Miscellaneous Exemptions
240.3a12-1 — Exemption of certain mortgages and interests in mortgages.
Mortgages, as defined in section
302(d) of the Emergency Home Finance Act of 1970,
which are or have been sold by the Federal Home
Loan Mortgage Corporation are hereby exempted from
the operation of such provisions of the Act as by
their terms do not apply to an “exempted security”
or to “exempted securities”.
(Sec. 3(a)(12), 48 Stat. 882, 15
U.S.C. 78(c))
[37 FR 25167,
Nov. 28, 1972]
240.3a12-2 — [Reserved]
240.3a12-3 — Exemption from sections 14(a), 14(b), 14(c), 14(f) and 16 for securities of certain foreign issuers.
(a) Securities for which the filing of
registration statements on Form 18 [17 CFR
249.218] are authorized shall be exempt from the
operation of sections 14 and 16 of the Act.
(b) Securities registered by a foreign
private issuer, as defined in Rule 3b-4 (§
240.3b-4 of this chapter), shall be exempt from
sections 14(a), 14(b), 14(c), 14(f) and 16 of the
Act.
[44 FR 70137,
Dec. 6, 1979, as amended at 47 FR 54780, Dec. 6,
1982; 56 FR 30067, July 1, 1991]
240.3a12-4 — Exemptions from sections 15(a) and 15(c)(3) for certain mortgage securities.
(a) When used in this Rule the
following terms shall have the meanings
indicated:
(1) The term whole loan
mortgage means an evidence of indebtedness
secured by mortgage, deed of trust, or other lien
upon real estate or upon leasehold interests
therein where the entire mortgage, deed or other
lien is transferred with the entire evidence of
indebtedness.
(2) The term aggregated whole loan
mortgage means two or more whole loan
mortgages that are grouped together and sold to
one person in one transaction.
(3) The term participation
interest means an undivided interest
representing one of only two such interests in a
whole loan mortgage or in an aggregated whole loan
mortgage, provided that the other interest is
retained by the originator of such participation
interest.
(4) The term commitment means a
contract to purchase a whole loan mortgage, an
aggregated whole loan mortgage or a participation
interest which by its terms requires that the
contract be fully executed within 2 years.
(5) The term mortgage security
means a whole loan mortgage, an aggregated whole
loan mortgage, a participation interest, or a
commitment.
(b) A mortgage security shall be
deemed an “exempted security” for purposes of
subsections (a) and (c)(3) of section 15 of the
Act provided that, in the case of and at the time
of any sale of the mortgage security by a broker
or dealer, such mortgage security is not in
default and has an unpaid principal amount of at
least $50,000.
[39 FR 19945,
June 5, 1974]
240.3a12-5 — Exemption of certain investment contract securities from sections 7(c) and 11(d)(1).
(a) An investment contract security
involving the direct ownership of specified
residential real property shall be exempted from
the provisions of sections 7(c) and 11(d)(1) of
the Act with respect to any transaction by a
broker or dealer who, directly or indirectly,
arranges for the extension or maintenance of
credit on the security to or from a customer, if
the credit:
(1) Is secured by a lien, mortgage,
deed of trust, or any other similar security
interest related only to real property:
Provided, however, That this provision
shall not prevent a lender from requiring (i) a
security interest in the common areas and
recreational facilities or furniture and fixtures
incidental to the investment contract if the
purchase of such furniture and fixtures is
required by, or subject to the approval of, the
issuer, as a condition of purchase; or (ii) an
assignment of future rentals in the event of
default by the purchaser or a co-signer or
guarantor on the debt obligation other than the
issuer, its affiliates, or any broker or dealer
offering such securities;
(2) Is to be repaid by periodic
payments of principal and interest pursuant to an
amortization schedule established by the governing
instruments: Provided, however, That this
provision shall not prevent the extension of
credit on terms which require the payment of
interest only, if extended in compliance with the
other provisions of this rule; and
(3) Is extended by a lender which is
not, directly or indirectly controlling,
controlled by, or under common control with the
broker or dealer or the issuer of the securities
or affiliates thereof.
(b) For purposes of this rule:
(1) Residential real property
shall mean real property containing living
accommodations, whether used on a permanent or
transient basis, and may include furniture or
fixtures if required as a condition of purchase of
the investment contract or if subject to the
approval of the issuer.
(2) Direct ownership shall mean
ownership of a fee or leasehold estate or a
beneficial interest in a trust the purchase of
which, under applicable local law, is financed and
secured by a security interest therein similar to
a mortgage or deed of trust, but it shall not
include an interest in a real estate investment
trust, an interest in a general or limited
partnership, or similar indirect interest in the
ownership of real property.
(Sec. 3(a)(12), 48 Stat. 882, as
amended 84 Stat. 718, 1435, 1499 (15 U.S.C.
78c(12)); sec. 7(c), 48 Stat. 886, as amended 82
Stat. 452 (15 U.S.C. 78g(c)); sec. 11(d)(1), 48
Stat. 891 as amended 68 Stat. 636 (15 U.S.C.
78k(d)(1)); sec. 15(c), 48 Stat. 895, as amended
52 Stat. 1075, 84 Stat. 1653 (15 U.S.C. 78o(c));
sec. 23(a), 48 Stat. 901, as amended 49 Stat. 704,
1379 (15 U.S.C. 78w(a)))
[40 FR 6646,
Feb. 13, 1975]
240.3a12-6 — Definition of “common trust fund” as used in section 3(a)(12) of the Act.
The term common trust fund as
used in section 3(a)(12) of the Act (15 U.S.C.
78c(a)(12)) shall include a common trust fund
which is maintained by a bank which is a member of
an affiliated group, as defined in section 1504(a)
of the Internal Revenue Code of 1954 (26 U.S.C.
