[Federal Register Volume 59, Number 116 (Friday, June 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14738]
[[Page Unknown]]
[Federal Register: June 17, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release Nos. 33-7066; 34-34176; International Series Release No. 671]
Exemptions From Rules 10b-6, 10b-7, and 10b-8 During
Distributions of Certain French Securities
June 7, 1994
Pursuant to delegated authority, the Division of Market Regulation
issued the following letter granting class exemptions (``Exemptions'')
from rules 10b-6, 10b-7, and 10b-8 (``Trading Practices Rules'') under
the Securities Exchange Act of 1934 to facilitate distributions in the
United States of securities of certain highly capitalized French
issuers. The Exemptions permit distribution participants and their
affiliated purchases to effect transactions in France that otherwise
would be prohibited by the Trading Practices Rules, subject to certain
disclosure, recordkeeping, record production, and notice requirements.
The Exemptions have been issued in the context of a continuing
review of the Trading Practices Rules, and are published to provide
notice of their availability.
Margaret H. McFarland,
Deputy Secretary.
English Translation of the Letter
Dear Mr. Becker,
I am writing in connection with possible offerings of equity
securities of certain French companies involving a distribution of some
or all of the Securities in the United States.\1\
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\1\The term equity securities shall include equity related
securities such as convertible or exchangeable bonds and warrants.
Such equity related securities may be issued by the issuer of the
equity securities itself or by a subsidiary of such issuer.
Offerings of straight debt securities are outside the scope of this
letter.
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With reference to the policy statement issued by the Securities and
Exchange Commission on November 3, 1993, I am writing to request
exemptions from rules 10b-6, 106-7 and 10b-8 under the Securities
Exchange Act of 1934 for French issuers to the extent set forth in part
III below.
I. Offerings By French Companies
The structure of an offering of equity securities in a French
company varies depending on whether it is a primary or a secondary
offering.
A. Primary Offerings
French law grants shareholders of a French company pre-emptive
rights to subscribe for shares issued by such company. French law also
authorizes shareholders, voting at a shareholders meeting, to renounce
such pre-emptive rights. In practice, in the case of a renunciation of
such pre-emptive rights, most offerings are conducted so as to grant
current shareholders a priority right to purchase new shares before the
general public during a period of 5 to 10 days.
1. Offerings With Pre-emptive Rights
Offerings with pre-emptive rights permit the current shareholders
to participate in the capital increase pro rata or to sell their pre-
emptive rights, which are securities separable from the shares, on the
market. The existence of a negotiable pre-emptive right permits
detachment of the offering price from the stock market price, because
the shareholders who do not want to participate in an offering can, by
selling their rights on the market, be compensated for the dilution
which could result from an offering price which is significantly less
than the market price and/or than their share in the net assets. The
discount from the stock market price is generally 10% to 20%. The
technique of an offering with pre-emptive rights is principally used
for offerings of shares rather than for those of ``composite
securities'', such as bonds with warrants or bonds convertible into
shares, for reasons of valuation and quotation on the appropriate stock
market.
2. Offerings Without Pre-emptive Rights
French law permits an issuer, when it is authorized by its
shareholders, to issue shares (or securities exchangeable for, or
convertible into, shares) without pre-emptive rights. In this case, the
law limits the discount at which the issuer may offer the shares from
the stock market price.\15\ The issue price must be at least equal to
the average of the stock market prices for any 20 consecutive business
days during the 40-day period immediately preceding the date of the
offering (the ``20/40 rule''). The 20/40 rule protects shareholders to
the extent that it limits the discount that can be set for an offering
of shares without pre-emptive rights. In addition, the COB has
recommended a priority period in the case of an offering without pre-
emptive rights, permitting current shareholders to subscribe for new
shares on a priority basis. This period provides existing shareholders
the ability to maintain their shareholding in the capital of a company
of which they are shareholders, even if they have waived their pre-
emptive rights. The practice of the priority period has been widely
followed for offerings without pre-emptive rights; offerings without a
priority period are rare today in France (1 or 2 per year).
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\15\Article 186-1, second paragraph of the law of July 24, 1966
on commercial companies.
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The 20/40 rule applies, according to the text of the law, only to
straight share offerings; however, to avoid circumvention of the law,
the COB requires that the 20/40 rule be applied in the case of
offerings of convertible bonds or warrants. In applying the 20/40 rule,
issuers generally choose a reference period that is close to the
offering date in order to limit the amount of the discount.
In order to facilitate an underwritten offering in France and/or on
the international market at the same time as an offering with a
priority period, the COB has accepted that the priority period only
apply to a substantial part (i.e., at least two thirds) of the
offering.
3. Offerings Without a Priority Period
Offerings without a priority period are extremely rare. Such
offerings are used under very limited circumstances, such as when an
issuer needs to offer shares publicly on a foreign market. Such an
offering can only take place if one or both of the following two
conditions are met:
--It must be at the closest possible price to the stock market price;
and/or
--The existing shareholders are compensated, for example in the form of
a distribution of free shares or warrants.
Offerings without a priority period will probably remain atypical,
because shareholders generally want to avoid dilution through the use
of pre-emptive rights or a priority period.
4. Underwritten Offerings
In the case of offerings with a priority period, an underwritten
offering can occur during the period when the existing shareholders
have a priority right to subscribe for new shares, by anticipating that
a fraction of the existing shareholders will not subscribe for new
shares. Underwritten offerings in France and/or on the international
market can therefore take place during the priority period granted to
existing shareholders without extending the offering period. In order
to accommodate the differences between the actual behavior of the
existing shareholders and the level of anticipated purchases, several
techniques are used: ``claw-back'' arrangements, over-allotment options
and arrangements whereby a majority shareholder renounces his priority
subscription rights.
B. Secondary Offerings
1. Public Offerings
Public offerings are the traditional means of selling a large
number of shares of a listed company on the market. Public offerings
are regulated both by the general rules of the CBV (title 7) and by the
rules of the COB 89.03, chapter III. Public offerings are at a price
different from the market price. sellers, however, generally offer the
shares at a price which is close to the market. price Privatizations,
which are a particular kind of public offerings, because of the nature
of the seller (the State) and of the volume of capital involved (up to
several dozen billion francs per transaction), can be carried out with
a substantial discount from the last quoted market price (e.g., 10 to
15%).
