:Approved Code No. 141-Amendment No. 2
S CODE OF FAIR C
AS APPROVED ON N
Registry No. 1707-04
[ARCH 23, 1934
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Approved Code No. 141 Registry No. 1707-04
Amendment No. 2
ERRATA SHEET FOR
CODE OF FAIR COMPETITION
AS APPROVED ON MARCH 23, 1934
1. Article II (t). Subparagraphs i and ii are shown as 1 and 2; also
the word "definite" on first line, top of page 9, should be "definitive."
2. Article IV, section 1 (b). Third paragraph, page 12, line 2, the
word "accounts" should be "amounts."
3. Article IV, section 2 (e). First paragraph, page 14, line 4, the
word "such" at end of line should be "each."
4. Article X, section 4. Page 27, line 5, the figure "5" should be
5. Article X, section 8 (c). Page 29, line 2, the figures "$600"
should be "$500."
6. Article X, section 11. Page 30, line 10, the figure "I" should be
7. Article XI, section 8. Page 32, line 6, the word "act" was
omitted between the words "shall" and "as."
U.1. IOVMIIIINT PlINTIMe OFFiCE: I164
Approved Code No. 141-Amendment No. 2
CODE OF FAIR COMPETITION
As Approved on March 23, 1934
AMENDMENTS TO CODE OF FAIR COMPETITION FOR INVESTMENT BANKERS
An application having been duly made, pursuant to and in full com-
pliance with the provisions of Title I of the National Industrial
Recovery Act, approved June 16, 1933, for my approval of the
Amendments to the Code of Fair Competition for Investment
Bankers, and hearings having been held thereon and the Adminis-
trator having rendered his report containing an analysis of the said
Amendments together with his recommendations and findings with
respect thereto, and the Administrator having found that the said
Amendments comply in all respects with the pertinent provisions of
Title I of said Act and that the requirements of clauses (1) and (2)
of subsection (a) of Section 3 of the said Act have been met; and
the Administrator having further found that the agreement pro-
vided for in Article X of the said Amendments, pursuant to the
provisions of subsection (a) of Section 4 of the said Act, will aid
in effectuating the policy of the said Title I:
NOW, THEREFORE, I, Franklin D. Roosevelt, President of the
United States, pursuant to the authority vested in me by Title I of
the National Industrial Recovery Act, approved June 16, 1933, and
otherwise, do adopt and approve the report, recommendations and
; findings of the Administrator and do order that the said Amend-
ments to the Code of Fair Competition be and they are hereby ap-
proved, subject to the following condition:
Inasmuch as the Amendments hereby approved are designed to
accomplish far reaching and desirable reforms in the practices of
investment bankers, involving important changes in methods here-
tofore customary, it is considered necessary to prescribe a more
expeditious method than that prescribed in the Code for effectuating
changes in the' provisions of the Code as amended. In order, there-
fore, to provide prompt relief for any hardship which may have been
inadvertently imposed by the provisions of the Code as amended, or
to make such corrections as may become necessary to meet unforeseen
contingencies, the Administrator may, upon recommendation of the
Investment Bankers Code Committee or otherwise, and after such
notice and hearing as he may specify, approve such modification or
amendment of this Code as amended as he may deem necessary or
FRANKLIN D. ROOSEVELT.
HUGH S. JOHNSON,
THE WHmTE HOUSE,
March 23, 1934.
LETTER OF TRANSMITTAL
The White House.
SIR: I have the honor to transmit herewith Amendments to the
Code of Fair Competition for Investment Bankers, which are sub-
mitted in accordance with Articles IV and V of the Code of Fair
Competition for Investment Bankers.
The extent to which the Amendments are designed in the interest
of the investors of this country is peculiarly significant.
The evidences of fairness of purpose and thoroughness in prepara-
tion appear obvious. At a meeting of investment bankers assenting
to the Code, held on March 5, 1934, in Washington, 888 investment
bankers, in person or by proxy, voted to approve the Amendments,
and 117 voted in disapproval. At that time 1,251 investment
bankers had assented to the Code and were eligible to vote. Since
that time the number of assentors has increased to above 1,600.
A majority of the 117 who dissented expressed their approval of
the provisions as a whole and in principle and objected only to
certain specific provisions which have since been modified. A large
majority of the assenting investment bankers favor acceptance of
Examination of the proceedings attending the preparation of the
Amendments discloses the fact that every reasonable effort was
exerted to keep every investment banker in the United States in-
formed regarding the formulation of these Articles and to enlist
their suggestions or criticisms, which were given full consideration
and were weighed as to their effect upon every factor involved.
A public hearing on these Amendments was held in Washington
on March 15, 1934. At this hearing the objections centered on the
provisions having to do with-
(a) Municipal securities.
(b) Restrictions upon salesmen.
c) The appointment of Regional Committees.
In subsequent conferences with the Investment Bankers Code
Committee both proponents and opponents of the controversial
sections agreed to the modifications which have been made. The
reasonableness of the attitude of the investment bankers greatly
facilitated harmonizing the differences.
These fair practice provisions constitute a remarkable document.
The essential purposes are to eradicate past and existing abuses and
to establish principles and practices which will justify public con-
fidence, greatly assist in restoring the markets for both public and
private investment funds and result in an increased flow of invest-
ment capital into sound, productive enterprises, which will unques-
tionably increase employment and distribute added wealth among
The importance of developing a capital market in connection with
the Recovery Program cannot be over emphasized.
Very definite provisions are included for these specific purposes
both prescribing and proscribing investment banking activities in all
fundamental essentials. Briefly, the purport of the Amendments
is as follows-
1. Eleven sections are devoted to a statement of general principles
for the conduct of the business, as a guide to the investment banker
and to the Investment Bankers Code Committee in interpreting and
administering the fair practice provisions of the Code. These deal
with standards of business conduct in the underwriting and dis-
tribution of securities and in safeguarding the welfare of investors.
2. Five sections govern the issuance of new securities. In the
future those issuing securities will be required to provide adequate
detailed information to investors as long as a security is out-
standing. This is a far reaching provision. It marks a very long
step in the right direction and furnishes a new safeguard to protect
3. Seventeen sections regulate the underwriting and distribution
of new issues. Provisions are included which will tend to establish
one price for all investors irrespective of the size of the transaction
or the importance of the purchaser. Adequate time is provided for
the proper study and analysis of the facts regarding new issues by
all investment bankers participating in the distribution of each
4. Eight sections are directed to retail sales and purchases deal-
ing with disclosure of the adequate and the pertinent facts re-
quired to be made available to investors.
5. Four sections pertain primarily to salesmen, and stipulate the
minimum qualifications of those employed in that capacity and the
requirement for responsible supervision of their activities.
6. One important section relates to. investment companies and
places certain restrictions on investment bankers having relations
or transactions with such companies.
7. Thirteen sections provide a unique opportunity for investment
bankers, through registration, to agree with one another upon the
expeditious enforcement of effective self discipline in the invest-
ment banking business.
It was stated in my letter of November 20, 1933, transmitting to
you the Code of Fair Competition for Investment Bankers that the
members of the association proposing the Code transacted approxi-
mately 90% of the total volume of the investment banking business
for the year 1932. This statement was intended to refer only to the
percentage of the volume of new issues. The members of the Asso-
ciation did a substantial percentage of the total volume. The Invest-
ment Bankers Association of America is the single truly repre-
sentative organization of this type of financial concerns, and there
is no other national association.
Inasmuch as the Amendments submitted herewith involve im-
portant changes in methods now existing, I suggest a more expedi-
tious procedure than that prescribed in the Code of Fair Competi-
tion for effectuating changes in its provisions. Especially is this
necessary in view of the provisions of Section 1 of Article IV; of
Sections 1 and 2 of Article V; of Section 1 of Article VI; of Article
X; and of Section 11 of Article XI. I therefore recommend that you
permit the Administrator, upon recommendation of the Investment
Bankers Code Committee or otherwise and after such notice and
hearing as he may specify, to approve such modifications or Amend-
ments as he may deem necessary or desirable.
The Division Administrator in his final report to me on the said
Amendments to said Code having found as herein set forth and on
the basis of all the proceedings in this matter:
I find that:
(a) The Amendments to said Code and the Code as amended are
well designed to promote the policies and purposes of Title I of
the National Industrial Recovery Act including the removal of ob-
structions to the free flow of interstate and foreign commerce which
tend to diminish the amount thereof, and will provide for the general
welfare by promoting the organization of industry for the purpose
of cooperative action among trade groups, by inducing and main-
taining united action of labor and management under adequate gov-
ernmental sanction and supervision, by eliminating unfair competi-
tive practices, by promoting the fullest possible utilization of the
present productive capacity of industries, by avoiding undue re-
striction of production (except as may be temporarily required),
by increasing the consumption of industrial and agricultural prod-
ucts through increasing purchasing power, by reducing and relieving
unemployment, by improving standards of labor, and by otherwise
(b) The Code as amended complies in all respects with the perti-
nent provisions of said Title of said Act, including without limita-
tion Subsection (a) of Section 3, Subsection (a) of Section 4, Subsec-
tion (a) of Section 7 and Subsection (b) of Section 10 thereof.
(c) The Code empowers the Investment Bankers Code Committee
to present the aforesaid amendments on behalf of the business as a
(d) The Amendments and. the Code as amended are not designed
to and will not permit monopolies or monopolistic practices.
(e) The Amendments and the Code as amended are not designed
to and will not eliminate or oppress small enterprises and will not
operate to discriminate against them.
(f) Those engaged in the other steps of the economic process have
not been deprived of the right to be heard prior to approval of said
For these reasons I recommend that you approve these Amend-
HUGH S. JOHNSON,
MARCH 23, 1934.
AMENDMENT TO CODE OF FAIR COMPETITION FOR
ARTICLn I-ADOPTION AND INTERPRETATION
The following provisions are adopted as supplementary provi-
sions to the Code of Fair Competition for Investment Bankers, as
approved November 27, 1933, by the President of the United States
and the provisions of Articles IV, V, VI, VII, VIII, and IX hereof
are established as Rules of Fair Practice for Investment Bankers
pursuant to the provisions of Articles IV and V of said Code.
