During this period it became difficult, if not

impossible, for those with oversight responsibility to ascertain the financial condition of many broker-dealers.

For one thing, the Commission was not able to require a transfer agent to confirm to a broker-dealer that certain securities were in transfer. For another, stock record differences and unresolved dividend receivables had grown to record levels. Thus, troubled broker-dealers could not ascertain securities positions. Whether a security was in transfer or on which shares dividends had been paid could not always be established since there was no coordination between transfer agents and the rest of the securities industry. As trading volume rose, so did the fails and unresolved differences. The systems employed

by the broker-dealers, clearing corporations, depositories

and transfer agents were incapable of dealing with fails

or unresolved differences of this magnitude.

These systems

were designed for the three million share days of 1960 and could not hope to cope with the thirteen million share days eight years later.

To a certain extent the need for standards regarding transfer agent performance has already manifested itself. The New York Stock Exchange recently adopted a rule requiring routine transfers to be processed within 48

hours. The Commission found the 48 hour provision

reasonable under present conditions.

But the New York

Stock Exchange does not always reflect the needs of all major components of the financial community, and it is not in a position to suggest or develop the uniformity and standardization required as the securities markets become more interrelated, centralized and automated. It is submitted that such a task should be assigned to a body having primary responsibility for the securities markets.

Turning to another area, we feel the authority we seek is vital to the proper development of depositories as well. The Commission exercises regulatory authority over clearing agencies and depositories only because they are subsidiaries of national stock exchanges or, in the case of the National Clearing Corporation, because of its NASD association. As I am sure you are aware,

A new

plans call for CCS, the depository presently operated by the New York Stock Exchange and by far the largest depository, to be spun off in the near future. organization, conceived of as a trust company under the banking laws of New York, jointly owned by the Exchange and various New York banks, will be established.

Under

the present statutory scheme, the Commission's present regulatory powers over it would be diminished. I

might add that such jointly owned depositories are being seriously considered by both the Midwest and Pacific Coast Exchanges.

Further, despite the theoretical advantages of the depository it is not clear at this point just what the effect of delivery by bookkeeping entries will be on the immobilization of the stock certificate, or on securities processing as a whole. Much depends on the extent to which the financial community avails itself of this service. To make depositories an effective vehicle for securities processing there will be a need for better communications between depositories and transfer agents in order to insure more rapid transfers of ownership. Unresolved dividend differences, the inability of depositories to reconcile their records with those of transfer agents and problems of theft have as their basis the present archaic and cumbersome relationship between depositories and transfer agents. Yet the Commission

would be unable to address itself to this relationship

in a meaningful manner under its present authority.

At this juncture it appears that the most efficient depository system could evolve in one of three ways. Under one approach depositories may continue to grow into a national comprehensive system and will themselves act as co-transfer agents, accomplishing direct transfer of record ownership within the depository. Under another approach transfer agents could act as depositories under a system whereby securities would be left on deposit with them, and no certificates would be issued.

Under the transfer

agent depository system approach, the settlement of transactions would be effectuated by the debiting and crediting of the respective securities balances of the parties maintained in accounts at the transfer agents. Finally,

depositories and transfer agents could retain their

separate functions with real time transfer being accomplished by electronic means. We believe that the public

interest requires a unified nationwide and compatible

system of securities transfer and payments and some

central authority to guide the development of such

a system.

Likewise, in the clearance area, competing systems

have evolved. Although discussions have begun, and certain basic steps have been taken, to interface these systems,

a single national system of clearance and settlement is not yet a reality. We believe the public interest calls for authority not only to implement such a system on a timely basis, but to insure unification between such a system, transfer agents and depositories as well.

We at the Commission are now engaged in the preparation of rules for the protection of customers' funds and securities left with a broker-dealer. This is in response to the authority granted to the Commission under the Securities Investor Protection Act of 1970. In our efforts to devise rules for the protection of customers' funds and securities we have learned several things which we feel are relevant to the proposed legislation being considered by you. It is apparent to us that the coming of the locked-in trade will reduce the funds and securities subject to loss because of brokerage

failure.

Simultaneous trade and settlement, with debiting and crediting of accounts for cash and securities, can