1504(a)), and which is maintained exclusively for
the collective investment and reinvestment of
monies contributed thereto by one or more bank
members of such affiliated group in the capacity
of trustee, executor, administrator, or guardian;
Provided, That:
(a) The common trust fund is operated
in compliance with the same state and federal
regulatory requirements as would apply if the bank
maintaining such fund and any other contributing
banks were the same entity; and
(b) The rights of persons for whose
benefit a contributing bank acts as trustee,
executor, administrator, or guardian would not be
diminished by reason of the maintenance of such
common trust fund by another bank member of the
affiliated group.
(15 U.S.C. 78c(b))
[43 FR 2392,
Jan. 17, 1978]
240.3a12-7 — Exemption for certain derivative securities traded otherwise than on a national securities exchange.
Any put, call, straddle, option, or
privilege traded exclusively otherwise than on a
national securities exchange and for which
quotations are not disseminated through an
automated quotation system of a registered
securities association, which relates to any
securities which are direct obligations of, or
obligations guaranteed as to principal or interest
by, the United States, or securities issued or
guaranteed by a corporation in which the United
States has a direct or indirect interest as shall
be designated for exemption by the Secretary of
the Treasury pursuant to section 3(a)(12) of the
Act, shall be exempt from all provisions of the
Act which by their terms do not apply to any
“exempted security” or “exempted securities,”
provided that the securities underlying such put,
call, straddle, option or privilege represent an
obligation equal to or exceeding $250,000
principal amount.
(15 U.S.C. 78a et seq., and
particularly secs. 3(a)(12), 15(a)(2) and 23(a)
(15 U.S.C. 78c(a)(12), 78o(a)(2) and
78w(a)))
[49 FR 5073,
Feb. 10, 1984]
240.3a12-8 — Exemption for designated foreign government securities for purposes of futures trading.
(a) When used in this Rule, the
following terms shall have the meaning
indicated:
(1) The term designated foreign
government security shall mean a security not
registered under the Securities Act of 1933 nor
the subject of any American depositary receipt so
registered, and representing a debt obligation of
the government of
(i) The United Kingdom of Great
Britain and Northern Ireland;
(ii) Canada;
(iii) Japan;
(iv) The Commonwealth of
Australia;
(v) The Republic of France;
(vi) New Zealand;
(vii) The Republic of Austria;
(viii) The Kingdom of Denmark;
(ix) The Republic of Finland;
(x) The Kingdom of the
Netherlands;
(xi) Switzerland;
(xii) The Federal Republic of
Germany;
(xiii) The Republic of Ireland;
(xiv) The Republic of Italy;
(xv) The Kingdom of Spain;
(xvi) The United Mexican States;
(xvii) The Federative Republic of
Brazil;
(xviii) The Republic of Argentina;
(xix) The Republic of Venezuela;
(xx) The Kingdom of Belgium; or
(xxi) The Kingdom of Sweden.
(2) The term qualifying foreign
futures contracts shall mean any contracts for
the purchase or sale of a designated foreign
government security for future delivery, as
“future delivery” is defined in 7 U.S.C. 2,
provided such contracts require delivery outside
the United States, any of its possessions or
territories, and are traded on or through a board
of trade, as defined at 7 U.S.C. 2.
(b) Any designated foreign government
security shall, for purposes only of the offer,
sale or confirmation of sale of qualifying foreign
futures contracts, be exempted from all provisions
of the Act which by their terms do not apply to an
“exempted security” or “exempted securities.”
(15 U.S.C. 78a et seq., and
particularly secs. 3(a)(12), and 23(a) 15 U.S.C.
78c(a)(12), and 78w(a))
[49 FR 8599,
Mar. 8, 1984, as amended at 51 FR 25998, July 18,
1986; 52 FR 8877, Mar. 20, 1987; 52 FR 42279, Nov.
4, 1987; 53 FR 43863, Oct. 31, 1988; 57 FR 1378,
Jan. 14, 1992; 59 FR 54815, Nov. 2, 1994; 60 FR
62326, Dec. 6, 1995; 61 FR 10274, Mar. 13, 1996;
64 FR 10567, Mar. 5, 1999; 64 FR 29553, June 2,
1999]
240.3a12-9 — Exemption of certain direct participation program securities from the arranging provisions of sections 7(c) and 11(d)(1).
(a) Direct participation program
securities sold on a basis whereby the purchase
price is paid to the issuer in one or more
mandatory deferred payments shall be deemed to be
exempted securities for purposes of the arranging
provisions of sections 7(c) and 11(d)(1) of the
Act, provided that:
(1) The securities are registered
under the Securities Act of 1933 or are sold or
offered exclusively on an intrastate basis in
reliance upon section 3(a)(11) of that Act;
(2) The mandatory deferred payments
bear a reasonable relationship to the capital
needs and program objectives described in a
business development plan disclosed to investors
in a registration statement filed with the
Commission under the Securities Act of 1933 or,
where no registration statement is required to be
filed with the Commission, as part of a statement
filed with the relevant state securities
administrator;
(3) Not less than 50 percent of the
purchase price of the direct participation program
security is paid by the investor at the time of
sale;
(4) The total purchase price of the
direct participation program security is due
within three years in specified property programs
or two years in non-specified property programs.
Such pay-in periods are to be measured from the
earlier of the completion of the offering or one
year following the effective date of the
offering.
(b) For purposes of this rule:
(1) Direct participation
program shall mean a program financed through
the sale of securities, other than securities that
are listed on an exchange, quoted on NASDAQ, or
will otherwise be actively traded during the
pay-in period as a result of efforts by the
issuer, underwriter, or other participants in the
initial distribution of such securities, that
provides for flow-through tax consequences to its
investors; Provided, however, That the term
“direct participation program” does not include
real estate investment trusts, Subchapter S
corporate offerings, tax qualified pension and
profit sharing plans under sections 401 and 403(a)
of the Internal Revenue Code (“Code”), tax shelter
annuities under section 403(b) of the Code,
individual retirement plans under section 408 of
the Code, and any issuer, including a separate
account, that is registered under the Investment
Company Act of 1940.
(2) Business development plan
shall mean a specific plan describing the
program's anticipated economic development and the
amounts of future capital contributions, in the
form of mandatory deferred payments, to be
required at specified times or upon the occurrence
of certain events.