These supplementary provisions shall become effective on the
thirtieth day after approval hereof by the President of the United
States: provided, that the Investment Bankers Code Committee may
postpone, and from time to time further postpone, the date on which
Section 7 of Article IX and Article X shall become effective so long
as no such postponement is made beyond the ninetieth day after
approval hereof by the President of the United States. They shall
continue in effect as long as said Code shall be in effect, and shall in
all respects be subject to said Code and the National Industrial
Recovery Act, approved June 16, 1933. They may be amended in
the same manner as is provided in said Code for amendment of
The Rules shall be interpreted in such manner as will aid in
effectuating the policy of Title I of said National Industrial Recov-
ery Act, and so as to require that all practices in connection with
the investment banking business shall be just, reasonable, and non-
The Rules are grouped for purposes bf convenience under several
general headings, but such grouping and headings shall not be con-
strued as limiting the application of any Rule.
The Rules shall not apply to contracts made prior to the effective
date of the Rules.
As used in these supplementary provisions-
(a) The term Code shall mean the Code of Fair Competition
for Investment Bankers, as approved November 27, 1933, by the
President of the United States, under the provisions of Title I of
the National Industrial Recovery Act, approved June 16, 1933.
(b) The term Rules shall mean the Rules of Fair Practice for
Investment Bankers as established in Articles IV, V, VI, VII, VIII,
and IX hereof, or as the same may be hereafter amended or supple-
(c) The term "investment banking business" shall mean the
business of underwriting or distributing issues of securities, or of
1 See paragraph 3 of order approving this Code.
purchasing securities and offering the same for sale as a dealer
therein, or of purchasing and selling securities upon the order and
for the account of others; provided, however, that the term "in-
vestment banking business shall not include transactions on regu-
larly organized exchanges, but such term shall include all business
relating to such transactions to the extent that such business is not
conducted by a member of such exchange or by any person or organi-
zation having the privilege of any such exchange for itself or any
of its partners or executive officers.
(d) The term "investment banker shall mean any person en-
gaged in the investment banking business but shall not include an
(e) The term "registered investment banker" shall mean any
investment banker registered pursuant to the provisions of Article
X of these supplementary provisions.
(f) The term Investmenit Bankers Code Committee shall mean
the Investment Bankers Code Committee established as provided in
Article III of the Code.
(g) The term Regional Code Committee" shall mean
any Regional Code Committee established as provided in Section 2
of Article XI of these supplementary provisions.
(h) The term "security or "securities" shall mean any note,
share of stock, bond, debenture, evidence of indebtedness, voting
trust certificate, certificate of deposit, interim certificate or interim
receipt, or, in general, any instrument commonly known as a secur-
ity, or any certificate of interest or of participation in, or warrant
or right to subscribe to or purchase, any of the foregoing.
(i) The term new issue of securities shall mean any issue of
securities sold or offered for sale in one transaction or in a connected
series of transactions as a result of which consideration for such
securities is or is to be received directly or indirectly by the issuer
thereof. As used in this paragraph (i) the term issuer shall
include, in addition to an issuer, any person directly or indirectly
controlling or controlled by the issuer, or any person under direct
or indirect common control with the issuer.
(j) The term new security" shall mean any security included
in a new issue of securities.
(k) The term public securities shall mean any securities issued
by the United States or by any instrumentality thereof, or by any
territory or insular possession therof, or by the District of Columbia,
or by any State of the United States or by any subdivision or instru-
mentality of any such State territory or insular possession.
(1) The term "issuer" shall mean any person who issues or
proposes to issue any security or who guarantees such security either
as to principal or income or who assumes the obligation to pay
such security either as to principal or income; except in respect to
certificates of deposit, voting trust certificates, interim certificates
or similar securities, the term issuer shall mean the person or
persons issuing the securities represented by such certificates of
deposit, voting trust certificates, interim certificates, or similar se-
curities; and except that in respect to certificates of interest or
shares in an unincorporated investment company (sometimes spoken
of as investment trust) not having a board of directors (or persons
performing similar functions) or of the fixed, restricted manage-
ment, or unit type, the term issuer shall mean the person per-
forming the acts and assuming the duties of depositor or manager
pursuant to the provisions of the trust or other agreement or instru-
ment under which such securities are issued; and except that in
respect to equipment trust certificates or similar securities, the term
"issuer" shall mean the person by whom the equipment or other
property is or is to be used.
(m) The term prospectus" used in relation to any security
registered under the Securities Act of 1933 shall mean the official
prospectus required by said Act, and used in relation to any other
security shall mean the offering or descriptive circular.
(n) The term originator shall mean any person who purchases
from an issuer a new issue of securities of such issuer, or who con-
tracts with the issuer to find purchasers for such securities, with
a view to the public distribution of such securities, or who con-
tracts with an issuer to act as agent for such issuer for the public
distribution of such securities of such issuer.
As used in this paragraph (n) the term issuer" shall include,
in addition to an issuer, any person directly or indirectly controlling
or controlled by the issuer, or any person under direct or indirect
common control with the issuer.
(o) The term "selling syndicate"' shall mean any syndicate
formed in connection with a public offering, to distribute all or
part of a new issue of securities by sales made directly to the public
by or through participants in such syndicate under an agreement
which imposes a financial commitment upon participants in such
syndicate to purchase any such securities.
(p) The term selling group shall mean any group formed in
connection with a public offering, to distribute all or part of a new
issue of securities by sales made directly to the public by or through
members of such selling group, under an agreement which imposes
no financial commitment on the members of such group to purchase
any such securities except as they may elect to do so.
(q) The term manager used in relation to a selling syndicate
or selling group shall mean the person or persons named as manager
or managers in the agreement under which such syndicate or group
(r) The term "person shall include any natural person, copart-
nership, corporation, association, or other entity.
(s) The term "salesman shall mean any officer, employee, or
agent (other than another investment banker) of an investment
banker, who offers securities for sale to any person other than
another investment banker.
(t) The term interim certificate or interim receipt shall mean
any instrument in writing delivered to a purchaser against payment
in connection with the public distribution of a new issue of secur-
ities and calling for the future delivery of such securities and ex-
ecuted by either an originator, the issuer of the securities called for
by such interim certificates or interim receipts, or a corporate trustee,
1. The term interim certificate" shall mean such instruments
in writing when the securities called for thereby are delivered in
temporary or definite form to the person executing the interim
certificate prior to or concurrently with such execution.
2. The term interim receipt" shall mean such instruments in
writing when the securities called for thereby are not so delivered
to the person executing the interim receipt prior to or concurrently
with such execution.
ARTICLE III-GENERAL PRINCIPLES
In addition to the Rules, the General Principles set forth in this
Article III shall be a guide to the Investment Bankers Code Com-
mittee in interpreting, administering, and enforcing the provisions
of the Code and Rules, as well as to the Investment Banker himself
in the conduct of his business under such Code and Rules.
SECTION 1. Standard of Business Conduct.-To observe, and to
use his best efforts to maintain, high standards of commercial honor
in the investment banking business, and to promote just and equitable
principles of trade and business.
SECTION 2. Origination of New Issues.-(a) If acting as an orig-
inator, to make such investigation as may be reasonably necessary
to determine the merit of such issue, and to satisfy himself that the
business risk of the investors who purchase such securities is reason-
able and that there are appropriate provisions to safeguard the
interests of such investors.
(b) If distributing a new issue of securities originated by an-
other, to satisfy himself that the investigation required by para-
graph (a) has been made.
SECTION 3. Information as to all new Issues Except United States
Government and State Issues.-Not to originate nor to participate
in the public distribution of any new issue of securities, other than
securities issued by the United States or by any instrumentality
thereof, or by any State of the United States, unless there is available
to investors, either in a prospectus or from public sources or in some
other manner, adequate information with respect to the issuer, the
nature of its business, its financial condition, the terms of the new
security, and, in addition, all other information required by the
Rules to be contained in the prospectus.
In the case of any security issued by any subdivision or instru-
mentality of any State of the United States, it shall be deemed a
compliance with this principle if there is available to investors either
in a prospectus or otherwise, adequate information with respect to
the terms of the new security and all information required by the
Rules, and if, in addition, where available, the record of tax collec-
tions of such issuer for the preceding three years is included in the
prospectus, if any, or if there is no prospectus, is otherwise disclosed
to each purchaser of such security.
In the case of securities issued by a common carrier which is sub-
ject to the provisions of Section 20a of the Interstate Commerce Act,
as amended, it shall be deemed a compliance with this principle, if
there is available to investors, either in a prospectus or otherwise,
adequate information with respect to the terms of the new security
and all information required by the Rules, and a copy of the last
annual balance sheet and the income and surplus accounts for the
last three years of such common carrier as required to be filed with
the Interstate Commerce Commission, and, if there is available, on
request, to any investor a copy of all reports and orders of the Inter-
state Commerce Commission approving and authorizing the issue of
SECTION 4. Investment Recommendations.-Where an investment
banker recommends to an investor the purchase or exchange of any
security, to have reasonable grounds for believing the security to be
acquired by the investor is a suitable investment for such investor
upon the basis of the facts, if any, disclosed by such investor as to
his other security holdings and as to his investment situation and
SECTION 5. Sales.nen.'s .Compensation.-To compensate his sales-
men in a manner consistent with the application of the principles
set forth in Sections 1 and 4 of this Article.
SECTION 6. Financial Condition of Issuer.-To keep himself rea-
sonably informed of the financial condition of the issuer of any issue
of securities of which he acted as originator, so long as any material
part of such issue shall be outstanding in the hands of investors,
and to endeavor to cause the issuer to meet his promises and obliga-
tions to investors.
This section is intended to apply in respect to issues of securities
originated prior to the effective date of the Rules as well as to issues
SECTION 7. Written Order or Confirmation.-To require a cus-
tomer, wherever practicable, to give a written order or a written
confirmation of any oral order for any transaction in securities.
SECTION 8. Charges for Services.-To make his charges for serv-
ices performed, including miscellaneous services, such as collection
of moneys due for principal, dividends, or interest; exchange or
transfer of securities; appraisals; safe-keeping or custody of secur-
ities, and other services, reasonable and not unfairly discriminatory
SECTION 9. Sinking Fund Provisions.-If an originator of an
issue of bonds or other interest-bearing obligations for distribution
to the public, to cause the issuer to make provision for the retirement
of such issue in whole or in part before maturity, through a sinking
fund or otherwise, where such provision is appropriate to safeguard
the interest of investors who purchase such securities.
SECTION 10. Delivery of Definitive or Temporary Securities of
Issuer.-In distributing new issues of securities, to deliver as
promptly as possible after the public offering date, definitive or
temporary securities of the issuer.
