Offers may be made or accepted only to the extent lawful in the states involved. Each participant is responsible for ascertaining the availability of its own state securities law exemption.
ICC may make announcements
relating to, and advertise [*18] or
otherwise publicize, the existence and availability of the Bulletin Board and
provide information about the use and benefits of the Bulletin Board. In its
communications with the public, ICC will not characterize itself or the Bulletin
Board as being a "broker," a "dealer," or an "exchange." All information
provided by ICC on the Site, including the Bulletin Board, the Corporate Records
Page and the Corporate Information Page, will be consistent with the anti-fraud
and anti-manipulation requirements of the federal securities laws.
We
respectfully request that the Staff concur with our view that ICC may establish
and operate the Bulletin Board as described herein without any of the following:
(1) ICC registering as an "investment adviser" under Section 203(a) of the Advisers Act;
(2) ICC, or any of its personnel who will manage and operate the Bulletin Board, registering as a "broker" and/or "dealer" under Section 15(a) of the Exchange Act;
(3) The registration of the Bulletin Board as a "national securities exchange" under Section 6 of the Exchange Act; or
(4) The registration of offers and sales made through the Bulletin Board under the Securities Act.
II. REGISTRATION [*19]
ISSUES
Broker and Dealer
Subject to certain exceptions, Section 15(a) of the Exchange Act
requires registration of any broker or dealer. Section 3(a)(5) of the Exchange
Act defines a "dealer" as "any person engaged in the business of buying and
selling securities for his own account. Section 3(a)(4) defines a "broker" as
any person engaged in the business of effecting transactions in securities for
the account of others ...." ICC will not be engaging in any activities requiring
it to register as a broker or dealer under Section 15(a). This conclusion is
consistent with the Staff's determination regarding a bulletin board similar to
the Bulletin Board in Farmland Industries, Inc. (August 26, 1991).
Requiring ICC to register as a broker-dealer would not provide the
Participants with any additional protection. Because ICC will not handle or hold
funds or securities of any Participant, a minimum capital requirement is
unnecessary. Any financial failure of ICC would result only in the loss of the
Participants' access to the Bulletin Board, and not a loss of their funds.
Furthermore, the costs of compliance with the record keeping and periodic
reporting requirements would [*20] far
outweigh any benefits.
National Securities
Exchange
Section 5 of the Exchange Act provides that it is
unlawful for an exchange to effect any transaction in a security unless such
exchange is registered as a national securities exchange under Section 6 of the
Exchange Act or is exempted from such a registration upon application to the
Commission. Section 3(a)(1) of the Exchange Act defines an "exchange" as:
any organization, association or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.
Based on the law and the foregoing facts, we are
of the opinion that the Bulletin Board would not be an "exchange" within the
meaning of the Exchange Act. In addition, the Bulletin Board will be restricted
only to Corporations whose Common Stock is registered under Section 12 of the
Exchange Act or who are filing with [*21] the
Commission in accordance with Section 15(d) of the Exchange Act such
supplementary and periodic information, documents and reports as may be required
pursuant to Section 13 of the Exchange Act in respect of a security registered
pursuant to Section 12 of the Exchange Act. Consequently, there are no issues
raised regarding the necessity of providing information to Participants.
Investment Adviser
Subject to certain
exceptions, Section 203(a) of the Advisers Act requires the registration of an
investment adviser. Section 202(a)(11) of the Advisers Act defines an investment
adviser as:
any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of regular business issues or promulgates analyses or reports concerning securities ...
As indicated above, neither ICC nor the Bulletin Board will
provide information regarding the advisability of buying or selling Common Stock
or any other securities. The Bulletin Board will merely provide a passive medium
for Participants [*22] to
obtain information regarding other Participants who are interested in buying or
selling Common Stock. Thus, ICC will not be engaging in any activities requiring
registration as an investment adviser under the Advisers Act. This conclusion is
consistent with the Staff's determination regarding a bulletin board similar to
the Bulletin Board in Farmland Industries, Inc., supra.
Registration under the Securities Act
Section 5 of the Securities Act makes it unlawful for any person to
offer, sell or solicit an offer to purchase any security unless a registration
statement has been filed with respect to the security, absent an available
exemption. In view of the manner in which the Bulletin Board will be established
and operated, ICC believes that the operation of the Bulletin Board does not
constitute an offer to sell or the solicitation of an offer to buy Common Stock
on the part of ICC. As such, ICC's activities in connection with the
establishment and maintenance of the Bulletin Board would not require Securities
Act registration of offers or sales made through the Bulletin Board.
III. CONCLUSION
For the foregoing reasons, we
request that the Staff concur with our [*23] view that ICC may establish and operate
the Bulletin Board without (1) ICC registering as an "investment adviser" under
Section 203(a) of the Advisers Act; (2) ICC, or any of its personnel who will
manage and operate the Bulletin Board, registering as a "broker" and/or "dealer"
under Section 15(a) of the Exchange Act; (3) the registration of the Bulletin
Board as a "national securities exchange" under Section 6 of the Exchange Act;
or (4) registering offers and sales made through the Bulletin Board under the
Securities Act.