Public offerings require the following:
--approval of the CBV;
--the clearance of the prospectus by the COB;
--The centralization of subscription orders by the Societe des Bourses
Francaises;
In addition, public tender offers are market transactions which
require a high level of disclosure.
In a public offering, all financial institutions, such as banks
(but also other financial intermediaries such as the French National
Post Office and brokerage houses), can receive orders from the public.
Such orders are transmitted to the SBF where they are centralized. None
of the financial institutions has any influence over the allocation of
the shares.
A public offering may be underwritten on a stand-by basis.
Historically, most public offerings, and in particular those relating
to privatizations, are oversubscribed (about 2 to 4 times).
2. Underwritten Offerings
Whenever an offering is sufficiently large, an underwritten
offering can take place in France and/or on an international market.
This is particularly the case in the context of privatization
transactions. Such transactions, which use the book-billing method,
provide the banks leading the syndicate greater flexibility when
allocating shares to investors. In the context of an underwritten
offering, the price for the offering is set based upon indications of
interest received from potential investors; however, the final price
determined by the lead managers cannot be less than the price in the
public tender offer. During the first privatization which used this
technique (Rhone-Poulenc, November 1993), the institutional investors
who purchased shares in the underwritten offering paid a price 8%
higher than that paid by individuals who purchased shares in the public
offering.
3. Bought Deals
The ``bought deal'' permits the placement of a certain amount
(usually large) of securities with certain institutional investors.
This type of offering, different from a public offering, can only occur
when it involves shares of a listed company being offered at the market
price or by techniques explicitly provided for in the general rules of
the CBV:
--By ``applications'' (title 4, chapter III of the general rules of the
CBV), the price in this case must be between the best purchase offer
and the best sale offer existing at the time of the application
(article 4-7-3);
--By option contracts (title 7, chapter II of the general rules of the
CBV): these contracts permit the sale or purchase of a given amount of
securities at a price quoted on a stock market the day of the contract
or the day of its term or at the average of the quoted prices between
those two dates.
The seller of securities places the securities through a bank or
banks with institutional investors of such seller's choice.
Accordingly, the seller transfers the securities first to the bank or
banks which have committed to sell them to such institutional investors
in France or abroad.
The COB carefully reviews this type of placement in order to ensure
that it is not used to advantage unfairly any existing shareholder of
the company.
C. Market Activities of Underwriters During Offerings
In France, the banks are the underwriters of securities. The vast
majority of French banks provide a full range of banking and securities
services such as brokerage, underwriting and investment advisory
services including managing on a discretionary basis the portfolios of
bank customers. However, banks may not be direct members of the Paris
Bourse and have to set up separate subsidiaries which will be members
of the Bourse.
The French banks acting as underwriters typically continue to
engage in a range of trading activities during a distribution. The
underwriters may be active in trading all kinds of securities of the
issuer or derivative instruments related to such securities both in the
cash market and in the options market. In these markets, the
underwriters trade securities in the ordinary course for their own
account. In addition, the underwriters continue to make investment
decisions for the accounts they manage and their mutual fund management
company affiliates continue to make investment decisions on behalf of
the mutual funds they manage.
However, pursuant to legal and regulatory requirements to which
they are subject and pursuant to their own respective internal policies
and conduct of business rules, banks maintain ``Chinese wall''
procedures to separate certain divisions within their respective
organizations. The main purpose of these Chinese walls is to ensure
that confidential information held within parts of the respective
companies or divisions does not spread inadvertently to other parts of
those companies or to affiliated entities.
In addition, under French law, companies are prohibited from
purchasing their own shares either directly or through a financial
intermediary acting on behalf of the company except in limited
circumstances. These circumstances are set forth in article 217-1 and
217-2 of the Companies Act of July 24, 1966, and in COB Regulations No.
90.04. They include purchases made for the purpose of offering shares
to employees of the corporation and, for listed companies, purchases
made for the purpose of market stabilization. These purchases are
limited to 10% of the share capital of the corporation. The company may
not own more than 10% of any class of its outstanding shares in capital
at any time.
Under COB Regulation No 90.04, such purchases may be only to ensure
the liquidity of the shares or to control excessive fluctuations in
their price. The company is required to file a copy of the
shareholder's resolution authorizing such transactions with the COB
prior to engaging in such transactions, as well as a monthly copy of
the register of purchases and sales thereafter.
Under article 9 of COB Regulation No. 90.04, transactions made by a
company in its own shares and, during a distribution period,
transactions made by financial intermediaries for their own account or
on behalf of the underwriting syndicate, for the purpose of ensuring
the proper execution of the distribution are presumed to be legitimate
when complying with the following requirements: (i) the transactions
are performed contrary to the trend of the last quoted price, (ii) the
transactions represent a maximum volume of 25% of the total daily
transactions recorded over a reference period\16\ preceding the
transactions, (iii) they are performed only by one intermediary per
stock exchange session except during a public offering.
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\16\Under article 217-4 of the Companies Act, the reference
period consist of five business days for the securities on the
monthly settlements market and of 30 business days for securities
listed on the immediate settlement market.
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The distribution period begins with the announcement of the
distribution and ends one month after the listing of the newly issued
shares.
II. The French Securities Market
A. The Equity Market
Securities may be listed on one of France's seven stock exchanges:
Paris, Bordeaux, Lille, Lyon, Marseille, Nancy and Nantes which
together constitute a single exchange system headed by the same
authorities and subject to the same listing requirements. All
securities are traded through a single electronic system, CAC.
Trading on the Paris Bourse
Trading on the Paris Bourse begins at 10 a.m. and ends at 5 p.m.
(Paris time) each business day.
Securities may be traded on the cash market (marche au comptant) or
on the monthly settlement market (reglement mensuel RM). Cash
transactions comprise the least actively traded French and foreign
equity securities on the official list, all debt securities on the
official list and all equity stocks on the second market and hors cote.
The most actively traded French and foreign equity securities on
the official list are traded on a monthly settlement basis. All the
securities comprising the CAC 40 Index are traded on the monthly
settlement market.
