already established federal bank examination instrumentalities, such as the Federal Reserve, Controller of the Currency and the FDIC, then we would accept that judgment. Any division of powers, however, would not appear constructive and, in fact, would run the risk of preserving today's segmentation. Further, we would view any grant of powers to banking authorities in the 50 States as a step backward and a setback to early resolution of either the paperwork or segmentation issues. Com Historically, the financial field was one where various institutions remained in neat and somewhat mutually exclusive compartments. mercial banks did a deposit and lending business, stock brokers sold equities, life insurance companies sold life insurance, and so forth. Now, "scrambled finance," rather than orderliness, seems to be the order of the day. Life insurance companies now sell equities, stockbrokers sell insurance, savings banks sell both life insurance and mutual funds, savings and loans seek checking account powers, and banks, through holding companies, seek to become financial congenerics entering a long list of functionally related lines of activity. Given such scrambling, the public interest is unlikely to be protected by regulatory agencies that are set up on or operate along rigid industry lines. The public interest ties not to the interest of the particular institution, but to the service the consumer desires. Given the realities of change, Congress more and more is likely to be faced with the need to give the primary or lead public interest responsibility in an area to one agency on the basis of functional rather than industry lines. It is the best way to get both the benefits of inter-industry competition and equity among the participants. Some maintain that it is inefficient or impractical to have one business enterprise under two governmental agencies. As stock brokers we can attest that the system can work. For example, our organizations fall under the Federal Reserve as far as margin Regulation T is concerned. We fall under the Treasury Department for certain foreign recordkeeping and reporting procedures. We fall under state insurance commissioners with respect to the sale of life insurance. The Securities Industry Association believes that we must streamline the operational side of our business internally as well as in its interrelationship with other organizations. To this end we advocate a single unified clearance system that will both take the intramural competition among exchanges out of clearance and permit the development of a modern, national system linking all participants. Our Board has committed itself to work within our industry to eliminate existing duplications. Summing up, the objectives of the Securities Industry Association in the resolution of the paper and segmentation problems can be set forth as follows: "To foster the development and implementation of an 78-429 - 72 - 11 exchanges and in the over-the-counter markets, which These words are taken from the preamble of S. 3412. We urge swift action by the Congress to codify the sense of this preamble so that we can get on with our job of financing this Nation's corporate growth and improving the safety and liquidity of its wealth assets. FIGURE 2-SYSTEM LEVEL FLOW OF SECURITY TRANSACTION Source: North American Rockwell Information Systems Company, "Securities Industry Overview Study" (1969) Exhibit B Excerpt from "Reducing Costs of Stock Transactions: I. BACKGROUND AND SUMMARY OF RESULTS Operational Problems of the Securities Industry In 1968, the volume of trading in securities rose to unforeseen and unprecedented levels. This volume in combination with a rising price level created a period of general prosperity for the securities industry. At the same time, however, the high trading volume caused a flood of paperwork that overwhelmed the bookkeeping offices of many brokers, and associated with this problem was the growing number of failures to complete transactions on settlement day. Some informed observers were seriously concerned that the industry could not handle the paperwork anticipated as a result of even higher volumes of trading. Records were often not updated on time, errors were at an all-time high, and customers complained to brokers, the exchanges, and the Securities and Exchange Commission (SEC) that they were not receiving stock certificates promptly or that their account records were not current. These failures to complete transactions on time caused the brokers to incur substantial costs. The Rand Corporation has estimated that these delays in completing stock transactions between brokers and between brokers and their customers in 1968 cost the 386 reporting members of the New York Stock Exchange around $180 million' for interest and clerical expense. For that year their gross profit from agency commissions on listed and over-thecounter stocks was approximately $300 million.2 There were other problems of concern to the securities industry at that time, such as commission rates, institutional membership in the exchanges and the National Association of Securities Dealers, and public offerings of equities in member firms, but the problem of completing transactions seemed most urgent. Therefore, when members of Rand, the American Stock Exchange (AMEX), the National Association of Securities Dealers (NASD), and the New York Stock Exchange (NYSE) 'It must be kept in mind that this cost is based on the share volumes and stock prices current in 1968 in all markets. The various alternatives discussed later in this summary and listed in Table 1, page 12, involve only one market at a time (NYSE or OTC) and share volumes and prices different from those prevailing in 1968. Data on gross profit from security commissions for all firms in 1968 were not available. Data reported in SEC Forms X-17A-10 may provide this information for 1969 when the tabulations are completed. |