In the event that the Staff does not concur with any of
our views, we kindly request an opportunity to discuss the matter prior to any
final decision thereon.
If you have any questions or comments in
connection with the above matter, please do not hesitate to contact me.
Very truly yours,
STEPHEN P. REID
SEC-REPLY-2:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
December 22, 1997
Stephen P. Reid,
Esq.
Reid & Co.
533 Loring Avenue
Los Angeles, CA 90024-2523
Re: Internet Capital
Corporation
Dear Mr. Reid:
In
your letter dated December 5, 1997, you request relief on behalf of
your client, Internet
Capital Corporation ("ICC"), a Nevada corporation, [*24] from the broker-dealer and national
securities exchange registration requirements found in Sections 5, 6, and 15 of
the Securities Exchange Act of 1934 ("Exchange Act"). You also request relief
from the requirement to register as an investment adviser under Section 203(a)
of the Investment Advisers Act of 1940 ("Advisers Act") and the requirement to
register offers and sales made through ICC's bulletin board under Section 5 of
the Securities Act of 1933 ("Securities Act").
You represent in your
letter that you intend to establish a passive bulletin board for corporations
whose common stock is listed on a national securities exchange or on The Nasdaq
Stock Market, Inc. ("Nasdaq"). You state that although these issuers will be
listed on one or more of those markets, they will have small capitalizations and
trading in these issuers' common stock will be extremely light. Your World-Wide
Web site will disclose for each issuer the name of the national securities
exchange listing the stock or that the stock is quoted on Nasdaq.
Your
World-Wide Web site will provide investors with access to each listed
corporation's public filings with the Commission, including a hyperlink to the
Commission's [*25] EDGAR
database and a brief summary of factual information on each issuer, taken from
periodic reports, such as Form 10-Q and Form 10-K, that the issuer has filed
with the Commission. The World-Wide Web site will also provide price quotes for
companies listed on the bulletin board from the national securities exchange on
which they are listed or from Nasdaq if the company's common stock is quoted
there. The World-Wide Web site will also contain a periodic newsletter from ICC.
The ICC newsletter will only reprint publicly available articles on the Internet
and the securities markets in general and will not contain articles on any of
the listed corporations. Neither ICC nor any of the articles contained in the
ICC newsletter will discuss, analyze, or recommend any security or any issuer or
their investment quality or value. The newsletter will contain a boldface
disclaimer that neither the newsletter nor any article it contains is intended
to constitute investment advice, a recommendation, or an endorsement to purchase
any securities or a corporation being described. The newsletter also will state
explicitly that ICC did not produce, and takes no responsibility for, the
contents of any [*26]
articles contained in the newsletter.
ICC will charge listed
corporations a one-time flat fee for setting up that corporation's information
on the World-Wide Web site and listing it on the bulletin board and a monthly
fee for maintaining the company's information on the site. That monthly fee will
not be related to the number or size of investor indications of interest placed
on the bulletin board or on the number of investor "hits" to an issuer's
information page. Neither ICC nor any of its affiliates will receive any
transaction-based compensation in connection with the system. While ICC
currently does not intend to charge investors for access to the system, it may
in the future charge investors a one-time fee for initial access.
You
state that the bulletin board, which will contain a separate page for each
issuer, will provide investors with the following information: (1) the name,
address, and telephone number (or other contact mechanism such as electronic
mail address) of each interested buyer and seller; (2) the number of shares of
stock to be involved in the proposed trade; (3) whether the investor is a
prospective purchaser or seller of the securities; (4) the proposed trade
[*27] price;
and (5) the date on which the information will be removed from the bulletin
board. The information will remain on the bulletin board until the investor
indicates that a transaction has been completed or requests that the information
be deleted, although ICC also may impose reasonable time limits on information
posted to the bulletin board.
You state that no transactions will be
effected by the system and ICC will have no direct role in effecting trades
between investors. Instead, all trades will be effected solely by direct contact
between the investors. Although ICC will have no transaction records, it will
keep and maintain records of all indications of interest posted to the system
for not less than three years and will make them available to the staff of the
Commission and any organized market on which the securities are traded or quoted
upon reasonable request. Each investor will be required to rely on his or her
own exemption under the Securities Act, including, among others, Section 4(1) of
the Securities Act.
You state that neither ICC nor any of its affiliates
will (1) be involved in any purchase or sale negotiations arising from the
bulletin board; (2) give advice [*28]
regarding the merits or shortcomings of any particular trade; (3) use the
bulletin board, directly or indirectly, to offer to buy or sell securities,
except in compliance with the federal securities laws; (4) receive, transfer, or
hold funds and securities as an incident of operating the bulletin board; or (5)
directly, or indirectly, facilitate the clearance and settlement of securities
transactions, other than to refer investors to a bank, as defined in section
3(a)(6) of the Exchange Act, to settle the purchase or sale of securities listed
on the bulletin board.