(3) Specified property program
shall mean a direct participation program in
which, at the date of effectiveness, more than 75
percent of the net proceeds from the sale of
program securities are committed to specific
purchases or expenditures. Non-specified
property program shall mean any other direct
participation program.
[51 FR 8801,
Mar. 14, 1986]
240.3a12-10 — Exemption of certain securities issued by the Resolution Funding Corporation.
Securities that are issued by the
Resolution Funding Corporation pursuant to section
21B(f) of the Federal Home Loan Bank Act (12
U.S.C. 1421 et seq.) are exempt from the operation
of all provisions of the Act that by their terms
do not apply to any “exempted security” or to
“exempted securities.”
[54 FR 37789,
Sept. 13, 1989]
240.3a12-11 — Exemption from sections 8(a), 14(a), 14(b), and 14(c) for debt securities listed on a national securities exchange.
(a) Debt securities that are listed
for trading on a national securities exchange
shall be exempt from the restrictions on borrowing
of section 8(a) of the Act (15 U.S.C. 78h(a)).
(b) Debt securities registered
pursuant to the provisions of section 12(b) of the
Act (15 U.S.C. 78l(b)) shall be exempt from
sections 14(a), 14(b), and 14(c) of the Act (15
U.S.C. 78n(a), (b), and (c)), except that
§§ 240.14a-1, 240.14a-2(a), 240.14a-9, 240.14a-13,
240.14b-1, 240.14b-2, 240.14c-1, 240.14c-6 and
240.14c-7 shall continue to apply.
(c) For purposes of this section,
debt securities is defined to mean any
securities that are not “equity securities” as
defined in section 3(a)(11) of the Act (15 U.S.C.
78c(a)(11)) and § 240.3a11-1 thereunder.
[59 FR 55347,
Nov. 7, 1994]
240.3a12-12 — Exemption from certain provisions of section 16 of the Act for asset-backed securities.
Asset-backed securities, as defined in
§ 229.1101 of this chapter, are exempt from
section 16 of the Act (15 U.S.C. 78p).
[70 FR 1620,
Jan. 7, 2005]
240.3a40-1 — Designation of financial responsibility rules.
The term financial responsibility
rules for purposes of the Securities Investor
Protection Act of 1970 shall include:
(a) Any rule adopted by the Commission
pursuant to sections 8, 15(c)(3), 17(a) or
17(e)(1)(A) of the Securities Exchange Act of
1934;
(b) Any rule adopted by the Commission
relating to hypothecation or lending of customer
securities;
(c) Any rule adopted by any
self-regulatory organization relating to capital,
margin, recordkeeping, hypothecation or lending
requirements; and
(d) Any other rule adopted by the
Commission or any self-regulatory organization
relating to the protection of funds or
securities.
(Secs. 3, 15(c)(3), 17(a) and 23 (15
U.S.C. 78c, 78o, 78q(a) and 78u))
[44 FR 28318,
May 15, 1979]
240.3a43-1 — Customer-related government securities activities incidental to the futures-related business of a futures commission merchant registered with the Commodity Futures Trading Commission.
(a) A futures commission merchant
registered with the Commodity Futures Trading
Commission (“CFTC”) is not a government securities
broker or government securities dealer solely
because such futures commission merchant effects
transactions in government securities that are
defined in paragraph (b) of this section as
incidental to such person's futures-related
business.
(b) Provided that the futures
commission merchant maintains in a regulated
account all funds and securities associated with
such government securities transactions (except
funds and securities associated with transactions
under paragraph (b)(1)(i) of this section and does
not advertise that it is in the business of
effecting transactions in government securities
otherwise than in connection with futures or
options on futures trading or the investment of
margin or excess funds related to such trading or
the trading of any other instrument subject to
CFTC jurisdiction, the following transactions in
government securities are incidental to the
futures-related business of such a futures
commission merchant:
(1) Transactions as agent for a
customer —
(i) To effect delivery pursuant to a
futures contract; or
(ii) For risk reduction or arbitrage
of existing or contemporaneously created postions
in futures or options on futures;
(2) Transactions as agent for a
customer for investment of margin and excess funds
related to futures or options on futures trading
or the trading of other instruments subject to
CFTC jurisdiction, provided further that,
(i) Such transactions involve Treasury
securities with a maturity of less than 93 days at
the time of the transation.
(ii) Such transactions generate no
monetary profit for the futures commission
merchant in excess of the costs of executing such
transactions, or
(iii) Such transactions are
unsolicited, and commissions and other income
generated on transactions pursuant to this
paragraph (b)(2)(iii) (including transactional
fees paid by the futures commission merchant and
charged to its customer) do not exceed 2% of such
futures commission merchant's total commission
revenues;
(3) Exchange of futures for physicals
transactions as agent for or as principal with a
customer; and
(4) Any transaction or transactions
that the Commission exempts, either
unconditionally or on specified terms and
conditions, as incidental to the futures-related
business of a specified futures commission
merchant, a specified category of futures
commission merchants, or futures commission
merchants generally.
(c) Definitions. (1) Customer
means any person for whom the futures commission
merchant effects or intends to effect transactions
in futures, options on futures, or any other
instruments subject to CFTC jurisdiction.
(2) Regulated account means a
customer segregation account subject to the
regulations of the CFTC; provided, however, that,
where such regulations do not permit to be
maintained in such an account or require to be
maintained in a separate regulated account funds
or securities in proprietary accounts or funds or
securities used as margin for or excess funds
related to futures contracts, options on futures
or any other instruments subject to CFTC
jurisdiction that trade outside the United States,
its territories, or possessions, the term
regulated account means such separate
regulated account or any other account subject to
record-keeping regulations of the CFTC.
(3) Unsolicited transaction
means a transaction that is not effected in a
discretionary account or recommended to a customer
by the futures commission merchant, an associated
person of a futures commission merchant, a
business affiliate that is controlled by,
controlling, or under common control with the
futures commission merchant, or an introducing
broker that is guaranteed by the futures
commission merchant.
