tions. Also, Senator Metcalf of Montana is keenly interested in nominee lists and asserts that knowledge of corporate ownership is basic to law enforcement, particularly as that information, in his view, relates to anti-trust laws.

In a letter to the New York Times in July of this year, Abraham J. Briloff, Professor of Accountancy, The Baruch College, C.U.N.Y., wrote regarding the back office paper mess in Wall Street:

"I do have very serious misgivings with your suggested solution, that we 'eliminate the traditional stock certificate' and move to a certificateless society, presumably one where an entry in a computer network would stand for the share ownership. Aside from the fact that there are those who would 'bug' such a network, or that it will develop its own aberrations (e.g., our difficulties with our credit card and even bank accounting systems), is my concern that such a move would be another and a long step toward alienating the shareholder from his ultimate property stake. And this at a time when we should be searching for a more effective means of identifying the shareholder with his corporation, and thereby making real the notion of shareholder democracy."

Let's keep the stock certificate until we're fully prepared to do away with it— and that's a long way down stream at this time. Don't throw the baby out with the bath water-let's face the problems intelligently and work toward their solution step by step.

B. AN OUTLINE OF STUDIES AND EVALUATIONS OF CERTIFICATES

Fourteen years ago I instituted an exhaustive investigation of possible changes in the configuration of and methods for processing securities. This revolved around the punch card concept but reverted immediately to the development of the present standard form of New York Stock Exchange certificate. The search is still being continued but a better substitute has not yet been discovered.

Twelve years ago a few of the New York banks began private pilot programs in acting as depository for brokers for some of the securities for which they were transfer agent. This also was abandoned as arduous and probably unprofitable. It might be regarded as the forerunner of the Central Certificate Service which gradually over the years has expanded its operations and appears to be the cornerstone of the immobilization plan.

In 1966 the CUSIP1 number was first worked on. In 1967 we reactivated the investigation made by us in 1957. Examinations were made into the mini certificate and the punch card certificate. The punch card certificate would be a technological step backward and the mini certificate became unnecessary since in 1968 we were able to adapt the present certificate for optical scanning which appears to be the data extraction process of today and the future. With the Rainbow Engineering Division of Control Data we were able to develop a low cost terminal reader which is well within the price reach of the smallest broker and can accelerate the movement of certificates and data. This presentation we filed with your Committee and is fully explained therein.

We have cooperated with the SIP 2 Committee of the American Bankers Association (except for their 1969 Report) with BASIC, North American Rockwell, the Exchanges and various other groups. We are aware of the Lybrand Report and the Rand Corporation Report (in neither of which were we invited to participate). We submitted our paper to the June 29, 1971, Conference of the Securities and Exchange Commission. Throughout most of the studies we observe that there seems to have been little, if any, representation of the Corporate Management and Mr. Average Stockholder.

C. A FEASIBLE AND SENSIBLE INTERMEDIATE PAPERWORK SYSTEM

The consensus among financial community leaders seems to be that the certificateless society is not a realistic possibility at this time, although eventually it could occur and with this we agree. In the meantime, the paperwork load will not diminish but undoubtedly will rise along with the increase in public trading in the stock market. Something must be done to cope with this. We recommend

1 Committee on Uniform Security Identification Procedures of the American Bankers Association. 2 Security Imprinting and Processing Task Force.

3 Banking and Securities Industry Committee.

67-228 O 72 pt. 3 - 17

4

the continued use of the New York Stock Exchange standard certificate which can be visually and manually processed and with the addition of OCR lines can also be machine read. The vital data scanned on the certificate can be put into standard computer routines. On existing certificates a gummed strip can be affixed bearing information which is optically scannable (low cost scanners are now available). New certificates can be imprinted directly with OCR lines at the time of original banknote printing.

Implementation of this system can be effected right now and with very little expense. This would mean that each one of the 31,000,000 holders of certificates (projected to be 50,000,000 during the '70's) comprising the investing publiceach one, no matter how small his holdings-will continue to have his rights protected and his confidence restored. Moreover, by continuing to use the present certificates:

(1) the shareholder will have an engraved instrument containing protective features which make it difficult to counterfeit successfully;

(2) implementation can be immediate and cost of conversion in money and time is minimal;

(3) extensive legislative changes would not be required; and

(4) chaotic conditions resulting from the hasty elimination of certificates can be avoided.

Our recommendation, which is an orderly step toward immobilization or the certificateless society, may so accelerate the handling of certificates, particularly for the public, as to be a solution in itself.

May I repeat our answer-Let's keep the present stock certificate with the simple addition of scannable lines for automated processing.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint

Allorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated

NOTICE:

THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

THIS SPACE MUST NOT BE COVERED IN ANY WAY

SPEECH BY FRED R. ESTY, CHAIRMAN OF THE BOARD, UNITED STATES
BANKNOTE CORPORATION

This is an occasion, I feel, when the United States Banknote Corporation can present the investment world with a technical solution for much of its back office paper dilemma.

You are aware, I assume, of the much publicized, "back-office" problem. The securities industry, has been forced to reduce its trading hours by more than 25%. Our concern is the stock certificate, which is one important part of the overall problem. We have attached great priority to finding some practical, clear cut solution, that would alleviate this problem.

For some time our company has studied the ever increasing problem of stock certificates and their automated handling. Over a year and a half ago, in planning strategy for the decade to come, and in anticipation of increased market activity, among other things, I organized our own internal task force. This task force was composed of technically competent persons, who were to appraise the problems and to recommend the implementation of a program. They delved deep into the explosive problem of processing stock certificates.

This task force was permitted complete and uninhibited freedom from tradition, to come up with the answers.

Armed with the technical facts, and determined to find the solution, this scientific team did deliver the fruit of their work We believe that it is a well conceived answer.

First, consider the stock certificate. What is it? It is not just a piece of paper. It is in fact, an instrument of fiscal value, which costs money. The holder, of course, hopes that its value will increase.

The stock certificate carries with it important rights, to vote, to receive dividends, etc.-is subject to provisions of state law and the uniform commercial code, in fact it is a legal document. Because it is so valuable, the security of the certificate is extremely important.

The New York Stock Exchange for over 25 years has worked toward the development of standards to safeguard stock certificates and bonds. These