Securities on the monthly settlement market are traded in round
lots of 5, 10, 25, 50 and 100, set by the Paris Bourse to reflect their
limit price. While transactions are firm both in prices and quantity
once they have been concluded, the actual cash settlement and delivery
of the shares do not take place until the end of the trading month.
Investors on the monthly settlement market must meet an initial margin
requirement which may be adjusted as necessary.
When investors place orders on the monthly settlement market they
may request immediate settlement provided that they have the related
cash (for a purchase) or securities (for a sale). Trades on odd lots
are settled immediately.
Electronic Trading With CAC
Trading in France takes place on a centralized order driven market
through member firms, authorized by the Conseil des Bourses de Valeurs,
acting as brokers. Transactions are handled by CAC, an electronic
trading system, through terminals installed in member firms' premises
and linked to the Paris Bourse central computers. The core of the CAC
system is linked upstream to an order routing system and downstream to
a computerised system that disseminates key markets data in real time.
Orders entered in the CAC system by the Bourse member firms acting
either on their own behalf or as agents for their clients, are
automatically ranked by price limit and, within each limit, are queued
to reflect the order of entry in the system.
From 9 a.m. to 10 a.m. the market is in its pre-opening phase and
orders are entered into the centralized order book, without any
transaction taking place.
At 10 a.m., the market opens. Based on the limit orders received,
the central computer calculates the opening price at which the largest
number of bids and asks orders can be matched. At the same time, the
system transforms orders at market price into limit orders at the
opening price, with the result that all limit buy orders at higher
prices and limit sell orders at lower prices are executed. Limit orders
at the opening price are executed to the extent that match orders are
available.
From 10 a.m. to 5 p.m., trading takes place on a continuous basis.
The execution price is the price limit placed on the matching order.
Where price limits are identical, orders are executed on a first
entered, first matched basis.
CAC automatically feeds information into the system's electronic
data dissemination network. As a result, at any given time, the CAC
displays the five best bids and asks (price and volume) as well as, in
real time, the five latest transactions completed (time price, number
of shares traded).
French securities brokers may also act as principals with respect
to clients on the Paris Bourse. However, such prices must be lodged on
to the CAC and must be at or within the current market spread at the
time of their transmission. After hours principal transactions may also
take place at any price within the spread at the previous close, plus
or minus 1%. Those transactions must be reported to the SBF prior to
the opening of the next trading session. Every morning, prior to the
opening, the SBF disseminates through the market data feed message zone
the name of the stocks on which after hours transactions have been
reported and the number of shares traded.
Finally block trades in specific securities are permitted outside
the market spread, subject to certain restrictions (e.g. the securities
broker effecting the trade must agree to fill all buy orders whose
price is higher and all sell orders whose price is lower than such
block trade).
The Enforcement Division of the SBF is in charge of seeing that
member firms of the Paris Bourse comply with the securities laws and
the regulations of the CBV.
B. The MONEP (The Options Market)
The MONEP (Paris Traded Options Market) is located within the Paris
Bourse; it is governed and regulated by the Conseil des Bourses de
Valeurs, through its general regulation. There are 21 market markers in
options on the shares on the MONEP.
The market makers are registered with a professional body, the
``Societe de Compensation des Marches Conditionnels'' (SCMC) which is
affiliated with the SBF and to which the SBF has delegated
responsibility for (i) options market administration, (ii) technical
clearing of the MONEP, (iii) surveillance and control of operations and
members. MONEP members can operate on the markets as brokers and/or as
market makers.
Twenty seven series of equity options and two series of options
based on the CAC 40 index are traded on the floor of the Paris Bourse,
from 10 a.m. to 5 p.m., on a continuous basis by open outcry around
different pits., two to four classes of options being listed and traded
in each pit. In each pit, several SCMC representatives execute orders
from the Public Order Book and are responsible for seeing that traders
comply with the market's rules.
In addition, for retail orders, brokerage firms have a direct
access to an automated trading system called STAMP (Systeme de
Transactions Automaiisees du MONEP) through terminals in their own
trading rooms. Orders are keyed into the centralized public order book
and the data are displayed and disseminated to users. Such orders are
either matched automatically inside the book when they represent the
market's best price or routed to SCMC staff for priority execution on
the floor if better prices are available there.
MONEP member firms operate through representatives acting in two
distinct capacities: (i) As brokers who trade orders received directly
from clients or issued for brokerage houses' own account, (ii) as
market makers. Since a modification of the General Regulation of the
CBV that took place in August 1993, there are three types of market
makers:
--The market makers ``specialist'': a specialist market maker is
designated for each class of option. He is the only market maker
responsible for quoting and continuously updating a bid/ask price for
the series of option allocated to the firm. The bid/ask price offered
by the specialist is disseminated by the SCMC on quotation screens.
--The market maker ``counterpart to the market'': he is required to be
present on the floor and may trade within the bid/ask price offered by
the specialist. There are various counterparts to the market for the
same class of option.
--The market maker acting as ``block transaction counterpart''. His
activity consists in arranging options blocks transactions for
institutional clients, typically from the firm's trading room. The
transaction is then executed on the market if the price is within the
spread displayed.
This change is being implemented gradually on a class of option by
class of option basis.
Market makers are required to be present on the floor during
trading hours and to quote a bid/ask price to any broker or to the SCMC
upon requests. Market makers quotation (bid/ask prices) are entered and
disseminated on a real time basis. All trades are immediately time-
stamped and entered into the market system in order to be displayed on
the floor and disseminated outside the floor.
After hours trading is forbidden.
C. The Regulatory Authorities
A professional body, the Conseil des Bourses de Valeurs (CBV)
(Stock Exchange Council) is the market regulatory body. The Conseil des
Bourses de Valeurs promulgates regulation dealing with the operation of
the French stock exchanges and set forth the conditions for
authorization of member firms, for admission and withdrawal from
listing, and for take over bids. The CBV rules also set forth a
professional code of conduct for Bourse members, their subsidiaries,
their manager and their staff. In addition, the Council can take
disciplinary action as necessary.
Another professional body, the Societe des Bourses Francaises,
implements the CBV regulations, monitors the trading system,
disseminates data on market conditions, provides a number of listing
and issuing services and acts as a clearing house between member firms.
The SBF handles day to day administration, surveillance, and
development of the market.