SECTION 11. Duration of Selling Syndicates and Selling Groups.-
If the manager of a selling syndicate or selling group, to form such
syndicate or selling group for the shortest period which, in the judg-
ment of the manager, is sufficient for the purpose for which it is
ARTICLE IV--ROEs PERTAINING PRIMARILY TO ORIGINATION OF
SECTION 1. Agreements Required of Issuers.-No investment
banker shall be the originator of any issue of securities (other than
any of the classes of securities mentioned in Section 3 of the Secu-
rities Act of 1933 and other than any security issued by a foreign
government or political subdivision thereof) where the aggregate
amount at which such issue is to be offered to the public exceeds
$100,000, unless the issuer of such securities shall agree with the
originator as follows:
(a) Term of Agreements.-To comply with the requirements of
this section so long as any part of such issue of securities shall re-
(b) Annual Financial Statenrwnts.-To cause for each fiscal year
to be prepared by independent public or certified accountants, an
Income Statement, Surplus Statement and Summary of Changes in
Reserves for such fiscal year, and a Balance Sheet as of the end of
such year of the issuer as a separate corporate entity and of each cor-
poration in which it holds, directly or indirectly, a majority of the
voting stock (hereinafter in this section called a subsidiary) together
with such further information as may be necessary to disclose all
intercompany holdings and transactions; or, in lieu thereof, elimi-
nating all intercompany transactions, a similar set of consolidated
financial statements of the issuer, and any or all of its subsidiaries
accompanied by financial statements of the issuer as a separate entity
and of any subsidiary not consolidated.
If any such consolidated statements exclude any subsidiary, (1)
the caption shall indicate the degree of consolidation; (2) the Income
Statement shall show, either in a footnote or otherwise, the issuer's
proportion of the difference between current earnings or losses and
the dividends of such unconsolidated subsidiary for the period ac-
counted for in such Income Statement; and (3) the Balance Sheet
shall show, in a footnote or otherwise, the extent to which the equity
of the issuer in such subsidiary has been increased or diminished
since the date of acquisition as a result of profits, losses, and
Such statements shall show the existence of any default in interest
or in sinking fund or amortization payments and any arrears of any
cumulative dividends of the issuer or of any subsidiary whether con-
solidated or unconsolidated.
In case there are any substantial items of profit or loss of a non-
recurring nature, such as those arising from the disposal of capital
assets, they shall be expressely enumerated. If. for any reason, the
examination of the accounts of any subsidiary shall have been made
as of a date different from that of the issuer, that fact shall be stated
either in the certificate of the accountants7 or otherwise, together with
a statement as to the extent of their examination of the interim trans-
actions. Insofar as practicable the examination of the accounts of
each subsidiary shall be made by or under the supervision of the
same accountants who examined the accounts of the issuer, but if
the accounts of any subsidiary included in any consolidated state-
ment are examined by public or certified accountants other than
the accountants who examined the accounts of the issuer, such fact
shall be noted in the certificate of the latter. If a consolidated
balance sheet includes assets and liabilities of foreign subsidiaries,
the percentage of total assets and liabilities included which represent
the aggregate assets and liabilities of all such foreign subsidiaries
shall be noted on the balance sheet. The accountant's certificates
shall state the basis on which the accounts of foreign subsidiaries
are included in the consolidation and there shall be set forth in the
certificate or in an appended certificate any substantial differences
in accounting practice employed by the foreign subsidiary or sub-
sidiaries insofar as such differences shall be known to the certifying
Every balance sheet prepared in accordance with the above shall
disclose the basis used to compute the figures at which the principal
asset items are carried thereon. Where any liability of the issuer
is secured on any assets of the issuer, the balance sheet shall show
that such liability is secured, and if the security consists in whole
or in part of current assets it shall show such fact and the general
nature of such current assets. Any contingent liabilities, not
expressly shown on the balance sheet, shall be shown in a footnote
insofar as good accounting practice may require.
Loans or advances between the issuer and any subsidiary or be-
tween a subsidiary and another subsidiary, whether or not consoli-
dated, shall be shown either as separate items on the appropriate
balance sheets or as footnotes to the consolidated balance sheet.
Amounts due from directors, officers, and employees (not including
normal accounts arising in the ordinary course of business), and
securities of the issuer (if carried as an investment) and securities
of any subsidiary, shall be shown as separate items on the appropriate
If, for any reason, the issuer or the accountants are unable to
obtain any information required for the preparation of the state-
ments in the manner prescribed such information need not be given,
but the facts as to such inability shall be stated in the certificate of
(c) Publication. of Annual Financial Statements.-To publish in
the English language the Income Statement, Surplus Statement,
Summary of Changes in Reserves, and Balance Sheet required in
paragraph (b) of this section with the complete certificate of the
accountants, by releasing copies thereof to the public press, in the
United States of America, and to furnish copies thereof to each
security holder of the issuer upon request as soon as practicable after
the close of the fiscal year.
(d) Stock Dividends.-Not itself, and not to permit any sub-
sidiary, directly or indirectly controlled, to take up as income stock
dividends received at an amount greater than that charged against
earnings, earned surplus, or both of them, by the company paying
such stock dividend.
(e) Surplus of Swbsidiaries.-Not to treat earned surplus of a sub-
sidiary created prior to acquisition of such subsidiary as a part of
earned consolidated surplus of the issuer and of its subsidiaries, and
not to credit any dividends declared out of such surplus of the sub-
sidiary to the income account of the issuer or of any other subsidiary.
(f) Intercompany Profits.-To make appropriate reserves, inso-
far as good accounting practice may require, in respect of profits
arising out of all transactions with unconsolidated subsidiaries, in
either the parent company or the consolidated statements mentioned
in paragraph (b).
(g) Accounting Changes.-Not to make any material change in
depreciation rates or policies or in accounting principles or in their
application without describing such change in the next succeeding
published balance sheet.
(h) Independent Registrar.-To appoint a bank or trust com-
pany, or other person duly qualified to act, independent of the is-
suer to act as registrar in respect of the issue of stock involved in
such origination and to have all certificates of that issue registered
by such registrar.
(i) Requirement of Trustee and Publication of Substitutions in
Collateral.-To appoint a bank or trust company to act as trustee
or cotrustee under any mortgage or trust indenture under which
such securities are issued; and that the issuer shall, at least 10 days
prior to any substitution or release of pledged or mortgaged prop-
erty which substantially affects the character or value of the prop-
erty pledged or mortgaged, publish in a daily newspaper of general
circulation published in the city where the trustee has its principal
place of business and also in the city where the issuer has its
principal place of business, notice that such substitution or release
is proposed to be made.
SECTION 2. Information Regarding Securities Issued by Subdi-
visions of States.-(a) No investment banker shall be the originator
of any new issue of securities issued by a subdivision of any State
of the United States, unless the issuer of such securities shall
furnish such originator with an official statement of the issuer
complying with the requirements of paragraph (b) of this section,
and with the data necessary for the purposes of a legal opinion
complying with the requirements of paragraph (c) of this section.
(b) Such official statement of the issuer shall disclose in the
case of securities payable from ad valorem taxes: (1) the assessed
valuation of the property subject to the taxing power of the issuer;
(2) the total bonded debt of the issuer including the amount of
such issue; (3) the population of such issuer according to the most
recent United States or State census, or if no United States or
State census is available, an estimate of such population; and (4)
the fact, if such be the fact, that the bonded debt of such issuer
does not include the debt of any other subdivision having power
to levy taxes upon any or all of the property subject to the taxing
power of the issuer.
(c) Such originator shall, either himself procure or require the
issuer to procure the opinion of an attorney, other than an officer
or an employee of the issuer, who is satisfactory to such originator,
approving the validity of the issue. Such legal opinion shall con-
tain a clear warning statement in regard to any limitation on the
power of the issuer to tax real estate for the payment of the secu-
rities, if there be any limitation. In the case of securities which
are not payable front ad valorem taxes or which are payable solely
from a special fund, such legal opinion shall state the means or
methods provided for the payment of such securities and whether
there are any prior claims upon such special funds.
(d) The originator of such securities shall make available to in-
vestors, either in the prospectus, if any, or if there is no prospectus,
in some other manner, (1) the facts disclosed in such official state-
ment of the issuer; (2) the name of the attorney whose opinion will
be furnished; (3) whether the securities are payable from a limited
tax on real estate or whether they are payable from a special fund
only; and (4) in the case of securities which are issued in anticipa-
tion of the later sale of a refunding issue or issues and where pro-
vision is not to be made for payment of such securities at maturity in
any other manner, the facts in regard thereto.
(e) No other investment banker shall participate in the distribu-
tion of any such issue of securities unless the requirements of para-
graphs (a), (b) and (c) of this section shall have been complied
with and unless such participant shall make available to such in-
vestor to whom he offers for sale or sells any such security the in-
formation required by paragraph (d) of this section to be made
available by the originator to each investor to whom such originator
offers for sale or sells such security.
(f) The originator of any such new issue of securities, and any
other investment banker who shall participate in the distribution of
any such issue, shall, upon request of any purchaser of such security
from such originator or other investment banker deliver to such
purchaser a certified copy of the official receipt of the treasurer of
the issuer in the form required by the attorney approving the validity
of said issue, evidencing the payment to the issuer of the purchase
price of said issue of securities and the amount thereof.
SECTION 3. Interims.-(a) In all cases where interim certificates
or interim receipts signed or executed by an originator are delivered,
any securities or cash received by such originator upon the issuance
of such interim certificates or interim receipts shall (until the securi-
ties called for by such interim certificates or interim receipts are re-
ceived and held, in the manner provided in subdivision (ii) of this
paragraph (a), for the account of the holders of the interim certifi-
cates or interim receipts) be held for the account of the holders of
the interim certificates or interim receipts in the following manner:
(i) Any cash received upon the issuance of interim certificates
or interim receipts shall be deposited in a special account with a
person permitted by law to receive deposits, which person may be the
signer of the interim certificates or interim receipts, if such person
is so qualified.
(ii) Any securities received upon such issuance shall, pending
the delivery of securities called for by the interim certificates or
interim receipts to the holders thereof, be segregated from the other
property of the person signing the interim certificates or interim
receipts in such manner that no person other than the holders of
the interim certificates or interim receipts can assert any right, title,
or interest therein.
