October 24, 1997
RESPONSE OF THE
OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
Re: The Securities
Transfer Association, Inc.
Incoming letter dated October 10, 1997
Based on the facts
presented, while not necessarily agreeing with your analysis in this regard, the
Division will not recommend enforcement action to the Commission if, in reliance
on an opinion of counsel that registration under the Securities Act of 1933
("Securities Act") is not required, a bank or issuer uses its Internet Web site
in connection with an open-market stock purchase plan as described in your
letter without compliance with the Securities Act's registration provisions.
This position is based on the representations made to the Division in
your letter. Any different facts or conditions might require the Division to
reach a different conclusion. Further, this response expresses the Division's
position on enforcement action as to registration under the Securities Act only
and does not express any legal conclusion on the question presented or address
any other provision under the federal securities [*2] laws.
Sincerely,
Mark W. Green
Deputy Chief Counsel
INQUIRY-1: LAW OFFICES
SMITH LODGE &
SCHNEIDER
CHARTERED
53 WEST MONROE STREET
SUITE 1800
CHICAGO, ILLINOIS 60603
TELEPHONE (312) 853-3230
FACSIMILE (312) 853-3127
October 10, 1997
VIA
FACSIMILE, 202.942.9525
Catherine T. Dixon, Esq.
Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: No-Action
Request In Respect of Section 5 of the Securities Act of 1933
Dear Ms. Dixon:
We write on behalf of our client, The Securities
Transfer Association, Inc., (the "STA") to request changes in the relief
granted under the Securities Act of 1933 (the "Act") to bank transfer agents
("Covered Banks") in the omnibus No-Action Letter issued for the benefit of the
STA on September 14, 1995 (the "Omnibus Letter") and to seek Staff concurrence
with our view that use of certain electronic media for purposes of providing
access to information and materials concerning bank-sponsored open-availability
stock plans, as described in this request letter, would not trigger a
registration requirement under Section 5 of the Act. As you know, we have
submitted requests on behalf of the [*3] STA
regarding a variety of marketing and publicity activities in respect of
open-availability plans generally. Those requests are currently under review
before the Securities and Exchange Commission ("Commission") Staff in a separate
letter (the "Pending Request"). At the Staff's recommendation, the instant
request ("Request") focuses only on use of World Wide Web facilities and seeks
relief only in respect of stock transaction plans that are created in accordance
with the Omnibus Letter and that do not require registration under the Act
("Bank OA Plans"). Notwithstanding submission of this narrow request, the STA
underscores its interest in expedited action on the balance of the Pending
Request.
I. Background to this Request
The Omnibus Letter contains conditions that severely limit any Covered
Bank or any issuer for which the Covered Bank adopts a Bank OA Plan from
communicating information, or even providing notice, about the plan or its
availability to persons other than current shareholders and employees of the
issuer. Under the Omnibus Letter, Covered Banks may not post notices or place
advertisements about plan services, and any press releases they issue describing
plan [*4] services
must not identify issuers. These strict limitations, among other things, make it
difficult in principle for a Covered Bank to use its Website to display Bank OA
Plan information and materials. In addition, under the Omnibus Letter the issuer
for which a Bank OA Plan is created may do no more than include a brief
incidental reference to the plan in its annual or quarterly reports and provide
its employees with an initial plan announcement.
These limitations have
made it nearly impossible for Covered Banks to inform the general public about
the availability of Bank OA Plans and the identity of those public companies for
which a Covered Bank makes such plans available. The limitations have meant that
the general public cannot learn about the availability of book-entry services
for such issues except through news stories they happen to see or through
word-of-mouth reports. Further, the limitations have disabled Covered Banks from
realizing the administrative cost reductions that accompany delivery of
information and plan materials over the Web, and have forced investors to
contend with inevitable delays in receiving Bank OA Plan information following
their requests for mail delivery. [*5]
These impediments do not advance investor protection or promote use of
book-entry ownership arrangements. At a time when many individual investors
reportedly wish to make informed yet self-directed investment decisions and also
desire to take advantage of book-entry economies, Commission policy should
promote the availability of useful and accurate information about alternative
transaction service providers and alternative means of access to the secondary
markets. For these reasons, Covered Banks need to be able to provide public
notice about Bank OA Plan services availability and the identity of companies
for which each Covered Bank provides such services. One appropriate way to
achieve that result is to post on the Bank's Website a list of companies for
which Bank OA Plans are available as well as Plan materials, including service
brochures and enrollment forms, for review and retrieval by interested Website
visitors.
II. Bank OA Plan Availability on the
Web
The following changes in Bank OA Plan activities under the
Omnibus Letter are proposed. These activities conform to the guidelines set
forth in the Example at Note 62 in the Commission's Electronic Media Release
(Release [*6] Nos.
33-7288/34-37182 (May 9, 1996)) the ("Note 62 Example"), which addresses
unregistered dividend reinvestment plans.
A Covered Bank would post
notice on its Website of the availability of Bank OA Plan services. The first
indicator of such services at its Website would be by way of a "button" or
hypertext link captioned "Securityholder Services" or "Investor Services," or
something comparable, which would appear at an appropriate location within the
Covered Bank's Website. A site visitor who clicks on the button would view a
screen or a series of screens that describe available Bank OA Plan services and
set forth a list of companies for which such services are provided. General
descriptions of services would indicate that (a) services and fees can vary from
plan to plan and each particular plan is governed by its specific plan
materials, and (b) Bank OA Plans are sponsored and administered by the Covered
Bank, not by the issuer.