The Commission des operations de bourse (COB), an independent
administrative body, is responsible for overall supervision of French
securities, options and futures markets. Under the Ordinance of
September 28, 1967, setting up the COB, the COB is responsible for
seeing to the protection of savings invested in securities and all
other investments involving a public offering, to the provision of
information to investors and to the proper functioning of markets for
securities, listed financial products or negotiable futures contracts.
If the SBF primarily regulates and carries out the surveillance of
the market, including by controlling quotation rules, participant's
risks or margin calls, the market surveillance carried out by the COB
is of a different nature because the COB is entrusted with the broad
mission of protecting investors.
The market surveillance carried out by the COB aims at (i)
detecting abnormal situations in the functioning of the markets (ii)
sorting and treating data that enable the COB to check that its rules
are complied with, including those relating to public offers and
information of shareholders (iii) detecting securities and futures
frauds as well as violations to the business codes of conduct and to
regulations of the CBV and the Conseil des Marches a Terme (Futures
Market Council).
The surveillance department of the Enforcement Division of the COB
is connected to the various computers of the Paris Bourse, among which
the CAC, TOPVAL and REUTER workstations providing the COB with data on
a real time basis. Moreover, the COB has set up its own data base
directly linked to the Paris Bourse, the MONEP and the MATIF.
On December 14, 1989, the Commission des operations de bourse and
the Securities and Exchange Commission entered into an administrative
agreement on cooperation and exchange of information. This
Administrative Agreement entered into force on January 31, 1991.
Under this Agreement, the COB and the SEC may exchange transaction
information, including the identity of customers, where necessary, in
the course of an investigation initiated by either of the Commissions.
D. Laws and Regulations Governing Fraudulent and Manipulative Practices
Provisions relating to fraudulent and manipulative practices are
set forth mainly in the Ordinance of September 28, 1967, and in COB
Regulation No. 90.04 and No. 90.08.\17\ Article 10.1 of the Ordinance
of September 1967 makes it a criminal offense for any persons who have
access to privileged information on an issuer of securities or on the
futures prospects of a security or a negotiable future contract to
effect transactions on the market, either directly or through a third
party, before the general public was aware of this information. It
would also be a criminal offense for such a person to communicate such
information to a third party outside the normal course of his
professional activities. Under article 10.1, criminal sanctions shall
also apply to any persons who have knowingly disseminated to the
public, through whatever channels or means, false or deceitful
information on an issuer of securities or on the future prospects of a
security, a quoted financial product or a negotiable futures contract
of such nature as to influence prices. Under article 10.3, similar
penalties shall apply to any person who, either directly or indirectly,
has knowingly carried out or attempted to carry out a purpose-fully
misleading act on a financial market with the aim of impeding the
normal functioning of the market. It should be stressed that under
article 40 of the Criminal Proceeding Code, any governmental entity who
becomes aware of a fact that may constitute a criminal offense has to
transmit the information to the Public Prosecutor.
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\17\It could, however, be considered more generally that all
regulations taken by the COB aim at preventing fraudulent practices
and ensuring investors protection.
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The violation of COB Regulation No. 90.08 relating to the use of
privileged information is sanctioned by the COB through an
administrative proceeding.
COB Regulation No. 90.04 provides that price setting on the market
shall result from the general matching of bids and offers in compliance
with the Regulation of the Conseil des Bourses de Valeurs or the
Counseil du Marche a Terme. Orders transmitted on the market shall not
be aimed at hindering or misleading the setting of prices on the
market. If the COB so requires in the course of an investigation, any
person transmitting orders on the market must be able to publicly
explain the reasons for, and the details of, the orders.
Regulation 2.3.11 of the CBV requires the member firms to maintain
records of securities transaction effected by them. Such records must
be maintained for at least five years from the date thereof. To ensure
that the market's rules and business code of conduct are complied with
by all participants, member firms must specify, when entering orders
into the system, whether these orders come from customers or are being
executed for the firm's own account, and whether such orders are the
result of program trading. The required transaction information
includes (i) the name of the security that is the subject of the
transaction, (ii) the date of the transaction, (iii) the price and size
of the transaction, (iv) whether the transaction was effected for a
customer or a proprietary account, (v) the market on which the
transaction is effected, (vi) whether the transaction was a purchase or
a sale and (vii) the identity of the account on whose behalf the
transaction was effected.
III. Proposed Exemption From Rules 10b-6, 10b-7, 10b-8
A. Reasons for Relief
The application of rules 10b-6, 10b-7 and 10b-8 to the activities
of distribution participants and their affiliates outside the United
States, as experienced on the occasion of several public offerings in
the past few years,\18\ often conflicts with market practices in France
and impose compliance burdens and costs on French issuers and
underwriters and their affiliated purchasers. The application of rules
10b-6, 10b-7 and 10b-8 outside the United States has and would have,
inter alia, the following consequences, which jeopardize the success of
primary or secondary offering.
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\18\Elf Acquitaine distributions: June 1991 and February 1994.
Total distributions: October 1991 and June 1992.
Alcatel Alsthom distribution: May 1992.
Rhone-Poulenc distributions: January 1993 and November 1993.
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1. Distribution participants, including the underwriters and in
particular the lead underwriter would be unable to maintain an orderly
market by buying and selling affected securities as principles during
the offering, within the limits set forth in COB Regulations. Moreover,
the affiliates of the distribution participants would be precluded from
fulfilling their formal market-making obligations on the MONEP with
respect to listed options that are affected securities.
2. The underwriters might not be able to continue certain of their
regular contacts with customers such as discussions regarding
investment strategies with respect to the rights and shares and might
not be permitted to buy and sell affected securities in connection with
their customers' trading activities.
3. Distribution participants' risk management activities would be
restricted. They would be precluded by rule 10b-6 from hedging in
derivatives or other affected securities.
4. Distribution participants' customary proprietary trading
activities, involving arbitrage and other trading strategies would be
curtailed.