(b) In all cases where interim certificates or interim receipts
signed or executed by the issuer of the securities called for by such
certificates or receipts are delivered, such certificates or receipts
shall require the issuer to hold any securities or cash received upon
the issue thereof in the manner described in the foregoing paragraph
(a); provided however, that this sub-paragraph (b) shall not apply
in the case of certificates or receipts issued by national governments.
(c) In all cases where interim certificates or interim receipts
asgned or executed by a corporate trustee are delivered, such cer-
tificates or receipts shall require the corporate trustee to hold any
securities or cash received upon the issue thereof in the manner in
the foregoing paragraph (a).
(d) All forms of interim specified in the foregoing paragraphs
(a), (b), and (c) shall by their text clearly indicate their precise
nature; the rights of the holders thereof; the security and the
amount thereof called for; the limitation of time for delivery of
securities called for, if appropriate; the redemption or repayment
provisions, if appropriate; provisions for payment of interest, if
any; negotiability, transferability or registration provisions, if any;
assignment form, if appropriate; and the name of the person sign-
ing or executing such interim.
(e) Any investment banker who in connection with the public
distribution of a new issue of securities receives any payment from
any purchaser of such securities in advance of delivery of such
securities in temporary or definitive form, or in advance of the deliv-
ery of interim certificates or interim receipts calling for the future
delivery of such security, shall deliver to such purchaser only a re-
ceipt for the purchase price or memorandum of sale evidencing such
payment; provided, however, that for purposes of economy in e-
changes or shipping, there may be delivered in advance of such deliv-
ery an instrument to be designated as a trust receipt" calling for
future delivery of the security in temporary or definitive form, which
" trust receipt" shall be executed by a corporate trustee and secured
by deposit of cash or collateral with such corporate trustee, who shall
hold such cash or collateral for the benefit of the holders of such
" trust receipts" pending delivery of the security in temporary or
(f) No investment banker shall deliver, in connection with the
public distribution of any new securities, to the purchaser of such
securities, any instrument entitling the holders to the future delivery
of such securities, unless such instrument complies with the appro-
priate provisions of this section. The titles interim certificate and
Interim receipt" shall be used only in accordance with the defini-
tions of paragraph (t) of Article It.
SECTION 4. Titles of New Issues.-An investment banker shall
not be the originator of any new issue of securities (except public
securities) for distribution to investors, or participate in the dis-
tribution of any such new issue, which issue has a title which is
misleading as to the lien, terms, or priority of such issue. If any
new issue of public securities shall have a title which is misleading
as to the lien, terms, or priority of such issue, the facts with regard
thereto shall be stated in the prospectus, if any, or, if there is no
prospectus, in some other manner disclosed to each purchaser of such
I SECTION 5. Interrelated Directorates and Managements.-Any in-
,vestment banker who is the originator of a new issue of securities,
shall, if such investment banker or any partner or principal officer
thereof shall be an officer or director of the issuer company, disclose
such fact in the prospectus.
ARTICLE V-RuEns PERTAINING PRIMARILY TO SELLING SYNDICATE
AND SELLING GROUPS IN CONNECTION WITH NEW Iss[UE or
SECTION 1. Statement of Issue Price.-Except as to public secu-
rities where the price received by the issuer is a matter of public
record, the prospectus shall state the price received by the issuer for
any new issue of securities offered for sale to the public, or the for-
mula by which such price can be ascertained, or if there is no pros-
pectus such price or formula shall be disclosed in some other manner
to each person purchasing such new security from any member of
the selling syndicate or selling group.
SECTION 2. Three-Day Notice of Organization of Selling Syndi-
cate or Selling Grou.p.-Any investment banker proposing to organ-
ize a selling syndicate or a selling group to distribute new securities
other than those of the United States Government or any instru-
mentality thereof or of any State or subdivision or instrumentality
thereof shall mail or deliver or telegraph a copy of the prospectus
or an adequate description of the security to each investment banker
who is to be offered a participation in such syndicate or a member-
ship in such selling group, at such times that, in the usual course of
delivery, such prospectus or description will be received by all such
investment bankers on approximately the same day and at least three
days (excluding Sundays and holidays but including the day of
delivery) before the date on which it shall be proposed to make the
public offering of such securities.
SECTION 3. Membership in Selling Syndicates and Selling
Groups.-No investment banker proposing to organize a selling syn-
dicate or a selling group shall invite or permit any person to be a
participant in such selling syndicate or a member in such selling
group unless such person is an investment banker actually engaged
in the investment banking business.
SECTION 4. Price.-(a) Each selling syndicate agreement and sell-
ing group agreement shall set forth the price at which the new se-
curities are to be sold to the public or the formula by which such
price can be ascertained. No participant in a selling syndicate or
member of a selling group shall, during the life of such selling syndi-
cate or selling group, offer the new securities being distributed by
such syndicate or group at any price below such public offering price.
(b) It shall be deemed a reduction of the offering price mentioned
in paragraph (a) of this section for a participant in a selling syndi-
cate or a member of a selling group to allow any deduction, abate-
ment, concession or commission whatsoever, either directly or in-
directly; provided, that any investment banker may allow to another
investment banker a commission or concession if and to the extent
that provision is made therefore in the agreement creating the selling
syndicate or the selling group.
(c) In any transaction with any investment banker located in
a foreign country no commission or concession as provided in para-
graph (b) of this section shall be allowed to such foreign investment
banker unless he effectively agrees (1) that, in making any sales,
during the life of the selling syndicate or selling group, to pur-
chasers outside of the United States of the security in connection
with which he received such commission or concession, he will
conform to the provisions of paragraphs (a) and (b) of this section
to the same extent as though he were subject to the selling syndicate
or selling group agreement; and (2) that, in making any sales,
during the life of the selling syndicate or selling group, to pur-
chasers within the United States of the security in connection with
which he received such commission or concession, he will conform
to the provisions of this Section 4 and of Sections 6 and 7 of this
Article V to the same extent as though he were subject to the selling
syndicate or selling group agreement, and also (if he received such
commission or concession from a registered investment banker) that
he will conform to the provisions of Section 7 of Article IX to the
same extent as though he were an investment banker registered under
(d) Any investment banker located in the United States receiving
a commission or concession as provided in paragraph (b) of this
section shall, in making any sale of the security in connection with
which he received such commission or concession during the life of
the selling syndicate or selling group, be subject to the provisions
of this Section 4 and of Sections 6 and 7 of this Article to the same
extent as though he were a participant in the selling syndicate or a
member of the selling group distributing such security.
SECTION 5. Presyndicate Sales.-No investment banker shall or-
ganize, manage, or participate in a selling syndicate or selling group
to offer a new issue of securities to the public if, within thirty days
prior to the formation of such syndicate or group, he shall, at a price
lower than the offering price to the public, have sold or given a right
to purchase, or shall have assisted the issuer in selling or giving a
right to purchase, any part of such new issue to any person other
than an investment banker otherwise than as an essential step in the
plan for the sale to the public of such new issues of securities.
SECTION 6. Trades in Connection with New Issues.-No invest-
ment banker who is a participant in any selling syndicate or a mem-
ber of any selling group shall enter into any agreement or arrange-
ment with any purchaser of the new securities being distributed by
such syndicate or group whereby, either directly or indirectly, as a
condition of the purchase, such investment banker will accept any
other securities (except securities which are being refunded or re-
deemed in connection with or by means of such new issue of securi-
ties, or any securities maturing within six months after the date of
such transaction) in trade in payment of all or any part of the pur-
chase price of such new securities. The foregoing provision shall
not, however, prevent such investment banker from accepting such
other securities as agent for sale, in which case the investment banker
shall make the usual charge for such services and such investment
banker may allow the purchaser of the new securities to apply to-
wards the purchase price thereof any net proceeds realized from the
sale of such other securities.
SECTION 7. Requirement of Down Payment.-(a) Except as here-
inafter provided in paragraph (c) of this section, whenever a par-
ticipant in a selling syndicate, or a member of a selling group, ac-
cepts a subscription subject to allotment for the purchase of a new
security to be distributed by such selling syndicate or selling group,
he shall require the person making the subscription to deposit with
him a down payment of not less than 5% of the public offering price
on the securities subscribed for.
(b) Except as hereinafter provided in paragraph (c) of this sec-
tion, whenever new securities are subscribed for subject to allotment
from the manager by a participant in a selling syndicate or a member
of a selling group he shall at the time of such subscription make a
down payment of not less than 5% of the public offering price.
Such down payments shall be deposited by the manager in a special
account with one or more incorporated banks, trust companies, or
persons permitted to receive deposits, provided, however, that they
shall in all cases be deposited with a bank, trust company, or person
other than the manager.
(c) No down payment as required by paragraph (a) of this sec-
tion shall be required from any purchaser who may be prevented by
law from making such payment in advance of the delivery of the
security purchased; and the participant or member who accepted
the subscription of such purchaser shall furnish the manager of the
selling syndicate or selling group evidence of such fact satisfactory
to the manager, and in such case such participant or member shall
not be required to make the down payment as required by paragraph
(b) of this section; and the fact that such down payment is not re-
quired in any such case shall not be considered as a concession under
Section 4 of this Article. The requirements of paragraph (b) shall
not be compulsory in the case of a selling syndicate where all the
participants were parties to the purchase from the issuer of the
new security to be distributed.
SECTION 8. Requirenients as to Confirations of Sales.-No par-
ticipant in a selling syndicate and no member of a selling group
shall confirm a sale or a subscription from any purchaser unless-
(a) Such participant or member has reasonable grounds to be-
lieve that such purchaser is bona fide and responsible;
(b) A copy of the prospectus, if any, has been delivered to such
purchaser or accompanies the confirmation;
(c) Such sale does not violate or evade any provision of the sell-
ing syndicate or selling group agreement or of the Rules; and
(d) A partner, duly accredited executive or branch office manager
has approved such sale as complying with paragraphs (a), (b),
and (c) of this section.
Failure of a participant in a selling syndicate or a member of a
selling group to comply with the provisions of the foregoing para-
graphs (a), (b), (c), or (d) of this section, shall not be deemed a
violation of this section if not wilful and if such participant or
member gives notice, as soon as such failure is discovered, to the
manager of the selling syndicate or selling group, stating the cir-
cumstances attending such failure.
SECTION 9. Certificates to Be Furnished Man-ager.-Each par-
ticipant in a selling syndicate and each member of a selling group
shall, upon request of the manager, furnish to the manager a cer-
tificate signed by a principal officer or partner of such participant
or member that he has examined the records of sales made by such
participant or member, and that the provisions of Sections 7 and 8
of this Article were complied with in respect of such sales.