(4) Futures and futures
contracts mean contracts of sale of a
commodity for future delivery traded on or subject
to the rules of a contract market designated by
the CFTC or traded on or subject to the rules of
any board of trade located outside the United
States, its territories, or possessions.
(5) Options on futures means
puts or calls on a futures contract traded on or
subject to the rules of a contract market
designated by the CFTC or traded or subject to the
rules of any board of trade located outside the
United States, its territories, or
possessions.
[52 FR 27969,
July 24, 1987]
240.3a44-1 — Proprietary government securities transactions incidental to the futures-related business of a CFTC-regulated person.
(a) A person registered with the
Commodity Futures Trading Commission (“CFTC”), a
contract market designated by the CFTC, such a
contract market's affiliated clearing
organization, or any floor trader or such a
contract market (hereinafter referred to
collectively as a “CFTC-regulated person”) is not
a government securities dealer solely because such
person effects transactions for its own account in
government securities that are defined in
paragraph (b) of this section as incidental to
such person's futures-related business.
(b) Provided that a CFTC-regulated
person does not advertise or otherwise hold itself
out as a government securities dealer except as
permitted under rule 3a43-1 (§ 240.3a43-1) the
following transactions in government securities
for its own account are incidental to the
futures-related business of such a CFTC-regulated
person:
(1) Transactions to effect delivery of
a government security pursuant to a futures
contract;
(2) Exchange of futures for physicals
transactions with (i) a government securities
broker or government securities dealer that has
registered with the Commission or filed notice
pursuant to section 15C(a) of the Act or (ii) a
CFTC-regulated person;
(3) Transactions (including repurchase
agreements and reverse repurchase agreements)
involving segregated customer funds and securities
or funds and securities held by a clearing
organization with (i) a government securities
broker or government securities dealer that has
registered with the Commission of filed notice
pursuant to section 15C(a) of the Act or (ii) a
bank;
(4) Transactions for risk reduction or
arbitrage of existing or contemporaneously created
positions in futures or options on futures with
(i) a government securities broker or government
securities dealer that has registered with the
Commission or filed notice pursuant to section
15C(a) of the Act or (ii) a CFTC-regulated
person;
(5) Repurchase and reverse repurchase
agreement transactions between a futures
commission merchant acting in a proprietary
capacity and another CFTC-regulated person acting
in a proprietary capacity and contemporaneous
offsetting transactions between such a futures
commission merchant and (i) a government
securities broker or government securities dealer
that has registered with the Commission or filed
notice pursuant to section 15C(a) of the Act, (ii)
a bank, or (iii) a CFTC-regulated person acting in
a proprietary capacity; and
(6) Any transaction or transactions
that the Commission exempts, either
unconditionally or on specified terms and
conditions, as incidental to the futures related
business of a specified CFTC-regulated person, a
specified category of CFTC-regulated persons, or
CFTC-regulated persons generally.
(c) Definitions — (1)
Segregated customer funds means funds
subject to CFTC segregation requirements.
(2) Futures and futures
contracts means contracts of sale of a
commodity for future delivery traded on or subject
to the rules of a contract market designated by
the CFTC or traded on or subject to the rules of
any board of trade located outside the United
States, its territories, or possessions.
(3) Options on futures means
puts or calls on a futures contract traded on or
subject to the rules of a contract market
designated by the CFTC or traded on or subject to
the rules of any board of trade located outside
the United States, its territories, or
possessions.
[52 FR 27970,
July 24, 1987]
240.3a44-2 — Further definition of “as a part of a regular business” in connection with certain liquidity providers.
(a) A person that is engaged in buying and
selling government securities for its own account
is engaged in such activity “as a part of a
regular business” as the phrase is used in section
3(a)(44)(A) of the Act (15 U.S.C. 78c(a)(44)(A))
if that person:
(1) Engages in a regular pattern of buying and
selling government securities that has the effect
of providing liquidity to other market
participants by:
(i) Regularly expressing trading interest that
is at or near the best available prices on both
sides of the market for the same security and that
is communicated and represented in a way that
makes it accessible to other market participants;
or
(ii) Earning revenue primarily from capturing
bid-ask spreads, by buying at the bid and selling
at the offer, or from capturing any incentives
offered by trading venues to liquidity-supplying
trading interest; and
(2) Is not:
(i) A person that has or controls total assets
of less than $50 million; or
(ii) An investment company registered under the
Investment Company Act of 1940; or
(iii) A central bank, sovereign entity, or
international financial institution.
(b) For purposes of this section:
(1) The term person has the same meaning
as prescribed in section 3(a)(9) of the Act (15
U.S.C. 78c(a)(9)).
(2) A person's own account means any
account:
(i) Held in the name of that person; or
(ii) Held for the benefit of that person.
(3) The term central bank means a
reserve bank or monetary authority of a central
government (including the Board of Governors of
the Federal Reserve System or any of the Federal
Reserve Banks) and the Bank for International
Settlements.
(4) The term international financial
institution means the African Development
Bank; African Development Fund; Asian Development
Bank; Banco Centroamericano de Integración
Económica; Bank for Economic Cooperation and
Development in the Middle East and North Africa;
Caribbean Development Bank; Corporación Andina de
Fomento; Council of Europe Development Bank;
European Bank for Reconstruction and Development;
European Investment Bank; European Investment
Fund; European Stability Mechanism; Inter-American
Development Bank; Inter-American Investment
Corporation; International Bank for Reconstruction
and Development; International Development
Association; International Finance Corporation;
International Monetary Fund; Islamic Development
Bank; Multilateral Investment Guarantee Agency;
Nordic Investment Bank; North American Development
Bank; and any other entity that provides financing
for national or regional development in which the
U.S. Government is a shareholder or contributing
member.
(5) The term sovereign entity means a
central government (including the U.S.
Government), or an agency, department, or ministry
of a central government.
(c) No person shall evade the registration
requirements of this section by:
(1) Engaging in activities indirectly that
would satisfy paragraph (a) of this section;
or
(2) Disaggregating accounts.