You state that the bulletin-board will provide
the name, address, and telephone number of the transfer agent for each issuer
whose shares are listed on the bulletin board. In addition, the screens and hard
copy by which the data of the bulletin board will be provided to investors will
include the following notifications, disclaimers, and information:
(1) The bulletin board is not registered with the Commission as a national securities exchange, securities information processor, broker, dealer, or investment adviser;
(2) Any person who is a broker-dealer, an associated person of a broker-dealer, or who has a state [*29] securities license is responsible for identifying that fact;
(3) "Two-sided quotes," in which a person indicates a bid to buy and an offer to sell the same security, at the same time, are prohibited;
(4) The postings on the bulletin board are informational only. The postings are not in any way to be deemed or construed to be offers or firm quotes by ICC or any of the parties involved; rather they are merely a list of the names, addresses, and telephone numbers, of potentially interested buyers and sellers, the number of shares of stock that may be involved in a trade, and the proposed price at which a trade could occur. ICC does not make any representation or warranty regarding any information posted on the bulletin board or assure that any trade will occur as to any number of shares or at any price. Any and all trades must be executed by investors independent of ICC or any of its affiliates;
(5) Federal and applicable state securities laws (including the anti-fraud and anti-manipulation provisions) apply to any offer made or transaction consummated using the bulletin board;
(6) The registration requirements of the federal securities laws apply to all offers and sales through [*30] the bulletin board, absent an available exemption. Each investor is responsible for ascertaining the availability of its own federal securities law exemption. Offers and sales of control or restricted securities may be made in reliance upon the exemption contained in Section 4(1) of the Securities Act if the requirements of Rule 144, including the "manner of sale" requirements, are satisfied. Please note that the public information, volume, manner of sale, and notification requirements of Rule 144 do not apply to transactions that satisfy the requirements of Rule 144(k).
(7) Any offer made or transaction consummated using the bulletin board is subject to compliance with applicable state securities laws. Offers may be made or accepted only to the extent lawful in the states involved. Each investor is responsible for ascertaining the availability of its own state securities law exemption.
Response:
On the
basis of the facts presented in your letter, but without necessarily agreeing
with your analysis, the Division of Market Regulation will not recommend
enforcement action to the Commission under Section 5, 6, or 15 of the Exchange
Act if ICC engages in the activities described in [*31] your letter without registration as a
national securities exchange under Section 6 or as a broker-dealer under Section
15 of the Exchange Act.
The Division of Corporation Finance has asked us
to inform you that on the basis of the facts presented in your letter, but
without necessarily agreeing with your analysis, that Division would not
recommend enforcement action to the Commission under Section 5 of the Securities
Act if ICC engages in the activities described in your letter concerning the
establishment and maintenance of the bulletin board.
The Division of
Investment Management has advised us that they will respond separately to your
request.
This is a position of the Division of Market Regulation and the
Division of Corporation Finance regarding enforcement action only, and does not
express any legal conclusions regarding the applicability of Section 5 of the
Securities Act or Sections 5, 6, or 15 of the Exchange Act, or any other
statutory or regulatory provisions of the federal securities laws. This
no-action position is subject to change in current law, regulation, and
interpretation governing Internet-based bulletin boards. Any change may require
the staff, and in particular [*32] the
Division of Market Regulation, to reevaluate and revoke or modify this no-action
position.
In reaching these positions, we note the following: (1) ICC
will provide the described notifications, disclaimers, and information
enumerated above; (2) each issuer listed on an ICC bulletin board will be a
Section 12 registrant, listed on one or more national securities exchanges or on
the Nasdaq, and ICC will remove from its World-Wide Web site the bulletin board
of any issuer that ceases to be listed on any national securities exchange or
the Nasdaq; (3) ICC will keep records of all indications of interest entered
into the system and make those records available to the Commission and any
regulated market on which the issuer's securities are listed upon reasonable
request; (4) ICC's advertising will comply with the representations set forth in
your letter; (5) neither ICC nor any affiliate of ICC will use the system,
directly or indirectly, to offer to buy or sell securities, except in compliance
with the federal securities laws, including any applicable registration
requirements (absent an available exemption therefrom); and (6) neither ICC nor
any affiliate of ICC will (i) receive any [*33] transaction related compensation for
creating or maintaining the system, or for the use of the system; (ii) be
involved in any purchase or sale negotiations arising from the system; (iii)
provide information regarding the advisability of buying or selling common stock
or any other securities; (iv) receive, transfer, or hold funds or securities as
an incident of operating the system; or (vi) refer any Participant to a third
party to clear or settle the purchase or sale of common stock other than a bank
as defined in Section 3(a)(6) of the Exchange Act.
These positions are
based on the representations made to the Divisions in your letter. Any different
facts or conditions might require the Divisions to reach a different conclusion.
Sincerely,
Catherine McGuire
Chief Counsel