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U.S. Securities and Exchange Commission

Commission Approves Five Items at Open Meeting


Washington, DC, December 19, 2001 — Today, in our final open meeting of the year, we approved the following items:

We approved the extension of a pilot program, until December 31, 2002, that exempts broker-dealers from the requirement to send their balance sheets to customers on a regular basis. To take advantage of the pilot program, a broker-dealer must send its customers net capital information and include instructions for obtaining its balance sheet on its web site or by dialing a toll-free number to receive a copy. We intend to consider a rule proposal early in 2002 that would make the pilot program permanent.

We granted a request from the Nasdaq Stock Market to modify our interpretation of Section 28(e) of the Securities Exchange Act of 1934. Section 28(e) provides a safe harbor to money managers who use the commission dollars of their advised accounts to obtain research and brokerage services. Among other things, the safe harbor requires that a money manager determine in good faith that the amount of the commission was reasonable in relation to the value of research and brokerage services received. Under our interpretation, the safe harbor will apply to riskless principal transactions in Nasdaq-traded securities. In granting Nasdaq's request, we are also making it clear that transactions in other markets that meet the requirements of this interpretation will be considered to fall within the interpretation.

We adopted amendments to our rules and forms under the Securities Exchange Act of 1934 to enhance company disclosure of employee stock option plans and other equity compensation arrangements. Starting in the second quarter of next year, companies will have to provide detailed information about their equity compensation plans in a new table in their annual reports on Forms 10-K and 10-KSB filed with the SEC. This information will also have to be included in a company's proxy or information statement in years in which the company is submitting a compensation plan for security holder approval. The table will include the number and weighted-average exercise price of outstanding options, warrants and rights, and the number of securities available for future issuance under a company's existing equity compensation plans. The new disclosure will be given separately for plans that have been approved by security holders and plans that have not been approved by security holders.

We agreed to a recommendation from the Division of Corporation Finance to adopt an amendment to Rule 135b under the Securities Act of 1933 to codify the Division's long-standing position that an Options Disclosure Document (ODD), prepared pursuant to Rule 9b-1 under the Securities Exchange Act of 1934, is not a prospectus and not subject to Section 12(a)(2) liability that applies to prospectuses under the Securities Act. The recommendation comes in response to requests for clarification from the Options Clearing Corporation following a 1990 court decision and subsequent law suits that created uncertainty about the liability issue.

We approved the proposal of an amendment to Rule 146 under the Securities Act of 1933 to provide a definition for the term "qualified purchaser" under the National Securities Markets Improvement Act of 1996. If adopted, securities offered or sold to a "qualified purchaser" will be preempted from state registration requirements. As proposed, "qualified purchaser" will have the same definition as the term "accredited investor" under Rule 501 of Regulation D. We are seeking public comment on the proposed definition. The comment period will end 60 days from the date of publication of the proposed rule amendment in the Federal Register.



Modified: 12/20/2001