(d) No presumption shall arise that a person is
not a government securities dealer within the
meaning of section 3(a)(44) of the Act (15 U.S.C.
78c(a)(44)) solely because that person does not
satisfy paragraph (a) of this section.
[89 FR 14938, Feb. 29,
2024]
240.3a51-1 — Definition of “penny stock”.
For purposes of section 3(a)(51) of
the Act, the term “penny stock” shall mean any
equity security other than a security:
(a) That is an NMS stock, as defined
in § 242.600(b)(65) of this chapter, provided that:
(1) The security is registered, or
approved for registration upon notice of issuance,
on a national securities exchange that has been
continuously registered as a national securities
exchange since April 20, 1992 (the date of the
adoption of Rule 3a51-1 (§ 240.3a51-1) by the
Commission); and the national securities exchange
has maintained quantitative listing standards that
are substantially similar to or stricter than
those listing standards that were in place on that
exchange on January 8, 2004; or
(2) The security is registered, or
approved for registration upon notice of issuance,
on a national securities exchange, or is listed,
or approved for listing upon notice of issuance
on, an automated quotation system sponsored by a
registered national securities association,
that:
(i) Has established initial listing
standards that meet or exceed the following
criteria:
(A) The issuer shall have:
(1) Stockholders' equity of
$5,000,000;
(2) Market value of listed
securities of $50 million for 90 consecutive days
prior to applying for the listing (market value
means the closing bid price multiplied by the
number of securities listed); or
(3) Net income of $750,000
(excluding non-recurring items) in the most
recently completed fiscal year or in two of the
last three most recently completed fiscal
years;
(B) The issuer shall have an operating
history of at least one year or a market value of
listed securities of $50 million (market value
means the closing bid price multiplied by the
number of securities listed);
(C) The issuer's stock, common or
preferred, shall have a minimum bid price of $4
per share;
(D) In the case of common stock, there
shall be at least 300 round lot holders of the
security (a round lot holder means a holder of a
normal unit of trading);
(E) In the case of common stock, there
shall be at least 1,000,000 publicly held shares
and such shares shall have a market value of at
least $5 million (market value means the closing
bid price multiplied by number of publicly held
shares, and shares held directly or indirectly by
an officer or director of the issuer and by any
person who is the beneficial owner of more than 10
percent of the total shares outstanding are not
considered to be publicly held);
(F) In the case of a convertible debt
security, there shall be a principal amount
outstanding of at least $10 million;
(G) In the case of rights and
warrants, there shall be at least 100,000 issued
and the underlying security shall be registered on
a national securities exchange or listed on an
automated quotation system sponsored by a
registered national securities association and
shall satisfy the requirements of paragraph (a) or
(e) of this section;
(H) In the case of put warrants (that
is, instruments that grant the holder the right to
sell to the issuing company a specified number of
shares of the company's common stock, at a
specified price until a specified period of time),
there shall be at least 100,000 issued and the
underlying security shall be registered on a
national securities exchange or listed on an
automated quotation system sponsored by a
registered national securities association and
shall satisfy the requirements of paragraph (a) or
(e) of this section;
(I) In the case of units (that is, two
or more securities traded together), all component
parts shall be registered on a national securities
exchange or listed on an automated quotation
system sponsored by a registered national
securities association and shall satisfy the
requirements of paragraph (a) or (e) of this
section; and
(J) In the case of equity securities
(other than common and preferred stock,
convertible debt securities, rights and warrants,
put warrants, or units), including hybrid products
and derivative securities products, the national
securities exchange or registered national
securities association shall establish
quantitative listing standards that are
substantially similar to those found in paragraphs
(a)(2)(i)(A) through (a)(2)(i)(I) of this section;
and
(ii) Has established quantitative
continued listing standards that are reasonably
related to the initial listing standards set forth
in paragraph (a)(2)(i) of this section, and that
are consistent with the maintenance of fair and
orderly markets;
(b) That is issued by an investment
company registered under the Investment Company
Act of 1940;
(c) That is a put or call option
issued by the Options Clearing Corporation;
(d) Except for purposes of section
7(b) of the Securities Act and Rule 419 (17 CFR
230.419), that has a price of five dollars or
more;
(1) For purposes of paragraph (d) of
this section:
(i) A security has a price of five
dollars or more for a particular transaction if
the security is purchased or sold in that
transaction at a price of five dollars or more,
excluding any broker or dealer commission,
commission equivalent, mark-up, or mark-down;
and
(ii) Other than in connection with a
particular transaction, a security has a price of
five dollars or more at a given time if the inside
bid quotation is five dollars or more;
provided, however, that if there is no such
inside bid quotation, a security has a price of
five dollars or more at a given time if the
average of three or more interdealer bid
quotations at specified prices displayed at that
time in an interdealer quotation system, as
defined in 17 CFR 240.15c2-7(c)(1), by three or
more market makers in the security, is five
dollars or more.
(iii) The term “inside bid quotation”
shall mean the highest bid quotation for the
security displayed by a market maker in the
security on an automated interdealer quotation
system that has the characteristics set forth in
section 17B(b)(2) of the Act, or such other
automated interdealer quotation system designated
by the Commission for purposes of this section, at
any time in which at least two market makers are
contemporaneously displaying on such system bid
and offer quotations for the security at specified
prices.
