The Securities and Exchange Commission (``we'' or ``Commission'') is adopting amendments to Rule 504 of Regulation D, which provides an exemption from Securities Act registration for securities offerings of non-reporting companies that do not exceed an aggregate annual amount of $1 million. Recent fraudulent secondary transactions in the over-the-counter markets of ``microcap'' companies have involved freely tradable securities issued in Rule 504 offerings. To curb these abuses, we are modifying Rule 504 to limit the circumstances where general solicitation is permitted and ``freely tradable'' securities may be issued in reliance on the rule to transactions registered under state law requiring public filing and delivery of a disclosure document to investors before sale, or exempted under state law permitting general solicitation and advertising so long as sales are made only to accredited investors. Since most transactions under Rule 504 are private ones, they will continue to be permissible under the exemption, but general solicitation and advertising will not be permitted and the securities will be ``restricted.''