SECTION 10. Extension of the Original Period of the Selling Syn-
dicate.-If provision is made in any selling syndicate agreement for
the extension of the original period of the selling syndicate, such
extension shall only become effective upon the consent of partici-
pants in the selling syndicate representing 75% in interest of the
SECTION 11. Prohibition of Participation vith Bank Officers.-
No investment banker to his knowledge shall participate in any sell-
ing syndicate in which any officer of any bank or trust company
has a participation as an individual.
SECTION 12. Disclosure of Interest of Directors and Officers of
Issuer.-No investment banker to his knowledge shall participate
in any selling syndicate in which any director or any officer of the
issuer of the new securities with relation to which such selling syndi-
cate was formed has a participation, as an individual, unless he dis-
closes such participation in the prospectus, if any, or if there is no
prospectus then in some other manner, to any person purchasing the
security from such investment banker.
SECTION 13. Distribution of Syndicate Funds; Expenses.-The
manager of any syndicate shall distribute the amount due to syndi-
cate participants promptly after the close of the syndicate. Upon
request of any participant, the manager shall render to him a state-
ment of expenses, which statement shall show the aggregate amounts
of: (1) payments to manager, if any; (2) legal expenses; (3) ad-
vertising expenses; (4) expenses for printing, engraving, mailing,
telegrams and cables; and (5) other expenses.
SECTION 14. Disclosure of Manager's Right to Purchase Securi-
ties.-If the manager of any selling syndicate or any selling group
is given the right under the selling syndicate or selling group agree-
ment to buy securities in the open market for account of the selling
syndicate or selling group, such fact shall be disclosed in the pros-
pectus, if ariy, or if there is no prospectus, then in some other man-
ner, by each participant in the. selling syndicate or member of the
selling group to any person purchasing the securities from such
participant or member.
If to the knowledge of the manager of any selling syndicate or
selling group the manager of any other syndicate or group formed
in connection with the distribution of the securities to be distributed
by such selling syndicate or selling group has the right to buy in the
open market any securities of such issue for the account of such other
syndicate or group, then the manager of such selling syndicate or
selling group shall disclose such fact in the prospectus, or, if there
is no prospectus, in some other manner, to each participant in the
selling syndicate or each member of the selling group, and such fact
shall be disclosed in like manner by each participant in the selling
syndicate or each member of the selling group to each person pur-
chasing such securities from such participant or member.
SECTION 15. Purchases of Securities in Open Market in Anticipa-
tion of Public Offering of New Issue.-Except as to public securities
sold by the issuer thereof at public sale, if either (1) the manager of
any selling syndicate or the manager of a selling group, or (2) to
the knowledge of any such manager, the issuer or originator or any
other syndicate formed in connection with the distribution of any
new issue of securities to be distributed by or through such selling
syndicate or selling group, purchases any of the outstanding secur-
ities of the issuer in the open market within ten days prior to the
date on which such securities are first offered to the public, such
fact shall be disclosed by the manager to all participants in the sell-
ing syndicate or members of the selling group, and shall also be
disclosed, either in the prospectus or in some other manner, by each
participant in the selling syndicate or member of the selling group
to any person purchasing the securities from such participant or
member; provided, however, that no disclosure shall be required
under this Section 15 of any purchases of outstanding securities of
the issuer made for the purposes of a sinking fund.
SECTION 16. Disclosure of Interest in Distribution.-Any partici-
pant in a selling syndicate, and any member of a selling group, who
has any direct interest in the distribution of a new security other
than as a member of a selling group, shall disclose such fact, either
in the prospectus or in some other manner, to any person purchasing
the securities from such participant or member.
SECTION 17. Copies of Selling Syndicate Agreements and Selling
Group Agreements to Be Filed.-Every manager of a selling syn-
dicate or selling group shall, promptly after such selling syndicate
or selling group is formed, file a copy of the selling syndicate agree-
ment or the selling group agreement with the Investment Bankers
Code Committee by mailing such copy, postage prepaid, to said Com-
mittee addressed to its executive office. Copies of selling syndicate
agreements and selling group agreements so filed need not contain
the names of any of tie parties thereto, except the manager.
ARTICLE VI-RuLEs PERTAINING PRIMARILY TO RETAIL SALES AND
SECTION 1. Orer the Counter" Transactions.-In view of the
unusual and complicated nature of "over the counter" transactions
whether in listed" or unlisted securities, it is provided that if
the investment banker buys for his own account and risk from his
customer, or sells for his own account and risk to his customer, he
shall buy or sell at a price which is fair, taking into consideration
market conditions in respect of such security at the time of the
transaction, the expense of executing the order, and the fact that
he is entitled to a profit; and if he acts as agent for his customer in
any such transaction, he shall not charge his customer more than a
fair commission or service charge, taking into consideration market
conditions in respect of such security at the time of the transaction
and the value of any service he may have rendered by reason of his
experience in and knowledge of the market for such security.
SECTION 2. Information to Be Furnished Upon. Confirming of
Customer's Orders.-Upon confirming any customer's order for the
purchase or sale of any security if the investment banker (1) is to
act as principal in the transaction; or (2) is controlled by, or con-
trols, or is under common control with, the issuer, the investment
banker shall inform the customer of such fact upon the written
memorandum of such confirmation.
SECTION 3. Information to be Given Upon Delivery of Memoran-
dum of Transactions.-Any investment banker who has a transaction
with a customer involving the purchase or sale of any security shall,
at or before the completion of the transaction, deliver to the customer
a written memorandum of such transaction containing the following
(a) whether such investment banker acted as principal or as agent
for the customer;
(b) if the investment banker acted as agent for the customer, the
amount of the commission or service charge charged to the customer
by such investment banker, and if another broker has been used, and
any part of the commission has been paid to such other broker, the
amount so paid shall be stated as a separate item;
(c) if such investment banker acted as agent for the customer,
the name of the person from whom the security was purchased or
to whom the security was sold and the day, and the hours between
which, the transaction took place, or that the information referred
to in this paragraph (c) will be furnished upon written request of
the customer for whom the investment banker acted as agent; and
(d) if no written confirmation of the customer's order shall have
been given, the information as required by clause (2) of Section 2
of this Article.
SECTION 4. Brokerage Transactions.-If in any transaction in-
volving the purchase or sale of any security the investment banker
purports to act as an agent to buy or sell on behalf of a customer,
such investment banker shall not act as a principal in such transac-
tion, nor, without the consent of his customer, represent any other
principal in such transaction.
SECTION 5. Guarantees.-No investment banker shall, in any trans-
action involving the purchase of any security for the account of the
customer or involving the sale of any security to a customer, agree
with the customer, either directly or indirectly, to guarantee that
the market value of the security as it was at the time the security
was bought for or by the customer will be maintained, or that the
business of the issuer of such security will be successful in earning
profits, or that the issuer will meet its promises and obligations; pro-
vided that the restrictions of this section shall not apply in respect
of transactions in any note, draft, bill of exchange, or banker's
acceptance which has a maturity at the time of issuance of not ex-
ceeding nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
SzrcnoN 6. Repu-rchase Agreements.-No investment banker shall,
in any transaction involving the purchase of any security for the
account of a customer or involving the sale of a security to a cus-
tomer, agree with the customer, either directly or indirectly, to
repurchase the security from the customer; provided that the restric-
tions of this section shall not apply in respect of transactions in
obligations of the United States or any security gauranteed as to
principal or interest by the United States, or of transactions in any
note, draft, bill of exchange, or banker's acceptance which has a
maturity at the time of issuance of not exceeding nine months, ex-
clusive of days of grace, or any renewal thereof the maturity of
which is likewise limited, or to any repurchase agreement with any
person whenever such repurchase agreement is limited to sixty days
and is used as a substitute for borrowing.
SECTION 7. Retail Partial Payment Transactions.-No investment
banker shall take or carry any account or make a transaction for
any customer under any arrangement which contemplates or pro-
vides for the purchase of any security for the account of the cus-
tomer or for the sale of any security to the customer, where payment
for the security is to be made to the investment banker by the
customer over a period of time in installments or by a series of
partial payments unless
(a) In the event such investment banker acts as an agent or
broker in such transaction he shall, immediately, in the regular
course of business, make an actual purchase of the security for the
account of the customer, and shall immediately, in the regular
course of business, take possession or control of such security and
shall maintain possession or control thereof so long as he remains
under obligation to deliver the security to the customer.
(b) In the event such investment banker acts as a principal in such
transaction, he shall, at the time of such transaction, own such
security and shall maintain possession or control thereof so long as
he remains under obligation to deliver the security to the customer.
No investment banker, whether acting as principal or agent, shall
in connection with any transaction referred to in this section make
any agreement with his customer under which the investment banker
shall be allowed to pledge or hypothecate any security for any
amount in excess of the indebtedness of the customer to such invest-
SECTION 8. Information Received in Other Capacities.-An invest-
ment banker who receives information as to the ownership of securi-
ties in the capacity of paying agent, transfer agent, trustee, or in
other similar capacity, shall under no circumstances make use of such
information for the purpose of soliciting sales or exchanges except at
the request and on behalf of the issuer.
ARTICLE VII-RULES PERTAIINING PRIMARILY TO SALESMEN
SECTION 1. Supervision..-Any investment banker who employs any
salesman shall supervise the sales methods of such salesman and his
correspondence in relation to offers of securities for sale to investors;
and any sale made by any such salesman to any investor, other than
another investment banker, shall be approved by a partner, duly
accredited executive, or branch office manager of such investment
banker. Such approval shall be evidenced by a written endorse-
ment made upon a copy of the memorandum of sale mentioned in
Section 3 of Article VI, and each memorandum so approved shall
be made a part of the permanent records of such investment banker
and retained in his files for at least three years.
SECTION 2. Experience and Qzalifications.-(a) Except as here-
inafter provided in paragraphs (b) and (c) of this section, no in-
vestment banker shall employ any person to act as a salesman unless
(1) such person shall have had at least two years' experience in the
investment banking business or in a business a principal part of
which related to securities; (2) shall be at least twenty-one years
of age; and (3) shall be of good moral character; provided, how-
ever, that any person who has not had two years' experience in the
investment banking business or in a business a principal part of
which related to securities but who has been employed by an invest-
ment banker for a period of at least six months, and who is otherwise
qualified as provided in clauses (2) and (3) above in this paragraph
set forth, may be employed by any investment banker as a salesman
if the compensation of the person so employed to act as salesman
shall be a straight salary and shall not include, in whole or in part,
commissions upon securities sold.