(2) If a security is a unit composed
of one or more securities, the unit price divided
by the number of shares of the unit that are not
warrants, options, rights, or similar securities
must be five dollars or more, as determined in
accordance with paragraph (d)(1) of this section,
and any share of the unit that is a warrant,
option, right, or similar security, or a
convertible security, must have an exercise price
or conversion price of five dollars or more;
(e)(1) That is registered, or approved
for registration upon notice of issuance, on a
national securities exchange that makes
transaction reports available pursuant to §
242.601, provided that:
(i) Price and volume information with
respect to transactions in that security is
required to be reported on a current and
continuing basis and is made available to vendors
of market information pursuant to the rules of the
national securities exchange;
(ii) The security is purchased or sold
in a transaction that is effected on or through
the facilities of the national securities
exchange, or that is part of the distribution of
the security; and
(iii) The security satisfies the
requirements of paragraph (a)(1) or (a)(2) of this
section;
(2) A security that satisfies the
requirements of this paragraph (e), but does not
otherwise satisfy the requirements of paragraph
(a), (b), (c), (d), (f), or (g) of this section,
shall be a penny stock for purposes of section
15(b)(6) of the Act (15 U.S.C. 78o(b)(6));
(f) That is a security futures product
listed on a national securities exchange or an
automated quotation system sponsored by a
registered national securities association; or
(g) Whose issuer has:
(1) Net tangible assets (i.e., total
assets less intangible assets and liabilities) in
excess of $2,000,000, if the issuer has been in
continuous operation for at least three years, or
$5,000,000, if the issuer has been in continuous
operation for less than three years; or
(2) Average revenue of at least
$6,000,000 for the last three years.
(3) For purposes of paragraph (g) of
this section, net tangible assets or average
revenues must be demonstrated by financial
statements dated less than fifteen months prior to
the date of the transaction that the broker or
dealer has reviewed and has a reasonable basis for
believing are accurate in relation to the date of
the transaction, and:
(i) If the issuer is other than a
foreign private issuer, are the most recent
financial statements for the issuer that have been
audited and reported on by an independent public
accountant in accordance with the provisions of 17
CFR 210.2-02; or
(ii) If the issuer is a foreign
private issuer, are the most recent financial
statements for the issuer that have been filed
with the Commission or furnished to the Commission
pursuant to 17 CFR 240.12g3-2(b); provided,
however, that if financial statements for the
issuer dated less than fifteen months prior to the
date of the transaction have not been filed with
or furnished to the Commission, financial
statements dated within fifteen months prior to
the transaction shall be prepared in accordance
with generally accepted accounting principles in
the country of incorporation, audited in
compliance with the requirements of that
jurisdiction, and reported on by an accountant
duly registered and in good standing in accordance
with the regulations of that jurisdiction.
(4) The broker or dealer shall
preserve, as part of its records, copies of the
financial statements required by paragraph (g)(3)
of this section for the period specified in 17 CFR
240.17a-4(b).
[57 FR 18032, Apr. 28, 1992, as amended at 58 FR 58101, Oct. 29, 1993; 70
FR 40631, July 13, 2005; 70 FR 46090, Aug. 9, 2005; 83 FR
50148, Oct. 4, 2018; 83 FR 58338, Nov. 19, 2018; 89 FR
26428, Apr. 15, 2024]
240.3a55-1 — Method for determining market capitalization and dollar value of average daily trading volume; application of the definition of narrow-based security index.
(a) Market capitalization. For
purposes of Section 3(a)(55)(C)(i)(III)(bb) of the
Act (15 U.S.C. 78c(a)(55)(C)(i)(III)(bb)):
(1) On a particular day, a security
shall be 1 of 750 securities with the largest
market capitalization as of the preceding 6 full
calendar months when it is included on a list of
such securities designated by the Commission and
the CFTC as applicable for that day.
(2) In the event that the Commission
and the CFTC have not designated a list under
paragraph (a)(1) of this section:
(i) The method to be used to determine
market capitalization of a security as of the
preceding 6 full calendar months is to sum the
values of the market capitalization of such
security for each U.S. trading day of the
preceding 6 full calendar months, and to divide
this sum by the total number of such trading
days.
(ii) The 750 securities with the
largest market capitalization shall be identified
from the universe of all NMS securities as defined
in § 242.600 of this chapter that are common stock
or depositary shares.
(b) Dollar value of ADTV. (1)
For purposes of Section 3(a)(55)(B) of the Act (15
U.S.C. 78c(a)(55)(B)):
(i)(A) The method to be used to
determine the dollar value of ADTV of a security
is to sum the dollar value of ADTV of all reported
transactions in such security in each jurisdiction
as calculated pursuant to paragraphs (b)(1)(ii)
and (iii).
(B) The dollar value of ADTV of a
security shall include the value of all reported
transactions for such security and for any
depositary share that represents such
security.
(C) The dollar value of ADTV of a
depositary share shall include the value of all
reported transactions for such depositary share
and for the security that is represented by such
depositary share.
(ii) For trading in a security in the
United States, the method to be used to determine
the dollar value of ADTV as of the preceding 6
full calendar months is to sum the value of all
reported transactions in such security for each
U.S. trading day during the preceding 6 full
calendar months, and to divide this sum by the
total number of such trading days.
(iii)(A) For trading in a security in
a jurisdiction other than the United States, the
method to be used to determine the dollar value of
ADTV as of the preceding 6 full calendar months is
to sum the value in U.S. dollars of all reported
transactions in such security in such jurisdiction
for each trading day during the preceding 6 full
calendar months, and to divide this sum by the
total number of trading days in such jurisdiction
during the preceding 6 full calendar months.
(B) If the value of reported
transactions used in calculating the ADTV of
securities under paragraph (b)(1)(iii)(A) is
reported in a currency other than U.S. dollars,
the total value of each day's transactions in such
currency shall be converted into U.S. dollars on
the basis of a spot rate of exchange for that day
obtained from at least one independent entity that
provides or disseminates foreign exchange
quotations in the ordinary course of its
business.
(iv) The dollar value of ADTV of the
lowest weighted 25% of an index is the sum of the
dollar value of ADTV of each of the component
securities comprising the lowest weighted 25% of
such index.
(2) For purposes of Section
3(a)(55)(C)(i)(III)(cc) of the Act (15 U.S.C.
78c(a)(55)(C)(i)(III)(cc)):
(i) On a particular day, a security
shall be 1 of 675 securities with the largest
dollar value of ADTV as of the preceding 6 full
calendar months when it is included on a list of
such securities designated by the Commission and
the CFTC as applicable for that day.