B. Scope of Exemption
We propose that the Commission grant exemptions to the effect that
rules 10b-6, 10b-7 and 10b-8 shall not apply to distribution
participants, including issuers of qualified French securities (as
defined below), and their affiliated purchasers (the Relevant Parties)
in connection with transactions in Relevant Securities (as defined
below) outside the United States during distributions in the United
States of Qualified French Securities (as defined below), subject to
the following terms, conditions and limitations:
1. Securities
(a) The security being distributed (a ``Qualified French
Security'') must:
(i) Be issued by (aa) a ``foreign private issuer'' within the
meaning of rule 3b-4 under the Exchange Act incorporated under the laws
of France, which issuer (a ``French Issuer'') has outstanding a
component security of the CAC 40 Index\19\ (bb) or a subsidiary of a
French Issuer; and
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\19\The CAC 40 is a regularly updated market capitalization
weighted performance index of CAC 40 French Companies; the shares
included in the CAC 40 are selected on the basis of their market
capitalization, their trading volume and their sector of activity so
that the CAC 40 index covers a diversified range of activities.
References to the CAC 40 refer to the composition of the index on
the date of this letter; provided, however, that any security added
to the CAC 40 after the date of this letter also will be treated as
a Qualified French Security if its issuer satisfies the requirements
in 1.a.i and such security has an aggregate market value that equals
or exceeds the equivalent of FF 6 billion (which exceeded US $1
billion at June 6, 1994,) and an average daily trading volume that
equals or exceeds the equivalent of FF 30 million (which exceeded US
$5 million at June 6, 1994,) as published by FFRAs (as defined in
note 2 below) and any US securities exchanges or automated inter-
dealer quotation systems during a period (the ``Reference Period'')
that is 20 consecutive business days in Paris within 60 consecutive
calendar days prior to the commencement of the Covered Period (as
defined in 3.a below).
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(ii) Satisfy one of the following:
(aa) Be a CAC 40 Index component security; or
(bb) Be an equity security of a French Issuer having an average
daily trading volume that equals or exceeds the equivalent of FF 30
million (which exceeded US $5 million at June 6, 1994), as published by
foreign financial regulatory authorities (``FFRAs'')\20\ and any US
securities exchanges or automated inter-dealer quotation systems during
the Reference Period; or
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\20\An FFRA is defined in section 3(a)(51) of the Exchange Act,
5 U.S.C. 78(c)(51), as any (A) foreign securities authority; (B)
other governmental body or foreign equivalent of a self-regulatory
organization empowered by a foreign government to administer or
enforce its laws relating to the regulation of fiduciaries, trusts,
commercial lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments traded on or
subject to the rules of a contract market, board of trade, or
foreign equivalent, or other financial activities, or (C) membership
organization a function of which is to regulate participation of its
members in activities listed above. For purposes of this letter, the
Societe des Bourses Francaises, is considered to be an FFRA.
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(cc) Be a security that is convertible into, exchangeable for, or
is a right to acquire a security of a French Issuer described in
subparagraph ii (aa) or (bb) above.
(b) ``Relevant Security'' means:
(i) A Qualified French Security; or
(ii) A security of the same class and series as, or a right to
purchase, a Qualified French Security.
2. Transactions Effected in the United States
All transactions in Relevant Securities effected in the United
States shall comply with rules 10b-6, 10b-7 and 10b-8.
3. Transactions Effected in France
(a) All transactions during the Covered Period (as defined below)
in Relevant Securities effected in France shall be conducted in
compliance with French law. For purposes of this exemption, ``Covered
Period'' means (i) in the case of a rights offering, the period
commencing when the subscription price is determined and continuing
until the completion of the distribution in the United States, and (ii)
in the case of any other offering, the period commencing in Paris three
business days before the price is determined in the United States and
continuing until the completion of the distribution in the United
States; provided, however, that the Covered Period shall not commence
with respect to any Relevant Party until such person becomes a
distribution participant.
(b) All transactions in Relevant Securities during the Covered
Period effected in France on a principal basis shall be effected or
reported on the trading facilities of the Societe des Bourses
Francaises.
(c) Disclosure of Trading Activities.\21\
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\21\This disclosure requirement shall not apply to distributions
effected solely pursuant to Rule 144A under the Securities Act of
1933 (the ``Securities Act'').
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(i) The inside front cover page of the offering materials used in
the offer and sale in the United States of a Qualified French Security
shall prominently display a statement in substantially the following
form, subject to appropriate modification where circumstances require.
Such statement shall be in capital letters, printed in bold-face roman
type at least as large as ten-point modern type and at least two points
leaded:
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS MAY ENGAGE IN
TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN
(IDENTIFY RELEVANT SECURITIES) PURSUANT TO EXEMPTIONS FROM RULES 10b-6,
10b-7 AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
``[IDENTIFY SECTION OF OFFERING MATERIALS THAT DESCRIBES THE
TRANSACTIONS TO BE EFFECTED].''
(ii) In addition, there shall be included in the identified section
of the offering materials a comprehensive description of the activities
that may be undertaken by the Relevant Parties in the Relevant
Securities during the distribution in substantially the form of Exhibit
A.
(d) Recordkeeping and Reporting.
(i) Each Relevant Party will keep the following information with
respect to transactions during the covered Period in Relevant
Securities, provided, however, that in the case of a distribution made
pursuant to a right offering, such information is only required to be
kept during the period or periods (a) commencing at any time during the
Covered Period that the rights exercise price does not represent a
discount of at least 10% from the current market price of the security
underlying the rights and (b) continuing until the end of the Covered
Period or until the rights exercise price represents a discount of at
least 12 percent from the current market price of the security
underlying the rights;\22\
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\22\For purposes of this exemption, unless stated otherwise, the
market price for a security shall be the closing price at the end of
the trading session on the Paris Bourse.
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(aa) Name of the security, date, time of execution and reporting,
where available to the Relevant Party, price and volume of each
transaction; provided however that no information regarding a customer
transaction need be provided unless such transaction has a value of FF
1500000 or more;
(bb) The exchange or inter-dealer quotation system on which the
transaction was effected;\23\
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\23\The members of the SBR currently have a monopoly for trading
on French securities in France.
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(cc) An indication whether such transaction was for a proprietary
account or the account of a customer, provided however that any
transaction effected by an underwriter for a customer account for which
it has exercised discretionary authority shall be reported as
proprietary trade and;
(dd) The identity of the counterparty only where the counterparty
is an underwriter or a selling group member.