(b) Any investment banker desiring to employ any person to act
as a salesman, may make an application to the Regional Code Com-
mittee of the district in which such person is to be employed for
permission to employ such person as a salesman. If a majority of
the members of such Committee shall, after due hearing and consid-
eration of such application, be of the opinion that the person pro-
posed to be employed as a salesman is, by reason of his age, experi-
ence, standing and reputation, fully qualified to act as a salesman,
such committee may in writing advise the investment banker who
made such application to that effect, in which event such investment
banker may employ such person without regard to any of the require-
ments of paragraph (a) of this section except the requirement set
forth in clause (3) thereof.
(c) Nothing contained in either paragraph (a) or (b) of this
section shall be construed to prevent any investment banker from
continuing to employ as a salesman any person who is so employed
by such investment banker at the effective date of the Rules.
SECTION 3. Solicitation at Residences.-No salesman shall call in
person upon, or telephone to, any customer or prospective customer
at his home or residence for the purpose of selling to, or offering to
sell to, or soliciting an offer to buy from such customer or prospec-
tive customer, unless such customer or prospective customer shall
have previously given written permission therefore to the investment
banker employing such salesman. As used in this section the term
"salesman" shall include any investment banker, or any partner,
officer, or employee thereof who does any act or thing in this section
described. This section shall not apply to the solicitation of business
persons, retired or professional persons, or farmers.
SEuTON 4. Orders taken by Salesmen.-Any investment banker
who employs any salesman shall require that all orders taken by
such salesman for the purchase of or subscription to any security
shall be subject to acceptance and confirmation by such investment
ARTIcLE VIII-RULES PERTAINING PRIMARILY TO INVESTMENT
SECTION 1. If any investment banker has agreed to manage, or
give investment advice to the management of an investment company
(sometimes known as an "investment trust") all or part of the
securities of which are held by the public, or if any partner or
officer or employee of any investment banker is an officer or director
of any investment company all or part of the securities of which
are held by the public.
(a) Such investment banker shall not for his own account sell to
or purchase from such investment company any securities unless a
majority of the members of the board of directors of such invest-
ment company are not such partners, officers, or employees, and
unless the transaction is previously approved after full disclosure
by a majority of such members of the board of directors of the
(b) Such investment banker shall use his best efforts to cause the
investment company to prepare and distribute to its stockholders
quarterly statements and annual financial statements, such annual
statements to conform to the standards for such annual statements
required by Section 1 of Article IV hereof.
(c) If such investment banker has received any compensation or
commission for acting as agent for the investment company, or if
such investment company has purchased from or sold to such invest-
ment banker any securities, or if the investment company has en-
gaged in any other transaction in which the investment banker has a
financial interest, the investment banker shall use his best efforts to
see that full disclosure of such transactions is made by the company
to the stockholders at an annual or special meeting. Where the
investment banker has acted simply as broker for the execution of
orders on a securities exchange it shall be sufficient disclosure if the
total amount of securities dealt in and the total amount of commis-
sions received shall be stated.
(d) Such investment banker shall not enter into any management
or advisory service contract with such investment company provid-
ing for the payment to the investment banker of any fee or for any
other compensation for managing or advising the management of
the investment company unless the contract therefore has been sub-
mitted to and approved by the stockholders of the investment com-
(e) Such investment banker shall use his best efforts to cause the
investment company not to use the term trust" as part of the title
of such investment company unless the use of the term "trust" is
justified as a matter of law.
ARTICLE IX-MISCELLANEOUS RULES
SECTION 1. Investment Maniagem.ent.-No investment banker who
is receiving a fee for managing the account of any customer or for ad-
vising a customer with respect to his investments shall sell to, or
buy from, such customer for his own account or as agent for any
other person unless he shall have obtained the previous written
or telegraphic approval of such customer to each such transaction.
SECTION 2. Discretionary Accounts.-No investment banker who
is authorized to purchase or sell securities for account of a customer
in his discretion shall sell to, or buy from, such customer for his own
account or as agent for any other person unless he shall have ob-
tained the previous written or telegraphic approval of such cus-
tomer to each such transaction.
SECTION 3. Segregation of Agency Funds.-Any investment banker
acting as sinking fund agent, principal or coupon paying agent,
dividend paying agent, or in any similar capacity, who holds any
funds or securities in any such capacity shall hold such funds or
securities as trust funds or trust securities unless the terms of such
agency agreement expressly otherwise provide.
SEcmION 4. Quotations.-No investment banker shall publish or
circulate, or cause to be published or circulated, any notice, circular,
advertisement, newspaper article, investment service, or communica-
tion of any kind which purports to quote or to give a quotation
of any transaction as a purchase or sale of any security unless such
investment banker believes that such transaction was a bona fide
purchase and sale of such security, or which purports to quote the
bid price or asked price for any security, unless such investment
banker believes that such quotation represents a bona fide bid for, or
offer of, such security. If nominal quotations are used or given
they shall be clearly stated to be only nominal quotations.
SECTION 5. Offers to Buy and Sell.-No investment banker shall
make any offer to buy or sell any security at a stated price from
or to any person unless such investment banker is prepared to pur-
chase or sell, as the case may be at such price.
SECION 6. Compensation and Gratuities.-No investment banker
shall, directly or indirectly, give, permit to be given, or offer to give,
anything of value-
(a) to any employee, agent, or representative of another person
for the purpose of influencing or rewarding the act of such em-
ployee, agent, or representative in relation to the business of the
employer of such employee the principal of such agent, or the
represented party, without the knowledge and consent of such em-
ployer, principal, or represented party; or
(b) to any officer or employee of any bank, trust company, or
insurance company except for services actually rendered or to be
rendered, and in no case without the knowledge and consent of such
bank, trust company, or insurance company; or
(c) to any person for the purpose of influencing or rewarding the
action of such person in connection with the publication or circula-
tion in any newspaper, investment service, or similar publication
of any matter which has, or is intended to have, an effect upon the
market price of any security, provided that this paragraph (c) shall
not be construed to apply to matter which is clearly paid advertis-
(d) to any director, official, officer, or employee of any issuer,
for the purpose of influencing or rewarding the action of any such
director, official, officer, or employee, in connection with the issue
or sale by such issuer or any person controlled by such issuer of
any new securities of such issuer or of any such controlled person.
For the purposes of this section the giving of anything of value
to a member of the family of any person shall be regarded as the
giving of a thing of value to such person.
In order to comply with the requirements of the National Re-
covery Administration it is expressly stated that nothing in this
Section 6 shall be construed to apply to the free and general dis-
tribution of articles commonly used for advertising.
SECTION 7. Registered Investment Bankers.-(a) No registered in-
vestment banker shall, in any transaction with any investment banker
not registered under Article X hereof, allow or grant to such non-
registered investment banker any allowance, commission, or discount
usually and customarily to be allowed to another dealer; nor shall
any registered investment banker join with any investment banker
not registered under Article X hereof in any syndicate or group
contemplating distribution to the public of any issue of securities;
nor shall any registered investment banker sell any security to or
buy any security from any investment banker not registered under
Article X hereof, except at the same price at which at the time of
such transaction such registered investment. banker would buy or sell
such security, as the case may be, from or to a person who is a mem-
ber of the public not engaged in the investment banking business.
(b) The provisions of paragraph (a) of this Section 7 shall not
apply to an investment banker in a foreign country who is not
eligible for registration under Article X hereof, but in any trans-
action with any such foreign investment banker, where an allowance,
commission, or discount is allowed, a registered investment banker
shall as a condition to such transaction secure from such foreign
investment banker an agreement that, in making any sales to pur-
chasers within the United States of securities acquired as a result
of such transaction, he shall conform to the provisions of this Section
7 to the same extent as though he were an investment banker regis-
tered under Article X.
(c) No investment banker who is not a registered investment
banker shall represent that he is a registered investment banker,
and no registered investment banker shall advertise or hold himself
out to the public as a registered investment banker except as shall
be permitted by regulations from time to time prescribed by the
Investment Bankers Code Committee.
SECTION 8. District Rules.-Every investment banker shall, with
respect to any transaction in any district, comply with any addi-
tional Rule established in such district as provided in Sections 5,
6, and 7 of Article XI hereof.
ARTICLE X-REGISTRATION OF INVESTMENT BANKERS
SECTION 1. Registration Agreement.-Each investment banker
who registers under this Article thereby agrees with every other
investment banker who registers under this Article to comply with
all decisions and interpretative rulings of the Investment Bankers
Code Committee under any provisions of this Article, and to comply
with the Rules:
For any failure to so comply the registered investment banker
who is guilty of such failure shall be subject to the penalties pre-
scribed in Section 8 of this Article X, but such failure shall not
in itself, give rise to any civil liability to any other registered
investment banker, or to any other person.
SECTION 2. Eligibility for Registration.-Any investment banker
who is actually engaged in the investment banking business in the
United States shall be eligible to be registered under this Article.
If the principal office of any such person is located in a foreign
country, any branch office in the United States may be designated
as a principal office for the purposes of this Article.
SECTION 3. Applications for Registration.-Any investment
banker desiring to be registered, shall file with the Regional Code
Committee of the district in which the principal office of the appli-
cant is located, an application in such form as shall be prescribed
by the Investment Bankers Code Committee and approved by the
Administrator. Such application shall be in writing, in duplicate,
(a) The name of the applicant;
(b) The address of the principal office and of all branch offices
of the applicant;
(c) If the applicant be a partnership, the names, addresses, and
business addresses of the partners, including special or limited part-
ners, specifying as to each whether he is a general or limited partner;
S(d) If the applicant is other than an individual or partnership,
the name of the State or country where the applicant is incorporated
or organized, and the names, residences and business addresses of
its directors and principal officers and of each stockholder owning
more than 10% of any class of the capital stock of such applicant;
(e) The length of time the applicant or its predecessors have been
engaged in the investment banking business.