(ii) In the event that the Commission
and the CFTC have not designated a list under
paragraph (b)(2) of this section:
(A) The method to be used to determine
the dollar value of ADTV of a security as of the
preceding 6 full calendar months is to sum the
value of all reported transactions in such
security in the United States for each U.S.
trading day during the preceding 6 full calendar
months, and to divide this sum by the total number
of such trading days.
(B) The 675 securities with the
largest dollar value of ADTV shall be identified
from the universe of all NMS securities as defined
in § 242.600 of this chapter that are common stock
or depositary shares.
(c) Depositary Shares and Section
12 Registration. For purposes of Section
3(a)(55)(C) of the Act (15 U.S.C. 78c(a)(55)(C)),
the requirement that each component security of an
index be registered pursuant to Section 12 of the
Act (15 U.S.C. 78l) shall be satisfied with
respect to any security that is a depositary share
if the deposited securities underlying the
depositary share are registered pursuant to
Section 12 of the Act and the depositary share is
registered under the Securities Act of 1933 (15
U.S.C. 77a et seq.) on Form F-6 (17 CFR
239.36).
(d) Definitions. For purposes
of this section:
(1) CFTC means Commodity
Futures Trading Commission.
(2) Closing price of a security
means:
(i) If reported transactions in the
security have taken place in the United States,
the price at which the last transaction in such
security took place in the regular trading session
of the principal market for the security in the
United States.
(ii) If no reported transactions in a
security have taken place in the United States,
the closing price of such security shall be the
closing price of any depositary share representing
such security divided by the number of shares
represented by such depositary share.
(iii) If no reported transactions in a
security or in a depositary share representing
such security have taken place in the United
States, the closing price of such security shall
be the price at which the last transaction in such
security took place in the regular trading session
of the principal market for the security. If such
price is reported in a currency other than U.S.
dollars, such price shall be converted into U.S.
dollars on the basis of a spot rate of exchange
relevant for the time of the transaction obtained
from at least one independent entity that provides
or disseminates foreign exchange quotations in the
ordinary course of its business.
(3) Depositary share has the
same meaning as in § 240.12b-2.
(4) Foreign financial regulatory
authority has the same meaning as in Section
3(a)(52) of the Act (15 U.S.C. 78c(a)(52)).
(5) Lowest weighted 25% of an
index. With respect to any particular day, the
lowest weighted component securities comprising,
in the aggregate, 25% of an index's weighting for
purposes of Section 3(a)(55)(B)(iv) of the Act (15
U.S.C. 78c(a)(55)(B)(iv)) (“lowest weighted 25% of
an index”) means those securities:
(i) That are the lowest weighted
securities when all the securities in such index
are ranked from lowest to highest based on the
index's weighting methodology; and
(ii) For which the sum of the weight
of such securities is equal to, or less than, 25%
of the index's total weighting.
(6) Market capitalization of a
security on a particular day:
(i) If the security is not a
depositary share, is the product of:
(A) The closing price of such security
on that same day; and
(B) The number of outstanding shares
of such security on that same day.
(ii) If the security is a depositary
share, is the product of:
(A) The closing price of the
depositary share on that same day divided by the
number of deposited securities represented by such
depositary share; and
(B) The number of outstanding shares
of the security represented by the depositary
share on that same day.
(7) Outstanding shares of a
security means the number of outstanding shares of
such security as reported on the most recent Form
10-K, Form 10-Q, Form 10-KSB, Form 10-QSB, or Form
20-F (17 CFR 249.310, 249.308a, 249.310b,
249.308b, or 249.220f) filed with the Commission
by the issuer of such security, including any
change to such number of outstanding shares
subsequently reported by the issuer on a Form 8-K
(17 CFR 249.308).
(8) Preceding 6 full calendar
months means, with respect to a particular
day, the period of time beginning on the same day
of the month 6 months before and ending on the day
prior to such day.
(9) Principal market for a
security means the single securities market with
the largest reported trading volume for the
security during the preceding 6 full calendar
months.
(10) Reported transaction
means:
(i) With respect to securities
transactions in the United States, any transaction
for which a transaction report is collected,
processed, and made available pursuant to an
effective transaction reporting plan, or for which
a transaction report, last sale data, or quotation
information is disseminated through an automated
quotation system as described in Section
3(a)(51)(A)(ii) of the Act (15 U.S.C.
78c(a)(51)(A)(ii); and
(ii) With respect to securities
transactions outside the United States, any
transaction that has been reported to a foreign
financial regulatory authority in the jurisdiction
where such transaction has taken place.
(11) U.S. trading day means any
day on which a national securities exchange is
open for trading.
(12) Weighting of a component
security of an index means the percentage of such
index's value represented, or accounted for, by
such component security.
[66 FR 44514,
Aug. 23, 2001, as amended at 70 FR 43750, July 29,
2005; 86 FR 18596, Apr. 9, 2021]
240.3a55-2 — Indexes underlying futures contracts trading for fewer than 30 days.
(a) An index on which a contract of
sale for future delivery is trading on a
designated contract market, registered derivatives
transaction execution facility, or foreign board
of trade is not a narrow-based security index
under Section 3(a)(55) of the Act (15 U.S.C.
78c(a)(55)) for the first 30 days of trading,
if:
(1) Such index would not have been a
narrow-based security index on each trading day of
the preceding 6 full calendar months with respect
to a date no earlier than 30 days prior to the
commencement of trading of such contract;
(2) On each trading day of the
preceding 6 full calendar months with respect to a
date no earlier than 30 days prior to the
commencement of trading such contract:
(i) Such index had more than 9
component securities;
(ii) No component security in such
index comprised more than 30 percent of the
index's weighting;
(iii) The 5 highest weighted component
securities in such index did not comprise, in the
aggregate, more than 60 percent of the index's
weighting; and
(iv) The dollar value of the trading
volume of the lowest weighted 25% of such index
was not less than $50 million (or in the case of
an index with 15 or more component securities, $30
million); or
(3) On each trading day of the
preceding 6 full calendar months, with respect to
a date no earlier than 30 days prior to the
commencement of trading such contract:
(i) Such index had at least 9
component securities;
(ii) No component security in such
index comprised more than 30 percent of the
index's weighting; and
(iii) Each component security in such
index was:
(A) Registered pursuant to Section 12
of the Act (15 U.S.C. 78) or was a depositary
share representing a security registered pursuant
to Section 12 of the Act;
(B) 1 of 750 securities with the
largest market capitalization that day; and
(C) 1 of 675 securities with the
largest dollar value of trading volume that
day.