(ii) The lead underwriter will communicate the list of the Relevant
Parties to the COB;
(iii) The Relevant Parties shall keep all documents prepared
pursuant to paragraph 3.d.i for a period of no less than two years;
(iv) Upon the request of the Division made pursuant to the
Administrative Agreement executed between the SEC and the COB on
December 14, 1989, the COB will require the production and the
information referred to in paragraph 3.d.(i) from the Relevant Parties
through the lead underwriter. The Relevant Parties will provide this
information to the COB in a Comma Delimited ASCII (American Standard
Code for Information Interchange) within 10 days of the request by the
COB and the COB shall transmit it to the Division within 30 days from
the date of the request.
(v) If the Division has inquiries relating to the records provided
by such Relevant Parties, it will transmit these inquiries to the COB
pursuant to the Administrative Agreement. Representatives of the
affected Relevant Party will be made available to respond to the
inquiries of the COB.
The proposed exemption to rules 10b-6, 10b-7 and 10b-8 shall also
apply unconditionally to all transactions on the SEAQ International and
any other securities market in a single country outside France and the
United States to which a French issuer has applied for listing the
relevant Qualified French Securities if the volume in such relevant
Qualified French Security as published by SEAQ International or such
other relevant securities markets is less than 10% of the aggregate
worldwide trading volume in that security during the Reference Period.
4. General Conditions
(1) For purposes of this exemption a two business day cooling-off
period shall apply under rule 10b-6(a)(4)(v), (xi) and (xii) in the
United States and in each Significant Market,\24\ provided that trading
in Relevant Securities in any Significant Market shall be subject to
the exemptive relief then available in such markets, if any or the
record maintenance and record production requirements contained in the
letter regarding Application of cooling-off Periods under rule 10b-6 to
Distributions of foreign securities (April 4, 1994) are satisfied by
Relevant Parties in such significant market.
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\24\A ``Significant Market'' shall mean (i) (aa) SEAQ
International or (bb) any other dealer market outside France and the
United States for which price and volume information is published by
an FFRA or (ii) any other securities markets in a single country
other than France or the United States to which a French Issuer has
applied for listing the relevant Qualified French Security and been
accepted, if during the Reference Period the volume in either (i)
(aa) or (bb) or (ii) in such relevant Qualified French Security, as
published by the relevant FRRA(s), in such securities markets (as
the case may be), is 10% or more of the aggregate worldwide trading
volume in that security published by all FFRAs in (i) and (ii),
FFRAs in France, and US securities markets to which such French
Issuer has applied for listing such relevant Qualified French
Security and been accepted, during the Reference Period.
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(b) The lead underwriter or the global coordinator shall promptly,
but in any event before the commencement of the Covered Period, provide
a written notice (``Notice'') to the Division of the following
information: (i) the name of the issuer and the Qualified French
Securities; (ii) whether the Qualified French Security is a CAC 40
component security or information with respect to the market
capitalization and the average daily trading volume of the Qualified
French Securities to be distributed; (iii) the identity of the
Significant Markets where the Qualified French Security trades; (iv) if
the Notice is for more than one entity, the identity of all
underwriters and selling group members relying on these exemptions; and
(v) a statement that the Relevant Parties are aware of the terms and
conditions of these exemptions.
We believe this proposed exemption would make it possible to
maintain liquidity for shares of French companies throughout a public
offering or private placement in the United States, while minimizing
the risk of abuses of the kind at which rules 10b-6, 10b-7 and 10b-8
are aimed.
Thank you for your assistance and the assistance of your staff in
this matter.
Sincerely,
Pierre Fleuriot.
Exhibit A
The French underwriters (and their affiliates) will, and the other
Underwriters (and their affiliates) may, continue to engage in the
transactions and other activities described below, in France and
elsewhere outside the United States, in respect of the securities being
distributed, securities of the same class and series as the securities
being distributed, and securities convertible into, exchangeable for,
or giving a right to acquire, the foregoing securities, and derivatives
thereof (collectively, the ``Relevant Securities''), during the
distribution period, in accordance with exemptions obtained from the
Securities and Exchange Commission (the ``Commission'') from the
application outside the United States of rules 10b-6, 10b-7 and 10b-8
under the US Securities Exchange Act of 1934. Such exemptions are
subject to certain exceptions, limitations and conditions set out in
the Commission's exemption, including compliance with French law.
The activities referred to above are (a) buying and selling
Relevant Securities for the accounts of such Underwriters (or their
affiliates), whether for purposes of risk management in connection with
the offering, arbitrage or otherwise, (b) buying and selling Relevant
Securities on behalf of customers, (c) advising customers as to the
purchase or sale of Relevant Securities, including publication of
specific company and industry research reports, (d) engaging in
securities lending transactions in Relevant Securities and (e)
stabilizing the market (as described below). As a result of these
activities, the Underwriters may at any time be short or long in
Relevant Securities.
It is general market practice in France for the Underwriters, and
the lead Underwriter in particular, to maintain an orderly market in
subscription rights and existing shares, and it is expected that the
lead Underwriter will take measures to avoid extreme price fluctuations
during the distribution period.
The activities referred to above may result in the market prices of
the Relevant Securities being different from those that might otherwise
have prevailed in the open market if rules 10b-6, 10b-7 and 10b-8 had
applied in France and elsewhere outside the United States.
United States Securities and Exchange Commission; Division of Market
Regulation
June 7, 1994.
M. Pierre Fleuriot,
Directeur General,
Commission des Operations de Bourse,
39-43 Quai Andre Citroen,
75739 Paris cedex 15,
France
Re: Distributions of Certain French Securities, File No. TP 94-199
Dear Monsieur Fleuriot:
In regard to your letter dated June 7, 1994, as supplemented by
conversations with the staff, this response thereto is attached to
the enclosed photocopy of your correspondence. By doing this, we
avoid having to recite or summarize the facts set forth in your
letter. Each defined term in this letter has the same meaning as
defined in your letter, unless otherwise noted herein.