SECTION 4. Supplementary Statements.-In the event that any
change shall take place in the personnel of the partners, directors,
principal officers or stockholders of any registered investment banker
with respect to whom information is required by the provisions of
Section 5 of this Article to be given, such investment banker shall,
within thirty days after such change has occurred, file with the
Regional Code Committee of the district in which the principal
office of such investment banker is located, a supplemental statement
in writing, in duplicate, setting forth all such changes in personnel,
and the information required by paragraphs (c) and (d) of Section
8 of this Article with respect to any such new partner, director, or
SECTION 5. Action on Applications by Regional Code Committee.-
Upon the receipt of any application for registration the Regional
Code Committee shall cause such investigation to be made as such
Committee may deem necessary and proper to determine if such
applicant is actually engaged in the investment banking business,
and if the facts stated in such application are true and complete;
and said Committee shall, if requested by the applicant, give the
applicant a hearing thereon. As soon as may be practicable there-
after such Committee shall forward one copy of such application to
the Investment Bankers Code Committee with a certificate of the
action of such Regional Code Committee with relation thereto.
SEC'ION 6. Action on Applications by Investment Bankers Code
Committee.-Upon receipt of any application for registration by the
Investment Bankers Code Committee, as provided in Section 5 of this
Article, the Investment Bankers Code Committee shall, if satisfied
that the applicant is eligible to be registered in accordance with the
requirements of Section 2 of this Article, and that no untrue state-
ment has been made in the application, register such applicant as a
registered investment banker under this Article. The said Commit-
tee shall at the request of the applicant, give the applicant a hearing
thereon, at which hearing the applicant shall be entitled to be heard
in person and by counsel, and to submit any matters which he
may desire to present.
SECTION 7. Complaints.-Every registered investment banker shall
keep in each office maintained by him a copy of the Code and of the
Rules and of all amendments from time to time made thereto, and
of interpretative rulings made by the Investment Bankers Code Com-
mittee and approved by the Administrator, which shall be available
for the examination of any customer who makes request therefore.
Any person feeling aggrieved by any act of any registered invest-
ment banker may complain in regard thereto to any Regional Code
Committee. If such Regional Code Committee is in a district other
than the district where the principal office of such investment banker
shall be located, such Committee shall make such preliminary inves-
tigation in regard to the complaint as may be practicable and shall
forward the complaint and the findings of such Committee to the
Regional Code Committee of the district in which is located the
principal office of the investment banker against whom the complaint
is made, which latter Committee shall thereupon proceed to investi-
gate the matter and to conduct such hearings in regard thereto as it
may deem necessary and proper.
When any complaint is filed against any registered investment
banker with any Regional Code Committee of the district in which
the principal office of such investment banker is located, or when
any complaint is forwarded to such Committee from any other
Regional Code Committee, notice shall be given in writing to the
investment banker complained against, specifying the nature of the
charges and fixing a date for a hearing. Such Committee may make
such investigations in regard to the matter as it may deem necessary
and proper, provided any investment banker who is involved in such
charges shall be entitled to be heard in person and by counsel, and
to submit any matters which he may desire to present.
If any Regional Code Committee of the district in which the prin-
cipal office of any registered investment banker complained against
is located shall determine that there has been a violation of the Code
or of these Rules or of any amendment thereto, or of any interpreta-
tive ruling made by the Investment Bankers Code Committee and
approved by the Administrator, such Committee shall transmit a
report of its findings and the evidence adduced, together with its
recommendations, to the Investment Bankers Code Committee for
action by that Committee in regard to the matter.
If any registered investment banker complained against shall so
request, the Investment Bankers Code Committee shall grant such
investment banker a hearing, at which hearing such investment
banker shall be entitled to be heard in person and by counsel, and
to submit any matters which he may desire to present.
For the purpose of investigating complaints against registered
investment bankers, the Investment Bankers Code Committee, and
any agency authorized by it, shall have the right to require the in-
vestment banker to submit a report in writing in regard to the matter
involved in the complaint, and such Committee shall have the right
in the manner and to the extent provided by the by-laws of the Com-
mittee when approved by the Administrator to inspect the books,
records, and accounts of such investment banker with relation to the
matters involved in the complaint. Any refusal on the part of any
registered investment banker to make any report as called for under
this section, or to permit an inspection of books, records, and ac-
counts, as may be validly called for under this section, shall be
sufficient cause for suspending or canceling the registration of such
SECTION 8. Penalties.--(a) The Investment Bankers Code Com-
mittee, in the administration and enforcement of this Article, may
prescribe penalties not in excess of $500.00 for each violation, against
any registered investment banker for any violation of the Rules or
for any neglect or refusal to comply with orders, directions, or
decisions of the Investment Bankers Code Committee for the en-
forcement of the Rules, including interpretative rulings made by
said Committee and approved by the Administrator, or suspend the
registration of such investment banker for a definite period, or
cancel the registration of such investment banker, as such Committee
may, in its discretion, deem to be just.
(b) The Investment Bankers Code Committee may cancel the
registration of any investment banker for any cause for which regis-
tration could be refused as provided in Section 2 of this Article.
(c) The Investment Bankers Code Committee may impose a fine
not m excess of $600 for each violation against any registered in-
vestment banker, or may suspend the registration of any such invest-
ment banker for a definite period, or may cancel the registration of
any such investment banker, if, in the opinion of said Committee,
such investment banker has been guilty of repeated violations of
the principles contained in Article III hereof. Within the meaning
of this paragraph, it shall be deemed to be a repeated violation of
such principles by a registered investment banker if such investment
banker, having been notified by the Investment Bankers Code Com-
mittee that he is violating or has violated a principle, continues
thereafter to violate such principle.
(d) In all proceedings under this Section the Investment Bankers
Code Committee shall grant any accused investment banker the op-
portunity to have a hearing, at which hearing such investment
banker shall be entitled to be heard in person and by counsel, and
to submit any matter which he may desire to present and a full rec-
ord shall be kept of the proceedings.
(e) In any case where the Investment Bankers Code Committee
shall impose any fine against any registered investment banker or
shall suspend or cancel the registration of any registered investment
banker, the registered investment banker against whom such fine is
imposed or whose registration shall be suspended or cancelled shall
have the right to appeal to the Administrator for a review of the
facts upon which the action of the Investment Bankers Code Com-
mittee was based in the matter of the imposition of such fine or the
suspension or cancellation of such registration, and the Administra-
tor shall have the right, in his discretion, to stay the effect of the
action of the said Committee until the further order or the final ac-
tion on the matter by the Administrator, to review the facts as found
by the Investment Bankers Code Committee, add to take further evi-
dence, if he deems necessary, and the Administrator may modify,
affirm, or set aside the action of the Investment Bankers Code
Committee in respect of such fine, suspension, or cancellation of
SECTON 9. Procedure.-The Investment Bankers Code Committee
shall determine the manner and form of its proceedings to be-cton
ducted under this Article, and may consider and take action upon
any matter at any regular meeting or at any special meeting, and in
holding any hearing or conducting any investigation under this
Article said Committee may act by one or more duly designated mem-
bers, but in such event a report of the facts as found shall be sub-
mitted to a meeting of the full Committee for its final action.
No member of any Regional Code Committee or of the Investment
Bankers Code Committee shall in any manner, directly or indirectly,
participate in the determination of any question affecting his per-
sonal interests, or the interest of any person in whom he is directly
or indirectly interested.
SECTION 10. Pouwers.-The Investment Bankers Code Committee
shall be vested with all the powers necessary and appropriate to
carry out the provisions of this Article, and it may adopt such rules,
issue such orders and directions, and make such decisions as it shall
deem proper and appropriate therefore.
SECTION 11. Interpretative Rulings.-The Investment Bankers
Code Committee may, from time to time, present to the Adminis-
trator proposed interpretative rulings based on the Rules, which
rulings shall be made in the light of the general principles set out
in Article III hereof, and said Committee is hereby authorized to
give a liberal interpretation of the Rules, according to the spirit
and intent thereof, in order to effectuate the policy and purposes
of this Article. Such interpretative rulings shall, upon approval
by the Administrator, become operative as part of the Rules appli-
cable to registered investment bankers as provided in Section I of
this Article X.
SECTION 12. The List.-The Investment Bankers Code Committee
shall furnish to each registered investment banker a list of all regis-
tered investment bankers and of all suspensions and cancellations of
Any registered investment banker may, at any time, withdraw
from such registration and by so doing relieve himself of any further
obligation as a registered investment banker upon giving notice in
writing to the Regional Code Committee of the district in which his
principal office is located and to the Investment Bankers Code Com-
mittee of his desire to so withdraw and upon paying any amounts
due from him.
SECTION 13. Expenses of Comnm.ittee.-Every registered investment
banker agrees to make to the Investment Bankers Code Committee
from time to time contributions to defray the expenses of the admin-
istration and enforcement of the Code and the Rules in the same
manner provided in Section 6 of Article III of the Code.
SECTION 1. StatisAcs.-In order to provide statistical informa-
tion regarding investment conditions from time to time, the Invest-
ment Bankers Code Committee is hereby authorized, within its dis-
cretion, to select a Confidential Agency to obtain from all investment
bankers certified reports of such character and in such form as the
Investment Bankers Code Committee may prescribe. Such Con-
fidential Agency shall be in no way engaged in the investment bank-
ing business or interested in or connected with any investment
banker. All such information so received shall be held as secret and
confidential between such Confidential Agency and the reporting
Such Confidential Agency shall analyze and digest the reports,
and shall disclose to the Investment Bankers Code Committee only
the general findings, which shall be available to all investment
bankers who assent to the Code and to all registered investment
SECTION 2. Regional Code Committees.-
(a) Local Ditricts.-In order to facilitate the administration and
enforcement of the Code and Rules, local districts are hereby estab-
lished, the boundaries of which districts shall be as set forth in
Schedule A. appended hereto. The Investment Bankers Code Com-
mittee may, from time to time, relocate such boundaries, and may
increase or decrease the number of such districts.
(b) Regional Code Committees.-In each district established as
provided in paragraph (a) of this section, there shall be organized
a Regional Code Committee as hereinafter provided in this para-
graph. The number of members of each of said Regional Code
Committees shall be either three, five, or seven persons as determined
by the Investment Bankers Code Committee. Said members shall
be elected by vote of investment bankers assenting to the Code and
having their principal places of business within the district for
which such election is being held. Nominations of persons to be
elected shall be made by the Investment Bankers Code Committee, as
follows: If the number to be elected is three, the nominations shall
consist of five persons; if the number to be elected is five, the nomi-
nations shall consist of eight persons; and if the number to be
elected is seven, the nominations shall consist of eleven persons. No
person shall be nominated unless he is a person occupying an active
executive office or position in the organization of an investment
banker assenting to the Code and is a person having his place of
business in the district for which he is nominated.