The company list would identify those companies
for which the Covered Bank maintains a Bank OA Plan and, in addition, would
include those companies having a registered plan that the bank administers. A
site visitor would be able to click a button to access [*7] the specific plan materials respecting any
listed company in which he or she has an interest. Information and materials
thus would be accessed and retrieved sequentially only as determined, requested
and controlled by the site visitor.
The text of any Bank OA Plan
materials on the Website would correspond to the text made available in hard
copy, and the services brochure would meet all the neutral form and content
parameters set forth in the Omnibus Letter, including the required disclosures
and legends. Bank OA Plan materials and the Website instructions relating
thereto thus would contain no investment suggestions or recommendations, and
readers would be cautioned to do their own investment research and make their
own investment decisions.
In addition to the foregoing, and consistent
with the Note 62 Example an issuer could choose to post on its own Website a
notice of the availability of a Bank OA Plan in respect of the issuer's
securities. Under the Example an issuer may post a notice concerning an
unregistered dividend reinvestment plan on its own Website, with a hypertext
link to the independent agent's Website -- though not directly to plan
materials. In the Bank OA Plan context, [*8] the issuer's notice, which would appear
under a general menu of topics, could include the Covered Bank's phone number
and Website address, would inform visitors that plan information may be obtained
only from the Covered Bank, and could include the hypertext link referenced
above. In addition, consistent with the notice permitted in hard-copy form in
the Omnibus Letter, an issuer could continue to make a "brief incidental
reference" to the Bank OA Plan in any annual or quarterly report it includes on
its Website.
III. Request for No-Action
We believe that the inclusion of notices and materials in respect of
Bank OA Plans on the Web as described above is consistent with the Act and the
Commission's rules and policies thereunder, including those set forth in Release
Nos. 33-4790 (July 13, 1965) and 33-5515 (August 8, 1974), to which our request
for the Omnibus Letter referred, and the Note 62 Example. Bank OA Plans will
continue to entail open-market, ordinary brokerage transactions in securities of
reporting companies by an agent independent of the issuer. Issuers will play no
discernible or material role in plan operations, plan transacting, or plan
marketing. In such a context, [*9] there is
no "offer to sell" "by or on behalf of the issuer," notwithstanding the use of
Internet facilities as described above.
We therefore request that the
Staff --
(a) concur in our opinion, explained below, that registration will not be required and that each Covered Bank and its issuers can rely on the exemption from registration set forth in at least one of Sections 4(1), 4(3) or 4(4); and
(b) confirm that it would not recommend enforcement action to the Commission under the Act, including in respect of Section 5 of the Act, in connection with the operation and marketing of a Bank OA Plan against any Covered Bank or any issuer for which the Covered Bank acts as Bank OA Plan administrator --
if such a Covered Bank
operates and makes available its Bank OA Plan services in compliance with the
Omnibus Letter as amended by this request, without filing a registration
statement relative to plan transactions, operations and activities.
IV. Basis for Granting the Requested Change in Relief
Any Bank OA Plan that operates under this Request would continue to
operate in accordance with the terms and conditions set forth in the Omnibus
Letter (as supplemented by this Request) [*10] and would also operate consistent with
the policy criteria set forth in Release Nos. 4790 and 5515 in respect of issuer
involvement in plan activities. Issuers would continue to be involved in a Bank
OA Plan only as permitted in the Omnibus Letter except that each issuer would
also be able to place a notice of plan availability on its Website and provide a
hypertext link to the Covered Bank's Website, as described herein, consistent
with the issuer activity described in the Note 62 Example for an unregistered
dividend reinvestment plan. Covered Banks would continue to be involved in Bank
OA Plans only as described in the Omnibus Letter except that each Covered Bank
would be able to place on its Website both a list of issuers for which it
sponsors Bank OA Plans and the Plan materials for such Bank OA Plans, as
described in Part II above.
This additional issuer activity should not
in any way cause the combination of plan activities to be considered an "offer
to sell" "by or on behalf of the issuer" as those phrases are used in the Act
and Release Nos. 4790 and 5515. The issuer's Website notice, as discussed
further below, would be no different in substance or appearance than a reference
[*11] in the
issuer's annual report, which is permitted under the Omnibus Letter. Moreover,
issuers would continue to have no role in the preparation or delivery of Bank OA
Plan materials and would not be involved in the process of displaying or
delivering plan materials through the Covered Bank's Website.
In
addition, Covered Banks' activities on the Web as described herein should not be
considered "offers to sell for" or "solicitations of offers to buy" "on behalf
of" any issuer whose securities are the subject of a Bank OA Plan within the
meaning of those terms and phrases as used in the Act and in Commission Releases
thereunder. None of the characteristics of a "solicitation" as that term is used
in the Act for purposes of registration would exist in the context of Covered
Banks' use of the Internet as described herein. The electronic setting in which
Bank OA Plan services and materials will be made available and in which included
issuers will be listed will simply make the inquiry process and the document
access process inexpensive and efficient for both Covered Banks and persons
making inquiries and seeking materials -- effects that are consistent with
industry use of electronic media [*12] as
encouraged in Release Nos. 33-7233/34-36345 (October 6, 1995) and the Note 62
Example.
* * * *
We appreciate the Staff's consideration of this
request. Favorable Staff response would materially improve the quality and
availability of information about Bank OA Plans and would facilitate inexpensive
and efficient access to and retrieval of Bank OA Plan materials consistent with
the requirements of the Act. Your prompt action prior to the STA Annual Meeting
the week of October 20, 1997 is earnestly sought. Please
contact either of us at 312.853.3230 if you have questions.
Sincerely,
Kristin M. Davis
Dan W. Schneider