Response
On the basis of your representations and the facts presented,
the Commission hereby grants exemptions from rules 10b-6, 10b-7, and
10b-8 to distribution participants, as defined in rule 10b-
6(c)(6)(ii), including issuers of Qualified French Securities (as
defined below), and their affiliated purchasers, as defined in rule
10b-6(c)(6)(i) (collectively, ``Relevant Parties''), in connection
with transactions in Relevant Securities (as defined below) outside
the United States during distributions of Qualified French
Securities subject to the following terms, conditions, and
limitations:
I. Securities
A. The security being distributed (``Qualified French
Security'') must:
1. be issued by: (i) a ``foreign private issuer'' within the
meaning of rule 3b-4 under the Exchange Act incorporated under the
laws of France, which issuer (``French Issuer'') has outstanding a
component security of the CAC 40 Index;1 or (ii) a subsidiary
of a French Issuer; and
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\1\References to the CAC 40 Index refer to the composition of
the index on the date of this letter; provided, however, that any
security added to the CAC 40 Index after the date of this letter
also will be treated as a Qualified French Security if its issuer
satisfies the requirements in paragraph I.A.1. and such security has
an aggregate market value that equals or exceeds the equivalent of
FF6 billion (which exceeded US$1 billion as of June 6, 1994) and an
average daily trading volume that equals or exceeds the equivalent
of FF30 million (which exceeded US$5 million as of June 6, 1994) as
published by ``foreign financial regulatory authorities'' (as
defined below) and any U.S. securities exchanges or automated inter-
dealer quotation systems, during a period (``Reference Period'')
that is 20 consecutive business days in Paris within 60 consecutive
calendar days prior to the commencement of the Covered Period as
defined in paragraph III.A. below.
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2. Satisfy one of the following:
i. Be a CAC 40 Index component security; or
ii. Be an equity security of a French Issuer having an average
daily trading volume that equals or exceeds the equivalent of FF30
million (which exceeded US$5 million as of June 6, 1994), as
published by foreign financial regulatory authorities
(``FFRAs'')2 and any U.S. securities exchanges or automated
inter-dealer quotation systems during the Reference Period; or
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\2\An FFRA is defined in Section 3(a)(51) of the Exchange Act, 5
U.S.C. 78(c)(51), as any: (A) foreign securities authority; (B)
other governmental body or foreign equivalent of a self-regulatory
organization empowered by a foreign government to administer or
enforce its laws relating to the regulation of fiduciaries, trusts,
commercial lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments traded on or
subject to the rules of a contract market, board of trade, or
foreign equivalent, or other financial activities; or (C) membership
organization a function of which is to regulate participation of its
members in the activities listed above. For purposes of this letter,
the Societe des Bourses Francaises is considered to be an FFRA.
---------------------------------------------------------------------------
iii. Be a security that is convertible into, exchangeable for,
or a right to acquire a security of a French Issuer described in
paragraph I.A.2.(i) or (ii) above.
B. ``Relevant Security'' means:
1. A Qualified French Security; or
2. A security of the same class and series as, or a right to
purchase, a Qualified French Security.
II. Transactions Effected in the United States
All transactions in Relevant Securities effected in the United
States shall comply with rules 10b-6, 10b-7, and 10b-8.
III. Transactions Effected in France
A. All transactions during the Covered Period (as defined below)
in Relevant Securities effected in France shall be conducted in
compliance with French law. For purposes of these exemptions,
``Covered Period'' means: (i) in the case of a rights distribution,
the period commencing when the subscription price is determined in
the United States and continuing until the completion of the
distribution in the United States; and (ii) in the case of any other
distribution, the period commencing three business days in Paris
before the price is determined in the United States and continuing
until the completion of the distribution in the United States;
provided, however, that the Covered Period shall not commence with
respect to any Relevant Party until such person becomes a
distribution participant.
B. All transactions in Relevant Securities during the Covered
Period effected in France on a principal basis shall be effected or
reported on the trading facilities of the Societe des Bourses
Francaises.
C. Disclosure of Trading Activities.
1. The inside front cover page of the offering materials used in
the offer and sale in the United States of a Qualified French
Security shall prominently display a statement in substantially the
following form, subject to appropriate modification where
circumstances require. Such statement shall be in capital letters,
printed in bold-face roman type at least as large as ten-point
modern type and at least two points leaded:
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS MAY ENGAGE IN
TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN
(IDENTIFY RELEVANT SECURITIES) PURSUANT TO EXEMPTIONS FROM RULES 10b-6,
10b-7, and 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
``[IDENTIFY SECTION OF OFFERING MATERIALS THAT DESCRIBES THE
TRANSACTIONS TO BE EFFECTED].''
2. In addition, there shall be included in the identified
section of the offering materials a comprehensive description of the
activities that may be undertaken by the Relevant Parties in the
Relevant Securities during the distribution.3
---------------------------------------------------------------------------
\3\The staff of the Division of Market Regulation (``Division'')
and the Division of Corporation Finance have reviewed Exhibit A
attached to your request letter and believe that the disclosure
contained therein would satisfy the requirement of this
subparagraph.
---------------------------------------------------------------------------
D. Recordkeeping and Reporting.
1. Each Relevant Party shall keep and provide to the Commission
des Operations de Bourse (``COB''), upon request, the information
described in paragraph III.D.2. below with respect to its
transactions in Relevant Securities in France; provided, however,
that in the case of a distribution made pursuant to rights, such
information is only required to be kept and reported to the COB
during the period or periods commencing at any time during the
Covered Period that the rights exercise price does not represent a
discount of at least 10 percent from the then current market price
of the security underlying the rights and continuing until: (i) the
end of the Covered Period; or (ii) until the rights exercise price
represents a discount of at least 12 percent from the then current
market price of the security underlying the rights.4
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\4\For purposes of these exemptions, unless stated otherwise,
the market price for a security shall be the closing price at the
end of the trading session on the Paris Bourse.
---------------------------------------------------------------------------
2. When required pursuant to paragraph III.D.1. above, the
Relevant Parties will provide the following information to the COB
in a Comma Delimited ASCII (American Standard Code for Information
Interchange) format including a common record layout acceptable to
the COB and the Division, with respect to transactions during the
Covered Period in Relevant Securities:
i. Name of the security, date, time (of execution and reporting,
where available to the Relevant Party), price, and volume of each
transaction; provided, however, that no information regarding a
customer transaction need be provided unless such transaction has a
value of FF1,500,000 or more;
ii. The exchange or inter-dealer quotation system on which the
transaction was effected, if any;
iii. An indication whether such transaction was for a
proprietary account or the account of a customer, provided that any
transaction effected by a Relevant Party for a customer account for
which it has exercised discretionary authority shall be reported as
a proprietary trade; and
iv. The identity of a counterparty only where such counterparty
is a Relevant Party.