(b) An index that is not a
narrow-based security index for the first 30 days
of trading pursuant to paragraph (a) of this
section, shall become a narrow-based security
index if such index has been a narrow-based
security index for more than 45 business days over
3 consecutive calendar months.
(c) An index that becomes a
narrow-based security index solely because it was
a narrow-based security index for more than 45
business days over 3 consecutive calendar months
pursuant to paragraph (b) of this section shall
not be a narrow-based security index for the
following 3 calendar months.
(d) Definitions. For purposes
of this section:
(1) Market capitalization has
the same meaning as in § 240.3a55-1(d)(6).
(2) Dollar value of trading
volume of a security on a particular day is
the value in U.S. dollars of all reported
transactions in such security on that day. If the
value of reported transactions used in calculating
dollar value of trading volume is reported in a
currency other than U.S. dollars, the total value
of each day's transactions shall be converted into
U.S. dollars on the basis of a spot rate of
exchange for that day obtained from at least one
independent entity that provides or disseminates
foreign exchange quotations in the ordinary course
of its business.
(3) Lowest weighted 25% of an
index has the same meaning as in §
240.3a55-1(d)(5).
(4) Preceding 6 full calendar
months has the same meaning as in §
240.3a55-1(d)(8).
(5) Reported transaction has
the same meaning as in § 240.3a55-1(d)(10).
[66 FR 44514,
Aug. 23, 2001]
240.3a55-3 — Futures contracts on security indexes trading on or subject to the rules of a foreign board of trade.
When a contract of sale for future
delivery on a security index is traded on or
subject to the rules of a foreign board of trade,
such index shall not be a narrow-based security
index if it would not be a narrow-based security
index if a futures contract on such index were
traded on a designated contract market or
registered derivatives transaction execution
facility.
[66 FR 44514,
Aug. 23, 2001]
240.3a55-4 — Exclusion from definition of narrow-based security index for indexes composed of debt securities.
(a) An index is not a narrow-based
security index if:
(1)(i) Each of the securities of an
issuer included in the index is a security, as
defined in section 2(a)(1) of the Securities Act
of 1933(15 U.S.C. 77b(a)(1)) and section 3(a)(10)
of the Act (15 U.S.C. 78c(a)(10)) and the
respective rules promulgated thereunder, that is a
note, bond, debenture, or evidence of
indebtedness;
(ii) None of the securities of an
issuer included in the index is an equity
security, as defined in section 3(a)(11) of the
Act (15 U.S.C. 78c(a)(11)) and the rules
promulgated thereunder;
(iii) The index is comprised of more
than nine securities that are issued by more than
nine non-affiliated issuers;
(iv) The securities of any issuer
included in the index do not comprise more than 30
percent of the index's weighting;
(v) The securities of any five
non-affiliated issuers included in the index do
not comprise more than 60 percent of the index's
weighting;
(vi) Except as provided in paragraph
(a)(1)(viii) of this section, for each security of
an issuer included in the index one of the
following criteria is satisfied:
(A) The issuer of the security is
required to file reports pursuant to section 13 or
section 15(d) of the Act (15 U.S.C. 78m and
78o(d));
(B) The issuer of the security has a
[Worldwide market value of its outstanding common
equity held by non-affiliates of $71 million or
more;
(C) The issuer of the security has
outstanding securities that are notes, bonds,
debentures, or evidences of indebtedness having a
total remaining principal amount of at least $1
billion;
(D) The security is an exempted
security as defined in section 3(a)(12) of the Act
(15 U.S.C. 78c(a)(12)) and the rules promulgated
thereunder; or
(E) The issuer of the security is a
government of a foreign country or a political
subdivision of a foreign country;
(vii) Except as provided in paragraph
(a)(1)(viii) of this section, for each security of
an issuer included in the index one of the
following criteria is satisfied
(A) The security has a total remaining
principal amount of at least $250,000,000; or
(B) The security is a municipal
security, as defined in section 3(a)(29) of the
Act (15 U.S.C. 78c(a)(29)) and the rules
promulgated thereunder that has a total remaining
principal amount of at least $200,000,000 and the
issuer of such municipal security has outstanding
securities that are notes, bonds, debentures, or
evidences of indebtedness having a total remaining
principal amount of at least $1 billion; and
(viii) Paragraphs (a)(1)(vi) and
(a)(1)(vii) of this section will not apply to
securities of an issuer included in the index
if:
(A) All securities of such issuer
included in the index represent less than 5
percent of the index's weighting; and
(B) Securities comprising at least 80
percent of the index's weighting satisfy the
provisions of paragraphs (a)(1)(vi) and
(a)(1)(vii) of this section; or
(2)(i) The index includes exempted
securities, other than municipal securities, as
defined in section 3(a)(29) of the Act and the
rules promulgated thereunder, that are:
(A) Notes, bonds, debentures, or
evidences of indebtedness; and
(B) Not equity securities, as defined
in section 3(a)(11) of the Act (15 U.S.C.
78c(a)(11)) and the rules promulgated thereunder;
and
(ii) Without taking into account any
portion of the index composed of such exempted
securities, other than municipal securities, the
remaining portion of the index would not be a
narrow-based security index: meeting all the
conditions under paragraph (a)(1) of this
section.
(b) For purposes of this section:
(1) An issuer is affiliated with
another issuer if it controls, is controlled by,
or is under common control with, that issuer.
(2) For purposes of this section,
control means ownership of 20 percent or
more of an issuer's equity, or the ability to
direct the voting of 20 percent or more of the
issuer's voting equity.
(3) The term issuer includes a
single issuer or group of affiliated issuers.
[71 FR 39542,
July 13, 2006]