The Investment Bankers Code Committee shall cause a printed bal-
lot containing the names of all persons nominated in the manner
specified to be mailed to each investment banker assenting to the
Code and having his principal place of business in the district for
which the election is to be held. Such ballots, in order to be counted
must be returned to such place and on or before such date as shall
be fixed by the Investment Bankers Code Committee, and to be at
least fourteen days after the date of the mailing of said ballots.
Each investment banker entitled to vote at such election shall have
the right to cast one vote for each of the number of persons who are
to be elected, and the persons receiving the greatest number of votes
being that number of persons to be elected, shall thereby be elected
members of said Committee. The term of office of each person so
elected shall be fixed by the Investment Bankers Code Committee
and specified in the nomination, and he shall serve until his successor
shall be elected. Any vacancy occurring in the membership of any
Regional Code Committee shall be filled by appointment made by the
Investment Bankers Code Committee for the unexpired term.
The Regional Code Committees shall report all of their actions
to and shall at all times and in all matters be answerable to the
Investment Bankers Code Committee.
SECTION 3. General Duties.-Such Regional Code Committees
shall act as agencies of the Investment Bankers Code Committee for
the administration and enforcement of the Code and the Rules in
their respective districts.
SECTION 4. Expenses.-Members of such Regional Code Commit-
tees shall serve without pay. Funds to meet the necessary and actual
expenses of each such Regional Committee for administering this
Code will be provided by the Investment Bankers Code Committee
out of the funds collected by said Committee under the provisions
of Section 6 of Article III of the Code and Section 13 of Article X
hereof, but all such expenses shall be subject to approval by the
Investment Bankers Code Committee. Any such Regional Code
Committee may be authorized to raise additional funds for such ex-
penses in accordance with regulations prescribed by the Investment
Bankers Code Committee with the approval of the Administrator.
SECTION 5. Additional Locab Rules.-Any such Regional Code
Committee may, from time to time, propose additions to the general
rules of fair practice herein provided, as may be deemed desirable
for such district and are not inconsistent with the provisions of the
Code or of the Rules. Any such Additional Rules of fair practice
shall be submitted to a vote of all investment bankers located in such
district who have assented to the Code, and if approved by a majority
of those voting, shall be submitted to the Investment Bankers Code
Committee and upon approval thereof by the Investment Bankers
Code Committee and by the Administrator, such additional rules
shall become effective in said district.
SECTION 6. Modification of Additional Local Rules.-Any such
Regional Code Committee may, from time to time, propose a modi-
fication of any addition to the rules of fair practice for its district
or of any portion of such additional rules, and upon approval of
any such proposed modification by the Investment Bankers Code
Committee and by the Administrator, such modification shall become
effective in said district.
SECTION 7. Cancellation of Local Rules.-The Investment Bank-
ers Code Committee, with the approval of the Administrator, may at
any time, and from time to time, cancel any addition to the rules
of fair practice for any district, or any portion of any such addi-
SECTION 8. Investigations.-Each Regional Code Committee may,
of its own volition, and shall, at the request of the Investment Bank-
ers Code Committee, investigate any matter pertaining to an al-
leged violation of the provisions of the Code, or of any rule of fair
practice effective in said district. In making any such investiga-
tion such Regional Code Committee shall as a fact-finding body,
and in any case where in the opinion of said Committee a violation
has occurred, such Committee shall report its findings of fact, to-
gether with its recommendations, to the Investment Bankers Code
Committee. In any instances where the Investment Bankers Code
Committee shall direct any Regional Code Committee to make any
investigation, as provided in this Section 8, it shall be the duty of
the Investment Bankers Code Committee to provide or make provi-
sion for the expense of such investigation in accordance with the
requirements of Section 4 of this Article.
SECTION 9. Priileged Comonvnications.-(a) Any communica-
tion from a customer of any investment banker addressed either to
the Investment Bankers Code Committee or to any Regional Code
Committee, with respect to or involving any complaint against any
such investment banker, shall be deemed to be a privileged com-
munication, and the name of the writer of such communication shall
not be disclosed by any such Committee: provided, however, that
the name of the writer of such communication and the nature of the
charges contained therein may be made known to the accused in-
vestment banker or in connection with proceedings arising out of
(b) No communication from any investment banker addressed
either to the Investment Bankers Code Committee or to any Regional
Code Committee with respect to or involving any complaint against
any other investment banker, shall be deemed to be a privileged
communication, and any such communication may be dealt with by
said Committees, or either of them, as said Committees, or either of
them, may deem just and proper in the circumstances, but in any
proceeding arising out of any such complaint the accused invest-
ment banker shall enjoy the right to be informed of the name of his
accuser, of the nature and cause of the accusation, and to be con-
fronted with the investment banker making such accusation.
SECTION 10. Waiver of Rules.-Any rule contained in the supple-
mentary provisions or hereafter established pursuant to these sup-
plementary provisions may be waived in whole or in part, in any
particular case, by the Investment Bankers Code Committee, in the
manner provided in this Section 10. Any investment banker desir-
ing to secure such waiver in any particular case shall make written
application therefore to the Investment Bankers Code Committee.
The Committee shall consider such application at its next meeting,
or the Chairman of the Committee may, by mail, or otherwise, ask
each member of the Committee for his individual opinion, and if a
majority of all the members of the Committee shall be of the opinion
that such waiver will not permit any unfair trade practice, and will
not be detrimental to the public interest, the Committee after the
approval of the Administrator shall advise the applicant investment
banker in writing to that effect, and upon receipt of such advice such
waiver shall become effective, with respect to the particular trans-
action, to the extent provided therein.
SECTION 11. Liability of Members of Investment Bankers Code
Committee and Regional Code Committees.-No member of the In-
vestment Bankers Code Committee or of any Regional Code Commit-
tee shall be liable, except for willful fraud, to any investment
banker or to any other person for any action taken by such member
in his capacity as a member of any such Committee in connection
with the administration or enforcement of the Code or Rules or of
any provision of these supplementary provisions.
SEC loN 12. Special Committees.-At any time upon there being
filed with it a petition signed by not less than ten investment bankers
assenting to the Code, the Investment Bankers Code Committee shall
appoint a committee composed of assenting investment bankers to
investigate and report upon any special problem set forth in said
petition. If the question to be investigated involves any particular
branch of the investment business a majority of the committee so
appointed shall be members actively interested in the particular
branch of the investment business involved. The Committee so ap-
ointed shall report to the Investment Bankers Code Committee and
the Code Committee shall give consideration to the recommenda-
tions in said report.
SECTION 13. Labor Complaints.-Until such time as its organiza-
tion for handling labor complaints is approved by the Adminis-
tration, neither the Investment Bankers Code Committee, nor any
Regional Code Committee shall attempt to investigate or adjust
complaints of violations of the labor provisions of this Code, and
all such complaints shall be referred to the State Director for Com-
pliance having jurisdiction in the area where the complaint arises,
or otherwise handled as The National Recovery Administration may,
by rules or orders hereafter established, direct.
Approved Code No. 141-Amendment No. 2.
Registry No. 1707-04.
Territorial boundaries of the several local districts established as provided
in Section 2 of Article XI, are as follows:
1. California District: State of California.
2. Central States District: States of Illinois, Indiana, Iowa, Nebraska, and
3. Eastern Pennsylvania District: Counties of Tioga, Lycoming, Union,
Snyder, Juaniata, Perry, Cumberland, and Adams in the State of Pennsylvania
and all the remainder of the said State lying east of such counties, and the
State of Delaware.
4. Michigan District: State of Michigan.
5. Minnesota District: States of Minnesota, Montana, North Dakota, and
6. Mississippi Valley District: The counties of Schuyler, Adair, Macon,
Randolph, Boone, Cole, Osage, Maries, Phelps, Dent, Shannon, and Oregon in
the State of Missouri and the remainder of the said State lying east of such
counties; the States of Kentucky, and Arkansas; and the counties of Henry,
Benton, Decatur, and Hardin in the State of Tennessee, and the remaining
counties of the State lying west of such counties.
7. New England District: States of Maine, New Hampshire, Vermont, Massa-
chusetts, and Rhode Islnnd.
& New York District: States of New York, Connecticut, and New Jersey.
9. Northern Ohio'District: Counties of Mercer, Auglaize, Hardin, Marion,
Morrow, Knox, Coshocton, Guernsey, and Belmont in the State of Ohio and all
of the remainder of the said State lying north of such counties.
10. Ohio Valley District: Counties of Darke, Shelby, Logan. Union, Delaware,
Licking, Muskingum, Noble, and Monroe in the State of Ohio, and all of the
remainder of the said State lying south of such counties.
11. Pacific Northwest District: States of Oregon, Washington, and Idaho.
12. Rocky Mountain District: States of Colorado, Arizona, Nevada, New
Mexico, Utah, and Wyoming.
13. Southeastern District: States of Maryland, Virginia, West Virginia,
North Carolina, and South Carolina, and the District of Columbia.
14. Southern District: States of Louisiana, Mississippi, Alabama, Georgia,
and Florida; the counties of Stewart, Houston, Humphreys, Perry and Wayne
in the State of Tennessee and all the remainder of the said State lying east
of such counties; and the counties of Newton, Jasper, Tyler, Polk, San Jacinto,
Walker, Grimes, Brazos, Milan, Williamson, Burnet, Llano, Mason, Menard,
Schleicher, Crockett, Pecos, and Jeff Davis in the State of Texas and all the
remainder of the State lying south of such counties.
15. Southwestern District: Counties of Putnam, Sullivan, Linn, Chariton,
Howard, Cooper, Moniteau, Miller, Pulaski, Texas, and Howell in the State of
Missouri and all of the remainder of the said State lying west of such counties;
the States of Kansas and Oklahoma; and the counties of Sabine, San Augustine,
Angelina, Trinity, Houston, Madison, Robertson, Falls, Bell, Lampasas, San
Saba, McCulloch, Concho, Tom Green, Irion, Reagan, Upton, Crane, Ward,
Culberson, Resbes, Hudspeth, and El Paso in the State of Texas and all the
remainder of the said State lying north of such counties.
16. Western Pennsylvania District: Counties of Potter, Clinton, Center,
Miffin, Huntingdon, and Franklin in the State of Pennsylvania and all of the
remainder of the said State lying west of such counties.
UNIVERSITY OF FLORIDA
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