3. The Relevant Parties shall keep all documents produced or
prepared pursuant to paragraph III.D.2. for a period of not less
than two years.
4. Upon the request of the Division, made pursuant to the
Administrative Agreement executed between the SEC and the COB on
December 14, 1989, the COB will require the production of the
information referred to in paragraph III.D.2. above from the
Relevant Parties through the lead underwriter. The Relevant Parties
will provide this information to the COB within 10 days of the
request by the COB and the COB shall transmit the information to the
Division within 30 days from the date of the request.
5. Representatives of a Relevant Party will be made available to
respond to inquiries of the COB relating to its records.
IV. Transactions Effected in Significant Markets
A. All transactions in Relevant Securities in a ``Significant
Market,'' as defined below, shall be effected in accordance with the
requirements of rules 10b-6, 10b-7, and 10b-8, except as permitted
by paragraph IV.B. below or by other available exemptions. For
purposes of these exemptions, ``Significant Market'' means: (i) SEAQ
International or any other dealer market outside the United States
and France for which price and volume information is published by an
FFRA; or (ii) any other securities market(s) in a single country
other than the United States or France to which a French Issuer has
applied for listing the Qualified French Security and been accepted,
if during the Reference Period the volume in either (i) or (ii) in
such Qualified French Security, as published by the relevant FFRA(s)
in such securities market, is 10 percent or more of the aggregate
worldwide trading volume in that security published by all FFRAs in
(i) and (ii), FFRAs in France, and U.S. securities markets to which
such French Issuer has applied for listing such Qualified French
Security and been accepted.
B. In the case of a distribution of Qualified French Securities
made pursuant to rights (``rights distribution''), the Relevant
Parties located in the United Kingdom (``U.K. Relevant Parties''):
(a) in connection with the rights distribution, may purchase or
solicit the purchase of Relevant Securities in transactions solely
in response to orders for the accounts of their customers in the
ordinary course of their business in the United Kingdom (``customer
facilitation activities''); and (b) may bid for or purchase Relevant
Securities as principal in market making transactions through SEAQ
International during the rights distribution, in each case subject
to the following conditions:
1. During the period from five business days prior to the
expiration date of the rights distribution and until the expiration
date, inclusive, at any time at which the difference between the
rights exercise price and the market price of the security
underlying the rights (which for this purpose will be taken to mean
the mid-price between the highest bid and lowest offer quoted on
SEAQ International for the security underlying the rights) does not
represent a discount of at least 10 percent from the then current
market price of the security underlying the rights, the U.K.
Relevant Parties will effect ``passive market making'' transactions
in the Relevant Securities subject to the terms and conditions of
Letter regarding Distributions of SEAQ and SEAQ International
Securities (July 12, 1993) (``LSE Letter'');
2. The U.K. Relevant Parties, in accordance with Item 502(d)(1)
of Regulation S-K under the Securities Act, shall include a
statement regarding transactions which stabilize or maintain the
market price of the Relevant Securities with appropriate
modification, to reflect the possibility that the U.K. Relevant
Parties may engage in market making, including passive market
making, and customer facilitation activities that otherwise would be
prohibited by rule 10b-6, and shall include pursuant to rule 408
under the Securities Act in the ``Plan of Distribution'' or similar
section of the prospectus, a brief description of such proposed
market making and customer facilitation activities in the Relevant
Securities; and
3. The recordkeeping and production requirements set forth by
the Commission in the LSE Letter shall apply to all transactions
effected by or on behalf of the U.K. Relevant Parties' accounts, or
for the accounts of customers in connection with customer
facilitation activities during the rights distribution.
V. General Conditions
A. For purposes of these exemptions, a two business day cooling-
off period shall apply under Rule 10b-6(a)(4)(v), (xi) and (xii) in
the United States and each Significant Market, provided that trading
in Relevant Securities in Significant Markets shall be subject to
the exemptive relief then available in such market, if any, or the
record maintenance and record production requirements contained in
Letter regarding Application of Cooling-Off Periods Under Rule 10b-6
to Distributions of Foreign Securities (April 4, 1994) are satisfied
by Relevant Parties in such Significant Market.
B. The lead underwriter or the global coordinator shall
promptly, but in any event before the commencement of the Covered
Period, provide a list of the Relevant Parties to the COB and
written notice (``Notice'') to the Division containing the following
information: (i) the name of the issuer and the Qualified French
Security; (ii) whether the Qualified French Security is a CAC 40
Index component security or information with respect to the market
capitalization and the average daily trading volume of the Qualified
French Security to be distributed; (iii) the identity of the
Significant Markets where the Qualified French Security trades; (iv)
if the Notice is for more than one entity, the identity of all
underwriters and selling group members relying on these exemptions;
5 and (v) a statement that the Relevant Parties are aware of
the terms and conditions of these exemptions.
---------------------------------------------------------------------------
\5\Supplemental Notices shall be provided for underwriters and
selling group members identified after a Notice has been filed.
---------------------------------------------------------------------------
C. Any person who fails to comply with the conditions of the
exemptions, including a failure to provide requested information,
would not be permitted to rely on the exemptions in future
distributions. Upon a showing of good cause, however, the Commission
or the Division may determine that it is not necessary under the
circumstances that the exemptions be denied.
The foregoing exemptions from rules 10b-6, 10b-7, and 10b-8 are
based solely on your representations and the facts presented, and
are strictly limited to the application of those rules to the
proposed transactions. Any different facts or representations might
require a different response. Responsibility for compliance with any
other applicable provisions of the federal securities laws must rest
with the Relevant Parties. The Division expresses no view with
respect to any other questions that the proposed transactions may
raise, including, but not limited to, the adequacy of disclosure
concerning, and the applicability of any other federal or state laws
to, the proposed transactions.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Robert L.D. Colby,
Deputy Director.
[FR Doc. 94-14738 Filed 6-16-94; 8:45 am]
BILLING CODE 8010-01-P